India’s Reliance stands to benefit from failure of Sony-Zee deal

BENGALURU — The recent collapse of Sony’s bid for Indian broadcaster Zee Entertainment has helped clear the way for billionaire Mukesh Ambani as he seeks to dominate the entertainment industry of the world’s most populous country.

Ambani’s Reliance Industries is negotiating a deal to merge its entertainment business with Walt Disney Company India, according to people familiar with the discussions. Reliance is slated to hold a majority stake in the merged entity, but key aspects of the transaction have yet to be concluded, they said. The value of Disney’s stake is expected to be lower than it was at the time of its acquisition in 2019.

Ambani’s bet on Indian entertainment is risky. India’s burgeoning population has long been a draw for global entertainment companies. But the reality on the ground is discouraging. Television advertising revenue is shrinking while the battle for digital advertising is intensifying.

Ambani’s hope is that Reliance’s financial heft will enable it to buy out rivals and assemble an enviable content library that will draw more consumers to his TV channels and streaming app, and give him sufficient market share to dominate negotiations with advertisers and production houses.

The proposed merger with Disney would help Ambani create India’s biggest television company. Disney’s Indian market share is about 25%, according to Vivekanand Subbaraman, a research analyst at Ambit, an investment company. In its annual report, Reliance put its share at 12%. The comparable figures are 17% at Zee, according to the company, and 8% at Sony, according to Subbaraman.

“With consolidation in market share, bargaining power will move from content creators and advertisers towards platforms,” said Karan Taurani, senior vice president at Elara Capital, an investment company. “Currently, the bargaining power is heavily skewed against the platforms, because there are too many of them.”

Late last month, Sony dropped plans to create a $10 billion media company by merging its Indian subsidiary with Zee. People familiar with the matter said Sony grew uncomfortable about having Punnet Goenka, chief executive of Zee and son of founder Subhash Chandra, at the helm of the merged entity. India’s market regulator has been investigating allegations of fund diversion by Goenka and Chandra.

The proposed deal with Disney is typical of Ambani, who reaped rich dividends in the retail and telecom sectors by making big investments when business conditions deteriorated and competitors turned frugal.

In recent years, Reliance has outbid both Sony and Disney for the broadcast rights to popular cricket tournaments. In 2022, it clinched the streaming rights for the Indian Premier League for $3 billion. It spent $731 million last year for broadcasting and streaming rights for the national cricket team’s matches.

By acquiring the rights to broadcast cricket matches and other popular shows, Reliance hopes to gain sufficient television market share to dominate negotiations with advertisers and production houses.    © Getty Images

Another display of Ambani’s bullishness on broadcasting came last year when Reliance increased its commitment to Viacom18, its entertainment unit, by six times to $1.3 billion after a key investor, James Murdoch’s Bodhi Tree, cut its proposed investment from $1.78 billion to $528 million. Reliance also paid Warner Bros. about $120 million last year for Indian streaming rights of the network’s shows and announced 100 new shows and films without specifying a timeline for their release.

“Reliance has a lot of money, no question about it,” said Kunal Dasgupta, former chief executive at Sony’s Indian entertainment arm. “It is a really serious player in the market, and… building itself up very well.”

Ambani’s push for market supremacy follows a decline in Indian TV advertisement revenues from 320 billion rupees in 2019 to 318 billion rupees in 2022, according to EY, a financial consultancy. TV subscription revenues slumped 16% during this period to 392 billion rupees.

In the fight for digital advertising, the market shares of streaming services are only expected to rise to 8% in 2025 from 6% in 2022, EY estimated. The market share of ecommerce companies like Amazon and Flipkart will jump to 20% from 14% during that period while internet search companies like Meta and Alphabet will retain 64% of revenues, down from 70%, EY said.

“We are looking at companies that have really been put through the stress test, and there is elevated competition because of Reliance’s aggression,” said Ambit’s Subbaraman. “Reliance has the staying power to perhaps think about this beyond the next 18 months or 24 months.”

The challenges in India were highlighted by Disney chief executive Bob Iger in an analyst call in November. Iger said while the TV segment in India “does quite well… we know that other parts of that business are challenged for us and for others,” referring to streaming. Disney’s streaming app lost 20 million paying users in the year to September 2023 after it lost its bid for the rights to IPL cricket.

Iger said Disney, which wants to cut $5.5 billion in costs in the next few years, would like to stay in India, but the company is “considering our options there.” Disney’s Indian revenues grew 6% on the year in the fiscal year ending March 2023 to 198.56 billion rupees, but profits shrank 31% to 1.27 billion rupees. Revenues surged 38% and profits 74% in the 2022 fiscal year.

At Network18, Reliance’s media arm, revenues surged 6% year on year to 62.23 billion rupees in fiscal 2023, but losses were 840 million rupees. Sony posted flat revenues at 66.84 billion rupees while profits jumped 11% to 10.42 billion rupees.

While Sony is unlikely to match Reliance’s spending, it will be looking to deploy the $1.5 billion that it had committed to invest if the merger of its unit with Zee had gone through, said Dasgupta, its former India head.

“Sony has a big war chest, and it will not give up the market so easily and will obviously look for new partnerships,” said Dasgupta. “I feel at the end of the day Reliance will be a very significant player, a very big player, a very profitable player — but not the only player.”