As you switch on your television set to watch your favourite sport, cricket, try and reflect on the tussle going on behind the screen in bringing it live to you. The behind the scenes drama could give Ektaa Kapoor’s soap factory a run for its money. For it involves big ambitions, big gambles, big fortunes and big fiascos.
Just about a month ago, ESPN-Star Sports (ESS), paid International Cricket Council (ICC) a whopping $1.1 billion (about Rs4,840 crore) for the telecast rights to some 18 properties that included two World Cups, four Champions Trophies and two Twenty20 tournaments to be played between 2008 and 2015. ESS is a 50:50 joint venture between Walt Disney and Star Network which runs two sports channels in the country. Sony Entertainment Television had won ICC rights for the previous season for $255 million. Indeed, the number of properties was smaller last time, yet the reason for the 330% increase in the sum is difficult to comprehend.
Nimbus Communications, a sports and marketing company based in Mumbai, has also invested heavily in cricket telecasts. Last year, it paid the Board of Control for Cricket in India (BCCI), the body that owns the rights to matches that the Indian cricket team plays in India (the rights to the matches that the Indian team plays in other countries belong to their respective cricket boards), $612 million for 2006-10. The previous bid for 2004-08 rights from BCCI was $308 million, but it got nullified because of ait got involved in legal imbroglio. Prior to this, Doordarshan had paid BCCI $12.2 million for 1999-2004 rights.
BCCI and ICC cricket is of paramount importance to sports broadcasters in India because it involves the Indian team, which attracts maximum eyeballs, giving cricket the fanaticism it commands in the country. The latter, obviously, is directly proportional to commercial gains. Indeed, $612 million, or $1.1 billion, is no small commitment. According to industry insiders, $1.1 billion is 700-800% of what ESPN India earns in a year. The reasons why the two broadcasters stretched themselves to such an extent are different.
For ESS, buying ICC rights was crucial for survival. Cricket accounts for more than 90% of sports viewership and advertising in the country and of this, more than 90% comes from matches involving the Indian team. So even while ESS had some top international cricket properties and other premier events such as English Premier League and the Wimbledon under its belt, it needed Indian cricket to stay afloat.
More so, because its Indian operations, reportedly, account for around 40% of the revenues that its parent’s overall Asian operations generate. Says a leading media expert working with a top management consultancy: “Since BCCI rights had already been bagged by Nimbus, getting ICC cricket was imperative for them (ESS), otherwise they would have sunk into oblivion.” R.C. Venkateish, managing director, ESPN India, however, argues that it is not an act of desperation. “It is a long-term strategic investment for us. We will exploit this opportunity in many ways,” he asserts.
While Venkateish is not ready yet to divulge his strategy to make returns on this investment, Nimbus seems to have a broader plan in place. Harish Thawani, the chairman of Nimbus Communications and a wannabe media mogul, who failed several times in the past to make it big in the broadcast business, is hoping to make a flash with this $612 million deal. Soon after bagging the rights, he launched two sports channels last year and plans to launch some more soon.
He has a mobile content production set-up, which he intends to scale up using cricket content and he is also looking at getting into the sports DVD business. He has raised around Rs550 crore from reputable investors such as 3i, Cisco and Oman International to augment his expansion plans. Says Shashi Kalathil, CEO, Nimbus Sports Broadcast, the entity that telecasts the cricket matches for which Nimbus Communications has the rights : “We have already tied up deals worth $100-120 million for syndication with franchisees in several countries such as the US, South Africa, European nations, New Zealand and Australia. We plan to tap alternative distribution platforms like direct-to-home (DTH), IPTV, broadband, etc., along with regular advertising and subscriptions.” Nimbus hopes to generate around 40% of its revenue from the distribution deal it has struck with Star India.
But with the government making mandatory the sharing of important cricket events with the public broadcaster, Prasar Bharati, it seems like a difficult target. Interestingly, all the sports broadcasters have publicly welcomed the government move, but that could be because they have no other option but to learn to live with it.
“We, obviously, cannot challenge the law,” said a top broadcaster. The new ordinance is going to make life difficult for these players for sure.
As it is, Nimbus is still struggling to push the penetration of its two channels. Says a Delhi-based cable operator: “DD1, the terrestrial channel with which it will have to share its cricket, is a free-to-air and a must-carry channel. Why will viewers ask for Neo Sports or ESS, for which they have to pay (anywhere between Rs 37 and Rs52).”
There is another catch in the distribution story. The Telecom Regulatory Authority of India has fixed the rates of all channels at Rs5 in conditional access system (CAS) areas. So far, CAS is limited to the posh localities of the four metros but it will eventually be implemented in the rest of the country and, hence, even if Nimbus manages to push its penetration to its targeted levels, it won’t be able to monetize it the way it would have initially planned to.
Advertising, the biggest source of revenue for all broadcasters, doesn’t seem too promising either. Thanks to the lacklustre performance of the Indian team, cricket viewership has not been too impressive in the past two years (see graphic: Fall & Fall), so cricket isn’t selling like hot cakes any more, forget about higher ad rates.
Says Sunder Raman, managing director, Mindshare, a top media buying house: “Advertisers cannot increase their rates simply because broadcasters have bet their fortunes on it. For us, every investment has to be accounted for.” Kalathil says Nimbus will recover at least $250-266 million from advertising. His peers in the industry say he is “day-dreaming”.
Says Rohit Gupta, executive vice-president, marketing and sales, Sony Entertainment Television (SET), the broadcaster that had the ICC rights till 2007: “Having managed the sport for four years, I can say we understand the commerce behind cricket well.” SET has reportedly managed to make only around 13-14% profits on its investment, in a rather easier environment.
According to Gupta, the new platforms will take at least four to five years to mature and generate worthwhile revenues. Some other industry players point out that while DTH may be growing fast, but its growth could be hampered once CAS is made mandatory across the country. “Channel prices in CAS areas will be substantially lower than DTH. Obviously, a majority of consumers will stay with CAS,” says a cable operator.
ESS and Nimbus’ display of bravado notwithstanding, the sailing seems a little difficult for the two broadcasters. And, the government’s enthusiasm to protect consumer interest isn’t likely to help their case either.
Cricket lovers, however, can take heart. Even as these broadcasters struggle to get their act together, the viewers will continue to get their cricket feed uninterrupted.
(Rahul Bhatia contributed to the story)