 "TAKE TWO")
Atax benefit of about Rs 280 crore, two TV channels, 45 operational radio stations and 14 radio licences. On the face of it,this is the net gain for the Rs 10,843-crore Zee from its acquisition last week of Anil Dhirubhai Ambani’s Reliance Broadcast Network. (See The deal.) Is there more to it?
“There isn’t much synergy with what they (Zee) do. Reliance Broadcast was available so they bought it. It was more about opportunity than strategy,” thinks Vikash Mantri, research analyst, ICICI Securities. But “it completes their portfolio,” he adds.
That is the first big implication of the acquisition. It announces the arrival of India’s largest media group in the Rs 1,980-crore radio business. Many years ago, in 2000, Zee had given up the few radio licences it had bid for in the first auction because they were overpriced.
Since then, while it has looked at the deals that came up, it never did buy anything. “We didn’t get into radio earlier because the regulatory regime, especially with regard to the migration fee for the phase one licencees, was unclear. Now we have a clear runway with regards to licence fees till 2030,” says Himanshu Mody, head (group finance and strategy).
The deal, once it is closed, could raise the red flag on concentration of ownership.
Just twelve days before the Reliance Broadcast acquisition, Dish TV, the Zee group’s DTH arm, announced it was merging with Videocon d2h. Dish TV Videocon, along with another group company Siticable, could eventually control 34 million of India’s 170 million TV homes. In broadcasting, Zee Entertainment is already among the top three in audience share. The acquisition of Big 92.7 FM brand across 45 markets catapults Zee among the top few radio companies as well.
Though both the deals are yet to be cleared by the regulators, the group now operates in the spaces of TV, cable, DTH, newspapers and radio. It is also into films and music, albeit in a small way. That makes it a media conglomerate that is vertically and horizontally integrated.
The argument could swing either way. Given how under-monetised almost every segment of the media business in India is, “consolidation is the theme playing out across the industry,” points out one large rival. He points to the acquisitions in the film exhibition space.
There is a third set of more operational implications. “There is the huge synergy in getting a new set of advertisers wedded to outdoor, cinema and retail on to the combination (of small-town news channels and radio stations),” says Rajiv Singh, chief operating officer of the Rs 560-crore Zee Media Corporation. (It houses Zee News among 11 news channels and the newspaper DNA.)
Zee Media will absorb Reliance’s radio business. According to Mody, “the advertiser profile of radio and regional news channels is quite similar. This offers the opportunity to cross-sell on radio.” Anita Nayyar, CEO of Havas Media (India and South Asia), doesn’t quite agree. “The audiences are different. News channels have a male audience skew, while radio is not allowed to offer news.”
The combined reach of Zee Media at 250 million viewers and Big 92.7 at 200 million listeners does offer opportunities, points out Singh. Rival radio broadcasters agree. What worries them are the possibilities for cross-promotion across the Zee bouquet of over 30 channels, many of which, such as Zee Hindi and Zee Marathi, are leaders in their genres.
Big Magic (comedy) and Big Ganga (Bhojpuri) will join this bouquet at the Rs 5,851-crore Zee Entertainment. Most rival broadcasters and analysts reckon that the Bhojpuri channel is a good buy given that Bihar and Jharkhand are growing markets. It rounds off a bouquet that Zee has been pruning and expanding over the last year: it sold Ten Sports and bought Sarthak, an Odia channel. Now, except for Malayalam, sports and kids, the bouquet is pretty much complete.
“The idea is to get into all possible entertainment avenues needed to consolidate. From a Zee Entertainment perspective, we have cash on the balance sheet (about Rs 1,600 crore) and therefore we are looking for acquisitions,” says Mody.
The Deal Details
Radio
Zee Media Corporation acquires 49 per cent stake in 92.7 BIG FM, the radio broadcasting business of Reliance Broadcast Network
Reliance Broadcast Network will transfer the 45 operational and 14 new radio licences into two SPVs
Zee Media has a call/put option to acquire/sell the balance 51 per cent after the lock-in provisions on the permission holder of these licences expire. According to Ministry of Information and Broadcasting regulations, at least 51 per cent shareholding needs to be held by the permission holder for a minimum of three years from the date the channels were operationalised.
The lock-in period for the 45 operational licences expires March 2018 and for 14 licenses around March 2020
The total consideration for the deal is Rs 1,592 crore
Television
Zee Entertainment will acquire the TV business of Reliance Broadcast. This includes Big Magic, Big Ganga and four TV licences
Zee Entertainment will pay Rs 298.4 crore by issuing 6 per cent preference shares redeemable within three years and assuming debt of the demerging entities
Reliance’s TV broadcast business had accumulated losses of Rs 650 crore in March 2016
