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Zee-Sony merger: CCI inquiry is just a process, highly likely that the deal will go through

Except “movies”, the combined entity does not command more than 40% viewership share in any other genre. Advertising revenue share also is between 25-30%. Experts see no reason for the deal to be called off

The Competition Commission of India (CCI) red-flagging the Zee-Sony merger deal is unlikely to cause the deal to be called off, experts told

At best, the combined entity may be suggested to realign or shed some of its businesses.

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Reuters reported on Wednesday that a merger between the Indian unit of Japan's Sony and Zee Entertainment to create a $10 billion TV enterprise will potentially hurt competition by having "unparalleled bargaining power", the country's antitrust watchdog had found in an initial review.

During its initial review of the Zee-Sony merger deal in India, CCI looked at the merger from various aspects, including if it can create market dominance and if it can curb competition in the field of broadcasting, along with other factors including the positioning in the OTT landscape. 

According to a leading competition lawyer, if the merger is causing a concentration of over 40% market share in the hands of the entity it becomes a fit case for scrutiny.

As per the Reuters report, Zee-Sony combined will control over 45% of the Hindi TV entertainment market with Disney Star being a distant second.

However, a media veteran who led Zee in the past at senior level said that what Reuters has done is a classic case of nit picking. “This way, anyone can say that in Hindi movies, the combined entity has more than 60% of market share,” he said.

According to Elara Capital’s Karan Taurani, “CCI approval is a part of the process after which NCLT gives a go-ahead on the transaction and the merger. CCI seeing merit in scrutiny can only delay the process. Exchange approval also came very late. If you look at PVR and INOX, their exchange approval came within three months. Broadly there has been a significant delay in the overall merger process of Zee and Sony. This is having a negative impact on the share price performance of Zee.” 

But saying that the merger will be called off is far-fetched at this point in time, according to the media executive quoted above. 

“The complainant offered their thesis to CCI, just as Reuters reported on the selectively picked up numbers for Hindi entertainment. Zee-Sony will contest those cooked up complaints and will come out clean and stronger,” the executive added.

Taurani of Elara Capital also said that the CCI procedure is more of an inquiry and it is early to contemplate if the merger will be called off. “I think there could be a change in the way they are doing the transaction or there could be some issues which can be addressed by the management to CCI which can make the regulator more confident about the deal,” Taurani said.

Talking about the alleged dominance of the merged entity, Taurani asserted that “movies” is the only genre where the combined entity will exceed 50% viewership share. 

Apart from that, there is no such huge overlap between both the businesses, he noted.

“In terms of presence across various genres too, Zee and Sony have minimal overlap. Across genres too they have viewership share of less than 40% (except the movie genre wherein it is 53%). For Marathi genre, viewership share is 45% primarily due to Zee being a market leader there even before the merger,” he explained.

Combined viewership share post-merger to enable dominance in most genres

Source: BARC, Elara Securities research

In sports genre, right now they are far behind Disney Star. 

“Had Disney Star have any problem with the merger, they would not have licensed the ICC TV rights to Zee. Entertainment businesses do not run in an entirety. A market leader in one thing can be laggard in many other genres. Look at Hotstar. That is bigger than SonyLIV and Zee5 combined,” said the media veteran quoted above. 

Combined group-wise viewership share will spike to 26.7%, beating Star by a big margin but this is nowhere close to 40%.

Source: BARC, Elara Securities research

From an industry standpoint, Star, Zee and Sony together would be close to 50% market share, but only Zee and Sony would command somewhere between 25-30% ad revenue market share. Since it is not beyond 40%, it would not pose any big challenges but would requires some minor changes. 

“As per our analysis, Zee/Sony as a combined entity will command an ad revenue share of 28%, which is much below the threshold of 40%. This means there is a low likelihood of an issue on this,” Taurani said.

“It is highly likely that the deal will go through,” he added.

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