Sandeep Goyal
Sep 05, 2017

Blog: Will the winner's curse afflict Star?

How the IPL game pans out from here for media and marketing.

Blog: Will the winner's curse afflict Star?
I really felt sorry for Sony Pictures Networks yesterday. Despite bidding a hefty Rs 11,050 crore for the IPL India media rights, way ahead of Star’s Rs 6,196.94 crore bid, they went home empty handed. What they perhaps did not understand was that the bid would be decided in favor of whoever bid higher than the sum of the highest bids for individual categories. Star did just that. They put a Rs 16,347.50 crore bid on the table, just 3 per cent higher than the Rs 15,819.51 crore that was the grand total of all the highest bids in individual categories. And with that, Star took home for the next 5-years IPL rights for: 
1a. Indian Sub-continent Broadcast (TV) rights
1b. Indian Sub-continent Digital rights.
And Rest of World (ROW) media and digital rights for
1. Middle East
2. Africa
3. Europe
4. USA
5. Australia and New Zealand.
A jubilant Uday Shankar, Chairman of Star India, wrote to Star employees, “Above all, what makes us successful and win these closely fought battles is who we are. It is in the DNA of this great company to take very few but very big risks and then go about executing them relentlessly in a very disciplined manner. We truly believe in Nayi Soch (new way of thinking) and we truly believe in Bhula De Dar, Kuch Alag Kar (forget fear, do something different) – that’s who we are and that’s what won the day for us today”.
Uday’s message effectively nullifies whoever has been saying that Star’s mind-boggling bid could bring on to it the Winner’s Curse … the winner ending up a loser; winning the bid but losing a lot of money on it. In this very blog yesterday, I had raised quite a few issues. In less than 24 hours, we can now re-visit most of these issues with more valid perspectives. 
First and foremost, out of the 24 entities Star India Pvt. Ltd., Amazon Seller Services Pvt. Ltd., Followon Interactive Media Pvt. Ltd., Taj TV India Pvt. Ltd., Sony Pictures Networks Pvt. Ltd., Times Internet Ltd., Supersport International (Pty) Ltd., Reliance Jio Digital Services Pvt. Ltd., Gulf DTH FZ LLC, GroupM Media India Pvt. Ltd., beIN IP Ltd., Econet Media Ltd., SKY UK Ltd., ESPN Digital Media (India) Pvt. Ltd., BTG Legal Services, BT PLC, Twitter Inc., Facebook Inc., DAZN / Perform Group, Discovery, Yupp TV, Airtel and BAM Tech and Oath (Yahoo) who picked up the bid documents, only 14 arrived to actually bid at the auction yesterday.
The biggest disappointment was global e-commerce giant Amazon, who market rumours said would bid in a consortium with Sony Pictures, because they have ambitious plans for Amazon Prime. They never arrived, with or without Sony! Also missing from the lineup were microblogging site Twitter. But Facebook were there. And placed the highest bid of Rs. 3,900 crore for the digital rights pipping the bids of Rs. 3,280 crore by Airtel and Rs. 3,075 crore by Reliance Jio which in any case were far far ahead of the Rs. 1,787 crore bid of Times Internet and Rs 1,443 crore bid of Star TV.
Group M were missing too. One was actually looking forward to an aggressive bid from them either for digital or for ROW. This was a good opportunity for Group M to move to a higher stratosphere, from just buying for clients, to actually trading in self-owned inventory. I had actually expected my old friends from Dentsu, knowing their keen-ness on sports rights, to have joined the fray, but surprisingly they never showed any interest in what are probably one of the biggest rights today in the world. Discovery and ESPN also kept away. I think neither of them have any serious ambitions in this space in India.
Now to some of the issues related to the bidding, and the incredible Star victory …
1. Is the bid too expensive?
Star already pays Rs. 43 crore per match for India’s international games played at home to the BCCI. The new IPL bid is priced at Rs. 54.5 crore, about 20% higher. Hence, expensive but not outrageous. 
2. Will advertisers pay to match the bid price?
Easiest answer to that is that VIVO paid the BCCI Rs 2,199 crore for the IPL title rights. This was 554% higher than the last winning price for the sponsorship. If this is any indication, advertisers will pay. As I said in my Blog yesterday, there is only 2000 seconds of inventory on every match. Sponsors take away 1200 seconds leaving a very small amount of 800 seconds on every match for ad-spots. With at least 50 large advertisers from amongst mobile phones, telecom operators, e-commerce players, two-wheelers, cars, soft-drinks, banks and credit cards, e-wallets, IT and OA, deos, apparel and accessories, travel and occasionally real estate, Star can effectively look to raise prices. And quite considerably. 
