This article written by, Shamika Vaidya, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) discusses the biggest M&A failures in the history of India.

Introduction

Mergers and Acquisitions are the way to survive a market or take a business to a next level and like any other industry the TV and entertainment industry is also witnessing M&A.The cost of running a Generic Media Channel (GEC) and media enterprise has gone up, the distribution and content cost have also skyrocketed. The market also sees a saturation after too many players step in. Channel with deep pockets would take the opportunity to diversify the business and it proving to be smart business to them.

Scope of TV and Entertainment Industry

India has the fifth large media and entertainment market in the world. The entertainment industry grew at a (CAGR) of 10.90% in (2017-2018) and is expected to grow at 13.10% by 2023.The total number of mergers increased from 58 (FY16) to 63 in (FY17).(See link here) The main focus of the production companies is focus on developing regional content as the country is culturally diverse. At the same time the Indian content is widely acceptable and appreciated in many countries as it is dubbed in various languages and broadcasted globally capturing more audience. Therefore, there is need for expansion amongst various companies globally and locally.

Globally, six companies own overall 90% of all media, the companies are as follows-

1) National Amusements

2) Disney

3) Time Warner

4) Comcast

5) News Corp

6) Sony (See link here)

Mergers and Acquisition

The entertainment industry is dynamic and the prime reason is the word entertainment itself. Viewers are always drawn towards the new changes and trends. Therefore, the parent companies and investors keep looking for the new trends that are evolving and there is a high- end competition between the well-established companies to acquire  the dynamic entities.The prime advantage of merging or acquiring is, it diversifies the companies profile and the company can start establishing in the new technologies and trends. It can be done in the following manner:

1. Share Acquisition 2) Asset Acquisition ( Multiplexes, Tv Towers, radio station)

Multiplex Space

Reasons for acquisitions-

Scope for growth

Multiplexes are not only famous in tier 1 & tier 2 but have also started emerging in tier 3 cities and continue to have a strong hold in the entertainment sector. The Multiplex Association of India had 900 multiplexes all over India in 2012. Almost, 3 billion tickets were sold during this time. The investment needed per screen is 2 crore however the rate of growth is very high. The net profit of PVR in 2010 was 17 crore which rose to 42 crore in 2011. The net profit of Cinemax rose to 21 crore in 2011 from 15 crore in 2010. (See link here).

Mall Culture

Malls and multiplexes are interconnected for their business, almost every single mall has a multiplex and therefore emerging malls are keen to have association with multiplexes. Due to the high rate of demand, growth and profitability companies look forward to acquire multiplexes.Below mentioned are few of M&A in this space –

1) Mexican Multiplex Operator Cinepolis acquired Fun Cinemas from Essel group in 2014.

2) Broadway Cinemas in 2015 acquired stake in Fun Cinemas and Big Cinemas in 2014.

3) PVR acquired a controlling stake in Cinemax in 2012.

Radio Space

Various reasons contribute to M&A in the radio space. The radio space industry is of the view that  lifting up the restriction on FDI entry in the Radio space would add scope and investments.Currently, private radio networks are not allowed  to broadcast current news and sports.Therefore due to regulatory restriction there is a saturation in the space.

Third Party measurements are not allowed and licences of auctions are very costly. Radio space also faces problem of copyrights, like the music from terrestrial radio cannot be played on the online medium. High royalties add extra pressure on the small companies owning few stations. Due to the scaling of economy the small players find it difficult to survive and the big players take this opportunity to acquire them.(See link here) Few of the M&A in the radio space –

1) The Merger of Entercom and CBS Radio marked a high-end merger in the international market in 2017.

2) Zee is in talks to acquire 49% stake in Big FM which is Reliance Broadcast Network’ s radio.

3) The proposed acquisition of OYE FM by Radio Mirchi was not approved and a writ petition was filed for the same in 2015. The purpose behind the acquisition was the growing pressure of the costs that OYE FM couldn’t bear. One of the reasons for the failure being the payment of migration fees from Phase 2 to Phase 3 auctions.

4) Jagran Prakashan backed by Blackstone acquired Radio City in 2015.

Internet Radio

Reliance Jio acquired Saavn and further planned to invest $100 million. This has given it access to a new mode of entertainment that is the internet radio and on demand music application, and its demand and popularity is burgeoning.

Internet Space

Changing times demand quick,handy and instantly available entertainment, to combat this need many video on demand firms like Hotstar, Voot and Sony Live emerged.

