ZEE INDIA ENTERTAINMENT AND SONY MERGER; A BOON OR A BANE?

Ekta khatri1

I. INTRODUCTION.

This paper explores the proposed merger between Zee India Entertainment and Sony, two
major players in the Indian entertainment industry. The merger announcement has generated
significant interest and speculation due to its potential impact on the media landscape in
India. Through an analysis of the motives behind the merger, potential synergies, regulatory
considerations, and implications for stakeholders, this paper aims to provide insights into the
strategic implications of the merger and its broader implications for the Indian entertainment
sector.

The Zee India Entertainment and Sony merger, which was terminated, had the potential to
create a media powerhouse in India with 75 channels and two OTT platforms, offering a
strong presence in entertainment, sports, and regional channels2.

However, the merger faced challenges such as regulatory roadblocks, disagreements on

leadership roles within the merged entity, and financial issues like Zee's cash position being
below requirements and concerns about Zee CEO Punit Goenka facing regulatory
investigations for suspected diversion of company funds3.
The termination of the merger has led to a wave of consolidation in the industry, with
possibilities of further mergers and acquisitions reshaping the media landscape in India. The
failed merger has implications for both Zee and Sony individually as they navigate a
competitive media and entertainment landscape4.

The proposed merger between Zee Entertainment Enterprises Ltd (ZEEL) and Sony Group
Corporation aimed to create a mega entertainment firm in India by combining their digital
assets, production operations, and program libraries

1
PRN: 1182200014
FT. YEAR, DIV. A
BBA-LLB(H)
2
https://www.businesstoday.in/magazine/the-buzz/story/zee-sony-merger-crisis-the-merger-may-have-been-
called-off-but-it-has-led-to-a-wave-of-consolidation-in-the-industry-416182-2024-02-05
3
https://www.reuters.com/business/media-telecom/sony-scrapped-10-bln-india-merger-zee-failed-meet-
financial-terms-notice-2024-01-29/
4
https://deadline.com/2024/01/sony-zee-merger-called-off-termination-notice-india-1235800180/
This $10 billion merger plan, announced more than two years ago, was expected to establish
a media powerhouse with a strong presence in entertainment, sports, and regional channels5

The merger between Zee India Entertainment and Sony has captured the attention of industry
observers, investors, and regulators alike, owing to its potential to reshape the competitive
landscape of the Indian entertainment sector6. This merger could create a formidable entity
with a comprehensive content library, enhanced distribution capabilities, and greater financial
resources to invest in content creation and technology infrastructure.

However, the proposed merger also raises several questions and considerations, including
regulatory approval, potential antitrust concerns, integration challenges, and implications for
employees, content creators, and consumers7. Moreover, the strategic rationale behind the
merger, including synergies in content production, distribution, and monetization, warrants
careful examination to assess its long-term viability and success.

II. MOTIVATION BEHIND THE MERGER.

The motivation behind the proposed merger between Zee Entertainment Enterprises Ltd
(ZEEL) and Sony Group Corporation was to create a mega entertainment firm in India by
combining their digital assets, production operations, and program libraries 8. This merger
aimed to leverage ZEEL's strong expertise in content creation and deep consumer connect
established over the last three decades, along with SPNI's success across entertainment
genres, including gaming and sports, to add immense value to the merged entity and increase
shareholder value multifold9. The merger plan, finalized on December 22, 2021, would have

5
https://indianexpress.com/article/explained/explained-economics/sony-zee-merger-plan-collapse-reasons-
9123020/
6
https://www.businesstoday.in/magazine/the-buzz/story/zee-sony-merger-crisis-the-merger-may-have-been-
called-off-but-it-has-led-to-a-wave-of-consolidation-in-the-industry-416182-2024-02-05
7
https://www.businesstoday.in/magazine/the-buzz/story/zee-sony-merger-crisis-the-merger-may-have-been-
called-off-but-it-has-led-to-a-wave-of-consolidation-in-the-industry-416182-2024-02-05
8
https://indianexpress.com/article/explained/explained-economics/sony-zee-merger-plan-collapse-reasons-
9123020/
9
https://www.zeebiz.com/companies/news-top-reasons-why-zeel-sony-pictures-mega-merger-is-extremely-
profitable-for-minority-shareholders-stakeholders-165790
possibly created the biggest entertainment entity in India by combining linear networks,
digital assets, production operations, and program libraries of both entities10.

Additionally, the merger was expected to address corporate governance concerns related to
ZEE Entertainment and enhance investor confidence. The infusion of $1.575 billion by Sony
into the merged entity was intended to enable sharper content creation across platforms,
strengthen its presence in the digital ecosystem, bid for media rights in the sports landscape,
and pursue other growth opportunities11. The merger was seen as a strategic move that would
benefit all shareholders and stakeholders involved by creating synergies between the two
conglomerates and boosting business growth.

The decision to merge Zee India Entertainment and Sony is rooted in a multifaceted
motivation, underpinned by strategic imperatives and market dynamics. Firstly, both
companies recognize the compelling need for scale and synergies in an increasingly
competitive media landscape. By pooling their resources, expertise, and assets, they aim to
achieve greater efficiency and cost-effectiveness, thereby enhancing their overall
competitiveness. This synergy-driven approach enables the merged entity to streamline
operations, optimize distribution networks, and negotiate more favorable terms with suppliers
and partners.

