Reliance and Disney could divest channels ahead of merger deal to avoid CCI glare, say experts

The proposed Reliance-Disney merger has inevitably raised a few questions at the level of the Competition Commission of India (CCI) since the entity is expected to have a large viewership share and consequently revenue. This is most relevant to the genres of general entertainment and cricket.

The latter is being looked at very closely given that together Reliance and Disney will hold the rights to the marquee Indian Premier League (IPL), the ICC tournaments (it includes the World Cups across formats and Champions Trophy) plus all cricket matches played in India.

The issue is not just about television broadcasting but streaming rights as well, which has seen big-ticket monies being spent, most notably in the acquisition of the IPL rights. Given cricket’s importance in terms of generating revenue — through advertising and subscription — it places Reliance-Disney in a very strong position.

The contours of the merger will have Reliance Industries holding 56% in the joint venture, while Disney’s share stands at 37%; the other 7% will be with Bodhi Tree Systems. The two entities today individually own, among others, Star Plus, Colors, a large bouquet of regional channels, apart from Disney+ Hotstar and JioCinema.

According to Vivek Menon, Managing Partner at NV Capital, a media and entertainment (M&E) credit fund, Reliance-Disney will have a considerable market share in the linear broadcasting market. “Even when it comes to OTT, they would have an edge since some the biggest cricket sporting rights also fall under their belt. However, when it comes to long-form content they will still face competition from non-linear networks like Amazon Prime and Netflix,” he says.

Menon points out that the OTT content market is still fluid, the space is still evolving in terms of consumer eyeballs. “That said, given the combined reach of Disney and Jio, there is obviously strength and more so with sporting rights. Speaking specifically for the broadcasting side, CCI still has multiple options to make them divest/sell couple of channels. On the OTT front, one needs to see how it pans out.”

On the global front, M&A is not new to the entertainment sector — prominent examples include Fox-Disney, Paramount-Skydance and Amazon’s acquisition of MGM. “The interesting thing is that sporting rights for the major leagues like NFL, NBA and MLB are split between the networks such as ESPN, CBS, NBC apart from Amazon and Netflix showing keenness,” says Menon.

A case in point is the NFL, where there has been participation from all the major studios in some form for their broadcasting and OTT rights.

The earlier deal between Zee and Sony (it never went through eventually) saw the divestment of three channels on a voluntary basis. Something of that sort can take place in the Reliance-Disney deal as well.

“CCI has clear cut definitions on monopoly and market share. It is really a question of the two partners coming together and deciding what perhaps needs to be divested,” says Mahesh Singhi, Founder & MD, Singhi Advisors, an M&A advisory firm. He does not think the cricket piece is an issue since rights are not sold in perpetuity. “It is done on an auction-to-auction basis and is a contract-based transaction. To that extent, it is quite different.”