Viacom18-Star India merger needs to be modified for CCI approval

The proposed merger of the Reliance Industries’ Viacom18 and Walt Disney’s Star India may need to be modified for approval by the Competition Commission of India (CCI), experts said. The combined entity may need to divest stakes in many TV channels to meet the CCI criteria aimed at preventing undue concentration of market power.

Before the Zee-Sony merger, the combined entity required to divest three channels (Zee Classic, Zee Action and Big Magic) for CCI’s approval.

The $8.5 billion deal between Reliance and Disney, announced last month, is likely to lead to the combined entity having market shares in many segments, exceeding the CCI’s thresholds for combinations.

For instance, the combined market share of the two entities in FY22 stood at 40-50%, 60-70% and 40-50% respectively in Hindi, Marathi and Bengali general entertainment channels. In the Hindi film channels, the two had a combined market share of 30-40% in FY22.

Experts said that if the market share of the combined entity exceeds 40% in any market, the CCI is likely to conduct a detailed investigation, or what it calls Phase II investigation. Under such probe, the competition watchdog could seek comments from different stakeholders, including Zee, Sony, distribution platform operators (DPOs) and channel providers.

“This is a huge transaction that will leave other players in a weaker position. The next best competitor will be Zee and Sun with market shares of 18-20% and 11%, respectively. The remaining competitors will be left far behind that can lead to a potential of abuse of dominant position by the combined entity,” said K.K. Sharma, noted competition lawyer and founder, KK Sharma Law Offices. Without major modifications, it’s difficult for this deal to go through, he feels.

Vaibhav Choukse, Head (Competition Law Practice) at J. Sagar Associates said that just about 5% of the M&As require Phase II investigations. “In cases of this magnitude, it takes 6-8 months for the CCI’s clearance after the application is filed,” he said adding that RIL-Disney may have to give definite commitments to CCI to get the deal cleared.

These Commitments could be in the form of divesting certain channels in which they have high market shares, and giving assurance to the regulator that they will not increase ad rates for a certain period, Choukse said.

At the moment, Reliance and Disney are present in nearly all the broadcasting categories, including content production, distribution and aggregation.

Even though the market share of the potential combined entity in the streaming services is likely to be around 50%, Choukse said that the dominance issue might not affect over-the-top (OTT) segment where the incremental increase in the market share will be just 2-3%.

The fact that CCI hasn’t blocked even a single transaction that required remedial measures – unlike the regulators in the US and China – must come as a big relief for the new partners. Financial Express