Dial M for Mukesh

Ahead of the inauguration of the first Disney entertainment park in Anaheim (California) in 1954, the company’s illustrious founder Walt Disney is believed to have said “...it all started with a mouse”. Many continents away in India, the saying in the media and entertainment industry for the past two decades could well be that it all started with cricket. 

And so did the story of the Reliance-Disney merger. While the blueprint for the mega deal was being drawn up by top executives at Reliance Industries (RIL) and Uday Shankar, former Disney India boss and a board member at Reliance-controlled Viacom18 Media; caught between two Bobs—Bob Iger and Bob Chapek—and a writer’s strike in Hollywood, Mickey Mouse did not know where the rollercoaster ride would end.

Months before Iger was brought back from retirement to replace Chapek as the head of Disney in November 2022, its India operations let go of the digital rights to the Indian Premier League (IPL). Bought by Viacom18 at a whopping $3 billion, the surprise was not at the bid value but at the free screening of the matches on JioCinema, a streaming service owned by Viacom18. 

Shankar knew it was the end of Disney’s control of Hotstar in India. 

“Jio has been disrupting the digital space aggressively over the past two years with their OTT offering JioCinema. They acquired the FIFA World Cup 2022 rights and streamed it for free. They did the same with the IPL in 2023. Through this undercutting strategy, they were broadening the number of advertisers and making it difficult for the TV rights holders,” says Lloyd Mathias, a Delhi-based business strategist and independent director. 

Once Viacom18 started streaming the IPL for free on its platform, Disney+ Hotstar witnessed an exodus of its hard-earned digital subscriber base. Not only did it hurt Disney Star’s valuations, but it also skewed the streaming industry towards an ad-driven revenue model. This is at the crux of RIL’s strategy to use its scale and dominate India’s $28-billion media and entertainment (M&E) industry. 

The Ambani camp, led by Shankar, had been plotting the acquisition of Disney’s India assets for some time. Initial speculations made way for the deal to be finally announced in late February this year. And with that, nearly one-third of India’s TV viewing audience, half of the over-the-top (OTT) streaming viewership and almost all of the cricket broadcast space will fall into the hands of the Reliance-Disney combine. 

The result will be an M&E giant the likes of which the Indian market has never seen before. With an effective 63% stake in the $8.5 billion worth new entity, RIL and its chairman Mukesh Ambani are all set to become the main movers of India’s media sector in the coming years. All the important segments in the media industry, from content production to distribution channels, will witness the overwhelming presence of RIL. 

In hindsight, the consolidation playbook employed by the RIL chairman is easily reminiscent of the one used by his father Dhirubhai Ambani in building RIL’s petrochemicals business. 

But while his father’s method of integration was gradual and backwards, Mukesh Ambani decided to shake things up a bit. In the fast-changing media industry that sees regular churn due to technological disruptions, Mukesh went about forging new partnerships and acquiring established players in a seemingly haphazard manner.  

As a result, the length and breadth of his new empire is not easily defined, and its boundaries where it meets other businesses in his conglomerate are often blurry. But these grey areas also hold the key to various synergies that can pose challenges to all its competitors, even the operations of Big Tech companies (read Google and Meta) in India. 

Opening Up the Digital Game

In the past hundred years, two significant shifts are evident in the media industry in India. First is the replacement of regional print media barons with pan-national TV moghuls. The Rupert Murdochs of the world emerged with this shift. The second one is the rejigging of ad revenues with Big Tech companies overtaking TV broadcasters. 

Now, in India, we see the rise of a new model. 

By tying together telecom, linear TV, digital content delivery platforms, ecommerce and many more consumer-facing segments with its in-house advertisement technology system, Ambani’s RIL can now combine the might of traditional media with the potential of big data. Once again, Ambani stands the chance to pioneer new businesses in a fast-changing world. 

In May 2014, when RIL announced its takeover of Network18 Media and Investments, it seemed as if it was yet another case of a corporate intervention in media. There were various theories on Ambani’s supposed attempts at curtailing press freedom and protecting his businesses from the prying eyes of media. By infusing Rs 4,000 crore into Network18, the billionaire was orchestrating the biggest media takeover in the country’s history. He was also entering a line of business that his father had earlier denied being interested in.

