Network18-TV18 and STAR-Viacom Mergers

Network18-TV18 and STAR-Viacom Mergers: A Game Changer for India’s Media Sector

The recent mergers in India’s media industry, particularly Reliance’s acquisition of Network18 and STAR’s merger with Viacom, signal a transformative shift. These deals are poised to reshape the competitive landscape, influencing everything from content creation and distribution to advertising revenues and technological innovations. As digital media continues to grow exponentially in India, consolidations like these enable companies to leverage economies of scale, access larger market shares, and address the challenges of a rapidly evolving industry.

Overview of the Mergers

Network18 and TV18 Merger: Network18, one of India’s largest media conglomerates under Reliance Industries, has merged with TV18 and E18 (Owning Moneycontrol), another Reliance-backed media asset, to consolidate operations. This merger, recently approved by the National Company Law Tribunal (NCLT), creates a more unified structure for Reliance’s media holdings. Network18 operates numerous TV channels under brands like CNN-News18, Colours, and MTV, while TV18 is involved in broadcasting and digital platforms.
STAR and Viacom Merger: Another significant move in the industry is the STAR-Viacom merger. STAR, a part of Disney India, and Viacom18, a joint venture between Network18 and Paramount Global, are set to merge their operations. This merger consolidates content creation and distribution powerhouses, bringing STAR’s stronghold in regional channels and Viacom’s assets like Colours TV, VOOT, and MTV India under one umbrella.

Impact on the Media and Entertainment Landscape

Increased Market Consolidation

Both mergers represent an increasing trend towards market consolidation, where larger players absorb smaller or similar-sized entities to strengthen their presence across multiple media verticals. In the case of Reliance, merging its multiple assets allows the company to optimise operational efficiency and streamline revenue streams.

With STAR and Viacom, the consolidation will offer a significant share in the regional content market, bolstering their ability to deliver content tailored to diverse language-speaking populations in India. The mergers will lead to:

Greater negotiating power with advertisers due to a combined reach.
Stronger leverage with distributors, including OTT platforms and DTH operators.

Dominance in Regional Content

The regional content market is one of the fastest-growing segments in Indian media, driven by increasing digital adoption in smaller towns and non-Hindi-speaking regions. The FICCI-EY report of 2023 highlights that regional content consumption surged by 60% in 2022, fueled by the rise of OTT platforms catering to vernacular languages. Both mergers will allow the companies to expand their offerings in regional markets.

The STAR-Viacom merger will create a formidable presence in the regional TV segment. STAR’s dominance in regional channels like Star Jalsha (Bengali), Star Pravah (Marathi), and Viacom’s Colours Kannada and Colours Marathi will give the merged entity a near-monopoly in several states.
Reliance’s Network18-TV18 merger similarly strengthens its grip on regional news networks, which are growing in popularity due to their localised approach and trust factor.

Greater Focus on Digital Media

The mergers come at a time when the digital media market is overtaking traditional formats. The EY report projects that digital advertising accounted for nearly 70% of total advertising growth in 2022, and this number is expected to increase further as internet penetration deepens and mobile devices become more affordable.

Viacom18’s OTT platform, VOOT, is one of India’s fastest-growing streaming services, and this merger with STAR will allow the combined entity to scale up its operations. Additionally, STAR’s digital platform, Hotstar (now Disney+ Hotstar), already leads in the OTT space with a massive user base.
The merger will allow synergy in content creation, offering shared access to premium sports content, reality shows, and original series, which are crucial for driving subscriptions and digital ad revenues.

On the Reliance side, the Network18-TV18 merger provides better integration between the company’s broadcasting channels and its digital platforms. Reliance can leverage the massive telecom user base from Jio to push content from Network18 and TV18 across various platforms.

Impact on Content Creation and Programming

With these mergers, the combined entities will have greater financial and technical resources for content creation. Original programming, a key differentiator in today’s competitive OTT landscape, will receive a significant boost. Both STAR and Viacom have a history of producing highly popular shows, reality programming, and sports content.

The STAR-Viacom merger will enable more investments in creating high-budget, original Indian shows and movies, catering to the demands of Indian audiences looking for quality content across multiple platforms.
Network18-TV18 will also benefit from greater scale in programming, including in the news and entertainment sectors.

Moreover, Reliance’s merger will allow it to capitalise on sports broadcasting, particularly through the Indian Premier League (IPL), which continues to be a significant revenue generator for Hotstar.

Increased Competition in the OTT Space

The mergers are expected to intensify competition in India’s already crowded OTT market, currently dominated by Disney+ Hotstar, Amazon Prime Video, Netflix, and a host of regional OTT platforms. With VOOT and Disney+ Hotstar coming together under the STAR-Viacom merger, we may see a more aggressive push towards exclusive, premium content, including regional language offerings, reality TV, and sports events like IPL and global football leagues.

This consolidation also presents an opportunity for the merged companies to compete more effectively with international OTT platforms by focusing on localisation, original programming, and multi-device support.

Advertising and Revenue Synergies

As mentioned earlier, digital advertising accounted for INR 682 billion in 2022, with mobile ads making up more than 50% of the total digital ad spend. The mergers will allow companies to pool their advertising resources, thereby offering advertisers a larger, consolidated audience. With more platforms under their control, they will be able to provide cross-platform advertising solutions, including ads that run across TV, OTT, and digital platforms.

Reliance’s Network18-TV18 merger will benefit from a more unified strategy, enabling advertisers to target audiences across multiple channels and media assets.
The STAR-Viacom merger will similarly provide advertisers access to more diverse consumer segments, from traditional TV viewers to OTT users, thereby increasing potential ad revenue.

