Cultural differences? Star India in flux as Disney effect gains ground

Will the Disney takeover of Star be good or bad for India’s largest media firm? As a mini exodus begins at Star India, the entertainment industry is abuzz with this and other questions. The coming months will see the Disneyfication of Star — that means less focus on sports and broadcasting, more on streaming. It will see a greater emphasis on margins, hiving off of some businesses (like Tata Sky) and slowing investments in others (broadcasting). The process towards a Disneyfied Star —more staid and somewhat bureaucratic —has begun. 

Last year, soon after Disney took over, Star lost country manager Sanjay Gupta, the man who built the firm along with chairman Uday Shankar. In the last few months, over half a dozen senior managers have put in their papers. Gautam Thakar, CEO, Star Sports, has resigned right in the middle of the Indian Premier League (IPL); Vijay Singh, head of Fox Star Studios, has gone; and most importantly Shankar has quit too. Shankar, who would leave by December, was responsible for transforming Star from a beleaguered Rs 1,600-crore broadcaster to a Rs 18,000-crore media behemoth.

Star India did not respond to a set of questions for both Shankar and Rebecca Campbell, chairman, international operations and direct-to-consumer for Disney. Most of the people Business Standard spoke to (former managers, business partners and others) chose not to be on record. 

New York-based Harold Vogel, a veteran media analyst and a global authority on entertainment economics, reckons, “The current turmoil at Star India is related to the distractions of integrating the massive Fox assets and the across-the-board destruction of Disney earnings and cash flows that came with the virus. Also, the transition from Bob Iger to Bob Chapek as CEO and the departure of Kevin Mayer (head of the international business). With such changes, the company....probably no company...would have the management bandwidth to deal with problems at Star.” 

Vogel has hit the nail on the head. When you try to integrate a $2.4-billion firm (Star) that gets more than 90 per cent of its revenue from a healthy broadcasting business, with a $69.5 billion global giant that sees television as a shrinking business, some havoc is bound to happen. The Walt Disney Company gets 36 per cent of its revenues and half its profits from television, largely from the US, a market rapidly shifting to streaming. The other big chunk — 38 per cent of revenues and almost half of profits — is from theme parks. These have been decimated due to the pandemic. That is almost three-fourths of its top line either gone or going. 

The people who thought of the Disney-Fox deal, executed it and were its biggest evangelists —Iger and Mayer — have left. There is chaos within Disney and within the global media ecosystem. Star is caught in it too. 

The timing couldn’t be worse. 

Mickey Mouse takes over the Fox

In 2018, the bulk of the Rupert Murdoch-controlled 21st Century Fox was sold to The Walt Disney Company — this included Star India. Disney paid $71.3 billion for Fox’s assets. Star’s value in the deal was estimated at $10-19 billion. At that time, Disney was roughly twice Fox’s size globally. In India, the situation was different. 

Star entered India in 1991, just two years before Disney. 

At the time of the deal, it was 15 times the revenue size of Disney India. Shankar, backed by the Murdochs, had been nimble at picking up growth opportunities in languages (Maa TV, Asianet), investing in other genres (films, sports), in developing the market (kabaddi, football, cricket and IPL) and digital (Hotstar). Disney, on the other hand, had been cautious and at times unlucky. 

Then there are the cultural differences. Disney is a highly process-driven, wedded-to-its margins, American multinational while Star is entrepreneurial, quick-on-its-feet much like Murdoch himself. Fox believes in going local; for Disney anything outside of the US is a syndication opportunity for Avengers or Toy Story or any of its American stories and characters. “Merging two companies of this type and size was difficult because of different management cultures and strategies. But there was great enthusiasm about the future of Star,” says Vogel. Soon after taking over, Disney appointed Shankar as the head for Asia, paraded him in front of Wall Street and heard carefully when he insisted that sharing the Disney name with Hotstar would work better in Asia; that is how Disney+Hotstar was born. 

It seemed that things would work. 

… And meets a virus

Then two things happened.

One, the pandemic killed theme parks, making Disney pivot to a direct-to-consumer strategy. Last week, it announced a reorganisation of its film and TV business with the aim of pushing streaming. Disney was egged in part, say analysts, by the fact that Netflix with one-third of its revenues had a higher market capitalisation than Disney. The market responded and Disney’s shares rose. Much of this makes sense for the US but, “Disney’s APAC revenues in (calendar year) 2019 was an estimated $6.5 billion plus. About 40 per cent of this comes from India,” says Vivek Couto, executive director, Media Partners Asia.

Nowhere outside of the US does Disney have such a large, robust broadcasting business. It helps that broadcasting in India is growing in double digits even as streaming rises. This is in contrast to the US where streaming is substituting TV. And broadcasting is critical to the growth of the one Indian brand Disney enthusiastically discusses with analysts in New York — Hotstar. 

More than half of what is watched on Hotstar is Star TV content — whether it is TV shows or cricket or kabaddi.  By itself, Hotstar is just a Rs 1,113-crore loss-making business, like most OTTs. How then can it be uncoupled from Star? Will it sell off Star TV like it sold off Sky to Comcast or will it simply stop investing in it?

Two, Iger and Mayer quit. “Now the question is are they (Disney) behind the big bet or will they cut their losses and run,” asks a former manager. Their choice of the next CEO for India will make things clear. “Uday had vision, mandate and also regulatory confidence. The next person who runs it has to have vision and the Disney mandate,” he says.

“Disney’s record of acquisitions has been excellent on the large ones including Pixar, Lucasfilm, Marvel, and streaming tech,” says Vogel. But most of those companies are based out of the US, point out Indian analysts.

What Disney could learn from Star is the value of truly localising– in sensibilities, content and management. And what Star could learn from Disney is how to scale up characters globally and monetise them better. A successful merger means local broadcasting could continue to fund the streaming business in India and rest of Asia instead of becoming an asset write down a few years down the line.

There is much to be gained if good sense prevails both in the head office in Burbank and in India, industry watchers point out.