But for Ambani, it was just one aspect of a mega dream he has been harbouring for a while. As he said in the 2014 RIL annual general meeting, “[the acquisition will] differentiate and strengthen our 4G business at the unique intersects of telecom, web and digital commerce, and the media through a suite of premier digital properties”. For RIL, it was not just a media asset to control, it was the starting point of a vision bold enough to target all of India’s burgeoning population.

Over the next few years, RIL roiled the telecom sector by waging an aggressive price war and killing most of the competition. With India’s telecom services tariff remaining the lowest in the world, Reliance’s Jio heralded an era of cheap high-speed internet and increased smartphone usage. While this has had an adverse impact on the return on capital employed (RoCE) by Jio, and its main competitor Bharti Airtel, it also set the stage for a vast online market that RIL now seeks to conquer from multiple fronts. 

Besides expanding its telecom and broadband reach, RIL and its subsidiaries also scooped up dominant stakes in a variety of products ranging from audio streaming platforms to cable distribution. But it was RIL’s decision to increase its control over Viacom18, which was earlier half-owned by global media major ViacomCBS (now Paramount Global), that gave the first clear indication of its mega media ambitions. 

Between 2018 and now, RIL and its subsidiary networks increased their holding in Viacom18 from 50% to almost 84% in a series of transactions. The latest of these transactions was announced in March this year when Paramount Global decided to sell its 13% equity stake to RIL. The remaining stake is held by Bodhi Tree Systems, backed by Uday Shankar and media tycoon James Murdoch, with the former now being named the vice chairperson of the combined RIL-Disney entity. 

So, Shankar returns to the 37th floor of Urmi Estate in less than four years of leaving that building as the chairperson of Star and Disney India. In most of these intervening years, he and those at the helm of Viacom18 were critical to RIL’s plan of making Disney’s India operations an economical acquisition. According to industry estimates, Disney Star India’s valuation came down from $10 billion to approximately $4 billion in a matter of less than five years. In those intervening years, RIL used its JioCinema streaming app, housed under Viacom18, to severely undercut the OTT market. That’s where Disney’s popular streaming app Disney+ Hotstar, the then market leader, fumbled. 

Eyes on the Ad Money

Across the world, cord-cutting is a growing phenomenon wherein media consumers move away from traditional cable TV and opt for online streaming services. Prominent OTT services like Netflix and Amazon Prime largely follow the subscription-video-on-demand (SVoD) model which is dependent on users’ willingness to pay a subscription fee. Given the unique dynamics of the Indian audience, foreign OTT operators have so far found it difficult to crack this streaming market. 

“SVoD services are considerably cheaper in India than in other parts of the world. The ARPU [average revenue per user] for SVoD in India is $0.5 per month. In comparison, it is $10.7 in the US, $8.5 in the UK and $2.3 in other large developing markets such as China,” says Orina Zhao, a senior analyst at Ampere Analysis, a UK-based data and analytics firm focused on the media sector. According to Zhao, the low ARPUs of SVoDs are reflective of Indian consumers' reluctance to pay and the industry’s focus on subscription acquisition over profitability. 

In fact, to retain some of its audience that was fleeing towards JioCinema’s free-to-watch cricket offerings, Disney Star also gave in to the free-streaming model. Consequently, Disney Star’s sports business suffered an operating loss of $315 million for the quarter ended December 2023 after streaming the ICC Men's Cricket World Cup 2023 for free. 

As for Viacom18, its free streaming model helped its position with respect to advertisers. “Now with Disney and Reliance coming together, you suddenly have almost 50% of every digital eyeball between both their platforms. You now have this giant that has the privilege of controlling and commanding the advertising rates. In a scattered market, advertisers had the edge. Now, they have no choice but to get to this vehicle to be able to reach the people they have to reach,” says an industry source requesting anonymity. 

Pushing up the subscription fee is something that foreign-owned OTT players have struggled with in India. “Netflix has targeted India for many years but has only managed to accumulate around 8 million subscriptions by 2023 after consecutively reducing prices and introducing cheaper mobile-only and mobile-plus plans,” points out Zhao.

