Explained: What does the Reliance-Disney binding agreement mean for the M&E industry?

Once the merger is complete, it will create India’s largest media empire, with close to a 40 percent market share in India; Image: Shutterstock 

One of the biggest deals in the media & entertainment industry—Reliance Industries and the Walt Disney Company—is reportedly expected to be announced soon. As per news reports, the two parties have signed a binding agreement to merge Viacom18 and Star India. Disney agreed to sell 60 per cent of its India business to Viacom 18 at a valuation of $3.9 billion (Rs33,000 crore). 

The two companies in total have generated a revenue of Rs25,000 crore in FY23. Once the merger is complete, it will create India’s largest media empire, with close to a 40 percent market share in India, as per experts. Forbes India takes a deeper look at how the merger will pan out, its holding structure and the implications of the same: 

Holding structure

Reliance is said to own 61 percent in the merged entity with Disney holding 33 percent and James Murdoch and Uday Shankar-backed Bodhi Tree Systems having the remaining 6 percent. Currently, Bodhi Tree owns 15.97 percent of Viacom18, while Paramount holds 13 percent.

“Reliance is likely to invest $1-2 billion with a large part of that being deployed to infuse funds into the merged entity and a part going into the buyout of Paramount's stake,” states Abneesh Roy, executive director, Nuvama Institutional Equities. RIL might also be mulling over acquiring broadcast service provider Tata Play Ltd, in which Disney has a minority stake.

Also listen to: Inside the race to acquire Hotstar

He adds that the stake split between the partners may change, depending on how Disney’s other local assets are factored in by the time the deal is closed. “Despite being the larger of the two, Disney’s Star India has seen its valuation drop to roughly $4 billion (from the initial valuation of $10 billion), accounting for the anticipated loss from its sports business. Viacom18 was valued at roughly $4 billion when Reliance and Bodhi Tree infused over $150 million into the company in April 23,” adds Roy. Reports also suggest that Uday Shankar, former chairman of Star India and The Walt Disney Company India is expected to lead the merged entity.

Implications of this potential merger

This merged entity will lead to a very large structural disruption for the M&E industry in India. The entity would become the leading media player with a large entertainment and sports portfolio, with a 40 percent market share in TV and OTT with a dominant market share in subscription and advertising video-on-demand segments. It would offer over 100 TV channels and two streaming platforms: Disney+ Hotstar and Jio Cinema.

“If this merger goes through, Jio would have a very strong clout in the ecosystem. They could put pressure on other telecom players, because Jio would now have a wide variety of content and this might have a negative impact on Airtel, pressuring them to invest in content or some other offerings,” says Karan Taurani, senior vice president, Elara Capital. “This could also impose pressure on linear TV channels, as Disney and Viacom have more than 45 percent TV advertising revenue market share, which means many of the smaller channels might feel a pinch here, more so because the Sony and Zee merger has fallen through. Third, global OTT players such as Netflix and Amazon Prime Video in India might also see a negative impact, given how large both JioCinema and Hotstar’s content offering is,” he adds.

Broadcasting (digital and TV) rights for all major sporting events including Indian Premier League (Cricket), Indian Super League (football), NBA, Pro Kabaddi League (kabbadi) the Olympics and many others would part of the merged entity. Says Roy, “The combined investments of the two companies in the sports business are pegged at $10 billion with IPL alone accounting for $6 billion, followed by $3 billion in ICC rights.”

Also read: Sony terminates merger talks with Zee, Zee considers legal action

This development comes only weeks after the proposed merger between Sony Group and Zee Entertainment collapsed, over disagreement of who would lead the joint entity. If this merger were to go through, it would only add further pressure for Sony Group and Zee Entertainment’s operations in India.

Disclaimer: Reliance Industries is the owner of Network 18, the publisher of Forbes India