Viacom18-Star India merger to be cash wealthy by more than Rs 19,000 crore

The newly merged entity of Star India and Viacom18 will have a strong cash position of more than Rs 19,000 crore, factoring in Viacom18's current cash reserves and investments of Rs 7,829 crore, as well as an infusion of Rs 11,500 crore from Reliance Industries Ltd (RIL).

However, Star is unlikely to have any cash reserves at this time, according to sources. The financial reserves will allow Star-Viacom18 to make significant investments in its digital and sports operations, which are expected to be loss-making in the short term.

According to the agreement with Walt Disney, RIL will invest Rs 11,500 crore in Star-Viacom18, acquiring a controlling 56% interest. Walt Disney will own 37%, with the remaining 7% owned by Uday Shankar and James Murdoch's Bodhi Tree Systems.

In the digital sector, Star-Viacom18 is set to encounter fierce competition from streaming behemoths such as Netflix and Amazon Prime Video, which have made significant investments in India's streaming market since their arrival in 2016.

After receiving all major regulatory approvals, the merged enterprise will become the primary destination for key sporting events, such as the Indian Premier League (IPL), Board of Control for Cricket in India (BCCI) matches, International Cricket Council (ICC) events, the English Premier League, the Women's Premier League (WPL), the Indian Super, and the Pro Kabaddi League (PKL).

Viacom18's annual report for FY24 shows that the company's cash and investments amount Rs 7,829 crore, with Rs 4,726 crore in cash and cash equivalents and Rs 3,103 crore in investments. In 2023, Viacom18 received a Rs 15,145 crore capital infusion from RIL and Bodhi Tree, the majority of which was dedicated to its sports and digital divisions.

Over the last few years, Viacom18 has invested more than Rs 34,000 crore in important sports properties including as IPL digital rights, BCCI media rights, WPL, ISL, and the 2024 Olympics. These significant sports investments resulted in a net loss of Rs 252 crore for Viacom18 in FY24, compared to a net profit of Rs 11 crore the previous year. However, sports-related advertising revenue has caused a 75% increase in overall revenue, to Rs 8,032 crore.

The merger has been approved by both the Competition Commission of India (CCI) and the National Company Law Tribunal (NCLT), with the CCI's approval contingent on voluntary modifications such as the divestment of certain TV channels and a two-year ad rate freeze, according to people familiar with the matter.

According to a Media Partners Asia assessment, the merger will result in a media behemoth with a successful entertainment sector but losses in sports and streaming.

According to the research, the amalgamated business will earn $2.8 billion in revenue with a $200 million Ebitda deficit on a pro forma basis in fiscal year 24. It also emphasizes that the entertainment section, which includes Hindi and regional language channels, is expected to generate an estimated $600 million in Ebitda 

on $1.3 billion in revenue. Meanwhile, the TV sports division, which includes channels under the Star Sports and Sports18 brands, is forecast to have a $600 million operating loss while generating $700 million in sales. Revenues in the streaming video segment, which includes Disney+, Hotstar, and JioCinema, are expected to be $800 million, with an Ebitda loss of $150 million. The united firm is expected to keep JioCinema as its principal streaming platform, possibly absorbing Disney+ Hotstar.