September 28, 2022

Unitranche

Supportive Business Potential

Zee Sony Merger True Win Win For All Stakeholders

Russia invaded Ukraine this week. The US remains deeply polarized along political and racial lines. China has adversarial positions open across the spectrum. And even closer home rhetoric on opposite sides of the divide becomes shriller by the day. The world is increasingly divided. And information wars are preceding real conflicts, and then escalating them. Years of cultural and ideological conditioning supplemented with incessant fake news has hardened us beyond recognition.

As India deftly plays the balancing game on the UN vote on Russia and Ukraine, the situation will test India’s resolve and diplomatic dexterity. We after all have to balance traditional deep ties with Russia along with the increasingly close relationship with the other great democracy of the world, the United States. For the longest time India swore by the doctrine of non-alignment – is it now the time to build a fresh paradigm based on those principles? One that supports and augments the balance we seek?

India is also in the midst of a deep technological acceleration and is aligned with the world – and in some cases even ahead of the curve – in digital adoption across every aspect of life and business. Let’s look at some interesting numbers:

• The US Retail market which is the largest in the world, of which, until Feb 2020 eCommerce comprised 16% after 20 years of persistent effort. In just 2 years since then that has jumped to between 26 and 30 per cent. Acceleration of that kind!

• Lets also look at India: the country had in the region of 10 million retail investors which has swelled to over 25 million in the past few years driven by new age apps such as Zerodha. Tech IPOs have seen great success – at least at listing – driven by these investors.

India has recovered faster than any country in the world post-pandemic and I am sure we remain on target to be a US$ 5 trillion economy before the decade is out.

The media and entertainment sector is an important part of the creative economy. If there are three words that describe the change post pandemic in our professional and personal lives, they would be: Contactless, Collaboration and Compassion. India has embraced the 3C economy wholeheartedly – and we are seeing consolidation across the board driven by this new paradigm. 

In my mind the Zee Sony merger is part of this move to the 3C economy. 

The Zee Sony merger is a welcome development by all measures. Zee is a home grown Indian Company and its merger with a global heavyweight augurs well for the industry as it is bound to drive consolidation and growth while bringing in enhanced investment into the sector.

It is my hope that the merger will be approved by all stakeholders, policy makers and regulators – as well as withstand all legal challenges. This is essential if we have to grow the media and entertainment industry. We need a broadminded approach across the legal, policy & regulatory framework to enable such M&A to pave way for a lively and growth oriented future for the industry. 

I also have a clear view on another perspective involved here. My belief is that financial investors should not suddenly assume the mantle of strategic partners. If they want to see the creation of value for all stakeholders, they must continue to trust the Management and Board of the company while establishing appropriate checks, balances and governance controls. This is especially important if the management is always delivering spectacular returns. Strategic support and inputs would certainly serve as an assist for the management but intervention where none is required is a surefire recipe for long term disaster on the back of some misplaced desire for short term satisfaction.

Interestingly, with the IPL rights coming up for bidding – Sony had these earlier but are now held by Star (Disney India) – big investments will be needed by multiple players to create a fair, competitive and lucrative field. The combined Zee-Sony will, to my mind, be best placed to be the top challenger in the mix.

The immense opportunities the combined entity would be able to create in terms of employment generation can be be transformative for the entire creative ecosystem which in turn will propel advertiser sentiment and spending.

India is the most conducive market for consolidation in the Media and Entertainment sector. With behemoths suxga as Google and Facebook are scaling up massively in India, we need larger players to take them on. Otherwise the race for digital advertising will end up a two horse race with maybe one challenger who may have the financial wherewithal. We need a strong counterbalance to the other bigger players to keep this market vibrant and competitive.

If we look at India’s business world , homegrown companies such as Amul, Tata, Bajaj and even Zee have been synonymous with the country’s growth – and we must make every attempt to make sure they continue to expand and contribute to the economy.

Family driven companies deliver shareholder value. Empirical research has shown family run companies have delivered spectacular returns too. I am most certain that the Zee-Sony consolidation with Zee’s Puneet Goenka leading it will create even more value for all stakeholders. This merger will empower family driven companies as the anchor of India’s vibrant and fast-growing business environment attracting foreign investments. 

Indian homegrown giants such as Zee have also contributed to betterment of various socioeconomic indicators in the last three decades and contributed to the betterment of the country across the board – whether through employment generation, pioneering the sector, their gigantic CSR efforts or their unflinching and deep support to the nation during the pandemic. 

If we closely look at the Indian Media and Entertainment sector there are only two larger players apart from Zee and Sony:

• Star/Disney backed by the might of Disney which has taken the long term view and deployed capital to be deployed back that long term view.

• We also have Viacom where Mr Mukesh Ambani will soon welcome Rupert Murdoch’s son James Murdoch along with his former CEO – and now  business partner – Uday Shankar.

A third big player (at the very least) is needed for democratizing and leveling the playing field in the sector. Three big players would augur well for the Indian Media and Entertainment sector . 

While Gautam Adani’s impending entry into media may happen in 2022, Sanjiv Goenka has also been keen on media and entertainment for a longtime and has been keen on growing his portfolio. Even as that happens we need to preserve the Zee legacy and strengthen it by creating a strong Zee led entity through this merger with Sony. In my view, until more large Indian business houses invest and create larger plays in the sector, the prudent approach would be to encourage consolidation to create larger entities that can compete well and continue driving growth in the  sector.

The author is the Chairman & Editor-in-Chief of the BW Businessworld Group and the Founder & Editor-in-Chief of the exchange4media Group