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Dressed in a blue polo shirt, a smiling K. Madhavan takes his time before answering a question. The words are chosen carefully and one has to constantly look for those little nuggets. In the world of media and entertainment, he is one of the most low-profile individuals, though his business is anything but that. As Country Manager & President of Disney Star, he oversees a network of 73 channels across Hindi, English and regional. In terms of genres, it has sports, infotainment, kids, music and movies.
The company (then owned by Rupert Murdoch) entered India in the early 1990s to serve an audience that had never seen satellite television. Its English content, for many years, did not strike the right chord here. After almost a decade of no success, it was all set to say goodbye before it gave it one last shot. A change of strategy to have more Hindi content led by Kaun Banega Crorepati with Amitabh Bachchan as host and a clutch of soap operas swung it in the most remarkable way. Today, it is the largest media and entertainment network with revenues of over Rs 12,000 crore in FY21 (a pandemic-hit year) and a net profit of Rs 1,395 crore.
A change in ownership now has The Walt Disney Company in charge. Understandably, a lot has changed and an important piece is the firm’s valuation on Wall Street. Disney is a closely monitored stock and how it gets it right on new media delivery mechanisms is crucial. In that sense, it is not a story of broadcasting anymore, but comes down to how Disney performs in the OTT (or streaming) space. India is a vital cog in Disney’s wheel and increasing OTT subscriber numbers is the name of the game today. Within that lies cricket, the sport Indians can’t seem to have enough of. Madhavan is in the thick of making huge strategic decisions over the next few months, which could determine Disney’s road map in India for many years.
Burbank-headquartered Disney is a giant in the world of entertainment but India, for a long time, had been a story of misses. It took its baby steps in 1993 through a joint venture with the K.K. Modi Group to create Buena Vista Television, with an intention to launch three channels. That never took off and operations were largely limited to doing advertising sales for other networks. By 2001, the two partners were at loggerheads over Disney’s plan to launch a 100 per cent subsidiary. It was only after the expiry of the joint venture that Disney managed to strike out on its own, and at the end of 2004, launched two kids’ channels—Toon Disney and Disney Channel.
Revenue from Indian broadcasting was then dominated by general entertainment and in the next few years, cricket would also take off. In this backdrop, Disney picked up a minority holding in UTV Software, then owned by Ronnie Screwvala, before a complete buyout followed. Now, it had a presence not just in television but also film production, consumer products and interactive. There was a rub, though. This acquisition was not just expensive but hampered by Disney’s limited understanding of the Indian film industry. The company was deep in the red for many years and this second innings was a non-starter. Without mass entertainment, the broadcasting bit also had no scale.
Then in June 2018, Disney acquired Murdoch’s 21st Century Fox, which, among other businesses, gave it Star India. Of the total deal size of $71 billion, the value assigned to the Indian part was $14-16 billion. This came from Star having won the broadcasting rights for the Indian Premier League (IPL) in September 2017 for five years. The outgo was Rs 16,348 crore ($2.55 billion) for this tournament, but then it was cricket—India’s most popular sport. The question was how would the new owner view this investment and what lay ahead?
Now, the well-established view is about Disney being conservative and extremely driven by numbers. A project with a high risk quotient will necessarily need to demonstrate a clear path to profitability. That said, Disney had little option but to take the expensive route to get a foothold in India or just abandon the idea. In contrast, Star under the Murdoch family had been more entrepreneurial with a greater appetite for risk; in the case of the IPL, it paid 2x more than incumbent Sony for half the period (Sony owned it for 10 years).
Today, it has three pillars—Star Plus, cricket and Hotstar. It is a more diversified portfolio not just in terms of revenue but having a strong positioning as well.
Founder and CEO
Madhavan, who had a long stint at Star and now works under a new owner, says both organisations have their individual styles. “We have picked up what works well and topped it up with our own experience of India. The transition has been smooth and this is a high-priority market for Disney,” he says. With his background in finance (he was a banker till he joined the struggling Asianet in 1999 to turn it around before Star bought over most of it), his stint has seen Disney Star return to the black. Madhavan believes television and OTT offer immense potential. “Only 60 per cent of households have been covered in the television story. For OTT, there is a total paid subscriber base of 50 million and another 300 million that are driven by advertising. On a compounded basis, it can grow by 30 per cent over the next five years,” he outlines.
