Reliance-Disney as a combined entity set to control a large chunk of advertising revenue

The conditional approval from the Competition Commission of India (CCI) on the $8.5 billion Reliance-Disney merger has now opened up the discussion on how dominant the larger entity could now be. At a combined strength of close to 110 television channels – 70 by Disney and 38 owned by Viacom – it becomes a big force in high viewership segments like general entertainment and sports or more specifically cricket. Besides, the larger entity will have a presence across a multitude of languages and as a consequence, there is a big opportunity to grab a large share of the advertising pie.

“Inevitably, with such a presence, it will give them huge negotiating power with advertisers. General entertainment and cricket means they can leverage better deals on a regular basis,” thinks Vivek Menon, Managing Partner at NV Capital, a media and entertainment (M&E) credit fund. He brings up a point on how cricket is language-neutral and general entertainment across languages puts them in a strong position.

“Besides, the entity will now be in possession of all the high-viewership cricket tournaments (IPL plus ICC that includes the World Cups and Champions Trophy apart from all India-cricket) implying at least three months of the sport each year,” he says. The ICC tournaments are with Disney. “This year, for instance, was the IPL and T20 World Cup. Next year will be IPL plus the Champions Trophy.” Jio owns the digital rights to the IPL, while Disney holds the television part, for which they together coughed up over Rs 48,000 crore .

If these two genres are reasonably well-set, the real challenge lies in the Hindi movies market, one that, in the past, saw very high acquisition costs. The advent of OTT (Reliance owns JioCinema, while Disney has Disney + Hotstar) dented appointment viewing and one rival broadcaster says advertising revenue for the large Hindi move channels has dropped by at least 40%.

“It will become very hard to justify high advertising tariffs now. Also, lower ratings on the general entertainment channels complicates the issue,” he says. The expectation is that the combined Reliance-Disney entity will push advertisers to go for a comprehensive package across the network as opposed to selling time only on, say Hindi movies or general entertainment.

“Then, there is the issue of subscription revenues, which on general entertainment on television has taken a hit, driven primarily by cord-cutting. The current subscription model is not viable and will need to be increased,” Menon said. The twin challenges of pressure on ratings on general entertainment channels on television plus dropping subscription revenue needs to be addressed quickly.

Menon expects a greater focus on advertising by the entity and a thrust on subscription as far as OTT goes. “Jio with a Rs 29 offering has already disrupted the OTT market with the idea of getting eyeballs,” he says.

Mahesh Singhi, Founder & MD, Singhi Advisors, an M&A advisory firm, says the Reliance-Disney entity will not only enjoy high levels of dominance but will be a clear monopoly in the spheres of general entertainment and cricket. “Jio has already demonstrated its ability to penetrate a market at very low costs. We have already seen evidence of that in telecommunications, with users now used to their suite of services. For Disney, which had been going through a challenging phase in India, this is a positive development.” The real question is what this kind of monopoly means? “Regardless of the industry one is in, businesses generally like monopoly though the markets may not always be comfortable about it,” he adds.

How Zee and Sony will counter this will be tracked. According to Menon, Sony has done well on its reality shows and runs a steady ship. “Zee too has a good franchise but the question is how far the two will go when it comes to investing large sums since the game has changed quite dramatically,” he says. Clearly, the emergence of Reliance-Disney as a behemoth complicates many issues.

Reliance-Disney merger in a nutshell

• Together, Reliance-owned Viacom18 and Disney Star own close to 110 television channels
• In terms of revenues, the two bring in over Rs 24,000 crore
• On OTT, Reliance owns JioCinema and Disney has Disney + Hotstar
• Just on cricket, they will control viewership rights to the IPL, all ICC tournaments and India cricket
• The entity will definitely try and drive hard bargains with the advertiser at a time when general entertainment and Hindi movie channels are seeing pressure on viewership