Exclusive: Sony-Zee merger could hurt competition, needs more scrutiny, Indian regulator finds

A man stands next to a Sony Entertainment banner outside a movie in Mumbai, India, on September 24, 2021.REUTERS/Francis Mascarenhas

NEW DELHI, Sept 1 (Reuters) – A merger between Japan’s Sony’s Indian unit (6758.T) Entertainment with Zee (ZEE.NS) The country’s antitrust watchdog found in a preliminary review that creating a $10 billion TV business could harm competition by having “unparalleled bargaining power,” according to an official notice seen by Reuters.

The Competition Commission of India (CCI) issued a notice to the two companies on Aug. 3, saying the regulator deems it worth further investigation.

Shares of Zee were down nearly 5% in early trading on Thursday following the Reuters report.

In December, Sony and Zee decided to combine their TV channels, movie properties and streaming platforms to create a formidable force in a key media and entertainment growth market of 1.4 billion people, challenging rivals such as The Walt Disney Co. (DIS.N). read more

Three Indian lawyers familiar with the process said the CCI findings would delay regulatory approval of the deal and could force the companies to propose changes to their structures. They added that if this still does not meet CCI’s requirements, it could lead to an extension of the approval and investigation process.

Zee said in a statement that it will continue to take all necessary legal steps to complete all necessary approval processes for the proposed merger.

India’s CCI and Sony did not respond to requests for comment. Sony representatives in Japan also did not respond.

In the 21-page notice, CCI said its preliminary review showed that the proposed deal would put the combined entity in a “strong position” with about 92 channels in India, and also mentioned Sony’s global revenue of 860 million. US$211 billion in assets.

“Such a clearly large market position will allow the combined entity to enjoy unparalleled bargaining power,” CCI said in its notice, adding that the combined entity may increase the price of channel packages.

It gave both companies 30 days to respond, starting Aug. 3.

The regulator said a preliminary review showed the deal could have “significant adverse effects on competition”. “Therefore, it is considered appropriate to conduct further investigations into this matter.”

Zee’s managing director Punit Goenka said in a media interview in December that he believes the relative value of the combined entity “could be closer to $10 billion” and expects to receive all necessary approvals by October this year.

“Classic Mergers”

Industry executives said the deal would allow the two companies to draw more ad revenue from streaming services and TV broadcasts, competing with Disney, whose Star India network has dozens of popular entertainment and sports channels .

Preliminary CCI competitive assessments also showed that the combined entity would have a roughly 45% share of the Hindi-language segment, which attracts the largest audience in the country, with Star “by far ahead”.

This will further concentrate these segments at the expense of competition, CCI said in its notice.

Sony and Zee had responded to two so-called “deficiency” letters from regulators in June and July asking about the deal.

After analysing submissions related to advertising revenue, CCI said the combined entity could potentially use its strong market position to raise prices for some advertising.

“The combined power of the parties may be used to consolidate their presence and generate higher profits,” CCI said.

“This merger is a classic case of a No. 1 or No. 2 player integrating with a No. 3 competitor to become a strong market leader.”

Reporting by Aditya Kalra and Aditi Shah in New Delhi; Editing by Kirsten Donovan

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