As Viacom18 walked away with the consolidated digital rights for the Indian Premier League, analysts said that Disney will find it difficult to scale up its streaming business. While its fully owned subsidiary Star India has bagged the TV rights for IPL at Rs 23,575 crore, falling TV viewership will lengthen the time necessary to recoup its investment and also hit margins, they added.
"It will be tough times for (Disney) Hotstar as digital rights have gone to Viacom18. Hotstar would need to go back to planning with a higher focus on non-sports. Hotstar was getting a significant amount of the subscribers and revenues due to IPL," said Abneesh Roy of Edelweiss.
In the last IPL cycle (2018-2022), Disney had won the combined rights for TV broadcasting and streaming for Rs 16,347 crore.
According to Karan Taurani, senior vice-president, Elara Capital, a large-ticket property such as the IPL is very important for any broadcaster to drive its digital strategy.
"One-third of Star’s revenue is IPL-led on both TV and digital, which reaffirms its importance. As per our estimates, 70 percent of Star India’s AVOD (OTT advertising) revenue is IPL-led, with SVOD (subscription) revenue largely following suit," said Taurani. AVOD stands for advertising video on-demand and SVOD refers to subscription video on-demand.
Cord cutting is gaining pace in India and OTT (over the top) platforms are gaining an audience often at the expense of TV viewership.
Disney+Hotstar had seen significant growth in its subscriber base over the years thanks to the IPL. By the end of this year’s edition, the streaming platform’s total subscriber base was 50.1 million, well over a third of its global subscribers of 137.7 million. Half of Disney’s most recent quarterly subscriber growth came from India, thanks to the IPL.
The Wall Street Journal cited analysts as saying that without the IPL, Disney+ could lose tens of millions of Indian subscribers which could hurt its aspiration of signing up at least 230 million subscribers by the end of fiscal 2024, a conclusion which Disney CEO Bob Chapek dismissed in a recent earnings call.
The Disney stock was trading 1.45 percent down at $94.32 at 9:15 pm Indian Standard Time on Tuesday compared to the S&P 500's 0.15 percent fall.
Paying high for TV rights
Streaming aside, Disney’s subsidiary Star could find the going difficult in making money from TV rights as well. IPL's TV viewership has been dropping with the league reporting 380 million viewers last year compared to 405 million in 2020 during its 13th season. The league's viewership in 2019 was recorded at 462 million.
On the other hand, streaming viewership for IPL has been growing with the league registering 421 million viewers last year as compared to 375 million and 325 million in 2020 and 2019 respectively. The league's digital viewership is expected to see the highest growth with analysts estimating it to touch 523 million in 2023.
It’s not only in sports, but even overall TV viewership is seeing a drop. DTH operators such as Tata Sky, Airtel Digital TV, Dish TV, and Sun Direct saw a drop in active subscriber base that fell to 68.52 million in December 2021 from 68.89 million in September 2021, reported Mint recently, quoting the Telecom Regulatory Authority of India (Trai).
In terms of revenue, while TV revenue is estimated to grow in the range of 6-8 percent over the next five years, digital media revenues or earnings from subscription and advertising on streaming platforms are estimated to grow at a faster pace of 30 percent, said Taurani.
Plus, there are concerns regarding TV subscription revenue which will keep average revenue per user (ARPU) under check due to regulatory headwinds like NTO 2.0. New tariff order (NTO) 2.0 is the revision of NTO 1.0 that was issued in January 2019. NTO 2.0 which caps channel pricing at Rs 12, down from the current price of Rs 19 is likely to impact TV's subscription revenue growth which could drop from 7-8 percent to 3-5 percent year-on-year in the first year of NTO 2.0's implementation, say analysts.
Thus, while digital has the potential to generate a gross margin of 24 percent in the fifth year of the IPL's media rights cycle helped by strong growth prospects, TV's gross margins will peak at 13 percent, said Taurani.
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