Proposed transaction
CCI observations
Party response
New voluntary remedies
Comment
On 4 October 2022, the Competition Commission of India (CCI) conditionally approved the proposed merger of Zee Entertainment Enterprises Limited (ZEE) and Sony Group Corporation (SGC) in India (the proposed transaction). The merger between the two leading players in the broadcasting sector would create the largest television broadcaster in India. To address the initial concerns of the CCI, the parties successfully offered voluntary divestments to the CCI, resulting in a phase one clearance of the proposed transaction.
The proposed transaction involved:
- the amalgamation of each of ZEE and Bangla Entertainment Private Limited (BEPL), with and into an indirect subsidiary of SGC, Culver Max Entertainment Private Limited (CME) (ZEE, BEPL and CME are together referred to as the "parties"); and
- the preferential allotment of certain shares by CME to Sunbright International Holdings Limited (earlier known as Essel Holdings Limited), and Sunbright Mauritius Investments Limited.
In conclusion, SGC would indirectly hold 50.86%, public shareholders of ZEE would hold 45.15% and promoters of ZEE would hold 3.99% of the shareholding of CME.
The CCI noted that the parties were present across the entire value chain of the broadcasting industry in India, which comprises content production and aggregation, broadcasting and content distribution. The CCI identified concerns in the following relevant markets.
Operation and wholesale supply of TV channels in India
The CCI noted that the proposed transaction would cause further concentration in the market, with the top four players already holding a market share of around 65-70% and the parties holding a combined market share of 25-30%. Specifically, the parties would have a market share of 40-45% in Hindi language-based television channels with Disney Star a distant second.
Supply of advertising airtime on TV channels in India
The CCI observed that post-combination, the market for supply of advertising airtime on TV channels in India would be dominated by only two major players: CME and Disney Star. The CCI held that the proposed transaction would allow CME to raise the prices of its advertisement slots due to the reduction in the bargaining power of advertisers.
The CCI also noted the increased bargaining power that CME would enjoy with the downstream partners such as distribution platform operators (DPOs), which obtain TV channels from broadcasters and distribute to end-consumers through:
- cable;
- direct to home;
- internet protocol television; or
- head in the sky.
The CCI found no competition concerns resulting from the proposed transaction in the following markets:
- retail supply of over-the-top audio visual content in India;
- licensing of audio-visual content in India;
- production and supply of films to third-party distributors and exhibitors for theatrical release in India; and
- licensing of music rights in India.
The CCI initially opined that the proposed transaction would cause an appreciable adverse effect on competition in India given that the CME would:
- be the largest broadcaster in India with more than 90 TV channels, a vast amount of content and high market shares in various segments and therefore be an indispensable partner to the downstream players such as DPOs;
- have the ability and incentive to increase the prices for advertisers, DPOs and viewers in segments where it would have high market shares; and
- have the ability and incentive to engage in differential pricing and behaviour with DPOs.
Accordingly, on 10 August 2022 the CCI issued a notice to the parties directing them to show cause as to why the CCI should not conduct a phase two investigation against the proposed transaction.
The parties responded to the show cause notice on 9 September 2022, contending that the CCI's initial concerns were unfounded. The parties relied heavily on:
- the highly regulated nature of the industry;
- the countervailing buyer power of DPOs and advertisers; and
- the trend of declining market shares of the parties in various segments.
Subsequently, the parties submitted supplemental responses to the show cause notice and offered certain voluntary modifications and behavioural remedies.
Following an oral hearing before the CCI, the parties submitted fresh voluntary remedies to the CCI on 4 October 2022, superseding their prior submissions. These final remedies did not include the behavioural remedies offered earlier and only involved the divestment of three TV channels – namely, Big Magic, Zee Action and Zee Classic.
The CCI observed that the parties sufficiently addressed the initial concerns identified in the show cause notice. Accordingly, the CCI approved the proposed transaction subject to compliance with the modifications offered. The CCI also directed that neither Star India Private nor Viacom 18 Media Private Limited could purchase the voluntary remedy package.
The CCI's decision demonstrates its increasing familiarity in dealing with competitively significant transactions and dealing with the media and entertainment sector – specifically, broadcasting. The decision also exhibits the keenness of the CCI to support the ease of doing business by concluding a review of combinations within phase one itself. This is, however, contingent on parties willing to offer adequate remedies to address any potential concerns that the regulator may highlight. Parties to a transaction may, therefore, carefully assess any potential competition concerns prior to filing and, thereafter, engage with the CCI officials to offer a feasible remedy package in the early stages of the review process to avoid a protracted and intrusive phase two investigation.
For further information on this topic please contact Shubhang Joshi or Sonam Mathurat TTA by telephone (+91 11 46299999) or email ([email protected] or [email protected]). The TTA website can be accessed at www.tta.in.
