BENGALURU/MUMBAI - The collapse of a planned $10 billion merger with Sony's unit has heaped pressure on Zee Entertainment, one of India's most popular TV networks, to pursue deals with new partners or focus on areas such as digital entertainment to revive its fortunes.

A Zee-Sony India merger would have created a media powerhouse in the world's most populous nation with 90-plus channels across sports, entertainment and news segments, which, India's antitrust body at one time said could have "un-paralleled bargaining power" when backed by Sony's global reach.

But after two years of deal talks, the Japanese company this week scrapped the deal saying terms of its merger agreement were not met and is demanding $90 million in termination fees via arbitration. Zee denies any lapses and has started its own counter-challenge legally.

Both Sony and Zee lose out as the merger could have helped them emerge stronger in India's $28 billion media and entertainment space, especially when rivals - billionaire Mukesh Ambani's Reliance and Walt Disney - are holding merger talks for their India media assets.

But the scrapping of the merger and the legal fight with Sony is seen jolting Zee more as it already faces a host of regulatory, business and financial challenges, according to analysts and three industry executives with direct knowledge of its thinking.

Zee's advertising revenues fell to $488 million for the 2022-23 year from around $600 million five years ago. Cash reserves dropped to $86 million from $116 million in that period.

Its CEO, Punit Goenka, is facing the market regulator's investigation for suspected diversion of company funds - allegations he has denied, but which became a key sticking point leading to the collapse of the Sony talks, Reuters reported earlier.

"Running Zee independently and reviving it looks tough. Lot of stakeholder trust has been eroded, rebuilding that is the priority," said one of the industry executives, who added Zee may need to now look for other buyers to revive itself.

Analysts at Emkay Global concurred, saying in a report this week Zee was likely to attract other suitors "with 'going it alone' being a low-probability event", adding "the potential Reliance-Disney merger can further weaken Zee's position, leaving it at a vulnerable spot in the overall industry".

A second industry source said Zee's top priority right now is to revive its business and challenge Sony's allegations legally.

Zee's shares have fallen 31.2% since the Sony deal collapse. Zee and Sony did not respond to requests for comment.



In a letter to employees, reviewed by Reuters, Sony India CEO N.P. Singh said this week the company "will actively explore new organic and inorganic possibilities to strengthen" its India presence.

Started in 1992 by CEO Goenka's father, Subhash Chandra, referred to as the "Father of Indian television", Zee was India's first private TV channel that quickly rose to become a household name by offering melodramatic Hindi dramas.

Shashi Shekhar Vempati, a former CEO of state-run Indian broadcaster Prasar Bharati, said Zee could still leverage its archival library of popular shows, create more entertainment content which is its "core strength", and promote its streaming platform that has lagged market leaders such as Netflix .

Zee digital revenues were 9% of its overall revenues in 2022-23, much lower than 16% for Disney India and 15% for Sony, analysts at India's Ambit Capital said in a report.

"Zee hasn't lost its core strength of producing compelling entertainment content, which it should focus on," Vempati said, adding they could "carve out a niche" with their digital streaming platform.

(Reporting by Munsif Vengattil, M. Sriram and Aditya Kalra; Additional reporting by Chris Thomas; Editing by Muralikumar Anantharaman)