The Coming IPL War

As the curtains fall over the Indian Premier League (IPL) season and the reverberating cheers for Virat Kohli’s scintillating 40-ball centuries die away, another cricket match with much higher stakes is about to begin.

The IPL has changed the way cricket is enjoyed in the country. With each season, the hailstorm of sixes has increased. As people across the country have whooped and got hooked to this strange form of T20 cricket, brands like Vodafone, DLF and Flipkart have blared out their jingles from TV sets deriving a marketing penetration they could otherwise not be dreamt of. Over the last nine years of its existence, the IPL has become one big circus — entertainment for the masses; a chance for players from home and abroad to earn glory and money; a platform par excellence for advertisers, and a great source of revenue and eyeballs for broadcaster Sony Pictures Network that beams the action into homes and on-street corners.

It is therefore no surprise that the most powerful media CEOs are now putting together their best and brightest to win the broadcast rights for this super property — an opportunity that comes along only once in a decade. As much as 10 per cent of the media and entertainment’s industry’s Rs 55,000 crore of ad revenue is raised from sports programming, of which IPL comprises a huge share. And with the telecast rights of the IPL back on the block, the battle is expected to be the media war of the decade.

IPL, the sixth largest valued sports league globally, generated an estimated Rs 2,650 crore in economic output in 2015, according to KPMG. For media businesses, the stakes are far higher. Mainline channels have shied away from launching shows, filmmakers have avoided big ticket releases, and as much of television scheduling and sports content as possible, has been done to work with IPL schedules.

On the other hand, the largest marketers have planned their biggest activities in the months of April and May. The IPL has made an impact that goes well beyond the realm of sports and entertainment. Consulting firm American Appraisal put the brand value of IPL at a humungous $3.54 billion last year; this year fresh industry estimates are putting the figure at $4.3 billion.

Cup That Brimmeth Over
Sony Pictures Network, then SET India, had partnered with Singapore-based World Sports Group in 2008 to put a sum of $918 million and an additional promotional spend of $108 million for the tournament for a 10-yr period. Barely a year later however, BCCI opened up the property for renegotiation and milked a fresh deal pegged at $1.6 billion (Rs 8,200 crore) in 2009, for the remaining nine years. The move was met with both awe and scepticism. Sony was laying a wager based on its prior experience with the ICC World Cup tourneys, but the industry was already battling with the debate of whether cricket works, and if a tournament where national pride was not at play would work for India at all. In the first year itself, it was clear that Sony had brought home a ‘cup that brimmeth over’.

The IPL has taken its share of knocks too. It has faced allegations of spot-fixing and corruption with some controversy every year.However, every year it has come back stronger. “The conversation is no longer on whether IPL works or not,” observes Harish Shriyan, COO of media holding company Omnicom Media Group India. He explains that for any large-scale property, where millions are at stake, there will be issues. “The IPL overcome these and did not budge from its position of being the largest marketing property in India,” he says.

The Time Is Now
The process for the new bid will be underway after this season. Since Sony has the first right to refusal to the IPL, come May 30, 2016, its eight-week notice to present a bid to the Board of Cricket Control in India (BCCI) for renegotiating the IPL rights will begin. Not only television but the digital rights will also be up for renewal. The BCCI may accept or reject the proposed bid, following which it can lob its own asking price to Sony. If Sony and BCCI fail to close the deal even after the counteroffer, the IPL will be fair game.

Some claim this provision of allowing Sony the first right of refusal is inequitable and slanted in Sony’s favour, a ‘courtesy’ BCCI has not extended to its other properties. While this means that Sony will go all out to retain the IPL, it also implies that other serious contenders would bid a price which is at the uppermost end of their budget. This will see an ‘all-in’ strategy played out that would maximise the broadcast rights fees.

What’s The Right Price?
The estimation of the IPL bid price begins at a base of over Rs. 8,200 crores paid way back in 2009. The doubling of this is considered a no-brainer simply based on economic growth witnessed in India over the past decade. Reaffirming this is value of title sponsorship rights that were sold to DLF for Rs 40 crore/ year for 2008-12, then doubled to Rs 80 crore/ year when Pepsi came on board for 2013-17. Vivo is estimated to have paid Rs 100 crore/ year when it came on board in 2016.

To have a better sense of the economic value of the IPL to broadcasters, one only needs to look at the probable ad revenues of the 2018-2027 period. Based on estimated 2016 revenues (Rs 1100-1200 crore), applying a conservative growth of 8 per cent for (expected economic growth) , advertising revenues would aggregate to Rs 18,500-20,000 crore across 2018-27 (ad revenues increased 15-20 per cent in 2016 over 2015).

