Disney's India valuation takes a big hit, down by over half post Reliance deal

The much-awaited announcement on the Reliance-Disney deal is now official. The broad contours have been outlined, with The Walt Disney Company (Disney) set to hold a 36.84% stake in the proposed joint venture – Reliance Industries will hold 16.34%, with the balance 46.82% controlled by Viacom18, a Reliance-owned entity. As a part of the deal, Reliance’s holding is through a fund infusion of Rs 11,500 crore, taking the value of the joint venture at $8.5 billion (Rs 70,352 crore).

Globally, Disney acquired the then Rupert Murdoch-owned 21st Century Fox in mid-2018 for $71 billion and with that came the Indian business, then called Star India. “The overall value reflects a significant reduction in Disney’s valuation, which was estimated at $15-17 billion (media estimates) when Disney purchased 21st Century Fox in March 2019 and also much lower than earlier media estimate of $7-10 billion. Disney’s drop in valuation reflects the growing anticipated losses from its sports business, where rights costs have increased substantially,” says a report from Emkay Global put out today.

If one goes by what the deal now states, the value of Disney’s holding in the new structure will be Rs 25,920 crore (just over $3 billion) or down at least by half from the $7-10 billion. It is important to note that this number is post Reliance’s decision to invest more money in the JV.

For Disney, it has been a hard journey in India. A big setback was losing the digital rights of the Indian Premier League (IPL) to JioCinema, the OTT platform owned by Reliance, who took the decision to air the tournament free of cost. It made a huge dent in Disney’s television advertising revenue in addition to impact its own OTT platform, Disney+ Hotstar. It now holds only the television rights – during the last round of bidding for 2019-22, it won both for an outgo of Rs 16,348 crore and for and the rights for 2023-27 together went for Rs 48,390 crore.

Those familiar with Disney think the new JV is a clear indication of the it not wanting to invest any more money in India. It was in the early 1990s when Disney first entered India. The first decade was spent in a joint venture with the K.K. Modi Group to create Buena Vista Television, with the intention of launching three channels. That plan never took off and business was largely restricted to advertising sales for other networks. By 2001, the two partners struggled to keep the relationship going over Disney’s plan to launch a 100 per cent subsidiary. After the JV ended, Disney, at the end of 2004, launched two kids’ channels—Toon Disney and Disney Channel. It was an indication that more money would be put in.

In mid-2006, Disney acquired Hungama TV and a minority 14.9 per cent in UTV Software Communications. Both the businesses were owned by entrepreneur, Ronnie Screwvala. The stake in UTV was picked up for $15 million and two years later, increased that to 32.1 per cent for around $230 million (the outgo for both was Rs 1,300 crore) and in the process also giving it a 15 per cent stake in UTV Global Broadcasting. In July 2011, Disney made a complete buyout of UTV Software for $454 million (then Rs 2,000 crore).  

Even as the businesses struggled, Disney globally, in mid-2018, acquired Rupert Murdoch’s 21st Century Fox for $71 billion, with the Indian operations (then called Star India).   

What Disney eventually does with its 36.84% holding in the JV will be interesting. Options like Reliance buying it over at a specified date is a possibility or Disney exercising a put option to sell the stock are possible. For now, all eyes are on the next steps as the process unfolds in terms of regulations and approvals. An Indian entity buying over a foreign broadcaster in a mega deal is not common occurrence and this in many ways could be a big moment.