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Reliance Disney proposed merger

ICICIdirect 5 Mins 16 Feb 2024

Disney and Reliance are in talks to create India's biggest media business. The reports have been floating for the merger for a couple of months now. It is expected the closure will happen this week. Let us look at the merger details.

The Backstory

Walt Disney acquired the Star India business in 2017. The deal gave Walt Disney more than 700 million people from South Asian countries - it was also the world's hottest media market back then. The IPL rights were expected to do well for the company. 

However, the company was hit in 2022 after it lost the digital rights to stream the Indian Premium League (IPL) matches to Reliance Group.

The TV business is doing well in India for the company, but it has been struggling in other areas. India's large population with growing income has not been able to save the company as it has struggled to make money in the country. Its streaming service makes less than a tenth of its Average Revenue Per User (ARPU) in India compared to the United States and other international markets.

The streaming app Hotstar has shed millions of subscribers since it lost the IPL rights to Reliance. In March 2023, Hotstar suffered another blow when it stopped streaming HBO content. In April 2023, Warner Bros. Discovery (WBD) moved its content to Ambani’s JioCinema, taking Indian viewers of hit shows such as Game of Thrones and Succession along with them.

The deal

At one point, Disney and Reliance were in competition. The two companies, both of which have a streaming service and 120 television channels between them have now been discussing creating an entertainment superpower in India through a merger. They plan to combine their media businesses to form an entertainment business in which the Indian business (Reliance Group) will have an edge in terms of ownership. 

As per initial reports, Reliance was expected to have a 51% stake in the merged entity, while Disney would hold the remaining 49%. Reliance (TV18) will eventually hold a 51% stake, Disney 40%, and Bodhi Tree System (an investment fund) will take 9%. 

Viacom18 is a joint venture between US-based Viacom (13.01%), Ambani's TV18 (73.91%), and Bodhi Tree Systems. Bodhi Tree System is backed by Rupert Murdoch (former chairperson of FOX News) and Uday Shankar (former President of Walt Disney).

The new entity will be a step-down subsidiary of Viacom18 Media, which will merge with Star India through a stock swap. Viacom18 is expected to pay $1.5 billion in cash for its shares. The approximate valuation is expected to be $4.5 billion, which is less than Disney's initial $10 billion estimate. The reason for the lower valuation is explained in the previous section.

As per the latest reports, the two entities are in the final stage of negotiation to finalize the merger. The report also suggests that February 17 is the exclusivity period deadline to conclude the bilateral negotiations.

Where is the industry heading?

The OTT audience base in India grew by 20% from 2021 to 2022. However, in 2023, it grew only 13.5%, suggesting that the category is now past the peak growth phase it witnessed in the two preceding years. As a result, mergers and consolidations have started, but are yet to be materialised – Sony with Zee, Disney Star with Reliance, and Prime Video with MXPlayer.

Does it mean that consolidation is the inevitable path forward for the Indian OTT market? The market experts expect some consolidation of players by M&A, and new regional/niche players entering the scene.

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