With Reliance Industries (RIL) reportedly eyeing to acquire Walt Disney's India operations, which may reshape India’s media and entertainment industry, the path to exit India is going to be full of challenges for Disney.
After initial reports about Disney's potential sale or joint venture, several possible buyers have emerged since July this year.
Besides Reliance, Blackstone and well-known Indian billionaires Gautam Adani and Kalanithi Maran, the owner of Sun TV Network, have discussed matters with Disney regarding their streaming and TV ventures.
Reliance’s big bet
Industry veterans keeping a close eye on the developments told BestMediaInfo.com that while the top brass of Reliance and Disney including Uday Shankar may be in talks, in private, there is nothing concrete to suggest any significant progress has been made in this deal.
Industry sources highlighted that the valuation may be a big hurdle among others.
In 2017, when Walt Disney got Star India through the 21st Century Fox deal, it was valued at a solid $18 billion.
While Reliance is undoubtedly aiming to become a one-stop content hub as it controls the pipe through its telecom and television distribution businesses, spending $10 billion (Rs 83,000 crore) to acquire an entity is the biggest bet, unless they have a clear roadmap and an answer to what to do with Disney Star India.
Industry veterans told BestMediaInfo.com that Disney Star India has to pay $2 billion to BCCI in a few months and any prospective buyer will deduct that amount from the valuation being sought by the global player.
“Disney is thinking about selling most of Disney Star for around $10 billion, which is different from the earlier discussions about selling parts separately. Reliance estimates these assets to be worth between $7 billion and $8 billion. Disney might keep a smaller ownership share after the deal,” said an industry observer on the condition of anonymity.
“The OTT market, which is growing at a rapid pace globally, is still experimenting with revenue models. No one knows if they will retrieve the cost of running an OTT business at a scale in the near future. If that is the case, even Reliance would think many times before spending Rs 83,000 crore on acquiring Disney Star India,” said one of the industry experts quoted above.
The Narendra Modi government has been claiming that India will be a global content hub in the next few years but no one is sure of delivering profits from being in the content business.
“Content to commerce is one of the areas which is said to be a winning strategy behind Reliance’s big bet to acquire Disney’s business in India but if that is the only reason, the Indian conglomerate should first exploit its significant presence in content business it already has. I do not see this logic behind the acquisition attempt,” said an observer.
Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital, also is of the view that if this kind of problem persists, wherein the revenue growth rate potential is not identified, you will definitely see in the next 6 to 12 months that the number of platforms will come down.
“Either they shut shop or they tie up with a larger platform,” he added.
Other challenges and the way forward
Meanwhile, Taurani emphasised certain challenges that may come in Disney's way in case its India assets are acquired by Reliance.
“One major challenge for Disney in dealing with its assets in India is obtaining approval from the CCI (Competition Commission of India). If you look at the market share numbers today, JioCinema and Hotstar are poised to capture over 40% market share in the OTT sector, while Disney and Viacom may also secure a similar market share in linear TV. This situation makes it challenging for them to obtain regulatory approvals easily. Selling the entire portfolio might be necessary for the right value, as breaking it into pieces may not fetch the correct overall value due to the importance of scale in the business,” Taurani said.
He pointed out that another challenge lies in the strategic roadmap. Disney's focus on premium content, unlike JioCinema's mass appeal, raises questions about the strategy for the company.
“The decision on whether Disney Plus will adopt a free platform like JioCinema could impact subscription revenue and user experience. The urban appeal of Disney's content, especially in English and sports, is a significant factor in this consideration,” Taurani added.
Disney's decision to explore strategic options for its Star India business was influenced by factors like the loss of IPL digital rights and the impact on its subscriber base.
Industry observers told BestMediaInfo.com that Star India has been compensating losses in sports with entertainment businesses for a long time. As this has affected their EBITDA margins, their valuation and negotiation power have been hit downwards.
Moreover, losing digital rights to JioCinema and following the free-to-view on mobile strategy for big tournaments such as the World Cup has resulted in a steep decline in the number of subscribers for Disney+ Hotstar.
“Disney+ Hotstar, in India and some other Asian countries, has seen a 40% decline in subscribers and possibly more than a 50% decrease in advertising revenue. In the AVOD market, their market share has dropped from 25-30% to around 10%. Additionally, JioCinema has been providing content for free, affecting the competitive landscape,” Taurani said.
“Their position in the Indian market has seen a significant decline, with OTT market share dropping by over 40%, resulting in less than half of the overall SVOD revenue,” he added.
Furthermore, Taurani emphasised that even if they had secured the IPL, they would have faced significant challenges, leading to bigger losses than what they are experiencing now.