Subhash Chandra, the 68-year-old media baron and chairman of Zee Entertainment Enterprises Ltd (ZEEL), belongs to a generation of business leaders which relies more on native intelligence than business school jargon to get its views across. So when he uses the analogy of clothes to describe the evolution of India’s media and entertainment landscape—and Zee’s position therein—it might appear a simple example but is profound in its essence.

“When we were growing up, we had just two sets of clothes. One was to wear to school and the other was to wear for the rest of the day,” says Chandra, who was born in a village in Haryana’s Hisar district and got into business at the age of 17. “These days you have different sets of clothes for different times of the day and different occasions. One set to wear to the office, another to wear in the evening, and yet another for a wedding or a party.”

The point Chandra, a member of Parliament,is trying to make is that the propensity of an individual to consume different kinds of content, at different points in time during the day, and across mediums—television and smartphones—is almost equal to his propensity to spend on different kinds of clothes to suit different occasions and diverse fashion trends.

Just as an enterprising apparel maker would seek to capitalise on the new trend and come out with clothes in different designs, so is Zee attempting to corner a maximum share of the consumers’ wallet for entertainment by offering different genres of content on broadcast TV as well as on its video streaming service, Zee5.

Zee also realises that, apart from content, it needs new-age technology (augmented reality,virtual reality, analytics, 3D printing, and soon) to propel its recently launched over-the-top(OTT) video streaming platform internationally. In a development that is more symbolic than material at this stage, in October, Zee received a patent for a sensory technology it has developed in the U.S. that allows video content to be seen,heard, touched, and smelt for an immersive viewing experience.

And Zee’s promoters aren’t even averse to selling a part of the family silver—a part of their stake in ZEEL—to bring a partner on board to help with this mission.

Anupriya Acharya, CEO of media buying firm Publicis Media India, says Zee has always had a finger on the pulse of consumer demand when it comes to content, with a sharp focus on distribution. “They were an early mover in a sunrise industry and have a good understanding of what the masses want,” says Acharya.“But when it comes to acquiring new technology, it is a tough process to navigate as you may be sold something that isn’t entirely relevant to you. So it may be better to have a technology player on board as a partner, who has skin in the game and will ensure proper returns on investment.”

It is clear that Chandra sees an urgent need to shake things up at the media powerhouse he founded in 1992, around a year after India’s economic liberalisation. This transformation is being aided, in no small measure, by the worldview held by his sons, Punit Goenka (43) and Amit Goenka (42), who are at the helm of the business and foresee Zee in a radically different avatar five years from now.

Chandra, often referred to as the father of Indian television,is hardly a novice when it comes to challenging the status quo. Despite several operational hurdles to begin with, he eventually managed to break state-run Doordarshan’s monopoly over Indian television by positioning Zee as India’s first private sector broadcaster. Despite the advent of several global broadcasters—including Sony Pictures Networks and Star India—Zee has remained a formidable player over the years. The network, which aired memorable prime-time shows in the 1990s, including Zee Antakshari and Zee Horror Show, had a 19.2% share of TV viewership in India (excluding sports—a category which Zee divested in 2017)and was the top network at the end of the second quarter of fiscal year 2018-19.

Zee has 38 channels across 10 Indian languages. It was also the first broadcaster to air content outside India and is currently present in 173 countries through 39 international channels, including nine in non-Indian languages.

For the financial year ended March 31, 2018, ZEEL—No. 181 on the Fortune India 500 list this year—reported ₹8,193.5 crore in total revenue and a net profit of ₹1,479.10 crore, according to Capitaline data.

The question that arises then is: Why fix something that isn’t broken? And in doing so, why part with a significant portion of the promoters’ stake in the company, arduously built by the Goenka (Chandra does not use the family name) family over 26 years?

The answer lies in Zee’s statement of November 13 in which the company announced that its promoters had reached a decision to sell half of their shareholding in ZEEL (amounting to around 21%) to a global strategic investor, which could help Zee become a “media-tech company” with a global footprint. “There is informed recognition that the world is convergent today and the lines across media,telecom, manufacturing and technology are thinner than ever. It was observed that these developments will impact virtually all businesses across sectors and business practices will be driven by technological innovation. The review showed that the family needs to accelerate efforts to stay ahead of fast-changing trends,” the statement read.

