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Disney is trying to salvage its Indian dreams

Analysis by Diksha Madhok, CNN

New Delhi (CNN) — The next few weeks could shape the future of Walt Disney in the world’s most populous country.

The Star India network was among the crown jewels Disney (DIS) acquired when it bought most of 21st Century Fox from Rupert Murdoch for $71 billion five years ago.

With that blockbuster deal, the Magical Kingdom took over Fox’s business in India, gaining a new audience of more than 700 million people in the South Asian country, one of the world’s hottest media markets.

But Disney hasn’t had the happily ever after it was hoping for. CEO Bob Iger admitted in an earnings call late last year that “parts of that business [in India] are challenged for us.”

The House of Mouse was hit particularly hard in 2022 after it lost the digital rights to stream the hugely popular Indian Premier League (IPL) cricket matches to billionaire Mukesh Ambani’s conglomerate.

The US company is now trying to salvage its India dream.

Disney and Ambani’s Reliance industries are reportedly discussing combining their Indian media businesses to form an entertainment behemoth in which the Indian tycoon would have the upper hand.

The companies have appointed law firms and started antitrust diligence on the merger, Reuters reported last week, citing unnamed sources. Ambani’s energy-to-telecom conglomerate would own 51%, and Disney would hold the remaining 49%, The Economic Times had reported in December, citing unnamed sources. The merger is likely to be completed by next month, the Indian newspaper added.

Disney did not respond to CNN’s request for comment, while Reliance declined to comment.

Disney’s search for a partner in the world’s fastest growing major economy comes at a time when the Burbank-headquartered company is facing a range of problems on home turf too.

Like its competitors, the 100-year-old Hollywood stalwart faces an uncertain environment in the United States as viewers increasingly tune out linear TV in favor of TikTok and YouTube. But Disney has been hit particularly hard by some big misses at the box office and corporate upheaval.

Iger said in November that the company is “looking … expansively” in India and “considering our options there,” but also added that he would “like to stay in that market.”

The lukewarm star

It’s easy to see why. With its relatively free market and vast English speaking population, India is an attractive country for global entertainment companies.

Prime Minister Narendra Modi’s government expects the nation soon to become the world’s third largest media and entertainment market, from fifth currently. With its Fox acquisition, Disney was served that market on a platter.

Star India had built its vast audience by spending billions on the rights to broadcast some of India’s biggest sports, including the country’s national obsession — cricket. In 2017, it beat Facebook (META) and Sony (SONY) to a $2.6 billion deal for five years for the IPL, one of the world’s most valuable sports properties.

The network’s other big advantage was its local content. In a country where nearly two dozen languages are spoken, Star India offers over 70 TV channels in 9 languages.

Still, Disney has struggled to seize the opportunity.

While its TV business is doing well in India, Iger said in November, the company was struggling in other areas. Its streaming app, Hotstar, has shed millions of subscribers since it lost the IPL rights to Reliance almost two years ago.

In March 2023, Hotstar suffered another blow when it stopped streaming HBO content. Weeks later, Warner Bros. Discovery (WBD), the parent company of both HBO and CNN, moved its content to Ambani’s JioCinema, taking loyal Indian viewers of hit shows such as “Game of Thrones” and “Succession” along with them.

Apart from those losses to Ambani, analysts have questioned Disney’s strategy in India, particularly its aggressive spending on sports.

The company’s “entertainment assets would be attractive to any acquirer or partner …[but] … Disney’s India sports business has faced challenges.” noted Mihir Shah, vice president of research firm Media Partners Asia.

While Disney lost the digital rights for IPL matches in 2022, it did retain the TV rights until 2027 by paying more than $3 billion. It also kept the rights to show the International Cricket Council’s tournaments to 2027 for another “staggering $3 billion,” Shah said.

Financial difficulties for the business will continue in the coming years, “largely attributed to Disney’s aggressive bidding in renewing rights,” he added.

The media giant has also failed to fully capitalize on its streaming service’s “technical prowess” not just because of the loss of IPL but also “limited investments in local entertainment content,” Shah said.

From rivalry to partnership

The American company’s missteps come at a time when competition is intensifying in India — the potential Reliance-Disney deal isn’t the only merger in the works.

Sony and India’s Zee Entertainment have been in talks for over two years to merge their operations and create a $10 billion giant. The fate of that deal is still unclear, but analysts say such corporate marriages will be key to achieving scale and competing with global streaming giants such as Netflix (NFLX) and Amazon (AMZN), which have both established a big presence in India.

“These potential deals are a sign that India’s entertainment industry is entering a phase of consolidation, where only a handful of players with deep pockets will be able operate,” said Aliasgar Shakir, an analyst at Motilal Oswal Financial Services.

In his November earnings call, Iger said Disney not only wants to continue in India, but also aims to “see whether we can strengthen our hand … improve the bottom line.”

Ambani, Asia’s second richest man, with his billions and deepening media ambitions, can help Disney do more than that.

The merged entity would be massive, with over 100 TV channels and two streaming platforms.

“It is too early to interpret this as Disney scaling back in India,” Shah said. “The contours of the deal are still unknown, but it is looking more like a partnership between Reliance Industries and Disney. “

It could also be the start of a power couple that goes beyond media, with industry insiders speculating about a combined push into theme parks.

“We have to remember that both these companies have business interests beyond media and entertainment, and this partnership could be a start of something bigger,” Shah said.

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