Reliance-Disney deal: Indian media business headed towards duopoly?
If the deal goes through, Reliance-Disney will command 43% of the ad market share and Zee-Sony will have 25% share, leaving very little for other players
After a long period of speculation over the acquisition of The Walt Disney Company’s India business, the deal, it seems, has been almost finalised with Mukesh Ambani-owned Reliance Industries Limited.
According to a report by Bloomberg, Disney is nearing an agreement with RIL and an announcement could be made as early as next month. After the deal, RIL is expected to enjoy a controlling stake in the Disney Star business, with the US entertainment giant likely holding on to a minority stake. While RIL is said to have valued the business at $7billion-$8billion, Disney values it at $10 billion.
Industry experts predict that if the deal goes through, the Reliance-owned entity will emerge as the largest in the Indian broadcasting market. Currently, Disney Star owns over 70 TV channels in eight languages, a streaming platform (Disney+ Hotstar) and a film studio, whereas Reliance’s broadcast division Viacom18 owns 38 TV channels in eight languages, a digital streaming platform (Jio Cinema) and Viacom18 Studios.
According to Elara Capital, while Disney Star has 32% share in the ad market, Viacom18 has 11% ad market share and Zee-Sony has 25% share in the ad market. If Disney’s India business is bought by Reliance, it will command 43% of the ad market share, the highest in the ecosystem, making it difficult for others to gain market share.
Says Karan Taurani, SVP, Elara Capital, the coming together of Reliance and Disney will be a clear structural disruption for Indian media and the telecom ecosystem. It may lead to consolidations in the OTT sector and put pressure on global OTT giants (behind the paywall) operational in India, while forcing several Indian OTT players to shift to free offerings. It will also bring about disruptions in the telecom sector with Jio’s content widening.
Observers say with the merger of Zee and Sony already in an advanced stage and now the deal between Disney and Reliance coming through, the Indian broadcast sector will have two major networks rather than four. "If the merger goes through, there will be a duopoly in the sector,” noted an expert.
About the impact of the Reliance-Disney deal on the Indian OTT market, the Elara Capital report states, “OTT is a long haul – expect early signs of consolidation in the medium term, but broadcaster-based OTTs (Zee, Sony, Disney), Jio Cinema (largest telecom player) and global giants such as Amazon and Netflix may eventually command a lion’s share in this market.”
“We expect smaller OTT platforms to tie up with these larger platforms for distribution/scale. Consolidation is the only way OTT platforms in India may move closer to break-even or profitability helped by lower content cost, tech cost efficiency and bargaining power with distributors. OTT is a business of scale/depth as platforms with a large customer base and strong content library may be the first ones to attain profitability due to efficiency on technology and distribution costs,” the report mentioned.
Talking about the deal, an expert said, “Both the networks will have a monopoly in live sports, which is only rising in terms of ad revenue," he noted. Between them, Viacom 18 and Disney Star own media rights for most big cricket events, including Indian Premiere League, ICC Cricket World Cup, BCCI domestic matches and Women's Premier League.
According to the Elara Capital report, the scenario may not be very disruptive for the Zee-Sony merged entity as it leaves the sector with two players having an even larger share in the TV ad market.
“This will also be a win-win proposition for the Zee-Sony merger. The merged Zee-Sony entity will have much higher EBITDA margin than Disney India which is valued at $10billion despite much lower EBITDA margin for TV and hefty losses in digital (Disney+ Hotstar saw a loss of Rs 3,432 million in FY22). This deal may also arrest the growth in content costs for TV/digital, thus improving profitability,” Taurani said.
SEBI said in August that Essel Group founder Subhash Chandra and his son Punit Goenka cannot hold director positions in group companies.
Meanwhile, although the Reliance-Disney deal appears to be a good fit, there will be an overlap between the two networks in certain markets and genres, which may result in the discontinuation of some channels or properties, say some experts.
Taurani highlights that the only hurdle in the Reliance-Disney deal could be the Competition Commission of India (CCI) that may disallow it to deter any duopoly in the TV/OTT sector.
e4m last week reported that Disney Star clocked a revenue of Rs 5,299 crore in nine months. The company, however, reported an operating loss of Rs 3,693 crore from its sports business in India for the period ending July 1, 2023.
According to a report filed by the company on October 18, during the nine-month period, Disney Star had various sporting events on its network, including the Indian Premier League (IPL) in April-May, the ICC T20 World Cup in October-November 2022, and a slew of India's home international matches.
In FY22, Star India reported an increase of 38.03% in consolidated revenue from operations to Rs 17,480.62 crore as compared to 12664.36 crore in FY21.