Image : Fortune India Archive
These days you have different sets of clothes for different times of the day and different occasions. One set to wear to the office, another to wear in the evening, and yet another for a wedding or a party. - Subhash Chandra, chairman, ZEEL, making an analogy between fashion trends and the trend of people consuming different kinds of content at different points in time during the day across mediums.

Punit Goenka, Zee’s managing director and CEO, explains further that the initial intention was to sell a stake in Zee5, the OTT platform launched in February, but the promoters decided to bring in an equity partner at the parent company for better alignment of purpose. “Since Zee5 is dependent on the parent company for most of its content, the kind of assurances and covenants that prospective investors were ask-ing of the latter would have limited the scope of Zee’s operations in the future,” Punit says. “This is why we stepped back and thought of getting a partner in the parent company. If this partner wants a bigger piece of the future growth of the company, it can acquire an additional stake in Zee5 later, while remaining an equal partner with us in ZEEL.”

While analysts are unanimous that the content library and reach built by Zee in India over the years makes it a one-of-its-kind proposition for any global media and technology company looking to get a foothold in India, they can’t shake off the feeling that the promoters are selling a part of their stake in ZEEL (as opposed to fresh capital infusion) to pare group debt. Zee is a part of the Essel Group which has interests ranging from infrastructure and renewable energy to packaging.

A report by Kotak Institutional Equities observes that Zee’s “viewership strength, vast content library and its ability to cost-efficiently produce a large quantity of decent content, makes it a desirable partner for any global media player having India aspirations”.

“Though the larger reason seems to be the company’s ambition to be at par with global media players and cater to the global audience, we cannot entirely dismiss the issue of high leverage and high pledging at the promoter entity,”says a research report by Edelweiss Securities.“We believe, this decision will be beneficial for the business (Zee5 in particular) in the long term if Zee partners with a strong global media/tech player.”

Punit Goenka had clarified during subsequent analyst calls and media interviews that this transaction had nothing to do with the group’s debt reduction plans. For that, Essel is looking to sell infrastructure assets like roads and renewable energy installations to generate around ₹8,000 crore of liquidity to repay debt and revoke pledged shares. (Update: In a subsequent open letter to stakeholders, Chandra clarified that the Essel Group was committed to repaying all its lenders in full and proceeds from the stake sale in Zee would be utilised for this purpose)

Meanwhile, Zee5 is indeed becoming a jewel in the crown for the broadcaster, which wants to reposition itself as a content company, creating and feeding content to any medium. The OTT service has already notched up 41.3 million monthly active users (as of September 2018) and expects to cross 50 million by the end of December 2018. This makes it the second largest OTT platform in the country after Hotstar, which was launched by Star India in 2015 and has around 150 million users.

Amit Goenka, CEO of international broadcast and Z5 Global (the entity that encompasses all of Zee’s new, technology-led initiatives) atZee, says that Zee5 would be his company’s way of reaching out to the next 100 million viewers in India and the world, with relevant content pushed to users based on data that reveals their consumption preferences.

ZEEL expects Zee5 to account for at least 30% of its revenue in the next five years, and break even in the next three to five years. On an annual basis, it is investing 4-5% of its top line in developing new and engaging content for its user base.

With the penetration of cheap smartphones and low-cost data, the OTT space in India is witnessing increased consumption and competition. A clutch of services including Netflix, Amazon, Hotstar, Sony LIV, Eros Now, and Zee5 are trying to corner a meaningful share of the market, which is estimated to be worth $5 billion by 2023, according to a recent Boston Consulting Group (BCG) report. The report states that 16% of total video consumption in India has shifted to the digital medium, lagging countries like the U.S. (39%) and China (25%).

“What you can do for consumers in the digital world is far different from what you can do for a large audience cluster through linear TV, where you can do only that much personalisation and segmentation,” says Tarun Katial, CEO of Zee5, which has tied up with telcos like Reliance Jio and Airtel, and smartphone and smart TV makers like Xiaomi to promote itself.