Although RIL can now afford to make a push for subscription revenue, the industry source, quoted earlier, suspects the conglomerate would refrain from it for a while. “From a Reliance perspective, they will want to kill the competition first. So, they will keep the prices affordable or free wherever required until everybody else is dead,” he says.

On April 25, JioCinema introduced an ad-free viewing experience starting at just Rs 29 per month, continuing the RIL strategy of cheap pricing for its digital services.

RIL’s decision to go ahead with a digital-first model that is dependent on ad revenue makes sense because of how the ad market has changed. According to Pitch Madison Advertising Report 2024, TV’s share of overall ad expenditure fell from 42% in 2020 to 33% in 2023. While this is expected to decrease further in the coming years, digital will gradually acquire most of the pie, in line with global trends. 

Other than consumer reach and ad revenue maximisation, the merger could also see the combined entity reaping benefits on the content acquisition side of the business. Competing OTT players like Netflix, Amazon Prime, SonyLIV and ZEE5 would definitely feel the pinch. 

“For anyone seeking eyeballs, Jio+Hotstar will be a must-get, which will give them significant pricing pressure advantage when it comes to content acquisition. While this is good in a way—as content acquisition prices had gone into the stratosphere with the glut of money being spent by Prime and Netflix—it could also lead to a squeeze in the other direction which could potentially affect content quality,” says Utkarsh Sinha, managing director of Bexley Advisors, a boutique investment bank focused on the tech and media sectors. 

Given its appetite to digest short-term operating losses, RIL will feel reasonably comfortable about where its media empire is headed. With the Disney Star operations in its kitty, the new entity boasts of a combined revenue of Rs 25,000 crore for 2022–23. Not only is it far ahead of its peers in the linear TV and OTT segments but it will also emerge as a key player in the advertising space. This brings Ambani’s media empire face to face with Google and Meta, the two California-based technology companies which enjoy a virtual duopoly in the global and Indian ad market. 

First of its Kind 

In 2022–23, Google’s gross ad revenue from its India operations was Rs 28,040 crore while that of Meta stood at Rs 18,308 crore. While its proprietary search engine and video giant YouTube drives ads for the former, it is the social media network of Facebook and Instagram that does the trick for the latter. The seemingly unstoppable rise of the tech duo has been a cause of headache for traditional media world over. 

If the disruption of the ad market by Google and Meta over the past decade or so has to be narrowed down to a single factor, it would be ‘high-intent exposure’. Search engines and social media networks provide advertisers with the ability to identify users who have a high intention to purchase something and target them with specific ads. This was not possible in a newspaper or a TV channel because personalised user data was not available. This is where traditional media lost to Big Tech.

But RIL now stands the chance to change that. With data points on 467 million telecom subscribers, Reliance Jio is already at an enviable position when it comes to accessing first-party user data. Google Chrome’s ongoing phasing out of third-party cookies makes this data more valuable in the world of digital marketing and advertising. The presence of an in-house advertising tech platform—Jio Ads—adds more colour to this. 

Jio Ads, just like the conglomerate’s telecom operations, is housed under Jio Platforms (JPL), which analysts expect to make a public listing next year. On its LinkedIn profile, the company states that it can help businesses connect with hundreds of millions of Indian consumers. The merger with Disney Star India will now give a multifold increase to its digital consumer reach. 

RIL’s own adtech platform can turn out to be huge strength for the conglomerate, says the industry watcher who has two decades of experience in the field. He says, “They will become like the advertising giants of the country because telecom itself gives them so much data, and now they have the media consumption data as well. So, their entire understanding of the customer persona can be extremely high.” 

JPL declined to comment on the story.

But more than consumer data, of which Jio had already amassed a lot, it is the content catalogue from Disney that makes RIL flex its muscles in the ad market. “Nearly all telecom companies around the world are trying to figure out ways to get into the advertising space, but they have not been able to do it because even though they had data, they could not use it due to lack of attractive inventory,” says Neeraj Sharma, managing director, growth markets media lead at Accenture, a consultancy. Reliance Jio’s inventory issue now gets a monumental fix in the form of Disney’s acclaimed properties such as Marvel Entertainment and Pixar Animation Studios, along with Star India’s domestic content.

