Realizing that the broadcasting business is changing rapidly, Zee seeks to embrace a global technology partner. Will it work?
New Delhi: Zee founder and Essel Group chairman Subhash Chandra does not believe that life is coming a full circle for the broadcasting company as it is once again looking for a foreign partner. After all, when it started out in 1992, Zee partnered with Rupert Murdoch’s News Corp in the broadcasting and distribution businesses. “Those times were different and these are completely different times. We are looking for a technology partner as India is way behind the world as far as tech goes," says Chandra.
“We will not be able to compete in a changing competitive environment if we do not get the technology. Besides, Punit and Amit (his sons, who carry the Goenka surname) have the ambition to turn Zee into a global company. They have my blessings for this initiative," he adds.
Does the aim to set up an Indian media giant tie in with the overt nationalism that is on display in Zee’s channels? “That’s in the news business. This deal has nothing to do with news," says the 68-year-old Chandra. “Besides, we need to evolve. Now, the children are running the show," he adds.
Ask Punit Goenka, managing director and CEO of Zee Entertainment Enterprises Ltd (ZEEL), and he insists that Zee’s desire to be recognized as a global brand is nothing new. Zee first started working with global brand consultancy Interbrand in 2015. In Interbrand’s managing director Ashish Mishra’s words, the objective was to “be a top global media brand from an emerging market". So, this November, Zee “reiterated" its intent to become a global conglomerate by announcing the appointment of Goldman Sachs Securities (India) Ltd as an investment banker and Lion Tree as an advisor to look for a strategic investor in ZEEL. The company expects the outcome of the strategic review to be concluded by March or April 2019.
Goenka says the decision was taken after deliberations with family members during the Diwali weekend. Arguing that the company is doing exceptionally well as far as the broadcast network is concerned, and that its video streaming platform Zee5 is the second largest player in the market, Goenka stresses that the move to find a partner is the only way to help transform ZEEL from a pure content company to a content technology company that can compete in a rapidly evolving digital world.
For Goenka, the end game is simple: “Our aspiration is to demonstrate that there is a media company coming from the emerging market that can leave a real mark on the global platform."
The announcement took the broadcasting industry by surprise. Media experts suggest that firms like Apple, Google, Alibaba, and Comcast could be among those interested in partnering with Zee. Goenka declined to comment about the specific names in the fray, though he admitted that a number of companies have expressed interest. “We have been in an active dialogue for a couple of months," he says.
Explaining the step, Goenka says that as long as ZEEL is aiming the South Asian diaspora, it has enough reach, but if it has to truly be a content and tech firm, it needs a strategic partner. “We could have done it alone but it would have taken longer and the risk would have been higher. We are readying the company for another disruption," he says. He also clarified that the intention is only to sell a 50% stake. “I don’t envisage us exiting the business. We want to be an equal and strategic partner," he says.
The triggers behind the move are easy to spot. The contours of the broadcasting business are changing rapidly. In India, ZEEL would soon be pitted against the Star-Disney combine after Disney closed the deal to acquire some of Rupert Murdoch-owned 21st Century Fox’s global assets (including Star in India). The combined strength of the two behemoths could stiffen the competitive landscape in India where Zee has been performing well.
Ronnie Screwvala, a serial entrepreneur who now runs the production company RSVP, sees the Disney-Star combo in India as a key development. He says that the merged entity would boast of streaming platforms Hotstar and Hulu in its portfolio. Besides, it will be able to bring global content from Marvel. The platform already has strong local content and ready audience connect through Star, which also owns major sports broadcast rights. “If they make the right investments, they are and will be a formidable player," says Screwvala, who sold his company UTV to Disney six years ago.
That is not all. Even Reliance Industries-backed Viacom18 group in India— with brands like Colors, MTV and Nickelodeon—is now much stronger thanks to its synergy with Reliance Jio. Currently, Viacom18 runs 42 channels in seven languages and has interests in television broadcasting, films and digital with its video-on-demand platform Voot. As a controlling partner in Viacom18, RIL can fully exploit the synergy with its telecom brand Jio, media experts say, which will have more content than any other telco. They say that Jio and Viacom18 could script a very successful convergence story as the two businesses complement each other and offer a strategic advantage.
“What AT&T and a Comcast may not be able to do in the short or long term, a Jio will do very well in the India . It will be a consumer content company of tomorrow—owning the customer, the handset and all parts of the content ecosystem including entertainment," says Screwvala.