“Disney was never a strong contender in either broadcasting or OTT prior to the acquisition of Star. This deal directly catapulted them to the top position in both segments,” points out Vivek Menon, Co-founder, NV Capital, a media and entertainment credit fund. With a growing subscriber base in OTT, there is no question of ignoring India. “Disney will continue to invest here to maintain that dominance. Globally, this is one of the biggest markets for Disney+ [the streaming service it launched in 2019].”
While Disney+ was launched from scratch in other markets, it had Hotstar, a ready-made platform, in India. According to Balu Nayar, former MD of IMG India and a key architect of the IPL, Disney can make a significant difference to Hotstar’s content library. “It can easily rival Netflix and Amazon Prime Video on western content, plus there is a powerful appeal for children. In terms of focus, Disney could well invest hugely in building Hotstar, perhaps de-emphasising some traditional television in the process,” he says.
The network, too, has managed to adapt smartly to the changing times. Shailesh Kapoor, Founder and CEO of consulting firm Ormax India, says leadership for the network, for a long time, centred around its flagship channel, Star Plus. “Today, it has three pillars—Star Plus, cricket and Hotstar. It is a more diversified portfolio not just in terms of revenue but having a strong positioning as well,” he explains. Broad estimates suggest Star Plus makes Rs 1,500 crore each year through advertising (rivals Sony Entertainment Television and Zee TV make around `1,000 crore each) in a very difficult market.
Kevin Vaz, Head of Network Entertainment Channels, Disney Star, admits the model has changed. “Now, it is about differentiated content that leads to wholesome entertainment for the family. If you think non-fiction and film shows, it won’t work,” he says. To him, understanding the nuance of each market was what a lot of time went into—romance in Marathi and humour in Telugu being examples. “Today, content has to resonate with the preference of the changing viewer.”
With a wider spread, the entity has more firepower. “It derives strength from the three pillars. Just look at sports and 70-80 per cent of cricket rights that matter is with it,” explains Kapoor. There was a time when it did not have the IPL, BCCI or ICC rights. Now, all three rest with the network.
Now, it is about differentiated content that leads to wholesome entertainment for the family. If you think non-fiction and film shows, it won’t work.
Head of Network Entertainment Channels
In many ways, the IPL has really been a revelation. In 2017, the last year when Sony had the broadcasting rights, it raked in television advertising revenue of Rs 1,300 crore. Digital was still in its infancy and the then Star, the owner of just that part, is estimated to have made Rs 100 crore. Jump to 2021, when Star, reveal industry officials, made `2,400 crore through television advertising and another Rs 600 crore through Hotstar. Of course, none of this includes subscription revenue and the consensus on the street is that the IPL has worked out well for the network. “There were a lot of people who said what we paid was on the higher side. But we were and are still convinced that cricket is a part of our long-term strategy,” maintains Madhavan.
His team spared no effort in ensuring the IPL made sound business sense. According to Sanjog Gupta, Disney Star’s Head of Sports, viewership had flattened when Star acquired the IPL rights. “The core cricket fan was not really interested in it and to him, it was merely entertainment. We had to reposition it and say this was genuinely competitive cricket with heroes and rivalries,” he says. To him, sports is a great audience unifier and the IPL presented the perfect opportunity. “For instance, we took the regional strategy and made a big impact in the markets down south. Everything was done to bring family viewership and that worked well.”
The core cricket fan was not really interested in it and to him, it was merely entertainment. We had to reposition it and say this was genuinely competitive cricket with heroes and rivalries.
Head of Sports
To Menon, the options on the table are clear. “Disney cannot afford to lose the big-ticket cricket rights (IPL, ICC and BCCI). It will bid aggressively for all as losing them means a serious dent to the subscriber base,” he says. The logic is simple: valuations will be determined by the number of paid subscribers (rather, how many of them are on OTT). Menon emphasises how Netflix lost a quarter of its value on the back of a drop in subscriber base. “Disney is very well aware of this and will do anything to retain the top position.” Just the bids for the IPL broadcasting rights could go up to `30,000 crore.
