Redrawing the media map: Firms are discovering they are better together

Sony-Zee merger caps the massive round of consolidation in the media and entertainment space that is on the cusp of change

Earlier this month, Zee Entertainment Enterprises got the Competition Commission of India’s approval for its proposed merger with Culver Max Entertainment (formerly Sony Pictures Networks India). The approval is conditional. Zee, which turned 30 this month, needs to put in place remedies, which have not been disclosed, to allay the regulator’s concerns.

The National Company Law Tribunal, the Ministry of Information and Broadcasting, the Income Tax department, the Registrar of Companies, among others, still have to give their “no-objection” to the merger. Then, there is the delisting of Zee, the actual merger and the listing of the “as-yet-unnamed” merged company. It might well be April 2023 when Punit Goenka, chief executive officer of Zee, takes charge of the Rs 13,630 crore (revenues in FY 2021) Sony-Zee.

The creation of India’s second largest media company will mark the end of a massive wave of consolidation in the Rs 1.6-trillion Indian media and entertainment space. According to the FICCI-EY annual report, media saw 118 M&A deals valued at Rs 67,200 crore in 2021. That was almost 10 times the value in 2020. About half of these (by value and volume) were in broadcasting. This year has seen the partial exit of Paramount from the Reliance-owned Viacom18 and the merger of PVR Cinemas with Inox. The Sony-Zee merger, which was announced in 2021, is slowly on its way to fruition.

What does this consolidation mean? First, it redraws the media map, making the business a battle between the biggies. Jio (which includes Viacom18), Bharti Airtel, Google, Meta (Facebook), Disney-Star and Sony-Zee each of them has between Rs 10,000 crore and Rs 17,000 crore in India revenues. Technically, the Times Group should be part of this since it is around Rs 10,000 crore in top line. But chances are that after the reported split between Sameer Jain and Vineet Jain, the brothers who own it, the combined synergy that could have helped it scale up will be lost. Then there is another bunch — Sun Network, Netflix, Amazon Prime Video. Some of these could make it to the Rs 10,000-crore mark later.

Second, it will bring changes at the content end of the business.

“The binge model is capital-intensive. The best shows peak at two to three weeks, and by fifth or sixth week they fade. Therefore, you need to keep creating new shows every week,” said Michael Nathanson, senior managing director of US-based MoffettNathanson at a recent event. The whole idea of serving viewers with a rich smorgasbord of shows and films worked well when there was just one Netflix. With Disney, Warner, Amazon Prime Video, Apple and others getting into the game, costs have gone up by two to four times. More importantly, the definition of success has changed. For an e-commerce giant like Amazon, success in Prime Video is measured by how much it helps push up shopping. For Apple, the measure is how much it helps push device sales. These are companies with over $250 billion (Rs 20 trillion) in top line, so there is no way a regular media firm can outspend them. 

In all, American media firms will spend more than $230 billion (Rs 19 trillion) on video content this year, nearly double the figure a decade ago, according to Ampere Analysis, a research firm quoted by The Economist. Mr Nathanson estimates that Disney will spend $22 billion (Rs 1.8 trillion), Paramount $21.5 billion (Rs 1.7 trillion) and Netflix $17.2 billion (Rs 1.4 trillion) on content in 2022, in spite of being strapped for free cash. This cannot last. The television and film model of windowing content — releasing a film, say, 8 or 12 weeks after its theatrical run on OTT and a few weeks later on linear TV —works better at extracting value. HBO, one of the most successful TV brands, was built by offering iconic shows like The Sopranos and Game of Thrones, one tantalising episode every week, not by dumping them all in one go.

To mitigate high content costs, many of the large global players are launching new seasons of popular shows with only a few episodes a week. Young Sheldon, The Marvelous Mrs Maisel (both on Amazon Prime Video) are among the many popular shows that are staggering the episodes being released in a new season. Others like Netflix, which has lost close to a million subscribers this year, is introducing its ad-supported model in 12 countries. This will have four to five minutes of advertising every hour. Then there is sports, a hot favourite to ramp up numbers and get reach quickly. In many ways then, streamers are going the way broadcasters did — adding genres and markets to de-risk revenues. And broadcasters are getting into streaming to safeguard growth.

How does this matter to India?  Disney, Sony-Zee, Netflix et al have a substantial presence in India. It is a key market for the next round of growth and reflects what is happening elsewhere. The average cost of an OTT show is over Rs 40 lakh an episode; compare that with Rs 10 to 15 lakh for a half hour episode on linear TV. The pressure on the content ecosystem means talent costs alone have gone up by 40-50 per cent over the last three to four years. Consolidation will help cut costs, scale up and also aid investment in newer genres.

Some of the moves these firms are making elsewhere apply to India too. Mr Nathanson points to the fact that Disney backed away from picking up the streaming rights for the Indian Premier League (IPL). According to Media Partners Asia, Disney paid $2.2 billion as rights costs (in 2017) and after five years made a profit of $281 million (Rs 2,325 crore) after accounting for all costs. In spite of the hype around streaming, IPL on TV made twice the money it did online. Not surprisingly, then, this time Disney has stuck to broadcast rights. The digital rights have gone to Viacom18. Its JioCinema will stream the FIFA World Cup free this November in a bid to test out the service for IPL.

As the Indian media market reshapes itself, expect many such moves.

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