Merger musings

Reliance Industries is making big bets in a sector where it had a minor position until recently

Every time Reliance Industries Ltd, or RIL, makes a move in the media business, you wonder why.

In 2012, it funded the merger of Network 18 (which also owns Viacom18) with Eenadu, a firm it already had. By 2014, it took management control of the resulting entity. In 2022, it brought the James Murdoch and Uday Shankar-owned Bodhi Tree in as an investor into Viacom18 and added JioCinema to the whole bundle. Last year, it bought the digital rights to the Indian Premier League and also licensed HBO’s high-end programming. Late in February this year came the announcement of a merger between the (now) RIL and Bodhi Tree-owned Viacom18 and the Disney-owned Star India. Last week, it bought out the remaining stake that Paramount, the original partner in Viacom18, had in the company. The new merged entity is now completely owned by RIL and Bodhi Tree.

Therefore the question, why? Is it because media is a good investment?

It doesn’t seem so. The Rs 2.3 trillion (roughly $28 billion) Indian media and entertainment business is a tough place. It has huge volumes, poor per unit monetisation, low margins, and needs lots of effort and patience. It took Star India almost a decade to hit paydirt in the nineties. More than eight years after 100 per cent foreign direct investment was allowed in cable, not a single firm has come in.  There are many such instances.

“Indian media and entertainment hasn’t had a significant capital injection except for the money that Google, Meta, Netflix, Amazon have invested in the creative economy and distribution in recent years. RIL has invested $2.4 billion in the last couple of years and partnered with key groups,” says Vivek Couto, executive director and co-founder, Media Partners Asia.

At Rs 9.8 trillion (about $119 billion) in revenue in the year ended March 2023, RIL is India’s largest private sector company. It operates in areas such as hydrocarbon exploration, petrochemicals, petroleum refining, among others, where scale and project management capabilities are critical.

The merger of Viacom18 with Disney-Star (the bigger entity) will create a firm with a combined revenue of Rs 23,321 crore ( as reported for the year ended March 2023). It will be India’s second-largest media firm after Google. Even then, it would be just 2 per cent of  RIL’s top line. The post-money valuation of the merged entity ($8.5 billion) is about 3.5 per cent of RIL’s current market capitalisation.

This investment is small change for the RIL group. So why bother?

Could it be about clout? Given its size and influence, RIL doesn’t need the media for that. For proof, watch all the lovely videos of everyone from superstar Shah Rukh Khan and singer Rihanna, to software billionaire Bill Gates and steel magnate Laxmi Mittal, dancing away at the pre-wedding festivities of RIL Chairman and Managing Director Mukesh Ambani’s son Anant, earlier this month. Some of the biggest politicians from India and outside attended the do. Why would a family with so much pull among the who’s who of the world need a small media company for clout?

The Reliance group has been interested in media for long, says an insider. He points to The Business and Political Observer as an example, which was shut down 10 years after its launch in 1990. It is one of the rare businesses the Reliance group exited.

Its media record since has been mixed. On the distribution side, in cable, where it either owns or has a share in companies like Hathway, Den, GTPL, RIL has a good hold over the business. On the consumer side, the picture is blurry. Network 18 and Viacom18 own channels like Colors, Nick, and brands such as Moneycontrol and CNBC. Its app, Voot, had complete dominance over a category where most broadcasters and OTTs struggle — kids. For some time now, most of these brands have been lost in RIL. That is not surprising. In a group as large as RIL, a small business, that is not core to the group and doesn’t offer great returns, will get only so much of senior management time and effort.

From the early nineties until it was sold to Disney in 2018, Star was a part of Rupert Murdoch’s Fox. From launching India’s first music channel, Channel [V] in 1994, and its first news channel, Star News, in 1998, to Kaun Banega Crorepati (KBC) in 2000, Star has grown on the back of a market that it shaped. It localised management thinking and has been aggressive about investing to grow the space. When Disney acquired it, Star lost its mojo in the bureaucracy of an $89 billion corporation, which is very America-centered. Soon, Disney, which needed to raise money, was looking to sell its India operations.

When the deal came to RIL, it likely saw an opportunity to tackle what insiders reckon is “unfinished business”. It has now made a bigger bet on a business in which it previously had a minor position, but ensured that it brought in Mr Shankar, who is also an investor in Bodhi Tree.

As chief executive officer of Star India from 2007 to 2020, Mr Shankar took the company from Rs 1,600 crore in revenue to Rs 18,000 crore in 2020. He built the entertainment business to a point where it is a cash spewing machine, expanded Star into sports (IPL, Kabaddi) and digital (Hotstar 2015). As vice-chairperson of the merged entity, he won’t be handling operations, but it is clear that he will decide on strategy. 

The Murdochs gave Mr Shankar a lot of leeway. Will a large Indian conglomerate offer similar room to risk and invest? “If Mr Shankar delivers, he will get a free hand and it will get freer if he continues to deliver,” reckons the insider. The plan is to list the firm in about five years at twice or more of its current value.

Maybe the “why” we asked in the beginning will be answered by then. 

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