Reliance and Disney join forces to establish a media powerhouse worth $8.5 billion

Reliance Industries Limited (RIL), Viacom18, and Walt Disney have finalized agreements to merge Viacom18’s media operations with Star India, forming a joint venture through a court-approved arrangement.

Under the leadership of Mukesh Ambani, RIL has pledged to invest Rs 11,500 crore ($1.4 billion) in the JV. The venture is valued at Rs 70,352 crore ($8.5 billion) post-merger, excluding synergies.

Disney’s merger comes after battling to retain users in its struggling India streaming business amidst financial strain from hefty payments for Indian cricket rights. It illustrates the challenges foreign companies face in India’s growth landscape.

The merger places the value of Disney’s India operations at approximately $3 billion, significantly lower than the $15 billion valuation during its acquisition as part of the Fox deal in 2019. However, a senior Disney source suggests the true value, factoring in synergies, is closer to $4.3 billion.

The merged between Reliance and Disney entity will boast 120 TV channels and two streaming platforms, along with cricket rights for major tournaments in a nation with an avid cricket fan base.

“This merger will establish a sports giant in India,” stated Jinesh Joshi, an analyst at Prabhudas Lilladher.

“Reliance will gain significant leverage in ad contract negotiations… For Disney, teaming up with a larger player provides a financial safety net,” he continued.

The companies stated that the merger valued the combined venture at approximately $8.5 billion after the transaction, without providing additional details.

This deal will enable Ambani to surpass competitors like Sony, Zee Entertainment, and Netflix in India’s $28 billion media and entertainment industry.

Reliance announced that Nita Ambani, Mukesh Ambani’s wife, would lead the board of the merged entity, with former senior Disney executive Uday Shankar as vice chair.

The combined entity, as per the companies, will reach over 750 million viewers throughout India and will also serve the Indian diaspora globally.

Disney CEO Bog Iger remarked in the statement, “Reliance understands the Indian market and consumer deeply,” highlighting how the deal will enhance their ability to provide a wide range of digital services, entertainment, and sports to consumers.

An internal memo from Disney’s entertainment co-chairs Dana Walden and Alan Bergman, along with ESPN’s Jimmy Pitaro, emphasized India’s significance as a “key market” and one of the “strongest international growth markets of scale” for the company. “We are committed to maintaining a strong presence there,” the memo concluded.

Challenges in India

The deal coincides with Disney’s global efforts to streamline its operations. CEO Iger returned in November 2022, restructuring to enhance cost efficiency. Yet, activist investor Nelson Peltz urges cost-cutting and a profitable global streaming business.

In November, Iger expressed Disney’s interest in India but also hinted at exploring options. Internal sources admitted to Reuters that Disney misjudged the Indian market.

Disney acquired Hotstar and Star TV channels for $71 billion in 2019 but struggled post-IPL loss to Ambani in 2022. Despite aiming for 100 million users, Hotstar subscriptions dropped from 61.3 million in October to 23 million in December.

Disney announced a non-cash impairment charge of $1.8 to $2.4 billion, half of which reflects a write-down on Star India assets, as per regulatory filings.

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