Here's How Fox Will Bring Disney Huge Revenues From India

The Walt Disney Company’s (NYSE:DIS) $52.4 billion deal to buy the bulk of 21st Century Fox’s (NASDAQ:FOXA) movie and television assets might have just opened up new avenues for it in India — one of the world’s fastest growing economies. With regional language television content, cricket and soccer rights, and content for digital and mobile entertainment platform, it goes without saying that Disney has opportunities galore in India that ought to multiply its revenues in the near future.

The recent deal will see Disney acquire the Twentieth Century Fox television and film studios, FX Networks, National Geographic and other cable assets. Although a few lucrative assets such as Fox News and Fox Broadcasting have been left off, Disney with this multi-billion deal has laid its hands on Star India, Sky plc (OTC:SKYAY) and Fox’s attractive bouquet of 22 regional sports networks, a big deal indeed that paves the way for the company to emerge as a global sports giant.

That said, Disney is poised to benefit from the India market with the acquisition of Star India that boasts a bouquet of 69 regional channels in eight languages.

Taking the India Route to Success

Fox’s extensive India arm, Star India Pvt. Ltd, is a market leader in that country holding almost 20% share. Getting hold of Star India might now prove to be a game-changing move by Disney, helping it generate huge advertisement revenues from all corners.

Disney has a market cap of $164 billion, while 21st Century Fox is worth $62 billion, with Star India alone estimated to be worth something between $14 billion and $16 billion. That makes Star India’s valuation around 25-30% of the entire acquisition deal.

Interestingly, it’s not just the television channels that Disney is banking on. The deals lugs along Hotstar, India’s most popular digital and mobile entertainment platform, and the five-year broadcasting rights of the Indian Premier League (IPL) — one of the biggest money churners for that country’s media industry. It can thus be said that Disney will bank on three categories to increase its revenues in India — subscription TV market, online and digital entertainment platform and sports broadcasting.

Subscription TV Market

India has the second-largest subscription television market in Asia with more than 154 million households in 2016. And going by a PricewaterhouseCoopers report, the market is set to touch 167 million by 2021. Star India’s 69 channels, of which 10 are sports channels, gives Disney immense opportunity to multiply its revenues from advertisement.

Moreover, there is growing demand for regional language content that promises advertisers from all corners of the country. Interestingly, U.S. ad spending is growing at a slow pace. However, the scene is completely different in India.

Fox’s U.S. advertisement revenues increased a meager 3% in fiscal first quarter, while its international advertisement revenues grew 10%. This growth can be attributed to double-digit growth through Star India. Disney will definitely grab this opportunity.

Online & Digital Entertainment

Although India was a slow starter, the mobile video traffic market is fast growing, thanks to low subscription fees. With Hotstar in its kitty, Disney surely will get an edge over new entrants like Netflix (NASDAQ:NFLX) . Although Netflix’s India market is steadily growing, Hotstar has already struck a chord with the audience because of its regional and local content and sports rights. Bollywood, the local film industry, and Cricket are worshipped in India, and Hotstar offers both, thus scoring on the popularity quotient.
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Sports Broadcasting Rights

As mentioned, cricket generates a huge chunk of advertisement revenues for the media industry in India and Hotstar along with Star India’s 10 sports channels can emerge as a cash cow for Disney. A major portion of the revenues is expected to come from cricket, as Star India shelled out $2.55 billion earlier this year to acquire the broadcast and streaming rights of the IPL for five years, beating the likes of Facebook (NASDAQ:FB) . Given that Disney’s largest sports network ESPN has been losing customers in the United States, as more subscribers are opting for digital viewing, the dual broadcast and streaming rights of IPL might bring back the company’s fortunes.

However, Disney has been witnessing downward revisions in earnings estimates lately. As a result, it currently holds a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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