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

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

The merger is expected to create a giant in the Indian entertainment industry, valued at $8.5 billion, by combining Disney Star India’s operations with Reliance Industries’ media holdings.

Experts agree that consolidation in the media industry will increase to compete with the Reliance-Disney merger. They believe that other players in the industry will seek mergers or alliances to compete with the combined entity.

“The merger could trigger further consolidation in the industry as other players look to merge or form alliances to compete with the new giant. Smaller players may find it difficult 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 increase market share,” said Vinayak Burman, Founder and Managing Partner, Vertices Partners.

The merger is a good step forward for India in its quest to compete globally in terms of content and media, experts said. India is widely known for its folklore and storytelling skills, which the merger will further elevate on the global stage.

“It’s a good step for India to have a large media organization. India is known for its storytelling capabilities. It would be a great opportunity if companies get it right. We import content regularly. With this deal, Indian content has the potential to go global. Media consolidation will accelerate across the board in advertising and media,” said Ashish Bhasin, Founder, The Bhasin Consulting Group.

Karan Taurani, Senior Vice President, Research Analytics (Media, Consumer Discretionary and Internet) at Elara Capital, said there is a strong possibility that the National Company Law Tribunal (NCLT) will approve the merger within four to five months, potentially completing the deal by January 2025 and creating India’s largest media and entertainment entity.

He also added that the approval of the Competition Commission of India for the merger of Disney Star with Reliance Industries without closing channels is a positive decision for both the entities.

Moreover, the merger would give the new entity significant influence over content, pricing and distribution channels. Experts have opined that consumers will benefit from the merger as it could lead to better access to high-quality content at competitive prices, especially for Jio users who could be offered bundled services and exclusive content.

Moreover, the variety of content offered would be enhanced by Disney’s global content and Reliance’s mix of local and regional production. With a significant reach across 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 deal, media company Viacom18 will be merged with Star India Private Limited (SIPL) through a court-approved scheme of arrangement. RIL has also agreed to invest Rs 115 billion in a joint venture (JV) worth Rs 704 billion.

Once the above steps are completed, the JV will be controlled by RIL, which will have a 53% stake through cash infusion, and its subsidiaries, while Disney will hold a 36.8% stake. Disney may also contribute certain additional media assets to the JV, subject to regulatory and third-party approvals.

“The combined entity’s focus on maximising market share through increased content investment, synergies and enhanced marketing strength creates challenges for individual broadcasters to compete and grow. With a large customer base across genres, including regional and urban GECs, the combined entity aims to dominate key markets, potentially leading to loss of market share and challenges for other players, including possible closure of smaller channels,” Taurani said.

The JV will have over 750 million viewers in India and will also cater to the Indian diaspora globally. The JV will also get exclusive distribution rights for Disney films and productions in India, with licensing of over 30,000 Disney content assets, providing a full set of entertainment options for the Indian consumer.

The competition regulator had earlier raised concerns that the $8.5 billion merger could harm competition due to potential control over cricket broadcasting rights.

Burman stressed that the merger will have a significant impact on the sports broadcasting market in India, with particular emphasis on how to divest sports assets and restructure those assets.

“The Disney-Reliance merger could lead to the sale or restructuring of sports assets such as Star Sports and is likely to create a more consolidated and competitive sports broadcasting environment in India, with significant implications for both traditional broadcast and digital streaming,” he said.

In addition, industry experts suggest that consumers can count on a more integrated offering of sporting events, especially via digital platforms, which could translate into cheaper access to premium sporting events.

Industry observers have also said the combined entity will have an advantage in negotiations with advertisers and sponsors, and potentially in bidding for future sports broadcast rights, which could intensify competition in the sports streaming market.

According to Taurani, Disney and Jio together would control around ~75-80% of the Indian sports market across both linear TV and digital platforms. However, he added that continued heavy losses by the combined entity in the short to medium term due to expensive sports properties (IPL, ICC tournaments and BCCI bilateral rights) could negatively impact the valuation prospects of the combined entity.