Uday Shankar, despite months spent in a frenzy of deal-making, is calm and collected as we meet him on the 36th level of a Mumbai skyscraper. Shankar, dressed in a white T-shirt with a blue shirt and a blue tie, was observing the expanse that was the former home of Mumbai's textile factories when we arrived.
Shankar's office at Disney India is a short drive from Star India. He held this position between 2007 and 2020, first as Star India’s CEO and then after Disney acquired Star India. Viacom18 (Reliance Industries Ltd) has fought Disney for dominance in India's media landscape. Big money was spent on media, but not always with success. Reliance's acquisition of Network18 by Reliance in 2014 was a major event. Ownerships have changed dramatically. Disney then bought Rupert Murdoch’s 21st Century Fox for $71 billion, giving them the crucial India piece.
Reliance and Disney jointly announced on November 14 that they had completed a deal to create a joint-venture. The merged entity, valued at Rs 70,352 (approximately $8.5 billion), will have over 100 TV channels in nine Indian languages, as well as two OTT platforms (over-the top) and more than 30,000 hours of television content per year.
Shankar, who will provide strategic guidance, will be the vice chairperson. The Chairperson will then be Nita Amanani, currently Chairperson of Reliance Foundation, and formerly a director at Reliance Industries.
Shankar, whose outfit is now a publicly listed company, chooses carefully his words as he sits for this interview less than 24 hours following the announcement of the deal. He talks about the big picture, the prices of cricket rights and the new competitive environment (read the accompanying interview). The size, scope or sheer impact of Reliance-Disney is undeniable. It will control 40% of television advertising and 44% subscriptions.
Disney's India operations are still struggling to get back on track after massive losses due to its high-stakes bets made on cricket rights.
Imagine it. Imagine watching a game of the Chennai Super Kings, Rohit Sharma hitting the ball into the air to win the T20 Cricket World Cup Final, a crucial moment on Bigg Boss or an award show for films in the South. All of this can be seen on the digital or TV channels owned by Reliance-Disney.
In any industry, scale can be an advantage that creates entry barriers. Reliance and Disney will have a huge reach across genres and languages, and its channels are reporting high advertising rates and massive audience interest. It's all about revenue and dominance, whether it be advertising revenues, eyeballs or distribution. If it hadn't been cancelled, only the Zee/Sony merger could have come close.
Shashi Sinha is the CEO of IPG Mediabrands India. This division provides media and marketing services for the advertising giant Interpublic Group. He believes that the joint venture benefits the industry. With its deep pockets, it will be possible to invest in content and technology. "These are expensive areas and money must be invested in them", he says. India is one of only a few markets that are growing fast, in TV and OTT. Reliance-Disney is the market leader with a 33% market share through JioCinema, Hotstar and JioCinema.
Vivek Menon is the Managing Partner of NV Capital. A debt fund that invests in the media and entertainment industry. He says having the support of India's biggest industrial conglomerate, is a big plus.
Why? The media business of the joint venture is today a technology-based play and that requires huge spending. In the US for example, he explains, the line between pure media and technology is blurring. "A tech company like Netflix, Apple or Amazon can be seen as a media company. Menon adds that a telecom like AT&T also has a stake on media via Warner Bros and Discovery.
In terms of opportunities in India, he mentions Netflix and Amazon. Both have high budgets for content and are committed to investing in India. They want to expand here. Apple TV is creating content. It may be only a matter of time before Apple enters the Indian market.
Reliance-Disney's reliance on digital media can change the entertainment landscape dramatically. The dependence on advertising is only going to increase with the rise of digital. Menon says that subscriptions could take the form of bundles, standalone contracts or transactions.
Reliance intends to invest a significant portion of its investment in technology, which amounts to Rs 11,500 crore. "Digital infrastructure is still being constructed in India, even though the majority of OTTs offer user-friendly platforms. Menon states that the majority of money will go to content acquisition.
Check out the money spent on media rights for the Indian Premier League (IPL). Star India purchased the rights in September 2017 for Rs 16,348 billion. Disney Star, Star India's acquired avatar, will have to pay nearly three times as much in 2022 at the next round. According to a rival broadcaster, paying such a high price for the rights puts the industry in an awkward position. In the IPL only the BCCI (Board of Control for Cricket in India) is making money. The broadcaster says that if less money is spent on acquiring rights, the money will be returned to the system and can then be used more strategically.
Will Reliance-Disney increase advertising rates given its dominance? IPL cricket fixtures in 2024 will cost anywhere between Rs 16-19 lakhs for a 10-second ad spot.
"There's a good chance that it will happen but India is a market with a very low cost per thousand," Sinha, of IPG Mediabrands says. Advertisers have many options. The rival broadcaster quoted above agrees, and believes it could have lead to a monopoly situation had the majority of money been focused on TV.
"There's no doubt that Reliance-Disney has a huge engine. But advertisers will also be looking at Google and Facebook." "Broadcasters of entertainment and sports must look for niches to be more attractive to advertisers," said the broadcaster.
Balu Nayar is the former MD of IMG, a global sports and entertainment firm, and the architect of the IPL. He says that it's rare to see the merger of two of the top players in a market. The No. 1 and No. 2 players on a given market are rare to see merged. "The combined Reliance and Disney entity will be way ahead in the Indian TV market. Other transactions, such as the proposed Zee-Sony merge, were not on the same level.
The entity is in a strong position, and far ahead of the competition. (See accompanying graphic). In regional markets with smaller advertisers it is always a disproportional share. With a variety of channels it also helps control the distribution. Reliance purchased majority stakes in Hathway Cable, Den Networks and other distribution companies to improve the distribution component.
