It’s no secret that The Walt Disney Company’s relationship with Star—and by extension, the Indian entertainment industry—has lost its fizz over the past year. So much so that the global media giant is hurriedly putting together an exit plan now.

The CapTable reported in July that Disney would be tapping every kind of potential buyer—from strategic to financial investors to even JV partners—to palm off its India assets. We’d also hinted at the likelihood of Mukesh Ambani’s Reliance Industries-backed Viacom 18 emerging as a frontrunner for Disney Star. Per recent media reports, top executives of both companies have held talks for a possible deal (though nothing has been finalised yet).

Viacom 18 vying for Star is hardly a surprise, given the enormous synergies at play between both networks. But if the two were to merge, it would inevitably invite the attention of India’s competition regulator. There could even be a shutdown of multiple channels by the Competition Commission of India (CCI), as "Star and Viacom 18 have a big overlap on the regional/urban general entertainment channel (GEC) side compared to Zee/Sony, which had a relatively lower overlap,” said a media analyst tracking the companies. "There's an overlap in movie content as well," he added.

The potential union of Viacom 18 and Star would also create a duopoly in the TV market, with the recently merged Zee-Sony combine going head-to-head with them. Analysts expect ad revenue shares to be 25% and 45%, respectively, between the two entities. While Star India remains an outperformer on the TV side, with its 70-channel network leading in nearly every territory, it is Viacom 18 that would gain a clear edge over Zee-Sony if it joined forces with Star.

However, the TV business alone may not fetch a premium valuation for Disney given that growth rates have plateaued on the medium.

THE UPSHOT

If Disney were to take a leaf out of its own book in the West, where it signed a deal with Charter—America's second-largest cable provider—to bundle its TV packages with its own streaming plans, it could make Star’s assets more palatable to buyers.

"It all depends on what Disney's strategic intention is. If they sell both businesses together, they might get a better valuation for that. Because TV and digital businesses today are usually bundled. TV alone wouldn't fetch a premium deal," Karan Taurani, SVP at Elara Securities, tells The CapTable.

The streaming business, meanwhile, is a leaky bucket for the storied ‘House of Mouse’. Disney India can’t wait to get rid of Hotstar—which is in vastly different shape than it was a year ago—and streamline its loss-making global streaming division (which also includes Disney+, ESPN+ and Hulu).

The CapTable has learnt that Hotstar's valuation may have decreased by a third or more since it lost the rights to the Indian Premier League (IPL) in June 2022.

"If Hotstar goes separately, it will get a much lower valuation because it has lost 30% of its subscribers and 50% of ad revenues in a year," Taurani reveals. "Its current revenues would be ~ Rs 1,500 crore and based on that it would probably get a valuation of $2-3 billion compared to the $8-10 billion it would've got in the presence of IPL rights," he explains.

India’s OTT sector, meanwhile, is ripe for consolidation. The likely coming together of Hotstar and JioCinema might just be the start of a new world order. Throw an Amazon Prime Video (which is already lapping up local platforms like MX Player) into the mix, and we’re in for exciting times. “Consolidation in the industry will also lead to a better path to profitability and break-even for the OTT platforms, which are currently making hefty losses due to high content costs,” according to a report by Elara Securities.

Disney star — *Disney's recent multi-series deal with Pratilipi is being seen as an effort to move away from expensive content*

It is also commendable that Disney Star continues to explore new content deals in a bid to grow a catalogue that has been wrung high and dry by Viacom 18’s aggressive bids for key properties like the IPL, BCCI-organised matches, Indian Super League, and HBO shows. Earlier in September, the company signed a deal with Krafton and Omidyar-backed storytelling platform Pratilipi to create multi-language shows based on its IP and stories for both its TV and streaming platforms.

Putting the transaction in perspective, Taurani says, "These are strategies to move away from expensive content like cricket. It may not fetch any dividends in terms of subscriber base or scalable large revenues."

For Pratilipi, however, this is a big win.

Speaking to The CapTable recently, Co-founder and CEO Ranjeet Pratap Singh revealed that Disney has struck “a fixed fee deal instead of a revenue-sharing one” and made “an upfront payment" for turning three of its stories into shows.

This means that even if Disney were to sell Star in the next few months, the terms of this deal would remain unchanged. “Disney moved very quickly on this… People will pay for content if it is differentiated and valuable enough,” Singh stated.

All said and done, with Reliance Industries emerging as a key suitor for Disney India's assets, Star's future may be secured. RIL operates not just a diversified TV network and a fast-growing streaming platform, it also produces movies under the Viacom 18 Studios banner and is a majority shareholder in Hathway Cable and Datacom (one of India’s top cable TV distributors). All this implies that Ambani could indeed turn out to be Disney’s knight in shining armour in India.

Whatever happens, we'll be getting you the ringside view.

Edited by Ranjan Crasta

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