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This case is about the United Television and Software Company Limited (UTV) leadership team considering an alliance with the Walt Disney Company (Disney) in 2006. This alliance would include the acquisition by Disney of Hungama TV, India’s leading television channel for kids, created in 2004 and owned by Ronnie Screwvala, CEO of UTV (51%) and UTV (49%).

Also, as part of this alliance, Disney would purchase an equity stake of 14. 9% of expended capital in UTV. The total investment from Disney was estimated to be $44. 5 million. Background and Dynamics of the case Under Screwvala’s strong leadership, UTV quickly became one of India’s leading integrated media company. UTV started in 1981 as a cable TV operation company. UTV initially focused in the creation of television content for domestic and international channels until the mid 90ies.

In that low risk environment, the company grew at a low pace until Screwvala pushed to diversify and enter more high return activities like airtimes sales and post-production business (1995), film distribution business (1996), film production business (1999) and broadcasting business in 2004. UTV became publically traded in 2005 and Screwvala’s consolidated his holdings in UTV at 54%. Based on his belief that strong growth for UTC and operations in the foreign markets are tightly connected, UTV expanded its operations by launching a global film distribution network in 2004.

By 2006, Screwvala and Amit Banka, senior vice-president of Business Development & Strategy at UTC came to the conclusion that while expanding the base of UTV in the India market (both in existing and new verticals), expanding in the international markets was a necessity. These domestic and international expansions could be achieved by acquiring promising companies, which would require a significant amount of investment for UTV and the need to find a strategic investor.

The oversea opportunities for expansion for a company like UTV are driven by the large non-resident Indian population base and the strong demand from local audiences in other countries. Both UTV and Disney are operating in the Media and Entertainment (M&E) industry. In India, this industry is similar to that in other countries (high annual growth rate, composed of several segments but mostly driven by television and films), with some local specificities (high demand for indigenous content as opposed to localized one, fast rising production and distribution costs, piracy).

India’s specific demographic factors (highly educated, young population with rising disposable income) make it one of the most important markets from the perspective of growth within the Asia-Pacific region, which is one of the fastest-growing M&E markets. It has attracted several international companies, which are already generating most of their global revenue in the India market. UTV has mastered the specificities of the Indian M&E industry and put itself in key position to be successful and benefit from the growth potential in India.

With its diversification strategy and the switch to a business-to-consumer (B2C) model, Screwvala moved UTV to a more scalable model and in a position to control its destiny. Researches have shown that the film entertainment was one of the fastest-growing industries because it was the primary source of content for television. By entering and investing heavily in the film industry business UTV generated a driver for his other verticals, despite there is a lot of risk associated with that business considering the long time it takes to produce a film.

In the case of Hungama TV, Screwvala was the first to sense the need for an India channel for kid with indigenous content. This channel quickly became popular and the number one channel for kids. However, the departure of two key creative directors at UTV in 2005 resulted in a change of strategy at Hungama, which started to acquire a host of new Japanese and French animated series and limit its production of indigenous content.

Despite Hungama still holds a strong position in the market, it started losing money, causing dissatisfaction among UTV investors seeking short-term profits. Disney, a 75-year-old company is already established around the world and is leading the diversified international family M&E enterprise and generates an important portion of its revenue through its international businesses. It is already present in the Indian market with a channel for kids, ranked number two in the market. Alliance’s objectives With this alliance, both UTV and Disney stated the following objectives: *

UTV needs a substantial cash reserve to make strategic acquisitions and investments to expand its domestic and international businesses in order to meet future projected revenue goals * UTV wants to continue to expand its international presence and get a have an establish partner to help distributing its films and television content * Disney wants to establish a strategic presence in the rapidly growing Indian market, especially in the kids’ segment in India, where it was hoping to establish a strong foothold. Disney has an interest in picking up a stake in UTV since it wants to participate in UTV’s diversified business Critical issues and relation with readings The case highlights several issues and concerns that the UTV leadership team needs to be aware of and take into consideration before moving forward and establish this alliance with Disney: * Selling one of its rapidly growing television channels can be seen as counter-intuitive, considering the potential growth in the television business, especially in India.

However, Hungama is currently losing money and there is some pressure from a group of shareholders for UTV to cut its losses with this channel. Hungama had a strong a quick success but has been struggling since two key executives left but is still a good source of indigenous content for UTV * UTV needs to make some decisions driving short-term (or high-profile) versus long term gains (or growth opportunity). There is no right or wrong answer in this situation, yet risks need to be identified and controlled.

Going with a little bit of market research and guts feeling like Banka suggest is definitely required, yet dangerous if not backed up by solid goals in the formation stage of the alliance. UTV should consider investing the required time and effort to define the complementary strategy of the alliance with Disney and define the governance structure for the alliance before it enters in its operation stage * UTV assumes that Disney proposed to invest into UTV only because it believes it could expend its global business.

This could be a dangerous assumption, especially considering it is not Disney’s habit to make minority investments. Screwvala’s theory is that if both sides had an equitable relationship, protection is not necessary and he is not concerned about potentially losing the control of UTV at some point in the future. His arguments of management versus shareholding make sense, yet slightly naive in the highly competitive corporate environment. UTV needs to carefully review how this partnership could create a dependency between UTV’s and Disney’s businesses.

Appropriate exit provisions need to be negotiated and agreed with Disney * There seems to be internal disagreement between Screwvala and senior leaders of his company or shareholders, including on the development and partnership strategies. This could potentially affect the alliance when it is created if some key stakeholders are not fully supporting it. They might not be willing to fully invest into creating a strong personal relationship with their counterparts at Disney to make this alliance successful and productive

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