Author name: CBCL

[By Samay Jain] The author is a student at Institute of Law, Nirma University. INTRODUCTION The merger of Zee and Sony was approved by the Competition Commission of India (CCI), subject to certain terms and conditions. These terms and conditions were levied to stop the merger, which would be operating more than 90 channels across the country, from misusing its dominating position in the market. In India, the Hindi language category draws the most viewership, and according to its pilot study, the merged company would have 45% of that market, with rival Walt Disney – Star coming in as a close second. The CCI stated in its initial study that due to its powerful negotiation strategy and access to unmatched resources, it could have the ability to raise the cost of advertising and channel subscriptions. After considering the company’s legal and financial arguments, Zee reported that the CCI approved the amalgamation of Zee and Sony. Some suitable remedies were also proposed to be provided by Zee in conformity with the regulators’ requirements.[i] In view of this, this article analyses the reasons behind the grant of approval for the proposed merger between Zee and Sony. The article further tries to allay possible concerns of the merger abusing its dominant market position. BACKGROUND For two businesses that rely on creating such leisure plots for their livelihood, the chain of events that culminated in the merger seems largely acceptable. Sony first tried to get in touch with Mr. Goenka in November 2020, but he declined. A few months later, KPMG (Klynveld Peat Marwick Goerdeler) approached him on behalf of Sony and provided an updated figure, which is when things got going. By August 2021, he had already joined the conflict. [ii] However, Invesco, which owns an 18% stake in Zee, lambasted the company for poor corporate governance and submitted a request for the nomination of 6 independent non-executive directors to the Board of Directors of Zee as well as the dismissal of Mr. Goenka as the CEO. Zee resisted the EGM’s attempt to be called, claiming that the intended Requisition was against Indian law.[iii] The proposed merger saw another twist when the Bombay High Court decided in Invesco’s favor, upholding Invesco’s request for an EGM (Extraordinary General Meeting)as being legally valid but reversing a previous single-judge Judgment. Following this ruling, Invesco decided to revoke the requisition notice that it had issued calling for Punit Goenka, MD, and CEO of Zee, to be removed from the Board.[iv] CONDITIONS IMPOSED BY CCI FOR THE MERGER TO TAKE PLACE: The prospective buyer should be unrelated to or independent of the resultant firm and its subsidiaries. The suggested buyers cannot be Star India Private Limited or Viacom18 Media Private Limited. The buyer must not have been an employee or director in the past or present. To sustain and expand the different channels as a successful enterprise and a vigorous rival to the resulting entity in the pertinent market, the buyer must possess the required funds, the necessary knowledge, and the motivation to do so. The divestiture should not put the CCI’s order at risk of being implemented late or with immediate concerns about competition. To buy and run the networks, the buyer should obtain the necessary regulating body permissions. DETERMINING THE DOMINANT MARKET POSITION Disney + Hotstar, which also has Star Sports in its possession, is well ahead of other OTT platforms in terms of market share and subscriptions. Disney + Hotstar is placed at the 1st position with 41% share, followed by Eros Now with 24% share, Amazon Prime Video (9%), Netflix (7%), ZEE5, and ALT Balaji (4% share each), and SonyLIV (3%).[v] In terms of subscribers as well, Disney + Hotstar is in the lead with 14 crore subscribers, followed by Amazon Prime Video with 6 crore subscribers, Netflix (4 crore subscribers), ZEE5 (3.7 crore subscribers), and SonyLIV (2.5 crore subscribers).[vi] Others have the highest market share of TV broadcasters with 35.7 % share, followed by Star + Disney with 18.6 % share, Zee (18.4 % share), Sun (10.4 % share), Viacom (8.6 % share), and Sony (8.3 % share).[vii] As per TRAI press release dated 17th Feb 2017, the Telecom market was led by Airtel holding a market share of 23.5% followed by Vodafone (18.1%), Idea (16.9%), BSNL (8.6%), Aircel (8%), RCOM (7.6%) and Jio (6.4%). Thus, having regard to a subscriber base, resources & economic power, it cannot be said that Jio enjoys a dominant position in the market and hence, its offers are only in nature of promotion rather than being predatory.[viii] Similarly, the merger of Zee and Sony despite being the 2nd largest conglomerate will not have the highest market share as it is held by Disney + Hotstar who have Star Sports as well. As of this year’s first quarter, the Broadcast Audience Research Council (BARC) India’s weekly networks’ combined viewing share has been progressively declining. According to BARC viewership data obtained from subscribers, in the Hindi General Entertainment Channel (GEC) genre, the two businesses’ combined share has declined from 49% in FY19 to 43% in FY21 and 41% in FY22. The percentage has decreased to 36% so far, this fiscal year (year to date FY23).[ix] Corresponding to this, the shares for FY22 and the first half of FY23 in the Hindi cinema genre are 38% and 33%, respectively. During the first half of FY23, the proportions in the Bengali GEC, as well as Marathi GEC categories, plummeted to 38% and 27%, respectively.[x] From the data presented above, it can be deduced that the merger of Zee5 and Sony will never be in a dominating market position since it lags behind Disney + Hotstar in the OTT market and Star + Disney and Other Broadcasters in the TV Broadcaster market. To further allay this fear of anti-competitive measures like being in a dominant position and abusing it, Sony and Zee voluntarily agreed to sell three Hindi channels – Big Magic, Zee Action, and Zee Classic. This would further contradict CCI’s

