In his second inning, Bob Iger, 72 – who was brought back as Disney CEO eight months ago and has agreed to stay till 2026-end – has struggled to turn around the entertainment giant as its streaming business rakes up losses while legacy TV networks struggle against new-age entertainment.
On July 13, Iger in an interview told a business channel at The Allen & Company Sun Valley Conference in Sun Valley that the Walt Disney Company is reconsidering its approach to traditional TV business and may consider selling a part of it, including ABC and FX networks.
A day before Iger’s interview, the WSJ had written about Disney exploring strategic options for its India business.
ET OnlineA few analysts tracking the firm believe that selling the India business would be good for the media giant’s top line, bottom line, and organisational focus.
Analyst Michael Nathanson of Moffett Nathanson wrote in a note, “We believe fixing Disney’s India mess would be a great start to improving long-term cash flow and profitability.” Some even speculated that funds from such a deal might be used to finance the acquisition of the remaining stake in streaming service Hulu from Comcast.
A high-profile Disney delegation visited India during the recently concluded IPL to take stock of operations, triggering speculation about imminent India exit.
Is the India business really weighing down Disney’s global performance?
In fiscal 2022, Star India generated $2.13 billion (or ‘17,481 crore) revenue, accounting for merely 2.6% of Walt Disney’s total $82.7 billion top line. The company’s net profit of $173 million (‘1,421 crore) represented a mere 5.5% of the media and entertainment conglomerate’s net profit of $3.1 billion.
Star India’s financials are for April to March period while Disney globally follows October to September calendar.
ET OnlineClearly, if just the financial performance is considered, it is too small to matter. In the second quarter ended March, Disney’s dominant linear networks business reported a decline in revenue to $6.6 billion from $7.1 billion a year earlier – which yielded a lower operating income of $1.8 billion, down sharply from $2.8 billion a year earlier. Streaming services, or direct-to-consumer business – Disney+, ESPN+, and Hulu – continues to bleed, reporting $659 million in losses on a $5.51-billion revenue.
ET OnlineContent sales and licencing incurred losses of $50 million, mainly due to underperforming TV SVOD distribution, partially offset by the success of ‘Avatar: The Way of Water’ in theatres. However, parks and experiences segment performed well, reporting revenues of $6.76 billion and an operating income of $1.68 billion.
“Linear business is facing the heat in the US and cord cutting has become the norm,” said Vivek Menon, managing partner of NV Capital, a media and entertainment debt fund. “Somewhere, Disney also feels that there is no point in investing in the traditional business. Their focus is on streaming and that’s where they will devote their investments.”
Disney recently announced a significant restructuring initiative aimed at reducing expenses by $5.5 billion. Of this amount, $3 billion will be achieved through cuts in non-sports content while the remaining portion will come from other non-content costs. It plans to lay off about 7,000 employees.
Clearly, Disney’s problems seem more at home.
That said, on a stand-alone basis, the India business is not without issues and is in a bit of a spot.
Cricket woes but profitable TV
Disney’s India business includes Disney+Hotstar streaming service and Star India TV network, which it acquired from 21st Century Fox in 2019. It also has a 30% ownership in Tata Play (Tata Sky earlier).
Back in the day, Disney was gung-ho about the scale that the India business could achieve, riding a heady mix of entertainment and sports franchises built by Star India. Incidentally, Iger, too, was bullish about Star India at the time of the acquisition of Fox assets in 2017. In 2020, the company publicly stated that it expected Disney+Hotstar to contribute 70-100 million to Disney+’s global subscriber base by 2024.
Ironically, according to analysts, cricket, which was instrumental in the company’s growth in India, is now the Achilles’ heel, taking up substantial investments.
ET OnlineUnder the leadership of former chairman Uday Shankar, Star India spent over ‘40,000 crore between 2012 and 2017 on acquiring cricket rights. This included two cycles of BCCI media rights for ‘3,851 crore (2012-2018) and ‘6,138 crore (2018-2023), ICC media rights for ‘12,000 crore (2014-2023), and IPL media rights for ‘16,147 crore (2018-2022). Additionally, Star India acquired the rights to the Asia Cup, Cricket Australia, and the England Cricket Board (ECB) during this period.
After K Madhavan took charge of the Disney’s Star India business following Shankar’s exit in April 2021, the company has committed upwards of $6 billion (close to ‘50,000 crore) for properties like IPL, ICC and Cricket Australia.
The returns on these cricket investments are a matter of concern after Viacom 18 outbid Star for digital broadcasting rights for IPL, which had a telling impact.
Between October 2022 and April 2023, Disney+Hotstar’s subscribers dropped by 8.4 million following the loss of IPL rights. As of April 1, Disney+ had a paid subscriber base of 157.8 million, of which Disney+Hotstar comprised 52.9 million. In IPL 2023, Disney Star saw its revenue decline by almost half year on year to roughly ‘1,800-2,000 crore. Given that Disney paid ‘23,575 crore for IPL TV rights from 2023-27, every year they have to generate upwards of ‘4,500 crore between advertising and subscription revenue to avoid a loss on this account.
Disney Star has sub-licensed the ICC TV rights to Zee Entertainment’s for $1.5 billion (‘12,000 crore). However, the sub-licescing deal hinges on Zee’s proposed merger with Sony Pictures Networks India. If the merger deal fails to go through, the entire $3-billion liability of the ICC media rights will have to be borne by Star.
On the other hand, Star India’s entertainment business is immensely profitable, generating substantial cash flow annually. The network operates a diverse range of almost 60 channels. Star India holds a commanding 34% market share across entertainment and sports. On an individual basis, the company boasts an impressive 31% viewership share in the entertainment segment.
ET OnlineOutlook
Iger will need both time and funds to turn around the Disney business, and a potential India business sale could help generate funds. But, experts ET spoke with said selling India business won’t make strategic sense for Disney.
“It makes sense for Disney to stick it out in India and turn around the company,” said Kunal Dasgupta, former CEO of Sony’s broadcast business in India. “The media sector is now going through a tough cycle, but things will improve going forward.” Also, Dasgupta said, given the exorbitant valuations, Disney will find it difficult to find a buyer in India. “In any case, because streaming is the future, the majority of media firms and investors globally are interested in it,” he said.
According to Nathanson, Disney has two apparent options for its India business. Firstly, they could turn to the newlvy established joint venture led by their former executive (Uday Shankar), and form an even stronger partnership that would de-consolidate India’s results and place the asset in more capable and strategic hands.
“We believe there is also a likelihood of Viacom 18 (73% owned by RIL/TV18, 11% TV ad market share), the third largest broadcaster after Zee/Sony and Disney, becoming a strategic partner with Disney India as the former is aggressively seeking to make inroads in media segment,” said Karan Taurani, senior vice president, Elara Capital.
Alternatively, Disney could explore a potential partnership with Sony, which already has a significant presence in India. Disney in India has also been on the lookout for a buyer for its 30% stake in Tata Play.
Menon said Disney might not exit India because every media company is bullish about this market.
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