A game changing factor could be digital rights; hitherto sold separately. Hotstar bought the IPL digital rightsfor Rs 300 crore for a three-year period ending in 2017. At that base price of Rs 100 core/ year, this itself adds at least another Rs. 1,000 crore to expected revenue from broadcasting rights for 2018-27. Given the increasing prevalence of digital platforms, it is unlikely that these rights shall continue to be unbundled from television broadcasting rights. In fact, digital platforms are likely to pave the way for pay-per-view viewership in India and have a significant impact on subscription revenues. To put this in perspective, if only 25 million (5-6 per cent of the IPL’s audience) were to subscribe on a digital platform paying Rs 100 per month, it would mean revenues of Rs 500 crore every season aggregating to Rs 5,000 crore over the license period (Hotstar has introduced a paywall by charging users Rs 199 for HBO Originals which contains ‘Game of Thrones’)

Factor in everything above and a value of Rs 20,000 crore seems very achievable with Rs 25,000 crore not seeming out of reach. Interestingly, this would mean a per match fee of Rs 35-40 crore; at par with Star’s broadcasting deal for cricket in India across 2012-18 works out to Rs 40 crore per match.

The War Rooms
While the BCCI and the franchises would undoubtedly share this viewpoint, the broadcasters appear to be somewhat muted at this point. Of course, since they are the ones who have to cough up the moolah, it is expected that they would want to ensure that they acquire a commercially viable property and do not overpay. “The stakes are too high, and the bid will have to be carefully calculated,” says Rohit Gupta, president, Sony Pictures Network, manifesting the viewpoint of the broadcasters.

At Rs 25,000 crore, a channel needs to pay Rs 2,500 crore a year. Given that the current ad revenue is less than half of that, the bidders will seemingly face a high risk scenario. Echoing Gupta’s views, Harish Thawani, chairman, Nimbus Communication (owner of the NEO Sports channels), draws attention to ground realities. He says, “Pricing the IPL telecast rights beyond $1.8 billion to $2 billion will be suicidal. At best, the IPL has revenue potential of $2.5 billion; which after adjusting operating costs will be down to $2.2 billion.” Nimbus, it may be recalled, held broadcasting rights of cricket in India from 2009-15, a deal which was cancelled in 2012 due to differences between Nimbus and BCCI, with Star successfully bidding for the rights from 2012-18.

At present, all major media companies are expected to make a play for the IPL. This includes the otherwise cautious, ZEE as well. “The broadcast landscape is going to change,” remarks Vinit Karnik, business head, ESP Properties, GroupM India. He argues that the industry is not only expecting newer sports channels but at the ground level, distribution will become stronger. “This year, Sony has made Rs 350-400 crore from distribution that has been modestly increasing by 10 per cent every year. Pay-per-view may mature and digitisation may change business models. The IPL rights will be very fiercely fought,” he forecasts.

Expectations are that the tug of war would end with a contest between Sony Pictures and Star India that has upped the stakes of sports investment in India. “The broadcasters interested in the property might try to make the deal sweeter for the BCCI with the objective of winning the rights. However, a number of factors will have to be taken into consideration like increasing internet viewership, reducing ratings on TV, etc. The profitability at a higher cost will need to be evaluated,” says Meenakshi Menon, chairman of media audit firm, Spatial Access.

The Big Picture
Star and Sony that have traditionally been the kingpins of the general entertainment space understand that the pie can be grown only with the inclusion of sports. A GroupM report indicates that in 2015, 10 per cent of all ad revenue came from sports. Where Sony developed its sports business buying football rights and forging partnership with ESPN for other non-cricket properties, Star shocked many with a committed investment of Rs 25,000 crore for developing sports in India. Eventually Star developed a series of club format sports including Hockey India League, Indian Super League, Pro Kabbadi League and Premier Badminton League. Star also has the rights for the ICC games in India till 2022 for several flagship events including ODI and T-20 World Cups. It has rights to the Asian Cricket Council run Asia Cup till 2023. Till March 2018, it also has BCCI media rights (TV & digital) for the matches played in India, which it had acquired in 2012 for Rs 3,851 crore. Between the two, they control sports broadcasting in India and own practically every marquee property in the country. Along with collaborating with Star’s erstwhile India partner, ESPN, Sony has acquired rights of almost all tennis tournaments and has made a foray into football with rights to the Spanish League. Star, though is undoubtedly the bigger player and has put the might of its entire network behind establishing new sporting leagues and tasted success with Pro Kabaddi League making it the second biggest sporting property in India.

“There was an opportunity as the available sports content was restrictive. In a young country like India, the engagement with sports has the potential to be dramatically higher. The volume of supply, combined with the fact that there was no other sport besides cricket that was ready to be offered for mass consumption, was the biggest hurdle,” says Uday Shankar, chairman and CEO of Star India.

Enunciating Star’s long-term policy, he adds: “We looked at sports such as kabaddi, hockey, badminton and football that have all languished because of lack of support, exposure and resources, which we believed we could provide. That is our model, and that demands a long-term view of the game. We are willing to be patient because we believe that once it happens, we would see a significant rise in the overall viewership across our network.”

Shankar, however, concedes that it will be a long haul, and that his company was ready to lose initial money and take stock in multiples of five years. “We have invested patiently and deeply for a long time. Even when we have been profitable, we have taken all our profits and continued to reinvest it rather than declaring dividends or taking money out. Very few others can claim this.”

