Exclusive: Sony-Zee merger may harm competition, further review needed, Indian watchdog says

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

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  • Initial review of Sony-Zee merger reveals antitrust issues – opinion
  • The merged entity can enjoy a “huge” position in the Indian market
  • Notice could delay deal approval – lawyers
  • Companies have 30 days to respond.

NEW DELHI, Sept 1 (Reuters) – A merger between the Indian unit of Japanese Sony (6758.T) and Zee Entertainment (ZEE.NS) to create a $10 billion television business could hurt competition by having “unprecedented bargaining power”, the country’s antitrust watchdog found in an initial review, according to an official notice seen by Reuters.

The Competition Commission of India (CCI) notice of August 3 to the two companies said the watchdog is of the view that further investigation is warranted.

Shares of Zee fell nearly 5% in morning trading on Thursday after the Reuters report.

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Sony and Zee decided in December to merge their TV channels, movie assets and streaming platforms to create a powerhouse in a key growing media and entertainment market of 1.4 billion people, challenging rivals like Walt Disney Co (DIS.N). Read more

The TCC’s findings will delay regulatory approval of the deal and could force the companies to propose changes to its structure, said three Indian lawyers familiar with the process. If this still does not satisfy the ICC, it could result in a protracted approval and investigation process, they added.

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

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

In its 21-page opinion, the ICC said its initial review shows the proposed deal would put the combined entity in a “position of strength” with around 92 channels in India, also citing Sony’s global revenue of $86 billion and its assets of $211 billion.

“Such a seemingly enormous market position would allow the combined entity to benefit from unprecedented bargaining power,” the CCI said in its notice, adding that the combined entity could increase the price of the bundles of chains.

He gave the two companies 30 days from August 3 to respond.

The initial review shows the deal is likely to cause a “material adverse effect on competition”, the watchdog said. “Thus, it is deemed appropriate to conduct further investigation into the matter.”

Zee chief executive Punit Goenka said in a December media interview that he viewed the combined entity’s relative value as “potentially close to $10 billion” and expected all necessary approvals by October. of this year.

“CLASSIC MERGER CASE”

Industry executives say the deal would allow the two companies to attract more advertising revenue through streaming services and TV shows, competing with Disney whose Star India network has dozens of entertainment channels and popular sports.

CCI’s preliminary competitive assessment also showed that the merged entity would own around 45% of the Hindi-language segment, which attracts the largest audience in the country, with Star in second place.

This would further concentrate these segments to the detriment of competition, the CCI said in its opinion.

Sony and Zee had already responded in June and July to two so-called “default” letters issued by the watchdog inquiring about the deal.

After analyzing submissions related to advertising revenue, the CCI said the merged entity was likely to use its strong market position to raise the price of certain advertisements.

“The combined strength of the parties will likely be used to strengthen their presence and achieve higher profits,” the CCI said.

“This merger is a classic case where the first or second largest player integrates with the third largest competitors to become the market leader.”

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

Our standards: The Thomson Reuters Trust Principles.

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