Reliance-Disney JV: A media titan arrives on the Indian scene

A short drive away is the office of Disney India, where Shankar held the top job between 2007 and 2020—first as Star India’s boss and later after Disney became its new owner. Reliance Industries Ltd, through Viacom18, has battled Disney to dominate India’s media landscape, specifically in the general entertainment and sports categories. Big money has been spent, though not always with great success. Ownership has often changed dramatically, and a big moment was when Reliance acquired Network18 in 2014. That was followed by Disney’s $71-billion global buyout of Rupert Murdoch’s 21st Century Fox, giving it the critical India piece.

On November 14, Reliance and Disney announced the completion of a transaction to form a joint venture. At a valuation of Rs 70,352 crore (around $8.5 billion), the merged entity will own over 100 television channels in nine major Indian languages, two OTT (over-the-top) platforms and over 30,000 hours of TV content annually.

Shankar will be the Vice Chairperson, providing strategic guidance, while the Chairperson will be Nita Ambani, currently also Chairperson of Reliance Foundation and earlier a director of Reliance Industries.

With his outfit now part of a listed entity, Shankar chooses his words carefully as he sits down for this interaction less than 24 hours after the deal’s announcement. He speaks of the big picture, prices of cricket rights, and the new competitive landscape (read accompanying interview). There is little doubt about the size, scale or sheer impact of the Reliance-Disney entity or its ability to get the best out of the advertiser or consumer—it will hold 40% of the television advertising market and 44% of subscriptions.

The only sticking point is getting Disney’s India operations back on track since its big-ticket bets on cricket rights have saddled it with massive losses.

A Formidable Duo

Think about it. You could be watching a Chennai Super Kings game or a Rohit Sharma whacking the ball out of the park to win the T20 Cricket World Cup final, a pivotal moment in Bigg Boss, or a film awards show in the South. All this is on TV or digital channels owned by the Reliance-Disney entity.

Scale can be a huge advantage in any industry, creating entry barriers. The Reliance-Disney entity will cut across languages and genres, with its channels reporting huge audience interest and very high advertising quotients. The merger is about revenue and the ability to dominate, be it eyeballs, advertising revenue, or the distribution piece. Only the Zee-Sony merger would have come close had it not been called off.

Shashi Sinha, CEO of IPG Mediabrands India, the media and marketing solutions division of advertising giant Interpublic Group, believes the joint venture will benefit the industry. “With its deep pockets, investing in content and technology will now be possible. These are very expensive areas, and money needs to go into them,” he says. India remains one of the few high-growth markets globally, whether in TV or OTT. Reliance-Disney, through JioCinema and Hotstar, has a 33% share in this market, making it the largest player.

Vivek Menon, Managing Partner at NV Capital, a debt fund for the media and entertainment sector, says the backing of India’s largest industrial conglomerate is a huge plus.

Why? Because the joint venture’s media business today is a technology play, and technology requires big spending. He explains that in the US, for instance, the lines between pure media, technology and telecom are blurring. “A tech company can be viewed as one in media like Netflix, Apple or Amazon. Likewise, a telecom company like AT&T has a stake in media through Discovery and Warner Bros,” Menon says.

Regarding opportunities in India, he cites Netflix and Amazon, both with high content budgets and a commitment to invest in India. “They want to expand their presence here. Look at Apple TV creating content, and it may only be a question of time before they enter the Indian market.”

Reliance-Disney, banking on digital media, can dramatically alter the entertainment landscape. “With the growth in digital, the dependence on advertising will only increase. Subscription could see multiple models either in the form of standalone or bundling contracts or led by transactions,” says Menon.

Reliance plans to deploy a substantial chunk of its Rs 11,500-crore investment in technology. “Digital infrastructure in India is still being built, though most OTTs have user-friendly platforms. Most of the monies will now go into content acquisition,” Menon says.

