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Zee agrees to merge with Sony Pictures Networks India, fusing legacy media giants

SPNI will have majority control of the board of the new company

Two of India’s largest traditional broadcasters will be joining hands: Zee Entertainment Enterprises Limited has agreed to merge with Sony Pictures Networks India(SPNI), the cable TV network owned by Japanese conglomerate Sony. Zee announced the proposed merger in regulatory filings on Wednesday. SPNI will have majority control of the board of the new company, with ZEEL CEO Punit Goenka heading management. “The shareholders of SPNI, will hold a majority stake in the merged entity. The shareholders of SPNI will also infuse growth capital into SPNI as part of the merger such that SPNI has approximately US$1.575 billion at closing, for use in pursuing other growth opportunities,” Zee said in its press release announcing the merger. The Sony Group said that this money would be used for improving the combined company’s tech platforms and boost its position to bid for sports content. The transaction is subject to regulatory approvals, the companies said.

Why it matters: The move creates a lifeline for Zee, whose finances have struggled under the dual blow of declining viewer revenues and cut marketing spend from advertisers. On top of giving Zee an opportunity to dig itself out, the merged entity could be a force to reckon with, with dozens of TV channels, thousands of films, and a fair amount of music — the Zee Music Company has the rights to the music from almost a thousand films, and that label is now a cousin to Sony Music, essentially contributing to the consolidation of the music publishing industry. And then there’s Sony LIV and Zee5, which both have a significant share of the budding streaming space in India, and will now likely benefit from the combined entity’s reach and catalogue.

Merged entity to be listed

“The combined company would be a publicly listed company in India and be better positioned to lead the consumer transition from traditional pay TV into the digital future,” Sony said. “The indicative initial merger ratio is expected to result in the shareholders of [Zee] holding approximately 47.07% in the merged company and the promoters of Sony India holding approximately 52.93 % in the merged company,” ZEEL said in one of its regulatory filings. Goenka will lead the merged company for at least five years.

The merger staves off some corporate instability that could have upended things at Zee — after two non-executive directors suddenly resigned on September 13, reports emerged of shareholder protests, with two institutional investors reportedly seeking Goenka’s termination as CEO. Now that the board majority will be constituted by Sony, the upheaval appears arrested for the moment, with shares surging roughly 20% on Wednesday morning. PTI reported that New York-based Moon Capital Trading, a major investor in Zee Learn (a subsidiary of ZEEL promoter Essel that runs some schools) and Zee Media Corporation, was concerned with lapses in corporate governance in the entities, and sought a change in management.

Sony has sought to acquire Zee before, but reported differences in valuation between the parties led to nothing materialising.

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Zee and Sony in India

Zee has been in the TV space since its founding in 1991, and has steadily been increasing its TV channel footprint since, adding most of its channels after 2010. The company says it has a 17% channel share in India. Its streaming service Zee5 was launched on February 2018, and the company says it currently has over 80 million monthly active users globally.

Sony Pictures Networks India has been in the country since 1995, and was originally founded as Multi Screen Media, and was renamed in 2015.  It is an indirect but full subsidiary of Sony, and is not listed, meaning its finances and performance may only be subject to investor and shareholder scrutiny after the merger — only annual overall finances are currently available for the company.

Impact on competition

One of the biggest competitors the new company will have is Disney, whose Star channels and Disney+ Hotstar streaming service may face some pressure from two media giants’ catalogues combining. For the moment, all three streaming services — Sony LIV, Zee5 and Hotstar — appear to be priced very low, and while it remains to be seen whether the combined companies will keep both their streaming services around, the room for price hikes may be lower for Hotstar, which just revamped its plans. Apart from pureplay digital operators like Netflix and Amazon Prime Video, the merger may also impact other legacy-cum-OTT players like Viacom18 (Voot) and regional players like Sun Networks (SunNXT).

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I cover the digital content ecosystem and telecom for MediaNama.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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