‘Eros International and STX Entertainment together can yield run-rate revenue and cost synergies of up to $50 million by 2022’

• Eros International and STX Entertainment have recently merged to form a new entity, Eros STX Global Corporation.
• The merged entity will have an increased economic scale of more than $600 million in pro forma revenue for calendar 2019 and over $300 million of aggregated future revenue from STX Entertainment films already released last year.
• Pradeep Dwivedi, CEO-India, Eros International Media Ltd. and Ali Hussein, CEO, ErosNow throw some light on what the merger means and how it will help Eros International grow. They also tell us what's in it for the consumers.

Eros International and STX Entertainment have recently merged together to create a ‘pre-eminent global media company which can develop, produce and distribute Bollywood and Hollywood premium content at scale and across many platforms of both the entities’.

The combined entity will have the capability to take Eros's and STX's content libraries and pipeline of original content to a broad and growing global audience. The new entity has been named Eros STX Global Corporation. The organization has put together a management team led by Kishore Lulla as Executive Co-Chairman, Robert Simonds as Co-Chairman & Chief Executive Officer, Andrew Warren as Chief Financial Officer, Rishika Lulla Singh and Noah Fogelson as Co-Presidents, and Prem Parameswaran as Head of Corporate Strategy.

In a recent conversation with Pradeep Dwivedi, CEO-India, Eros International Media Ltd. and Ali Hussein, CEO, ErosNow, we tried to decode what this merger will entail, how it will help both the entities grow and how users stand to gain.

Edited excerpts:

Q) Tell us a bit about the merger of Eros International and STX Entertainment. How will it help you grow your organization?

Pradeep Dwivedi: The merger will help to create a pre-eminent global media company which can develop, produce and distribute Bollywood and Hollywood premium content at scale and across many platforms of both the entities. As part of this transaction, $125 million of incremental equity led by TPG, Hony Capital and Liberty Global will help boost our liquidity and maintain a healthy balance sheet. The merged entity will have an increased economic scale of more than $600 million in pro forma revenue for calendar 2019 and over $300 million of aggregated future revenue from STX Entertainment films already released last year. We believe that the combination can yield run-rate revenue and cost synergies of up to $50 million that can be achieved by the calendar year 2022. The main areas for synergy opportunities are around content creation and distribution as well as reducing overhead and our borrowing cost. The deal comes at a time when the entire movie production sector shut in major global markets due to the COVID-19 pandemic, will see STX merging into the NYSE-listed Eros International and creating an enterprise with a $1 billion valuation. We strongly believe that the combined forces of Eros and STX will be beneficial for our shareholders.

Q) As a result of the merger, how do Eros's consumers stand to gain?

Pradeep Dwivedi: The combined company will have a robust pipeline of feature-length films and episodic content with powerful, well-established positions in the world's fastest-growing global markets. Today, audience is looking for all-inclusive content across languages, formats and genres. This combined business model will, therefore, have the unique capability to present Eros's and STX's robust film and episodic libraries and pipeline of original content to a broad and growing global audience. The OTT platform – Eros Now will benefit from quality assets with STX for Eros Now Prime, which was recently launched and will showcase English content, starting with content from NBCUniversal. In addition, the merger will see developing international distribution in adjacent markets and creating potential global stories that could be best told on an OTT service. The content consumed through multi-year output deals and strategic alliances and the markets leading to Eros Now streaming platform.

Q) Are mergers and partnerships like this the future of the OTT ecosystem?

Ali Hussein: Eros Now has been on a strong growth trajectory over the last few years and now amassed 187 million registered users, and 26.2 million paid subscribers that come to us from 150 countries. A large part of the growth strategy for Eros Now is to launch sub-brands further like Eros Now Prime and others, and, further deep penetrate India. Also, developing our International presence to become a more glocal player in our adjacent markets. Organic growth and M&A are all options we will consider based on the opportunity to be a relevant digital video brand to consumers in markets around the world. The newly created entity will leverage existing global partnerships with Apple, Amazon, Microsoft, NBCUniversal, Google and YouTube.

Q) The combined company expected to generate approximately $50 million in run-rate operating synergies within 24 months of closing. Can you throw some light on this?

Pradeep Dwivedi: There are significant synergy opportunities between Eros and STX which focus on content creation, distribution partnership as well as reducing overhead and our borrowing cost. Our emphasis would be on creating relevant content that has a global appeal and establish cross-over content partnerships with India and USA creative talent. This will thus help in substantially driving growth. While from a distribution point of view, the combined business will help in optimizing theatrical financing and create economic opportunities. Also, help in integrating Eros's theatrical release into STX's distribution agreement and help establish a direct theatrical distribution partnership, in addition, to bundle selling STX and Eros's programming to various network and streaming platform. The synergies also further help in enhancing and building their presence in the Chinese market, which is an upcoming entertainment market. The merger will also see co-production and co-financing Chinese as well as globally relevant content besides broadening Eros Now's proposition with western content and driving global subscriber growth.

Q) What kind of global exposure will this merger help Eros International gain?

Pradeep Dwivedi: There are approximately $50 million of highly actionable operating synergies across the global operations. These synergies can therefore monetize STX content on Eros’s OTT platform. This will be in addition to the recent announcement of Eros Now partnering with NBCUniversal and introducing a new format called Eros Now Prime. Eros Now Prime caters to premium English content programming majorly targeting the South Asian diaspora. Also, the OTT platform will benefit from STX quality assets, develop international distribution in adjacent markets and create potential global stories that could be best told on an OTT service. Furthermore, the merger will see Eros benefitting from STX global network, distribution agreements, partnerships, and STX's China relationship.

Q) What kind of content offering can we expect from the new entity in the near future? Will this content be specific to each individual market?

Ali Hussein: The merger creates the first truly independent media company that offers the best of Bollywood and Hollywood. STX's content slate caters to the massive and growing English content consumers in India. While Eros through its OTT platform will be offering original shows, short format content - Eros Now Quickie, music, Bollywood and regional language films that have a global appeal. The combined company expected to release close to 40 feature films in 2020 and more than 100 hours of original episodic content.

Q) How will this step help fuel growth for Eros overall? What kind of growth expectations do you have for the current financial year?

Ali Hussein: Synergies at the group level exist across efficiencies in content production, distribution expertise and penetrate offline audiences in US/India/China and ROW. Also, with the future of video technology and next-generation formats, new and exciting stories will be created that are more global in nature and bind the world with compelling cross border stories. The merger helps in leveraging the core premise of Indian entertainment for Eros Now and diversify into several sub-brands such as Eros Now Prime, Eros Now Quickie and other such formats by the end of FY 21. This will help Eros Now penetrate in India as well as global markets by offering glocal as well as Indian content respectively.