Look at the money spent buying the media rights to the Indian Premier League (IPL) cricket tournament. In September 2017, Star India acquired the rights for Rs 16,348 crore. In 2022, at the next round of bidding, Disney Star, the acquired avatar of Star India, had to pay almost three times that price. A rival broadcaster says that paying so much for the rights places the industry in a difficult position. “In the case of IPL, only the BCCI [Board of Control for Cricket in India] is making money. If less money goes into acquiring the rights, it will return to the system, allowing it to be invested more strategically,” says the broadcaster.

Given Reliance-Disney’s dominance, will it hike advertising rates? For the 2024 season, IPL cricket fixtures fetched anything from Rs 16-19 lakh for a 10-second advertisement spot.

“There is a good chance it will happen, but India is still a highly underleveraged market on a cost per thousand basis,” says Sinha of IPG Mediabrands. The advertiser has many options. The rival broadcaster quoted earlier agrees and thinks it could have led to a “monopoly scenario” had most of the money been concentrated on TV.

“There is no doubt Reliance-Disney is a big engine, but advertisers will also look at Google and Facebook. Broadcasters in entertainment and sports will need to look at niches to make themselves more interesting to advertisers,” says the broadcaster.

Balu Nayar, former MD of global sports and entertainment company IMG and a key architect of the IPL, says it is rare to see a merger between the No. 1 and 2 players in a market. “The combined Reliance-Disney entity will now be way ahead of the competition in the Indian TV and streaming market. Other transactions like the (proposed) Zee-Sony merger were not at the same level.”

Cutting across genres and languages places the entity in a formidable position and way ahead of competition (see accompanying graphic). A higher market share throws up the opportunity to get a higher share of advertising revenue—in regional markets, with smaller advertisers, it always brings in a disproportionate share—and with a bouquet of channels, it helps in controlling the distribution piece as well. In 2018-19, Reliance acquired majority stakes in Hathway Cable and Den Networks to strengthen the distribution component.

In line with the requirements of the Competition Commission of India, Reliance-Disney will divest seven channels: Star Jalsha, Star Jalsha Movies HD (Bengali entertainment), Colors Marathi, Colors Marathi HD, Colors Super (Kannada entertainment), Hungama and Super Hungama (for children).

Cleaning Up the Cricket Mess

Disney, which acquired Star India in 2019, reported a loss of Rs 12,548 crore on operating revenues of Rs 18,587 crore for FY24. It had reported a net profit of Rs 1,465 crore in the previous year. How did this happen? Disney India’s bet on cricket rights.

In August 2022, Disney forked out $3 billion for the ICC rights—TV and digital—for 2024-27. It sub-licensed the TV part in a deal with Zee Entertainment Enterprises Ltd (Zee). But Zee was betting on its merger with Sony for the financial muscle to pay for the deal. When the merger talks collapsed, Zee found it tough to honour the commitment. Now, the Disney-Zee deal has gone into arbitration (there is a $940-million demand for damages but Zee is contesting it). Disney had to set aside Rs 12,319 crore for the ICC deal, which it now calls an “onerous contract”.

That is only one part of the story.

The Reliance-Disney deal was first announced this February. The deal valued the Burbank-headquartered Disney’s 36.4% holding in the venture at just over $3 billion. In a report, Emkay Global, a research and brokerage house, noted that the valuation was significantly lower than the estimated $15-17 billion when Disney acquired 21st Century Fox in March 2019 “and also much lower than earlier media estimates of $7-10 billion”. The drop “reflects the growing anticipated losses from its sports business, where rights costs have increased substantially”. The financial numbers for the Indian business would be filed much later, but the apprehension was evident.

That was eight months after bidding for the IPL media rights for 2023-27 had ended. Disney was expected to go all out for the digital rights (given the medium’s potential) and be less aggressive on TV. As it turned out, Viacom18 clinched the digital rights for `23,758 crore, and a somewhat conservative Disney picked up the TV rights for `23,575 crore—adding to the intrigue was a difference of just `183 crore between the two buyouts. That was merely an indication of what lay ahead.

