2 events of last week could potentially disrupt the way the respective industries function.
1. Merger of Myntra with Flipkart
2. Reliance Industries taking over Network 18 group
One is in response to the entry of a giant in online retailing segment and the other directly gives entry to another giant in the media sector.
1. Myntra & Flipkart merger: No one would understand better the disruptive force of the entry of a giant like Amazon.com in India than former Amazon.com employees themselves. In December last year, Amazon introduced the ‘same day delivery service’ on the products covered under ‘Fulfilled by Amazon’ category in the metros. This was followed by an intense advertising campaign highlighting it. In the ‘me too’ Indian online retailing sector, this had the potential of taking market share away from the leader ‘Flipkart’ as consumers in their desire to get their hands on the products earliest might have just veered towards Amazon. Not surprisingly, Flipkart followed suit with its own version of same day delivery ‘In – a – day guarantee’ delivery for a nominal charge. This too was launched in metros and for a nominal charge.
Flipkart with its ‘Cash on Delivery’ offering is the undisputed leader with GMV of $ 1 billion. The overall e-tail market is estimated at $ 2 billion. Thus, Flipkart has a 50% market share. Further, the organised retailing market in India is estimated at $ 40 billion. The e-tail space itself is expected to grow 10x to $ 20 billion in the next few years by some estimates.
Last week, Flipkart announced the merger of Myntra with itself. Myntra is the leader in the online fashion and apparel segment. With Sales of ~ Rs 1000 Cr its one of the biggest fashion and lifestyle retailers alonside Jabong. The deal prima facie seems a ‘win win’ for both with Flipkart getting access to the fashion prowess of Myntra and likewise for Myntra it gets the the logistical backup to scale up. Myntra being fashion focused has a lower base of customers whereas the universe of Flipkart consumers is pretty large. Myntra also has to focus on the customer experience while retailing which Flipkart doesnt and cant since it retails a wider category of products.
Amazon is making its presence felt across product categories.
As a result, its imperative to grow rapidly to capture market share.
2. In 2012, Reliance Industries extended promoter funding to the tune of Rs 2200 Cr in the form of debentures which were optionally fully convertible into equity and the option vested with Reliance Industries over 10 year period. This funding was extended to certain Raghav Behl owned companies to subscribe to the rights issue of Network 18 and TV18 which in turn were planning to use the rights issue proceeds to takover Ramoji Rao owned Eenadu TV.
Raghav Behl owned Network 18 is the holding company of assets such as web portals moneycontrol.com, homeshop18.com, firstpost.com as also channels such as CNBC TV18, CNBC Awaaz, CNN IBN, IBN Lokmat, History TV18 etc. On Thursday, RIL said it’s board approved funding of Rs 4,000 Cr (or roughly $730 million) to the company, IMT, through which the investment was made. Now, this is essentially because the 25% trigger, when breached, results in additional 25% open offer for minority shareholders. Now, RIL cumulative investment is to the tune of ~ Rs 35000 – 36000 Cr (translation of $ 5.7 bln) in the telecom business. RIL says,“The acquisition will differentiate Reliance’s 4G business by providing a unique amalgamation at the intersection of telecom, web and digital commerce via a suite of premier digital properties.
Forbes has this http://www.forbes.com/sites/meghabahree/2014/05/30/reliance-takes-over-network18-is-this-the-death-of-media-independence/ Mint has this http://www.livemint.com/Companies/Vpo4RrEprzzsFI7xGJw3OP/RIL-to-acquire-control-of-Network-18-spend-Rs4000-crore.html#nav=most_read
On the other hand corporate ownership of media is an extremely delicately issue. More often than not, it turns out into a propaganda machine.