Zee, Sony Unlikely To Take Flagship Channels Off Air To Meet CCI Conditions, Says Elara Capital

The conditional nod for the merger between Zee Entertainment Enterprises Ltd. and Sony Pictures Networks India Pvt. is unlikely to impact any of the flagship channels of the two broadcasters, according to Elara Capital.

The Competition Commission of India approved the amalgamation, according to a tweet by the regulator. The merger specifically involves combination of Zee Entertainment and Sony Group's Bangla Entertainment Pvt. with Culver Max Entertainment Pvt., an indirect wholly owned subsidiary of Sony Group.

The regulatory nod is subject to the parties carrying out "modifications".

While the CCI didn't give details, Elara Capital cited media reports that the broadcasters may have to take certain channels off air to meet the conditions. The detailed order is awaited.

"Since there is no major overlap for the two entertainment majors, it is unlikely that any large flagship channel will be taken off air," Karan Taurani, senior vice president and research analyst (media, consumer discretionary and internet) at Elara Capital, said in a note.

The two broadcasters hold three flagship Hindi entertainment channels—Zee TV, Sony Entertainment Television (SET) and Sony SAB—along with channels related to vernacular entertainment, films and more, as well as respective OTT platforms.

In terms of viewership share, Zee and Sony as a combined entity are below 40%, except the movie genre, where they hold more than 50%, Taurani said. Both companies will play off each other's strengths in the advertising segment, he said.

According to Elara Capital, smaller channels catering to niche genres, like rural general entertainment and Bangla channels, are the ones that might be switched off basis each one's strength. "For example, Sony may switch off its Bangla channel since it holds a minimal share. This in turn would not have a big impact on the overall revenue drivers and earnings."

Any indication of a flagship urban GEC channel shutting down by either of the broadcasters is a big risk as that drives a reasonable portion of revenues due to higher pricing, Elara Capital said.

Other Highlights From Elara Note

• In terms of synergies on advertising, there does not seem to be a big concern to hike rates over the medium term for the broadcasters as they will stand to play on each others strengths. This may lead to convergence of pricing gap, if any.

• As per BARC data, Zee and Sony command a total television viewership share of approximately 24%, which is tad higher than that of Star (20%). There is a potential for this to move upwards and even breach levels of Star TV given the right strategy on content and distribution.

• If the merger goes through in the form ad price hikes; cost savings on content, marketing and employee front; and better bargaining power with distributors (higher share), it will lead to re-rating of valuation multiples on the TV segment.

• Elara Capital has already assumed a re-rating for Zee-Sony, with a target price of Rs 425. The Zee stock closed at Rs 269.90 on Tuesday.