IPL media auction and the future of the TV ad industry
The winning bid for TV rights is ₹23,575 crore over five years. But in a field dominated by films and daily soaps, where IPL accounts for a small portion of the total ad time, will this bet work?
By now, you must have read a dozen different pieces analysing the Indian Premier League (IPL) broadcast and digital rights auction. Fair warning: This is yet another. The auction has been won for ₹48,390 crore across five years. Of this, linear television broadcast rights account for 49% and digital, exclusive-cum-non-exclusive, for 51%. For comparison, the pro-kabaddi League, the only other sports event for which media rights were auctioned, was sold for a total of ₹900 crore for five years.
The ballooning amounts reflect the unstoppable rise of cricket, which was propelled first by the famous victory in 1983 and has only got stronger with each passing decade. In 2017, all rights, linear and digital, were sold for ₹16,000 crore. In these five years, bidders estimated that the IPL property value trebled. In this time, India’s per capita income remained more or less steady at $1,900 a year. The population grew slightly from 1.33 billion to 1.38 billion. The population of television homes rose from 190 million to 210 million, about 10%. We assume that 50% revenue will be realised by the winning bidder, Disney, via advertising and the balance through subscriptions, syndication and tie-ins. And, that this will be treated as a zero-margin asset, to build and retain audiences, even if they don’t add to the bottom line. Using these assumptions, we will examine 50% of ₹23,575 crore spread evenly across five years – ₹2,357 crore annually – and see what it tells us about the dynamics and future of the television ad industry.
Television has been the mainstay of media advertising spends from the end of the 1990s, when it overtook print, never to look back. Statista estimates TV ad spends to have risen from $3.22 billion in 2017 to $3.65 billion now, rising steadily to $3.88 billion by 2026. The Broadcast Audience Research Council’s (BARC) estimates of inventory consumption – the amount of time available to run ads – have been, broadly speaking, on an upward swing as well, rising from 1.5 billion seconds in 2018 to about 1.8 billion seconds in 2021. The buoyancy continues and we should see a further increase, bringing up close to 2 billion seconds this year, and adding about 100 million seconds every year, to possibly reach 2.5 billion seconds by the end of the IPL contract period.
How much inventory will IPL yield? A total of 410 matches are budgeted for. About 3,000 seconds of inventory is available per live match. Assume that Star runs the matches on all 11 of its sports channels and factor in at least two reruns, and we hit about 100,000 seconds per match. 82 matches a year, thereby, yield 8.2 million seconds of advertising. This is just under 0.5% of the television advertising inventory to be sold in the first year of the contract, 2023. Even assuming that Disney will add inventory to its IPL programming at the same pace as the growth of the overall market, it will remain at 0.5% of television advertising in the last year of the contract.
Here’s the rub – 2023’s estimated total television ad spend is about ₹30,000 crore. The winning IPL bidder has pledged to find 7.8% of this value from 0.5% of the total inventory.
It is empirically known that advertising inventory is not priced on a normal, bellshaped distribution but by Pareto distribution, where a small number of items account for a large amount of value. Thus, about 360 million seconds of advertising costs about ₹24,000 crore, the balance ₹6,000 crore paying for the remaining 1.44 billion seconds. The top one fifth costs 16 times more than the residual ⅘th. IPL inventory accounts for just 2.5% of the premium inventory, and proposes to take away around 10% of the value available in that box.
That’s really the elephant in the room.
The top fifth of the inventory is premium entertainment content: Daily soaps, reality television such as Bigg Boss and a raft of blockbuster TV premiere movies. This content produces family audiences reliably, consistently and is available around the year. Critically for advertisers, this is the content which houses their peak season advertising between September and January, the festival period. IPL, in contrast, is scheduled, in the ICC Future Tours programme, between March and May, not really the peak season for major marketing activity.
Remember that apart from cricket, the other big-ticket item for broadcast networks is films, at a time OTT players driving up prices to stratospheric levels. KGF 2, for example, amassed ₹1,200 crore at the box office and reportedly sold to Amazon Prime Video for ₹300 crores. Indian film makers, having seen the commercial success of elaborate, high-cost action or adventure films, are doubling down. Will a network – also an entertainment and films behemoth – which has already pledged a massive pile to a single tournament, continue to shop for marquee films?
Media agencies and advertisers have long insisted that the total ad spend available is budgeted and fixed at the beginning of every financial year. This number can change only marginally, particularly if the revision sought is upwards. However, even the slightest roiling of consumer markets leads to belt tightening in a hurry. Here, finally, is a set of forecasts about what the TV advertising market will look like over the IPL contract period.
One, broadcasters have sought, but not always received, an inflation-linked price escalation, generally around 8-10% annually. This is insufficient to fully cover content cost escalations. Over the last two decades, gross margins have thus come down between 15 and 20%, from around 35-40% in the early years of this century, to no more than 25% today. This pressure will increase further.
Two, big banner filmmakers always looked to TV as a major revenue centre, accounting for well over 50% of their aggregate revenue. This expectation is likely to suffer some deep body blows.
Three, the incumbent, also the new contract holder, now gets into this contract without digital rights. These rights were the secret sauce it used to drive adoption and usage of its OTT streamer service. Audiences
have already begun to show considerable enthusiasm for watching content on their smartphones. The new contract corresponds with the rollout of blazingly fast 5G. It should be an issue of concern for Disney that while linear TV subscription costs are rising, streamers are actually dropping prices to increase their adoption.
And four, there is, somewhere, a minority interest group in Wall Street, which is looking at these numbers and wanting to ask Disney chief executive officer Bob Chapek and chief financial officer Christine Mccarthy some tough questions about the wisdom of the IPL buy, when they next face a quarterly earnings call.