The Sony group thought it had a solid story to appeal to audiences in the world’s most populous country, but the merger that would make it the market leader in television entertainment in India was doomed from the start. By pursuing it for almost two years, the Japanese company has unwittingly become the actor in a farce. He should cut his losses and leave.
The Securities and Exchange Board of India claimed last week that Zee Entertainment Enterprises Ltd., the Mumbai-based media house with which Sony wants to partner, had faked the recovery of loans owed by the private entities of its founder Subhash Chandra . He and his son Punit Goenka had siphoned off funds “for their own benefit”, SEBI said, barring them from taking up management or executive positions in listed companies. Chandra and Goenka, Zee’s chief executive, appealed the order on the grounds that the regulator did not hear their side of the story. SEBI doubled down by filing a 197-page response.
The legal drama creates a new problem for Sony. Even though he was supposed to control the larger empire and inject an additional $1.4 billion in cash, Goenka had to run the show. This is how Chandra, the 72-year-old Indian media mogul, had structured the 2021 transaction in order to retain some control over Zee, India’s oldest non-state television channel.
Chandra had arrived at this sad situation due to his misguided bets in unrelated sectors like infrastructure, a mistake he admitted in early 2019. But a plan to pay off debt by selling half the stake from family in Zee to a failed strategic partner. to start. Two years later, a major American investor launched a campaign to oust his son as director. At the time, Sony, which competes with Zee by offering similar fare in Bollywood-style entertainment and sports, was kind enough to come to its rival’s rescue. Not only was it acceptable to let Goenka remain CEO, but Sony also gave the family the option to increase its nearly depleted stake to 20 percent and add additional shares as a non-compete fee.
The television market in India is vast, but its best days are in the rearview mirror. Thus, although the Zee network reaches 750 million people every week, or six times the population of Japan, its market share of 16.6% is stagnating. The most promising horse in the stable is ZEE5, the streaming service. It has 114 million monthly active users and saw a 35% increase in sales in the fiscal year ended March. However, the company’s overall turnover did not increase. With programming costs rising and advertising falling, Ebitda collapsed by 38 percent.
Too much has changed in India in the last two years for Sony to still want the merger on the same terms – or want it at all.
Last June, Viacom18 Media, a joint venture between Mukesh Ambani’s Reliance Industries and Paramount Global, spent $2.7 billion (around Rs. 2,22,000 basis) to win an exclusive five-year live streaming deal for Indian Premier League cricket matches. Ambani decided to stream this year’s tournament for free, then signed a deal with Warner Bros Discovery to stream the latter’s exclusive content in India, including the popular series Succession. Ambani’s petrochemicals group, which focuses on consumer businesses like telecommunications, retail, digital content and e-commerce, has already become a formidable media player.
If the deal with Sony falls through, Zee would regret not having sold to Ambani shortly before Sony’s hastily concocted bailout plan. At the time, Atlanta-based Invesco Developing Markets Fund was trying to use its 88 percent stake in Zee to get CEO Goenka to discuss a possible deal with Reliance. These discussions came to nothing as a complete exit from the Chandra family would have been an almost certain outcome – Ambani and Manoj Modi, his consigliere, would not have been as generous to the father-son duo as Sony turned out being.
Investors have already lost their enthusiasm. Zee shares are down 50% from their peak after the merger was announced in September 2021. If the Japanese side sours now, creditors will likely make further attempts to drag the Indian media house down. bankruptcy. Although one such application was rejected by the insolvency court last month, SEBI’s interim order has changed the situation. Sony gets nothing by waiting for regulators’ allegations to make the rounds at the Securities Appellate Tribunal and eventually the Indian Supreme Court.
The troubled company had about $100 million (about Rs. 820 basis) in cash as of March, but it has nearly $1 billion (about Rs. 8,200 basis) in inventory, including rights and advances on films and music. That content and loyal audience — Zee Music has 134 million YouTube subscribers — are lucrative enough to spark a bidding war for its assets. By trying to anticipate such a competition with Ambani, Sony wasted almost two years. It’s time to end this farce.
© Thomson Reuters 2023
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