Friday, February 17, 2006

The new ball battle

The pitch has been laid for a new battle for eyeballs whenever a cricket ball is bowled on Indian soil. Through a stunning bid of $612 mn for all commercial rights for BCCI cricket, Nimbus Communications has raised the level of the game to an astounding high trying to match the upward gyration of the Sensex. This includes domestic and international rights for all cricket matches played in India by the Indian team for a period of four years. For the 22 Tests and 55 ODIs in this period, the sum works out to an astounding $3.7 mn (Rs.16 Cr) per day !! How will this money be recovered is the million dollar question.
Nimbus has played a masterstroke by becoming an aggregator of rights. Unlike broadcasters who have an uni-dimensional view when they buy rights, Nimbus the intermediary would use market dynamics to maximize value for the rights. For example, if ESS had won the rights , they would just look at advertising and subscription revenues for their channels and they are stuck with it for four years, as no other broadcaster would purchase it from them if they are not able to monetize the rights. But with Nimbus , the entire market opens up. It can slice and dice the rights and sell it to the maximum bidder. It could follow the classic investment banking model of being the book runner after cornering a large block. So it can sell the rights to Zee for one year and it would know that next year ESS would be more desperate to gain lost revenues and hence bid more. Similarly it can pit all content distributors, broadband players and radio players against each other and profit from the 'fight club'. Since the sum of the parts(individual bids of different players) add upto $ 550 mn , that would be a fair estimate of the demand function. So the gap that Nimbus has to bridge for breakeven is $ 62 mn. Given the competition amongst sports channels in a one-sport country, India cricket is essential for their survival especially when the Indian team is on a roll doing Anhonee ko Dhoni.
How will the cost be recovered at a macro level ?. Although India has 61 mn cable households, the cable operators do not pay broadcasters for more than 5 mn of their base. So even if each operator pays Rs.50 for a sports channel, the annual number adds upto Rs.300 Cr ($ 70 mn). This at a 10% growth rate, would mean
$ 320 mn over 4 yrs. Typically advertising revenues on a cricket day can be between Rs.2 - 3 Cr per day. So at roughly 150 days , it would translate into Rs.500 Cr($ 110 mn) if the economy continues to be good. If DTH and other platforms garner 10-15% share over 4 yrs, they should add another $ 50 mn over 4 yrs. International distribution should get another $ 75 mn. Add radio rights for another $ 20 mn. All this adds upto $ 575 mn. So unless sports broadcasters are able to increase declarations from cable operators to 8 mn, the rights would not be profitable for all players in the value chain. And if cable operators do not increase declarations, consumers would bear the brunt by having to pay Rs.50-80 more on their cable bills.
Welcome to the brave new world of cricket broadcasting. The only people laughing their way to the bank ( I dont know if its Swiss or Indian) are Sharad Pawar and Co for running the money machine called BCCI. In four years they have quadrupled the revenues from Indian cricket, a great growth story.


At 12:15 AM, Anonymous Anonymous said...

In a country were Sachin is god and cricekt is religion, impossible is possible.

At 11:12 AM, Blogger Prashant Pai said...

Jayesh, It was good to meet ya in India. Please visit my blog that I just started


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