The long-awaited Indian Premier League media rights auction is finally over. Star India has walked away with five-year global television and digital rights for Rs 16,347.5 crore (around $2.55 billion). The change from the last auction (TV – 2009; Digital – 2015) is dramatic; the entire TV rights for nine years went for Rs 8,200 crore and digital rights for three years for Rs 303 crore.
Opinions are divided with some pundits feeling that this is too much and a few thinking that Star India has got a great deal. Uday Shankar, chairman and chief executive officer of Star India, seemed visibly happy but circumspect about making the numbers add up. Let's dive into the numbers and the key lessons that have emerged from this record breaking auction.
First, let's get some trumpet blowing out of the way. Your author pretty much nailed the number in July 2016, saying that the bid would be worth $5 billion for 10 years or $2.5 billion for five years. More importantly, the estimate was based on a view that it would be very difficult to separate what is digital and what is TV over ten years and hence, an integrated approach would be best. This is really the key takeaway from the auction today.
It is not about TV or digital but both together – or ‘convergence' as the digital cognoscenti would call it.
Star was clear – and to my mind far sighted – in its approach that they either wanted the whole thing or nothing at all – their TV bid was just half of Sony's and digital was similarly, less than half of Facebook's Rs 3,900 crore number.
Summary - @starindia wins @Vivo_India #IPLMediaRights Invitation to Tender for INR 16,347.50 Crore (US $2.55 billion) pic.twitter.com/WSKyYh9xeF
All Or Nothing?
Astute observers have pointed out that had Sony or Facebook bid a combination of Rs 528 crore (3.3 percent) more, Star would have got nothing. That is true but it seems to have been a well thought out strategy. There are two points for us to consider here:
- It is tough to predict how much will be digital and how much will be TV five years out. Just the rapid change, primarily catalysed by the launch of Reliance Jio, in data consumption over the last year – 1.3 billion gigabytes a month in March 2017 from 200 million gigabytes a month in June 2016 – makes it impossible to predict.
- Star already has International Cricket Council and Board of Control for Cricket in India rights, so winning IPL rights on terms that were unattractive was not an imperative.
My view is that Star's clarity of thought is impressive especially when contrasted with Sony's lack of gumption or more politely put, probably, a painful misreading of the ground realities.
Did Star India Pay Too Much?
A few pundits have questioned the price as being too high. They have pointed out that it translates to Rs 55 crore a match when the telecasts for the national Indian team are at Rs 43 crore a match. The problem with the argument is obvious. First, the Indian team rights were bid out in 2012 and a lot has changed since then. Secondly, let's look at the numbers from first principles. The chart below illustrates the revenues estimated for the 2017 IPL season.
Just a simple multiplication for five years results in Rs 11,250 crore and a 13 percent compounded annual growth rate results in Rs 16,476 crore. One can nitpick and I agree that there are a few issues with the calculation but the basic rationale is clear. We will return to some of the issues later. There is no getting around that the change from the last auction is mind blowing. But those numbers are poor anchors for current value and this trend is seen across sports leagues globally when their rights are re-auctioned.
The value to Star in establishing Hotstar both in India and globally cannot be underestimated.Hotstar is already the leading over-the-top content platform in India (over 300 million downloads) and is being launched globally as a subscription-only platform. International revenues are a very high-margin income stream which will become even more profitable as Star is able to onboard consumers without having to pay distributors (cable and satellite platforms) abroad. In India too, as Hotstar battles Amazon Prime, Netflix, Jio TV, Voot and others, IPL will be a critical differentiation for the next five years.
Rise Of The Digital Natives
The biggest surprise – apart from why Sony bid so low – was the aggressive bidding for digital rights:
- Facebook: Rs 3,900 crore
- Airtel: Rs 3,280 crore
- Reliance Jio: Rs 3,075 crore
- Times Internet: Rs 1,787 crore
This is a big moment in Indian media as it exists today, the torch is being passed from TV to digital.Digital was the swing factor this time. The next time around it will probably be larger than TV in absolute terms. Or more accurately, there will be no difference between TV and digital by then. It was also surprising to see Amazon absent. I guess, there are some things that they shy away from too.
