The irony cannot be missed. In mid-2012, the Disney-owned sports broadcasting network ESPN exited its Asian joint venture ESPN Star Sports, selling its 50 per cent equity to Rupert Murdoch’s Star Group for close to $335 million. Cricket and India had been a losing proposition. Star India stepped in and turned cricket and sports into its growth driver. Five years later, Disney is going to be back in India as the owner of Star and all its cricketing properties like the Indian Premier League (IPL).
For the international entertainment and media industry, it is the mother of mergers. In a deal that will combine two of the biggest players in Hollywood, the Walt Disney Company is buying a huge chunk of Murdoch’s 21st Century Fox (formerly NewsCorp) for $52.4 billion (approximately Rs 3.4 lakh crore). The package includes the flagship 21st Century Fox’s movie studio, regional sports networks, cable channels FX and National Geographic as well as controlling stakes in streaming portal Hulu and the powerful European DTH operator Sky. The deal does not include Fox News.
For the ageing Rupert Murdoch, it’s a case of cashing out when the goings are good, having spent half-a-century building a media empire stretching from the US to Australia. For Disney, it was a move to reinforce its role as entertainment leader and a bid to stop the erosion of its subscription-based broadcast platforms like ESPN to digital rivals such as Netflix and Amazon, who stream directly to consumers.
After merger, which has to pass tough US monopoly regulations and may take a year, the two companies will become an $80-billion powerhouse controlling and tapping every form of entertainment.
India Impact
In India, Disney is the smaller of the two and will probably fold into Star India rather than the other way about. More significantly, Walt Disney has remained a fringe player though it has been operating in the sub-continent for over two decades. Disney’s kids channels, launched in 2004, never acquired much traction. The company’s attempt to set up an independent film studio was a failure too, epitomised in much-hyped animation film ‘Roadside Romeo’ flopping. It, then, took the acquisition route, buying Ronnie Screwvala’s successful movie studio UTV in 2011 for a humungous Rs 2,000 crore.
Star, on the other hand, has emerged as the largest and most successful entertainment company in India with revenues today close to $1.5 billion, with 69 television channels in eight languages, a large portfolio of sports properties, including Pro Kabaddi, and movie-making through the Star-Fox Studios. Star’s holdings also include the successful digital platform Hotstar, and the DTH operator Tata Sky.
A section of the media in India has suggested that of the $52.4-billion acquisition value of Fox properties, Star India could make up as much as $14-16 billion or 25 per cent of the pie! Although fast-growing under the pushy helmsman, Uday Shankar, Star is still a small part of Murdoch’s entertainment empire; using the traditional valuation formula of 2.5 X of revenue, possibly a value of around $4 billion.
Post-merger, Disney will probably shut down its insignificant operations in Star’s old HQ, Hong Kong, while choosing to play along with Star’s growth curve in India. The big decision will be on movie making – whether to allow the Disney’s UTV Studios and Star-Fox studios to separately exist and compete or to merge the two and try and build a single powerhouse.
Anti-Monopoly Challenge
For the merger to be consummated in the US, it is still early days. It is now known which way the Trump administration and the Justice Department will go in respect of anti-monopoly laws. Trump, with his penchant for media-bashing, has campaigned vigorously against media mergers, and the US Justice Department has filed a string of law suits to block AT&T’s takeover of Time Warner.
US media reports suggest that Murdoch, who is now close to Trump, has spoken to the President before the merger announcement and taken his blessings. Trump’s only caveat is: keep Fox News in the Murdoch stable! It is one platform that has supported him consistently. Yet, there is no saying which way the Justice Department will move considering the merger is after all a monopolistic merger.
It will reduce Entertainment’s Big Four – Disney, Viacom, Time Warner and 21st Century Fox – to the Big Three.
The strangest statement on the merger emerging from Trump’s office is that “it is good for jobs”! It is strange because mergers always kill jobs from both sides. In the Disney-Fox case, the two have made it known they want to save $2 billion a year through ‘business efficiency’ – a euphemism for downsizing.
The author can be contacted at gurbir@newindianexpress.com