Specials

The year M&A changed the face of the media and entertainment industry

Both international and Indian market witnessed high-profile deals

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MUMBAI: The emergence of numerous streaming platforms and convergence between technology, media, and telecom companies shook the core of the media and entertainment business globally. Giant tech and telco players, on the back of their direct customer reach, started taking content creation and distribution a lot more seriously. Rapid change in content consumption pressurised traditional players to invest more in technology and focus more on the B2C model. The ongoing flux brought the industry on the brink of instability, leading to consolidation in the form of mergers and acquisitions.

In the last couple of years, the nature of competition in the global ecosystem has witnessed a gradual swing. Organisations like Netflix, Amazon Prime and Google have brought a structural shift forcing traditional players to rethink their approach to content and distribution. Legacy brands upped the ante to attract and retain more consumers even through cross-border deals. PwC India partner Raman Kalra points that everybody in this world of media disruption is trying to be relevant in reach and scale, the two critical factors that are driving deals. To corroborate his thesis, he highlights the AT&T-Time Warner deal where the former, with a huge reach, wanted to scale up its content play with the collaboration.

Closer to home, billionaire Mukesh Ambani’s RIL rode the TMT convergence wave better than most. India’s richest man started the year with a bang, intensifying TV18’s stake to 51 per cent by acquiring 1 per cent of Viacom18’s equity from Viacom Inc. for a cash consideration of $20 million. The RIL-owned Jio Infocomm also acquired a controlling stake in two large MSOs – DEN and Hathway – building ammunition for its FTTH’s foray. That’s not all, RIL also pocketed a small but significant five per cent stake in Eros International.

E&Y media and entertainment advisory services partner Ashish Pherwani expects more deals to materialise in 2019.

“Especially technology-driven deals because so many changes are happening in that space, and consolidation, led by inbound investments. There are three types of deal. One type of deal is happening in order to build efficiency and scale in the business, led by cost pressures. Another type of deal is around relevance and market share - to get a bigger slice of the market to monetise a larger base of consumers.  The third type of deal which is happening is basically technology driven - for access to technology that could drive competitive advantage in the digital future. Hence, the three reasons market share, efficiency, technology are driving the deals,” he adds.

There were other interesting deals struck through the year that are likely to reshape the media and entertainment business going forward.

Birth of the world’s second largest DTH company

The Indian market wasn’t exempted from the global merger frenzy. The coming together of two large DTH operators - Dish TV India and Videocon d2h – was finally concluded this year, creating the largest DTH service provider in the country with a subscriber base of about 29 million. Apart from leveraging their individual strengths, it was expected that the combined entity would benefit from economies of scale. One of the biggest attractions for Dish TV as the acquirer was Videocon’s significantly higher average revenue per user (ARPU). Significantly, the combined entity’s ARPU was Rs 207 in the second quarter as opposed to Dish TV’s standalone ARPU of Rs 144 pre-merger. The deal also helped Dish TV position itself better when it came to negotiating with broadcasters.

Decks cleared for FTTH warfare

From formally launching FTTH service Jio GigaFiber to acquiring majority stakes in two large MSOs to speed up the rollout, the Mukesh Ambani-led Reliance Jio was definitely the centre of attention in 2018. Reliance Industries Ltd (RIL) made an investment of Rs 2,290 crore for 66 per cent stake in Den and Rs 2,940 crore for 51.3 per cent stake in Hathway. It will save RIL the cost of reaching out to customers as well as making the last mile connectivity easier in its ambitious bid of seizing control over India’s wired broadband business. With the launch of its telecom service, RIL gave rise to what many call ‘digital democratisation’. As the Jio juggernaut marked its entry into India’s multi-billion-dollar cable TV and DTH businesses, traditional players eyed the development with a healthy mix of scepticism and optimism.

Rivals joined hands

The Indian telecom sector this year saw the marriage of two giant companies, creating the country’s largest telecom company. In the month of August, Vodafone India and Idea Cellular completed the merger after getting approval from National Company Law Tribunal (NCLT). The consolidation of India’s telecom sector was a direct result of Jio’s relentless pricing war. Post the Idea-Vodafone deal, India’s telco business now comprises of just three players. Analysts expect the combined entity to yield better coverage than before as it would have access to a more robust ecosystem of cellular towers. COAI also believes that as competitive pressures drive consolidation, customers and the industry stand to benefit from the greater stability and better networks which will emerge. Surprisingly, a few years ago, the Indian telco sector had 13 operators.