Potentially Monopolistic Play For Star
Shankar takes a restrained stance towards IPL. If he is excited about the prospect of bagging IPL rights in India, he isn’t showing it. Well, not just yet. Explaining the experience on Star’s digital platform ‘Hotstar’, he says, “IPL does as well on digital as on TV. It is a powerful property. But it cannot be compared to the ICC properties or the Asia Cup.”

Disagreeing that the situation will become a Star versus Sony scenario in IPL rights bidding, he explains that Sony has a “virtual lockdown on the property, with the first right of negotiation, and the right to set a price”. He feels since IPL is critical to Sony’s business plans, it would be very difficult for someone else to come and pay a price that the incumbent is unwilling to pay. Arguing that IPL is not central to Star’s strategy, Shankar says Star had bid high at a time when they wanted the BCCI and ICC rights. Now having reached a certain degree of maturity, Star need not “go crazy and pay more than the incumbent”. However, what Star could and is likely to do, is ensure that Sony pays at least as much as Star is willing to pay. Especially, in case, Star does bag the broadcasting rights of the IPL, it would become the only sports broadcaster of significance and could dictate advertising prices. Perhaps, more importantly, it could use the platform of the IPL to enhance popularity of its other leagues, most noticeably, PKL thus deriving significant spin-off benefits. Also, the IPL is the only property which would warrant Star’s war chest of Rs 25,000 crore and the announcement of that figure which may well have been Star throwing down a financial gauntlet to Sony for the IPL signifiying that it was prepared to go ‘all-in’.

Sony - Make Or Break
For Sony, winning the IPL broadcasting rights is a make or break scenario. IPL is estimated to be contributing more than 40 per cent of Sony’s revenues. The media company’s recently formed joint venture with ESPN is already seen by some as a move in this direction. Putting this in perspective however, Gupta explains that ESPN brings strengths that go beyond the IPL.

Underlining the significance of the IPL in the Sony agenda, he says, “In retrospect, IPL has turned out to be the biggest property on television. But it has taken significant effort from us to get there. Every year, we created award-winning marketing campaigns to build IPL. We never took the platform for granted. Had we not put the kind of money we did at the time of the bidding, we would not have seen franchise owners investing so much in IPL either.”

Nevertheless, if Sony was to lose the IPL, it would practically have no presence in cricket till 2018 and that is likely to have a significant dent on its sporting aspirations. Also, Sony would truly be able to monetise its investment in the IPL thus far by securing the broadcasting rights for the next decade. The IPL will be the mainstay of Sony’s sports broadcasting business and it is likely to do everything possible to protect the property rights.

IPL’S Rise & Rise
Not only has IPL’s valuation grown over the years but also of its various franchises. In 2015, the Kolkata Knight Riders (KKR) beat all to become the most valued team. Incidentally, KKR is also the only franchise that is in the black. Venky Mysore, CEO of KKR, emphasises that the success story was based on being able to distinguish KKR as a brand independent of actor and owner of KKR, Shahrukh Khan.

“Our objective was to establish KKR as a standalone brand, independent of brand SRK. At the same time we benefit greatly by the fact that brand SRK is solidly behind us. This has been a conscious strategy in building our franchise model. Every brand that signs on with KKR, and we work with 22 brands, knows that by virtue of signing up with brand KKR it does not include brand SRK,” says Mysore.

Despite the fact that most franchises are in the red with some still making operational losses, they all seem to agree on the long term viability and value creation of the IPL. A key factor in this outlook, apart from the obvious socio-cultural benefits of the IPL is that post 2017, there is reportedly no fixed franchise fee payable by the franchises to the BCCI with a re-worked revenue share mechanism. The franchises also, it seems, expect, the broadcasting rights (a lion’s share of the central pool revenues) to increase significantly which would possibly make them achieve sustained profitability.

Overall, the IPL has recorded a steady 15-20 per cent growth year on year in its advertising revenue. “The advertiser conversation around IPL has changed from whether it would deliver or not to whether an advertiser can afford it or not given the pure demand and supply mechanism. IPL has become a permanent part of marketing calendars, and is budgeted at the beginning of the year,” says Gupta. In 2015, the IPL had reached over 200 million viewers, and this year the number has already increased to 335 million.

Karnik of GroupM explains that the fact that IPL was an annual event, held at around the same time every year allowed for carefully planned marketing strategies. “Whichever lens, whatever numbers or figure or target audience you would want to look at, the IPL remains the biggest impact property for the marketing industry in the country,” he says.

Omnicom Media Group’s Shriyan quotes the example of Vivo, stating, “Only the announcement that it would be the title sponsor of IPL made it a household name. The IPL has the tendency to see clutter since everyone wants to be on it but ultimately what a brand gets depends on how it chooses to partner.”

Despite all its battles with corruption and conflicting interests, there is no denying that the IPL is the hottest property on TV. IPL is perhaps the only property that has no sponsors who have regretted the investment. Media owners may well be downplaying its role, but the subterranean war to grab it has already begun. The fight is likely to narrow down to Sony and Star, closely watched by the BCCI and all the franchises, with a potential to alter the sports broadcasting landscape in India. With Sony having won the toss to give a bid, the question is will they bat first or chase.

noor.warsia@digitalmarket.asia; @NFWarsia