Reliance-Disney has agreed to divest seven channels in accordance with the Competition Commission of India: Star Jalsha (Bengali entertainment), Colors Marathi (Kannada Entertainment), Colors Super (Kannada HD), Hungama, and Super Hungama for children.
Disney, who acquired Star India in 2019 reported a loss on revenues of Rs 18,587 for FY24. In the prior year, it had reported a profit of Rs. 1,465 crore. How did it happen? Disney India's wager on cricket rights.
Disney paid $3 billion in August 2022 for the ICC TV and digital rights for 2024-27. In a sub-licensing deal with Zee Entertainment Enterprises Ltd. (Zee), it licensed the TV portion. Zee, however, was counting on the merger between Sony and its parent company to provide the financial muscle needed to fund the deal. Zee was unable to honor the agreement when the merger talks failed. The Disney-Zee merger has now been referred to arbitration. Zee is disputing the $940 million damages demand. Disney had to put aside Rs 12,319 Crore for the ICC contract, which they now call an "onerous agreement".
This is just one part of the tale.
In February, the Reliance-Disney partnership was announced for the first time. The deal valued the Burbank-headquartered Disney's 36.4% holding in the venture at just over $3 billion. Emkay Global, an investment and research firm, stated in a report that the valuation of Disney's 36.4% stake was less than estimated $15-17 billion at the time Disney acquired 21st Century Fox. "It is also significantly lower than previous media estimates, which were $7-10 billion." The decline "reflects its growing expected losses in the sports business where rights costs are increasing substantially". The Indian financial figures would not be available for many months, but there was a growing sense of trepidation.
Eight months had passed since the end of the bidding process for media rights to IPL 2023-2027. Disney was expected go all-out for the digital rights, given the potential of the medium. They were less aggressive with TV. Viacom18 won the digital rights at 23.758 crore and Disney, who was more conservative, bought the TV rights at 23.575 crore. The difference between the two purchases of 183 crore added to the intrigue. This was just a preview of what lies ahead.
Reliance then offered to give away the IPL season 2023 on JioCinema, its OTT platform. Disney's TV business model was destroyed by the Reliance gamble. Disney was forced to make the T20 World Cup 2024, won through the ICC bid, available for free on Disney+ Hotstar. Disney acquired Hotstar when it purchased 21st Century Fox in 2019, the parent company of Star India. However, it failed to maximise its potential.
Nayar says that the primary reason for the purchase in India was Hotstar. Then, they decimated its value by focusing instead on the IPL TV broadcasting rights. This merger (Reliance and Disney) was made in a weak position. Disney sold an asset that it bought for $15 billion for $3.5 billion. Nayar blames Disney for the "mismanagement" in its Star India acquisition.
Disney's global revenue for FY24 was up by 3%. However, the problem lay with the Indian sports business. In the fourth quarter of last year, the company's revenue was $58 million. This is a small amount but it represents a 37% drop from the $92 million in the previous period.
Disney India has been struggling since its entry into the market at the beginning of the 1990s via a joint venture formed with the K.K. Modi Group created Buenavista TV and launched three channels. The JV was never really successful, as the business was largely limited to advertising sales. In 2001, partners were struggling to maintain their relationship due to Disney's plans to launch a 100 percent subsidiary. In 2004, Disney launched Toon Disney and Disney Channel, two channels for kids.
Disney purchased Hungama TV from Ronnie Screwvala in mid-2006. It also acquired a minority stake of UTV Software Communications. Disney purchased UTV Software in July 2011 for $454m. In mid-2018, Disney's parent company acquired Rupert Murdoch’s 21st Century Fox (then known as Star India) for $71 billion.
Menon, from NV Capital, believes that Disney would exit the Indian market if it was "offered a compelling cost". It will be interesting to find out what players are willing pay for IPL rights in the next round of auctions.
Nayar believes that the Reliance and Disney merger has brought about a major change in Indian sports broadcasting. "There will be a far lower bid for rights, with only one serious buyer unless Meta or Amazon or other digital entities become aggressive." He says that BCCI and IPL owners should be prepared for lower IPL revenue.
Reliance-Disney holds the BCCI rights to all matches played in India, as well as ICC tournaments including the World Cup and Champions Trophy. "It would mean the marginalisation of other sporting media entities."
Tech, Tech, and Tech
Will Reliance-Disney play a major role in digital? It stands to gain a significant amount of revenue by securing the digital rights for IPL.
Harish Iyer (EVP, Media & Investments), Interactive Avenues' largest digital agency in India, believes that the entity could achieve this through advanced technology, personalised recommendations for content, or expanding distribution across multiple markets. Cost efficiencies and a strong market position will help you compete with global platforms. He says that synergistic partnership with telecom operators can also help drive growth. Local and global content allows advertisers to target a wider demographic, increasing the effectiveness of their campaign.
Advertisers can get insights into viewer behavior and preferences by using data analytics. Iyer says that integrating the message across all platforms is an easy way to reach the audience.
Reliance and Disney's deal will be successful if it can demonstrate its technological prowess. Amaresh Godbole (CEO, Digital Technology Business, Publicis Groupe India) says Netflix is "the global standard for technology and user experience, as well as innovation in video content delivery".
Godbole said Reliance-Disney had a lot data and an understanding about user behaviour, and could use AI in order to extract the most out of it. It's worth considering new technologies, such as LLMs. They could transform the navigation and discovery games.
The growth potential is obvious, even if scale is not an issue. What is the future of the tech sector? What does the horizon hold for the tech-driven sector?