3. But a big price increase?
Current selling rates for IPL are about Rs. 5.5-5.75 lacs per 10 seconds. Star can surely push this up to Rs. 7.5-8.5 lacs per 10 seconds in the immediate short run and look to take larger leaps in the subsequent editions of the IPL. I do expect media agencies to resist but I may forewarn that Star may not be averse to dis-intermediating media agencies, if they become road-blocks.
4. What about distribution dollars?
Star’s monopoly is best going to come handy in ground level distribution. MSOs must be already scared. I, from my past experience, of this business, expect Star to cash-in at least an additional Rs. 1,000 crore a year in distribution from within India both from cable operators and DTH players. In my Blog yesterday too I had mentioned Jawahar Goel (Zee) petitioning the Competition Commission voicing fears on Star’s cricket monopoly. Well Jawahar’s fears are more than valid today but frankly this is a free market and Star has every right to extract its due from reluctant and regressive trade partners. 
5. Is there an opportunity in digital?
Facebook never paid a cent for content ever. The fact that they bid Rs. 3,900 crore for the IPL is in itself indicative of the impact that they anticipated on their large constituency of digital users. The fact that Airtel and Reliance Jio too quoted large bids equally shows how the IPL could be a key component in the data wars of tomorrow. Star has built Hotstar as the No. 1 OTT destination in India in the past 3 years purely on the strength of IPL digital rights. I am sure Star will make the digital feed concurrent to the broadcast feed going forward and will not hesitate to make it a Premium paying feed for live-viewing by users. Star could also partner one of the telecom operators and charge a hefty price for this preferential treatment to their subscribers.  Star in previous years was handicapped by various court rulings that allowed telecom operators to cheat by sending delayed-live SMS updates robbing the rights holder of revenue. The Star monopoly could help prevent such revenue leakages. And, of course, Hotstar will surely use the digital rights to open up PIO-NRI dominated overseas markets. There is good revenue there. 
6. What about the ROW markets?
Rest of World (ROW) is a big opportunity both for TV and digital. Indian audiences and those from the sub-continent constitute a huge revenue block in markets across Middle East, UK, Canada, Australia, New Zealand, US and parts of the Far East. Cricket connects these Indians to their homeland and they are willing to pay a hefty monthly subscription for seeing Kohli and Gayle hit enormous maximums. 
7. Will the Star monopoly bulldoze clients?
My view is, it will. I made a big case yesterday for ad-rates to go up in cricket and in GEC. The reality of the cricket scenario is now upon us. Clients have no choice but to accept the market reality. If cost of content has risen exponentially, then there is no choice but to pay higher prices. In a way, this reality is a good reality and the advertising dons would do well not to expend too much negotiations time and energy on fighting a losing battle on behalf of clients. This is the one opportunity for the business of media to grow in size and stature and allow media companies to catch up with industry leaders in other domains. 
The two heroes of this entire IPL bidding are Rahul Johri of BCCI and Uday Shankar of Star India. Rahul correctly estimated that the IPL rights would fetch about Rs. 18,000 crore. Many thought he was pipe-dreaming and was talking up the bids. Rahul has been proved right with the winning bid very close to his estimate. Rahul, having raked up all the moolah on behalf of the BCCI now needs to deliver better cricket. He needs to support the Indian Eves who almost won the World Cup. He needs to do far more for cricket in the hinterland. Uday Shankar has his task cut out simply in making sure his bid actually makes money for Star. Shankar has the unique advantage of now having 100 days of cricket at his command. He can take Indian media to a newer high. Both Johri and Shankar are well experienced media men. They just need to make sure the future of Indian cricket is about fun, family and fervor for the game. The financials eventually will right themselves.   
(Sandeep Goyal is a die-hard cricket fan. He brings the wisdom of many years of also being involved in the business of media rights to his writings in this Blog.)
Campaign India

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