By Karan Taurani
The saga ends
Zee-Sony merger process which kickstarted in September 2021 had seen a roller coaster ride, after eventually being called off in January 2024, after an extension in December 2023; the merged entity could have created India’s second largest broadcasting group with an advertising revenue market share of 25% and created synergies to the tune of Rs 5 billion and have a positive impact on overall growth rates.
Read more: BREAKING: ZEE and Sony resolve all disputes over failed merger
However, after the merger being called off between both parties, Sony filed a case against Zee in the Singapore Court seeking a termination penalty of USD 90 million in January 2024. As per mutual agreement between both parties, Sony has decided to withdraw this case from Singapore Court in August 2024, which provides much needed respite for Zee.
The need for a partner
In the midst of above, two more large players – Disney/RIL(media) were in talks for a potential merger and announced the same in February 2024; this deal is subject to regulatory approvals and the process has now reached stage of CCI approval; these two players will command an advertising revenue market share of 45%, creating the largest TV broadcasting group, which could have a big negative impact on other larger players like Zee/Sony, as the latter will operate individually post the merger being called off.
Traditional media generates rich profitability margins even today at ~30%, despite lower growth rates of 4%-5% basis industry averages; digital media is the future with growth rates at 15%-20%, however, there is no visibility of returns in this segment, due to high content/distribution/technology and high competitive intensity/fragmentation in India. RIL/Disney merger subject to regulatory approval could create India’s largest entity in the TV/OTT media segment, as they could command a market share of 40%/30% respectively.
Read more: ‘Not considering partnering up, at present’: Subhash Chandra
Given that, Zee and Sony may look out for another strategic partner, but the industry is highly consolidated with the top four players accounting for 70% of advertising revenue market share on the linear TV side.
Sony and Zee may look out for another partner to combat some portion of threat from RIL/Disney, as the latter has the potential to scale up even towards the size of YouTube India – the largest aggregator.
And in case Zee/Sony operate individually without any partner, there may be constant pressure on their profitability to match up to the might of RIL/Disney, as the latter has a big advantage of scale in the digital business, which is the future of M&E content.
The competition
Competitive intensity from MNC’s isn’t new for the M&E industry with companies like Star/Viacom/Sony being in the market for many years.
However, things that are new this time:
1) linear TV continues to lose market share (viewership and advertising) towards digital media (MNC backed OTT platforms, aggregators and home grown OTT platforms), and the latter business segment is all about scale (technology, content and distribution).
2) merger of RIL/Disney could create a large player with a 40-45% market share, which could make it tough for other players to gain scale up; and
3) convergence of TMT (telecom, media & technology) – RIL/Disney will have great last mile support given Jio mobile/Jio fiber’s customer base to offer content initiatives.
These challenges may persist.
Author is the SVP at Elara Capital. Views expressed are personal.