Disney entering Ambani's India orbit is a worry

Bob Iger has his task cut out. The long-time Walt Disney & Co chief executive has to fix cable TV in his second stint. As he said in a CNBC interview: "The disruptive forces that have been preying upon the business for a while are greater than I thought." India is a good example, both of rapid obsolescence and how the entertainment juggernaut could still sidestep it. 

Indian advertisers, however, might not be as lucky as Iger, whose contract just got extended by another two years. They may be staring at an erosion of competition that will weigh on their promotional budgets in what's expected to be a $6 trillion consumer economy by 2030.

Disney is exploring strategic options for Star India, including a joint venture or a sale, the Wall Street Journal reported last week.

Star India came to Disney as part of a $71 billion acquisition of Rupert Murdoch's 21st Century Fox Inc in 2019. Since then, the jewel has lost some of its sheen. Bob Chapek, who succeeded Iger as CEO in 2020 before his abrupt ouster last November, failed to retain online-streaming rights for Indian Premier League cricket. Viacom18, a joint venture between Paramount Global and tycoon Mukesh Ambani's Reliance Industries Ltd, won the 2022 bidding war.

That was a blow to Disney+ Hotstar. Murdoch's India team had built the digital platform from scratch. Its pandemic-swelled user base reached 61 million last October. 

But since cricket was its biggest draw, 8 million subscribers left in just six months. Ambani's JioCinema shot into prominence by putting the 2023 edition of IPL online for free, amassing an audience of 449 million; the next season may see a repeat of the aggressive pricing strategy. 

No surprise then that Reliance is among the firms that have been approached for a potential stake sale in Star India, according to Bloomberg News. Reliance, which tied up with Warner Bros Discovery Inc in April to stream Succession and other shows in India, hasn't commented on the development.

Now may be the right time to sell. Until last year, when it had both the television and streaming rights, Disney garnered all of the $500 million IPL ad revenue annually. 

No longer. According to Afaqs, a trade publication for the marketing industry, as much as 55% of this year's take may have gone to JioCinema. Star, which still has the rights to telecast IPL matches live, took the rest.

The slide in Hotstar subscriptions and loss of advertising have prompted Bloomberg Intelligence to peg the value of Disney Star, as the Indian business is now called, at under $1 billion. That may be spare change for Disney, which has an enterprise value of $209 billion. Still, it's better to offload the franchise while it's on a relatively strong footing.

More than half of the country's 1.4 billion people are now online — usually on their mobile devices — thanks in large part to the cheap data plans introduced by Jio, Ambani's seven-year-old telecom network with more than 400 million subscribers. 

Even then, television is ahead. Almost 900 million individuals (210 million families) have access, and more than 60% of them switch on their sets at least once in 24 hours.

What they find on the box is compelling enough to keep them hooked for three-and-a-half hours, on average. In southern India, the daily viewing time stretches to four hours. Disney Star's general entertainment channels, which serve Bollywood-style content and drama, are market leaders in multiple regional languages.

Catering to different tastes across a vast geography adds to programming costs. On the flip side, the advantage for networks is that brands still don't have a good idea of just how large an audience they're reaching by putting their commercials on both TV and online platforms. 

Nielsen measures digital engagement, and Broadcast Audience Research Council, or BARC, an industry body, provides television ratings. Nobody eliminates the double counting to arrive at reliable net figures. 

A US-style composite picture of screen time doesn't exist. Given the foggy data, the disruption that worries Iger should also make India's advertisers more than a little anxious. Media consolidation could work against them.

It's an advantageous situation for Ambani, though. If he bags Star India at a fair price, he can offer bundled deals (TV-plus-online) to advertisers at profitable rates. Some of the big-bulge spenders will be from within the conglomerate. Reliance's fledgling consumer-staples brands would love to acquire customer loyalty during the annual, three-month cricket extravaganza. 

Ditto for telecom, financial services and retail. None of them may mind supporting high sticker prices since their spending will stay within the group. Owning both the media-distribution outlets for the sporting contest — and controlling the advertising dollars over the remaining four years of the IPL contract — will put the Indian billionaire in the pole position at the next auction of rights in 2027.

Before Star India came into play, Ambani was keen to acquire its rival network Zee Entertainment Enterprises Ltd. However, Zee's beleaguered founder decided on a merger with Sony Group Corp. instead. That deal has been stuck in a legal and regulatory quagmire for almost two years, and is still not guaranteed to get done. Ambani has made the most of the disarray by deepening his talent pool. He has poached several of Iger's executives, including Kevin Vaz, a 26-year Star veteran who has joined Viacom18 as its new CEO. James Murdoch and Uday Shankar, the former Star India CEO, have also invested in the Ambani venture.   

If Disney can't protect its cable-TV moat among broadcaster-friendly Indian audiences, it makes little sense to defend it anywhere. While it's still too early to predict an outcome, if Iger and Ambani do shake hands on a transaction, it will still leave the country with an uncomfortable question: Should a tycoon who's putting together a large consumer empire wield so much power over media and advertising — and, by extension, household budgets?

Then again, from telecom to transport, monopoly (or duopoly) power is on the rise in nearly every sector of India's economy. For smaller businesses to reach customers may become more expensive in the long run, and those costs will get passed on to individual spenders. But in a cricket- and Bollywood-crazy country, cheap entertainment can act as a safety valve for a lot of consumer angst.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. 

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.