The lines between media and tech are getting blurred: Subhash Chandra

Zee Entertainment Enterprises announced that it would be seeking a strategic investor by offloading half of the promoters’ stake (41.6 per cent) in the firm. At current market price, analysts expect this will fetch Rs 88.4 billion. Zee Entertainment, along with sibling firms Dish TV, Siticable, and Zee Media, forms the largest media group in India. It brings in more than half the top line for the $4.05-billion Essel Group, which owns among other businesses, education, packaging, and infrastructure. Vanita Kohli-Khandekar spoke to Zee founder and Essel Group Chairman Subhash Chandra about the announcement. Edited excerpts:

What is the logic behind this move and why now?

People are reading too much into it. We keep doing reviews of the business within the family. And in the past 2-4 months, several approaches have been made (to buy a stake in Zee) and discussions have been held. Being the proud man that I am, I asked as usual, “What can you do for us or get for us?” For the first time, I felt that they could help in getting us a technological advantage. Despite having a media lab in Silicon Valley, we don’t have access to that kind of technology. (The Zee Media Lab has recently patented a technology that targets the five senses and provides an immersive entertainment experience). Technologically, they are far more advanced than we can be.

Second, if you look at the India market, it is huge. Around 1.3 billion people and everyone wants a share of it. But, it is low on ARPUs — whether it is on subscription or advertising. Today, Netflix with about 137 million subscribers and an $8 ARPU, gets a valuation of $120-150 per subscriber. Zee5 has 50 million users. They told us that we can help you get better value. We reviewed the whole tech paradigm, not just in media but across our businesses — in education, infrastructure. Technological disruption will happen and until we fix that we can’t grow. They said Zee5 could get a $5-10 (per subscriber) valuation. Why not join hands and create content for the global arena. They are a technology firm they can’t do it… if we can partner. So, we are partnering with them. Who knows tomorrow we could be listed outside of India. The incremental value creation is more than 10 times. That is what is driving things. Also, the lines between media and technology are getting blurred — e-commerce companies are getting into media and media companies into e-commerce. What I can see is that display or watching whether on mobile, PC, and TV will be a single marketplace.

Why not issue fresh equity? Why are the promoters selling their stake?

These are just the first few discussions, it can’t work like this. Therefore, there has to be a process, run through a banker. They will come up with their own requirement for the valuation. So, everything will happen through the process. For instance, if we keep a target for the next five years and the investor says you should do it, we will have to sit and discuss. Maybe some part (of the stake sold) will be from promoters and part through fresh equity. I have to justify to my minority shareholders why we are doing what we are doing. And, there is a requirement to inform the stock exchanges also.

Analysts say the Essel promoters have pledged their shares and this divestment is to help deal with the money due on those pledged shares?

That is a separate thing, which will go through independent of this divestment in the next 3-4 months. (On Zee) We should sign a definitive deal with a strategic partner by March or April 2019. We are already meeting 3-4 parties in December.

How much of this has been triggered by the Disney-Fox deal?

The Disney-Fox deal has triggered many things, so, yes that also played on our mind. But, Zee is also a uniquely placed asset.

How will Zee and the Indian media market change in the next few years as a result of all this?

The game will change. Star is now Disney. Sony is also looking at what to do. They are talking to us. Their management team will also be here in the next 10 days. This will see Zee going global with OTT (over-the-top). The future is digital but linear won’t vanish. The India scenario is different. Around 95 per cent of the homes are still single TV homes and OTT costs money — in bandwidth costs.