Reliance Industries and Disney are likely to soon finalise the details of a non-binding term sheet for the merger of their media and entertainment operations in India, according to media reports. The proposed merger will involve creation of a step-down subsidiary of Viacom18, which will absorb Star India through a stock swap.
In a note on the likely merger, Elara Capital’s Karan Taurani said the move may lead to consolidation at both levels, television and OTT, of the media and entertainment industry and there is a high likelihood of the Zee-Sony merger also going through. The media giants Sony and Reliance will command a potential market share of 65 pc and 40 pc for TV and OTT.
Media reports on the proposed merger also said Reliance Industries aims to retain majority shareholding in the merged entity with 51 pc holding leaving the remaining 49 pc with Disney. The controlling stake is likely to be acquired by RIL in a cash deal and the immediate capital investment is seen at USD 1-1.5 billion.
A confirmatory due diligence will be conducted once the term sheet is agreed upon, and the valuation process will officially commence with inputs from independent valuers, the reports said. A formal announcement of the deal is likely as early as by the end of January.
“It will solve the problem of lower growth rates in linear TV side (growth in the TV business have come down to 3-4 pc), as both these players will potentially gain more market share, with smaller players moving purely to digital or partnering with larger players in the ecosystem,” Taurani said.
The move will also work favourably for the digital OTT ecosystem, as most digital OTT platforms are making hefty losses due to higher content costs. Further, Jio Cinema’s free content offering has also caused a disruption in India’s OTT market as players are struggling to scale up SVOD (pay based) revenues, the note from Elara Capital added.
“Consolidation on the digital platform/TV side will also work negatively for the film industry, as production houses may not be able to fetch hefty premium for digital rights of their movies with bargaining power moving away from content creators to platforms over the near to medium term. This in turn may negatively impact slate for Hindi/regional films, as producers have increased their dependence on digital/satellite rights for monetisation of their content in the post COVID era,” added Taurani.
