After Sony’s India business called off the merger, Zee Entertainment Enterprises Limited (ZEEL) finds itself in the tough spot of having to find another saviour even as the digital onslaught is taking a toll on linear TV business and a much larger merger is brewing between Reliance Industries Limited (RIL)-Disney Star which will likely corner a lion’s share of the advertising revenues.
“ZEEL’s linear TV is already facing its share of trouble and the digital business requires substantial amount of investment to keep up with the pace of growth,” says Managing Partner Vivek Menon of NV Capital, adding that it is imperative for them to get the mix of growth and profitability right.
Brokerage firm Elara Capital highlighted in a note that ZEEL reported a muted performance in terms of growth and profitability over the last two years. “Revenue growth has converged to 2.2% during financial years FY20 to FY24 (estimated) and Ebitda margin dipped to 10.2% (9MFY24E) due to losses in the OTT segment and lower growth in the linear TV segment.”
Besides, Disney Star had sub-licensed its TV rights for the 2024-27 ICC cricket tournaments to ZEEL in August 2022 in a one-of-a-kind deal. Elara estimates Rs 1,520 crore annual loss for ZEEL in FY2024-25 and beyond owing to hefty content costs, lower sports ad revenues and cricket content being free available for free on other OTT platforms. The total cost of the bundled deal for Disney Star was an estimated Rs 25,000 crore for TV+ digital for 2024-27.
“The tournaments will begin from this calendar year. If ZEEL honours the contract, it is going to hurt them because there is a huge amount of loss to be written off. If they do not honour the Disney contract, there are legal implications for Zee,” says Karan Taurani, media analyst and senior Vice-President, Elara Capital.
Sports was one of the missing pieces of the puzzle for ZEEL that Sony would have fulfilled had the merger gone through. Zee’s sports strategy, especially for its digital platform, looks uncertain now given that it only has about Rs 600 crore of cash reserve, adds Taurani.
“The need of the hour for them is to create a back-up plan in the form of a white knight to support them in the road ahead since there are various hurdles on multiple fronts that they would need to encounter,” says Menon.
Sony was, in fact, their white knight after American firm Invesco – their largest shareholder – wanted the Goenka family out. But now that Sony has also called it quits on them, ZEEL is back to where it was, except that it now has legal battles with Sony and a Reliance-Disney merger to contend with additionally.
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