The whys and wherefores of the Zeel-SPNI merger proposal

It has been sometime a-coming and will benefit the two entertainment majors tremendously.

Mumbai: After days of conjectures fueled by boardroom battles, Zee Entertainment Enterprises Ltd (Zeel) pulled off a tour de force early on Wednesday announcing the company’s plans for a mega-merger with arch-rival Sony Pictures Networks India (SPNI). With their combined linear networks, digital assets, production operations, and programme libraries, the two companies are set to create one of India’s largest media and entertainment entities in terms of market share. It will not only rival market leader Disney Star India, but it could well pip the former at the post in revenues when it does go through.

The news was not completely unexpected; talks of a merger between the two networks had been in the news intermittently for almost two years now. They had flirted with each other and other suitors intermittently. According to various media reports, both SPNI and Zeel had been on the lookout for a partner that could bring in mutual synergies, while minimising clashes, to fend off competition amid growing consolidation in the media and entertainment industry.  Each one of them had also explored a merger with the Mukesh Ambani-owned Viacom18 to challenge the Disney-Star collaboration that has been dominating the content market, however, without success. RIL owns a majority stake in Viacom18, which is a joint venture between TV18 Broadcast Ltd and US-based ViacomCBS Inc. With the current merger, the companies have seemed to found what each of them was looking for to turbocharge their future growth.

If Zeel is backed by its core strength in content creation in both mainline Hindi and regional languages, SPNI brings along its well-consolidated entertainment and sports genre creating a potent combination. SPNI also leads in the English/premium factual entertainment genre, but in return, it will get an opportunity to leverage Zeel’s pervasive reach built over decades.

Despite recent challenges, the network has come a long way since its launch three decades ago. Zeel continues to maintain its hold in the HSM with its FTA channel Zee Anmol being the steady top grosser in the UP/Uttarakhand market, and down south with regional GECs Zee Kannada or Telugu. The merger could also help SPNI to adopt a well-positioned strategy that has so far oscillated between targeting mass and metro audiences.  It could also bolster their growing digital businesses, bringing together the two streaming platforms-  Zee5 and SonyLIV. 

The reality is that both Zeel and SPNI are no strangers when it comes to striking a deal. One can hark back to a time half a decade ago when the Subhash Chandra-run company had hawked off its Ten Sports channel and related sports business to SPNI – a deal which has served the latter well.

With the latest merger announcement, Zeel has also pulled off a coup of sorts in favour of its MD and CEO Punit Goenka who will now lead the combined media entity. The announcement is crucial, as it boosts his position at a time when two of Zeel’s top investors - had called for his ouster, making corporate governance allegations against him and some Zeel board members.

Over the last year, Goenka has focused on transforming the company into a new ‘Zee 4.0 vision’ – led by a revamped programming line-up of its linear channel portfolio in the key markets, and the launch of new channels. In its recent annual general meeting (AGM), Goenka had elaborated how Zeel’s future roadmap for the next three years will be led by digital. “We are still in investment mode for our digital business and our film business. We enjoyed leadership in several of the markets that we operate in,” he told shareholders last week.

Zeel’s linear business has managed to retain its profitability, but its flagship channel Zee TV has been looking to regain its standing in the non-fiction content where it used to be a strong player until a few years back, with popular properties like Sa Re Ga Ma and DID.

Goenka also told shareholders about Zeel’s plans to become the leading studio in films across six languages and increases its market share in the music category. SPNI, on its part, has recently stepped up its content creation capability in-house through its TV and OTT show and film production units. Zeel and SPNI’s union on this front will prove beneficial in many ways.

The most important benefit that the merger brings to the table is even higher economies of scale. Zeel has over the years built its reputation as an excellent cost-efficient media company, even as SPNI is one of the more profitably run broadcasters. Their coming together is likely to bring in even more cost-efficiencies because of the scale that their marriage will usher in, enabling tougher negotiating power with suppliers and with clients. Additionally, internal cost savings will also be generated as the merged entity right sizes itself in terms of manpower, talent, and functions.

The merger announced on Wednesday is subject to regulatory approvals, but once it goes through, it will result in SPNI holding a majority of 52.93 per cent with Zeel and its shareholders having 47.01 per cent of the new entity. But, the promoter family will remain free to increase its holding from four per cent to 20 per cent over time. SPNI will hold the majority share in the new media entity and its shareholders will pump in growth capital of $1.575 billion to strengthen the company’s digital platforms across technology and content, ability to bid for broadcasting rights in the fast-growing sports landscape and pursue other growth opportunities.

The combined company’s board of directors would include directors nominated by the Sony Group and result in it having the right to nominate the majority of the members. 

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