Reliance, Disney, and the making of a Goliath

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On June 15, 2022, minutes after Reliance-owned Viacom18 agreed to shell out ₹20,500 crore (-$2.7 billion) to bag the digital rights of the Indian Premier League (IPL) for the 2023-2027 cycle, Rebecca Campbell, The Walt Disney Company’s then-chairman for international content, stated in a company release that Disney “chose not to proceed with the digital rights given the price required to secure that package.”

Campbell was putting on a brave face, even as Disney secured the TV rights for the tournament. Per Disney’s calculations at the time, the digital rights of a marquee international sporting property were pivotal to then-CEO Bob Chapek’s subscriber target of 230-260 million (a number later revised to 213 million) for its streaming service Disney+ by September 2024. That number, Chapek believed, could be achieved even if Disney didn't prevail in the IPL auctions.

Both Chapek and Campbell have moved on from Disney since, but as time wore on, it became clear that defending the IPL rights was pivotal to Disney’s streaming ambitions. From the last quarter of 2022 until Q3 2023, Disney+Hotstar, its streaming service in India and Southeast Asia, saw an exodus of 12.5 million subscribers, a majority of which are directly attributable to the absence of the IPL from the streaming service. Hotstar did gain some 700,000 subscribers in the quarter ending December 31, 2023, but the damage, so to speak, was done.

What also changed is that last week, Reliance and Disney announced a “strategic joint venture” worth $8.5 billion by merging the businesses of Viacom18 and Star India, effectively building a sports and entertainment behemoth, subject to the conclusion of the deal (Q4 2024 or Q1 2025) and other regulatory approvals. Per a company release, the joint venture would be helmed by Nita Ambani, with Uday Shankar as vice-chairman. To paint a picture, the combined entity (Viacom-Star) could have a market share of over 85% of India’s monthly active user base, per Bernstein analysts, while also potentially commanding a near 50% share of India’s broadcast market. And here’s the clincher: a ~40% control of the advertising market across linear TV and streaming combined, according to analysts at investment banking group Jeffries, which could have a significant say in monetisation.

But sports is where this deal becomes even more significant, effectively creating a never before seen one-stop-shop across cricket, football, hockey, and tennis, to name some. “It might look like a retreat, but if you think strategically, it’s a decent outcome for Disney. They get to remain in India at a time when the economics, particularly with sports, are off the roof with Reliance’s entry. This still gives them a fair shot at the market by being involved,” a leading media observer aware of deal developments told The Playbook.

The Playbook spoke to several industry experts, analysts, and media observers for this story. They remained anonymous as they are not authorised to speak to the media.

The new “home of cricket”

In the very first edition (October 2022) of The Playbook, our then-colleague Jaideep Vaidya took a detailed look at how Disney Star was quietly rebuilding its once-formidable cricket wall. Disney’s wall has been gradually crumbling (save for rights to the International Cricket Council or ICC, and international cricket in Australia and South Africa). At that time, Jaideep hazarded a guess that Disney would not go full-throttle to defend the rights to international, domestic, and women’s cricket matches hosted by the Board of Cricket Control for Cricket in India (BCCI), which came up for renewal in August 2023. He was right.

Viacom18’s successful ₹5,963 crore bid for both broadcast and digital rights would mean that it cemented its place as the proverbial “home of Indian cricket”—now with a portfolio that mirrored Disney until summer 2023. Add the Women’s Premier League rights to the mix, and Viacom18 is officially the destination for some of the sport’s most-watched and therefore better-monetised properties. 

With the Disney merger, barring English and New Zealand cricket (among major cricket-playing countries), and other minor global T20 leagues, the merged entity will become the destination for not just Indian cricket, but also the game in general. 

“While it is still early days, JioCinema or whatever they choose to call it could become the primary streaming outlet for the sport, while Star could become the linear TV destination. If anything, this plays to their respective strengths,” says a media industry expert.

Just last week, we told you about how prudence might be the dominant theme in cricket advertising for 2024. But in the coming years, with multiple marquee properties—Indian cricket, IPL, WPL, and ICC events —under their wing, Viacom and Star will likely consolidate their monetisation efforts. “This combined entity could have a compelling position against advertisers, saying that if you don’t advertise with us, you are missing out,” the expert adds. 

The numbers

Having committed over $10 billion in broadcast rights (IPL, ICC, BCCI, WPL, and other licensing deals for sports leagues), it is unlikely that Viacom-Star will make money in the near term. Disney, for one, headed into this merger on the back of ballooning losses for its sports business in India despite an uptick in revenue, courtesy the 2023 ICC World Cup. The outlay on sports rights has, in the last several years, been an Achilles heel for the company.

In last month’s quarterly earnings, the company revealed that Star’s sports business had suffered an operating loss of $315 million in Q1 FY24, a year-on-year increase of 144% from $129 million. This, it stated, was due to “the airing of the ICC World Cup in the current quarter compared to the ICC T20 World Cup in the prior-year quarter, which resulted in an increase in programming and production cost attributable to higher average costs per match and more matches aired.” 

