On Thursday, Paramount (PARA) announced it would sell 18 stakes in India's Viacom. This follows a similar move by Disney (DIS) to merge its Indian assets with Reliance Industries in a joint venture. Why are these two media giants making moves now? Yahoo Finance's Alexandra Canal explains in the video above.
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Editor's note: This article was written by Stephanie Mikulich.
video transcript
Julie Hyman: India's entertainment industry is booming, but U.S. media companies such as Paramount Global and Disney have stalled monetization efforts in the region while local rivals are sitting on deep pockets. Because of this, they find it difficult to compete. Yahoo Finance — Alexandra Canal from Yahoo Finance. I'm really looking forward to talking to you about this, Ari. You've been digging into this.
Alexandra Canal: Yeah. So, I found it interesting that just recently, in the past two weeks, two major media companies have pulled out of India. And India is a region where we're seeing a lot of growth and a lot of investment across technology. If you look at companies like Apple, they've invested a lot.
But the reason I think this is happening now is because profitability is a big challenge for many companies. It's clear that Paramount is in a lot of debt. And now they have $517 million in cash after selling their entire 13% stake in Viacom 18 to Reliance Industries. This will help the company clean up its balance sheet amidst M&A rumors swirling.
At the same time, it is very difficult to monetize in India. I think that's why Disney took a little bit of a step back from that company. They plan to sell the Starz business to Reliance. And they're actually setting up this new joint venture. So it's not like they've completely withdrawn from India, but it's definitely a step backwards compared to what they were doing before.
And Disney struggled mightily in the country after losing the rights to stream Indian Premier League cricket matches to Reliance. This led to a significant drop in Hotstar's subscribers. And as a result, average revenue per user decreased pretty quickly. So, with this combination back home in the US, both companies dealing with a number of challenges, and profitability stagnant, now is probably not the best time to make further investments in risky overseas markets. Probably.
Having said that, India has come a long way when it comes to media and entertainment. The country's M&A sector grew by 8% in 2023, reaching a total of $27.9 billion, according to an EY report. And that amount is expected to grow even more as the country really grows in this particular industry. Therefore, I think investment will be considered. Given all the challenges, now may not be the right time.
Josh Lipton: Well, it's interesting considering the geopolitical tensions with China. I think you're going to double down on India.
Alexandra Canal: Yeah. And as Disney said, they want to remain in the country. However, Bob Iger said on an earnings call in November that he was evaluating all options at the time. Because when you think about it all, not just Disney, there were areas of the business where we were struggling. It's a traditional media company in the area. Therefore, I think this will be a focus area in the future. However, I think now is probably not the time.
Josh Lipton: Okay, Ali, thank you very much. appreciate.
