Trends

Potential Mega-Merger In The Indian Media And Entertainment Industry-Star India And Viacom18 Could Create A Duopoly

The Indian media and entertainment industry is on the cusp of witnessing a game-changing merger that could create a colossal conglomerate. The proposed deal between Walt Disney's Star India and Reliance Industries' Viacom18 has the potential to reshape the entertainment industry, with industry experts estimating a staggering top-line revenue of approximately Rs 25,000 crore. This impending merger, while promising, at the same time faces complexities and challenges, including regulatory scrutiny and market consolidation dynamics.

A potential merger between Walt Disney’s Star India and Reliance Industries’ Viacom18 could give rise to India’s largest media and entertainment conglomerate, accumulating approximately Rs 25,000 crore in top-line revenue, as stated by industry experts.

This combined entity would have ownership of a total of 115 TV channels, with Star India contributing 77 channels and Viacom18 adding 38 to the mix. Moreover, they would possess two formidable streaming platforms, Disney+ Hotstar and Jio Cinema, potentially creating a content library exceeding 2 lakh hours.

However, this deal is not set in stone and is expected to take time to materialize, mainly due to complexities such as determining the valuation of Star India, also known as Disney Star. Walt Disney is exploring various options for its India operations, which include selling its TV and streaming assets outright or forming a strategic partnership.

Reliance Industries holds a majority stake in Viacom18, with additional shareholders like Uday Shankar and James Murdoch’s Bodhi Tree and Paramount Global.

merger, vacom18, Star India

Should the deal between Reliance Industries and Walt Disney come to fruition, it would lead to a consolidation in the industry, reducing the number of national media players from four to two dominant entities: Star-Viacom18 and Sony-Zee, according to Uday Sodhi, Senior Partner at Kurate Digital Consulting. This duopoly is expected to help these companies withstand the impact of a declining pay-TV audience.

The media sector’s consolidation appears to be imminent, driven by the surge of OTT platforms, particularly in the post-COVID era; if Reliance proceeds with the Disney deal, it would cement a duopoly with Star/Viacom18 and Zee/Sony on one side, while smaller regional players would continue to operate on the other.

The potential Reliance-Disney merger could be one of the most significant deals in the Indian Media and Entertainment (M&E) industry, which was valued at Rs 2.1 lakh crore in 2022 and is projected to grow to Rs 2.34 lakh crore in 2023 at an 11.5% growth rate, according to the FICCI-EY report.

Star-Viacom18 would have a considerable advantage in two major segments of the Indian M&E market – television and digital – holding over 40% market share, with Star at 30%+ and Viacom18 at 10%+ in the TV broadcast market, in addition to their dominance in the digital video streaming market through Disney+ Hotstar and Jio Cinema.

This dominance would surpass global giants like Netflix and Amazon Prime Video, which have yet to establish substantial streaming businesses in the Indian market.

Nonetheless, this potential deal could lead to significant overlaps between Star India and Viacom18 in certain segments, such as Hindi general entertainment, children’s programming, and specific regional markets.

The CCI Punch
The large market share might capture the attention of the Competition Commission of India (CCI), which previously granted conditional approval for the merger of Sony and Zee Entertainment Enterprises Limited (ZEEL).

Legal experts suggest that the combination of Disney Star and Viacom18 is likely to breach the threshold specified in Section 5 of the Competition Act 2002, thereby requiring approval from the CCI. The CCI will examine the combined entity’s market share and its potential impact on competition.

At present, the Sony-Zee merger is one of the most significant deals in the M&E industry; the CCI mandated that Sony-Zee divest three channels in October 2022 to address concerns about the merger’s impact on competition.

The combined array of channels in the Star-Viacom18 merger would include multiple lucrative genres and language markets. Star India has a robust presence in Hindi general entertainment, Hindi movies, Tamil, Telugu, Malayalam, Marathi, and Bengali markets, while Viacom18 excels in Hindi general entertainment, children’s programming and youth entertainment, though its regional market presence is less robust, excluding Kannada.

In terms of top-line revenue, the Star-Viacom18 combo is expected to generate Rs 25,000 crore in FY23, surpassing the Sony-Zee combination, which recorded a top-line revenue of nearly Rs 15,000 crore in the same fiscal year.

This combined entity is poised to become a dominant force in both linear and digital entertainment and sports, with influential Hindi general entertainment channels like Star Plus and Colors, along with near-monopoly control over sports properties like IPL, ICC digital rights, BCCI, Cricket Australia, Cricket South Africa, Premier League, LaLiga, and the 2024 Olympics.

Additionally, the merger stands to benefit from reduced content production, marketing, and distribution expenses.

Star India’s consolidated net profit for FY23 declined by 31% compared to the previous year, dropping to ₹1,272 crore from ₹1,834 crore.

At the same time, its operating revenue from TV and digital businesses increased by 6% to ₹19,857 crore, and its total income grew by 9% to ₹20,699 crore, solidifying its position as the largest traditional media and entertainment (M&E) company in India by revenue.

This revenue growth was attributed to the consistent performance of the entertainment business and the record revenue generated from the Indian Premier League (IPL), estimated at Rs 3,500 crore in ad revenue for IPL 2022.

However, Star India’s ad revenue for the fiscal year declined by 4% to ₹11,186 crore due to a subdued ad market, cautious FMCG advertisers, and decreased ad spending within the startup ecosystem.

Subscription revenue, including both TV and digital, saw a 14% growth to ₹7,001 crore, driven by strong sports properties; the company also reported a 74% surge in earnings from licensing content rights to ₹1,446 crore.

Meanwhile, Walt Disney revealed an operating loss of $444 million (₹3,703 crore) for its sports business in India over the nine months ending July 1, with revenue of $637 million (₹5,313 crore).

For the fiscal year ending on October 1, 2022, the Indian sports business recorded an operating loss of $237 million (₹1,976 crore) on revenue of $1.2 billion (₹10,009 crore).

Walt Disney follows an October-to-September financial calendar, while Star India follows an April-to-March calendar. Star India’s total expenses increased by 16% to ₹18,759 crore, and operating expenses rose by 19% to ₹14,465 crore.

Rights and program costs also escalated by 19% to ₹12,677 crore, and license fees paid out increased by 24% to ₹704 crore.

Novi Digital Entertainment, a subsidiary of Star India that owns Disney+ Hotstar, experienced a 118% increase in net loss to ₹748 crore, with revenue surging by 35% to ₹4,341 crore. Novi is in the process of merging with its parent company, Star, which holds a 78.07% stake in the subsidiary.

In the previous year, Star India recognized exceptional income of ₹219.7 crore due to the sale of its US business to Walt Disney subsidiary Buena Vista Video on Demand (BVVOD). With a net worth of ₹17,977 crore in FY23, Star India has already consolidated Asianet Star Communications following approval from the National Company Law Tribunal (NCLT) in January.

The Last Bit,
As the media and entertainment sector in India continues to evolve rapidly and is highly competitive, the potential merger between Star India and Viacom18 would be a game changer.

If realized, this merger will not only solidify their dominance in both linear and digital entertainment but also potentially create a formidable duopoly in the industry alongside the Sony-Zee merger.

naveenika

Writing is not just a pastime for me; it's a calling! There is something about the power of words - they can move people, inspire change, and bring about new ideas. With nearly 15 years of experience in the corporate sector, I have understood the therapeutic value of writing, using it as a means to explore my thoughts and articulate my views on various topics. Being passionate about writing, I strive to create content that informs and enriches the lives of my readers. I am grateful for the time they spend reading my work and aim to make every word count.

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