When it comes to sports content specifically, the Reliance-Disney entity can become a virtual monopoly, given its hold over the most prolific cricket tournaments besides other sports properties like Indian Super League and Pro Kabaddi League. “I think that will give them negotiation power. That might be detrimental to advertisers because it will be more of a take-it-or-leave-it situation with two of the most-watched OTT or sports channel conglomerates having come together. They can dictate terms, and we will have to see how that works,” says Prashant Puri, chief executive and co-founder of AdLift, a global digital marketing agency. 

Viacom18 did not respond to a detailed questionnaire sent by Outlook Business.

RIL also has an extensive physical and online retail presence that provides another dimension to its endpoint connection with the country’s customer base. According to a report from Bernstein, a brokerage, RIL’s retail business is in a good position to become ecommerce market leader as well. This is important because when it comes to global ad markets, ecommerce giants like Amazon often end up the third most preferred platform for advertisers after Google and Meta. In India, even that tendency would only end up in favour of the Ambani conglomerate. 

“According to the latest Indus Valley report by Blume Ventures [a venture capital firm], out of Rs 78,320 crore of digital media, 18% goes to retail media. So, at around Rs 14,000 crore, retail media is almost as big as Google’s search business and equal to the print business,” says Anil Pandit, executive vice president at Publicis Media, a multinational advertising company. 

For advertisers, this combination of retail and conventional digital media offers a unique option of performance measurement and attribution. RIL’s presence in diverse sectors creates synergies cutting across business lines, says Mathias, the business strategist. “For making a purchase on retail, I need to have some degree of media stimulation. I might have to see some ads. That is where Reliance will play to its advantage. Jio Ads then becomes a pan-Reliance platform that can be stretched across Reliance's retail outlets—both online and offline, across its media and entertainment channels, with telecom [Jio] at its core,” he explains.

It is important to note here that RIL’s attempt at a cross-sectoral play of telecom, media and retail is unprecedented at the global level. While the likes of American multinational Comcast and Japanese conglomerates Sony and Rakuten have involved themselves in multiple sectors adjacent to media, RIL’s play across retail, telecom and media has no parallels.

“The moment you advertise on a multi-platform model, especially if you are a large advertiser, your return on ad spend starts going up,” says Accenture’s Sharma. From a consumerist perspective, this can also lead to better activation rates, i.e. for ads to convert into sales. "Because you see the ad at multiple touchpoints, the conversion ratio also becomes better. This phygital [physical plus digital] aspect is going to be very important. This is an opportunity that pure-play digital platforms do not have,” he adds.

This phygital aspect also differentiates RIL from Big Tech operators like Meta and Google. Notably, both Meta and Google are investors in JPL and together account for 18% of the firm’s equity. Talking about this strategic investment, Puri says, “So, you already became friends with the ones who can throw a spanner at your head. That much is clear.” 

RIL’s media behemoth cannot be viewed as a straightforward competitor to Big Tech interests. Instead, it takes strategic backing from the likes of Meta and Google and adapts it to the Indian market that it knows at the back of its hands. “If you look at Jio Ads' interface, it is similar to other platforms like Meta and Google. I think what they bring to the table would be quality. They can work on how best to get through to the non-English speaking, Tier-II, Tier-III circles,” says Puri. As a result, it creates a novel tech-media entity that can latch on to any new opportunities that the market throws up. 

An Ever-Evolving Market

While Jio has embedded itself into most points in the internet carrier-to-content pipeline, there are still some missing spots that are likely to be on the conglomerate’s radar. Despite its vast catalogue of content, ranging from sports and general entertainment to marquee properties like Warner Bros Discovery and NBCUniversal, RIL is unlike Google and Meta when it comes to access to user-generated content. In an age where influencer economy runs into billions in revenue, the Big Tech duo is right on top of the game with YouTube and Instagram. Can RIL ever break into this segment? 

“Creator economy is a massive opportunity now. Reliance-Disney is not there now but if you have eyeballs of 400–600 million people, all this money and all this game is about hyper personalisation in digital platforms. That is where the future is,” says the industry source. He reckons that any entry into user-generated content will require RIL to work with a countrywide blockchain network that will ensure data security and allow participants to gain some personalised business. “It is a no brainer that for RIL to get into that space, they will have to evolve some of these models for the next leap of growth,” he adds. 

