What's in store for India's entertainment sector after $8.5bn merger?

The deal to combine Reliance Industries' and Disney's TV and streaming assets is expected to shake up the entire sector, which may force smaller companies out of business

Disney and Reliance TV and Streaming assets merger will give the new entity a big competitive advantage. Reuters

The merger of Reliance Industries' and Disney's TV and streaming assets in India is expected to shake up the entire sector and could even force some smaller companies out of business, as it creates an $8.5 billion juggernaut that will give it an advantage over its rivals, analysts say.

The deal between the two companies had long been in the works – after Disney missed out on valuable cricket rights and lost millions of subscribers to its streaming platform, and as Reliance, controlled by India's richest man, Mukesh Ambani, has been expanding beyond its traditional oil business into sectors including telecoms and entertainment.

The agreement, announced last week, could transform the landscape of the industry, forcing other companies to consolidate if they are to stand a chance of competing with the powerhouse that will emerge from the tie-up, says Barnik Maitra, strategy consultant and former managing partner at consultancies Arthur D Little and McKinsey.

“The new merged entity is going to be the digital behemoth, which will drive Indian streaming forward,” says Mr Maitra.

“Any small [streaming] player will either completely die or get acquired by someone, so there'll be significant consolidation.”

The joint venture between Disney and Reliance, expected to be completed at the end of this year or early next year following approvals from regulators, will give them the competitive edge of “strong synergies when they're buying content or when they're selling ad inventory”, he says.

Disney's Hotstar has 38 million paid users on its streaming platform. Reliance has not disclosed numbers for its JioCinema streaming platform.

The deal “creates an OTT behemoth that the others will find hard to upstage, as it brings together all the content that's worth paying for, especially as all the other players are individually having their own struggles today”, says Utkarsh Sinha, managing director at Bexley Advisors, a boutique investment bank.

He foresees “a strong consolidatory wave coming down the pipeline which should be active for the next two to three years”.

“One can confidently expect more mergers in the space with smaller players being gobbled up by the larger consolidators that get created," says Mr Sinha.

Reliance had already aggressively invested to secure content to boost its presence in the market. In 2022, it outbid Disney and won the digital streaming rights for the glitzy and enormously popular Indian Premier League cricket tournament for 2023 to 2027 for 237.58 billion rupees ($2.87 billion). The streaming platform Disney Hotstar had previously held the rights to stream the matches.

Last May, in a major coup, JioCinema took over the rights to HBO's content in India, which includes hit series such as House of The Dragon, The Last of Us, Succession and Game of Thrones.

Previously HBO's content had been screened on Disney Hotstar until Disney decided to end that deal on March 31.

“However, [JioCinema] still lacks a big content library, which has prevented it from building up a sizeable subscriber base,” says Pulkit Chawla, research analyst, Emkay Global Financial Services.

“Disney Hotstar, on the other hand, has been a market leader in terms of paid subscribers – though it has seen a sharp decline over the last few quarters after it lost out on a few marquee properties.

"With this merger, JioCinema can also take advantage of Disney Hotstar’s superior technology.”

Reliance, which will lead the merged firm, has said it plans to inject $1.4 billion into it. Disney will hold 37 per cent, while Reliance and its affiliates will own 63 per cent.

The streaming market in India, the world's most populous country with more than 1.4 billion people, is expanding rapidly, as incomes rise and more and more citizens are getting access to the internet.

The Indian streaming and video-on-demand sector, also known as the over-the-top (OTT) market, is forecast to more than double to $5.3 billion by 2027, up from $2.35 billion in 2022, according to a report by global consultancy Deloitte.

There are more than 50 OTT companies in India, including Netflix and Amazon Prime, the report's data shows.

Two major domestic rivals are Zee Entertainment and Sony. While there were also plans to merge Sony's India operations with Zee, in what would have created a $10 billion media giant, Sony has now officially withdrawn from the agreement.

“Zee, which has already been struggling since its merger breakdown with Sony, should be negatively impacted by the creation of a larger entity,” says Mr Chawla.

“Both content producers and advertisers are likely to gravitate towards the Reliance-Disney entity.”

Mr Sinha says that it would “not be surprising if Reliance throws its hat in the ring as well as a suitor for Zee, now that Sony is off the block”.

But there are several challenges with monetisation and profitability that are common to the industry that the Reliance-Disney venture will also face.

These include investing in content to maintain viewers, and how to monetise this, Mr Maitra says.

Similarly, a “big challenge is managing return on investment on expensive sports rights such as Indian cricket”, he says.

“The price of these rights is getting expensive and ensuring that advertisement revenues keep pace with price rises”.

“The third challenge in India is to get the Indian consumer to pay for OTT content and ensure the OTT business has viable unit economics. I think it's not something which anyone has yet solved in India.”

Consolidation in the industry, however, could help in this process because it will mean that there are fewer platforms competing for viewers, he says.

Although Mr Maitra does not see breaking into international markets as a priority for Reliance, he says that the “alliance will give Reliance a potential to monetise existing content and sports rights to Indian diaspora audiences globally, notably in the US”.