IPL media rights: Strategic time-out for media giants Disney, Viacom

The two media giants see very different gains from their bets on IPL media rights

For the first time ever, the jewel in the crown for media rights was split between two broadcasting giants for five years. On Tuesday, Disney+ Star, which already controlled the coveted media rights for both TV and digital of the Indian Premier League (IPL), managed to retain only the former, raising questions on the future of its domination in the over-the-top (OTT) digital sweepstakes through Disney+ Hotstar.

Grabbing the media rights for digital broadcast was Viacom18 — the Mukesh Ambani-Uday Shankar-James Murdoch combine — that is entering cricket for the first time. But it forked out a huge bill of Rs 23,757 crore, more than what Disney paid — Rs 23,575 crore — for the TV rights.

To ensure that it has exclusivity over all the matches, Viacom not only acquired the digital rights for all the 410 matches over five years, but also grabbed the 94 matches that were offered as a separate package on a non-exclusive basis (for which it paid Rs 3,258 crore).

But what is the logic behind contrasting strategies of the two broadcasters to put in money for one of the key rights rather than both? Disney clearly has moved cautiously — as its management had suggested ahead of the auctions. But many say its decision to stick to TV only could be a strategic mis-step. By deciding not to pay big bucks and defend its digital rights, Disney+ has a lot to lose because it is number one and accounts for over half the paid subscriber base in the OTT space.

“Their crown jewel was really Disney+ Hotstar — the high valuation that Disney paid for buying Murdoch’s Indian business was for this asset. By not pursuing IPL digital rights even Disney’s international OTT ambitions will be impacted, at a time when TVRs (television viewer ratings) of IPL are falling and advertising growth is at sub-10 per cent,” a senior executive of a competing channel pointed out.

Globally, Disney acknowledges that in the first quarter of this year Disney+ added eight million subscribers, half of them coming from India due to IPL. And Disney+ Hotstar, with paid subscribers mostly from India, accounts for 36 per cent of the entertainment giant’s global streaming subscribers (excluding US and Canada). And it has an ambitious target to hit 230-260 million subscribers through Disney+ by FY24.

But the problem is the economics. Average revenue per user from Disney+ Hotstar was abysmally low at $0.76 in April this year, a sixth of Disney’s US ARPU. So, paying a big bill for the IPL might not make economic sense anymore. Disney’s chairman, international content and operations, Rebecca Campbell, who was in India to lead the auction, hinted at that when she said, “We made disciplined bids with a focus on long-term value. We decided not to proceed on digital considering the price required to secure that package.”

To fill in the gap (in Disney+ Hotstar) Campbell reveals that the conglomerate will grow its original programming. As many as 100 of them are in the pipeline — with 80 going on air this fiscal. After all, original programming has helped both Amazon Prime and Netflix reach a larger Indian paid subscriber base. But whether this strategy can have the same magic effect as IPL is an open question.

To put it into perspective, according to Kotak Institutional Equities, “Star (Disney) garnered ad revenues of Rs 30 billion (Rs 400 million/match) and subscription revenues of Rs 7.5 billion (Rs 100 million/match) for IPL 2022. Its winning bid of Rs 575 million per match for IPL 2023-28 implies a cost of Rs 610 million per match (including production cost).” So, it needs a 50 per cent increase in monetisation if it now wants to break even, it said. Competing channels say that with TV advertising at around Rs 40,000 crore it already has 10 per cent of the pie (it made Rs 4,000 crore on advertising from IPL on TV). Can it now increase that share in the overall pie substantially or wield magic on subscription, which is regulated? The question is, can it do so when the pie is growing slowly?

Disney appears to be banking on the fact that there is substantial scope for growth in expanding TV subscribers as well as advertising for the next five years. K Madhavan, president of Disney Star India, sees scope in expanding the market, given that only a third of the 300 million households in India are on pay TV and another 100 million have no TV at all. In an interview earlier this year, he estimated that linear TV will grow a healthy 7-9 per cent a year (of course, digital will grow 25 per cent but on a lower base). Also, TV penetration varies from region to region — it is still 60 per cent across India but a high of 95 per cent in Kerala and a low of 50 per cent in Bihar — and that offers a big upside.

In TV, Disney Star will remain the cricket king, controlling 20 per cent of the advertising pie. It also has 60 per cent of the share of sports TV viewership and that will remain with IPL under its belt for another five years. Of course, it has to also retain the International Cricket Council’s various international matches, the tender for which is being floated in the coming few days.

But for Viacom18, the digital play seems to be simple. Sources say it is based on the premise that digital advertising will grow hugely — at least increase four to five times from around Rs 30,000 crore per annum annually today to Rs 120,000-150,000 crore in five years. So will smartphone users, which would nearly double in five years from 400-500 million to close to 800-1,000 million, especially with the advent of 5G services. “The only big players, who can monetise this digital opportunity, are Google and Facebook. What Viacom18 will look at is to be the third player in that space,” said a senior executive of a broadcasting company. Kotak Institutional Equities argues that Viacom 18 will lose money in the first few years, building a strong streaming partner, but will break even in 2026-27.

But will it also leverage Reliance Jio’s large base of mobile customers of around 400 million out of which 300 million use smartphones? Of course, it will. But many say by just offering these customers free IPL content it could increase advertising revenues from what Hotstar made this year of around Rs 800 crore (with 100 million paid and non-paid customers) to around Rs 2,000-2,500 crore as it offers more customers.

Those in the know say Viacom’s strategy will not be of exclusivity to only Jio customers — it will offer content to everyone through licensed deals that include competing mobile operators and other platforms. Other platforms could also include Meta and Google, which have shareholding in Jio Platforms and expand its reach as well as its revenues. Surely, the game has just begun.