Reliance-Disney working on merger, not acquisition; what it means for Indian M&E sector

Reliance Industries (RIL) and Walt Disney are in the process of finalising the specifics of a non-binding term sheet as they proceed with their plans to merge their media and entertainment operations in India, reported the Economic Times.

Currently, the plan is to establish a step-down subsidiary of RIL’s Viacom18 which will absorb Star India via a stock swap.

Quoting sources, ET report said Reliance is aiming at becoming the majority shareholder in the combined entity, holding a minimum of 51%, while Disney would retain the remaining 49%. Both companies are regarded as comparable in size, so RIL is expected to use cash to acquire the controlling interest.

Both parties are in the process of discussing a business strategy aimed at infusing immediate capital investment, projected to range between $1 billion and $1.5 billion, the report said.

Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital, said, “We believe the above move will lead to consolidation at both ends (TV and OTT) of the media and entertainment industry. With the high likelihood of Zee and Sony merger too going through, both these media giants – Sony/Reliance will command a potential market share of 65%/40% on TV/OTT put together,” Taurani said.

It will solve the problem of lower growth rates in the linear TV side (growth in the TV business has come down to 3%-4%), as both these players will potentially gain more market share, with smaller players moving purely to digital or partnering with larger players in the ecosystem, he added.

The board is anticipated to comprise a balanced representation with a minimum of two directors from both Reliance and Disney. Uday Shankar-led Bodhi Tree is expected to secure a seat. The consideration for at least two independent directors is underway, with the possibility of adjustments in the coming weeks, ET reported.

Taurani said, “This move will also work favourably for the digital OTT ecosystem, as most digital OTT platforms (global giants/broadcaster-led) are making hefty losses due to higher content costs. Further, JioCinema’s free content offering has also caused a disruption in India’s OTT market, as players are struggling to scale up SVOD revenues.”

“Consolidation on the digital platform/TV side will also work negatively for the film industry, as production houses may not be able to fetch a hefty premium for digital rights of their movies with bargaining power moving away from content creators to platforms over the near to medium term. This in turn may negatively impact slate for Hindi/regional films, as producers have increased their dependence on digital/satellite rights for monetisation of their content in the post Covid-19 era,” he added.

Info@BestMediaInfo.com