India’s Largest Media Entity: A Good Buy Time?

Reliance Industries Ltd. is popular for dominating multiple sectors at once. Now, the conglomerate is going to expand its entertainment section even further by creating a central entertainment entity, covering nearly 50% of the Indian streaming market share.

The Reliance-Disney merger promises to be a game-changer for the Indian media and entertainment landscape. The timing of this merger being approved couldn’t be better as the infamous Zee-Sony merger met its bitter end.

The $8.5 billion (over ₹70,000 crore) behemoth will not only be a revolutionary project but also a handshake between former rivals. So, the parties involved, Mukesh Ambani’s Reliance Group, Walt Disney’s Disney, and Viacom18, would benefit massively from this.

So, what about you? In this article, we will cover whether the deal would be beneficial for retail investors by peeking into the investor’s outlook. Let’s begin the session by knowing about the merger in depth:

Who, What & When of the Merger:

Technically, the merger is taking place between Reliance Industries Ltd. and Disney, but a third party is also involved. It’s RIL’s media arm, Viacom18. So, if you look at the stake division of the to-be forming entity, it would be something like this:

What will happen here is that by investing around ₹11,500 crore, RIL, through its media arm Viacom18, will combine its digital assets with Disney's India business to form a joint venture, aka JV, into Star India Private Limited. RIL will primarily control this joint venture.

Nita Ambani has been appointed as the Chairperson of the joint venture, and Uday Shankar, Co-founder of Bodhi Tree Systems, which holds a stake in Viacom18, will serve as the Vice Chairperson and provide overall strategic leadership.

An interesting turn of events, isn't it that this merger has succeeded in bringing former rivals together? 🤗

Now that the “who” of the scenario is clear, let’s see the “what” of it.

What's Merging?

The merger was announced in late 2023, and here’s a list of the channels and platforms included:

a. TV Channels: The deal combines a vast network of channels across genres. Reliance brings Colors, StarPlus, and Star Sports channels, while Disney adds popular channels like Disney XD and National Geographic.

b. Streaming Services: JioCinema from Reliance joins Disney+ Hotstar to create a powerhouse streaming platform.

c. Content Libraries: The merger combines Disney's global content library with Reliance's regional content and the highly coveted Indian Premier League (IPL) rights.

Certain media assets from Disney’s side may also get involved in the deal after receiving regulatory approval.

When will the JV Officially Form?

As per sources, the Reliance-Disney JV is supposed to form in the 4th quarter of 2024 or the 1st quarter of 2025. The parties involved signed binding definitive agreements, and essential preparations have begun.

Impact on the Media Sector

The formation of such a significant media entity is bound to have upsides. But there are a few downsides that might impact both the media sector & investors like you and me. Let’s see what these possible effects could be:

Positive Impacts

Here's the silver lining for the merger:

a. Market Dominance:

Experts predict the combined entity will capture nearly 50% of the Indian streaming market share. This dominance surpasses any existing player in the sector, even the now cancelled Zee-Sony merger.

The newly forming JV could create a significant competitor for Netflix, Amazon Prime Video, and local players. As always, Reliance Industries is ready to wreak havoc in yet another sector by simply entering.

b. Financial Muscle:

The merger brings together Reliance, a top company with enormous profit growth, and Disney, a global media giant. The combined financial resources create a powerhouse with the potential to outspend competitors on content acquisition and production.

c. Content Reach:

The merger unites Disney's global library with Reliance's strong regional content and the crown jewel - IPL rights. This content span surpasses that of any other company in India.

Subscribers can expect a wider variety of content, with Hollywood blockbusters from Disney alongside popular Indian shows and live sports. This merger sounds amazing from an entertainment perspective.

d. Price Changes:

The merger might lead to higher subscription costs due to reduced competition. However, there's also a possibility of consolidation, leading to cost efficiencies and potentially even bundled subscription options in the future.

Take Jio, for example. RIL’s telecom subsidiary helped India become a digital nation with its reduced data prices (free subscription initially) and large data packs. The result? 👇

India is now the 2nd nation with the highest number of internet users in the world.

Negative Impacts & Uncertainties

With light, there comes darkness and here are the supposed downsides of this merger:

a. Regulatory Hurdles:

The merger might face scrutiny in terms of regulatory compliance, just like the Zee-Sony merger did. Yes, the main issue there was its executives, but certain parameters are set in the market to ensure fair competition.

With this merger, it is clear that a massive chunk of competition would shift to the new entity, causing major losses for competitors. So, Reliance-Disney may face troubles from the watchdog Competition Commission of India (CCI) due to potential antitrust concerns.

If the CCI mandates asset sales or other concessions, it could impact the venture's overall profitability or even reject it.

b. Impact on Smaller Players:

The emergence of a media giant could put pressure on more minor streaming services and studios. This could indirectly affect investors who hold shares in these companies. That means you and I may bear losses. I have discussed this pointer in detail further ahead in the article. So, keep reading.

c. Higher Subscription Costs:

Experts believe the merger could reduce competition, giving the combined entity more power to raise subscription prices. This is true for both traditional TV and streaming services (JioCinema and Hotstar).

d. Reduced Bargaining Power for Advertisers:

With a larger market share, the merged entity might have more leverage when negotiating advertising rates with companies. This could potentially lead to higher advertising costs, impacting businesses owned by retail investors.

e. Reduced Competition:

If the Zee-Sony merger had gone through, it would have created another major competitor in the Indian media landscape. With Zee-Sony out of the picture, the Reliance-Disney merger faces less immediate competition, potentially making regulatory approval smoother.

The JV will have over 750 million viewers across India and will also cater to the Indian diaspora worldwide.

Investor Outlook:

It’s time to analyse the impact this merger could have on the investing sector. Simple-minded people would think that Reliance Industries would top the charts in terms of stock momentum, but there are multiple factors to be taken into consideration here.

Since the Reliance-Disney merger announcement in late 2023, RIL's stock price has shown some fluctuations. It's difficult to isolate whether any bullish runs were solely due to the merger news.

After all, the stock market is influenced by various factors, including overall market trends, company performance, and investor sentiment. Let’s see the two perspectives in the investor’s sector regarding the merger:

1. Reliance Shareholders:

Without major competition, the Reliance-Disney merger has a clearer path to capturing a larger market share, potentially making it a more attractive proposition.

A successful merger could lead to a more substantial media business for Reliance, potentially boosting its stock price. If the merger leads to a stronger media and entertainment business under Reliance, it could boost the company's stock price.

2. Retail Investors:

The impact is less clear. Higher subscription costs could strain budgets, while Reliance's share price performance will depend on the JV's success. If you look at the 6-month graph of RIL, you will see an absolute return of 17.5% and the upward momentum seems to be coming from the beginning of 2024.

Investors in smaller media companies might also be affected by the increased competition. In short, there are going to be fluctuations in the market surrounding this merger.

The Bottom Line

To take advantage of this partnership, make sure to keep an eye on the merger’s ongoing progress. If any one of the regulatory bodies rejects it, then there could be a possibility of the merger’s failure. This will majorly bring a bearish run for the multiple related companies.

Regardless, forming this entity could benefit the media sector, bringing global attention to India from an even bigger angle.