Why Viacom ceded operational control of India JV to TV18

MUMBAI: American media conglomerate Viacom had recently sold 1% stake in India joint venture (JV) company Viacom18 to JV partner TV18 for $20 million.

The transaction means TV18 becomes majority partner in the JV with 51% stake. Viacom will retain 49% stake in the company that is valued at $2 billion based on the transaction.

The deal was done to align Viacom18 more closely with Reliance Industries Ltd’s (RIL) telecom business Reliance Jio more closely to take advantage of the growth in content consumption on digital platforms.

Ever since Jio has launched its 4G service, the mobile data prices have crashed leading to a huge jump in content consumption. Jio has forced other telcos to cut data prices and launch their own over the top (OTT) platforms to retain their customers.

In a discussion with analysts in US, Viacom CEO Bob Bakish and CFO Wade Davis explained the rationale behind the deal at length.

According to Bakish, Viacom18 is preparing for the next wave of growth by aligning closely with Jio.

“We did this deal to set the company up for its next wave of growth by more closely aligning with our partner’s affiliated Jio platform, one of the largest and fastest growing mobile, broadband and video distribution platforms in India, having grown to 160 million subs in just over a year since launch,” Bakish stated.

Bakish noted that the company’s India business has come a long way from being a loss making entity to turning into a top 3 profitable media and entertainment company following the joint venture (JV) with TV18. Viacom18, he noted, has revenue of over $500 million and growing.

Expanding on the deal with TV18, Viacom CFO Wade Davis said that the deal will help Viacom18 to take advantage of Reliance’s Jio platform. The deal will also facilitate deeper integration with the Jio platform.

“Now in terms of the transaction, it was driven by the strategic desire to really take advantage of our partners’ position in the marketplace and their affiliated Jio platform. The Jio platform is something that is really transformed the Indian market, media marketplace over the past year where it’s gone from nothing to over a 160 million subscribers in just over a year,” Davis stated.

He further added, “By allowing our partner to take really kind of day-to-day operational control over this business it’s going to facilitate a much deeper integration of our business into the Jio platform and we think drive a real inflection point against the already strong growth of the business.”

Davis further stated that the sale of 1% stake to TV18 will not impact have any financial impact on Viacom as the India business was not a consolidated asset.

“And I think there’s a couple of other points just worth for mining folks which is number one, this business was never a consolidated asset so the sale of 1% and giving day-to-day operating control to our partner isn’t something that has any impact on our financial statements whatsoever,” he explained.

He further noted that the extension of licensing agreement with TV18 will benefit the company financially.

“What does have an impact on our financial statements is the fact that we extended and enhanced our license agreement with Viacom18 and that’s one of the thing that not only allows us to benefit from the top line growth of the business as we accomplished the strategic objectives that I just described but it also immediately has a material impact on Viacom International media networks financial performance and that’s one of the things that fuel that’s going to fuel the upside that Bob referenced in his announcement, immediately in 2018 and also beyond,” Davis expounded.

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