Will the Sony-Zee Merger Be a Turning Point in Indian Media, or Another Milestone in the Decline of Linear TV?

The Indian media landscape has been jolted by two largely expected, but nevertheless seismic, events in recent days and aftershocks look inevitable.

The proposed merger between local powerhouse Zee Entertainment Enterprises and Sonys Indian TV businesses has been nearly two years in the making, but finally cleared a key regulatory hurdle on Thursday. The combined companies have the potential to create a giant in broadcast TV a sector that is still paramount in India and are valued at $10 billion.

Last weeks other tremblor was news from Burbank that Disney+ Hotstar, Indias streaming market leader, had lost 12.5 million subscribers, following the loss of key sports rights to a competitor. While no surprise, the news confirmed that the Indian streaming market remains a difficult environment to achieve both scale and profitability.

The Sony-Zee merger is not final yet. Indias National Company Law Tribunal (NCLT) approved the merger last week, but the joint enterprise has to file with the Registrar of Companies within 30 days of the NCLT approval. It then has to be vetted by the countrys Ministry of Information and Broadcasting.

One potential aftershock is the issue of the leadership of the merged Sony-Zee business. The original plan had foreseen that Zees CEO Punit Goenka would be its captain, while Sony would own a 51% controlling stake. However, Goenka was banned from managing any listed company in India following an interim regulatory report that accused him and Zee founder Subhash Chandra of running the company for their own benefit and siphoning off money.

Variety has learned that Goenka may be cleared of wrongdoing as early as this week. But even if that transpires, the MIB may take a different view. And Sony Group Corporation may wish to distance itself from any hint of impropriety and install a different management suite.

Sony India head N.P. Singh is experienced, respected and looks an obvious candidate. Singh was also front and center of the Japanese giants recent strategy day presentations, which emphasized Indias priority ranking in the groups entertainment expansion strategy.

TVs scrambled picture This is a deal driven by TV, says Vivek Couto, of consultancy and advisory firm Media Partners Asia.

TV is for now the biggest and brightest star in Indias media firmament, with revenues valued at $8.6 billion annually, according to EYs recent industry report. However, TV shrank 1.5% from 2021 levels because subscription revenue fell for the third year in a row (by 4%), due to a reduction of 5 million pay-TV homes and stagnating average revenues per user (ARPUs). Linear TV viewership also declined 7% compared with 2021. Television is projected to rebound slightly to $8.8 billion this year.

The merged Sony-Zee entity has the potential to become the No. 2 player in India after Disney Star, according to Karan Taurani, analyst at Elara Capital. With the talks of Disney having a potential exit from India, if execution is good by the Sony merged company, they might even emerge as the No. 1 player. So, the landscape will become more consolidated as far as the TV business is concerned, Taurani said.

Both Couto and Taurani are upbeat about the merged entitys benefits of scale. The merged company will have great scale. TV in India may in the medium term be a slow growth business, but in the near term the new company can have a greater share of the ad market, drive international program sales and find a lot of cost savings that will drive up profitability investors are going to like that, Couto says. The top two companies could have a combined ad market share of 55%, Taurani says.

According to the PwC industry report, Indian TV advertising has recovered from the pandemic downturn, with ad revenue expanding 19% in 2021 and 12% in 2022 to reach $4.7 billion. The PwC report projects TV ad spend growth at 6.4% CAGR to reach $6.5 billion in 2027, making India the fourth-largest TV advertising market globally after the U.S., Japan and China.

Taurani says that the merged company will share synergies in costs and revenues in both advertising and distributor share. These benefits could be strong enough to offset some of the negative impact of the lower growth rates in the linear broadcasting industry.

However, Couto says that over the next five years, TV share of Indias ad market may drop to 30-35%, as it loses out to multiple forms of digital, including short video, streaming and digital-retail.

Cricket, competition and price sensitivity In a cricket-mad territory, cricket rights are likely to be significant going forward, just as the loss of digital rights to the IPL tournament was causal of Hotstars subscriber retreat.

Despite handing the initiative to Mukesh Ambanis JioCinema, which swooped in with a $3 billion bid for five years of IPL digital rights, Disney+ Hotstar remains the market leader. Pay-TV unit Disney Star retains rights for other major tournaments, including the ICC Mens T20 World Cup (2024, 2026), the ICC Mens Champions Trophy (2025) and the ICC Mens Cricket World Cup (2027), along with several ICC under-19 events. Disney Star has licensed these rights to ZEE.

This years edition of the IPL is done and dusted and, from Aug. 30-Sept. 17 and Oct. 5 Nov. 19, all eyes will be on the cricket Asia Cup and World Cup respectively, rights for both are with Disney+ Hotstar. The streamer is offering both tournaments free of charge (for mobile users only in a 600 million-plus smartphone market), a copy of the tactic that JioCinema deployed with its digital casts of the 2023 IPL.

Taurani reckons that Disney+ Hotstars subscriber losses may have bottomed out and that the streamers net financial losses are significantly less than they would have been had it paid premium rates to retain the entire package of IPL rights.

SonyLIV has done a lot of talking and tried to drive up subs ahead of the deal with good programming. It may be hitting a near-term ceiling. So, where next? Both Zees streaming business and SonyLIV have fremium layers and the business mix may remain more AVOD-driven than SVOD-led for a few more years, Couto adds. You have Amazon in one corner (currently with about 15 million paying subs, heading for 20 million by year end), and Jio in another. So far, all the other players are holding on. We have yet to see where JioCinema is going. Weve seen that it can monetize and that it can scale up technologically.

As demonstrated by its success in the mobile telephony market, Jios current modus operandi is to grab market share by entering with a free-of-charge offer, then to start charging as the cheapest available service, before hiking again to charge the going rates. Jio benefits all along the value chain, as it is also an infrastructure player. Millions of Indians are watching content on Jio mobile or broadband connections. That is not an avenue open to entertainment-only Sony-Zee, whatever its market ranking may be.

And, if the analysts feel that the coming together of Sony and Zee is a logical response to the tectonic shifts in Indias huge broadcast market, they are less sure that even this mega merger does enough to change the continents drift toward a new era of digital domination.