Daybreak - Why Disney may now want to hold on to Hotstar after all

Episode Date: October 24, 2023

On October 14, a Saturday, Disney Hotstar set a world record: it saw the highest number of simultaneous viewers tune in for any format of cricket ever. The ICC World Cup match between India and Pakistan was streaming and it drew in 35 million viewers.A week later, on Sunday, it broke that record too with the India-New Zealand match when 43 million viewers tuned in. The timing of this couldn't be better for the OTT giant which lost 21 million subscribers since last year when it lost the rights to IPL. Ever since Disney Hotstar executives in India were on a mission to prove to their California headquarters that its OTT business in India could be turned around. But just a day later after hitting 43 million viewers, on October 23, Bloomberg reported Walt Disney may sell a controlling stake in the Disney Star business to Reliance Industries. While nothing about the deal is final yet, it does make one wonder about the timing of it all.What is in this deal for Reliance and more importantly is it enough for Disney to hold on to Hotstar for now?Tune in to find out.RecommendationDisney+ Hotstar’s last danceDaybreak is produced from the newsroom of The Ken, India's first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

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With that, back to your episode. You have probably been hearing about it a lot lately. That Disney Hot Star, the country's biggest streaming giant, is kind of coming undone. It all started with losing the IPL rights last year and then the dropping off of major HBO content like Game of Thrones and Succession. Within a span of a year, Disney lost 21 million subscribers.

But today, we're not going to get into the nitty-gritty of why. In fact, there were even rumors that its parent company Disney was planning to wash its hands of Disney Hot Star. But in the middle of all this, there was one set of people within Hot Star who were like, maybe we will go down, but not without putting up our best fight. So they decided IPL or no IPL. Cricket was going to be their biggest customer acquisition funnel this year. That and they also went back to their earlier focus on advertising. Because after Disney came into the picture, Hot Star became more subscription-centric.

And all this re-stratagizing seems to be bearing fruits now. Last to last Saturday, Disney Hot Star set a world record. It saw the highest number of simultaneous viewers. tune in for any format of cricket ever. It was the ICC World Cup match between India and Pakistan and it drew in 35 million people. Now, it may not be as surprising considering it was the India-Pakistan match.

But here is what will surprise you. A week later, last Sunday actually, it broke that record too with the India-New Zealand match. 43 million viewers tuned into Disney Hot Star. Fantastic news for the OTT giant. right? You and I both understand at this point how badly it needed this. But what happened the next day came as a bit of a surprise. Bloomberg reported that Walt Disney may sell a controlling stake in Disney Star's business in India to reliance industries. Nothing is final yet though,

but it does make one wonder about the timing of it all. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Da Sharma, and I Don't Chase the News Cycle. Instead, thrice a week on Monday's, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Wednesday the 25th of October. To begin with, let me take you through what Bloomberg reported on Monday. It said that Reliance Industries is nearing a cash-and-stock deal to buy Walt Disney's India operation. This includes Disney Stars television business and Disney Hot Star at the OTT platform.

Disney is reportedly going to sell the majority-controlling stake to Reliance, but it will continue to hold on to a minority stake. According to Bloomberg, Disney values the India business at $10 billion. Reliance, on the other hand, sees the assets as between $7 to $8 billion worth. People familiar with what is going on said to Bloomberg that the deal may be announced as early as next month. Now, the thing is, this news in itself is not that surprising. If you listen to Daybreak regularly, the last time I told you about Disney Hot Star, you'll remember I said that there are rumors that Disney might want to wash its hands off its India business.

What comes as a surprise is the timing of it all. Right after Hot Star drew in a record number of viewers. A spokesperson for reliance in an email reply told the news outlet, that the company evaluates various opportunities in an ongoing basis and it will make necessary disclosures as required. So, right now, as things stand with this probable deal, nothing is written in stone. But just as all of this was going on, Disney Hot Star was breaking records. 43 million simultaneous viewers is no small feat. How did the OTT giant manage this?

Stay tuned to find out. You know, after the whole affair of losing the IPL rights and then dropping off HBO content, many said that these cricketing tournaments like the ICC World Cup now and the Asia Cup before this were going to be Disney Hot Stars' last chance. The last chance to show their California headquarters that they can still reign supreme in India's world of OTT. So Hot Star leaders in India decided to do just that. IPL or no IPL? Cricket was going to be their main customer acquisition funnel.

