Can Viacom Recoup IPL Digital Rights Spendings? 'After 4 Years,' Says Expert

IPL's digital rights have been bought by Viacom 18 for Rs 23,758 crore for 5 seasons.

(Photo: BCCI)      

A mega Rs 48,390 crore payday for the BCCI from the IPL's media rights and a lot is being discussed of the money spent by Star India and Viacom18 to acquire the TV and digital rights for the next five years.

Star India had bagged the contract in 2017 for the last five year cycle, for just over Rs 16,347 crore while this time, Viacom18 has bagged the digital rights for the Indian subcontinent for Rs 23,758 crore. Star India took the TV rights in the subcontinent for Rs 23,575 crore.

So, which of the big media companies pulled off a good bargain? Which spent more than predicted? Industry expert Karan Taurani, SVP- Elara Capital, spoke to The Quint and answered a few of the questions.

Who do you think pulled off the better deal in this IPL media rights auction: Star or Viacom 18?

I think if you look at the cost of rights, from a better deal perspective, it’s Star who has clinched the better deal. Given the number of matches, we believe that the break-even for the TV rights will happen from the second year onwards.

But as far as digital rights are concerned, I think they've come at a sharp premium. In terms of revenue stream right now, in terms of IPL as a property, only 22 percent of the IPL revenue comes from digital.

So there’s a long way to go for digital. Of course, the growth rates are phenomenally high for digital and there is a potential scale which is not there for TV. The TV growth rates are a lot more mature in nature. But in terms of break-even, I think the digital part will be delayed till the fourth year.

Viacom18 also bought digital rights for some of the matches twice. They first bought the full digital rights for 5 seasons (410 matches) for Rs 20,500 crore and then they bought 'Package C' comprising the digital rights of just 18 matches a seasons for another Rs 3,258 crore. Basically they bought the rights to matches that they already had.

How do you explain this other than it just being their way to maintain monopoly?

I think it was very important for them to buy the rights of those 18-matches cluster because these 18 matches are the ones that have very high viewership numbers.

If you look at the number of viewers of these 18 matches, the results could be almost 30 to 40 percent higher than the normal matches that are there. So I think it made more sense to pay any price because if you have to monetise the entire digital property in a better way, it is very important to get all the matches on an exclusive basis because once it goes to other platforms on a non-exclusive basis, there is big cannibalisation in terms of the advertisement revenue.

So, that’s the reason they paid a very hefty price for it and because of that, the overall content cost has gone up phenomenally. If you look at this on a per-match basis, digital has kind of surpassed TV by a small margin. But as I told you, monetising opportunity in digital is still unexplored. I think it needs some ofthe numbers to scale up from here on.

Do you think Viacom18 will manage to break-even and earn back everything that they have spent? Do you actually see them being able to recoup their cost, because it is after all just a five-year contract.

I don’t think the cost will be able to bring profitability numbers because the break-even will only happen in the fourth year. But in the fourth and the fifth year, I think the gross margin of this segment will probably reach the 25 percent mark following the incremental growth.

If you look at it from a Jio or a Viacom18 standpoint, I think this is more strategic in nature. The market in India is highly fragmented. There are too many OTT platforms. It’s very tough to compete in this kind of market with the right content. IPL as a property is a very compelling nature of content and will lead to a huge jump in terms of the user base. It will also lead to subscriber retention if the IPL runs for around three months.

My point is that it is more strategic in nature. I don’t think profit is something they are looking at. But they are looking more at driving eyeballs to the platform which in turn will lead to a better market share for the platform in this highly fragmented segment and will also lead to a better valuation for the platform.

Where do you see the earnings coming from? Will it just be subscriptions or will there be advertisements?

If you look at the numbers in the digital media segment, typically the market is driven by AVODs (advertising-based video on demand). So if you look at the IPL numbers right now, in terms of Hotstar, assuming close to 60 percent of your subscription revenue today is coming because of the IPL... the revenue share is roughly 50-50.

My sense is that both the segments of OTT, whether advertising or subscription, have the potential to grow in the range of 30-35 percent in the next five years. So I think both are triggers which are roughly equal in size and both have the potential to grow in a market like India.