Regulatory and Competitive Landscape

The regulatory landscape for media in India is evolving, and these mergers are likely to attract scrutiny from the Competition Commission of India (CCI). While the CCI will look into monopoly concerns, especially given the dominance these entities will hold post-merger, the focus will also be on ensuring that the content diversity remains unaffected.

However, from a competitive standpoint, these mergers will encourage further consolidation in the industry. Smaller regional players may feel pressured to merge with larger entities or seek foreign partnerships to remain competitive.

Future Outlook: Challenges and Opportunities

While these mergers present several opportunities, they also bring challenges. The focus will likely shift towards technology integration, content localisation and adapting to changing consumer preferences. Merging distinct corporate cultures, integrating different digital and broadcasting systems, and managing content rights will also pose challenges.

At the same time, the mergers open up a range of growth opportunities:

Expansion into rural markets with targeted content in vernacular languages.
Leveraging 5G technology for enhanced user experiences, particularly in OTT streaming and online gaming.
Expanding the content library through co-productions and international partnerships, bringing Indian content to a global audience.

Tailwinds

The consolidated entities formed by the Network18-TV18 and STAR-Viacom mergers will have substantial control over content creation, broadcasting, and digital media platforms, giving them an edge over peers.

Effect on Peers: Smaller media companies and those reliant on traditional revenue models like TV advertising may see a decline in market share, especially if the merged entities aggressively expand their digital media and OTT offerings. These larger companies will benefit from economies of scale, allowing them to offer content at competitive prices and reach wider audiences.
Sales Impact: Competitors like Zee Entertainment, Sun TV Network, and other regional players could experience reduced advertising revenue as the merged entities capture a larger audience through their diversified platforms. This could pressure peers to rethink their revenue streams, with a higher emphasis on regional and digital expansion.
Revenue Growth: The merged entities are expected to dominate the advertising and subscription-based revenue models in both traditional and digital formats. Smaller companies may struggle to keep up unless they aggressively diversify.

The Price-to-Earnings (PE) is likely to see expansion for the merged entities due to the anticipated growth in digital revenues, regional content dominance, and greater advertising power.

PE Expansion for Merged Entities: Given their larger market share, digital-first strategies, and ability to scale up content creation efficiently, these entities could see an expansion in their PE multiples as they achieve higher earnings growth rates. The digital ad market, which is growing at 70% annually, will be a key driver for higher PE multiples.
Effect on Peers: Peers might experience lower PE multiples as the market assigns premium valuations to larger consolidated players with more robust growth potential. Smaller companies that are less diversified in terms of digital presence and content distribution could see their valuation multiples contract unless they innovate or consolidate themselves.

Higher PAT enjoyment is expected due to merged entities’ enhanced operational efficiency, economies of scale, and improved bargaining power with advertisers, content creators, and digital distributors.

PAT Impact on Merged Entities: The combined assets of these merged entities will reduce operational redundancies, leading to cost savings and higher profit margins. Additionally, the consolidated control over distribution channels (e.g., OTT platforms like Disney+ Hotstar and VOOT) will enable them to offer premium content at a lower production cost.
Impact on Peers: Peers may experience lower profitability margins due to higher content production costs and increased competition for advertisers. Companies like Zee Entertainment and Sun TV may face a margin squeeze unless they can differentiate their content and build a loyal audience base.

The cash flow of the merged entities is likely to improve due to streamlined operations, increased digital subscriptions, and reduced content acquisition costs. D/E is also likely to improve post-merger due to better cash flow generation and the backing of financially strong parent companies like Reliance and Disney.

FCF Impact on Merged Entities: With a larger audience reach and reduced operational redundancies, these merged entities will likely generate significant free cash flow. Their ability to monetise content across multiple platforms—TV, OTT, and digital—will contribute to stable cash inflows. Furthermore, the strong balance sheet of Reliance Industries and Disney’s backing will allow them to invest in content creation and acquisitions without significantly impacting liquidity.
Impact on Peers: Companies with lower market share, such as Shemaroo Entertainment and PVR, could see reduced free cash flows as they struggle to keep up with the pricing power and content diversity of the larger players. Advertising revenue declines and increased competition for subscription dollars will put pressure on their cash generation abilities. Companies like Zee may face higher borrowing costs if their revenues do not keep pace with increasing costs.

Competitive Advantage in Content Creation and Distribution

One of the biggest benefits of the mergers is the vertical integration of content creation, distribution, and monetisation. Network18 and Viacom will now have greater control over premium content, regional programming, and global sports rights (e.g., IPL via Disney+ Hotstar).

Content Creation: The merged entities will be able to pool their resources for large-scale content production, leading to more premium shows, films, and sports broadcasts. This will help them capture a larger share of the fast-growing OTT market in India, expected to grow by $5 billion by 2025.
Distribution Power: The STAR-Viacom merger, in particular, will create a massive content library for both TV and OTT platforms, solidifying their dominance in India’s regional markets. Viacom’s VOOT and Disney+ Hotstar will benefit from the ability to cross-promote content across channels, giving them a strategic advantage over smaller players.

Take Home

The mergers between Network18 and TV18, as well as STAR and Viacom, mark a significant shift in the Indian media landscape. As the M&E sector continues to grow, driven by increasing internet penetration, OTT consumption, and digital advertising, these merged entities will be well-positioned to lead the future of Indian media. The stock market is likely to react positively to the mergers, especially given the size and scale of the combined entities.

However, the mergers also set the stage for more intense competition, both within India and with global media giants. The focus on digital-first strategies, regional content, and consumer-driven innovation will be crucial for their success in the coming years.