Punit Goenka says that through Zee5 he wants to reach out to the so-called middle India, or users in tier 2 and 3 cities since Zee has the experience of successfully creating and distributing content for this audience through its broadcast arm. Such content isn’t only in English and Hindi but other Indian languages including Bangla, Marathi, Kannada, Telugu, Tamil, and Malayalam. “We are not going to play the top 1% of the country [in terms of viewership] game (sic).We will play the middle India game. That is what Zee is good at. It is our core and we will stick to that,” he says.

Amit Goenka agrees with his elder brother: “We are not going to create a series like Sacred Games [Netflix’s recent big-budget web series starring Saif Ali Khan and Nawazuddin Siddiqui] as it doesn’t make commercial sense for us at this point. I don’t yet have the distribution to take something like Sacred Games and make it an international commercial success, which Netflix can do.”

This is something that Zee5 would perhaps be able to do if it gets the distribution and technology muscle to market big-ticket content in global markets, thanks to the international strategic partner it hopes to bring in.

For now, Zee5 is pushing the boundary in its own way by airing content like Karenjit Kaur, a biopic depicting the life and journey of former U.S. adult film actor Sunny Leone, who later joined the Hindi Film industry. “The show has done exceedingly well despite the fact that there is no nudity involved,” says Punit.

Apart from magnifying its reach, there are other benefits that ZEEL expects to enjoy from the global adoption of Zee5. Apart of Zee’s future strategy is to shut down its linear TV broadcast operations in a number of international markets such as Germany and Australia, where the costs are prohibitive,and make its content available on Zee5. In a market like Germany,for instance, Zee can make its content available through Zee5 at less than half the current cost of being present on linear TV, Amit says. In various markets such as those in West Asia and Southeast Asia, Zee5 plans to commence operations by offering Indian content dubbed in local languages, before eventually producing original content locally.

Vis-à-vis the economics of advertising, Punit Goenka says that the CPMs (cost per thousand impressions) in digital advertising are healthier as compared to broadcast television. “Our peak CPM on Zee TV is ₹18-20. The same show gives me $6 on digital. The digital consumer is more affluent and the content is all in high definition, so the platform commands a premium,” Punit explains.

But the TV business still remains Zee’s bread and butter. “Broad-cast is our financial leverage and Zee5 is our growth engine,” says Punit.

The BCG report points out that while digital consumption of content has picked up, it hasn’t been at the cost of television viewership, which is still growing. This Is mainly because linear television is still inexpensive in India. The average revenue per user for the television industry has stagnated at $3for quite a few years now, whereas in the U.S., it is at around $100.

Also, content on linear television is skewed more towards family viewing while OTT video services cater more to individual consumption by young viewers. These factors, along with the fact that the penetration of television in India is still at only 64%, will ensure that linear tele-vision continues to grow in the country, says Punit Mishra, CEO of Zee’s domestic broadcast business.

The differentiation will lie in the nature of content aired by these networks. While the Zee network will always have a place for shows that are high on drama and centred on kitchen politics, it is also experimenting with content that tugs at the heartstrings of socially conscious viewers.

For instance, one of its Hindi serials, Yeh Teri Galiyan, is set against the backdrop of Sonagachi, India’s largest red-light district, in Kolkata.A romantic drama with a social message, the show received a positive response from the audience on its debut.

Zee is also hopeful that increased digitalisation of linear TV and the recent regulatory guideline on pricing of channels, which man-dates all channels to declare their maximum retail price and leaves the choice up to the consumers on which channels they want to subscribe to, will help improve subscription revenue (around 30% of broadcast revenue at present) and further bolster the firm’s top line.

Selling the family silver, even if to ensure future growth, can never be easy, especially for the generation that first created the wealth.“The decision was very tough, especially for the founder promoters who created this entire business. For them to come to this conclusion, I had to present really strong arguments as to why we need to do this for the betterment of the company,” says Punit.

But the astute businessmen that they are, the Goenkas know in their hearts that just 10 grams of gold is worth a kilogram of silver.

(This was originally published in the Dec. 15 - Mar. 15 special issue of the magazine. )

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