‘Nobody can ignore a company which has over 50% viewership share in Hindi GEC & movie’

After three months of due diligence, Sony Pictures Networks India (SPNI) and Zee Entertainment Enterprises Limited (ZEEL) have signed definitive agreements to merge their operations to create a media behemoth with combined revenue of close to $2 billion.

SPNI and ZEEL will combine their linear networks, digital assets, production operations and program libraries. SPNI's parent company Sony Pictures Entertainment (SPE) will indirectly hold 50.86% of the combined company, the promoters (founders) of ZEEL will hold 3.99%, and the other ZEEL shareholders will hold a 45.15% stake.

Further, Sony will infuse $1.57 billion cash into the merged entity, which will aid investments in inorganic initiatives, digital content and sports content initiatives. The completion of the merger may take 8 to10 months. Till then both companies will continue to function independently.

The merged entity will have 75 TV channels in India across general entertainment, sports, movies, regional, kids, infotainment and niche genres. The combined entity will be the biggest broadcasting company with viewership market share of over 25%. It will have a content library of over 300,000 hours.

According to industry sources, Sony and Zee will have over 50% share in Hindi GEC and movie genres with channels like Zee TV, Sony Entertainment Television (SET), Sony Sab and &TV. In the Hindi movie genre, their market share will go even higher with leading channels like Zee Cinema, Sony Max, &TV, Sony Max 2, and Zee Bollywood.

The merged entity will have two video streaming platforms SonyLIV and ZEE5. Industry sources say that SonyLIV and ZEE5 will have a combined paid subscriber base of close to 10 million and annual revenues of Rs 800-1000 crore from advertising and subscription. Novi Digital, which operates Disney+ Hotstar, had reported revenue of Rs 1670.63 crore in FY21. Netflix India's FY21 revenue came in at Rs 1529.36 crore.

According to SonyLIV's media deck for FY21, the platform had 15 million+ monthly active users (MAUs), 100 million+ video views/month and 200 million+ video impressions per month. As per ZEE5's internal analytics for March 2021, the platform had 79 million MAUs, 550+ million Monthly Video Views and 100 million+ app downloads.

 Zee-Sony will be the biggest media firm in India with a top line of Rs 13,452 crore in FY21. It will be ahead of Disney-owned Star India which had consolidated revenue of Rs 12,664.36 crore. Zee-Sony and Disney-Star are miles ahead of Viacom18 and Sun TV Network which had revenues of Rs 3276.32 crore and Rs 3,116.59 crore respectively in FY21.

Experts say that the merged entity will have a huge advantage when it comes to increasing the ad revenue since they will have a better bargaining power. A veteran ad sales executive said that the merger is complementary as the coming together of the two entities will fill the gaps in their respective portfolios. He also said that the future of the industry lies in increasing the yield, and price increase will only happen if one has the negotiation capability.

"ZEEL's ad revenue comes primarily from FMCG clients because of the kind of audiences that it attracts. Sony concentrates more on non-fiction and will bring in more male audiences to the merged entity. That will also help in bringing in new-age advertisers. The high-impact properties attract a lot of new-age clients. Apart from Sony, Colors also attracts new-age companies due to its non-fiction content. Star gets these clients only through its sports properties. The joint entity will address a wide set of advertisers," the executive stated.

"In ad sales, Sony will be able to monetise its fiction properties better due to the Zee's strength in this area. Likewise, Sony will help Zee to monetise its non-fiction better because of their expertise in non-fiction and sports. Sony is strong in Hindi non-fiction whereas Zee has a strong non-fiction on the regional side. This will allow the joint entity to offer advertisers non-fiction properties across the markets," the executive said.

On the negotiation power vis-à-vis the media agencies, he stated, "The merged entity will have a better bargaining power with media agencies because nobody can ignore a company which has over 50% viewership share in Hindi entertainment and movie genres. It will also be in a position to demand better pricing from clients. The major tussle going forward will be how to up the price. The media agency side is already consolidated among four agencies."

According to a veteran TV distribution professional, the merged entity will not have much scope to increase the subscription revenue due to the new tariff order (NTO) where prices are regulated. That said, he feels that the merged entity will see some inorganic growth due to the economies of scale. The merged entity will also have an advantage of getting better placement for their channels.

"With NTO, everything is regimented so how much can you grow the subscription revenue. The upside in subscription revenue will be in single digit. However, they will get some inorganic growth because of economies of scale. There is scope for the merged entity to grow the subscription revenue, but it is not going to change the market. Some channels will be better placed, and  some channels will get some muscle in the market. DPOs will be wary of taking on the joint Zee-Sony. Earlier, they had to deal separately with them but now have to face the might of the joint entity. If they get IPL, then they will become very strong. Even now, they are already very strong without any big cricket rights. Subscription revenue is under stress since there has been no price increase for the last two years and the overall pay-TV is shrinking," the professional said.

As far as digital is concerned, Kurate Digital Consulting Senior Partner Uday Sodhi said that ZEE5 + SonyLIV will be next only to Disney+ Hotstar in size and ahead of the likes of Netflix and Amazon Prime Video. "If you add the two platforms, they are easily next to Disney+ Hotstar in terms of number of subscribers and probably be bigger than Netflix and Amazon Prime Video. Both these platforms would have a paid subscriber base of 10 million which is a big number. The combined revenue of the two platforms would easily be in the range of Rs 800-1000 crore," he said.

The OTT platforms will also gain from the economies of scale in the form of better bargaining power for doing distribution deals and acquiring content. "Zee-Sony combined entity will have far more muscle to invest in content and technology. Their cost structures will become far better. Their ability to negotiate will become much better. They will get more for the same buck because for the same user base, you now have more ROI. The benefit of scale will come in whether it is acquiring content or ensuring that the content reaches a wider audience. They will take some time to get the synergy from the cost level in terms of technology platform, team, and content integration," he stated.

According to a senior official who was till recently working with a multinational broadcasting company, the merged entity is well-placed on the traditional side, however, they have their task out as far as the digital game plan is concerned. The integration between the two companies will also be a big challenge.

"We have to wait and see how they will drive the digital transformation as they are two different platforms and teams. Both companies don't have the digital muscle. The second challenge is integration as both companies are different culture wise. It will be interesting to see how a Sony- controlled company will be run by Punit Goenka who is part of the promoter family. We will also have to wait and see how the joint entity tackles the issue of overlapping functions," the media executive said.