MEDIA SCOPE
Will Star India lose its quick-on-it feet, entrepreneurial culture? Or will the staid Disney India gain it? Will Star’s Asia president Uday Shankar be in charge or will it be Disney’s managing director Mahesh Samat?
Those are the first few questions that the $55.13-billion The Walt Disney Company’s proposed acquisition of some of the businesses of the $28.5 billion 21st Century Fox raises. The transaction, announced last week is valued at $66.1 billion. It will see the Rupert Murdochcontrolled Fox selling its movie studios, television production, regional sports and international businesses, including Star India, to Disney. And therein lies the twist in the tale. Globally Disney is roughly twice Fox’s size. At ~10,400 crore Star India is over 14 times Disney India’s estimated ~700 crore in revenues. Star accounts for over five per cent of Fox’s revenues and brought in over a sixth of the value of the deal. It has more than 60 channels in eight languages and is one of the largest media firms in the ~126,200-crore Indian media and entertainment market. Coming into India in the early nineties it has been nimble in picking up opportunities for growth by investing heavily in local programming, distribution (Tata Sky), languages (Maa TV, Asianet), sports (kabaddi, football, cricket and the Indian Premier League) and digital (Hotstar). On any given day the fight for top spot on TV screens in India is between Star, Zee, Viacom18, Sun and Sony. Disney, which came in the early nineties too, has had one big acquisition (UTV), is a respectable player in the kids’ space, has eight channels and a robust consumer products business. It shut down its film studio last year.
Their businesses are complementary. Disney plugs the one big gap in Star’s portfolio — kids programming. And Star catapults Disney to leadership position in the Indian market. “A combined StarDisney will be about $1.7 billion in sales and an excess of $400 million EBITDA (earnings before interest, taxes and depreciation),” says Vivek Couto, executive director, Media Partners Asia. This could go to $1.82 billion by the next financial year.
All very good in theory. But the cultural differences between the firms are stark. Disney’s is the highly process-driven American MNC culture. Star on the other hand has Murdoch’s opportunistic style. Disney is spartan about investing in local programming. Going totally local is Fox’s main gambit in the markets it enters. This is not to say that any one approach is good or bad. Disney does better than Fox in developed markets and Fox is a winner in many emerging ones. Closer home in Mumbai, Disney’s Samat reports to Andy Bird, chairman, Walt Disney International. Shankar on the other hand reports to the Murdochs. The situation is rife with “cultural” conflict — among the top five reasons why mergers fail going by several research studies.
The fact remains that the transaction makes huge sense at a global level. For instance just combining the studios of the two becomes a great negotiating lever while facing an Amazon or Netflix. It also helps Disney expand its international footprint of which India is a key part.
Three things could mitigate cultural friction, say insiders and analysts. One, regulatory approvals could take anything between 12 and 18 months. So it will be 2019 by the time the actual process of integration starts. That gives everyone time to get used to the idea and figure a structure. “The role you create below (Bob) Iger (chairman and CEO, Walt Disney) to manage the studio, Hulu, Star and Sky is important,” says one analyst.
Two, there is speculation that James Murdoch, CEO, 21st Century Fox, could join Disney and eventually take over from Iger after he leaves in 2021. James was the chairman of the Asia business and knows the India market well. With him in a powerful position within the system the duo’s ability to manage conflict improves.
Three, Star’s business in India is a high growth one, not a mature one. It has invested in kabaddi, IPL, Maa TV, Hotstar et al in the last two-three years. It would be in the combined entity’s interest to ensure that these investments work.
Wait then for the answers to come out.