Secondly, the merger represents a strategic response to the evolving content consumption
habits of audiences. In today's digital age, content is king, and companies must continually
innovate and diversify their offerings to remain relevant. By combining their vast content
libraries, creative capabilities, and production expertise, Zee India Entertainment and Sony
can significantly bolster their content portfolio. This diversification not only enables them to
cater to a broader audience base but also strengthens their position in the rapidly expanding
OTT (Over-the-Top) and streaming market segments.

Furthermore, the merger facilitates strategic expansion opportunities, both domestically and
internationally. In the highly competitive Indian media market, achieving market penetration

10
id
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Supra 9
and capturing audience mindshare is paramount. Through this merger, Zee India
Entertainment and Sony can leverage their combined reach and brand equity to consolidate
their market position and explore new growth avenues. Moreover, as the global media
landscape undergoes rapid transformation, the merged entity is better equipped to capitalize
on emerging opportunities and navigate regulatory complexities across different geographies.

Additionally, the merger enables Zee India Entertainment and Sony to forge stronger
strategic alliances and partnerships. In an era characterized by digital disruption and
convergence, collaboration is key to driving innovation and unlocking new revenue streams.
By joining forces, these two industry giants can harness their complementary strengths and
capabilities to develop innovative content formats, explore new distribution channels, and
pioneer groundbreaking technologies. This collaborative approach not only enhances their
competitive edge but also positions them as industry leaders at the forefront of media
innovation.

III. REGULATORY CHALLENGES FACED DURING THE MERGER.

During the merger process between Zee India Entertainment and Sony, several regulatory
challenges emerged, posing hurdles that needed to be navigated carefully. One of the primary
regulatory challenges stemmed from the regulatory framework governing mergers and
acquisitions in the media and entertainment sector. Given the significant market presence of
both entities and the potential impact of the merger on competition, regulatory bodies closely
scrutinized the transaction to ensure compliance with antitrust laws and regulations. This
scrutiny involved assessing the potential market dominance of the merged entity, potential
anti-competitive effects, and the impact on consumer welfare. Addressing these concerns
required extensive engagement with regulatory authorities, including providing
comprehensive documentation, conducting market studies, and proposing remedies to
mitigate potential anti-competitive effects.

Another regulatory challenge pertained to sector-specific regulations governing broadcasting,

content distribution, and licensing agreements. The media and entertainment industry
operates within a complex regulatory landscape, characterized by sector-specific regulations
aimed at safeguarding public interest, content diversity, and cultural sensitivities. Therefore,
the merger process necessitated thorough analysis and compliance with regulatory
requirements related to broadcasting licenses, content regulations, foreign investment norms,
and cross-border transactions. Ensuring alignment with these regulations required meticulous
legal and regulatory due diligence, proactive engagement with regulatory authorities, and
adherence to statutory timelines and procedural requirements.

Furthermore, the merger faced regulatory scrutiny from financial regulatory bodies
overseeing investment transactions and capital markets. Given the substantial financial
implications of the merger, regulatory authorities such as the Securities and Exchange Board
of India (SEBI) closely monitored the transaction to safeguard investor interests, ensure
transparency, and prevent market abuse. Compliance with disclosure norms, insider trading
regulations, and shareholder approval requirements were critical aspects of regulatory
compliance during the merger process. Additionally, regulatory approvals from relevant
authorities were essential for the smooth execution of the merger, including approvals from
the Competition Commission of India (CCI), Ministry of Information and Broadcasting
(MIB), and other regulatory bodies overseeing media and entertainment sector transactions.

Moreover, the merger encountered regulatory challenges related to data privacy,

cybersecurity, and intellectual property rights (IPR) protection. In an increasingly digital and
interconnected environment, regulatory compliance with data protection laws, cybersecurity
standards, and IPR regulations became paramount. Safeguarding user data, ensuring
compliance with data localization requirements, and protecting intellectual property assets
were critical considerations during the merger process. Adhering to these regulations required
robust data governance frameworks, cybersecurity protocols, and comprehensive IPR due
diligence to mitigate legal and reputational risks.

The merger between Zee India Entertainment and Sony faced regulatory challenges spanning
antitrust scrutiny, sector-specific regulations, financial compliance, data privacy, and
intellectual property protection. Overcoming these challenges necessitated proactive
engagement with regulatory authorities, meticulous legal and regulatory due diligence, and
adherence to statutory requirements. By navigating these regulatory hurdles effectively, the
merged entity could ensure regulatory compliance, mitigate legal risks, and facilitate a
smooth transition, ultimately paving the way for a successful merger and consolidation in the
media and entertainment industry.

IV. KEY FACTORS LEADING TO CANCELLATION OF MERGER.

The cancellation of a merger represents a significant decision often influenced by a complex

interplay of various factors. Several key elements can contribute to the termination of a
merger agreement, each with its own weight and significance.

