Disney Star-Viacom18 merger may lead to wave of consolidation and alliances in M&E sector

New Delhi: On Wednesday, the Competition Commission of India (CCI) approved the Reliance-Disney merger, subject to certain voluntary modifications. 

The merger is set to create a $8.5 billion juggernaut in the Indian entertainment industry, combining the businesses of Disney Star India with Reliance Industries’ media holdings.

Experts are aligned on the fact that consolidation in the media industry will increase to compete against the Reliance-Disney merger. They believe that other players in the industry would seek to merge or form alliances to compete against the merged entity. 

“The merger might trigger further consolidation within the industry as other players seek to merge or form alliances to compete with the new giant. Smaller players may struggle to survive independently, leading to more acquisitions and mergers in the sector. Disney Star-Viacom18 could lead to more aggressive pricing strategies and exclusive content offerings, making it harder for others to maintain or grow their market share,” Vinayak Burman, founder and managing partner, Vertices Partners, highlighted.

The merger is a good step forward for India in its quest to compete globally in terms of content and media, experts stated. India has been widely known for its folklore and storytelling abilities, which would be further propelled into the global stage by this merger.

“It’s a good step for India to have a scaled-up organisation in media. India is widely known for its storytelling ability. It would be a great opportunity if the companies got this right. We have been importing content regularly. With this deal, there stands to be a chance for Indian content to go global. Consolidation of media is going to accelerate on every aspect for advertising and media,” Ashish Bhasin, founder, The Bhasin Consulting Group, said.

Karan Taurani, SVP-Research Analyst (Media, Consumer Discretionary, and Internet) at Elara Capital, said that there is a strong likelihood that the National Company Law Tribunal (NCLT) will approve the merger within 4-5 months, potentially finalizing the deal by January 2025, and forming India’s largest media and entertainment entity.

He also added that the Competition Commission of India's approval for the merger of Disney Star with Reliance Industries without any channel shutdown, is a positive development for both entities.

Additionally, the merger would result in giving the new entity significant influence over content, pricing, and distribution channels. Experts opined that consumers are set to benefit from the merger as it could lead to better access to high-quality content at competitive prices, particularly for Jio users, who might have bundled services and exclusive content on offer.

Moreover, there would be an increased diversity in terms of content on offer owing to Disney’s global content and Reliance’s local and regional production combining. Having a significant footprint in different segments of the population, the combined reach of the new entity could have an impact on Indian culture and entertainment.

As part of the transaction, the media undertaking of Viacom18 will be merged into Star India Private Limited (SIPL) through a court-approved scheme of arrangement. In addition, RIL has agreed to invest Rs 115 billion into the joint venture (JV) valued at Rs 704 billion. 

Post completion of the above steps, the JV will be controlled by RIL which would have a 53% stake through cash infusion and its subsidiaries, whereas a 36.8% stake will be held by Disney.  Disney may also contribute certain additional media assets to the JV, subject to regulatory and third-party approvals. 

“The merged entity's focus on maximising market share through increased investments in content, synergies, and enhanced marketing power poses challenges for individual broadcasters to compete and grow. With a large customer base across various genres, including regional genres and Urban GEC, the combined entity aims to dominate key markets, potentially leading to market share loss and challenges for other players, including the possibility of smaller channels shutting down,” said Taurani.

The JV will have over 750 million viewers across India and will also cater to the Indian diaspora across the world. The JV will also be granted exclusive rights to distribute Disney films and productions in India, with a license to more than 30,000 Disney content assets, providing a full suite of entertainment options for the Indian consumer.

Previously, the antitrust regulator raised concerns that the $8.5 billion merger could harm competition due to their potential control over cricket broadcast rights. 

Burman emphasised that the merger is expected to significantly impact the sports broadcasting landscape in India, with a particular focus on how to divest and restructure their sports assets.

“The Disney-Reliance merger may lead to divestment or restructuring of sports assets like Star Sports; it is likely to create a more consolidated and competitive sports broadcasting environment in India, with significant implications for both traditional broadcasting and digital streaming,” he said. 

Furthermore, industry experts suggest that consumers might see more integrated sports offerings, particularly through digital platforms and this could lead to more affordable access to premium sports events.

Industry observers also opined that the merged entity would have leverage in negotiating with advertisers and sponsors, and potentially in bidding for future sports rights, which could intensify competition in the sports streaming market.

According to Taurani, Disney and Jio collectively would control approximately ~75-80% of the Indian sports market across both linear TV and digital platforms. However, he added that the continuance of hefty losses of the merged entity over the near to medium term due to high-cost sports properties (IPL, ICC tournaments & BCCI bilateral rights) could negatively impact valuation prospects for the merged entity.