My first choice would be a foreign partner: Zee Entertainment MD & CEO

The challenge is how to counter the irrational behaviour some companies - the likes of Netflix and Amazon - are displaying, says Punit Goenka

On January 25, the stock markets pummelled Zee Entertainment’s stock, pushing it down by over 30%. This was reportedly in the wake of a story in The Wire linking a firm with dodgy demonetisation transactions with Zee’s parent, the $4-billion Essel Group. Its infra assets are in trouble, and promoters have pledged their shares. In November 2018, Zee had announced that the promoters would sell half of their 41% in Zee — that is about 20% of Zee — in order to raise money. Now with an agreement with the infra lenders in place, the share price and crisis are seemingly under control. A week after the crisis, Vanita Kohli-Khandekar met Managing Director and Chief Executive Officer (CEO) Punit Goenka in his Mumbai office. Edited excerpts:

How are you feeling?

I am an optimist. This too shall pass. We have brought this company so far with our blood, sweat, and tears; there is no way we will give in.

You have spent more than 12-13 years building Zee into this broadcasting powerhouse. Didn’t you have a moment of panic? 

What is critical is not how I am feeling but how the chairman (Subhash Chandra, the founder of Zee and Goenka’s father) is feeling. When it happened (the stock crash), I first checked if he was in the building. I wondered about his state of mind. I was really worried. He is a first-generation entrepreneur. We are very proud of him.

Zee is always known as Subhash Chandra’s company. But it is you who had built it to this level in the last decade. Do you feel you should get more credit?

In the last 12 years, the relationship (with his father) has evolved — 99 per cent of the time we are discussing personal stuff. He is more interested in the grandchildren. Operationally, he has zero involvement. It is his company and I run it and it will always remain his company. I get credit all the time for what the company is. 

Does this crisis weaken your negotiating power with strategic investors or inhibit you from taking decisions on growth and spending?

It doesn’t weaken us in any way. The two matters — the company and the promoter shareholding — are completely different. They have no bearing on each other. I didn’t stop the work I was doing at (a share price of) Rs 1,000 or Rs 600 or Rs 350. And I won’t stop. I am one of the few promoters who doesn’t look at the stock price.

What was the trigger for the stake sale — the pledged shares or growth?

From the firms’ perspective, the strategic investor is more important, especially for the minority shareholders. There are so many untapped markets. The pledge part can be taken care of by financial investors. 

But Zee’s record with partnerships is suspect. How comfortable are you sharing the boardroom and strategic decisions?

The Zee of the 90s and now is different. We have had successful partnerships with several firms. Some were formed for strategic reasons like Media Pro — Zee’s joint venture (JV) with Star in 2011. It was designed to be a time-bound JV. Once it served its purpose — growth and forced digitisation — it was dissolved. There was the Zee-Turner a partnership that ran for 16 years. Ten Sports was a partnership till we acquired it. For the past five years, Zee has been owned by the family, but run by professionals. I am the only family member here. The interference from the family on strategy and board matters is minimal. 

Would you be open to ceding the CEO ship?

From my perspective, running this ship is not an easy task. The expertise needed to do that will be valued by any partner. Whoever I am talking to values our contribution to the past and the future. 

Will only promoters’ stake be diluted or are you also looking to infuse some capital? 

The company doesn’t need capital. If the strategic investor feels it is needed, it might be at the Zee5 level. 

In the last two earnings calls, ‘domestic suitor’ has cropped up. Wasn’t this supposed to be a sale that would help you expand globally?

Earlier nobody asked if we were looking at domestic suitors. When someone did, I said ‘yes, we are talking to both domestic and foreign potential partners’. But my first choice would be a foreign partner. 

By the time this deal happens, the whole market would have changed. By July, Star will be a Disney company; you would have a new investor.

By 2020, the landscape would have changed. There will be consolidation. But it will still be within the four players (Star, Zee, Sony, and Viacom). Today, nobody can do an electronic media firm of scale enough with 20 per cent market share.

You say that only Zee5 may need capital. What are the growth levers for the firm?

The traditional TV business has a long way to go, it is nowhere near maturity. There is Kerala, Punjab (Zee Keralam launched in October 2018), and there is expansion in other genres which can take the market share beyond 20 per cent. In Zee5, the opportunity is in creating an incremental audience that has left TV or where the content consumption is of a more personal nature since TV is for family viewing. In four-five years, digital should be 30 per cent of the top line. Movies and related businesses brought 6-7 per cent, next year it should go back to 10 per cent. Hopefully, the live business will take off.

Zee has a reputation of being a very cost-focused company.

Financial prudence is what helps us and pushes us. We are not cost conscious; we are revenue conscious. We spend on the basis of what revenue we can make. If we can make Rs 100, we will spend only Rs 70. 

Sometimes firms need to make bets like Rupert Murdoch did or Subhash Chandra did.

Subhash Chandra is the visionary, I am the implementer. I cannot do multiple things at the same time.

The big worries and challenges as you go forward in this critical year?

The worries: one, how to continue to attract and retain the best talent. Two, Zee5. Three, wherever the fires are. The challenge is how to counter the irrational behaviour some companies — the likes of Netflix and Amazon — are displaying. Every 10 years, someone comes and does stuff like that (overspends). In 2008, the whole (Hindi) general entertainment channels’ flurry happened. Most people wrote that Zee was finished. Ten years later, we are still around. Ten years hence, we will still be around. 

In the Disney deal, Star was rumoured to be valued at $12 billion. What is your expectation of valuation?

Star was valued at $12 billion during the first offer. When the deal finally happened, Star’s value was $17 billion. But when you are a bouquet of businesses, it is different. Star was one piece in the whole Fox business.