Hotstar, JioCinema Outperformed its Parent Companies' Television Divisions in Terms of Valuations

Disney+ Hotstar and JioCinema are valued higher than their parent firms' linear TV operations, with Viacom18 valued at ₹33,000 crore and Star India at ₹26,000 crore, according to EY and BDO filings.

EY was contracted by Viacom18, a Reliance Industries (RIL)-backed firm, to conduct the valuation process before to the merger agreement, whilst BDO was employed by Star India, which is controlled by Walt Disney.

On February 28, RIL and Disney agreed to merge Star India and Viacom18, establishing a company valued at ₹70,352 crore, including a ₹11,500 crore financial infusion by RIL.

Both corporations used the comparable companies multiples (CCM) technique to assess value, which is based on multiples created by similar company values.

BDO assessed Star's entertainment business at 1.75 times (₹15,999 crore) and its digital business (Disney+ Hotstar) at 3.81 times (₹16,040 crore). BDO evaluated Star India's worth by analyzing its TTM revenue till December 31, 2023. This includes ₹9,142.2 crore from linear entertainment and ₹4,210.6 crore from digital income.

BDO estimated Star India's enterprise value at ₹31,992.9 crore using revenue multiples. After adjusting for sports-related obligations, the equity value was decreased to ₹25,900.2 crore, or ₹524.5 per share.

"This transaction reaffirms that digital businesses command valuations twice as high as traditional businesses, thanks to their flexibility and broader scope in distribution and revenue generation," according to Rajesh Sethi, a media consultant.

He also stated that the value of sports material is about to be reassessed as the business shifts from a three-player to a two-player battle. Media Partners Asia forecasts that the video entertainment business will be worth $13 billion by 2028, with over-the-top (OTT) platforms accounting for half of the new revenue increase.

In the instance of Viacom18, the valuation company estimated a combined revenue multiple for the linear TV and streaming operations.

BDO evaluated Viacom18's enterprise value at ₹15,622 crore, with a revenue multiple of 2.6 times and revenue of ₹6,012.5 crore for the TTM ending December 2023.

Viacom18's equity value increased to ₹32,937 crore after accounting for cash balances, investments, intangible assets under development, and surplus assets. In April 2023, Reliance and Bodhi Tree Systems invested ₹15,145 crore into Viacom 18.

Viacom18 and Star India have presented a plan of arrangement to the National Company Law Tribunal, transferring JioCinema to its subsidiary Digital18 on a slump sale basis for ₹24,186 crore.

The consideration for the transfer of Viacom18's other media activities to Digital18 is ₹2,769 crore. Digital18 will then transfer these assets to Star India.

EY estimated a valuation of ₹32,955 crore for Viacom18 and ₹25,926 crore for Star India. Star India's appraisal was completed debt-free because the company is unlikely to have any cash.

According to EY's valuation analysis and RIL's ₹11,500 crore money injection, Star India's ownership is 46.8% (Viacom 18), 36.8% (Star India), and 16.3% (RIL).

According to the merger deal, RIL will have an effective 56% controlling interest in the Star-Viacom18 merged firm, followed by Walt Disney with a 37% share. Bodhi Tree Systems, founded by James Murdoch and Uday Shankar, will possess a 7% interest in the proposed amalgamated organization.