Star India’s winning bid of Rs 16347.5 cr was the single largest bid on Monday, and outdid the entire contingent bidding for the rights by Rs 528 cr. The mind-bogglingly high number has got everyone wondering how Star India plans to recover the money it will invest in the franchise.
If Star India has to break even, the channel will look at increasing subscription tariffs and ad rates. “Star India is a smart company and I am sure they have a plan in place to recover the money they will spend. It is possible to recover this amount and the strategy will majorly focused at the distribution level,” said Sandeep Goyal, Vice Chairman of The Mogae Group. He further added that the potential to increase monetization would be highest at the distribution level and Star could churn at least Rs 1,000 crore per annum just here.
Going by the numbers, Star India is essentially set to spend around Rs 3,270 cr on the IPL every year for five years. At last count, Sony Pictures Networks had drummed up an ad revenue of Rs 1,400 cr from the broadcast of IPL in India this year and Rs 400-500 cr from subscription, as per industry sources. The ad revenue increase that Sony hoped for and achieved was around 10 per cent. It is speculated that Hotstar earned around Rs 150 cr of digital ad revenue from IPL edition 10. That makes the total revenue around Rs 2,000 cr.
For the remaining Rs 1,300 cr that Star India is falling short of, a rough back of the envelope calculation shows that Star India will need to increase ad revenue and subscription earnings by 30 per cent. In addition, its broadcast rights for the Rest of the World should also bring in around Rs 400-500 cr to bring us the magic figure of Rs 3,200–3,300 cr.
Industry insiders said that for the first few years Star India may not break even, but with time the franchise will earn them significant revenue to eventually break even. A media planner said that ad revenue could increase to around Rs 1,800 cr. But some say that inflation of ad rates cannot be prohibitively high. Noting that the sum of money that Star India has pledged for the IPL was high and a bit unexpected, Ashish Bhasin, Chairman & CEO South Asia Dentsu Aegis Network, said, “While the IPL has huge potential for advertising since it appeals to all demographics, there is a limit to which the market can bear an increase in rates. I am not sure how much this will result in an increase in rates.''
Some are sceptical about how Star India will really manage to break even. “Unless Star India increases ad rates, makes an exorbitantly expensive deal, as part of which it offers a number of assets to the advertiser, I don’t see how it can break even. It is hardly likely that marketers will fall for that ploy because they have their limits as well,” said a senior sales executive at a broadcast network.
Meanwhile, Dinesh Vyas, VP (Planning) at OMD opined that winning the media rights for the IPL puts Star India in a very strong position. “What this does is gives Star India a lot of options in sports. They can now offer advertisers the possibility of spreading their ad budgets across multiple sporting properties or cricketing events,” he said.