[By Tanvi Shetty] The author is a student at the O.P. Jindal Global University   Despite the Centre allowing for 100% FDI (i.e., A foreign carrier can invest up to 49% in an Indian firm)[1] and easing of pre-requisites for a carrier to operate on international routes[2], the airline industry is often in a slump given its dependency on the fuel prices and labour-intensive operations. Most Indian carriers fail to break even and many airlines such as Jet Airways have shut shop. With the onset of the pandemic and the general sag in the airline industry, firms have sought to combinations to increase efficiencies and break even. The Competition Commission of India (“CCI”) is likely to review such mergers in order to analyse the potential Appreciable Adverse Effects on Competition (“AAEC”) and a strong defence at the perusal of such airlines is the “failing firm defence”. The defence enunciates that in the absence of a merger, the assets of the failing firm would entirely exit the market thereby affecting market competition adversely. The failing firm defence was revisited in context of Covid-19 and the conversation opened up in different jurisdictions. Various anti-trust regulators acknowledged how mergers and consolidations may ensue in the market given the depleting state of economies globally. While the CCI issued an advisory note to businesses, there was no mention of facilitation of mergers. The note was limited to s.3(3) of the Act focusing on arrangement that would increase market efficiencies considering Covid-19[3]. Nevertheless, the Act under s.20(4)(k)[4] recognises it as a defence and the matter is often reviewed closely and linked to insolvency proceedings (IBC proceedings)[5]. On a global stage , the ‘failing firm’ defence has been used restrictively. In the EU, the commission’s rulings on the Aegean/Olympic II[6]shed light on how a previously declined acquisition of airline was approved amidst the plummet of the Greek Economy. In the present case, the two airlines had applied before the European Commission for sanctioning of their merger amidst the global financial crisis of 2008. They were refused on grounds of lack of sufficient evidence being provided to the commission to meet the requirements of a failing firm. The burden of proof was that the deterioration in market competition was not a direct result of the merger and even in the absence of the merger, the competitive structure was likely to deteriorate[7]. Stemming from this there are three criterions that the commission looked at in their assessment: 1) Failing the consummation of this merger, the firm would be incapable of existing; 2) It is the least anti-competitive measure available; 3) In the absence of the merger, the assets of the firm would exit the market[8]. Premised on these three defining factors, the assessment of the commission focused on the failing state of Greek economy which had made it non-viable for firms to break-even. They analysed if the parent group, Marfin Investment Group, and its subsidiaries could sustain the losses of Olympic Airlines . Furthermore they assessed if there were any other potential buyers who were willing to acquire assets of the airlines or the firm in general. Subsequent to such assessment, the ‘failing firm’ defence was upheld, and the transaction was allowed in 2013 by the commission.  In the recent acquisition of Asiana by Korean Air, however, the Korean Fair-Trade Commission (“KTFC”) did not accept the failing firm defence, despite the depleting financial health of the carrier and the prevailing pandemic. The idea was that the firm should be non-viable, meaning the company is one that is insolvent or expected to become so soon due to the serious deterioration of its financial structure[9]. This approach once again recapitulates the intersection between insolvency and anti-trust regulations as merely being in a “weak” financial state would not be alone effective. Considering the same, airline carriers looking to merge or be acquired must have to ensure that their perusal of the “failing firm” defence is substantially backed. A mere argument that the pandemic has affected the operations of a carrier alone may not be sufficient as the pandemic is a “temporary” economic occurrence[10] and economies have begun to heal in the aftermath of it. Nevertheless, various reports[11] portray how the airline industry may take a while to recover and carriers can broach the argument that the firm would not be able to sustain long enough to reap the benefits of the market recovery. It would be ideal for carriers approaching the commission to adopt an industry specific approach, wherein rather than arguing that their position is “weaker” with regards to other competitors, the inability of the firm to recover post the pandemic would have to be established. It would be ideal to show how there is an inability to make good on the debt in the long run and if the entity is being held by a company, further research supporting the poor financial state of the holding company must also be placed before the commission. In consonance with the Aegean/Olympic II order, the carriers can provide financial evidence to establish and fulfil the three criterions as has been adopted by the EU. However, a policy conundrum pops-up when it comes to whether thresholds for the failing firm defence are to be lowered or not. While the debate on the same is ongoing, this post argues how the aftermath of Covid-19 combined with the pre-existing state of the airline industry calls for the Indian regulator to reconsider the thresholds that have been set for the “failing firm defence”.. Airlines are capital extensive industries that often fail to break even and there runs a risk in suggesting a lowering of thresholds as the same may be the cause of various carriers consolidating and using the defence to their own benefit. What needs to be noticed here is that in crisis such as the pandemic and ongoing recession, the policymakers at the centre have two choices : 1) They can either increase state aid for financially unstable firms and redirect the tax-payers money