Zee may divest 20% in OTT biz; eyes music, gaming segments to take on Jio

Zee has already put together an aggressive strategy to take on its rival Reliance Jio

Zee Entertainment Enterprises might spin off its over-the-top (OTT) entertainment streaming channel, Zee5, into a subsidiary or a step-down subsidiary, in which it might offer up to a 20 per cent direct stake to a global strategic investor, said sources in preliminary discussions with the group.

The investor will also be offered up to 20.8 per cent in Zee Entertainment, or half of what the promoters own in the listed company, as announced last week.

The logic behind such a move is that a potential investor, by taking a stake directly in the proposed Zee5 subsidiary and indirectly through Zee Entertainment, could effectively hold over a 25 per cent stake in the OTT business, giving it more comfort as a partner.

Zee also has another important subsidiary in Essel Vision Productions, the television (TV) and movie production and content house for the company and this too could be an attractive investment opportunity for a strategic investor for which a similar structuring could be undertaken.

By allowing a global player a stake in both Zee Entertainment and Zee5, it means the investor can enjoy a larger say in the operating business. This suits the promoters of Zee, who can continue to keep management control of Zee Entertainment.

However, the promoters want to ensure they have the same investor both for the main company and its subsidiary to avoid any conflict of interest. A Zee spokesperson declined to comment beyond what is in the public domain.

Zee has put together an aggressive strategy to take on its rival, Reliance Jio, in the OTT space and is also looking at setting up a bouquet of channels to woo customers. According to sources, it is planning to launch an OTT gaming platform, either through an acquisition or a greenfield company. Also in the offing is a third music channel.

Jio has been consolidating a bouquet of OTT channels by either setting up some on its own (such as Jio TV and Jio Cinema) or picking up stakes in content companies such as Eros International (5 per cent), Balaji Telefilms (25 per cent), and Viacom18 (51 per cent), all of which have their own OTT offerings. Together, these channels have more than 100 million monthly active viewers (MAU) in line with Star India’s Hotstar (75-100 million MAU). On the other hand, Zee5, a relatively new entrant, has surprised the market by gaining over 50 million MAUs and is locking horns for third place with JioTV Live, which has an MAU between 40-50 million. The need for a global strategic partner for Zee arises from a shift in the company’s strategy in the overseas market. This is currently focused mostly on the ethnic Indian and South Asian market. Most of the content is in Hindi or other Indian languages. The aim is to expand to a wider audience.

“Zee’s global reach is restricted to South Asian audiences and a few markets like South Africa and Russia. However, they can now create content much more efficiently and at a lower cost for the entire global audience and not only in Indian languages. The vision is to become the first global media company from the emerging markets,” said a source. The same person added: “What they are looking for is a global partner who can distribute content to customers in the global markets and also provide them with the latest technology.”

While the Zee group is open to negotiations with an array of global players, those involved in initial talks say it is disinclined to consider telecom companies as they do not have a large global reach and are restricted to certain markets like Europe, the US, or Asia. Tying up with an international broadcaster is another option, though many of the big boys are already in the country and are Zee’s competitors.

The other options for Zee are e-commerce companies, many of whom are looking at replicating the Amazon Prime model, content distribution companies, or social media players.

Sources say the group also plans to concentrate on investing in its cable business so that it can upgrade its base of 11.7 million subscriber homes to broadband – currently it has only 250,000 broadband homes and faces a tough challenge from Jio, which has recently bought a majority stake in Hathway and DEN Networks. The move has catapulted them to the position of the largest cable player (with control of 20 million households), with plans to convert them from cable to fibre.