Star’s bid may seem excessive given the current public attitudes towards Indian cricket but it’s looking at long-term developments, including TV going digital, to recover its investments
Tariq Engineer04-Apr-2012Once again, the BCCI has come out trumps. Star TV’s surprise bid of Rs 3851 crores (approximately $750 million) for the six-year broadcast and digital rights to Indian cricket has the board laughing all the way to the bank. Faced with a potentially embarrassing situation after cancelling its contract with Nimbus over payment problems and the recent poor performances of the Indian team, the board has once again proved that controlling cricket is a gift that keeps on giving.The bundling of digital and broadcast rights has also allowed the BCCI to circumvent the problem of the lack of demand for the digital rights as a standalone property. Two previous attempts to sell those rights – at Rs 3 crores ($5.8 million) and then Rs 2 crores ($3.9 million) – found no takers. But now the board is in the clear and it is up to Star to figure out how to market live cricket on the internet.The upside for Nimbus
In something of a legal twist, Star’s bid may also have given Nimbus some relief in their battle with the board. The BCCI has claimed the full value of the bank guarantee from Nimbus, worth Rs 1,600 crores ($313 million), but with Star now stepping in to cover the remaining duration of that contract, the courts are unlikely to award damages to the board. “They cannot be expected to pay for rights they have not enjoyed,” legal expert Desh Gaurav Sekhri said, adding that this is an established legal principle the world over.
The situation for Star is a little more complicated. On the plus side, the company’s chief executive, Uday Shankar, made it clear that the rights would be jointly exploited by Star and ESPN. Already possessing rights to the ICC, England and Australia, ESPN STAR Sports* now becomes the dominant broadcaster in cricket in India while also eliminating a rival in Neo Cricket. At the same time, Star prevented another potential competitor from grabbing the biggest property in sports in India. Sony, which already owns the rights to the IPL, reportedly has plans to launch a sports channel of its own. Without Indian cricket, however, Sony’s current menu beyond the IPL – FA Cup football and the NBA – will likely have limited appeal.On the other side of the ledger, Nimbus had trouble making money at Rs 31.25 crores ($6.1 million) a match. Star is paying an average of Rs 40 crores ($7.86 million) per game, but the average only tells part of the story. Star bid Rs 32.2 crores ($6.3 million) for matches up through March 2014 and then Rs 43.2 crores ($8.5 million) through 2018. That is a substantial jump at a time when the future shape of the Indian team is uncertain, as is the future of its biggest draw in Sachin Tendulkar. But what the channel is perhaps betting on is the mandatory digitisation of the broadcast business that is expected to boost subscription revenue as opposed to advertising revenue. The entire country plan is supposed to be digitised by 2014, just in time for the switch to higher rates.”Subscriptions are bound to go up,” Samir Kale, the founder and president of SportzPR, a sports communications division of CMCG India, told ESPNcricinfo. “Pricing in television is very low right now. You can’t really afford to provide top quality content at Rs 5 (approximately 10 cents) a month or Rs 10 a month.” The subscription model is especially important for the sports business, he said, as it allows viewers to pay for whatever sports they like rather than having to pay for a bouquet of channels. “As television matures and people start paying for the content, that will deliver more value for the broadcaster,” Kale said.Another of Star’s advantages is that with its bouquet of channels it can use cross programming to derive more value from the deal. “They can get more value from the same property [than Nimbus], Kale said. “Overall, the valuation is fine.”Not everyone is as confident that Star can make the numbers work, though. An industry professional said the numbers didn’t make sense at Rs 32 crores a match so to stretch that to Rs 43.2 crores from 2014, even accounting for inflation and the looming digitisation of the market, was a big risk. A quick calculation assuming 6,500 seconds of advertising for an ODI translates to a spot rate of Rs 6.1 lakhs or 6.2 lakhs per 10 seconds. “Those numbers are not viable,” the professional said. “They might be available for a one-off India v Pakistan series or a one-off India v Australia series.”ODIs aside, India are scheduled to play 10 Test matches out of 19 games at home over the next year. There are plenty of advertising opportunities over five days but with Test cricket pricing is the problem, he said. “With Twenty20 everything gets tight. In 40 overs, what are you going to get? Maximum of 2000 or 2500 seconds.”However, he admitted that the switch to satellite television and digital cable could mitigate the potential losses that Star might face, though to what extent was still uncertain. “How much freedom do you have on pricing? That is the challenge. As long as the Telecom Regulatory Association of India controls pricing, broadcasters are still going to look at adding channels [as a means of increasing revenue] because there is a cap on what they can charge per channel.” He also didn’t expect the effect of digitisation to be felt until the back end of the contract, further limiting its effectiveness.At a more strategic level, Star winning the rights gives them a monopoly over “interesting cricket in any part of the world”, which makes the bid attractive, this person said, but that still doesn’t mean it isn’t a risk for their balance sheet. “That is the punt broadcasters have to take.”Desh Gaurav Sekhri, a sports attorney with J Sagar Associates, also thinks the bid is a risk proposition. Sekhri said he doesn’t see how India can top the highs of the 2011 World Cup and that, given the perception of cricket, Star will have their hands full making money on the deal. “[Even] if you win the Twenty20 World Cup, it is a poor cousin for [winning] the one-day World Cup,” Sekhri said. “You can’t do better than that.”*ESPN STAR Sports is a 50:50 joint venture between Walt Disney (ESPN, Inc.), the parent company of ESPNcricinfo, and News Corporation Limited (STAR)
