Reliance Industries Limited (RIL) and the Walt Disney Company recently announced that they are merging their media and entertainment (M&E) operations in India. The combined entity would be valued around $8.5bn with control over 100 channels on television and digital streaming businesses in the (over-the-top) OTT segment.
As per the agreed terms, Reliance will have a major stake in the merged entity through its media subsidiary Viacom, while Disney will have a minority stake of ~36%.
Structure of the market
Market structure lies at the heart of competition assessment. As far as the television broadcasting industry is concerned, Disney + Star is the biggest player in the Indian market with a share of ~18%.
A close second is Zee, which also has a similar market share. Reliance (Viacom) stands as the fourth largest player in this segment with an 8% market share.
Apart from television broadcasting, it is relevant to look at the market distribution in the OTT segment as well. As per the reported figures, Disney + Hotstar again tops the charts here, with a market share of ~30%.
Amazon Prime and Eros Now follow in the second and third spots with market shares of 15% and 14% respectively.
Though JioCinema is not a major player in this segment currently, its recent acquisition of IPL rights led to an acquisition of 10 million subscribers in the first quarter of 2023, thereby making it a substantial force.
Legal provisions
Merger control is one of the substantive provisions under Indian competition law. As per the relevant provisions of the Indian Competition Act, conglomerate acquisitions where the size of the merged entity is either higher than Rs 8,000 crore in assets or Rs 24,000 crore in turnover in India have to be notified to the Competition Commission of India (CCI).
Once a notification is made, the commission conducts an assessment of the proposed merger on merits to suggest if there are any competition concerns arising out of it. The commission may order behavioural or structural remedies, or completely block the merger at once if it observes that the combination is likely to result in an appreciable adverse effect on competition or AAEC.
Historically, the Indian competition authority has been conservative when it comes to exercising merger control – it has not blocked even a single acquisition in over 1,000 notifications made to it till date.
It has, though, enforced behavioural remedies on certain instances.
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Analysis
The purpose of competition law is to enhance the standard of consumer welfare and ensure a level playing field between various players in the market.
One of the immediate effects of the proposed merger would be a more concentrated M&E space, thereby resulting in the reduction of consumer choices.
The market share of the merged Viacom-Disney entity would be over 25% in the television broadcasting industry, with control over some of the most popular channels like Colours, Star Plus, Star Gold, Star Sports, etc., while the market share of the combined entity might even be as high as 40% in the booming OTT segment.
While increased market share in itself doesn’t constitute a violation of Indian competition law, it is nevertheless one of the most important factors when it comes to assessing competition in the market. This matrix is not only true for merger control but for abuse of dominant position cases as well.
Given that the impact of the merger on consumer choices is explicit, it is suggested that the commission should exercise close scrutiny when it comes to making an apparent balance between pro-competitive and anti-competitive aspects of the amalgamation.
Some global precedence may also be of help. In 2018, AT&T and Time Warner were merging in the US in similar market conditions. Even though the amalgamation ultimately went through, the relevant antitrust authorities in the US did file an objection stating that the size of the combined entity will itself result in higher prices and lesser choices for media customers.
The merger was allowed to consummate on a technical explanation that the combination was a ‘defensive manoeuvre’ because of lost viewership to online cable companies that leased capacity to deliver the services of the merging parties.
Reliance (Viacom) and Disney were, hitherto, considered competitors in India. The contest was even more fierce when it came to acquiring IPL media rights.
This background, combined with the fact that Reliance is one of the biggest economic powerhouses in the country, is something which should further strengthen the guard at the CCI when it comes to assessing this merger on merits.
One cannot lose sight of the aspect that the overall positioning of a group in the economy is another key factor when it comes to assessing its dominance.
It is now known that Reliance (Jio), which entered the telecommunication space just a few years back, is now the biggest player in the industry. The CCI allowed the company to sell its services for free beyond the permissible time period on the technical explanation that the company isn’t ‘dominant’ in the given ‘relevant market’ and therefore, the question of ‘abuse or violation’ doesn’t arise.
What was missed in the case was that RIL is the country’s biggest conglomerate and the Indian competition law framework does factor in the overall positioning of the group in the economy against just an industry-by-industry assessment (‘piecemeal assessment’), according to Section 4(2)(e) of the Indian Competition Act.
This concept might be wholly true in the given M&E landscape where, even though Disney has the largest market share in the television broadcasting and OTT segment, it still gets a consolation stake of ~36% in the combined entity.
Conclusion
The purpose of competition law is to ensure the working of efficient markets. The proposed merger would not only impact the M&E landscape in India, but is likely to percolate to upstream and downstream markets.
An example is the OTT segment. This effect might be further pronounced when the majority stakeholder has significant market power across industries.
The need of the hour is to not only conduct a politically neutral assessment of the merger, but ensure that various economic dimensions are considered while returning a finding. This would ensure that laws of the country are implemented in line with the government’s economic policy.
Sumit Jain and Siddharth Mishra are directors at the Centre for Competition Law and Economics.
