The merger of the media and distribution arms of Reliance Industries
under the Network18 umbrella is a positive for shareholders of all four entities.
Analysts believe that despite a common ownership, it was difficult to value the separately listed entities. With consolidation of cable distributors DEN Networks and Hathway Cable and Datacom, broadcaster TV18 under the holding company Network18 Media and Investments, the ‘sum of parts’ valuation is expected to be higher. The merged entity will rank among the top three Indian media companies.
The head of research at a domestic brokerage believes the move will improve decision-making and avoid overlaps across business functions. This should help generate synergies and improve operating efficiency of the combined entity, he added.
In addition to fine-tuning content deals within the group, the merger could lead to rationalisation of the 27,000 local cable operators with a base of 15 million households and 1 million broadband subscribers.
Edelweiss Research says there would be better cash flow management with funding requirement of the cable business met by the free cash flow of the entertainment segment. The cash will come handy as the group plans to expand and strengthen its reach in the northern and western regions of the domestic cable market.
While a single entity should help, there are multiple challenges ahead. Implementation of the new tariff order from March 1 could lead to lower subscription revenues.
Further, heavy competition in the digital space is expected to result in higher costs. Monetisation could be an issue, given the lack of traction for a majority of new content.
Higher competition from Netflix, Amazon, Disney Star, and HBO Max, and the proliferation of niche and regional content will add to pressure. In this context, bringing in a strategic partner could help both on the content front as well as improve its market share across mediums. Given the swap ratio and discount at which they were trading, shareholders of TV18 and Hathway, which ended 15-20 per cent up, gained the most.