Two of India’s largest media companies are joining forces in a bid to dominate Indian entertainment and take on global giants.

Zee, India’s largest listed television network, is selling a majority stake of 51% to Sony Pictures Networks India, a subsidiary of Japanese conglomerate Sony. The two have “signed definitive agreements” to “combine their linear networks, digital assets, production operations and program libraries,” a December 21 regulatory filing by Zee stated.

Zee’s founders will be left with around 4%, and the rest will be owned by public shareholders. The new combined company will be publicly listed in India.

Competition on TV

There are not many bigger domestic markets than India. More than 21 crore Indian households have a TV – and Zee and Sony want as many of those eyeballs as possible.

Sony will have a cash balance of $1.5 billion “to enable the combined company to drive sharper content creation across platforms, strengthen its footprint in the rapidly evolving digital ecosystem, bid for media rights in the fast-growing sports landscape, and pursue other growth opportunities”, the company says.

The combined Sony-Zee behemoth will house 75 news, entertainment, sports and movie channels, and rake in revenues upwards of $1.8 billion annually. The large inventory will place the merged entity ahead of the current market leader, Disney-owned Star India, according to Reuters.

“The sum is larger than the parts here,” Utkarsh Sinha, managing director at Mumbai-based media consultancy Bexley Advisors, told Bloomberg, adding that, “both have large user bases, formidable content libraries and deep moats in content”.

Digital streaming

The companies’ streaming services – ZEE5 and SonyLIV – will get more firepower to take on global giants like Netflix, Hotstar and Amazon Prime Video.

Sony brings sports into the mix, including cricket, soccer, tennis, MMA and pro wrestling, while Zee5 has a robust slate of regional language content to offer. The latter will pour between 30% and 40% of its content investments into the regional space because they foresee more growth in it, Zee5 India chief business officer Manish Kalra told Business Today.

SonyLiv has also been working with Tata Consultancy Services to fix the shoddy user experience on its clunky app, and it’s considering jointly bidding with Amazon Prime Video for rights to the Indian Premier League – the cricket tournament that drew 1.86 crore viewers to Hotstar in 2019.

The benefit of joining hands likely will not be immediate though, projections by analyst firm Ampere show. Considering 40% of Zee5 and SonyLIV consumers have access to both services, “merging the two might even create a short-term decline (relative to the combined total of subscribers to each service)”, senior analyst Orina Zhao writes. “However, in the longer term, the more comprehensive content offering should provide a solid base from which to further develop the service and compete with Disney+ Hotstar.”

Even then, topping Disney+ Hotstar’s 4.6 crore-strong paid subscriber base is a long way off.

Projections by Ampere.

Invesco factor

The takeover, first announced on September 22, is going through after a 90-day period for due diligence. However, the deal is still subject to regulatory and shareholder approvals.

One stakeholder, in particular, could play spoilsport. US-based investor Invesco, which has an 18% stake in Zee, has been calling for a management reshuffle, including the exit of chief executive Punit Goenka. In an October 11 open letter, Invesco raised corporate governance issues, questioning “why the founding family, which holds under 4% of the company’s shares, should benefit at the expense of the investors who hold the remaining 96%”.

The matter is now in court, and the legal feud is likely the reason why Zee’s stock slipped 4.3% when the takeover was announced.

For now, though, Goenka is unlikely to go anywhere. In fact, quite the opposite is happening. He is going to be the managing director and CEO of the merged entity.

This article first appeared on Quartz.