The Disney Star sale comes with a deep discount tag

In the first stage, The Walt Disney Co. will transfer the Indian TV and digital assets to a new company.  (Reuters)
In the first stage, The Walt Disney Co. will transfer the Indian TV and digital assets to a new company. (Reuters)

Summary

  • Big markdown for Disney assets’ valuation; Business may be later merged with Viacom18

Mumbai: Mukesh Ambani-led Reliance Industries Ltd (RIL) has agreed to buy 60% in Disney Star’s linear TV and digital businesses in India for $2.28-2.4 billion in a transaction valuing them at $3.8-4 billion, two people aware of the development said.

In the first stage, The Walt Disney Co., Disney Star’s parent and the world’s largest media company, will transfer the Indian TV and digital assets to a new company, the people cited above said on condition of anonymity. RIL will buy 60% stake in this entity.

The transaction will not include Disney Star’s 30% stake in direct-to-home (DTH) company Tata Play, consumer products business, and visual effects studio Industrial Light & Magic (ILM), the first of the two people said.

“The talks are at an advanced level for a multi-layered deal," said the person, requesting anonymity. “First, Disney India will transfer Disney Star channels and Disney+Hotstar to a new company, in which Reliance will buy 60% for up to $2.4 billion. Rival Viacom18, in which Reliance owns a majority stake, is not a part of this deal." Reliance, the majority owner of Viacom18, may buy out the minority partner US media company Paramount Inc., with the intention of merging it with the new Disney Star entity, the person added.

“Eventually, the plan is that the two entities (Viacom18 and the new Disney entity) will be merged. While Paramount has indicated that they don’t want to invest anymore, there is a possibility that it may exit the joint venture and continue to offer its content as part of a licencing deal," he said. Disney Star declined to comment, while an RIL spokesperson said the company does not comment on speculation. Bodhi Tree, a joint venture between former Disney Asia Pacific President and India chairman Uday Shankar, and James Murdoch’s Lupa Systems, may eventually buy 7-9% of the merged entity, but RIL will continue to have a majority share in the media and entertainment business, both persons said. Disney Star is among India’s largest broadcasters with over 70 linear channels across nine languages in SD and HD formats covering general entertainment, movies and sports genres. In the last financial year, it posted a standalone revenue of 17,332.78 crore, with a net profit of 2,000 crore.

Meanwhile, Novi Digital, which owns Disney+Hotstar, clocked a revenue of 4,413.41 crore, and a net loss of 748.34 crore. At its peak, Disney+Hotstar had 61.3 million paid subscribers, which dropped to 37.6 million in the last quarter after the streamer lost the rights to the Indian Premier League and did not renew its deal for HBO Originals. The valuation of the India business is a major markdown from its peak, when Disney acquired it from Rupert Murdoch’s 21st Century Fox as part of a global deal. Disney paid $71.3 billion for the entertainment assets of Fox in 2018, valuing Star India at over $15 billion.

“Disney Star has since lost its top leaders, and the business, while grown, has also made a few decisions, which will result in the company reporting a net loss for the first time this financial year," said a media analyst on condition of anonymity. “While its entertainment business remains profitable, streaming will continue to be loss-making for some time. Which is fine. But the sports business is going to be extremely loss-making, and may trigger a capital call for the first time for operational reasons."

Rumours of Reliance-Disney deal have circulated since the latter’s CEO Bob Iger famously announced last year that the company wants to focus on its core business and called linear TV non-core. In an interview to CNBC, he first said that everything is on the table, but later during an earnings call, said that he would like to stay in the market.

“In India, our linear business actually does quite well. It’s making money. But we know that other parts of that business are challenged for us and for others, and we are looking, I’ll call it expansively. We’re considering our options there. We have an opportunity to strengthen our hand…We’d like to stay in that market. And we also are looking to see whether we can strengthen our hand, obviously, improve the bottom line," Iger had said.

While the entertainment business alone generates a profit of over 2,000 crore annually, Disney Star has committed 23,575 crore for five years of TV rights of the IPL (2023-2027) and $3.03 billion for ICC media rights. While Disney Star sub-licenced TV rights worth $1.4 billion to rival Zee Entertainment Enterprises, the latter has now sought to terminate the deal, as its own merger with Sony Pictures’ India unit has unravelled.

“Disney Star’s collective losses from the three properties—ICC World Cup last year, IPL 2024 and the ICC T20 World Cup 2024—is going to be in the range of 6000-7000 crore. Even after the profits from the entertainment business are considered, the company will have 5,000 crore of losses in its books in Disney’s single financial year (Disney follows the October-September financial year). So it wants it sell the majority stake in its business before the year-end," the analyst said.

Sources said that the Reliance-Disney deal is expected to be announced in the middle of this month, and may not face scrutiny from the Competition Commission of India. However, the second leg of the deal, when the Viacom18 business will be merged into the company, will likely face regulatory hurdles, they said.

Lata Jha contributed to the story.

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