Then Reliance offered the IPL 2023 season free on the OTT platform JioCinema. The Reliance gambit sank Disney’s TV model. Disney had to offer the T20 World Cup 2024 (won through the ICC bid) free on the Disney+ Hotstar app. Disney got Hotstar in 2019 when it bought 21st Century Fox, parent of Star India, but failed to capitalise on it.

“The prime reason for the buyout in India was Hotstar and then, they proceeded to decimate its value by focussing instead on the TV broadcasting rights for the IPL,” says Nayar. “This merger (Reliance-Disney) has been made from a position of weakness. An asset bought by Disney for $15 billion is now being sold for about $3.5 billion.” Nayar blames Disney’s “mismanagement” of the Star India acquisition for its devaluation.

In Disney’s global numbers for FY24, revenue was up 3%, but the rub lay in the sports business in India. For the fourth quarter, it was at a modest $58 million but down 37% from $92 million for the same period last year.

Disney has struggled with its India business since it entered the market in the early 1990s through a joint venture with the K.K. Modi Group to create Buena Vista TV and launch three channels. The JV never took off really, with business largely restricted to advertising sales for other networks. By 2001, the partners struggled to maintain the relationship over Disney’s plan to launch a 100% subsidiary. The JV finally ended, and in 2004, Disney launched two kids’ channels—Toon Disney and Disney Channel.

In mid-2006, Disney acquired Hungama TV and a minority stake in UTV Software Communications from entrepreneur Ronnie Screwvala. In July 2011, Disney bought out UTV Software for $454 million. The parent Disney acquired Rupert Murdoch’s 21st Century Fox for $71 billion in mid-2018, bagging its Indian operations (then called Star India).

NV Capital’s Menon thinks Disney could exit the Indian business if “offered a compelling price”. Now, with fewer players, it will be interesting to see what the players are willing to pay for the IPL rights at the next round of bidding.

Nayar says the emergence of the Reliance-Disney combine is a dramatic change in the Indian sports broadcasting landscape. “One will see far reduced bid for the rights with only one serious bidder unless Meta, Amazon or other digital entities get aggressive. BCCI and IPL team owners need to be prepared for reduced IPL revenues,” he says.

Reliance-Disney has the BCCI rights for all matches played in India and ICC tournaments (including the World Cup and Champions Trophy). “It will mean marginalisation of other sports media entities.”

Tech, Tech, and Tech

Will the Reliance-Disney entity play a significant role in digital? By winning the digital rights for the IPL, it stands to grab a large chunk of the revenue.

Harish Iyer, EVP (Media & Investments) at Interactive Avenues, India’s largest digital agency, thinks the entity can do that through advanced technology, personalised content recommendations or expanding distribution across markets. “Cost efficiencies and a stronger market position help you compete against global platforms. Plus, there is an opportunity in synergistic partnerships with telecom operators to drive that growth,” he says. Having local and global content means advertisers can target a wider range of demographics, making the campaign much more effective.

“Using data analytics, advertisers can gain insights on viewer behaviour and preference. Integrating the message across platforms is a seamless way to reach out to the audience,” Iyer says.

The Reliance-Disney deal’s success will depend on its prowess in the technology sphere. Amaresh Godbole, CEO (Digital Technology Business), Publicis Groupe India, says Netflix has been “the global gold standard for technology, user experience and innovation for video content delivery.”

Godbole says Reliance-Disney has a lot of data and an understanding of user behaviour and could use AI to milk the data. “It’s also worth looking at new technologies such as LLMs, which could change the navigation and discovery game.”

With scale not an issue, the growth opportunity is clear. In the tech-driven sector, what does the horizon hold? As Captain Jack Sparrow, the Disney character in Pirates of the Caribbean, says: “Now, bring me that horizon”.

@krishnagopalan