Bansals became billionaires

Walmart gained a strong foothold in India’s this year as it completed its much-talked-about $16 billion acquisition of the country’s largest e-commerce company Flipkart. Poster boys of India’s start-up community Sachin and Binny Bansal became billionaires in a big win for Indian talent and home-grown businesses. Despite protests from traders across the country, as the deal could potentially harm their business, the Competition Commission of India (CCI)’s green signal came earlier this year. The biggest e-commerce deal globally bolstered Walmart’s repertoire in its war with Amazon internationally. With India being one of the most attractive retail markets in the world, a strong play here is bound to further boost the American behemoth in a rapidly changing environment.

Times Group joined the streaming sweepstakes

With almost major broadcasters and media companies trying to grab a slice of the hottest piece of the M&E business – OTT, the Times Group too jumped on the bandwagon. To get a stronger foothold in the space, Times Internet invested over Rs 1,000 crore to acquire a majority stake in video playback app MX Player. According to media reports, the company will introduce a streaming service within the app. The large cross-border deal which surprised the industry will definitely help Times Internet in the OTT race thanks to the huge base and popularity of MX Player in south Asian countries. With over 30 OTT players vying for consumers’ attention in India, the game has just begun with enough opportunities for new platforms. Earlier in the year, MX Player content head Gautam Talwar had told Indiantelevision.com that like many other OTT platforms, MX Player too wants to tap into the millennial audience. It wants to cater to users with 50,000 to 100,000 hours of premium curated licensed content along with a high focus on originals, he further added. 

The telco takeover

Giant wireless carrier and telco AT&T’s acquisition of content powerhouse Time Warner is just one example of how the lines between distribution companies and content creators are blurring. With the $85 billion deal, the telco gained ready access to the content pool of CNN, HBO, and Warner Bros.

“Under the terms of the merger, Time Warner Inc shareholders received 1.437 shares of AT&T common stock, in addition to $53.75 in cash, per share of Time Warner Inc.1 As a result, AT&T issued 1,185M shares of common stock and paid $42.5B in cash,” said AT&T providing the financial details of the deal.

Though the deal was first announced in 2016, it had to negotiate past several subsequent legal hurdles. The Donald Trump-led US Department of Justice (DOJ) even filed a lawsuit against AT&T and Time Warner to block the proposed merger. Following a six week trial, a US district court approved the deal without any conditions on 12 June and also urged the government to not seek any stay. The main argument of the US administration was that the merger would hand over too much power to AT&T, making the market less competitive.

A once-in-a-lifetime deal

Another blockbuster deal that came through this year was the $71 billion acquisition of 21st Century Fox assets by Disney. After a long and sustained bidding war with Comcast, the Mouse House got its hands on much of the Murdoch empire. “Combining the 21CF businesses with Disney and establishing new ‘Fox’ will unlock significant value for our shareholders,” 21st Century Fox executive chairman Rupert Murdoch said. The shareholders of both the companies approved the deal immediately, with foreign approvals and regulatory reviews now the final procedural hurdle.

Disney is now in pole position to take on streaming giants like Amazon and Netflix with its OTT Disney+. The company has also already indicated its desire to stop licensing content to Netflix by ending the deal in favour of its own B2C service. Moreover, Disney now has majority control of Hulu, Endemol Shine Group and Star India, making it the most powerful content owner in the world. The reaction to the growth of OTT services has clearly shown that joining forces with rivals and competitors is not unacceptable anymore to survive in the market.

Second time lucky

After a failed attempt to buy 21st Century Fox, US cable giant Comcast won the bid for European entertainment biggie Sky. The former sealed the deal for a controlling stake in the British broadcaster with a winning bid of $40 billion. Analysts said that Comcast and Sky would become the biggest private sector provider of pay TV in the world with 52 million customers. Given the vast reach and growing customer base of Sky in Europe, Comcast took the step to expand its international business with it losing ground in the domestic market. This deal was a direct effect of cord-cutting as Netflix’s growth in the US has posed a major threat to the likes of Comcast. According to an analysis from Ampere, post the media mega-mergers of Comcast/Sky and Disney/Fox, two in every 10 dollars spent on content worldwide will now be spent by these two entities.

The merger madness from 2018 is likely to continue in 2019, as corroborated by experts we spoke to. Not only would it be interesting to track which companies opt for consolidation, but 2019 will also give us a sense of how the deals from 2018 take shape and play out.

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