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Disney Star may Trip on Debris of Zee-Sony Deal

Termination of Sony-Zee Merger Raises Uncertainty for Disney Star’s ICC Media Rights Deal

Source and citation: Information and quotes adapted from ET Bureau article published on January 24, 2024, on ETMarkets.com

Analysis for Layman

Disney Star, a global media giant, faces significant financial risks associated with its $1.5 billion broadcasting rights deal for International Cricket Council (ICC) events. The issue stems from Zee Entertainment, an Indian media firm, refusing to honor a sub-licensing agreement with Disney Star for ICC television rights.

Zee Entertainment argues that its commitment to the Disney Star pact was contingent on its own merger with Sony, which has now been called off. Consequently, Zee believes it is no longer obligated to provide the ICC TV broadcast rights to Disney Star.

Considering that Disney Star paid a substantial $3 billion for composite ICC rights across TV and digital platforms, potential losses resulting from the disputed Zee deal could exceed $1.5 billion, based on rival bids. These losses could impact Disney Star’s valuation as discussions continue regarding its merger with Mukesh Ambani’s Reliance media assets.

Disney Star may Trip on Debris of Zee-Sony Deal

Impact on Retail Investors

For investors in Walt Disney, the termination of the Sony-Zee merger comes as an unexpected near-term shock. Legal disputes surrounding the ICC media rights contract may also affect Disney Star’s restructuring plans with Reliance in India.

If the ICC TV rights deal completely unravels without recourse options, Disney Star may need to write off over $1 billion in losses. This could delay Disney India’s profitability projections by several years. Any downward revision of Reliance’s valuation assessment for the Disney Star merger also carries the risk of shareholder rejection.

Furthermore, the lack of transparency in handling the consortium ICC bid submitted without certainty of the Zee deal’s closure raises concerns among retail shareholders. Tighter governance over the strategic decisions of Disney India seems warranted.

Impact on Industries

The complexity surrounding Disney Star’s ICC rights acquisition and sub-licensing disputes may lead to changes in sports broadcasting deal norms in India. With digital valuations skyrocketing, media groups might avoid composite TV+digital bids that require complex partnerships. Bidding on rights asset-wise could become more common.

Holders of digital rights may also hesitate to license secondary TV rights to competitors. Overall, the fragmentation of rights packages among multiple players could help balance investment risks.

Additionally, Sony and Zee’s attempts to selectively override deal obligations due to merger delays may discourage conditional sports licensing agreements in the future. Governing bodies like the Board of Control for Cricket in India (BCCI) may demand more upfront guarantees before selling mega rights.

For the sports ecosystem, the risk of lower overall bid values could temporarily slow grassroots development if cricket governing bodies generate less revenue. However, wider broadcast access through distributed content rights could boost fan growth.

Long Term Benefits & Negatives

In the long run, legal disputes and financial losses related to the ICC media rights deal could encourage more disciplined bidding by media giants like Disney Star. Benchmarking rival offers before making extravagant bids may help prevent future losses.

However, established players failing to harness emerging digital opportunities collaboratively could allow disruptive streaming platforms like Amazon and YouTube to gain ground. Traditional media groups could focus on expanding their presence in both traditional broadcasting and syndication. Combining global streaming strengths with local distribution reach may offer Disney, Sony, and Zee a more balanced long-term growth strategy.

For the cricket ecosystem, the potential expansion of distribution due to streaming wars could spur fan growth and attract private investors. The success of grassroots development depends on whether market expansion leads to lower per-match media rights costs.

Short Term Benefits & Negatives

In the short term, the uncertainty surrounding Disney Star’s ICC rights obligations may result in unexpected losses and diversion of attention during the ongoing restructuring of Disney Star’s business in India. Until the legal disputes are resolved, strategic planning may be on hold.

For Sony and Zee, reversing their positions on previous deal commitments can temporarily strain relationships with advertisers, platforms, and partners across their respective media portfolios. Rebuilding trust may require proactive internal communication.

However, for Disney Star, dropping the ICC TV rights package could provide short-term relief to its balance sheet through lower losses. Focusing exclusively on optimizing their $1 billion-plus digital streaming rights could offer initial upside.

The broader sports broadcasting industry may also shift from comprehensive broadcaster bids to more joint content partnerships between streaming and TV groups with clearly defined rights. This could mitigate the risk of bubbles in media rights auctions.

Potential beneficiaries and losers from Disney Star’s ICC rights and Zee-Sony fallout:

Indian Companies likely to gain:

  • Viacom18: With Disney Star potentially facing hefty losses from the ICC rights, Viacom18, which bid significantly lower, could be seen as a more financially sound competitor in the media landscape. This could improve their valuation and bargaining power in the Reliance-Disney merger discussions.
  • Sun TV Network: As another major player in the South Indian market, Sun TV might benefit from potential shifts in advertising and viewership away from a weakened Zee after the deal collapse.
  • Hotstar competitors: If Disney Star is forced to raise prices due to ICC rights losses, other streaming platforms like SonyLIV and ZEE5 could attract subscribers looking for more affordable options.
  • Independent content creators and production houses: If Disney Star reduces spending due to financial pressure, opportunities for smaller players in the content creation space could increase.

Indian Companies potentially impacted negatively:

  • Disney Star: The potential $2 billion downgrade by Reliance could significantly impact Disney Star’s valuation and bargaining power in the merger negotiations. Additionally, facing losses on the ICC rights could strain their finances and force cost-cutting measures.
  • Zee Entertainment Enterprises: The legal dispute with Disney Star over the ICC rights adds further uncertainty to Zee’s already troubled situation. A potential loss in court could further damage their financial stability and reputation.
  • Employees of Disney Star and Zee: Both companies might resort to cost-cutting measures like layoffs or salary reductions due to financial pressures, impacting employee morale and job security.
  • Reliance Industries: While the merger with Disney Star might still happen, the ICC rights issue adds complexity and potential challenges to the negotiations. Investors might adjust their expectations for the combined entity.

Global Companies unlikely to see significant impact:

  • International media giants: The issues within Indian media companies are unlikely to directly impact global players like Netflix, Amazon Prime Video, or Disney+ (outside of India).
  • Global sports rights holders: While the ICC rights saga might raise concerns about future bidding processes, it is unlikely to significantly impact other global sports rights deals.

Disclaimer: This analysis is based on limited information and should not be considered investment advice. Always consult with a qualified financial advisor before making investment decisions.

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