Its revenue also increased by 71% to $399 million in Q1 FY24 (from $233 million in Q1 FY23) predominantly due to advertising revenue growth. More losses could be in the offing, with Zee’s non-payment of a $200 million instalment for the $1.4 billion deal it signed with Disney to sub-license TV rights for ICC events.

“This deal will be the loss leader for the combined entity. In the sense that helps consolidate viewership and garner more eyeballs, but it is unlikely that it will make money from sports,” says a second industry expert. 

A recent Media Partners Asia report estimated that the merger will create a profitable entertainment business ($600 million in EBITDA on $1.3 billion revenue in the financial year ending in March 2024), but sports ($600 million loss on revenues of $700 million) and streaming ($800 million revenue with an EBITDA loss of $150 million) could still be loss-making for the same period.

“We could see the typical Reliance/Jio playbook being deployed at least for the current cycle, i.e. get into a segment, trigger a price war, and then increase tariffs as they’ve done with Jio in a bid to make money. There won’t be initial pressure but eventually, they could be making some money,” the second expert added. 

The (non-existent) opportunity

One analyst The Playbook spoke to estimates that the Viacom-Star entity will hold an approximate 93% across all sporting properties broadcast in India. The remaining 7%, according to other analysts we interviewed, are distributed between SonyLIV (England cricket, WWE, Tennis, European Football, Saudi Football, and domestic non-cricket leagues such as volleyball), FanCode (T20 leagues in Bangladesh, Pakistan, and New Zealand, as well as international cricket matches played in Bangladesh and the West Indies), Amazon Prime (New Zealand cricket), and Zee5 (ILT20). 

The fragmentation of non-cricket properties could be an impediment to Viacom-Star’s challengers in the near term. “Even if Sony has deep pockets, its ambitions in the sports space have been declining. But it could open up opportunities for someone like Amazon or Netflix to build a presence in non-cricket sports. Even that, given the concentration of cricket in India, will be a moonshot,” says the first media expert quoted above. 

It could, however, come sooner for Sony when the Netflix agreement with WWE comes into effect in 2025. Netflix will distribute WWE’s programming across international markets, including India, which is also among the popular wrestling property’s leading global markets. Sony is also likely to focus heavily on regional language content, which effectively allows Viacom-Star to have a free run in Hindi and sports, both spaces in which they dominate.

“The combined entity will make a killing on this. Also, sports is a space where you need to have some content all through the year. It can’t be too fragmented. There could be some opportunities outside of cricket, say global tournaments such as the UEFA Champions League and European Championship, but these two pretty much have their bases covered there too,” says the second media expert.

All of which begs the concerns around antitrust. There is some emerging consensus within the industry that Viacom-Star would either have to shed some TV channels or sub-license some properties to rivals to satisfy regulators. 

That won’t be a problem once these rights cycles expire in 2027 (or 2028), when analysts expect a return to “rational bidding” for rights. “You won’t see a 3x jump like we did in 2022. It will be more incremental—a 5-15% jump in prices,” the second expert quoted above concludes. 

2028 might be a while away, but by this time next year, this formidable behemoth will be having the first taste of the coming windfall. 

⚡️Quick Singles

🏏💯🥂: Kuldeep Yadav etched his name in the history books when he became the fastest Indian cricketer to take 50 test wickets. The Chinaman spinner achieved the feat in just 1,871 balls, compared to Axar Patel (2,205) and Jasprit Bumrah (2,520). Additionally, the ongoing India-England test in Dharamshala marks the 100th test match for R Ashwin. Find out what this means and the milestone’s waning importance in the modern game over here.

🔴✔️❌: FC Barcelona is set to sever (in Spanish) its ties with Nike. The club will instead look to chart a brand of its own and manufacture its own shirts through a third-party contractor. A belief in the club’s ability to rake in more money via this deal is said to be the underlying motivation behind terminating Nike’s contract, which runs till 2028.

⚽🤢🤑: Politics is affecting the beautiful game. First, it’s the German and Italian leagues, where fan bases of several clubs are increasingly supporting Nazi and Fascist movements. Chemnitzer FC, a club in Germany, is a case in point. It had to remove two support groups from its stand because fans sported the logo of erstwhile Nazi organisation Hitler Youth. Meanwhile, Argentina’s new President Javier Milei is forcing the beleaguered clubs of the country to seek private capital. Millei wants to move the clubs away from their non-profit status. 

📴💳🧑🏻‍🎤: India’s Central Consumer Protection Authority has issued an advisory against the promotion of betting and gambling apps. The watchdog also warned of stringent and swift implementation of the Consumer Protection Act, 2019 for any violations.

📖 Weekend Reading

The EFL club owned by a convicted fraudster [The Athletic]

Behind F1's Velvet Curtain [Road Track]

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