RIL, Disney must divest more to allay CCI concerns: Experts on merger

The Reliance-Disney merger has encountered its first obstacle on the path of its regulatory approval. On August 20, the Competition Commission of India (CCI) raised concerns that the merged entity could hamper the competition in the media industry.  

As earlier reports by exchange4media, India's antitrust regulator has raised preliminary concerns that the $8.5 billion merger between Reliance and Walt Disney's media assets could harm competition, especially due to their combined control over cricket broadcasting rights. 

The CCI has privately communicated its concerns to Disney and Reliance, reportedly requesting the companies provide arguments against the investigation.

The primary concern for the CCI appears to be the control over cricket broadcasting rights, which could potentially lead to issues with pricing and market dominance. 

To allay these concerns, the two parties had reportedly offered to sell off a select few channels to make way for a faster anti-trust approval.

However, RIL and Disney are not keen on making changes to the cricket broadcast rights that each of them own, reports have said quoting sources.

The legal experts noted that both media companies should enhance their divestiture proposal by increasing the scope of divestitures beyond the initial offer. This could involve selling or spinning off entire channel networks or streaming services to address concerns about market dominance and competition in cricket broadcasting. Additionally, engaging in detailed dialogue with the CCI is crucial. 

According to K.K. Sharma, Partner, Singhania & Co, the voluntary offer of divesting of a small number of channels is not likely to satisfy the regulator. “The antitrust regulator may ask for more meaningful divestiture if it allows the combination to go ahead. Though the show cause notice as to why the investigation be not directed has been issued but the timeline given in the Act make it a very tough preposition for the DG and the Combination Division to achieve in reality,” said Sharma.   

As stated earlier, the combination creates a big behemoth in the broadcasting market having, virtually, more than 120 channels, a practical advertisement monopoly on cricket— the well-known milking cow in the advertisement world given the huge popularity of the sport in India, at least till 2027—and, in general, the huge muscle the merger gives to the combined entity.

“This new entity in the broadcasting market leaves the other players far behind with Zee being a distant second. Though a claim can be made that huge advertisement power in cricket would last only till 2027 but the combined strength of the entity will give it a clear dominant position making it a natural player to be in a position to continue its stranglehold on cricketing advertisement revenues,” added Sharma. He also added that since gaining merger control powers in 2011, the Commission has not blocked any mergers. With over a decade of experience, the Commission has various options available if Reliance and Disney do not offer sufficient divestitures to meet its requirements.

In July 2024, the CCI also sent some 100 questions against the proposed merger . The scrutiny is not without cause as this behemoth in the entertainment industry stands to have a significant impact on the competitive environment for advertising and pricing of services – which would be against the very essence of the law, said, Bharath Gangadharan, Counsel, SKV Law Offices. 

According to Gangadharan, a similar warning notice was handed to Zee and Sony as well, when they attempted to create a $10 billion media asset merger in 2021, with a 65% to 75% control over Marathi and Bengali regional programming.

“The merger eventually fell apart, but the CCI’s conduct is consistent with regulation of the sector – i.e. regulating the creation of monopolies that single-handedly stand to restructure the costing of entire sectors. Under Section 19 of the Competition Act, 2002 – the CCI can order an investigation suo moto as well – specifically if the merger refuses to address the monopoly over the cricket broadcasting rights in question, as in the present case,” he noted.

Elara Capital's assessment stated that the merged company will control 40% of TV advertising and 42% of the total TV market share (as of FY23). Meanwhile, the united company is predicted to command a digital OTT market share of 34% in 2023. 

As earlier reported by exchange4media, the merger will result in a dominant entity, with Disney and Jio together controlling approximately 75-80% of the Indian sports market across both linear TV and digital platforms. This stronghold in sports, particularly cricket, positions them to capture a significant portion of the overall advertising market, leveraging the high viewership that sports attract on both traditional and digital media.

“This consolidation will give them a commanding position in the sports broadcasting market,” said a senior media planner, who requested anonymity. The merger will enable Viacom18-Star to acquire a broad range of sports assets, including major cricket events such as the IPL, ICC World Cup, and ICC T20 World Cup, along with other important tournaments and leagues like the Olympics and various football leagues.

Another senior industry observer noted that if the merger goes through, it will create a much larger player in the media landscape by combining key properties from both Disney and Reliance. “This consolidation could enhance their negotiating power, particularly for high-value assets like cricket. With such a dominant presence, they might influence advertising rates, potentially commanding higher premiums due to their extensive and exclusive content.”