Huge Moment For Franchises, Rich Will Get Richer
The franchises really stand to gain and could, at last, become self-sustaining profitable businesses. At 40 percent of the revised central pool, they stand to get around an additional Rs 160-170 crore per year. Further, their outgo is now capped at 20 percent of revenue versus the earlier amount that was based on what they had bid in the original auction. As this gets codified, we can expect to see changes in shareholding and monetisation of stake at the franchise level.
Spare a Thought For Sony
They built the IPL franchise over the last decade and took a chance on it when no one else did. However, for some inexplicable reason, they were really tame in their bid. Given the importance of IPL to their television business and their recent acquisition of Ten Sports from Zee for $385 million, it is really tough to understand their bidding strategy.
Sony could have, at the very least, put together a bid with one of the digital-only players.Perhaps, there is a story in the BAMTech disqualification. It is now a Walt Disney controlled company - which owns ESPN, Sony's joint venture partner, and was supposed to put in an aggressive bid.
All is not lost for Sony – it never is – BCCI rights will come up for renewal in 2018. In 2012, Star got the BCCI rights for $750 million – for six years at Rs 43 crore per match – and it is likely the price will go for higher, but Sony can win and live to fight another day.
Uneasy Is The Head That Wears The Crown
Star is the big winner but it has to be careful that it doesn't get hit by a winners' curse. 20th Century Fox has been very vocal on Star India's EBITDA (earnings before interest, taxes, depreciation and amortisation) targets of $500 million for 2018 and $1 billion for 2020, which was recently reaffirmed by James Murdoch. The first few years will be tough as advertising revenues catch up and there will be set-up costs to tackle.
On the subscription revenue front, where the near-100 percent monopoly on Indian cricket should have resulted in a windfall gain, they are stymied by the recent TRAI pricing order and incremental growth will be hard to generate. Star is contesting this order but the authorities tend to look at such matters in a socialist manner.
The entire cable-DTH sector – excluding Tata Sky – is arrayed against Star, so this could remain an issue.Also, given the impending national elections in 2019, the government too will not be keen to see any dramatic price increase in cable TV fees.
My sense is that Star will take the pedal off the gas next year in the BCCI rights bidding to give itself some leeway. All things considered, IPL, given its ‘private' nature is probably a better proposition than the Indian team rights given the ‘Doordarshan penalty.' India matches have to be telecast on DD but only on the free to air network.
Supreme Court/Lodha Committee Remains A Wildcard
The administration of cricket in India continues to remain in a state of flux as the Supreme Court ‘cleans' up the BCCI. While this should not have a major impact on IPL, given the wide berth the court has given it so far, one can never tell. Star India must have insisted on appropriate safeguards – or will do so now - against some drastic changes to the IPL. But this remains a risk.
The End Of TV As We Know It And The Rise Of Digital
In conclusion, it was a thrilling and eventful auction as it was anticipated to be. Indian cricket has moved up another notch, with global interest in the bidding action.
History will show that this was the turning point when mobile became king and TV lost its preeminence in India.For sure, TV will remain a big business but the writing is on the wall that digital is poised to overtake it in the years ahead. Star India has taken another decisive step forward in distancing itself from the media pack in India. Sony will perhaps rue the opportunity that it let slip after doing all the hard work in building the IPL into the force it has become.
As the French would say - Le roi est mort, vive le roi! The King is dead, long live the King!
Sarbvir Singh is an experienced venture capital investor in India and was the founding Managing Director of Capital18. The portfolio of companies that he has worked with include BookMyShow, Yatra and Webchutney among others.
The views expressed here are those of the author's and do not necessarily represent the views of Bloomberg Quint or its editorial team.
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