How Reliance-Disney Merger Is All Set To Change India’s OTT Arena

After months of speculation, Reliance Industries Limited (RIL), Viacom 18 Media Private Limited (Viacom18) and The Walt Disney Company announced the signing of binding agreements last week to set up a joint venture (JV) that would combine the businesses of Viacom18 and Star India Private Limited.

The merged entity will have over 100 TV channels and two leading over-the-top (OTT) platforms – Disney+ Hotstar and JioCinema. It will exclusively hold the rights to distribute Disney’s content in India, in addition to Reliance and Viacom18-owned sports content.

Additionally, RIL said it would invest INR 11,500 Cr in the JV to fuel its growth. As such, the media and entertainment sector in the country is buzzing with speculations about the potential impact of this merger on the segment.

Experts believe that the merged entity will have the content to cater to all segments of viewers and grab a big market share in the Indian media and entertainment space. Besides, it is also set to disrupt the country’s OTT landscape.

A Broadcasting Behemoth Is Born

The announcement of the merger comes at a time when Disney+ Hotstar is going through a tough time in India. For the past one-and-a-half years, Disney+ Hotstar has been seeing a decline in its paid subscriber base, largely due to JioCinema securing exclusive rights for sports events such as IPL and the FIFA World Cup.

However, despite bagging the rights to premier sports events, JioCinema faced a challenge due to its relatively limited content library as it was a late entrant into the streaming market. This is where Disney+ Hotstar could potentially fill the gap with its extensive content offerings.

“This consolidation would play an important role in making RIL a dominant player in the Indian media space. RIL and Disney bring together a formidable combination of capital, content library, tech know-how, talent and distribution. This JV has the potential to compete with Netflix and Amazon Prime Video in India,” Kotak Institutional Equities said in a report.

Besides, Disney could benefit from lower distribution costs on Jio’s last-mile edge and enjoy reduced overheads, leading to increased efficiency, Elara Securities Research said in a report.

Furthermore, the joint venture will see lower losses in the OTT sector due to greater bargaining power compared to content creators, leverage technological advantages from Disney, and potentially unlock higher revenue streams from IPL with the consolidation of TV and digital rights under a single entity, it added.

It is pertinent to note that while JioCinema currently holds the streaming rights for the IPL, its TV rights are with Disney.

“Currently, both platforms have heavy losses due to high content costs, and Jio Cinema relies solely on advertising-based video on demand (AVOD) without significant paid subscriber revenue. Combined Hotstar+ JioCinema may enhance the JV’s subscription revenue by increasing subscription prices and attracting a larger subscriber base,” Elara said.

Trouble For Amazon’s Prime Video, Netflix?

According to a Justwatch report, Disney+ Hotstar maintained its lead in the Indian OTT market with a 24% market share in Q4 2023. Meanwhile, JioCinema held a 6% share. Together, the joint venture will command a substantial 30% market share in the OTT sector, surpassing Prime Video’s 22% and Netflix’s 13%.

Beyond market dominance, the JV can provide a combined package, spanning web series, movies, sports, originals, and a diverse global catalogue. This bundled premium plan, potentially leveraging Jio’s extensive subscriber base, could pose a challenge to global OTT platforms in increasing their average revenue per user (ARPU), Elara said in its note.

It must be noted that international OTT players have struggled to raise subscription fees in India. In fact, Netflix had to introduce a mobile-only plan to attract price-sensitive consumers.

Despite Netflix’s India arm reporting a notable 24% increase in revenue to INR 2,214 Cr in FY23 and a 75% surge in net profit to INR 35 Cr, the challenge posed by the JV could impede its growth trajectory. This could potentially result in reduced investments in content by global players in the Indian market, as per market experts.

Monopoly In Sports

The Disney-Viacom18 JV is also poised to dominate the Indian sports market, accounting for 75-80% share in the OTT sports market. With a strong emphasis on cricket, including the IPL and the tournaments of the ICC and the BCCI, the JV will command a significant share of advertising revenue in an industry where sports drives substantial viewership.

This includes better pricing on advertising and subscriptions, particularly in sports, leading to a sharp reduction in sports-related losses and overall cost rationalisation, Elara said.

Moreover, as Disney+ Hotstar has been highly focussed on live sports since the beginning, it outperforms JioCinema in various technological domains. The platform is particularly adept at offering personalised viewing suggestions through the analysis of users’ viewing habits.

Additionally, it showcases superior capability in flawlessly delivering live content to a considerable number of simultaneous viewers, ensuring a seamless experience devoid of technical disruptions. This will give an edge to the new entity, as per market experts.

However, the RIL-Disney partnership’s significant size grants it heightened bargaining power with content producers and advertisers, which might impact other OTT as well as television players. Hence, experts anticipate that the merger may draw scrutiny from the Competition Commission of India (CCI), potentially requiring divestment of certain TV channels to address antitrust concerns.

While that is yet to pan out, the CCI’s green light to the mighty JV is expected to cause a stir in the country’s $1.5 Bn OTT space, potentially triggering a consolidation wave among smaller OTT platforms.