While Disney officials do not want to give out a number, the thinking comes through quite clearly. Sunil Rayan, Head of Disney+ Hotstar India, says these are early days for streaming in India. “We still need the viewer to come in and sample it. Once 5G comes in, it can open up new features on multiple streams. We will have an audience who will actually start from 5G and that is a huge opportunity.”
We still need the viewer to come in and sample it. Once 5G comes in, it can open up new features on multiple streams. We will have an audience who will actually start from 5G and that is a huge opportunity.
Head of Disney+ Hotstar
There was a high level of anticipation on February 9 this year among the investors of The Walt Disney Company. Its numbers for the first quarter were to be announced. All eyes were on the company’s OTT business. The preceding quarter saw the subscriber base of the Disney+ platform increase by just 2.1 million and the stock was quickly down 4 per cent.
From a time when revenues and profitability determined the stock price, it now came down to just the subscriber numbers from streaming. The view is, with the business being in investment mode, garnering subscriber numbers is a priority. The investors weren’t disappointed. Disney added 11.8 million new subscribers, though analysts expected it to at best add 7 million. The total base stood at 129.8 million, with Hotstar (primarily led by India with other markets being Indonesia, Malaysia and Thailand) alone at 45.9 million, an increase of 2.6 million. Importantly, this comprises over 35 per cent of Disney’s total subscriber base. India is estimated to have over 42 million, or almost one-third, of the total subscriber numbers. Wall Street’s investors ensured the Disney stock zoomed by over 8 per cent.
Nothing is as critical to Disney or its rivals as the number of paid subscribers on OTT. At a market capitalisation of over $275 billion, the thrust on this number is so critical that Bob Chapek, Disney’s CEO, said the company was on track to meet its target of 230-260 million subscribers on Disney+ by 2024.
A former Hotstar executive, who worked under both Star and Disney, says the focus on the broadcasting business will be limited. “It comes down to Hotstar’s paid subscriber numbers and the need to retain them at any cost. Cricket brings in at least 80 per cent of Hotstar’s revenues. Losing the big rights will see the stock taking a hit,” says the executive who declined to be named.
Hotstar’s subscriber numbers in India are at least 2x more than its nearest competitor, Amazon Prime Video. “None of the OTT players contributes as much to the parent’s subscriber base the way Hotstar does,” says Kapoor. Specifically getting to cricket, he is clear about how “the sport has been good for the network and one will be surprised if they lose the IPL bid”. Besides, Hotstar, on its own, may bring forth other advantages. “The Disney content library is great and global, plus its distribution pipes cut across digital and traditional avenues. There is the opportunity too of Indian content being distributed across geographies and that puts Hotstar in a strong position against pure-play digital content players,” says Shantanu Sirohi, Co-founder & COO, Interactive Avenues, India’s largest digital agency.
Disney was never a strong contender in either broadcasting or OTT prior to the acquisition of Star. This deal directly catapulted them to the top position in both segments.
“For Disney, [whether it makes] revenues of Rs 1,700 crore or [makes] losses is insignificant in the context of how much it drives valuation. Investors look at the subscriber base of Disney+ and how it is now a serious rival to Netflix in terms of that,” says the former Hotstar executive. Nayar says there is a clear change in business models. “Traditional television is declining and bids like the IPL are no longer about driving revenue from advertising and subscription,” he explains. The focus of Hotstar as well as bidders like Jio and Amazon, he says, would be to build digital assets, leading to an increase in shareholder value. “This would be the primary reason to see aggression levels this year that we haven’t seen before. The focus here is subscriber growth and that is why Hotstar is seen as a success in India despite much lower ARPU than Netflix.”
The OTT subscription model is a segment Madhavan is bullish about. “We can’t set a timeline but the 50-million number in India will definitely touch 500 million. Cheap access to data coupled with the 5G roll-out can change everything,” he says. Given how obsessed Wall Street is with the paid subscriber model, Disney will want a very generous chunk of the pie. With his financial acumen, it is unlikely Madhavan will take his eyes off the numbers, rather Hotstar, even for a moment.
Story: Krishna Gopalan
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