Disney-Fox deal: How it is set to change India's broadcasting pecking order

The deal will catapult Disney, currently a small player known for kids' channels and Hollywood film distribution, as India's largest media & entertainment broadcaster

Walt Disney Co’s global acquisition of a large part of the business owned by Rupert Murdoch’s 21st Century Fox Inc (2CF) – expected to be announced soon – will fundamentally change India’s TV broadcast landscape as well. According to those privy to the talks, the entire business of Star India, including entertainment and sports channels and the digital over-the-top channel Hotstar, will be transferred to Disney as part of the deal. And, that will catapult Disney, currently a small player known primarily for kids’ channels and distribution of Hollywood films, as the country’s largest media & 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 2CF in its analyst calls and presentations. The management also acknowledges that winning the IPL global media rights will be a game-changer – even as it increases the cost in the cable segment by three per cent, it will also add another three per cent to the company’s revenues by the fourth quarter of this financial year (April-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, estimated to be worth over $60-$70 billion.

For Disney, which entered India back in 1993, the ride in the country so far 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, which not only gave it new channels but also introduced it to movie production in India through UTV Motion Pictures.

However, the UTV acquisition was not able to propel Disney to the big league with a diversified bouquet and take on the big three – Zee, Star and Sony. The company decided to close its film production business and stick to distribution of Hollywood flicks, despite hits like Dangal, especially after 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 business the company followed in India – the co-production model – did not give 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, while the top slot remains with Viacom 18’s Nickelodeon.

To diversify its portfolio, the broadcaster has only recently launched Disney International HD, an English GEC channel with original and exclusive Disney content and targeted at the audience in the 14-25-year age bracket. Together with that, the company has also decided to close its music channel, Bindass Play. It currently has eight channels, including 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 an 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.

Media watchers say that it will depend on the new structure – If James Murdoch continues to be at the helm, it is possible that the Disney team, being smaller, will join the Star team in markets like India. If that does not happen, it might be a few months of uncertainty.

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 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 also includes sharing of sports content from ESPN. According to analysts, the deal is time-bound and it remains to be seen how Disney would negotiate this collaboration with control over Star Sports channels as well.

Together, Disney will have a major control of the sports content business and that might lead to questions being raised by competitors. Already Jawhar Goel, who runs Essel group’s direct-to-home business Dish TV, has questioned the monopoly of Star in the sports arena and sought government intervention.