Tiger Global Management LLC acquired 25% stake in TVF (The viral fever), online content creator. This marks an era of the internet and videos being an integral part of the entertainment industry and many of the fact that many of the investments are plot by them proves their upcoming increase in the share of the growth.

With the popularity and demand of Netflix, AT&T acquired Time Warner to cope up with the changing trends and demands.

Gaming Space

India accounts for 13% of the total gaming industry in the world and there are giants like google and Microsoft looking forward for acquisitions. For the same, they have formed the Indian Digital Gaming Society (IDGS) and believe that the Indian gaming is maturing and increasing day by day.The market has witnessed some acquisitions like Nazara Technology acquired stakes in VR gaming company and NODwin gaming. Few of the prominent players in the space are  Loco, 99 games, Apar games etc, most of them are already a subsidiary of some big pocket and well established market players. Gaming is slowly emerging as a culture rather than a hobby in India and therefore it has a huge scope with India being in top five countries for mobile gaming. (See link here)

Channel Space

As the companies realised that it was of prime importance to add as much as regional contents, the companies started acquiring channels with regional and vernacular content.

Sports

Zee entertainment Enterprise Ltd (Zeel) had two phases in the sale of the TEN sports to Sony pictures for a consideration of 2,200 crore INR in all cash deal. Sony Corporation is a multinational conglomerate having its headquarters in Japan. It recognised India as a major market and therefore looked forward for the deal.

Music

Zee (Zee entertainment) acquired 9x media and its subsidiaries. (SPN) Sony Picture Network was looking forward for the deal a year preceding as one of the private equity players also looked for an exit however after the due diligence aborted the prospect. However, later Zee acquired 100% stake in 9xm and INX music, in a total cash buyout.

Divestments

Adhikari brothers was the first media company to get listed on the stock exchanges and later divested its business into two more entities and was also successful in listing two more of its entities which it demerged from itself.

FDI

Under the approval route the foreign route has to seek permission from Indian Foreign Investment Promotion Board.

1) 100% Foreign Direct Investment in Film and advertising through the Automatic Route.

2)  Under the Broadcasting Content Services, 100% Foreign Direct Investment for Uplinking of Non -News and Current Affairs’ TV channel under the Approval (Government) Route, 26% for uplinking of News & Current Affairs and Terrestrial Broadcasting FM under the approval route.

3) Under the Broadcasting Carriage Services, for DTH Foreign Direct Investment upto 49% is the automatic route and further (49%-74%) requires the approval, for cable networks FDI through automatic route is 49%.

Regulations in India

The sectoral authority for the telecommunication and entertainment is the Ministry of Information and Broadcasting and The Telecom Regulatory Authority of India.

There are few Act and Regulations in this space as follow-

1) Cable Television Networks (Regulation)Act

2) The Prasar Bharati (Broadcasting Corporation of India) Act, 1990

Uplinking and downlinking

The communication going from satellite to ground is called downlinking and from ground to satellite is uplinking. The Up-linking licence fee is 3 lakh per annum whereas the downlink is 7.5 lakh per annum in India. Transfer of license for uplinking or downlinking is not allowed between two companies however in case of a merger or acquisition the license can be transferred only after following of the prescribed process.

Security Clearances

The Ministry of Information and Broadcasting had cleared in a notification that it is mandatory for a broadcast network to complete its security clearances. Therefore, for the approval of scheme of arrangement /amalgamation the security clearance certificate is required.

Although methods like slump sale and business transfer Agreement have been common practises they are not yet recognised in the regulations in this area.

Approvals

• A Board Resolution and approvals from the Shareholders of the company are necessary.In case of asset acquisition resolution from the shareholders through Postal Ballot is necessary.
• Approvals are necessary for the Scheme of Amalgamation to be sanctioned by the National Company Law Tribunal in case of a merger. TRAI (Telecom Regulatory Authority of India) is the sectoral authority for the television and entertainment industry. The company also has to take approvals from other authorities like –
  • SEBI
  • Stock Exchanges
  • Competition Commision of India
  • Tax Authorities Regional Director and Official Liquidator.
  • In case of acquisition of stake more than or equal to 25% in the listed companies the takeover regulations have to complied.

Conclusion

The Television and Entertainment Industry has witnessed M&A and would continue to do so as the companies look forward to expand and diverse themselves,the Indian policies in this field are also seen to be  more liberalised with time.