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Reliance-Disney merger: An entertainment juggernaut emerges

by Index Investing News
February 26, 2024
in Financial
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India’s largest media and entertainment business is getting stitched up, spanning 100 TV channels, two streaming platforms Disney+ Hotstar and JioCinema, rights to premier sporting tournaments, including cricket Indian Premier League, as well as a robust international catalogue of content as American entertainment conglomerate The Walt Disney Company and billionaire Mukesh Ambani’s Reliance Industries have signed a binding pact to merge their media operations in India.

The deal, expected to be announced this week, will see the coming together of former rivals Reliance’s media arm Viacom18 (which owns 38 TV channels in eight languages, video OTT app JioCinema and Viacom18 Studios) and Disney’s media businesses in India (which include a significant linear TV business Disney Star’s 70-plus TV channels in eight languages, streaming platform Disney+ Hotstar, as well as a film studio).

It is likely to alter the media landscape, posing a stiff contest to competitors such as Zee Entertainment Enterprises Limited, Sony Pictures Networks India (SPNI), SUN TV Network, Netflix, Amazon Prime Video, and others, and possibly sparking off consolidation.

The tentative contours of the merged entity – which Bodhi Tree Systems Co-Founder and former Disney APAC head Uday Shankar is expected to lead – will have Reliance owning 61%, Disney 33% and Bodhi Tree Systems 6%. Disney’s other local assets are still being factored into the deal. Disney owns a minority stake in broadcast service provider, Tata Play, which Reliance may consider acquiring.

The move comes as the Walt Disney Company is expected to reduce its India exposure by diluting its stake in the merged entity amid intense competition. Its streaming business Disney+ Hotstar witnessed four straight quarters of subscriber decline in the wake of losing out cricket Indian Premier League digital rights to Viacom 18’s JioCinema. But it added 7 lakh subscribers during October-December 2023. Meanwhile, the Indian linear TV industry is also impacted by ad revenues moving to digital platforms.

Vivek Menon, Managing Partner of NV Capital, says Disney globally has seen a rough patch over the last couple of years with its stock price falling from a high of $200 to its current level of around $100 amid a global churn. “In India, they needed to pump additional capital because of the high cash burn on IPL broadcasting rights and Cricket World Cup rights on digital – not something Disney was comfortable with. In the overall scenario, a merger fits their strategy to conserve cash as well as dilute their holding to raise capital from their India franchise,” he adds.

This was the Walt Disney Company’s third avatar in India after alliances with the KK Modi Group in 1993 and Ronnie Screwvala’s UTV Software Communications in mid-2006. Disney then acquired media baron Rupert Murdoch’s 21st Century Fox in 2018 for $71 billion, through which Indian operations Disney Star (then called Star India) came into its kitty.

Analysts highlight that the two companies, which had a combined revenue of Rs 25,000 crore in FY23, will corner 40% market share in the linear TV and OTT markets. The combine will also become the biggest player in sports, holding rights to marquee cricket properties such as the Indian Premier League, International Cricket Council rights for men’s and women’s global events, and BCCI’s India bilateral matches across TV and digital platforms. They will also own other sports assets such as Pro Kabaddi League, Indian Super League, English Premier League, NBA, and the Olympics. It will also house an international catalogue of content from HBO, Paramount, and Disney.

For its 61% stake, Reliance is likely to invest $1-2 billion, with most of it going into the merged entity and a part going into the buyout of Paramount Global’s stake. Currently, Bodhi Tree owns 15.97% of Viacom18, while Paramount holds 13%. Paramount Global, a shareholder in Viacom18, is set to exit the company with Reliance buying its stake.

“Despite being the larger of the two, Disney’s Star India has seen its valuation drop to roughly $4 billion, accounting for the anticipated loss from its sports business,” says Abneesh Roy, Executive Director (Research), Nuvama Institutional Equities. Viacom18 was valued at roughly $4 billion when Reliance Industries and Bodhi Tree infused over Rs 15000 crore into the company in April 2023, he added. Initially, Disney reportedly valued the India business at around $10 billion, whereas Reliance’s valuation of the assets was a purported $7–8 billion.

This is the second big-ticket merger in the Indian media and entertainment space after the merger between Sony Pictures Networks India (SPNI) and Zee Entertainment Enterprises Limited (ZEEL) first announced in September 2021, which fell through last month after many twists and turns. With a combined revenue of Rs 25,000 crore, the Viacom18-Disney India deal is much bigger than what Zee-Sony was.



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Tags: EmergesEntertainmentJuggernautmergerRelianceDisney
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