Breakingviews: Father of Indian TV muddies deal transmission

The father of Indian television needs to convince his shareholders he still knows best. Subhash Chandra agreed on Wednesday to offload an 11% stake in his Zee Entertainment Enterprises to the Invesco Oppenheimer Developing Markets Fund, valuing the country’s top broadcaster at 384 billion rupees ($5.6 billion). The partial sale of his 36% stake will help Chandra to pay down debt at his Essel Group but shareholders miss out on a control premium and face more uncertainty before Zee Entertainment can realise its value.

Zee Entertainment is a prize asset, commanding one fifth of India’s entertainment viewership. It owns the world’s largest library of Hindi-language films, plus a film studio and a music label. Its brand-new streaming product, ZEE5, already has 76 million monthly active users who spend an average 33 minutes per day on the platform. The company has been investing heavily but has minimal debt. And it still managed to generate a healthy 33% EBITDA margin in the June quarter. That’s testament to a strong management team led by Punit Goenka.

Investors, though, are disappointed with a deal valuing Zee Entertainment at 22 times forward earnings estimates, on a par with Walt Disney. The shares have almost halved since a peak in early 2018 and fell a further 4% on Thursday. The media mogul has revealed a preference to sell a small stake to a financial investor rather than a larger chunk to a strategic one. A mooted bidder like U.S. cable giant Comcast may have paid more for a path to control. Worse, the uncertainty isn’t over: as deleveraging efforts continue at the parent group, Chandra could further trim his holding.

There are other reasons shareholders are anxious. The industry is adjusting to new rules allowing broadcasters to price their channels based on their popularity. Competition is also intense: ZEE5, for example, is competing for online subscriptions against Netflix, Amazon Prime and others, including Hotstar, which has a strong grip on Indian cricket. Owner of the latter, rival StarTV, is now owned by Disney following its purchase of Twenty-First Century Fox. With the industry in flux, a muddy deal transmission makes for poor viewing.