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Both sports and digital will drag down the healthy operating margins that entertainment television continues to make.
The Viacom18-Disney Star joint venture is likely to see a 25 per cent growth in revenues next year.
By 2024-25, the duo, which owns over 100 channels, such as Star Plus and Colors, will make $3.5 billion (around Rs 30,000 crore) in revenues but will remain loss-making.
Both sports and digital will drag down the healthy operating margins that entertainment television continues to make.
The merged company will see earnings before interest, taxes, depreciation and amortisation, or Ebitda-level loss of $350-400 million in the financial year ending March 2025, says data from Singapore-based Media Partners Asia (MPA).
Much of the number crunching assumes that the merger will become operational by the end of this year.
In a report released recently, MPA analysed the impact of the merger of Disney-Star with Reliance Industries (RIL) and Bodhi Tree-owned Viacom18.
The deal is valued, factoring in the Reliance investment of $1.4 billion, at $8.5 billion.
MPA estimates indicate Disney India was valued at $3-3.5 billion as part of the transaction, representing a favourable deal for RIL and Bodhi Tree.
Viacom18 was valued at an estimated $4 billion, with the remainder taken up through RIL-infused cash.
RIL's commitment to the media business continues to grow with the company investing a total of $2.4 billion over the last two years, says the report.
"Indian media and entertainment hasn't had a significant capital injection, except for the money that Google, Meta, Netflix, Amazon have invested in the creative economy and distribution in recent years.
"RIL has invested $2.4 billion in the last couple of years and partnered with key groups with teams to drive scale and create value in the new ecosystem," says Vivek Couto, executive director and co-founder, MPA.
He reckons that the company could go for an initial public offering (IPO), say, five years down the line, at twice its current value of $8.5 billion.
The new entity not only consolidates the more than 100 TV channels across Hindi, Marathi, Tamil, Telugu and other languages, but also has two large streaming video-on-demand services: JioCinema and Disney+Hotstar, says the report.
It ignores Voot, possibly because the service has been neglected ever since JioCinema came into the Viacom18 fold.
"RIL's immediate injection of $1.4 billion will fuel accelerated investments in content, leading to the development of a world-class streaming offering," says the report.
Much hinges on former Star India chief executive officer (CEO) and current investor in Bodhi Tree, Uday Shankar, who will be the vice-chairperson of the new company.
But the market is not what it was when Shankar took over Star in 2007, or when he pushed for the launch of Hotstar in 2015.
The competition is now not just another media company but also big tech-majors such as Google, Meta, and Amazon, who, as video becomes a key part of their business, are walking away with a chunk of digital ad spends.
For broadcasters to reclaim the lost ground will be the battle.
"How do you redefine the advertising pie?
"No one yet in India has been able to use TV viewership and reach, combined with online video to reframe the conversation and currency for monetisation with advertisers.
"Connected TV will be a significant part of this reframing," says Couto.
On the Sony-Zee break up and the way forward, the report says: "Sony India has a track record of unsuccessful domestic M&A (mergers and acquisition) endeavours, including the failed acquisitions of ETV and Maa TV in 2011-12, joint venture attempts with Viacom18 in 2020, and the recent fallout with Zee.
"Among established international networks in India, WarnerBros Discovery (WBD), despite its limited scale in the market, could complement Sony's existing portfolio.
"Both entities understand their respective linear businesses, having previously shared a 12-year-old distribution partnership (MSM-Discovery)."
The merger will further push players to pull back on investments into fresh programming, reckons the report. It adds that the bright spot in the video business remains linear television.
"Despite facing margin pressure, the TV entertainment segment remains profitable, generating steady cash flows. Content producers are thus redirecting their resources towards TV over streaming," says the report.
Feature Presentation: Ashish Narsale/Rediff.com
