How Zee’s success became a generator of its failures

Zee Entertainment Enterprises (ZEE) is currently the focus of investor corporate action aimed at removing Punit Goenka, the son of the company’s promoter and founder Subhash Chandra, from the board.

Regardless of how the matter is resolved, the incident makes for a compelling insight into the evolution of Indian organisations over the past two decades and especially under the lockdown.

In the case of Zee Entertainment, Essel and other entities associated with Chandra, it was their venture into a diverse array of unrelated businesses including infrastructure, power, financial services and even the lottery business that brought them to this point. The company also jumped into the mainstream print news business with DNA, only to lose money hand over fist on it.

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As a former employee who spoke on condition of anonymity said, success brings its own share of failures. The challenge at ZEE as it grew to become a Rs 17,000 crore entity by 2016 with bets on infrastructure, education, packaging, media and entertainment and technology was this: That it never built out organisational capability fast enough. In fact, Chandra fired six or seven editors in the newspaper business. The churn extended to other businesses as well.

The word on the street was that no CEO could survive more than two or three years at Zee. Yet, Zee TV, which was part of Zee Entertainment, remained a constant money spinner even as all other ventures went under water.

Moneycontrol reached out to ZEE for comment. We will update this copy when we get their response.

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This is why even today there isn’t an Indian who owns a TV and hasn’t heard of Zee TV, which, one way or the other, spawned the commercial satellite TV revolution in India and influenced all Hindi channels that followed it.

From grains to TV

Chandra has come a long way. A native of Hisar, Haryana, he had no roots in the satellite TV business or entertainment. His father was a small-time grain mill operator who did decent business until the late 1960s, when he lost money in the cotton business.

Chandra, then a teenager, tinkered with the grains business and later packaging before moving on to rice trading, where he made his first fortune. That success led him to build Essel Packaging, a manufacturer of laminated plastic tubes, and then Essel World, an amusement theme park.

By the early 1990s, Chandra went into the satellite TV and entertainment business in a partnership with Star, then owned by Li Kashing, which led to the birth of the Zee TV channel. Low-cost programming worked like a charm. Entertainment-starved Indians who had been fed on state-run Doordarshan for far too long switched loyalties and the ads started to flow.

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Then, sensing a profitable market, Rupert Murdoch entered the scene and bought Star. The equation between Murdoch and Chandra went from okay to amicable to all out sour. By the time the partnership ended and Chandra bought the media tycoon’s stake, it was 1998.

The rest is history. Chandra’s unbridled ambition and hard-charging confidence and self-belief, so common in first-generation entrepreneurs, drove the company’s growth. ZEE expanded to over 20 channels and a presence in more than 100 countries when availability of the internet and ownership of mobile devices and computers were much lower than they are now.

Debt burden

Then, the group started to feel the burden of overreach. In 2019, the company said it would offload a majority of its stake in the flagship media and entertainment company Zee Entertainment to financial investors.

The Essel Group, which was to pay about Rs 7,500 crore to lenders, agreed to sell an 11 percent stake in Zee Entertainment to Invesco Oppenheimer Developing Markets Fund.

The unspooling of Infrastructure Leasing & Financial Services in 2018 didn’t just lead to a meltdown at non-banking finance companies, banks and housing companies. It also hammered the Essel Group, which would go on to blame its bad choices on tough business conditions and the liquidity crunch at NBFCs following the IL&FS crisis for its inability to pay debt, analysts said.

Today, Chandra’s heir Punit Goenka is trying to steady his position as Invesco (Oppenheimer) seeks to oust him from the board because he rewarded himself inordinately when the company was laying off people and cutting salaries.

“It’s time that corporate entities realise that board governance and responsibilities run deeper than simply being a retirement feather in the cap after an executive’s career is coming to its last lap,” said Anil Singhvi, founder of Institutional Investor Advisory Services, which has raised serious corporate governance issues at Zee Entertainment. “The feudalistic manner in which corporate entities used to be run is coming to an end and as recent times have shown us, boards will be questioned on how their firms are being run and governed. Large groups and business houses must pay heed to the experience and nature of the board members they bring on.”

Zee’s founder had written a book called The Z Factor - My Journey As The Wrong Man At The Right Time.

Zee’s torchbearers must take cognisance and ensure that Zee Entertainment doesn’t become the wrong company at the wrong time.