Sony Group Corp. had high hopes for its entry into India’s television entertainment market by merging with Zee Entertainment Enterprises Ltd. However, the merger has been caught in a legal drama from the start. The Securities and Exchange Board of India (SEBI) accused Zee of faking loan recoveries and misusing funds, leading to a ban on its founder Subhash Chandra and his son from executive positions. Despite their appeal, the SEBI has responded with a detailed rebuttal.
This setback poses a new challenge for Sony. The company was supposed to gain control of Zee and inject $1.4 billion, but Zee’s CEO, Punit Goenka, was intended to remain in charge. This arrangement was designed by Chandra to retain his influence over India’s oldest non-state television network. Chandra’s precarious situation stemmed from his leveraged bets in unrelated industries, which resulted in debt that he struggled to repay. Sony came to the rescue of Zee when a US investor initiated a campaign to remove Goenka as director. Sony not only allowed Goenka to continue as CEO but also offered the family the option to increase their stake and additional shares as a non-compete fee.
However, the television market in India, although large, has seen better days. Zee’s market share is stagnant at 16.6%, despite reaching 750 million people weekly. The promising aspect lies in ZEE5, the streaming service, with 114 million monthly active users and a 35% increase in sales. Nonetheless, the overall revenue did not grow, as programming costs rose, and advertising slumped, resulting in a 38% decrease in EBITDA.
In the past two years, India’s media landscape has significantly changed. Sony may no longer desire the merger on the original terms or any terms at all. Mukesh Ambani’s Reliance Industries Ltd. made a substantial investment in exclusive streaming rights for Indian Premier League cricket matches and formed alliances with Warner Bros Discovery Inc. to stream their content in India. Reliance, transitioning from a petrochemical-focused conglomerate to a consumer-oriented business, has become a formidable media player.
If Sony backs out of the deal, Zee may regret not selling to Ambani earlier. Atlanta-based Invesco Developing Markets Fund attempted to facilitate discussions between Zee and Reliance, but talks fell through due to the potential exit of the Chandra family. Sony’s support has proven more generous. However, investor enthusiasm has waned, with Zee shares dropping 50% since the merger announcement in September 2021. If the deal collapses now, creditors may push Zee towards bankruptcy.
Zee currently has a considerable inventory of assets, including movie and music rights and advances, worth nearly $1 billion. These assets, along with their loyal audience, including 134 million YouTube subscribers for Zee Music, would attract significant interest in a bidding war. Sony’s attempt to preempt this competition with Ambani has wasted almost two years. It is time to put an end to this farce.
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Basant Kasayap is an entertainment aficionado who delves into the glitz and glamour of the entertainment industry. From Hollywood to Bollywood to regional cinema, she offers readers an insider’s perspective on the world of movies, music, and pop culture.
