Reliance-Disney JV could alter paradigm of media industry, give it significant edge over rivals

India's media broadcasting industry is set for a big shakeup with two giants—Walt Disney and Reliance Industries—joining hands to create a joint venture company, which will have a bouquet of around 117 TV channels and two streaming platforms, with a pipeline of strong content that includes top shows from HBO and premier sporting events from cricket to football.

As per the definitive agreements signed, the businesses of Reliance-owned Viacom18 and Disney's Star India will be combined and RIL will invest Rs 11,500 crore, or about $1.4 billion, in the joint venture.

Reliance Industries will hold 16.34 per cent in the JV, Viacom18 will have 46.82 per cent stake and Disney will get 36.84 per cent. The deal values the JV at Rs 70,352 crore ($8.5 billion) on a post-money basis, excluding any synergies.

Nita Ambani will be the chairperson of the JV, while Uday Shankar, the co-founder of Bodhi Tree Systems, which holds a stake in Viacom18, will be the vice-chairperson.

"This new entity can alter the paradigm of the media industry with the establishment of the single-largest player in the broadcasting and digital space," said Pulkit Chawla, analyst at Emkay Global Financial Services.

The JV will have 750 million viewers across India and bring together media assets across entertainment (Colors, StarPlus, Star Gold among others) and sports (Star Sports and Sports18), as well as access to entertainment via streaming platforms JioCinema and Hotstar.

This entity will also hold a majority of the sporting rights (particularly cricket), noted Chawla.

Reliance Jio already is the largest telecom player in the country with a user base of over 459 million, which it could look to exploit.

"RIL can exploit its large user base in the telecom segment, with bundling of packs expected to be a key focus area," said Chawla. But, he also felt that the JV's dominant position could attract scrutiny from the Competition Commission of India and may prove to be a "speed breaker" for the deal.

Dayanand Mittal of JM Financial Institutional Securities said the net value from the joint venture for Reliance could be Rs 23,400 crore, or Rs 35 per share.

This deal between Reliance and Disney will particularly boost RIL's digital streaming business. Disney+ Hotstar had a little over 38 million subscribers as of December 2023. JioCinema reportedly has around 125 million monthly active users. Starting with the IPL2023, JioCinema has been a key player focused on advertising-supported streaming of major events.

RIL stands to gain immensely from both the platforms coming under one roof as this will help the company take on global streaming giants like Netflix, Amazon and Sony as well as homegrown players like Zee5. If the JV can provide affordable premium plans for its millions of users, it could dent the subscriber revenue growth of its rivals.

While RIL gains in the streaming business, the large scale that the JV will have in linear TV broadcasting is likely to hurt other broadcasters like Zee, Sony and Sun TV. The RIL-Disney JV is likely to have around 40 per cent share in TV advertisements and subscriptions, according to some estimates.

The deal between RIL and Disney comes a little over a month after Sony and Zee Entertainment scrapped their merger plans after two years of negotiations.

"RIL has industry leading capabilities across businesses to drive robust 14-15 per cent earnings per share compounded annual growth over the next 3-5 years," said Mittal of JM Financial.

Mittal further noted that with concerns around debt levels at RIL behind, he expects net debt to peak in the current financial year as capex moderates and internal cash generation goes up.