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    Analysts Parse Potential Sale or Reset – The Hollywood Reporter

    You can add India to the long list of complicated strategic issues for Bob Iger to figure out during his newly extended second term as CEO of Disney

    Analysts reacted favorably Wednesday to a report in The Wall Street Journal that Disney has begun a review of its Star India business, which includes the possibility of a sale or joint venture. The company reportedly held discussions recently with at least one bank about options for helping the India business grow while offloading some of the costs. 

    A source with knowledge of the talks at Disney tells The Hollywood Reporter that the strategic recalibration is in its very early stages, however, and any deal option is far from imminent. Murmurs about a potential shake-up coming to Disney’s local leadership have been circulating through the Indian industry of late too. When contacted directly by THR, Disney declined to comment. 

    Disney’s existing footprint in India has come at a substantial cost. When the House of Mouse paid $71.3 billion in 2019 for large portions of 21st Century Fox, Star India was considered one of the portfolio’s prized assets. The company owned about 60 local TV channels and India’s fastest-growing streaming platform, Hotstar, which had climbed to over 150 million monthly active users by leveraging exclusive rights to Indian Premier League cricket, the country’s national game. Amid the early arms race of the then-called “streaming wars,” when subscriber growth was prized above all else, Hotstar was expected to give Disney a significant leg up over rivals in the world’s soon-to-be most populous nation.  

    But the soaring price of sports rights and a fundamental reassessment of the streaming business model have inverted such perceptions. 

    In the most recent quarter, Disney’s Hotstar earned just 59 cents in revenue per user — Wall Street’s new preferred metric for assessing streaming services — compared to $7.14 ARPU in North America. And last year, Disney lost the auction to renew its exclusive digital rights to IPL cricket, balking at the $3.05 billion winning bid paid by a fast-growing new competitor, Viacom18, a joint venture between Indian conglomerate Reliance Industries, Paramount Global and Bodhi Tree Systems, the investment company backed by Uday Shankar and James Murdoch. Shankar, incidentally, is the former architect and CEO of Hotstar, as well as Disney’s one-time president in APAC. Disney instead paid a steep $3 billion to retain the TV broadcast rights to the IPL on its Star India network through 2027 — a move that invited considerable skepticism from investors. Viacom18 has since made cricket viewing available for free on its nascent mobile streaming service, further eroding the value of Disney’s TV broadcasts of the matches.

    The Journal‘s sources at Disney said Star’s overall revenue for the current fiscal year is expected to fall by 20 percent to less than $2 billion, and its earnings before interest, taxes, depreciation and amortization will slide 50 percent from $200 million last year. They added that Star is expected to start losing money next year. 

    Prior to the 2019 Disney-Fox deal, Fox had projected Star India would earn $1 billion in Ebitda by 2020.

    Meanwhile, Media Partners Asia, a regional consultancy and research firm, has estimated that Disney+ Hotstar will drop about 15 million subscribers in 2023 after losing the IPL digital rights. 

    “We believe fixing Disney’s India mess would be a great start to improving long-term cash flow and profitability” at the company, a team at MoffettNathanson said Wednesday in a report expressing optimism about a possible deal in India. 

    The analysts outlined “two obvious options” for the Hollywood giant. “First, Disney can turn to the new joint venture run by their former executive (Uday Shankar) and create an even larger joint venture, which will de-consolidate India results and put the asset into stronger and more strategic hands,” the MoffettNathanson team highlighted. “Second, Disney can turn to Sony, which already has a significant presence in India, and try to partner with them.” 

    Sony has been waiting the past year and a half for Indian regulatory approval for an ongoing merger of its India TV business with local entertainment powerhouse Zee Entertainment, so MoffettNathanson noted that there could be some difficulty to the company also working with Disney. Other conceivable partners not mentioned by the analysts include Airtel, Reliance’s largest teleco competitor, or the Tata Group conglomerate. Disney already holds a stake in Tata’s satellite television subsidiary, Tata Play (formerly known as Tata Sky). 

    Wells Fargo analyst Steven Cahall in a Wednesday report noted that his financial model for Hotstar for fiscal year 2023 includes an estimated subscriber base of around 56 million and $448 million in revenue, “making Hotstar just 5 percent of our Disney+ revenue.” Star India’s linear business is “baked into” his international channels business model, namely operating income of $308 million for the current fiscal year, down from $895 million in fiscal year 2022 due to the company’s “IPL linear step-up.” What does all that add up to? Concluded Cahall: “Divesting Star/Hotstar would have minimal earnings dilution, while it could mean future licensing potential and bring in cash.” 

    In the current climate of industry upheaval, it remains to be seen what entity might have the appetite to fully acquire Disney’s India business. And as one insider puts it: “When has Bob Iger come to the table to sell from a position of weakness? That’s not his playbook.” 

    “Setting aside the sports rights, it’s important to acknowledge that Disney still has a very strong entertainment business in India,” says Vivek Couto, executive director of Media Partners Asia, noting that Star India has a share of over 20 percent of the local TV audience.

    Couto adds: “However they recalibrate, Disney will be thinking about how to leverage Star India’s local IP, reach, and viewership — and if they are seeking partnerships, they’ll be looking long-term at who can best maximize the Disney franchises across theatrical, consumer products and maybe even a first India theme park.”

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