To add muscle to its expanding media and entertainment business and create a more diversified and bigger balance sheet, Reliance Industries Ltd (RIL) has decided to consolidate all its media and distribution properties under the umbrella of Network18 Media and Investments.

In a late evening announcement made on February 17, RIL, ranked No. 1 on the list of Fortune India 500 companies for 2019, stated that the group’s various companies—TV18 Broadcast (Network18’s broadcast business), Hathway Cable and Datacom and Den Networks (the two companies in which RIL acquired a majority stake in 2018) will be merged into Network18. “The broadcasting business will be housed in Network18 and the cable and ISP (Internet service provider) businesses in two separate wholly owned subsidiaries of Network18,” the statement read.

“The restructuring shall create value-chain integration, and render substantial economies of scale. The scheme shall also simplify the corporate structure of the group by reducing the number of listed entities,” RIL said in its statement, explaining the rationale for the decision. “The aggregation of a content powerhouse across news and entertainment (both linear and digital) and the country’s largest cable distribution network under the same umbrella shall boost efficiency and exploit synergies, creating value for all stakeholders.”

RIL, owned by India’s richest billionaire Mukesh Ambani, has been acquiring these media and distribution properties to build a robust ecosystem around its telecom and digital services venture, Reliance Jio Infocomm (Jio). Jio has emerged as India’s newest and largest telco, with 370 million users, in a short span of time, since launching commercial operations in 2016.

The reorganisation furthers the group’s strategy of building a media powerhouse that is agnostic across pipe, platforms, and screens, RIL says. The move is in recognition of the increasingly B2C (business-to-consumer) nature of the media business in India, led my market forces and regulation. An integrated media play will add breadth and depth to the group’s consumer touchpoints and aid in greater retention of consumers’ spend on content.

In November 2019, it was reported by Bloomberg that RIL was looking to sell its news media business to Bennett Coleman and Co. RIL, however, denied any such intention. Nonetheless, the proposed scheme of restructuring will make Network18 a far more attractive proposition for investors, if RIL ever chooses to monetise a part of its stake in the company, perhaps in favour of a strategic investor. The media has also put out unconfirmed reports stating that Sony Pictures Network India and RIL are in talks currently to explore a union of their entertainment businesses.

According to Abneesh Roy, executive vice president of Edelweiss Securities, the key benefit of the restructuring is scale. “One entity versus four small entities becomes more attractive to investors going by criteria of size,” Roy said.

It will also simplify the corporate structure and reduce related party transactions, which are frowned upon these days due to tighter corporate governance norms. The arrangement will help Network18 scale up as one of the largest listed media and distribution companies in India along with Zee Entertainment Enterprises and Sun TV and the largest after Star India in terms of revenue.

With the restructuring, the consolidated revenue of Network18 will leapfrog to ₹8,000 crore and will be net debt free. For the financial year ended March 31, 2019, Network18 posted a turnover of ₹5,916 crore and a loss of ₹303 crore. The company also had a total debt of ₹2,100 crore as on December 31, 2019. Network 18 would benefit from improved shareholder returns and a balanced mix of annuity and cyclical revenue, the company said.

The combined businesses of Den and Hathway bring with it a network strength of around 27,000 local cable operators that reach out to 15 million households and 1 million wireline broadband subscribers. Network18’s broadcast business, which is the third-largest network in the country, has a 13% share of TV viewership in India with channels such as Colors, CNN News18, CNBC-TV18 and the ETV bouquet of regional channels. It also has digital properties in its fold such as News18.com, Viacom18’s OTT platform Voot, and business news and information portal and app, moneycontrol.com, and a stake in ticketing platform BookMyShow.

According to the scheme of arrangement, which was approved by the boards of the respective companies on February 17, shareholders will get 92 shares of Network18 for every 100 held in TV18, 78 shares of Network18 for every 100 in Hathway; and 191 shares of Network18 for every 100 held in Den. RIL’s holding in Network18 would stand diluted to 64% from 75% earlier after the implementation of the scheme.

There are some negatives as well. According to Roy, the merger will make Network18 a media conglomerate and investors “won't be able to play a specific business like broadcasting, or cable or news.” This used to be an issue with Zee when DishTV and SITI Cable were a part of the company, he highlighted.

News of the proposed restructuring made Network18 one of the most buzzing stocks on the bourses in early morning trade on Tuesday. Network18’s share price was trading at ₹30.05 per share on the BSE at 10:00 am, up 4.89%, while the benchmark S&P BSE Sensex was down 0.61%. TV18’s share price was up 13.52% at ₹28.55 per share; Hathway’s share price was up 20% at ₹23.10 per share.

Hathway Cable and Datacom

Network18 to emerge as RIL’s media conglomerate