Relianceâ€™s proposed acquisition of Disney India assets sparks transformative disruption

Reliance Industries is reportedly in discussions to acquire Disney India’s assets, including its OTT platform, for a substantial $10 billion. This proposed acquisition, at a remarkable 40% discount compared to Disney’s acquisition of Star India assets for approximately $15-16 billion in 2019, has sent ripples throughout the industry.

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Karan Taurani, Senior Analyst at Elara Securities, observes that this potential deal could have far-reaching consequences for the content and telecom ecosystem in India, leading to several key outcomes:

Consolidation in India’s OTT Space: The acquisition may signify the early stages of consolidation in the Indian OTT industry. With Reliance’s Jio Cinema and Hotstar boasting a combined AVOD market share of approximately 28%, this could increase to around 45% post the ZEE-Sony merger, which may result in other OTT platforms seeking partnerships or acquisitions to compete effectively. This consolidation may help reduce content costs, ultimately driving OTT platforms closer to profitability.

Dominance in the TV sector: The proposed deal has the potential to reshape the TV industry, with Disney and TV18 currently holding a combined TV ad market share of 34% and 11%, respectively. If the ZEE-Sony merger goes forward, the combined ad market share may drop to 23%. This could lead to a duopoly in the TV sector, which may improve ad pricing, but not necessarily result in higher revenue shares due to industry regulations. Some channels may face the possibility of being shut down as a result of the consolidation.

Positive implications for ZEE-Sony merger: The ZEE-Sony merger could benefit significantly from the acquisition, potentially mirroring Disney’s $10 billion valuation. While Disney India holds a market share of 33% in TV and 12% in OTT (post-IPL), ZEE-Sony commands a premium EBITDA margin of approximately 21%, compared to Disney’s 4% EBITDA margin. This could align the ZEE-Sony merged entity with a target valuation of $7.2 billion.

Jio’s increased dominance in telecom: The deal could reinforce Jio’s position in the telecom ecosystem. Jio could become a one-stop content hub with a wide range of content offerings, including international movies, web series, sports content, and catch-up TV. This could affect competitors like Bharti Airtel, which may need to heavily invest in content or partner with global OTT giants to compete effectively.

Stalling of content cost inflation: Content costs have been on the rise in both TV and digital segments. Consolidation in TV may help arrest content cost inflation, leading to improved profitability. In the digital segment, the entry of global giants has driven up content costs. However, the Reliance-Disney partnership may bring about lower growth in content costs, benefiting the economics of the OTT business.

Convergence in India’s OTT growth: The collaboration between Jio Cinema and Disney may result in premium content being offered for free in the near term. This could slow down the growth of subscription-based OTT revenues and create challenges for global OTT platforms looking to keep content behind paywalls. Their dependence on Jio in the ecosystem may also impact their bargaining power.

Taurani further says that while this deal holds great potential, there is a potential risk associated with the Competition Commission of India (CCI) potentially disallowing the acquisition to prevent a duopoly in the TV/ OTT space.

He emphasises that this proposed acquisition could have a transformative impact on India’s media and entertainment landscape, shaping the future of content delivery and consumption in the country.

Sonam Chandwani, Managing Partner, KS Legal & Associates, too, believes that this partnership between Disney and Reliance could thrive because it marries Disney’s global brand recognition, creative expertise, and vast content library with Reliance’s deep understanding of the Indian market, robust distribution channels, and local operational prowess. “Together, they could cohesively navigate the cultural and business nuances of India, presenting content and experiences tailored to local tastes while maintaining the global standards Disney is renowned for, thereby catering to a vast and diverse audience,” Chandwani adds.a