Sony this morning called off its merger with Zee Entertainment, putting an end to a deal two years in the making. Zee has said it plans to take legal action against the Japanese tech company.
Sony agreed to acquire a majority stake in the Indian media firm in 2021, with the aim of creating a $10 billion entertainment giant. The merged entity was estimated to become the second-largest entertainment network in India in terms of combined revenues. It would have held 75 TV channels, two streaming services (ZEE5 and Sony LIV) and two film studios (Zee Studios and Sony Pictures Films India).
But today Sony announced that it has terminated the agreement, following an intense series of negotiations over the weekend. Sony had concerns around Zee’s financial performance, with the Indian video market stifled by recent advertising shortfalls. The company’s advertising revenues fell 7.6 percent YoY in fiscal year 2023, while its pre-tax earnings tumbled 38 percent due to rising content costs.
And Sony had ongoing concerns around other dimensions of the contract. The company reportedly refused to keep on Zee CEO Punit Goenka, who was accused of fraud last year. In June 2023, India’s markets regulator barred Goenka from holding board positions, but lifted the ban in October. But the issue remained a sticking point for Sony, and negotiations to salvage the deal collapsed over the weekend.
Zee also said Sony had demanded a $90 million termination fee over “alleged breaches” of the deal’s conditions, which the Indian company “categorically denies”. Zee announced it will “take all the necessary steps to protect the long-term interests of all its stakeholders, including by taking appropriate legal action” against Sony.
Breaking the Indian streaming market
The termination marks a blow to Sony’s planned expansion in India, which has emerged as a key battleground in the streaming wars. The country represents one of the world’s fastest-growing economies, with a film industry to rival Hollywood. And advertising is one of its fastest-growing segments, according to Omdia, with video streaming gaining traction among the nation’s young consumers; more than half of the population is under 30 years old.
The deal would have given Sony a strong foothold in this environment, creating an extensive streaming offering and film library. India’s antitrust watchdog initially raised concerns over the “humongous market position” and “unparalleled bargaining power” the combined entity would hold, but ultimately approved the merger after the companies offered up concessions including pricing discounts.
It would also have enabled the Japanese business to compete with Disney, whose Indian business, Disney Star, forms the largest entertainment network in India. But Disney has seen its own share of struggles in the market, after losing key cricket streaming rights to Viacom18. Hotstar, Disney’s Indian streaming service, lost over one-third of its subscribers as a result. Last month, Disney reached a merger agreement with Viacom18 owner Reliance Industries, which could create a giant combined TV and streaming business.
Meanwhile the Indian video market is seeing heavy investment from international streaming companies. In December, Netflix identified India as one of its fastest-growing markets, with plans to scale up its user base to 100 million Indian subscribers, up from an estimated 10 million in September 2023. Disney’s Hotstar has more than 40 million subscribers in India, according to analysts at AllianceBernstein, while Amazon Prime Video has around 20 million.
Sony said it will continue to seek expansion in India, remaining “committed to growing our presence in this vibrant and fast-growing market.” India’s stock market is closed on Monday for a public holiday, but analysts warn that Zee’s share price, which jumped in anticipation of the merger, could now be set to drop.
