What does the Sony deal actually mean for and the industry as a whole?
This was a very interesting move by the promoters. In our last note, we had highlighted that volatility will remain and promoters will try to remain in the company. If this deal gets approved by the minority investors and the regulators, it will address most of the key concerns that minority investors had. The promoter will be Sony Corporation of Japan and the board will be decided by them and that will address the corporate governance concerns.
Second, the combined entity will become the number one entertainment company of the country ahead of Star with 24% market share and some of the gaps in terms of content will be filled by Sony. That will also address the wide spaces which Zee has. Sports is very important for OTT network. Interestingly, Zee had sold the sports business to Sony a few years back and now sports has come back via Sony. In the last few years things have changed and in the case of Hot Star, most of the subscribers are because of cricket and IPL. So, to that extent, for OTT, having a sports business is very important and this deal will address that.
Now some investors might see the continuation of Punit Goenka as MD as a concern but in my view, in the current scenario he will provide continuity. He has set Zee in a decent manner in the sense that he has exited the loss making channels. He has seen a lot of success in the regional and south Indian channels plus he has got a low cost sustainable strategy, unlike say many of the competitors with very high cost content.
Zee has got a more sustainable strategy and so having Punit as MD for the combined entity should translate into gains for Sony’s business in terms of cost generic also. In any merger, the risks are always there. Overall, this is structurally a very positive deal in the medium to long term and most of the concerns have been addressed. There are some common channels between the two. For example, in Hindi, they will have four-five channels altogether. In the long term, I do not think a combined entity will need so many of those and some would get rationalised. In OTT again, I do not think there will be two apps in the long run if this deal comes through. Overall in terms of content, they will become India’s most dominant player and so it is also get added.
The media business globally has seen a lot of consolidation. Disney has acquired some others globally. Do you expect a decent size consolidation in the media sector here?
Yes in the media sector, we will continue to see consolidation globally and in India also because of disruptions from new technology. Players who are not nimble enough, will get gobbled up by the bigger, larger and more agile players. But I would say that this combined entity will become extremely important in the ecosystem and should do well if run in the right strategic direction.