Can Disney-Reliance combine redefine the Indian advertising market?

The Disney-Reliance combine will have enormous reach, market muscle, and a unique combination of broadcast and digital

Rajiv Dubey is senior general manager and head of media at Dabur India. From honey and hair oil to candy and cough drops, the Rs 11,975 crore (revenue) Dabur sells an array of consumer products to Indians. In the financial year ending March 2023, it spent Rs 640 crore on advertising. About 70 per cent of this was spent on television. How then does Dubey view the merging of the Reliance Industries (RIL) and Bodhi Tree Systems-owned Viacom18, into the Disney-owned Star India?

The merger, announced last week, will create a broadcaster with 110 channels such as Star Plus and Colors and a streaming app that will be roughly half of YouTube. The Rs 23,000 crore firm thus created will be India’s second largest after Google. It will have a leading 32 per cent share of all television viewership in India with large slices of the Hindi, Marathi, Telugu and Bengali speaking markets (see chart).

“What matters to me is how inexpensive it is to reach consumers. If this merger helps me get audiences cheaper then it is good; if it becomes more expensive then it is difficult,” says Dubey.

Krishnarao Buddha is senior category head, marketing, at Parle Products. The maker of Parle G, Monaco and other brands, spends about 85 per cent of its advertising money on television. Rao reckons nothing will change for a bit. “It is only after IPL (Indian Premier League, due in April), Elections (due in April/May), and the ICC T20 Men’s Cup (due in June), will they start pushing up rates (if they do),” says he.

These are among the biggest media events in 2024. Star India owns the broadcast and digital rights for ICC Men’s cricket. It also owns the broadcast rights of the IPL while Viacom18 has streaming. If they combine the two and hike up ad rates, “I can still operate with Sony, Zee, Fakt Marathi, Dangal and Goldmines, among other channels. They (the other players) will reap huge dividends. There is substitutability (for the reach that Star and Viacom18 provide) in all languages,” says Rao.

Rao’s answer tackles one part of the big question that lawyers and analysts have been raising about the merger. Can it pass regulatory scrutiny?

Abhinav Shrivastava, partner with Bangalore-based LawNK, tackles the other part. “Are OTT (streaming) and broadcast separate? The only way this merger will go through is if Star argues for complete convergence; that OTT and broadcast are one market. Then it is not dominant in broadcast,” says he.

Shrivastava has put his finger on the business reality that makes consolidation an imperative — the redefining of the media and entertainment market.

The power of TV plus streaming

Video — read that as television, streaming, films — is by far the largest part of the media and entertainment business globally. Over the last decade it has been redefined by Google and Meta with billions of user-generated, sometimes professionally created, long and short pieces of video. Google, with revenues of $278 billion in the financial year ending September 2023, uses search and YouTube to get audiences.

The $127 billion Meta uses socialising to keep them coming to WhatsApp, Facebook or Instagram, the brands it owns. These firms offer billions of terabytes of advertising inventory across genres, audiences and geographies at rates that are one-fourth those of broadcast. Across the world Google and Meta command anywhere from 70-80 per cent of all digital advertising. 

Broadcasting, which relies on professionally generated shows, films and sports, brings in roughly half the total revenues — Rs 2.1 trillion — of the Indian media and entertainment and business. It is also hugely profitable.

Disney Star’s entertainment television business will make an operating profit of almost Rs 5,000 crore in the financial year ending March 2024 and March 2025, according to Media Partners Asia’s estimates. Its sports and digital businesses, however, push the firm into losses. Therefore, even if audiences move online to the same broadcaster, they are now part of an ecosystem where the rules have been set by the tech-media majors with their huge ad-tech machines, low rates, and humongous reach.

“How do you redefine the advertising pie? No one yet in India has been able to use TV viewership and reach, combined with online video to reframe the conversation and currency for monetisation with advertisers. Connected TV will be a significant part of this reframing,” says Vivek Couto, executive director and co-founder, MPA.

RIL also owns stakes in an array of distribution firms in cable (Hathway, GTPL) and telecom (Jio), giving it access to millions of consumers. Theoretically then it is in the best position to fuse TV and digital and sell it to advertisers.

“TV plus digital makes it very compelling,” agrees Shrikant Shenoy, associate vice president, Lodestar UM, a media buying agency. The challenge? “Data is not available in a unified manner,” points out Dubey. 

“The transparency in TV is not there in digital. There is a lot of ad fraud,” adds Buddha.

This time around, Disney has its back to the wall.

The metric might just come though. Sony and Viacom18’s bids were half or less than that of Disney Star’s $3 billion for ICC rights from 2024-2027. Last year it paid $2.9 billion for just the broadcast rights to the IPL.

That is almost $6 billion for a firm that is just over $2 billion in topline. “These are the two rights that broke Disney’s commitment to India,” says an insider. The thought of explaining to aggressive US stock market analysts and investors the yearly payout for sports rights is what possibly prompted the fire sale of Star. Disney settled for a value of $3-3.5 billion on an asset it bought for (reportedly) $10 billion in 2018.

“The expenditure on sports rights is enormous. To make back that outlay it needs to capture a large share of total advertising revenue. And to enhance the advertising revenue market by building the right tech platform,” says Daoud Jackson, senior analyst, media and entertainment at UK-based Omdia.

That is the kind of market development Star has done ever since it came to India in the early nineties, in music (Channel V), news (Star News), programming (Kaun Banega Crorepati), and radio (Radio City). “We will see Star back in action. It built the IPL. The merger should help it build other properties too. According to our research the Pro-Kabaddi League is a good second-line property,” says Shenoy.

The X factor, say analysts, is Uday Shankar. As chief executive officer of Star India from 2007 to 2020, Shankar took the company from Rs 1,600 crore in revenue to Rs 18,000 crore in 2020. He built the entertainment business into a cash spewing machine, and pushed Star into sports (IPL, PKL) and digital (Hotstar). The buzz is he won’t be doing any operational stuff. However, as vice-chairperson of the merged firm, he will remain the guiding force on strategy. Note that Shankar is also an investor in Bodhi Tree.

Couto reckons that the company could go for an IPO (initial public offering), say five years down the line, at twice its current value of $8.5 billion. If that happens, this merger would have helped restore the value Star lost in the Disney fold.