IPL Media Rights: Will it be a winner’s curse?

Experts question the financial viability of owning IPL media rights if the value reaches Rs 40,000 crore to Rs 50,000 crore due to a bidding war among Star, Sony-Zee, Reliance and Amazon As the D-Day for the Indian Premier League (IPL) media rights auction inches closer,

by Javed Farooqui
Published - March 01, 2022
9 minutes To Read
IPL Media Rights: Will it be a winner’s curse?

Experts question the financial viability of owning IPL media rights if the value reaches Rs 40,000 crore to Rs 50,000 crore due to a bidding war among Star, Sony-Zee, Reliance and Amazon As the D-Day for the Indian Premier League (IPL) media rights auction inches closer, the speculation about the likely value of the next five-year cycle for the cash-rich league is getting wilder by the day. As per market speculation, the IPL media rights could fetch anything from Rs 30,000 crore to Rs 50,000 crore. However, the question that begs an answer is how will the future winner of the IPL media rights recover this mind-boggling investment in the next five years.   According to a senior advertising executive with a top media firm, the IPL might become a winner's curse if the bidding war becomes too intense. "If there is a bidding war for the IPL media rights, it might become a winner's curse. While we are talking about Disney Star, Sony-Zee, and Jio-Viacom18, there is a distinct possibility that a new player might come and upset the calculations of traditional media companies. Digital rights of IPL will see huge appreciation which will be difficult to recover in the next five years. IPL is very important for broadcasters who want to strengthen their OTT play. Disney+ Hotstar was built on the back of IPL digital rights," he stated.   He also noted that TV will continue to be a mainstay of revenue monetisation even as digital is catching up fast. "Even for the next two years, the IPL monetisation will be split 80:20 in favour of TV. That said, the percentage may start switching with each passing year. Initially, even 5% of the revenue was not coming from digital whereas today it has touched 10%. So there has been a massive swing in favour of digital monetisation on IPL. This is an irreversible trend that will change the overall revenue mix. Digital monetisation will depend on the kind of base that streaming platforms and Connected TV attain five years down the line." The executive also noted that the IPL will become a tough proposition to monetise if the TV and digital rights get split between two different players. "If the media rights get bifurcated between multiple players, it will spell doom for the rights owners. For monetising IPL to the optimum level, the winner needs to win the composite media rights. Having the media rights will allow the winner to create a walled garden around the IPL." Currently, a large chunk of the IPL revenue comes from TV broadcasting across advertising and subscription revenue. Digital has also emerged as a key medium of monetisation even though its contribution remains significantly lower than TV. However, monetisation from digital is expected to see a significant jump in the years to come as audiences spend more time on the mobile screen. That being said, experts question the financial viability of owning IPL media rights if the value reaches Rs 40,000 crore to Rs 50,000 crore due to a bidding war among Star, Sony-Zee, and Reliance, with Amazon being the surprise element. At the above-mentioned value, the annual payout works out to Rs 8,000-10,000 crore. For the current rights cycle, Star's average yearly payout to the Board of Control for Cricket in India (BCCI) is Rs 3,270 crore for 60 matches or Rs 54.49 crore per match. In the final year, the payout will jump to Rs 4,032 crore due to the addition of 14 new matches. IPL is already the costliest media property in India to advertise. An advertiser will have to shell out Rs 14 lakh for airing a 10-second ad during IPL. The price of a mid-roll video ad on OTT is Rs 210 CPM (000). On the TV distribution front, the IPL gives a huge boost to the overall channel bouquet and allows the rights owner to collect higher subscription revenue from the market. IPL is also a key reason why Disney+ Hotstar is miles ahead of its OTT competitors in the paid subscriber game. But a sports media executive noted that there is a limit to which IPL ad rates will increase. He further stated that the bare minimum outlays required for advertising on IPL is so big that very few companies can afford it. "Everyone is talking up the numbers for IPL, but the challenge is not what your Excel Sheet models show. The question to ask is if there is so much money in the market for one event. It is easy to talk about Rs 40,000 crore for IPL, but the fact of the matter is that earning Rs 8000 crore every year is not a mean task. The ad inventory will not see a drastic change in the next five years after factoring in the additional matches. At some point, the advertisers will also question the rationale behind increasing the ad rates every year," the executive