For some years now, Mukesh Ambani has been talking about the setting up of a pan-India blockchain network that will be complemented by the conglomerate’s presence in data centres and computing power.  

No matter what new avenues RIL opens up in the coming years, the conglomerate has two strengths that most of its competitors cannot access: data sourcing and pricing power. The former will ensure that none of its businesses have any dearth of consumer data, and the latter gives it the ability to undercut any market it seeks to dominate.

But the concentration of content, distribution and ad market power in a single entity will have significant spillover effects on the broader market dynamics. There were consolidation efforts at play even before the Reliance-Disney merger was announced. A merger between Zee Entertainment and Culver Max Entertainment (Sony) was called off earlier in january this year after a merger deal was signed in December 2021. 

Such a consolidatory wave will require foreign-owned SVoD operators like Amazon Prime and Netflix to “consolidate, acquire or ally” with other players in the ecosystem to remain at a competing level as well. “Media in India is going to be a very critical flagship market. But the only thing is that people have to take a 10-year view on media to survive. You need to control the eyeballs at scale in this country. From an opportunity standpoint, it has to be a meaningful percentage of this 1.4 billion if you want to make something out of it,” says the industry source quoted earlier. 

From where we stand now, RIL’s media empire seems to have much more than a 10-year view. It is arming itself on so many fronts that those who fear the monopolisation of the media sector will have a tough time keeping up with all the possibilities that RIL can conjure in the coming years. 

A Screen Test for Tomorrow

With the Indian M&E industry largely depending on ad revenue over subscription charges, RIL’s strength lies in its large array of ad monestisation tools. However, far from the Urmi Estate offices of RIL and Viacom18, a small group of bureaucrats and lawyers in New Delhi might have a problem with this. At its office in the capital, the Competition Commission of India (CCI) is tasked with scrutinising the mega merger deal. 

Within RIL and Viacom18, sources say that there is palpable nervousness around how generously the competition watchdog will view their merger ambitions. After all, in terms of anti-competitive risk, this deal is quite unlike any other merger and acquisition RIL has made in the media sector. “Since this JV [joint venture] will garner high shares in multiple media markets—viz. broadcast audience, broadcast channels, broadcast advertising and online VoD—this time round, CCI will have to up its game, and bring nuance to their examination,” says Vibodh Parthasarathi, an associate professor at the Centre for Culture, Media and Governance, Jamia Millia Islamia, Delhi. 

From RIL’s perspective, its lawyers will have to argue that its dominance of certain markets will not easily translate into possible abuse of dominance. 

One key aspect that deserves tight scrutiny is the hold that Reliance-Disney will have over ad rates, especially given their near monopoly in cricket content. “In the event that they [RIL-Disney] are not able to make out a case in their favour, then there will have to be some sort of a limitation imposed by the CCI. Like, CCI will say that they will revisit this question one or two years into the merger operating,” says Abhishek Malhotra, managing partner at TMT Law Practice.

It will be interesting to see whether any of RIL’s competitors in the broadcast, telecom or advertisement businesses would be willing to argue against the Ambani-owned conglomerate’s potential anti-competition capabilities in the ad market. 

“The abuse of dominance in the advertising market is generally hard to demonstrate since transactions between advertisers, agencies and broadcasters are in the private domain. Consequently, the JV’s overwhelming dominance in the TV ad market is unlikely to come to the CCI. Unless, of course, the participants in these markets talk about the constraints they face—as some of them have done in light of Google’s overwhelming dominance of the online news market,” Parthasarathi points out.

The final decision on the RIL-Disney merger will be a landmark judgement, given that the combined entity will have unparalleled scale. It is, in a way, Mukesh Ambani’s audition tape for the role of a cross-sectoral digital emperor. Whether he gets the role or not will decide the future contours of the Indian mediascape. 

Despite India’s economic growth and the size of its M&E industry, several foreign behemoths have failed to succeed in the subcontinent. The Ambani edge? As Uday Shankar often says, it takes an Indian to understand Indians.