The Zee-Sony merger in India faced significant regulatory challenges that impacted its
progress. One major hurdle was a directive from the Securities and Exchange Board of India
(SEBI) that prohibited the promoters of Zee Entertainment Enterprises (ZEE) from holding
key positions in any listed entity, including the merged entity resulting from the Zee-Sony
merger12

This directive introduced uncertainty into the merger process as it potentially delayed the
merger and required assurance of a competent management team in place before proceeding
with the merger

The promoters, Subhash Chandra and Punit Goenka, were at risk of being unable to serve as
directors of the merged entity if SEBI's directive was upheld, further complicating the merger
process and potentially causing additional delays13

These regulatory challenges added complexity to the merger proceedings and contributed to
uncertainties surrounding the future of the Zee-Sony merger in India.

The key factors that led to the cancellation of the merger between Sony and Zee
Entertainment included:

12
https://www.reuters.com/markets/deals/analysts-recommend-selling-indias-zee-after-failed-sony-merger-
2024-01-23/
13
https://www.reuters.com/business/media-telecom/sony-scrapped-10-bln-india-merger-zee-failed-meet-
financial-terms-notice-2024-01-29/
 1. Regulatory Issues and Leadership Disagreements: Sony had concerns over Zee
CEO Punit Goenka's leadership role due to an investigation by India's capital markets
regulator, the Securities and Exchange Board of India (SEBI), into alleged fund
diversion by Goenka and Zee's founder Subhash Chandra. This disagreement over
leadership positions spilled into public view, with Zee advocating for Goenka to lead
the combined entity while Sony preferred existing CEO NP Singh 14. Regulatory
challenges frequently play a pivotal role in derailing mergers. Regulatory bodies such
as antitrust authorities scrutinize proposed mergers to ensure they comply with
competition laws and do not create monopolistic or anti-competitive market
conditions. If regulators raise objections or impose conditions deemed unacceptable to
the merging parties, such as divestitures or market restrictions, it can lead to the
cancellation of the merger.

2. Financial Concerns and Industry Dynamics: Zee faced financial challenges, with
eroding profitability and weak industry dynamics affecting its financial performance.
The company's Ebitda and PAT declined significantly over FY21–23, impacting its
financial health. Additionally, changing industry dynamics, such as Reliance's
Viacom and Disney + Hotstar deal, posed challenges for Zee to compete effectively in
sports and scale up its OTT platform without a strong financial partner15.
Valuation discrepancies, financing difficulties, or adverse market conditions can
undermine the financial feasibility of a merger. If the parties involved cannot secure
financing on favorable terms or if market conditions deteriorate, the economic
rationale for the merger may be called into question, prompting its cancellation.

3. Operational Issues: Operational issues like Zee's subsidiaries in Russia and Africa
not being shut down as required before the merger announcement, along with
unresolved matters like Zee's investment in Margo still appearing on its books,

14
https://www.hollywoodreporter.com/business/business-news/sony-scraps-zee-merger-india-1235803028/
15
https://www.businesstoday.in/markets/company-stock/story/zee-sony-merger-6-likely-reasons-for-the-deal-
falling-through-414470-2024-01-23
 contributed to the breakdown of the deal. Sony wanted these operational issues
addressed before proceeding with the merger, but they remained unresolved16.
Shareholder opposition can exert significant pressure on the parties involved in a
merger. Shareholders may express concerns about the terms of the merger, potential
dilution of ownership, or expected benefits. If shareholder dissent is substantial or if
obtaining shareholder approval becomes untenable, the merging parties may choose to
abandon the transaction rather than risk shareholder backlash or legal disputes.

4. Termination Fee Dispute: Sony demanded a termination fee of $90 million from Zee
due to alleged breaches of the Merger Cooperation Agreement (MCA). In response,
Zee refuted these claims and indicated that it would contest Culver Max’s and
BEPL’s claims in arbitration proceedings, leading to a legal dispute between the two
companies17.

V. CONCLUSION

In summary, both Sony and Zed stand to gain a great deal from the combination in terms of
increased market share and competitiveness in the quickly changing media industry. It is
imperative, nevertheless, to recognise the numerous difficulties and ramifications that come
merger a of this kind.

First of all, integrating two sizable organisations with disparate cultures, systems, and
technology is a difficult task that needs careful preparation and implementation. The
achievement of the synergies anticipated from the merger will depend on overcoming internal
resistance, coordinating strategic goals, and guaranteeing a seamless operational integration.
Furthermore, there will undoubtedly be ramifications for a number of parties involved in the
merger, such as shareholders, workers, clients, and suppliers. The benefits for all parties
concerned must be maximised while minimising any negative effects, such as job losses or
service interruptions.

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https://www.thequint.com/explainers/explained-as-sony-terminates-10-billion-merger-with-zee
Regulatory obstacles to the merger also loom big, especially with regard to antitrust and
competition laws. Regulatory scrutiny is to be expected given the combined entity's size and
propensity to dominate specific areas. It will need open communication, collaboration with
regulatory organisations, and possibly selling off some assets to allay worries about market
concentration to get over these regulatory obstacles.