Star recently won global distribution rights of IPL matches for the next 5 seasons across digital and traditional channels, for a world record Rs. 16346 Cr. Its bid for the “whole hog” package surpassed the total of the largest bids for individual packages, which came to Rs. 15819 Cr: ~Rs. 3000 Cr digital-only bid by Facebook (talk about aggressive foray into video content), and Sony’s Rs. 11000 Cr for Indian subcontinent television broadcast.
Now that Star has it, there are two key ways to monetize this asset: advertisers and subscribers. Consider the numbers. Sony’s revenue from the IPL 2017 television rights was estimated at Rs. 1200 Cr, and hotstar’s estimated at Rs. 120 Cr from the digital rights. Star needs to make more than double this amount every year for the next five years just to break even. This could mean two things. Either matches were very undervalued so far, or Star expects to make a ridiculously greater amount of money from every match. Given it’s unlikely that an underpriced system would have existed for so long (5 year contracts), the latter is more likely.
Star’s execs said in statements that both television and digital are key focus areas. I suspect Star has plans to make this bet pay off in a few different ways:
Indian consumer base solid as ever
The IPL is already hugely popular in the Indian subcontinent, and there is no reason to think it will become less so. If anything, popularity is likely to increase over time as longer formats become fall out of favour. (More entertainment alternatives = less patience to spend watching a long match = more demand for the shorter format). So getting the rights for the Indian subcontinent is a no-brainer. Indian mobile consumers are growing at breakneck speed, but more on this in the last section.
IPL will go global
Cricket has remained a fairly local market so far, no thanks to the pace/length of the game, but IPL opens up new markets with its “bite sized” portions. Star sees a pathway to take the IPL to the same status as the EPL or the NBA. That a Manipur resident is a fervent ManU supporter is explained mostly by the fact that ManU markets fantastically well (like the EPL in general). Star and affiliates will aggressively promote cricket generally, the IPL specifically in global markets, and target not just the Indians there, but increasingly a “virgin” populace that does not not currently consume cricket. The EPL India expansion playbook from the 90s and early 2000s should come in handy here. Expect IPL A-listers like Virat Kohli and others to be marketed as hard as global sports elite, a la Kobe Bryant or David Beckham. Expect teams to start marketing themselves harder, developing their fanbases abroad. Expect more tours by IPL teams to North America, Europe.
TV ad spot prices will rise
An IPL match already feels overstuffed with ads, so I don’t think traditional advertisement time will increase too much. The price, however, for a 30 second spot should increase as global marketers smell the opportunity of targeting the “sava sau crore” Indian population, and specifically the emerging Indian middle class that tunes in every other day. Every global brand that wants to enter India is going to vie for these spots, and win them (e.g. Vivo), unless Jio’s endless supply of money never runs out. While the price rise, coupled with introduction of new ad formats/delivery technology will go some ways in allowing Star to make more money from each match, this alone is unlikely to lead to 2x revenue from each match.
Star wants to be Netflix + ESPN in digital
This is where Star’s real opportunity lies. Star owns a massive digital consumer base through hotstar, and probably has the strongest brand in the space in India today. Internet consumption in India is likely to grow at a breakneck speed over the next 5 years, especially over mobile, adding tens of millions of potential new consumers for hotstar. Consumers that can be acquired relatively easily with the draw of something as universally appealing as the IPL. Consumers that that can be converted into paying customers for Star’s premium quality content (or the IPL itself?). Content that Star is already an expert at creating. (Imagine if HBO got the rights to stream the NFL in the US). Star might even be willing to give away live IPL matches for free on hotstar. To that extent, the bid for digital rights can almost be thought of as cost of acquiring customers for hotstar as a whole. This could very well be the ace up hotstar’s sleeve as it prepares to compete with Netflix and Amazon Prime Video (and Facebook?!) for the Indian subscribe-to-watch wallet. So while the Star’s return on the Rs. 16000 Cr. IPL deal might not be great by itself, the rewards that come from being the runaway leader in online subscriber-friendly content are well worth it.
To sum up, this / something similar to this is part of Star’s strategy for the next 5-10 years.
Star certainly sports a strong vibe of opportunity.