Merger should go through whether I’m the CEO or not: Punit Goenka

Punit Goenka, the managing director and chief executive of Zee Entertainment Enterprises Ltd, has his hands full—on one end, he is working on completing the company’s merger with Sony Pictures Networks (SPN) and on the other, he’s fighting a legal battle with India’s markets regulator that prohibited him from holding any key position in any listed firm.

In his first interview since announcing the merger in December 2021, Goenka spoke about the commitment of both Zee and Sony towards the merger and the way ahead for the company. Goenka met Mint on a day it reported on Sony’s commitment to the merger. Edited excerpts:

Sony Pictures Entertainment has issued a statement stating there have been several erroneous press reports recently speculating about the future of Zee’s planned merger with SPN. What is your comment on the same?

If you see it factually, there is nothing wrong with that statement. You have to look it into two parts—one; they are denying the erroneous reporting where it was mentioned that Sony is going to walk away from the merger or going to do some sort of forensic audit, etc. There have been many erroneous reports lately. I think they’re putting this record straight. And for the second part of the statement, any good corporate entity has to respect whatever the regulator is saying. I think what they’re saying is that we are tracking what’s happening in the regulatory situation, and of course, we will act in accordance with the law. So, from that point of view, there is nothing wrong with the statement.

We are in constant touch with Sony in Los Angeles, and they have stated, there’s no reason for us to believe that there is any change in their stand towards the merger.

But what happens to the merger if you don’t get relief from the courts in the Sebi order?

I’ll follow the law of the land. But having said that, the merger is of utmost importance to me. And I am completely focused on that. The merger should go through irrespective of whether I’m the CEO or not.

What do you have to say about the allegations made against you and your father Subhash Chandra in the Sebi order?

I’m sure you heard the arguments that my lawyers have made in court, and I feel there is no point for me to comment on that. The matter is sub-judice and let the courts decide. I have full faith in the court system, and let them decide what is the right stand for me and Dr Subhash Chandra.

This and other cases in the NCLT have caused a considerable delay in the merger. What are the realistic timelines you are looking at for the merger and the integration?

Let me take the second part first. So, on the integration, the planning work is underway as we speak. The unfortunate thing is that we cannot action any plans till Day One happens. Therefore, we are kind of delayed from that point of view. I would like to believe that September is still a timeline that we can achieve for the merger.

The merits of the merger speak for themselves, whether it be the benefit of both companies or the people that both companies employ. Most importantly, it benefits 96% of Zee shareholders. We are just 4%, and therefore, it is in the larger interest of the ecosystem for this to go through. Secondly, the sector requires a lot of investment given the competition and the competitive scenario of this sector from the international players. And in that situation, Sony coming in with a $1.5 billion kind of FDI [foreign direct investment]—which is the prime minister’s vision as well—I think it bodes very well from all angles. Therefore, I don’t see any reason why the merger should not happen.

Coming to the business part, the Board of Control for Cricket in India (BCCI) will soon be auctioning the India cricket rights. Will you be interested in those as part of the merged entity or individually also if the merger is not complete till then?

There is no question about not evaluating it, but I will maintain the fact that in all our investment decisions, we follow a very prudent approach. Only if it makes commercial and financial sense will we participate in that, irrespective of whether the merger has been completed by then or not. I will take the same approach either way.

The industry consensus is that during the Indian Premier League (IPL), digital and TV rights holders talking up their respective mediums helped neither party. What’s the learning with regard to the International Cricket Council (ICC) TV rights that you have sublicensed from Disney Star for $1.35 billion?

Firstly, I am not at liberty to give out the number, but what I can tell you is that it’s a learning for us. And therefore, strategically, I will engage with Disney Star, who’s the principal licensor, to ensure that similar things don’t happen and that we are able to monetize the property in the best possible manner, even if that means we need to do joint sales deals.

Again, I go back to my prudent approach of maximizing revenue and profitability for the company. And therefore, if that means we must come to some strategic alliances, so be it.

Like the one distribution joint venture you had with Star in the past, Media Pro?

Exactly. It’s not like we’ve not done partnerships in the past. We had this partnership with Star, and there’s no reason why we can’t come together for another.

