Zee looks for a tech partner

India’s Rs. 5,000 crore streaming market

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Subhash Chandra (centre), chairman of Zee Entertainment Enterprises Ltd (ZEEL); Punit Goenka (right), MD and CEO of ZEEL; and Amit Goenka, CEO of ZEE5
Subhash Chandra (centre), chairman of Zee Entertainment Enterprises Ltd (ZEEL); Punit Goenka (right), MD and CEO of ZEEL; and Amit Goenka, CEO of ZEE5

Zee founder Subhash Chandra astounded the media world in November 2018 by proposing the dilution of the promoters’ stake in Zee Entertainment by 50%, within the next six months.

According to Subhash Chandra’s son and heir apparent Puneet Goenka, the founder was approached by a tech firm a few months back which had evinced interest in acquisition of stake in the media house. Who could the tech company be, which was looking at the vast array of Indian language content assets that Zee has? Whoever it was, they seemed to have convinced Zee that a synergistic merger with a tech major would be a win-win situation for both.

Zee wants both tech and global reach

It is reported that after an internal discussion amongst family members that included Subhash Chandra and his two sons Puneet and Amit Goenka, the family decided in favor of stake dilution to transform their media business into a significant tech-media player in the global market. However, instead of going with the offer received, Zee decided to conduct a roadshow for obtaining the best value through a transparent bidding process. The idea was to avoid speculative news leaks that may make the share volatile, explained Puneet Goenka in an interview with Bloomberg Quint. It would also keep the family safe from insider trading allegations, especially as it will be a ‘promoter to promoter’ deal and should not be seen to nor adversely affect minority shareholders.

“The best value means not only a good price,” says Goenka. “It would have to be a deal that would launch Zee outside its South Asian stronghold and also arm it with technology that would help it combat future competitors.” The family has also started at least talking about divesting its other interests in construction and packaging businesses, and aims to expand its core competency of broadcasting while increasing its footprint globally. The Zee roadshow to choose a partner is expected to roll out early in 2019.

Emerging from the group of death

Zee is in the highly competitive broadcasting industry. In football language you could call it the group of death, as there are many big players jostling for market share in a high growth industry. Here, the new dynamics of streaming video has been at play in the past two years, as data prices crashed with the entry of Reliance Jio.

With a billion mobile phones in play including 400 active smartphone users, India became the largest consumer of mobile data in March 2018. However, with a 9 Mbps average download speed, it ranks 109th globally in mobile and 67th in fixed broadband services. Singapore in comparison has the best average download speed of 163.5 Mbps in fixed broadband services.

Indians consume 1.5 billion gig content annually

The Indian market has been consuming copious amounts of video content – as per Niti Aayog CEO Amitabh Kant, it has reached 150 crore (1.5 billion) gigabytes annually – more than what is consumed by China and the US combined. The entry of Reliance Jio, its aggressive pricing push and its capability to rev up infrastructure has given jitters not only to the established telecom players but also to the broadcast industry. Reliance with Voot, Colours and Network 18 is armed with both content and tech besides the channels and fiber and last mile pipes that reach into homes and smartphones at the lowest cost.

With an abundance of slow internet connectivity, the only way to ensure fast delivery of video content is through streaming services. State-of-the-art technology is needed to deliver content efficiently. Looking at the current position of Zee in the Indian market, it needs to add weight to its newly launched streaming video service Zee5, which is amongst the top five players in a fast growing market with many aspirants. The US$ 700 million (Rs. 4,900 crore) domestic streaming market is currently led by Hotstar, which is owned by Star India. Star India in turn is now controlled by Disney Holdings, which bought 21st Century Fox from Rupert Murdoch for US$ 71 billion only last month.

The other big players in this space are Amazon, Netflix, Sony Liv, JioCinema and Voot (Reliance). There are also two dozen smaller players in the market including Airtel, the Bennett Coleman Times group and ALT Balaji that are expected by some analysts to grow perhaps as much as 50% to 100% YOY in the next five years. It is here that consolidation is bound to happen and Zee must find a tech partner to pitch its huge array of content to the consumer.

Amazon & Netflix look for local content

Despite its heady growth, the Indian market is extremely price sensitive. In the US a monthly cable TV subscription would cost US$ 100 (Rupees 7,000) while in India Netflix charges Rs 500 a month (US$ 7) while Amazon Prime’s monthly pack costs Rs 199 only (US$ 2.8). However, with both having started operations in 2016, they do not have the quantum of regional Indian language content that Star and Zee have. Without regional content, scaling up membership quickly is impossible. Hotstar (now a Disney property) has 2.5 crore (25 million) active users, which is more than five times the subscriber base of Amazon Prime and Jio-Voot and ten times that of Netflix. But with their high quality global content, Netflix and Amazon rule the hearts of premium consumers.

Moreover, both Amazon and Netflix are reportedly scouting for Indian content partners to scale up their offerings. SonyLiv, which essentially gets subscribers for football and cricket, is also on the lookout for Indian content partners. These three are strong in tech and have a global reach. It could be that Zee finds synergy and a future partner among these three, though wild card entries are possible.