IPL media rights: Sony, Zee, Disney Star rank fiscal prudence, value creation and disciplined bidding over all else

Disney Star has retained the television media rights for the Indian Premier League (IPL) at a price of Rs 23,575 crore for five years. Viacom18 has grabbed consolidated digital rights at Rs 23,758 crore.

Disney Star is set to pay Rs 57.40 crore per match for the linear TV rights, while Viacom18 will pay the Board of Control for Cricket in India (BCCI) Rs 57.90 crore for the consolidated digital rights.

On day 3 of the media rights auction, Disney Star and Viacom18 fought hard for the non-exclusive rights to the most-watched matches of the tournament. Viacom18, which had won the rights to the digital broadcast, cornered the non-exclusive rights to 98 matches at Rs 3,258 crore. The reserve price for the non-exclusive matches was Rs 1,440 crore.

BCCI secretary Jay Shah announced on Twitter that Viacom18 won the broadcast rights for Australia, South Africa and the United Kingdom, while Times Internet (TIL) bagged the rights for the Middle East and North Africa (MENA) and the United States.

Digital rights slipping out of Disney Star’s kitty is being seen as a huge loss to the broadcaster that achieved a leadership position in the video streaming market in India on the back of the IPL. Rebecca Campbell, chairman, international content and operations, The Walt Disney Company, who is in India, said in a statement that the broadcaster made “disciplined bids, with a focus on long-term value”.

“We chose not to proceed with the digital rights given the price required to secure that package.” With the loss of the digital rights, the user base of Disney+ Hotstar is expected to shrink by about 40-50%, as per Elara Capital. Reliance stands to gain these subscribers who will move from Disney+ Hotstar.

She added that the company will be on the lookout for other cricket media assets. “We will be exploring other multi-platform cricket rights, including future rights for the International Cricket Council (ICC) and BCCI, which we currently hold through the 2023 and 2024 seasons, respectively.”

Campbell also drew attention to Disney+ Hotstar’s non-sports content. “Last year, Disney+ Hotstar was home to seven of the Top Ten Hindi SVoD entertainment series in India, and we currently have more than 100 local original titles in our content pipeline, with over 80 local originals slated to premiere this fiscal year.”

At a value of $15 million per match, IPL is now second to the National Football League (NFL), in terms of per match value.

Fiscal prudence

Broadcasters that didn't win the media rights, indicated that they made judicious decisions to step aside. “We made a reasonable bid, considering all the expected returns. We had to factor in the market's anticipated expansion, potential economic and other concerns over the next five years. Fiscal prudence, in my opinion, is critical for strategic management,” said NP Singh, MD & CEO, Sony Pictures Networks India, in a statement.

Zee Entertainment Enterprises (ZEEL), which was in the fray for digital rights, said it focuses on value creation. Rahul Johri, president, business, ZEEL, said in a statement, “We evaluate all business decisions through the prism of value creation for our stakeholders and will continue to evaluate every sports property with the same prism.”

Strategic investments

N Santosh, managing partner, D&P Advisory, told afaqs! at the end of day 1 of the auction that the bids had entered the “irrational territory”, and estimated that they (the bids) would settle in the range of Rs 115-120 crore per match. “No matter how valuable a media asset is, there is a value beyond which it does not make any financial sense. I am glad to see that the bidders realised that limit.”

The total value of digital rights has now exceeded TV rights by Rs 183 crore. Viacom18 is shelling out 16% of the value of digital rights to deny non-exclusive digital rights to Disney Star. “The fact that digital rights value is higher than TV, showcases the scale and future potential of streaming in India. It is worth paying the 16% premium to retain exclusivity to 25% of the property’s high quality inventory,” says Mihir Shah, vice president, MediaPartnersAsia.

Viacom18, backed by Reliance, has chosen to make an investment in digital rights with a long-term strategy in mind. The trifecta of telecom, e-retail and entertainment will work in tandem for Jio to consolidate its position in the telecom sector and retain subscribers, offer OTT bundles to its existing base of about 400 million subscribers, tap into the e-retail segment and benefit from the rapidly growing digital media sector.

Cutting losses

Disney Star and Viacom18 need to each draw around Rs 4,000-5,000 crore each in revenue every year from the IPL to recoup their investment. Santosh believes this will be a tough exercise for both the companies.

Neither will break even until the fourth or fifth year of the cycle, feel analysts. Karan Taurani, senior vice president, Elara Capital, estimates that digital has the potential to generate a gross margin of 24% in the fifth year, helped by strong growth prospects, as compared to TV, whose gross margins will peak at 13%.

“When Disney Star had both the rights, ad revenue was peaking at Rs 3,000-4,000 crore. It will not be easy for the company to generate close to Rs 5,000 crore of cash inflow every year without digital rights,” he says.

Viacom18 too has an uphill task. “No one has really cracked the digital monetisation model. Netflix, the pioneer, is also struggling,” Santosh adds.

Start-up brands that were on a dream run over the last 2-3 years, had been splurging on the IPL. But they are now facing funding cuts. If this continues, their ability to advertise on a media property like the IPL will be curtailed.

Taurani says, “With the digital and TV rights being split, there will be a tussle between the digital and TV broadcaster to attract advertisers. Start-up brands and digital-first companies may choose to advertise on digital, while mass brands in the FMCG, auto categories could opt for the reach TV provides.”

Ad rates for the IPL on TV are already sky-high at Rs 15-18 lakh for a 10-second spot. Industry observers expect the TV ad rates for 2023 to be as much as Rs 19-20 lakh per 10 seconds. Advertisers will be reluctant to shell out anything north of an 8-9% premium next year, say analysts.