1.2 Billion Opportunities for Disney in India

By Ryan Jepson - September 4, 2012 | Tickers: SNE, TWX, DIS | 0 Comments

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In a largely unpublicized move earlier this year, The Walt Disney Company (NYSE: DIS) acquired India’s major media conglomerate, UTV Software Communications Ltd. The move, which cost $450 million, valued UTV at $900 million.

The two companies began their relationship in 1996 when Disney contracted UTV to dub its movie library into Indian languages. Dubbing is no easy task: India alone has 1,500 individual languages, 30 of which are spoken by over a million people.

India’s Media Giant

Today, UTV is a media powerhouse—India’s fastest growing broadcasting, cable and satellite network, with six owned channels, bringing Disney’s weekly viewership in the country to 100 million. A dominant player in the movie industry, UTV consistently produces hits in and beyond Bollywood and brings them to 45 countries. “I Hate Luv Storys,” for example, was one of the few films in India to reach the half a million pound mark in 2010.

Like Disney, UTV creates content that can be produced across multiple, complementary platforms: a hit movie can provide content for television, console gaming, online gaming, and future movies (and vice versa). This “360 degree approach” allows each outlet to serve as marketing for the others.

The media giant also has a non-exclusive partnership with Liquid Comics, which allows UTV to produce Indian-tailored movies and entertainment. Liquid Comics isn’t quite Marvel, but their friendly relationship does position UTV for more creative content in the future.

And in the areas of television, gaming, and movies, UTV isn’t just dominant. It’s also growing. Take a look at revenue growth for the company’s three segments in 2011:

Such significant revenue growth is dwarfed by their 174% increase in net profits that same year.

Not every Indian media company—and at least one owned by a major international media company—is faring so well. Time Warner Networks (NYSE: TWX) bought Indian general entertainment channel NDTV Imagine for $126.5 million in 2009 and later gave control to its own Turner Broadcasting Networks. That channel shut down permanently earlier this year due to poor performance.

Prospects for Disney International

For two reasons, this UTV deal is important for the future of Disney’s international businesses.

First, India is projected to become the world’s fifth-largest consumer economy by 2025. Over the same period, average household incomes in this behemoth are expected to triple.

Second, media networks account for 50% of Disney’s total revenue. These networks include ESPN, a swath of Disney Channels around the world, and ABC. Unlike theme parks, which take years to build and require constant, costly capital input, the Mouse has, in one fell swoop, significantly increased their Indian media presence in their most important sector. Disney/UTV is not the only player in India, of course. Sony Corporation (NYSE: SNE), for example, owns Sony Entertainment Television India, a popular general entertainment channel, among other channels. UTV is, however, a strong and rapidly growing player.

Another Marvel Acquisition?

Much-hyped Disney success has recently centered on its acquisition of Marvel Comics. Even at a price tag of $4 billion, Disney’s 2009 acquisition of the US-based comic book company was an amazing deal, positioning the company for steady, sometimes absurd, sales in its studio entertainment division that overflows into merchandising, parks, and media networks revenue. Of course, The Avengers, a Marvel hit, was the third highest-grossing movie of all time at $1.45 billion.

Can Disney’s acquisition of UTV produce Marvel-like success? Probably not, but it is a good bet that it will bolster revenues in its media networks and studio entertainment sectors in the long term.

We can tend to focus on the domestic successes of the House of Mouse, but Disney’s international prospects are just as bright. Investors wondering whether a company with a market cap of almost $90 billion has any steam left should look to India as evidence that Disney has plenty of room to grow. And UTV is a perfect way to fuel that growth in the world’s second largest country.

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