New Delhi: With the Competition Commission of India red-flagging the Zee-Sony merger deal, the going is likely to get tough for Subhash Chandra and his son Punit Goenka.
Also read: Zee-Sony Merger – CCI inquiry is merely procedural, deal likely to go through
This may even destabilise plans of both Zee and Sony in India, and if the merger has to go through, the combined entity may be forced to shed some of their businesses and put a pricing cap on ad rates too.
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 found in an initial review.
Some experts believe that Invesco which was earlier pushing for removal of Punit Goenka, MD & CEO, Zee Entertainment, may renew its demand as regulatory approvals cast a shadow on the future of merger.
Invesco till April was holding over 18% in Zee entertainment. In first week of April, the fund sold over 7% stake in the company for Rs 2092 crore.
During its initial review of the Zee-Sony merger deal in India, the Competition Commission of 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.
The advertising revenue of India's TV entertainment broadcasting industry is around Rs 26,000 crore. The combined revenue of Zee Entertainment and Sony Pictures Limited in FY21 was Rs 13,500 crore out of which about Rs 8,000 crore would be the ad revenue.
It means the combined entity will not control over 40% of the market in terms of ad revenue.
However, for India's competition regulator, it may not be a simple case for scrutiny.
In terms of overall pan India viewership it may just control a little over one-fourth of the Indian TV market, which other than Star India and Viacom18, also has leading regional players such as Sun TV.
For the competition watchdog, there's no precedence of such a big deal in the broadcasting industry.
Another aspect that might come in to play is the influence that the rivals of the proposed combination hold with the regulators.
Way forward for Zee & Sony
The competition regulator may suggest some remedies if both the companies want to take the deal forward.
It can suggest remedies to the proposed combination on clearing the competition hurdle. The remedies are either structural or behavioural in nature.
The combined Sony-Zee entity will have over 75 channels of different genres. If the competition regulator thinks that there will be dominance in any of the genres, it can ask the proposed combination to sell a part of channels in those genres to another company (non-related) to ensure there's no concentration and the deal will be allowed to go through.
In terms of behavioural remedy, if CCI thinks that in the GEC segment, the Zee-Sony proposed combination can influence the pricing for either subscribers or advertisers or cable operators, the competition regulator can put a pricing cap.
The Zee-Sony combined revenue in FY21 was Rs 13,452 crore.
Disney Star India had consolidated revenue of Rs 12,664.36 crore. Viacom18’s revenue in FY21 was Rs 3,276.32 crore and Sun TV Network revenue was Rs 3,116.59 crore in FY21.
In terms of OTT, SonyLIV and Zee5 will have a combined paid subscriber base of close to 10 million and with annual revenue in the range of Rs 700-800 crore. Disney+ Hotstar’s FY21 revenue was Rs 1670 crore. Netflix India's FY21 revenue was at Rs 1529.36 crore.