Disney and Reliance Industries announce media mega deal in India

The Walt Disney Company already had a twinkle the size of India in 1993, when it first came to the country of now 1.4 billion potential media consumers. It started small, finding a distributor who broadcast some of its content over airwaves just opening up to global capitalism.

Along with the Indian market, Disney’s ambitions grew bigger. Last year, accounting and consulting firm EY estimated that India’s media landscape would be worth $100 billion by 2030. And Disney was banking on attracting hundreds of millions of subscribers to its own streaming services.

Those ambitions have come to a standstill. On Wednesday, Disney announced it would merge its Indian operations under Viacom18, a unit of Reliance Industries, India’s largest conglomerate. Reliance and Viacom18 will own 63 percent of the new entity Disney in the passenger seat, left with 37 percent of the ownership of the joint venture. Reliance will spend more than $1.4 billion to consolidate its control.

Disney is one of the largest companies in the world – worth $200 billion on the stock market – but in India it proved no match for its homegrown hero.

Disney’s adventures in India reached their peak in 2019, when it bought 21st Century Fox from the Murdoch family’s News Corp. Under Fox’s assets, Disney acquired TV and streaming rights to the wildly popular Indian Premier League cricket matches.

Large subscriber numbers followed, but at high costs. At its pandemic-induced peak, Disney+ had 162 million subscribers in India but lost nearly $500 million globally in the search for viewers. By summer 2022, the company’s global operations had lost more than $11 billion since purchasing Fox and launching Disney+.

Then Disney got into trouble. It was blocked by an even bigger player with an even more resilient risk appetite. Reliance Industries, owned by Mukesh Ambani, India’s richest person, outpaced its rivals and grabbed the cricket rights for almost $3 billion. Disney quickly lost 11.5 million Indian subscribers, while gaining 800,000 new subscribers in the rest of the world.

Disney is big, but its dependence on Mr Ambani is even greater: with a market capitalization of $239 billion, it can enter any bidding war well-armed. The Indian battlefield is one that Reliance knows how to play better than any other company, let alone a foreign company. Once Mr. Ambani decided to expand his reach in the media, it became difficult to imagine him not placing himself at the top of the heap.

When Reliance was founded by Mr Ambani’s father in 1958, it was a retail store, mainly in polyester fibres. It expanded into petrochemicals and now operates the world’s largest oil refinery at the port of Jamnagar, on a remote part of India’s western coastline. It gradually moved into telecommunications and other sectors, and in 2016 it launched a mobile network for free calls and cheap data, Jio, which quickly became the third largest in the world.

JioCinema, part of a growing family of Jio properties but a relatively small platform when India’s streaming wars began, seems likely to become the new home for Disney’s content in India. At one point, another rival seemed ready to emerge, as Japanese media giant Sony looked to expand its operations in India by acquiring Zee Entertainment.

With Zee, India’s first privately owned cable TV company, Sony would have been big enough to share the TV and digital market with Reliance-Disney. But Sony, like Disney a foreigner and prone to misjudging the machinations within Indian companies, pulled out of the deal with Zee on January 22, frustrated by the founding family’s insistence on retaining control.

Sony’s split with Zee appears to have made things even more difficult for Disney. Bloomberg reports this that the estimated value of Disney’s India unit fell from $10 billion to $4.5 billion. For starters, Zee Disney still owes debt for the cricket licenses. The failure of their merger also made the final deal look more attractive to Mr Ambani: What would have been a landscape defined by two giants instead seems likely to be dominated by just one.

Karan Taurani, a research analyst at Elara Capital, said Disney and Reliance already had a combined market share of about 40 to 45 percent in advertising and about the same fraction in streaming, giving them a huge lead over competitors.

“This will lead to better profitability as content costs can fall” for both TV and streaming, Mr Taurani said. So “you will see smaller players lose market share and some will even close.”

Being such a sprawling conglomerate, Reliance has a discreet advantage in the battle for media dominance. It doesn’t need any content to pay for itself instantly. When their subscribers are involved in their retail, telecom and credit activities, the costs of creating shows seem small compared to the combined revenues.

Brooks Barnes contributed reporting from Los Angeles.