By Aditya Kalra

NEW DELHI (Reuters) -India’s antitrust body has reached an initial assessment that the $8.5 billion India merger of Reliance and Walt Disney media assets harms competition due to their power over cricket broadcast rights, four sources told Reuters on Tuesday.

In the biggest setback so far to their planned merger, the Competition Commission of India (CCI) has privately told Disney and Reliance its view and asked the companies to explain why an investigation should not be ordered, one of the sources said.

“Cricket is the biggest pain point for the CCI,” said one of the sources.

The merged company, which would be majority owned by Asia’s richest man Mukesh Ambani’s Reliance, would have lucrative rights worth billions of dollars for the broadcast of cricket, raising fears over pricing power and its grip over advertisers.

Reliance, Disney and the CCI did not immediately respond to requests for comment. All sources declined to be named as the CCI process is confidential.

Antitrust experts had warned the merger, announced in February, could face intense scrutiny as it will create India’s biggest entertainment player which will compete with Sony, Zee Entertainment, Netflix and Amazon with a combined 120 TV channels and two streaming services.

The CCI earlier privately asked Reliance and Disney around 100 questions related to the merger. The companies have told the watchdog they are willing to sell fewer than 10 television channels to assuage concerns about market power and win an early approval, sources told Reuters.

But they had refused to relent on cricket, telling the CCI that broadcast and streaming rights will expire in 2027 and 2028 and cannot be sold right now, and that any such move would require the cricket board’s approval, which could delay the process.

The CCI notice may delay the approval process but the companies can still address the concerns by offering more concessions, a second source said.

“This is a precursor of things getting complicated … The notice means that initially the CCI thinks the merger harms competition and whatever concessions offered are not enough,” added the person.

A third source said CCI has given the companies 30 days to respond and explain their position, and the concerns currently revolve around how advertisers could face pricing challenges if the entities are merged.

“The CCI is concerned the entity can increase rates for advertisers during live events,” said the third person.

Jefferies has said the Disney-Reliance entity will have a 40% share of the advertising market in TV and streaming segments.

Cricket has a fanatical following in India and matches are sought after by advertisers. Reliance-Disney will own digital and TV cricket rights for top leagues, including for the world’s most valuable cricket tournament, the Indian Premier League.

The former head of mergers at the CCI, K.K Sharma, has said the merger could lead to “almost an absolute control over cricket.”

Zee and Sony planned to create a $10 billion TV behemoth in India and in 2022 and got a similar warning notice.

They offered some concessions by selling three TV channels which helped them win a CCI approval, but the merger eventually collapsed.

(Reporting by Aditya Kalra; Editing by Conor Humphries)

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