 "Hotstar, JioCinema beat parent companies' TV businesses in valuation race")
Disney+ Hotstar and JioCinema have seen their valuations surpass those of their parent companies' traditional television businesses. According to documents reviewed by The Economic Times (ET), EY and BDO have valued Viacom18 at Rs 33,000 crore and Star India at Rs 26,000 crore, respectively.
EY conducted the valuation for Viacom18, a company backed by Reliance Industries Limited (RIL), in preparation for a merger agreement, while BDO was responsible for valuing Star India, which is owned by Walt Disney, the ET report said.
On February 28 this year, Reliance Industries and Disney finalised a deal to viacommerge Star India and Viacom18, resulting in a new entity valued at Rs 70,352 crore, which includes a Rs 11,500 crore capital infusion from RIL.
Both companies used the comparable companies multiples (CCM) method for the valuation, which estimates value based on multiples derived from the valuations of similar companies.
BDO's assessment valued Star's entertainment segment at a revenue multiple of 1.75 times (Rs 15,999 crore) and the digital segment (Disney+ Hotstar) at a revenue multiple of 3.81 times (Rs 16,040 crore). This valuation considered Star India's trailing twelve months (TTM) revenue up to December 31, 2023, accounting for Rs 9,142.2 crore from linear entertainment and Rs 4,210.6 crore from digital revenue, the report said.
Using these revenue multiples, BDO calculated an enterprise value of Rs 31,992.9 crore for Star India. After adjusting for liabilities associated with the sports business, the equity value was revised to Rs 25,900.2 crore, or Rs 524.5 per share.
The ET report quoted media expert Rajesh Sethi as saying, "This transaction reaffirms that digital businesses command valuations twice as high as traditional businesses, thanks to their flexibility and broader scope in distribution and revenue generation."
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He said the valuation of sports content is likely to undergo a reassessment as the industry shifts from a three-player market to a two-player competition.
Video entertainment industry
According to Media Partners Asia, the video entertainment industry is projected to reach a valuation of $13 billion by 2028, with over-the-top (OTT) platforms contributing to half of this new revenue growth.
For Viacom18, the valuation firm provided a consolidated revenue multiple including both linear television and streaming operations.
BDO estimated Viacom18's enterprise value at Rs 15,622 crore, based on a revenue multiple of 2.6 times and revenue of Rs 6,012.5 crore for the trailing twelve months ending in December 2023.
After accounting for cash balance, investments, intangible assets under development, and surplus assets, Viacom18's equity value rose to Rs 32,937 crore. In April 2023, Reliance and Bodhi Tree Systems invested Rs 15,145 crore in Viacom18, the report said.
According to a scheme of arrangement submitted to the National Company Law Tribunal by Viacom18 and Star India, Viacom18 will transfer JioCinema to its subsidiary Digital18 on a slump sale basis for Rs 24,186 crore.
The transfer of Viacom18's other media operations to Digital18 will involve a consideration of Rs 2,769 crore, after which Digital18 will transfer these assets to Star India.
EY valued Viacom18 at Rs 32,955 crore and Star India at Rs 25,926 crore. Star India's valuation was conducted on a debt-free basis, as it is unlikely to hold any cash. EY's valuation report, combined with RIL's Rs 11,500 crore fund infusion, suggests shareholdings of 46.8 per cent for Viacom18, 36.8 per cent for Star India, and 16.3 per cent for RIL, the report stated.
According to the merger agreement, RIL will hold a 56 per cent controlling interest in the combined Star-Viacom18 entity, followed by Walt Disney with a 37 per cent stake, and Bodhi Tree Systems, promoted by James Murdoch and Uday Shankar, with a 7 per cent stake.