Viacom18-Disney deal - one week to go: All that we know

With just a week left for one of the biggest mergers in the Indian media business to be finalized, Walt Disney Co and Reliance Industries (RIL) are actively engaged in discussions.

The focus of these discussions is the completion of an expansive stock-and-cash merger, a strategic move aimed at establishing India's foremost media and entertainment powerhouse. Those privy to the matter have revealed that both companies are actively working towards solidifying the details of this significant merger.

Here's a look at everything we currently know about the merger.

Valuation

The valuation of the merger is reportedly around at $4.5 billion approximately which is significantly below Disney's initial expectation of $10 billion.Following prolonged negotiations and a non-binding agreement with Reliance Industries, Disney's assets in India were assessed to be valued at a considerably lower value than initially expected. Experts also blame a write-off of revenue that Zee owed Disney for a cricket TV rights sale to cause the drop in valuation.

The loss of popular content has been a significant factor contributing to Disney + Hotstar's decline in subscription revenue. Beyond the IPL loss, Disney+ Hotstar also surrendered all HBO content offerings to JioCinema, resulting in the loss of a loyal audience for popular shows like Game of Thrones and Succession, among others. All of these factors added to drop in valuation said experts.

Terms of merger

As per a Wall Street Journal Report, under the sale arrangement, Disney will retain ownership of 40 percent of its India operations, while Reliance will own 51 percent and Rupert Murdoch and Uday Shankar-backed Bodhi Tree System will own 9 percent. Viacom18 is expected to pay approximately $1.5 billion in cash and offer stock to acquire its share in the combined entity.

Disney Star’s structure

The shareholders of Star India are 7 overseas entities located in Mauritius, the British Virgin Islands and Mauritius. These entities inter-alia include Buzzer Investments, Star ISP Limited, Worldwide Wickets, Quazar Investments (Mauritius) Limited, Star Entertainment Holdings Limited, STARTV.COM Holdings Limited and Star Television Technical Services.

Star India Private Limited owns 78.07 percent in Novi Digital Entertainment Private Limited, 12.9 percent in Red Brick Lane Marketing Solutions, 10 percent in Mashal Sports Private Limited and 7.67 percent in Asianet Star Communications Private Limited. According to Kritika Seth, founding partner at another full-service law firm, Victoriam Legalis, the Companies Act, 2013, Competition Act, 2002 and Foreign Investment Regulations, will determine the legal framework of any merger or sale related developments for Star India.

Shaking up the Indian media space

This high value deal is expected to create ripples in the Indian media ecosystem. Experts foresee creation of a monopoly with significant negotiation power over advertisers. “The deal will have a significant impact in the media landscape potentially leading to a more monopolistic scenario, especially because the Zee-Sony deal did not materialise. If the deal goes through, together Viacom18 and Disney+Hostar be gaining a substantial market share, with anticipated shares of around 40 percent in TV and 35 percent in digital,” Karan Taurani, senior vice president at Elara Capital had said.

Key IPS

Coming together of the companies will also see coming together of two vast content libraries across genres with a special focus on cricket IPs.

Viacom18 already has the digital streaming rights for IPL(Indian Premier League), along with the TV and digital broadcasting rights for India's bilateral matches in T20I, ODI, and Test formats for both men's and women's cricket. In a bid to expand their viewer base, Viacom18 offered free streaming of the 2023 edition of the IPL on the JioCinema app. On the other hand, Disney Star exclusively holds the TV broadcasting rights for IPL and the digital rights for ICC events.

The combined strength of TV and digital for these premium cricket IPs is naturally expected to do wonders when it comes to AdEx boost for the company.

Background

It all started in July 2023, with Wall Street Journal reporting Disney exploring strategic exit or sale options for their India business.

This came at time when Disney and its competitors were navigating a costly transition towards streaming platforms. In a bid to make that transition happen, in 2019, Disney paid $71.3 billion to acquire the entertainment assets of 21st Century Fox. At the time, Star India stood out as one of Fox's prized possessions, playing a crucial role in Disney's strategy to expand its nascent streaming business worldwide. This acquisition granted Disney the broadcasting and streaming rights for the Indian Premier League cricket matches, along with numerous TV channels in multiple languages and a stake in a Bollywood movie production company.

Hotstar, once proud of its impressive milestone of 150 million monthly active users, was experiencing continuous growth, largely driven by its exclusive streaming rights to the Indian Premier League (IPL). However, this growing user base turned into a significant challenge when Hotstar lost the streaming rights of IPL to Reliance's JioCinema. This setback posed a considerable obstacle for Disney+ Hotstar, as the loss of such a marquee sporting event meant a potential decline in user engagement and a risk of losing a substantial portion of their dedicated audience.