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Will Star India benefit from the IPL media rights deal?

LiveMint logoLiveMint 07-09-2017 Shuchi Bansal

When the Indian Premier League (IPL) is in question, no business deal seems over the top. On Monday, Star India agreed to pay to the Board of Control for Cricket in India (BCCI) Rs16,347.5 crore for five years for the global media rights—both digital and television—for the 10-year-old Twenty20 cricket tournament. Two months ago, Chinese handset maker Vivo Electronics Corp. had paid Rs2,199 crore for five years to BCCI to be the title sponsor of the property.

Both the deals have been unique for the sheer amount of money they have paid for IPL—one for brand association and the other for media rights. Before Vivo, PepsiCo Inc. had agreed to pay close to Rs400 crore for 5 years although the deal was terminated in 2015. Vivo, meanwhile, signed up to pay Rs440 crore a year. Similarly now, the IPL media rights have been bought at double the amount they had been acquired for 10 years ago for half the earlier duration.

Star India chairman and chief executive Uday Shankar, unfazed by the gasps around the amount his company, a Twenty-First Century Fox Inc. unit, is paying for IPL, says he’s not looking at the deal in the short term. “But it is not expensive,” he adds.

Surprisingly, several sports marketing and advertising industry experts, too, are not dismayed at the steep cost being borne by Star India. They admit Star India will not make money immediately but are quick to add that the deal is not a bad one especially because Star India has managed to grab the global media rights.

Although Star has submitted its own payment schedule to BCCI, but for argument’s sake let’s assume that the broadcaster will pay BCCI a little more than Rs3,000 crore every year for the next five years. So will the company start recovering its cost in year one?

Not really, but back-of-the-envelope calculations suggest that the numbers that Star India might generate are not discouraging. According to media industry estimates, IPL made Rs1,300 crore in ad revenue for Sony in 2017. With a virtual monopoly in cricket up until 2018 (as Star also has rights to all BCCI cricket in India till 2018), the broadcaster could increase its ad rates.

To be sure, in 2016 Sony Pictures Networks introduced separate IPL inventory sales for standard definition and high definition channels. For IPL 2017, SPN reportedly quoted spot rates of over Rs6 lakh for SD channels and Rs2 lakh for HD feed, according to Sporting Nation In The Making IV, an India sports sponsorship report by ESP Properties and Sportzpower. Obviously, from here the rates can only go up.

Advertising veteran and chairman of Mogae Media, Sandeep Goyal, says that cricket sponsorship is growing at a faster clip than advertising. “This new bid will force cricket rates to go up substantially,” he says.

Although C.V.L. Srinivas, chief executive of media-buying firm GroupM, says that the market can absorb rate hikes only up to a point. “Star could use this acquisition as a network play to boost revenue. It could look at how the network can leverage this property,” he says.

That is not all. There is money to be made from distribution as well. According to cable distribution experts, Sony Pictures Networks makes approximately Rs400 crore a year from distribution on the back of IPL. “Star could easily grow this to upwards of Rs500 crore a year,” says a distribution expert who declined to be named. The broadcast network’s revenue from distribution is already about Rs3,000 crore a year from all its channels, he adds.

The digital streaming rights to IPL which Star bagged will further boost the broadcaster’s revenues both through subscription and advertising. “I expect this winning bid, including the stratospheric prices (upwards of Rs3,000 crore) quoted by Airtel, Jio and Facebook to redefine digital advertising. Rates will soar,” says Goyal.

The broadcaster is also set to make money from the international digital streaming rights. It will use Hotstar to show the matches in the overseas markets some of which are subscription driven. “In the first year or two we are not targeting any profits but just intending to establish the platform (Hotstar),” Star’s Shankar said.

However, media industry experts are expecting Star to leverage the global digital streaming rights to its maximum advantage. Says Vinit Karnik, business head, entertainment sports and live, at GroupM: “Star India’s bidding strategy was extremely smart and aligned with its global ambition. Very clearly, Star has created a broadcast and OTT (over-the-top) ecosystem on the back of quality and compelling content. IPL is the most premier rights that any media player would like to have as part of its content roaster. Hence it makes strategic sense for Star to have global all-media IPL rights.”

Karnik adds that from the perspective of live and surround content there’s still quite a lot that can be done with this consolidation of rights. “We should expect Star to go all out in exploiting every bit of what they have as rights,” he says.

Interestingly, while banking heavily on IPL, Star may even disengage from the cricket rights it has for all BCCI matches up until 2018 as the broadcaster did not find all the series lucrative. These rights, for which the company paid Rs3,851 crore for television, mobile and internet rights, are coming up for renewal in March 2018.

IPL, meanwhile, is both impactful and recession-free. It continues to remain the most sought-after sporting league, attracting both audiences and advertisers. And unlike any other sporting property, it is risk-free.

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.

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