How will Viacom-18, Disney-Star justify their IPL spends?

The high decibel drama around the IPL media rights is finally over. Incumbent Disney-Star retained the television rights at a 30% premium (Disney paid ₹23,570 crore as opposed to ₹16,000 crore in 2017) over the base price, but it let go of the digital rights. The digital rights went to Reliance-backed Viacom 18 which coughed up close to ₹23,578 crore (a 70% premium over the base price). The overall media investment for the next five years of IPL is a whopping ₹48,390 crore, and one can’t help wonder how the two media conglomerates would monetise these investments.

Over 48% of the media investments went towards digital, a segment which contributes 22% to the overall revenue of the league. “There is no way this investment will make sense from a P&L perspective for Viacom-18,” says Harish Thawani, former chairman, Nimbus Communications, which owned Neo Sports. Karan Taurani, vice-president, Ellara Capital, says, “We believe the hefty premium paid for Viacom 18 is more a strategic manoeuver for Jio.”

Ellara expects digital revenues to grow by 30% as opposed to TV which Taurani says would grow by 6-8% over the next five years. “With IPL rights being sold separately, we expect stiff competition between the TV and digital platforms for advertising budgets. We expect some verticals such as fintech, commerce, ed-tech and EV to see a rapid shift to digital, whereas FMCG and auto may continue to rely heavily on TV for their mass campaigns,” he explains. However, when it comes to profitability, he expects Disney-Star to break even within the second year, while Viacom 18 could struggle up to the fourth year as the relative premium of digital is as high as 70%.

“However, digital has the potential to generate a gross margin of 24% in the fifth year, helped by strong growth prospects and future monetisation models (Web 3.0), as compared with TV with its gross margin peaking at 13%,” Taurani adds.

Former Star India sales head Paritosh Joshi says the monetisation prospects for the Reliance-backed Viacom-18 on digital will not be limited to Jio or Viacom’s OTT platform Voot, but the universe would also expand to Google and Facebook. “One can’t ignore the fact both Google and Facebook have invested in Jio and both of them are hungry for content.”

However, it's also worth noting that IPL didn’t do particularly well on Hotstar in the 2022 edition of the cricket league. The OTT platform, say media planners could sell only about 35% of its ad inventory. “While TV averaged ₹10 lakh for 10 seconds and managed to sell 95% of the inventory, Hotstar was averaging ₹4-4.5 lakh. There was both volume as well as value drop this year on Hotstar,” says a senior media planner.

Former Nimbus chairman, Thawani, says that it is unlikely that digital would attract more advertiser interest than television. “In India digital is a small screen media, the kind of consumer who watches digital content in the hinterland doesn’t particularly interest the advertiser. They prefer reaching out to them on television. Secondly, there is no measurement available.” He says that in order to be profitable, Viacom-18 has to churn nothing less than ₹3,000-4,000 crore of subscription revenue on digital, which according to him could be a huge challenge.

That brings us to the question if Disney-Star can afford to lose the digital rights! It is well known that one of the biggest reasons why consumers watch Hotstar is because of cricket, especially IPL. “Even with IPL, Hotstar’s monthly ARPU (average revenue per user) was in the region of $0.80 versus Disney Plus ARPU of $7.25 per month. Moreover, the IPL subscriber base is transient. The ad revenue on Hotstar for IPL has always been 3:1 in favour of television ad revenues. So, IPL never worked for them in terms of ad revenues on digital,” says former Star Sports executive Anirudh Kalia. He says that Disney’s senior management at Burbank have repeatedly said that IPL is not central to their aim of reaching 230-240 million subscribers.

According to Thawani, Disney-Star has played an extraordinary game of bidding only for the TV rights. “One can’t underestimate a global company which has been operational for over 100 years. They had an incumbent advantage and knew what other people didn’t.”

As media giants spent a fortune to grab the media rights of IPL, it's advantage IPL franchises — all of them would be richer by almost ₹400–500 crore. “Even the new teams will turn profitable thanks to the media rights,” points out Thawani. The teams get 50% of the media rights revenue.

The question still remains how Disney-Star and Viacom would monetise the huge premium they have coughed up to bag the rights. Let’s wait and watch.