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Scripting A New Storyboard

Zee Entertainment promoters have outlined a plan to bring in a strategic partner. Will that change its stock’s fortunes?

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Stock investors in Zee Entertainment are hoping the value of their shares take off once the promoters bring in a strategic investor as the media giant scripts a new chapter in its 35-year-old journey.

Competing against global giants in the media industry, the Zee group over the years has built a formidable media empire in India and parts of the globe, but with changes knocking in the form of OTT platforms requiring huge investments in content and distribution, the things that are most required now are cutting edge technology and deep pockets.

Not investing in new technologies can be a huge competitive liability in the future, according to media analysts. Some players with deep pockets can burn cash in the business long enough for traditional media companies to get burnt out. Besides, having an OTT platform also means that media companies have to invest heavily in new globally relevant content, which means further huge investments in content. Which is why the Zee group’s decision of offloading its promoter’s stake has gelled with analysts.

Says Jinesh Joshi, Research Analyst, Prabhudas Liladhar: “Considering the disruption which is happening in the media it is paramount for anyone in content creation to have someone as a strategic partner to compete with OTT platforms, which are proliferating.” Joshi points out many big players like Netflix, Amazon have enough money to burn and stay relevant for the audience despite not making enough money out of their own offerings. “So unless and until you have a very deep pocket it is not convenient for you to compete with them,” avers Joshi.

Zee Entertainment, for its part, is no stranger to competition having built an empire with total revenues of over Rs 6,780 crore, and a market capitalisation of Rs 45,857 crore, approximately $6.45 billion. But the stock dwarfs in comparison to the newer fast-growing global content powerhouses like Netflix, which is worth over $116 billion.

To be sure, Zee already launched Zee5, an OTT digital platform, with claims of it being the number two digital platform. Nevertheless, the models of the digital business are vastly different from traditional broadcasting. Which is why, analysts note that it would have been difficult for Zee as a standalone entity to compete with players having significant capital in the global tech industry.

Over the past many years, the Zee group has undergone a series of restructuring exercises that included hiving of its news and other businesses. The group has also invested in new programmes, which even reflected in the expanding market value. Zee group’s flagship stock rode on the expanded market offering and from about Rs 150 in late 2012, peaked at a little over Rs 600 in February 2018. Since, then the stock has tumbled over 20 per cent due to the increasing competition and is now quoting at Rs 477.

The stock has barely responded to the news of getting a strategic partner, which in normal times would have helped buoy the stock’s performance. Market watchers also want to see who will ultimately partner Zee as a strategic investor. If the strategic investor brings in technology and good content, stock market analysts reckon that it can improve the sentiment around the broadcast media business.

“This strategic investor could be someone who can guide the company as to what they have to do to compete with the OTT players. Cord-cutting is happening and viewers are moving from traditional television to OTT. You could say it is a bit too early in India as a large portion of the economy still prefers to consume content through the television. Still media companies have to be prepared as one can easily be irrelevant in the next few years,” says Joshi
Analysts also see that Zee’s huge content library can attract a host of suitors for half the stake that the promoters plan to offload until March 2019. Bankers have already been appointed for selling the stake.

Zee can potentially attract interest from US tech firms such as Netflix, Amazon, Google and FB which have aspirations to be broad-based players in Indian media; Chinese tech firms Alibaba, Baidu and Tencent who have achieved success in digital video in China and may be keen to participate in the India opportunity; Walmart / Flipkart and Airtel who do not have content strength akin to their key competitors; and Jio to strengthen its content capabilities and thwart new competition.

Still, analysts expressed their surprise on the need for offloading 50 per cent of the promoter holding as compared to offering new shares in the company. Analysts also don’t see the deal as promoters cashing out. Zee promoters hold 41.6 per cent in the company (59 per cent of this holding is pledged), but they will sell only up to a maximum of 50 per cent of their holding.

In a conference call, Zee highlighted the fact that the company already received many proposals, and is even open to bring in a strategic partner in its OTT platform Zee5. As a media house, Zee is also looking at the tech-related initiatives in the longer run that includes IOT and patents.  
While the Zee group is no stranger to re-jigging business, this decision to bring a strategic investor is perhaps the most important one as it clears the air on the company’s competency in the long run. The only issue for shareholders is who will be the strategic partner and how much value they bring to the table. That will be key to unlocking future shareholder returns.  


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