In the ever-evolving saga of Disney’s potential exit from the Indian market, speculations and negotiations have reached a fever pitch. Key industry players like Blackstone, Gautam Adani, Kalanithi Maran, Sony Pictures Entertainment (SPE) and Mukesh Ambani’s Reliance are reportedly engaged in discussions, vying for the prized assets of Disney’s India business. The revelation by The Wall Street Journal in July, hinting at strategic considerations, has further fuelled anticipation.
Media law expert Aviral Kapoor, partner at Alagh & Kapoor Law Offices, weighs in, posing the critical question, “Who is best positioned to clinch the most advantageous deal? While each contender brings a unique blend of financial muscle and strategic insight, Reliance Industries Ltd. (RIL), led by Ambani, emerges as a particularly compelling candidate.”
“RIL’s vast experience in the media and entertainment sector, combined with its deep understanding of the Indian market, positions it uniquely. Their recent acquisitions, such as the BCCI Media rights, IPL streaming rights and the strategic stakes in major cable operators, underscore their commitment to dominating the broadcasting landscape. Furthermore, RIL’s robust technological infrastructure and expansive digital ecosystem, as evidenced by their Jio platform, make them a formidable force in the OTT space,” Kapoor added.
According to Kapoor, acquiring Disney’s India business would not only bolster RIL’s content portfolio but also provide synergistic opportunities to cross-promote and leverage Disney’s vast content library across RIL’s platforms.
The deal’s allure for RIL lies in the strategic value of Disney’s assets and the potential to further solidify its position in the Indian entertainment market.
What do we know so far about Disney’s exist plan in India
It all started with a Wall Street Journal (WSJ) report in July 2023 that said Disney is actively considering strategic alternatives for its India business in response to the evolving landscape of Star India post Disney’s acquisition of Fox’s entertainment assets. As per the report, options under consideration included potential joint ventures or a sale of the business.
While the specific direction of Disney’s move still remains uncertain, to start with back in July, Disney has initiated discussions with at least one bank.
The WSJ report was succeeded by a CNBC scoop where Disney CEO Bob Iger hinted at the possibility of selling its linear TV assets. Iger acknowledged the challenges faced by the traditional media industry due to the increasing dominance of streaming and digital platforms. While Iger did not specifically mention Disney’s India business, the announcement triggered speculations, especially considering the challenges faced by the India business, including a drop in its audience universe and significant exits.
The fall of the India business
The turbulence for Disney+ Hotstar began with the loss of streaming rights for the Indian Premier League (IPL) to Reliance’s JioCinema. Disney+ Hotstar had built a substantial cricket audience universe, and losing IPL streaming rights posed a considerable obstacle, potentially leading to a decline in user engagement and risking the loss of a significant portion of its dedicated audience.
It is said that Hotstar may lose between 8 million to 10 million subscribers in the third quarter of the fiscal year. The same WSJ report that broke the news of this potential sale also forecasted a roughly 20 percent drop in Star’s overall revenue for the fiscal year ending September 2023, amounting to slightly less than $2 billion. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are expected to fall by approximately 50 percent for the same period, from about $200 million the previous year. This marks a sharp decline from Fox’s projections before the deal, which anticipated Star India earning $1 billion in EBITDA by 2020.
The loss of popular content has been a significant factor contributing to Disney + Hotstar’s decline in subscription revenue. Beyond the IPL loss, Disney+ Hotstar also surrendered all HBO content offerings to JioCinema, resulting in the loss of a loyal audience for popular shows like Game of Thrones and Succession, among others.
Who’d make a better partner for the deal depends on the nature of the deal
“Disney has been globally restructuring itself to cut its losses and one of the aspects of the restructuring is selling the international assets as Iger had indicated this year. Whether Disney looks at selling the asset altogether or entering into a strategic partnership will determine the contours of the deal and who will get the best deal,” said Chandrima Mitra, Partner, DSK Legal.
“If its only for strategic partnership then it will probably be with someone who can help Disney continue its business in India while getting access to Disney’s expansive library of content as well as the association with one of the biggest global brands. If it’s a complete sale then it will be someone who needs exactly these assets and company’s reach in their portfolio at the right price point, to put it very simply,” Mitra.
Legal hurdles
The potential acquisition of Disney’s India business would come with legal challenges for all interested parties.
“These hurdles could include navigating regulatory approvals to ensure the deal complies with India’s competition and foreign ownership laws, handling existing contractual obligations that might conflict with the acquisition, addressing intellectual property rights and licensing agreements, and managing potential disputes or objections from minority stakeholders or other business partners,” said Sonam Chandwani, managing partner at KS Legal & Associates.
Especially for Sony that is reportedly exploring other options due to the prolonged delay in the Zee merger, there could be more roadblocks when compared to others at the negotiating table.
“For Sony, specifically, extricating itself from its pending merger with Zee, if it chooses to pursue Disney, could lead to breach of contract implications, penalties, or legal disputes,” said Chandwani.
Star’s structure in India
The shareholders of Star India are 7 overseas entities located in Mauritius, the British Virgin Islands and Mauritius . These entities inter-alia include Buzzer Investments, Star ISP Limited, Worldwide Wickets, Quazar Investments (Mauritius) Limited, Star Entertainment Holdings Limited, STARTV.COM Holdings Limited and Star Television Technical Services.
Star India Private Limited owns 78.07 percent in Novi Digital Entertainment Private Limited, 12.9 percent in Red Brick Lane Marketing Solutions, 10 percent in Mashal Sports Private Limited and 7.67 percent in Asianet Star Communications Private Limited. According to Kritika Seth, founding partner at another full-service law firm, Victoriam Legalis, the Companies Act, 2013, Competition Act, 2002 and Foreign Investment Regulations, will determine the legal framework of any merger or sale related developments for Star India.
Change has been a constant for Star India ever since it started operations
Established in 1990, Star TV started out as a joint venture between Hutchison Whampoa and Li Ka-Shing. Star Plus, Star Chinese Channel, Prime Sports, Channel V, and BBC World Service Television were some of the marquee channels that were part of the initial line-up.
Two years down the line, Rupert Murdoch’s News Corporation acquired a majority stake of 63.6 percent followed by the complete buyout the following year in 1993.
Star India then launched channels like Star Movies, Channel V, Star News, and later, Star Plus, catering to Indian viewers. This expansion solidified Star TV’s presence and brought diverse content options to the Indian audience.
Cut to almost a decade in 2012, Star India made a significant move by acquiring the broadcast and digital rights for all cricket matches played in India through a deal with the Board of Control for Cricket in India (BCCI). Valued at Rs 3,851 crore, this deal granted Star India exclusive media rights to cricket matches organised by the BCCI until 2018.
Two years later, Star India announced acquiring the licence for digital distribution rights for the 2014 edition of the Indian Premier League (IPL) from Times Internet Ltd. The move pushed the platform’s subscriber base to new heights, firmly establishing it as the go-to destination for live sports streaming in India.
Moving on, in 2019, Star India underwent a transformative acquisition where Walt Disney Company acquired 21st Century Fox, which included Star India as one of its assets. This is also when Star India’s digital streaming platform Hotstar was rebranded as Disney+Hotstar.