To be sure, the pitch in India is being further muddled by the widening penetration of other over-the-top (OTT) video streaming platforms. There are some 30 brands in India today—both international and Indian, including Netflix, Amazon Prime Video, Hotstar, and ALTBalaji, among others. In the long-term, these will eat away into television audiences. In fact, by 2020, India is expected to become the second largest video-viewing audience globally. Online video audience in the country is expected to reach 500 million by 2020, from 250 million in 2017, according to the Ficci EY media and entertainment industry report 2018.
The online disruption
Entertainment Goes Online, a report by Boston Consulting Group says that the OTT video streaming market in India will touch $5 billion by 2023. The growth is likely to be driven by rising affluence, the increase in data penetration, and adoption across demographic categories as more women and older people get onboard. The report further estimates that by 2023, there will be 40-50 million users paying for SVoD (subscription-led video-on-demand) services, while 600 million will be engaged on AVoD (advertising-led video-on-demand) platforms.
The report says that like in developed markets, viewers in India, too, will use two to three OTT apps. In light of these predictions, independent media consultant Chintamani Rao says that Zee has some OTT play, but it has to either buy digital capability or sell a stake to someone who has digital capability. “Zee’s future requirement is digital play," he stresses. To be sure, Zee launched Zee5 in February this year by subsuming its earlier two OTT brands Ozee (advertising-led) and Ditto TV (subscription-led). Zee5 was launched with 1 lakh hours of content, including exclusive originals, Indian and international movies, and TV shows, music, live television, health and lifestyle videos in 12 regional languages. Currently, Star-owned OTT platform Hotstar is the largest brand with 150 million active monthly users.
Another important reason why Subhash Chandra’s move makes sense is because the broadcasting environment itself is undergoing a change in India, thanks to the recent Supreme Court judgment in Star India Pvt. Ltd versus the Telecom Regulatory Authority of India (Trai). On 30 October, the SC gave the go-ahead to Trai’s tariff order on interconnect regulations for pricing and packaging of TV channels offered to subscribers, which insists on a list of channel genres and a genre-wise ceiling on channel prices.
In the short term, the broadcasters may not exactly be celebrating the Trai order. They will now have to spell out the price of each channel separately for the consumer. Jehil Thakkar, partner at management consulting firm Deloitte India says: “This will definitely have an adverse impact on broadcasters who were driving the reach of some of their smaller channels through the heft of more popular shows and channels by clubbing them into a bouquet." This may slow down new channel launches and may impact revenues of some of the less popular channels as the consumer is now being asked to pay for whatever he watches.
Some feel that old media is on shaky grounds. “But it won’t crash though its profitability may go down," says the former head of an entertainment channel who chose not to be named. The traditional system had content creators, broadcasters, cable operators and consumers. “Now, the content creators are reaching out directly to the consumers—like in the case of Netflix. Subhash Chandra is used to profitability. But right now digital wants investments and there is no revenue," he says.
The end game
So how will the Zee move impact the media industry? Ajay Gupta, a partner at AT Kearney, calls it an era of hyper-consolidation where big companies merge to create bigger behemoths. “Also it is essentially a move towards globalization. It becomes a large-scale global play. The Disney-Fox deal is a case in point. These are global companies no longer fighting in the local pond," he says.
India has never been a protected market and all the international majors operate quite freely here. “They come armed with their home market success and a huge war chest. It’s not a level playing field. ...mergers and collaborations make sense for both Indian and global companies as they can complement each other ... The Zee tagline ‘Vasudhaiva Kutumbakam’ meaning ‘the world is my family’ is truly prophetic for what the future holds," says Sameer Nair, chief executive at content studio Applause Entertainment.
Goenka agrees, saying there is a very thin line of difference between media and technology firms. While the firms merely tapping local and domestic markets may not sense the need for a larger alliance, “for the ones with global ambitions, integration with world-class technology is certainly a need of the hour," he says.
Nair believes that more than just collaboration, the age of the much-touted convergence is finally here. “It is no longer about industry market share; it’s now about share of time and wallet," he says. Increasingly, companies are straddling multiple touch points for consumers and in the process destroying old world labels like media. Amazon, an ecommerce retailer, also sells movies and premium dramas, as do telecom operators like Jio and Vodafone, or television broadcasters like Star and Zee. Soon, social media platforms like Facebook and devices like Apple will do the same. The future of media does not belong to ‘media companies’, but to companies that successfully monopolize the consumer’s time and wallet," Nair argues. Zee has taken an aggressive call to embrace the future. The picture will only get clearer when the deal is struck.
In an earlier version of this story, a quote in the last paragraph was inadvertently attributed to Punit Goenka. The quote is by Sameer Nair.
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