IPL: An unsustainable media bubble

Earlier this week, Disney Star won the TV rights and Reliance’s Viacom18 won the digital rights to the Indian Premier League or IPL. The Board of Control for Cricket in India earned over Rs 48,000 crore ($6.2 billion) from the sale of media rights. That is over three times the price it fetched in 2017. There has been a lot of chest-thumping about how, on a per match basis, IPL is now second only to the American National Football League (NFL) one of the world’s most expensive sports properties.

That is cause for concern, not celebration. The NFL operates in a market that, at over $700 billion in revenue, is almost 36 times the entire Indian media and entertainment space. It has a different dynamic, currency and a much higher purchasing power. One dollar costs Rs 78 today. If the IPL is second only to the American NFL, then the Indian media and entertainment market should also be close to the American one in revenue size and profitability. It is not.

That is why the economics of the IPL makes no sense. Add in the production, distribution and marketing costs and the last IPL, for which Disney paid over Rs 16,000 crore for TV and digital rights, scraped through with a small profit. This one could cross Rs 55,000 crore ($7 billion), maybe more, on total costs. The Indian media and entertainment business, of which TV, film and OTT are a dominant chunk, is just over $22 billion in subscription and advertising revenue.
 

You could argue that the rights are split up among different firms and over five years, that the sum of parts will be bigger and so on. It won’t. Vivek Couto, executive director and co-founder of Media Partners Asia, explains why. “Over the past five years in aggregate, IPL was monetised 70 per cent through TV and about 30 per cent through digital. TV rights for the IPL will provide Disney with valuable advertising inventory, though for the first time the value of that advertising will be under pressure. It had been typically sold through bundled TV and digital packages. Now it will be split with two ad sales teams — Disney and Viacom18 — competing heavily in the market,” says he.  Note that TV, which reaches almost 900 million Indians, is the single largest video format. Digital, at about 460 million people, comes next.

Subscription revenues on TV have been under pressure over the last two years because of the Telecom Regulatory Authority of India’s price control on the sector. And subscription revenue on digital is just over Rs 5,000 crore. A bulk of it is cornered by entertainment OTTs that spend huge amounts on original content. “Streaming has grown rapidly in India but the frustration for investors has been the low ARPU (average revenues per user) though it is the largest scaled opportunity in the world today after regulated China,” says Mr Couto.

“For IPL monetisation, ideally a winner should have an integrated play but the cost inflation was such that strategics had to hedge. You cannot define video in India as traditional TV alone today. The digital streaming video component is already large and will be very significant in the future,”

Mr Couto adds. He is right. The two formats work best in tandem — in news, entertainment or sports. For example, SonyLIV is the second largest pay-driven OTT in India. While originals and films drive subscriptions, about 40 per cent of its viewership comes from catch-up TV. Last time round Disney won both TV and digital rights. Break it all up and the whole deal makes no sense.

The price of IPL, points more strongly than ever, to the fact that content costs are skyrocketing while advertising and subscription revenues have simply not kept pace. The end of 2021 saw the Indian media and entertainment business back at 2018 levels in terms of revenues. According to a FICCI-EY report, the entire sector will grow at a compounded annual growth rate of 13 per cent. The cost of content on the other hand — across OTT, film, TV — has been shooting up by 40-50 per cent. Where then will these revenues come from?

For perspective, take a look at the new bellwether of the US entertainment business — Netflix. It started streaming in 2007. In 2013, it began offering originals at anywhere between $8 and $12 a month, causing a disruption that has reshaped the global media ecosystem. Soon it triggered a deluge of content. Every firm in media and many outside — Apple, Disney, Meta, Paramount, Google — have got into the game. This has been a treat for consumers but bad for the business as costs kept rising. After 27 Oscar nominations and record-breaking shows such as Money Heist and Squid Game in 2021, Netflix actually reported a loss of 200,000 subscribers in the first quarter of 2022. Its market capitalisation has fallen from a high of $142 billion in 2019 to about $80 billion this week.

India may be a high-volume, high-growth media market but on per unit value and monetisation it has always disappointed investors. The skyrocketing cost of any piece of content — film, originals or sports — should be a cause of worry not celebration. The firms that did not win the rights are the ones that will be more profitable in the coming years. .

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