India's Reliance Industries and Walt Disney have agreed to merge their Indian media businesses, creating a $8.5 billion entertainment giant in the world's most populous nation.

India's entertainment market is already one of the world's biggest, with the merger expected to further shake up the multi-billion-dollar industry.

The two companies had signed "binding definitive agreements" to form a joint venture that will combine the businesses of Reliance-backed Viacom18 and Star India, a joint statement by the firms said late Wednesday.

Reliance, an oil-to-telecom conglomerate led by billionaire tycoon Mukesh Ambani, will invest $1.4 billion into the new company.

The statement said Disney will hold 36.8 percent, Reliance will hold a 16.3 percent stake, and Viacom18 another 46.8 percent.

"This is a landmark agreement that heralds a new era in the Indian entertainment industry," Ambani said.

His wife, Nita Ambani, will serve as its chairperson.

The merger will create an entertainment powerhouse that will have more than 100 television channels and two streaming platforms.

The companies said the joint venture will have "over 750 million viewers across India", and will also cater to the Indian diaspora.

"Reliance has a deep understanding of the Indian market and consumer, and together we will create one of the country's leading media companies," Disney chief Robert Iger said.

The agreement will also help both Reliance and Disney stave off competition from traditional rivals such as India's Zee Entertainment and Japan's Sony, as well as streaming competition from Amazon and Netflix.

The announcement comes less than a month after Sony and Zee called off a $10 billion merger that would have been a formidable force against Reliance and Disney.

"This merger will have a very big impact on the entire media and entertainment ecosystem", said Elara Capital senior vice president Karan Taurani. "It's going to be a one of its kind."

Taurani said the merger could help put their streaming platforms on a "path towards profitability" in the medium to long term by bringing down content costs.

Taurani estimated the merged entity would command a 40 percent to 45 percent advertising revenue market share for both traditional broadcasting and digital streaming.