Viacom18 Media Pvt. Ltd put IPL free on JioCinema, and now Disney Star is following with ICC World Cup and Asia Cup on Disney+ Hotstar. Do you think making premium sports free is the right way to go?

I can’t talk about what the others are doing and what their strategies are, but I would never put premium sports content for free. In my opinion, that makes no financial sense whatsoever. But that’s my view. I’m sure they are smart enough to come up with their own strategies.

But next year, when you have the TV rights and Disney Star will have digital rights for the ICC events, what will be your strategy if they decide to go free?

As I said, we will come up with a common strategy that we need to monetize for the benefit of everybody. If Disney Star chooses to go a different route, then we will talk to them and see what we need to do.

Do you agree with the whole narrative which was being built that the TV is dead and digital is the future?

I have always maintained that TV is far from dead in this country. At least for the foreseeable future, it will be a TV and digital market. Both have enough headroom to grow, and both will coexist. The segmentation of audiences will continue to happen with some people that only watch digital and some who will only watch linear. That is the foreseeable future, as I see it. So, it’s not like one is eating into another, and it’s not as if TV is dead—far from it, in my view.

But the content cost for digital is too high, and revenues are still at a nascent stage. Has anyone cracked the business model yet?

Digital is loss-making for everyone currently, and nobody’s making money on digital in India. And it will remain so for some time to come. There was a phase of land grab, and I think now we are all reaching the end of that phase. Now, we need to start focusing on the profitability part of it and start moderating our investments, substantially start reducing losses in this business, and take it towards a profitable future. We have already invested significantly in the platform. Our losses peaked in the last financial year. I am pretty confident that starting this year itself, they will start tapering off. Of course, profitability is still far away, but at least the quantum of losses will start reducing for us. I can’t comment about the other players, but this is for us.

What about the film business? Do you see the peak funding going up there?

The film business is going through turmoil right now, especially in the Hindi market. Again, prudence will be the mantra way forward there as well for us. We will do less, but we will do quality work rather than just trying to do quantity.

The peak funding has gone up given the pandemic time. There were delays in film releases, etc. But that’s a short-term effect that will get evened out hopefully by the end of this year.

Zee has been known for being the best in the industry margins, which seems to be under pressure. Do you see a turnaround?

I think that’s a short-term problem, and the margins have been under pressure given the entire pandemic and the headwinds in the macroeconomic situation that the industry is facing overall. Also, please don’t forget the fact that we have not curtailed our investments in either of our businesses, and we have continued to gain market share on the linear side and on the digital side. Having said that, the focus on margins will go back, and I am quite certain that we will see improvement in margins — it may not be to the extent of the peak margins that Zee enjoyed, but certainly inching much higher than where we have been. The operating loss that you refer to is a one-off, and it’s not business-related from that perspective.

You spoke about macroeconomic headwinds. Are there any improvements?

We are starting to see some green shoots. In April and May, a large part of the green shoots went to IPL. Despite the issue that we talked about, they couldn’t maximize it but still managed to get enough in the market. I’m quite hopeful that the second half will be far better, given that this year the season is much longer.

But then again, ICC World Cup may take a larger chunk out of the advertising money.

That’s not a problem because if advertising comes back to the pre-pandemic numbers, there’s enough ample room for World Cup as well as the others to get their fair share. So I’m not too worried about that part.

On the subscription side, we saw a spike in new subscriber additions for DTH and cable companies. Do you see the trend continuing?

The good story is that after three years of decline that we saw in linear subscriptions, finally, that decline has been arrested. Between NTO, IPL and also to do with the fact that we were able to get out DD Free Dish because that was also causing a lot of drain on the subscription side. I’m hopeful that this year, we’ll see at least low single-digit growth in subscription revenues.

So, there is no plan to go back to DD Free Dish?

No, as of now, there is no plan to do that. I’ve always been a supporter of getting off the Free Dish because subscription revenue, in my view, is a far more stable revenue than advertising, which will always remain volatile based on market conditions and your market share, etc. If you look at the quantum of subscription that the four broadcasters are earning, it is to the tune of about ₹12,000 crore, while the total advertising revenue of the four broadcasters from Free Dish was less than ₹1,800 crore. So, the trade-off is logical to me in the long term.