Why Disney’s $8.5 Billion India Merger Is Such a Huge Deal | Analysis

When Disney acquired Star India in the $71.3 billion acquisition of Fox’s entertainment assets in 2019, the company was optimistic about the chance to expand into the India market as it ramped up its streaming ambitions.

But five years later, the growth of Star has not panned out the way the House of Mouse had hoped, putting it in a sticky position as the India business has operated at a loss and bled millions of subscribers.

In an effort to turn things around, the entertainment giant is teaming up with Reliance Industries — the owner of Disney+ Hotstar’s biggest competitor in the country — to create an $8.5 billion sports and entertainment television powerhouse through a joint venture.

The deal, which is expected to close in late 2024 or early 2025 subject to regulatory and shareholder approvals, will give Reliance and joint venture Viacom18 a combined 63% ownership stake in the venture, while Disney will have a 37% stake. Disney expects to incur up to $2.4 billion in non-cash pre-tax impairment charges during the second quarter of 2024, about half of which reflects a write-down of the net assets of Star India.

The joint venture comes at a crucial time for the Walt Disney Company in a climate of cost-cutting and consolidation as it looks to take on its rival Netflix in India, the most populous market in the world with 1.4 billion people.

“We are excited for the opportunities that this joint venture will provide to create long-term value for the company,” Disney CEO Bob Iger said in a statement. “Reliance has a deep understanding of the Indian market and consumer, and together we will create one of the country’s leading media companies, allowing us to better serve consumers with a broad portfolio of digital services and entertainment and sports content.”

Who is Reliance industries?

Reliance Industries is India’s largest private sector company, with a business that spans hydrocarbon exploration and production, petroleum refining and marketing, petrochemicals, advanced materials and composites, renewables (solar and hydrogen), retail and digital services.

Owned by billionaire Mukesh Ambani, Reliance reported revenue of $118.6 billion, cash profit of $15.3 billion and net profit of $9 billion for the year ending March 31.

According to its website, Reliance’s 60 television channels reach more than 95% of TV homes in India annually. The company touted a total viewership share of 12.4% and a digital reach of 260 million per month in fiscal year 2022-23. Viacom18, its joint venture with Paramount Global and Bodhi Tree Systems, oversees its streaming platform JioCinema, which brought in over 120 million viewers for the final Indian Premier League cricket match for fiscal year 2022-23. Viacom18 also offers 38 channels across general entertainment, movies, sports, youth, music and kids programming.

Why is the deal happening?

In 2019, Iger announced that the existing Hotstar streaming service would be integrated into Disney+ as part of a relaunch in March 2020, which was delayed to April due to the COVID-19 pandemic and subsequent postponement of the Indian Premiere League season that year.

The service expanded to other territories, beginning with Indonesia in August of that year. Disney also used the Star branding for general entertainment streaming services in markets outside of the United States and launched Star+ in Latin America, which included ESPN content.

But in 2022, Viacom18 snatched the rights to the Indian Premiere League away from Disney in a $2.9 billion deal. What followed was an exodus of 12.5 million Hotstar subscribers that prompted Disney to begin offering access to some cricket matches for free in an effort to compete.

The Star India unit ended 2023 with an operating loss of $315 million, a 144% year over year surge driven by higher rights costs from airing of the ICC Cricket World Cup. Revenue for the segment increased 71% year over year to $399 million, driven by increased advertising revenue offset by a decrease in advertising rates.

Disney+ Hotstar has a total of 38.3 million subscribers and reported average revenue per user of $1.28 during the company’s first quarter of 2024.

Now, Disney is hoping the joint venture with Reliance will help Star India and Hotstar grow and reduce costs as it looks to turn its overall streaming business profitable by the end of fiscal year 2024.

How will the joint venture benefit Disney?

The joint venture comes as Iger has embarked on a turnaround plan seeking to cut $7.5 billion in costs as it looks to turn streaming profitable by the end of fiscal year 2024. In the first quarter of 2024, Disney made progress on that goal, with narrowing its total streaming losses by 79% year over year to $216 million.

Disney is also looking to bolster its share price as the company fends off a push for board seats by activist investors Trian Fund Management and Blackwells Capital. Disney stock, which is trading at around $110 per share, has climbed 32% in the past six months, 22% year to date and 11% in the past year, but remains well off the its all-time high of $201.91 hit in March 2021.

The merger will allow Disney to make up ground that it lost when it failed to resecure cricket rights, Insider Intelligence analyst Ross Benes told TheWrap. In return, Reliance will have one of the most recognizable entertainment companies in the world as a new partner. CFRA Research analyst Ken Leon added that the joint venture will have a “greater enterprise value and balance sheet to purchase valuable sports rights in India.”

Under the terms of the binding agreement signed between Disney and Reliance, Viacom18 will be merged into Star India Private Limited through a court-approved arrangement. Reliance has agreed to invest $1.4 billion at closing into the joint venture for its growth strategy.

The combined entity will be a leading TV and digital streaming platform in India, bringing together assets across entertainment and sports, including Colors, StarPlus, StarGOLD, Star Sports and Sports 18. It will also offer access to highly anticipated events through JioCinema and Hotstar, catering to over 750 million viewers across India and the Indian diaspora across the world. The joint venture also will have exclusive rights to distribute Disney films and productions in India, with a license to more than 30,000 content assets.

It will also help the company boost the international subscriber base for Disney+ as it looks to better compete with Netflix, which is the leading streamer overseas. Excluding Hotstar, Disney+ reported a total of 111.3 million core subscribers, including 46.1 million in the U.S. and Canada and 65.2 million overseas. In comparison, Netflix has a total of 260.28 million subscribers, including 80.13 million in the U.S. and Canada, 88.81 million in the Europe, Middle East and Africa region, 46 million in Latin America and 45.34 million in the Asia-Pacific region.

When looking just at India, Insider Intelligence estimates that Disney+ had 112.4 million viewers, or 8% of the population, in 2023, compared to Netflix’s 44.7 million viewers, or 3.2% of the population. By 2027, the firm sees Disney+’s share growing to 134.6 million, or 9% of the population, compared to 55 million viewers, or 3.8% for Netflix.

“Making inroads in India matters to streaming services with global ambitions,” Benes said. “But it remains to be seen if they will play well together.”

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