For IPL rights winners, the game starts now

Another entity’s strategy bordered on paranoia. It set up closely guarded war rooms at two different buildings in Mumbai to ensure they are not disconnected from the online auction process at any time. What if something went wrong in one of the bidding rooms? There could be a technology crash or power outage. Executives from the firm even feared sabotage by a competitor.

While the Board of Control for Cricket in India (BCCI) ran the auctions from Mumbai’s Taj Land’s End hotel, bidding entities joined from their offices.

After three days, on 14 June, the BCCI walked out of the hotel far richer. The new five-year broadcasting deal will fetch the BCCI ₹48,390 crore, or ₹9,678 crore per year, a three-fold increase over the 2018-22 cycle. Even on a per match basis, the increase is about 2.2 times. This brings the IPL closer to prominent global sporting leagues in overall media rights. IPL’s broadcasting fee per match totals ₹118 crore now, second only to American football league NFL where every match is worth ₹287 crore.

The BCCI’s windfall is noteworthy. But, ever since the auctions, critics, media buyers and analysts have been dissecting the cost of these rights. Can the winning entities ever make money?

Viacom18 bagged the digital media rights for the Indian sub-continent with a mammoth bid of ₹23,758 crore; Disney Star won the television rights for ₹23,575 crore. Sony Sports Network stated they made a “reasonable bid" but just couldn’t cut it.

Some naysayers are convinced Viacom18 stands to lose money with the digital rights. Surely, the two broadcasting heavyweights couldn’t have made such aggressive bids unless they had a compelling business plan. Advertising industry veteran and brand strategist M.G. Parameswaran who wrote (in The Economic Times) about Disney Star and Viacom18 not suffering winner’s curse but a bit of ‘buyer’s remorse’, told Mint that the two companies did their homework. “I am sure they don’t feel cursed. But they must have built a revenue model based on some critical assumptions. If those pan out differently, they may end up with some remorse," he said.

Let’s take a deeper dive into the possible business models and what the rights mean for different stakeholders.

Viacom18’s thinking game

Viacom18 is a joint venture between Reliance Industries owned TV18 and Paramount Global. For the IPL bids, it was backed by Bodhi Tree Systems—a new company formed by James Murdoch’s Lupa Systems and former broadcast executive Uday Shankar.

The team driving Viacom18’s IPL strategy was, thereby, fairly formidable and experienced.

Akash Ambani, son of India’s richest man Mukesh Ambani, led the charge along with Manoj Modi, a trusted lieutenant of the Ambanis, from Reliance’s side. Uday Shankar and Prateek Garg from Bodhi Tree Systems worked closely with the Reliance representatives and Anil Jayaraj, CEO, sports, at Viacom18. Garg is the former head of corporate development at The Walt Disney co.

Expert media buyers like Ashish Bhasin, the chairman and co-founder of RD&X Network, an AI-based platform for digital media, said broadcasters may not have made loads of profits but nobody lost money either when it came to the IPL. “In my view, digital will surprise everybody. No one can predict what digital will look like in three years from now–be it the metaverse, or the 5G rollout," he said. “The growth can be explosive. As per our internal estimates, another 250-300 million people will access the internet in the next 3-5 years. And they will be from tier 2,3 and 4 towns," he added.

Viacom18’s aggressive bid is probably based on such assumptions. There’s money to be made, but not right away.

Karan Taurani, analyst at Elara Capital, a financial advisory firm, projects recovery for Viacom18’s digital media rights to start in the fourth year. The company will spend approximately ₹4,500 to ₹5,000 crore a year in rights fee for IPL streaming and will lose ₹3,000 crore per year initially, he estimates.

“While digital media spends are predicted to grow at 30% a year for the next five years, digital subscriptions will grow too," Taurani said.

On IPL, Hotstar made approximately ₹1,200 crore from both advertising and subscriptions, he estimates. But the subscription-based video-on-demand will see faster growth, especially platforms with sports content. “Such platforms have a better chance to get higher average revenue per user (ARPU)," he said.

Many media watchers, including Taurani, believe that Viacom18 has a bigger game plan—enhance its over-the-top (OTT) media valuations. Also, while an expensive sports property may not be profitable independently, a convergence play between different Reliance entities could be the game changer. In fact, convergence appears to be at the heart of this aggressive bid.

“These (IPL rights) will be used to retain Jio subscribers, improve Jio ARPUs and cross-sell content across its platforms," he said. Jio, owned by Reliance Industries, is India’s largest 4G network provider.

Vinit Karnik, head of sports, e-sports and entertainment at GroupM South Asia, a media investment company, agreed. Viacom’s bid cannot be viewed from the lens of its streaming service Voot alone, he said. The company’s plan must be viewed against its interests in media, telecom and retail which will help leverage the IPL rights. “One needs to future gaze at the streaming business, Jio telecom and online shopping platform Jio Mart and see how the company will integrate all three with the help of the new property," he said.

