Zee's $1.5-bn ICC TV rights deal with Disney Star at risk as Sony calls off $10-bn merger

Zee Entertainment Enterprises Ltd's four-year pact with Disney Star for TV broadcasting rights of certain cricket events is suddenly at jeopardy after Sony terminated the $10-billion merger deal with Zee. 

In 2022, Disney Star had licensed a part of the ICC rights it won for the Indian market to Zee Entertainment Enterprises. The agreement meant that Zee will broadcast the ICC men's and Under-19 tournaments in India for the 2024-27 cycle, while Disney Star retains the digital rights for the same events.

There are four men's marquee events in the 2024-27 period, including two T20 World Cups (2024 and 2026), the 2025 Champions Trophy and the 2027 ODI World Cup.

However, Sony has pulled out of the mega merger deal with Zee at a time when broadcaster would have to pay $1.32 billion to $1.44 billion over the tenure of the agreement with Disney, analysts told Reuters. 

If Zee fails to honour its ICC TV sub-licensing deal with Disney Star, the latter might explore legal options. "Disney Star would not hesitate to take Zee to court if it fails to honour the agreement," a legal expert told Economic Times last month. 

The broadcaster missed an early-January deadline to pay $200 million, Bloomberg News reported on January 9.

In its FY23 annual report, Zee had said that the acquisition of ICC TV rights is "subject to certain conditions precedent, including submitting financial commitments, guarantees, and ICC approval for sub-licensing to the firm, which are pending".

Zee has been contending with declining profits, advertising revenue and cash reserves in a market where global streaming giants such as Netflix and Amazon.com are also jostling for share.

Sony Group Corp on Monday said it is calling off a $10-billion merger of its India unit with Zee Entertainment, following a stalemate over who will lead the merged entity.

The entertainment giant sent a termination notice to Zee on the deal, which was announced more than two years back, and is seeking USD 90 million as break-up fees for violating the terms of the merger pact and “invoking arbitration”.

In a stock exchange filing on the issue, Zee on its part denied all claims made by Sony and said it is exploring legal remedies. “Zee has displayed utmost commitment towards the merger by undertaking several permanent and irreversible steps, resulting in one time and recurring costs for Zee,” it said.

A standoff over leadership is said to be the reason for the deal being called off. Sony had resisted demand by Zee chief executive Punit Goenka, who was investigated by market regulator SEBI over fraud allegations, to stay on after the merger.

The deal was seen as crucial for both companies for survival in the world’s fastest-growing large economy.

The deal would have created an entertainment conglomerate with more than 70 Indian TV channels, popular Bollywood studios and an extensive film library to take on global powerhouses Netflix and Amazon.

“Sony Pictures Networks India Pvt Ltd (now known as Culver Max Entertainment Limited), a wholly-owned subsidiary of Sony Group Corporation, today issued a notice terminating the definitive agreements entered into by SPNI and Zee Entertainment Enterprises Ltd. relating to the merger of ZEEL with and into SPNI, which was previously announced on December 22, 2021,” the Japanese firm said in a statement.

The definitive agreements provided for the merger to close within 24 months. On expiry of such a period, the deadline was extended by a month.

“The merger did not close by the end date as, among other things, the closing conditions to the merger were not satisfied by then, ” the filing said.

Sony said it was “extremely disappointed that the conditions to the merger were not satisfied” by the deadline, which had been set as January 21. The company added that it “remained committed to growing our presence” in India.

In a stock exchange filing, Zee said it had also received a demand from Sony for a $90 million termination fee over “alleged breaches” of the terms of the deal.

“The company categorically denies all claims and assertions” by Sony and is evaluating all options, Zee said in the filing adding it “will take all the necessary steps to protect the long-term interests of all its stakeholders, including by taking appropriate legal action”.

Zee said it had taken “all efforts and steps” in line with the merger agreement and had consistently worked towards implementation of the deal.

With inputs from PTI