said. He also noted that the advertising outlays for IPL are expected to go up as the number of games sees an increase. "At a very basic level, an advertiser will have to commit an outlay of Rs 30 crore even if they take a bare minimum of four spots of 10 seconds each at Rs 12.5 lakh per 10 seconds in every match for 60 matches. When you make it 94 matches, the same Rs 30 crore investment will become Rs 47 crore over a higher number of matches including afternoon games. How many brands are there in India who can start with a Rs 50 crore investment over six weeks? That is where the problem starts," he stated. While the IPL media rights winner will have more ad inventory to sell across 94 games, the bigger challenge will be the increase in the number of afternoon games which is not necessarily good for a broadcaster due to low viewership in this time slot compared to the prime-time games. "Now the question before an advertiser is if they spend so much on a six-week property or spend the same money on entertainment, news, digital, etc.? For the same investment, they can get a lot more of advertising opportunities. vivo had overbid for IPL title sponsorship. Since they realised that they had overbid, they gave up the title sponsorship to Tata Group which got it at a huge discount," the executive said. Also, given the whopping amount of money that the bidder will have to pay to acquire the IPL media rights, whoever wins it will not have any money to invest in other bigger sports properties, like the ICC and BCCI, slated later for the year. Compounding problems for sports broadcasters is the price regulation put in place by the Telecom Regulatory Authority of India (TRAI) in the form of the New Tariff Order (NTO) 2.0. As per the new pricing regulation, a broadcaster cannot price a channel above Rs 12 if it has to be included in a bouquet. The broadcasters have not been able to increase the price of their channels for the last two years due to the NTO 2.0 and the subsequent court cases. The TRAI is expected to float a new consultation paper to look into the concerns of the broadcasters. "For sports broadcasters, one of the worries is the NTO 2.0 which caps the pricing of the channels. When bidders are making their revenue projections for the IPL, they will factor in the likely impact of the pricing cap on the subscription revenue. Sports broadcasting business globally is driven by pay-TV revenue, unlike India," a sports broadcasting expert said. He noted that TV will continue to drive IPL monetisation in the short term as the revenue contribution from digital is still not commensurate with the investments. "Even today, most players would assign 75-80% of the media rights value to TV because all said and done the monetisation mainly happens on TV. If you look at OTT, most of the players are running on the freemium model. Netflix, which is a pure-play SVOD player, has still not been able to crack the Indian market due to costly subscription rates which were brought down recently. While everyone is talking about digital, the monetisation is yet to catch up with TV. The monetisation game will be different only if someone like Reliance Jio gets it because they own the pipe. For Jio, the digital rights of IPL will be a shot in the arm to grow data consumption," he added. Triplecom Media iTap Founder-CEO Kunal Dasgupta believes that the NTO 2.0 will not have much of an impact on monetisation since the Indian sports broadcasters rely more on advertising revenue. "I don't think NTO 2.0 will have an impact on sports monetisation because distribution contributes 25% to the overall revenue of sports broadcasters while advertising still comprises 75%. Even under NTO, the broadcaster will charge his pound of flesh by bundling the channels." Dasgupta added that the winner of IPL rights will have to reimagine how the property is monetised. "Sports NFTs can become a big revenue stream going forward. NFT is all about sharing, so the media rights owner and the franchises will have to work together to realise its true potential." In an earlier interaction, he had stated that IPL will become a loss-making property for the next five years as recovering Rs 40,000 crore will be a daunting task. "Over five years, the IPL winner will have to be ready to lose at least Rs 10,000 crore unless someone monetises it smartly particularly on digital. There are so many ways to monetise IPL on digital like NFT, cryptocurrency, etc," he had said. According to industry sources, Sony Pictures Networks India (SPNI), which had the IPL TV rights for the first 10 years, had made a sizeable profit on its Rs 8200 crore payout for the broadcast rights. SPNI had bet on IPL when it was an untested property. It had reaped the benefits of taking an early bet on the IPL. Disney-owned Star India, which is the incumbent media rights holder, is projected to make a profit on its investments in the IPL. At Rs 16,347.5 crore, the company had bid almost double of what Sony had paid for the 10-year TV rights. Unlike Sony, Star owns the global media rights across TV, digital, and radio.