But before we get into how they pulled it off, let me just quickly take you through Hot Stars various phases over the years. There have been three. The first one was between 2015 to 2019 when content was free and it was advertisement heavy. The second phase was when Disney came into the picture and tried to build a subscription model. What we're seeing now is the third phase. the one that Disney's India leaders have guided the OTT platform into. So, let us look at what exactly they did.

Basically, they recalibrated their entire strategy. They went back to the drawing board and came to the conclusion that they should go back to what has proven to work for them in the past. More focus on advertising. My colleague Pratap Vikram Singh, a reporter with the Ken, spoke to Disney Hot Star executives, and they told him that the streaming platform has been ready to handle five times more advertisers and users compared to 2019.

The leadership has internally labeled this as the path to profitability. But to be honest, it seems like they didn't have any other option. They were kind of cornered into taking the ad route when GeoCinema decided to stream IPL for free. A top Disney hot star executive told Aken that the strategy, is to use sports content to attract users and generate ad revenue. The aim is to get lots of advertisers, even if this means selling ad space at a lower price. For example, a formal company executive told us that Hot Star has cut down the

CPM rates. CPM rate is basically a metric that represents how much it costs advertisers to show their advertisement to 1,000 people. For comparison, for the 20,000, In the 203 IPL, Geo Cinema was charging $180.80. In response, Disney Hot Star has lowered its rates to $199 for India matches and $40 for non-India matches. This brings the average CPM to $140 to $150 to $150. A former executive who worked closely with the ad sales team told Pratap that earlier, between 2019 to 20202 to be specific,

Disney Hot Star was doing the exact opposite. It was progressively increasing its CPM rates. Now, apart from lowering its ad rates, the OTT giant is also trying to expand its advertiser base. It is introducing more Hot Star special shows. It is maintaining its focus on regional content and slowly converting a loyal audience into subscribers. But is all this enough for Disney to hold on to Hot Star?

Or to put it in another way, One can also ask, why is Reliance interested in Disney Hot Star if it is the sinking ship that many are making it out to be? Coming up next. You see, despite losing such a huge chunk of subscribers after it lost the IPL rights, Disney is still the largest OTT platform in the country in terms of subscriptions. It has the biggest market share even now. That, of course, is not something that can be ignored. In fact, according to Reuters, Disney's India business is,

its biggest business globally if you go by the number of users. Next, and very importantly, Hot Star still has the streaming rights for ICC tournaments till 2027. Then there is a thing about regional content. Disney Hot Star has a lot of variety to offer comparatively. Sajit Sivanan, the head of Disney Hot Star India, recently while talking to LiveMen said, and I'm quoting, this may be debatable and I may be biased, but I don't think there is any other that has as rich a depth of regional content as we do across Tamil, Telugu and Malayalam. End quote. Disney Hot Star also has iconic brands such as Disney, Pixar, Marvel and Star Wars.

And last but not the least, Disney Hot Star has experienced doing what most OTT platforms do not, including Reliance. It has worked with an ad-centric model and also a subscription model. Now, in the third phase, they are underwent. a hybrid model. Seven And then told Live meant that Disney Hot Star will have a robust ad-driven offering combined with a very premium subscription offering. Now, we still don't know whether this deal will see the light of day at all. But if it does, then you know now what reliance will get out of it. An OTT monopoly in India probably. But if it doesn't, then you also

know why Disney may want to hold on to Hot Star just a little bit longer. Before I sign off, I have something to say to you, dear listener. First of all, thank you so much for tuning in. But it's been more than 10 months since we launched daybreak and I still feel like I don't know you. If you listen to daybreak regularly, please write to me at Snigda, S-N-D-H-A, at the rate, the ken.com. It is dh-he-K-E-N-com.

I want to know who you are, what you do, and I really don't mean that in a creepy way at all, everything you share will be confidential of course the point is I want to know what you like about daybreak and most importantly how you think we can get better now that we're coming close to daybreak's first birthday Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform

what you're listening to is just a small sample of our subscriber-only offerings a full subscription unlocks daily long-form feature stories newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snitha Sharma, your host and today's episode was edited by my colleague Rajiv Sien.