Bob Iger faces India dilemma as Disney weighs options for Star

When Walt Disney acquired 21st Century Fox from Rupert Murdoch for $71bn in 2019, one of the most promising long-term businesses it took control of was Star India.

Star had strong TV and film businesses — and it owned the broadcast rights to Indian Premier League cricket matches, guaranteeing huge audiences for the country’s national sport. It had also recently launched the Hotstar app, which brought streaming to a potential market of hundreds of millions of Indian viewers.

“There was excitement about the growth potential” of Star India, said Tim Nollen, an analyst who follows Disney for Macquarie. “That’s not why Disney bought Fox, but that was a very intriguing component to it.”

Now the architect of the Fox deal, Disney chief executive Bob Iger, is taking a hard look at Star India as he reviews the company’s wider TV holdings.

With Disney facing another year of expected streaming losses, an $8.6bn-plus acquisition of Comcast’s stake in Hulu and a US TV business in secular decline, Iger is weighing his options for Star India, rebranded last year to Disney Star.

These include selling stakes that could leave the US group as a minority investor in the business — or possibly shedding its entire holding, which could fetch as much as $10bn.

Disney is in talks with Reliance Industries, the Indian conglomerate run by billionaire Mukesh Ambani, about a possible sale of its Star assets or a potential joint venture, according to people familiar with the discussions. The talks are in early stages and may not be exclusive to Reliance, as the US company sounds out private equity groups, including Blackstone, about their interest in taking a stake in the assets.

Two media industry insiders in India noted Justin Warbrooke, who leads Disney’s international finance, had visited Mumbai in recent weeks.

Reliance, Disney and Blackstone all declined to comment.

Investor enthusiasm for Disney’s India business began to fade last year after the company lost the online rights to stream the popular IPL tournament from 2023-2027. While Disney kept the broadcast TV rights, the streaming rights went to JioCinema — a joint venture between Ambani’s Reliance Industries and Viacom18, run by James Murdoch and former Disney India chief Uday Shankar — following a record $6.2bn auction.

It was a coup for JioCinema because many Indian cricket fans watch matches on their mobile phones instead of traditional TV. For Disney, it was a setback: the company had used its dominance of IPL matches to build out its Star TV network, India’s largest, and the Disney+ Hotstar streaming platform.

Last month Disney revealed for the first time exactly how big a drag Star’s sports business has been for the company. Star reported a $444mn operating loss in the nine months ended July 1, far more than for all of its previous fiscal year when it reported a $237mn operating loss. The US company’s operating margin for its sports business was 15.7 per cent in fiscal 2022 — but excluding Star and ESPN International, the group would have posted margins of 19.2 per cent.

In contrast, Star’s entertainment business has strong viewership and profitability, said Mihir Shah, India head at consultancy Media Partners Asia. “Given the fact that linear TV is profitable and . . . the fact that relatively low-cost local general entertainment now has found a strong resting place on streaming, Disney/Star’s entertainment assets would be attractive to any acquirer or partner.”

But he said losses for Disney’s Indian sports business will remain “material in the coming years, largely attributed to the US group’s aggressive bidding in renewing rights, particularly the ICC Cricket rights, which were secured for a staggering $3bn last year”.

Disney+ Hotstar’s number of subscribers fell 24 per cent to 40.4mn in the fiscal third quarter, and its average revenue per subscriber was just 59 cents. That compared with $6.01 for Disney’s international streaming businesses in the same quarter.

A former Disney executive noted there has been hot debate inside the company about “what to do about India”.

“They have the biggest studio in India, a big TV business with Star, in the fastest-growing big economy in the world,” the person said. “Some want to sell that because the annual revenue per subscriber is low? It’s crazy.”

Michael Nathanson, an analyst at MoffettNathanson, agreed: “Disney has to be in India.” But he added: “I don’t know if you need to own distribution in India if you’re Disney right now.”

A solution could involve the US group selling a majority stake to Reliance, allowing it to license its entertainment content to the Indian group.

“I would love them to find a strategic buyer that will take an ownership stake of Star, keep Disney as a minority, and then basically consolidate with an incumbent to improve the economics and to cut down on the competitive dynamics of the market,” Nathanson said.

“You don’t want to have to bid against [Reliance] long-term for sports rights. Sports is the driver of this business and the cost of cricket keeps going the wrong way.”

In October, Disney offered free mobile phone streaming of the Cricket World Cup in India in hopes of regaining some of its momentum after losing the IPL streaming rights. The strategy resulted in a record-breaking 43mn concurrent users during the world cup — a demonstration of its “technical prowess”, Shah of Media Partners noted.

The rivalry between Reliance and Disney is not just limited to sports rights. Analysts say Disney has also suffered from a “brain drain” as Shankar has poached some of the brightest executives from his old company.

“A lot of the talent that was at Hotstar and Star has left for the competition,” Nathanson said. “So you’ve lost a lot of brainpower there, including Uday Shankar and all of his lieutenants. I think it really would be great to find a partner there to take on management and investment.”

Disney in India declined to comment.

Nollen of Macquarie said a deal for Star India could be especially well-timed for Disney given the looming transaction with Comcast over the Hulu streaming service. Last week Comcast put its option to sell its 33 per cent stake in Hulu to Disney, which will have to pay a floor value of $8.6bn — and potentially billions more following an appraisal process that is expected to conclude in 2024.

“Star has been dragging things down,” Nollen said. “It would be nice if Disney could sell something to help fund the acquisition of Hulu. I think investors would be very happy to see some sort of support for that Hulu deal at this point.”

Additional reporting by Antoine Gara in New York