Fox deal to fast forward Disney’s India fortunes
Walt Disney Co’s acquisition of Rupert Murdoch’s 21st Century Fox Inc, except for some businesses, on Thursday will fundamentally change India’s TV broadcast landscape.
As part of the deal, the entire business of Star India, including entertainment and sports channels as well as the digital over-the-top channel Hotstar, will be transferred to Disney. Disney will also pick up the 20 per cent stake that Murdoch has in DTH operator Tata Sky.
The move will catapult Disney, currently a small player known primarily for its kids’ channels and distribution of Hollywood films, as the country’s largest media and entertainment broadcaster, with over $1.3 billion of additional India revenue.
Murdoch’s India business is very valuable at present. It aims to hit an earnings before interest, tax, depreciation and amortisation (Ebitda) of $500 million in its current financial year ending June 2018 and $1 billion by 2020, according to projections made by 21st Century Fox in analyst calls and presentations. The management also acknowledges that winning the IPL global media rights will be a gamechanger— while it will lead to a cost growth rate of 3 per cent for the cable segment in 21st Century Fox, it will also lead to an incremental revenue growth rate of 3 per cent in the fourth quarter of this financial year ( which ends in June 2018) .
Independent analysts — without accounting for the IPL rights acquisition — have valued the company’s India business at between $11 billion and $14 billion. So that could contribute a substantial portion to the cash which the Murdochs make from the Disney deal, which is worth $52 billion.
For Disney, which entered India in 1993, its ride in the country has been a mixed bag. The broadcaster introduced its first two channels in 2004 (Disney Channel and Toon Disney) and came into the limelight when it decided to invest and eventually acquire Ronnie Screwvala’s UTV.
Buying UTV not only brought in new channels but also introduced Disney to movie production in India through UTV Motion Pictures.
However, the U TV acquisition was not able to propel Disney into the big league and take on the big three — Zee, Star and Sony. With just eight channels it is a bit player when compared to 70 channels of Star India, 42 of Viacom 18 and over 74 (both domestic and international) of the Zee network. Yet that equation will change dramatically.
The company also decided to close its film production business and stick to distribution of Hollywood movies, despite hits like Dangal. Many of its other films, such as Jagga Jasoos, tanked at the box office. But those in the know say the main reason behind the decision was the nature of the business the company followed in India. The co-production model did not offer it any intellectual property rights over the content; the rights remained with the creative production house, which earned all the upside, so the model made little economic sense.
In the kids’ genre, meanwhile, Disney has been a consistent performer, show latest data from BARC. Its kids channels — Disney and Hungama — are number two and number three, respectively, but the top slot remains with Viacom18’s Nickelodeon.
To diversify its portfolio, the broadcast er has only recently launched Disney International HD, an English GEC channel with original and content and targeted at an audience in the 14-25 age bracket. Together with that, the company has decided to close its music channel, Bindass Play. It also runs a movie channel and the youth channel Bindass that it inherited from UTV.
The question that is now being asked is whether the deal will also mean a major change to the Star India management team. Star India CEO Uday Shankar, while continuing with his existing portfolio, was recently elevated and given additional charge as the Asia president of 21st Century Fox’s video business, which also includes Fox Network group. He is also to work on key initiatives in the Asia region.
However, even Disney International just a few months ago restructured its Asian business with the South Asia hub represented by India merging with the south-east Asian regional markets of Singapore, Malaysia, Indonesia, Thailand, the Philippines and Vietnam under Mahesh Samat as managing director of the company in south Asia. Samat, who ran the India operations for four years, came back to Disney last year.
Experts say that the structure in India will depend on whether James Murdoch joins will play a key role in the merged entity, if that happens it could be business as usual with the smaller Disney India team working with them closely.
Another advantage of the deal is that there will be no regulatory issues around it. With Disney having only a limited market share in India, its acquisition of Star will not mean that it will have a stranglehold on the market. Of course, Disney, a majority equity stakeholder in ESPN, has tied up with Sony in India for sports. The joint branding deal includes sharing of sports content from ESPN. According to analysts, the deal is time-bound and it remains to be seen how Disney will negotiate this collaboration with control over Star Sports channels as well.