Anand Ramanathan, partner, Deloitte India, sees the benefits of a convergence, too. “One could acquire customers and get a share of their wallets across media, shopping and communication. Also, study their purchase habits to make money during their life cycles," Ramanathan said.

Some expect Reliance to emulate the Amazon model where ‘Prime’ customers get shopping discounts and free access to Prime Video among other perks. “They may do the same–offer a digital subscription and shopping discounts," said an executive at a TV network who didn’t want to be named.

Meanwhile, people aware of Reliance’s plan said the company will most likely launch a super app soon—it would aggregate all of its media properties.

Uday Shankar declined to comment on Mint’s queries and the company’s plans to monetize.

Disney Star’s innings

Rebecca Campbell, the chairman of international content and operations at The Walt Disney Co., landed in India on 6 June. She wanted to oversee the IPL bidding process and worked with K. Madhavan, president, Walt Disney Co. India and Star India.

Disney Star’s bidding room, on the 37th floor of Star House in Mumbai’s Lower Parel, also had other executives. There were Justin Warbrooke, executive vice president of finance and operations for Disney Media & Entertainment Distribution, and Peter Wiley, Walt Disney Co.’s chief international counsel.

After winning the TV broadcast rights, Campbell said: “We 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."

When can Disney Star break even on the television media rights? Sooner than Viacom, advertising industry experts and analysts believe.

“We estimate TV to attain profitability in the second year itself, as related premiums were limited over the base price," Elara’s Taurani said. However, television advertising will see a narrower growth band of 6-8% in the next five years compared to digital’s 30%.

The IPL TV rights will also help the Star network dominate market share in the advertising and subscription segment. Currently, the Star network enjoys 29% market share in total TV consumption across all its channels, the company had earlier claimed.

Going ahead, there will be other tailwinds for Disney Star. There’s talk of moving more and more games to the evening slot from the low viewership afternoon matches. As the tournament progresses, the number of matches will go up–from 74 today to more than 90, a person familiar with BCCI’s plan said. When the season stretches, there are more broadcast hours. The advertising minutes, therefore, go up, aiding the broadcaster to recover the investment.

One of the assumptions made by Disney Star is that IPL viewership will resurrect in the seasons ahead—in 2022, TV viewership plunged 24% versus the previous season. Many factors could have led to this decline, including IPL fatigue and the poor performance of popular teams.

Nevertheless, in India, television still has headroom for growth, as per estimates from TV measurement agency Broadcast Audience Research Council India. IPL broadcast, thus far, has been paywalled—both on Hotstar and Star’s TV channels. To maximize its return on investment, Disney Star may consider taking it to the free-to-air TV homes.

Disney Star declined comment on its plans.

The runners-up

The BCCI is a clear winner in this great game of media rights. But interestingly, some experts believe the Board could have extracted a much better price if it hadn’t moved the auction multiple times since October 2021.

A TV network executive who didn’t want to be identified pointed out that last year, the IPL’s viewership hadn’t declined; inflation was not on people’s minds; the Ukraine war hadn’t started; Netflix hadn’t announced losing 200,000 subscribers.

Well, things may look less rosy in retrospect. While we don’t know if the BCCI feels the ‘winner’s remorse’, we do know that the media rights auction, as it stands today, has a second clear winner—the 10 IPL teams.

That’s because the BCCI shares 50% of the total revenue generated with the franchises. For five years, this totals over ₹24,000 crore. Back of the envelope calculation suggests that each team will receive approximately ₹480 crore a year from the central pool. This is in addition to the sponsorship share they also net.

The recent auction has clearly given a leg up to the two new teams–Lucknow Super Giants, owned by RP-Sanjiv Goenka group, and the Gujarat Titans, backed by CVC Capital Partners. The two teams paid ₹7,090 crore and ₹5,625 crore, respectively, to join the IPL.

While the older teams turned in profits a few years ago, the two new ones will get to profitability faster as a result of the growth in media rights’ revenue, said GroupM’s Karnik.

CVC, which will pay about ₹560 crore a year for the next 10 years to own Gujarat Titans, will get a cheque of ₹480 crore from the BCCI from 2023. “It can make up for the deficit from sponsorships of team jerseys, etc.," Karnik explained. Lucknow Super Giants, which paid a higher sum for the franchisee rights, may take a bit longer to break even, he added.

Typically, nearly 75% of the team revenues are generated from media rights. “The other avenue for growth is ticketing revenue–which is 5-6% of overall revenues. That will also rise by 40% because the number of matches is set to increase for the future IPL seasons. This will add to the profitability of teams as the purse for buying players is largely capped," Taurani said.

But, since everything, like M.G. Parameswaran said, is an assumption, there is more drama left in Indian cricket’s biggest show. And similar to some of the matches, the business of IPL is no less intriguing.