Sony Group Corp thought it had a strong script to woo audiences in the world’s most populous country, but the merger that was going to make it the leader of India’s television entertainment market was doomed from the start. Chasing it for nearly two years, the Japanese company has become an unknown actor in a farce. It should run by cutting its losses.
Read also: Sony-Zee merger: Sebi says Zee’s Subhash Chandra, Punit Goenka diverted public money
The Securities and Exchange Board of India last week alleged that Zee Entertainment Enterprises Ltd., seeks to tie-up with Mumbai-based media house Sony, to recover loans owed by private entities to its founder Subhash Chandra. Sebi said, he and his son Punit Goenka had siphoned off funds “for their own benefit”, barring them from executive or director positions in listed firms. Chandra and Zee CEO Goenka have appealed the order on the ground that the regulator did not hear their side of the story. SEBI has doubled down by filing a 197-page reply.
The legal drama creates a new problem for Sony. Although controlling a much larger empire, and infusing an additional $1.4 billion in cash, Goenka had to run the show. This is how 72-year-old Indian media mogul Chandra structured the 2021 transaction to retain some influence over Zee, India’s oldest non-state television network.
Read also: Zee-Sony merger stalled as NCLT adjourns hearing till June 26
Chandra landed in that sorry state because of his wrongly leveraged stakes in unrelated industries like infrastructure, which he admitted to in early 2019. But a plan to repay the debt by selling half of the family’s stake in Zee to a strategic partner failed. Two years later, a large American investor launched a campaign to remove his son from the post of director. At that point, Sony, which competed with Zee in offering similar fare of Bollywood-style entertainment and sports, was ready to come to its rival’s rescue. Not only did it agree to continue with Goenka as CEO, Sony was also giving the family an option to increase its nearly depleted stake to 20% and throw in additional shares as a non-compete fee.
The television market in India is huge, but its best days are in the rear-view mirror. So although the Zee network reaches 750 million people every week, or six times the population of Japan, its 16.6% market share remains stagnant. The more promising horse in the stable is the streaming service ZEE5. It has 114 million monthly active users, and saw a 35% increase in sales in the fiscal year ending March. However, the overall revenue of the company did not increase. With an increase in programming costs and a slowdown in advertising, EBITDA (1) fell by 38%.
A lot has changed in India in the last two years, Sony still wants a merger on equal terms – or at all.
last June, Viacom18 Media Pvt., a joint venture between Mukesh Ambani Reliance Industries Ltd. and Paramount Global to spend $2.7 billion to win an exclusive, five-year live-streaming deal for Indians Chieftain League Cricket Match. The Ambanis decided to show this year’s tournament for free, and then went on to sign a deal with Warner Bros. Discovery Inc to stream the latter’s exclusive content in India, including the popular series, Succession. Ambani’s petrochemicals-heavy conglomerate, which is branching out into consumer businesses such as telecom, retail, digital content and e-commerce, has already become a formidable media player.
If the deal with Sony falls through, Zee will regret not having sold out to Ambani shortly before Sony’s hurried bailout. At the time, Atlanta-based Invesco Developing Markets Fund was trying to use its then 18% stake in Zee to get CEO Goenka to discuss a possible transaction with Reliance. Those talks went nowhere as a complete exit for the Chandra family would have been an almost certain outcome – the Ambanis and Manoj Modi, their allies, would not have been as generous to the father-son duo as Soni has turned out to be.
Investor enthusiasm has already fizzled. Zee shares are down 50% from their highest level since the merger was announced in September 2021. If the Japanese side now turns sour on the deal, the creditors will make fresh attempts to drag the Indian media house into bankruptcy. While one such request was turned down by the insolvency tribunal last month itself, Sebi’s interim order has changed the scenario. Sony gains nothing by waiting for the regulators’ allegations to make the rounds of the Securities Appellate Tribunal and possibly the Supreme Court of India.
The troubled company had about $100 million in cash in March, but is sitting on about $1 billion in inventory, including film and music rights and advances. That content and loyal audience – Zee Music has 134 million YouTube subscribers – are attractive enough to start a bidding war for its assets. Sony wasted almost two years trying to prevent such competition with Ambani. It’s time to end the spectacle.
The text of this story is published from a wire agency feed without any modification. Only the headline has been changed.
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Updated: June 20, 2023, 09:22 AM IST