The Math Behind the Big-ticket Auction of IPL Media Rights
The process of monetising cricket has been a big story in the game for many years. For about a quarter of a century, segments such as broadcasting rights and players’ endorsements, among others, saw big money flowing in. But nothing comes close to the Indian Premier League (IPL), a tournament that took shape in 2008 with the objective of a quick-fire game and lots of entertainment. At 20 overs a side, it was possible to host two games in a day at different venues without any time overlap. Be it the players, team owners or advertisers, it made for a great proposition for all.
It has been repeatedly proven that the IPL is today in a league of major international sporting events, and the recent media rights auction has reiterated it. However, the acquisition of media rights—the basic television and digital deals for the Indian subcontinent—for Rs 44,075 crore over a five-year period has startled people for the magnitude of the amount as much as it has on how it will perhaps be recovered. Besides, the amount coughed up for the digital rights (see graphic) means it is a property as critical as television and in time should continue to grow on a larger base.
While Disney Star won the television rights for the Indian subcontinent, Viacom18 won the digital rights for the subcontinent. Viacom18 also picked up the non-exclusive digital rights for India (which gives it access to a selection of matches over the five-year period) for Rs 3,258 crore. And Times Internet and Viacom18 won the television and digital rights for the rest of the world for a sum of Rs 1,058 crore.
Between Disney Star, Viacom18 and Times Internet, the outgo was 3x more than what was paid in 2017. The then Star India (Disney acquired it globally in 2018) forked out 4x more than what Sony did in 2008. Though no official numbers are out, it is gathered from industry sources that Disney recovered its investment, but not with a sizeable return. In that scenario, for the bid numbers to take off sharply means the winners believe that there is a lot of gas left in cricket even at this price.
In terms of the math for television, the revenue comes primarily from advertising, followed by subscriptions. The IPL 2022 season, which had first-timers Gujarat Titans winning the title, saw a 10-second advertising spot, on an average, being sold for Rs 14-15 lakh. In all, Disney Star garnered approximately Rs 3,000 crore of advertising revenue topped up by another Rs 800 crore from Hotstar, its OTT platform. Subscription revenues for a specific tournament are hard to estimate. To recover the acquisition cost of Rs 23,575 crore, Disney needs to price its 10-second advertising spot at Rs 19 lakh, or an increase of 27 per cent. In a market where the commonly held belief is that the television ad rates for cricket have almost hit the ceiling, this looks challenging.
The rub is that the digital rights are not with Disney and that severely restricts it from selling it as a bundled offering. According to Karan Taurani, Senior Vice President at Elara Capital, key advertising verticals such as e-commerce, FMCG, automobiles and banking dominate the overall ad pie across TV and digital at around 60 per cent. “However, in the case of IPL rights being sold separately, we expect stiff competition within television and digital platforms for advertising budgets. We expect some verticals like fintech, commerce, edtech and EV [electric vehicles] to see a rapid shift towards digital, whereas FMCG and auto will continue to rely heavily on TV for their mass campaigns,” he says.
The process of recovery in digital is driven by the number of impressions and advertisers base their decision on that. If the price paid for television by Disney Star was steep, Viacom18’s outgo for digital is even more expensive. It is over 5x of what Facebook put out (Rs 3,900 crore) as the highest bid in 2017. The total size of the digital advertising market is around Rs 30,000 crore and Viacom18 will need to corner at least 14 per cent of that (at the current industry size), for which it will be up against the likes of Google and YouTube.
Clearly, Viacom18 is looking beyond the IPL. Balu Nayar, former MD of IMG and a key architect of the IPL, says its parent, Reliance Industries, is in a unique position vis-à-vis the other bidders because of its telecom business. “So digital in their case does not mean just OTT and a route to build Voot (their streaming platform), but more importantly, a means to power Reliance Jio subscriptions. These rights offer an opportunity to significantly increase Jio’s market share through bundling strategies,” he says. To him, these rights give Viacom18 a greater ability to create value than it does for the other bidders. “Obviously, it would have been more powerful if they had won the television rights too,” he says.
Speaking of Hotstar, Taurani maintains that as a platform it will become much smaller and “a tad above the OTT apps of other broadcasters”. Its share in the subscriber video-on-demand market, from 25 per cent today, he elaborates, will see a sharp drop, with a potential move to Voot or Jio platforms. “Their subscriber base will also come down by at least 40-50 per cent with the IPL going away. In case they don’t win other cricket properties, it may decline over 70 per cent in the medium term.”
Not only is the IPL the most expensive proposition to advertise on, it also sets the tone for the BCCI and ICC rights that will come up for bidding over the next few months. At the current IPL acquisition costs, Elara’s Taurani expects television to attain profitability in the second year, while for digital it will be in the fourth year. How much of an impact this year’s edition saw by way of lower viewership is not clear yet. For now, it is the obsession for cricket that is driving the revenue model.
@krishnagopalan
