How Sony-Zee fallout impacts the Indian M&E landscape

In the wake of the Zee-Sony merger falling through, the media and entertainment (M&E) landscape faces a new paradigm. While the reasons behind Sony's apparent change of heart remain unclear, it is essential to dissect the repercussions of this failed merger and delve into what the revised M&E landscape looks like and what it holds for both entities.

Sony had last month terminated the merger agreement with ZEEL to merge its two Indian entities - Culver Max Entertainment (earlier known as Sony Pictures Network India) and BEPL.

The Zee-Sony merger termination has seen several recent developments. Industry leaders predict a significant impact on the M&E industry, particularly in the OTT sector.

Additionally, the development is expected to make M&E professionals more cautious about future mergers, they added.

According to Anindya Ghosh, Partner, IndusLaw, the termination of the Zee-Sony merger deal would have significant consequences on the media and entertainment (M&E) sector in India.

He believes that the collaboration of these two entities, both prominent brands in the media world, would have made a substantial impact, especially in the OTT sector as the media landscape currently focuses heavily on Amazon and Netflix.

“The discontinuation of this deal would affect the decentralisation or the reduction of concentration in the industry. If the deal had gone through, all the players in the merger and acquisition game would have had a fair chance. Without it, certain entities will stick together, but they won't be as strong in the streaming game as Amazon, Netflix and potentially Reliance and Disney Star combined in the future,” Ghosh said.

Meanwhile, Ashish Bhasin, Founder, The Bhasin Consulting Group, emphasised that the current advertising and media landscape remains unchanged, but a phase of consolidation is underway. Notably, the collaboration between Reliance and Disney Star is in progress. Had the Sony and Zee deal proceeded, it would have created another significant competitor, offering a valuable counterbalance.

“The Disney Star-Reliance alliance, coupled with a potential Sony-Zee collaboration, could have strengthened the industry. This would have benefitted Zee5 and Sony Liv, both robust digital platforms with diverse content libraries. The consolidation would provide advantages such as enhanced advertising capabilities, increased pricing power, improved distribution and potential cost synergies,” Bhasin said.

“Overall, it would have been beneficial for both parties. Unfortunately, it seems like it's not happening as planned at the moment,” he added.

Ghosh mentioned that since this merger was planned to happen within two years, neither party could end the agreement on their own without a valid reason. In long-term agreements like this, termination clauses usually state that one party can't end it on their own unless there's been a breach or failure to meet conditions, and the reasons aren't the fault of the party ending the deal.

“Looking at the history of various industries, especially the media sector, it's evident that the Indian media market is primarily local. This means that local companies have a better understanding of the viewers and the market,” Ghosh said.

“Even with the presence of foreign companies and brands, they often need a local partner through joint ventures (JVs) or mergers. However, the success rates of such JVs are generally low, a trend observed not only in the media industry but also in manufacturing,” he added.

Furthermore, he explained that some JVs have succeeded, while others have not been as fortunate. Despite several JVs facing challenges, many brands have returned to India operating independently. For instance, in the automobile industry, many JVs have faced failures, but the associated brands have made a comeback in India on their own, with varying degrees of success.

This doesn't necessarily imply a lack of interest in India by these brands, as the country provides unmatched viewership and market potential. Whether they choose to return independently or explore alternative joint ventures, these foreign brands seem keen on tapping into India's opportunities, he added.

“In the future, people in the M&E sector will be more cautious about JVs and mergers. This cautious approach has been observed in the past year due to various governance issues arising in India. While there is speculation that the merger may be linked to these issues, Sony has not officially confirmed this,” Ghosh said.

“Speculations are based on public information, including insolvency petitions from lenders and SEBI directives regarding managerial positions for Subhash Chandra and Puneet Goenka,” he added.

Furthermore, he mentioned that Sony has not made any official statements on these speculations. Instead, they have mentioned that Zee did not complete the condition precedents regarding the deed, leading to termination. Sony has clarified that they terminated the agreement after the extension period expired, without making any other allegations from a legal perspective.

Bhasin said that Sony would have experienced great benefits in finalising the deal with Zee, which could have boosted their standing in India. The agreement might have addressed the need for Sony to adapt its strategies, especially considering their previous success in the region. However, it's common in the media and entertainment sector for deals to face obstacles, making it a regular aspect of the process.

Bhasin explained that India is gaining increasing significance for global companies rather than diminishing. In a general sense, when the economy performs well, advertising tends to follow suit, typically growing one and a half times faster than the GDP.

For instance, if the GDP grows by 6%, advertising will likely see a growth of around 9%. Conversely, if the GDP falls, advertising tends to decline at a higher rate.

“Considering India's population of 1.4 billion and its trajectory to become the third-largest global market, it's improbable for businesses to overlook such a promising market. While individual companies may face specific challenges or have certain strategies, overall, India is attracting attention, with an increasing number of companies not only investing in the local market but also seeking content from India due to its abundant talent pool, positioning it as a potential global content supplier,” he added.

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