Why large consumer brands have a lot at stake in Disney, Sony deals

By Andy Mukherjee

Two large media deals in India are giving the likes of Unilever Plc and Procter & Gamble Co. a reason to worry: If entertainment goes the way of telecom and ends up effectively as a duopoly, will it become costlier for large consumer brands to reach 1.4 billion people? 
 

The first of these two transactions may come as early as Monday and would see Walt Disney Co. enter into a non-bidding agreement with Mukesh Ambani to merge their media businesses in the country. The richest Asian tycoon will hold at least 51% of the combined television and streaming operations. 

 

The second, which is looking half-baked even after being in the oven for more than two years, is expected to meld Sony Group Corp.’s local unit with Zee Entertainment Enterprises Ltd. But disagreements have reportedly cropped up about who should be the chief executive officer. Although the Sony-Zee accord is mired in doubt ahead of its tight Dec. 21 deadline, it’s reasonably certain that by this time next year the Indian sports and general entertainment market will have consolidated into two large platforms: Ambani’s Viacom18 Media+Disney, and Sony, with or without the Zee merger.

India is a large cable market. For advertisers, TV ads are still five to six times more expensive than their digital alternatives, according to industry professionals. Currently, four networks — Disney, Zee, Sony, and Viacom18’s Colors — have nationwide footprints in cricket and Bollywood-style entertainment in multiple Indian languages. After a merger, Viacom18+Disney will control a third of Hindi general entertainment in northern Indian cities, and more than a quarter of the Tamil market, which has a strong local leader.

Ambani will also gain TV audiences on the country’s west and east coasts and hold about a third of the country’s video-streaming subscribers. More importantly, Ambani will have a lock on cricket. The billionaire has paid $2.7 billion to stream the annual Indian Premier League for five years. From Disney, he will acquire IPL broadcast — as well as a streaming deal for the 2027 Cricket World Cup. In August, Viacom18 beat Disney and Sony to secure TV and digital rights for the Indian team’s home matches for five years. 

In a cricket-crazy nation, it makes sense for media firms to invest in the sport. But there is another reason: regulation. Once New Delhi introduces its proposed broadcast bill, stifling state control of content will extend to internet apps, which have already started shelving projects that they fear will get them in trouble with the government. As programming on Netflix Inc., Amazon Prime Video, Disney’s Hotstar+ and Viacom18’s JioCinema becomes uniformly banal — much like television in the country already is — whoever owns cricket will control the eyeballs. Worse still, digital advertising in India doesn’t have reliable numbers on reach and engagement. Advertisers have to trust the apps’ claims. 

Brands should worry. Ambani is India’s largest retailer with a long-held ambition to build a consumer-goods empire. So far, though, he has found it hard to shake the dominance of distributor-centered supply chains. It’s a formidable moat. Lever Brothers, one of the companies that would go on to become Unilever, arrived in British-ruled India with crates of “Sunlight,” the world’s first packaged laundry soap, in 1888. It has had 135 years to figure out how to reach every corner of a continent-sized geography at a low cost.

However, Ambani may shift gear and attack demand instead of distribution. If he relentlessly promotes his own staples,  fashion and electronics through a bulked-up media empire, he could potentially command a larger share of consumer spending in what’s projected to be a $2 trillion retail market by 2032, more than double last year’s size.

How much of this control of the consumer economy by a single conglomerate actually materializes will depend, among other things, on dominance of media ownership.

For a clue, consider telecom. Ambani’s 2016 entry with free voice calls and cheap data shrank a dozen-player market into two dominant firms: his Jio, with 460 million customers, and rival Bharti Airtel Ltd. It also left a third weak competitor in the fray. Vodafone Idea Ltd. is so overwhelmed by what it owes the Indian government for spectrum that it has no money to invest in network upgrade. So it keeps bleeding disgruntled customers to the two leaders. Could the media industry face a similar fate? 

Zee investors are no longer sure that Sony will honor the original agreement to make Punit Goenka, who leads the homegrown Indian network founded by his father, the chief of the merged entity. Goenka and his dad, Subhash Chandra, were in June barred by the Securities and Exchange Board of India from being a director or key executive in a publicly traded firm, allegedly for siphoning off company funds. While the father-son duo has denied the charge and an appellate authority has given them reprieve by dismissing the interim order and asking the SEBI to complete its investigation, Sony may not want its presence in an important market to come under a corporate-governance cloud. 

If the merger collapses, it’s possible that Zee’s institutional investors will renew their 2021 efforts to boot out the founders, and approach Sony or another strategic partner under a new leadership. But it’s also conceivable that taking advantage of a failed deal, some creditors may succeed in their efforts to push the network into bankruptcy. A three-horse race with Ambani in the lead, followed by a muscular Sony and a limping Zee will be a repeat of India’s telecom story.

None of this may impose a direct, visible cost on consumers. Over time, though, media consolidation may make it more expensive for brands that compete directly with Ambani to get their message heard.