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Of nonsensical bids and long-term business models
By Atul Pande
As I look at the sports broadcasting industry from the confines of my living room, and have the luxury of watching it like a bloody attritional boxing bout, it alarms me no end at the risks being taken in the business. The bidding for real estate has reached well, nonsensical, levels, and the entire game is driven by subscription growth numbers, which in theory could happen, but will take some doing and some time.
The model assumes roughly a 25–30 per cent year-on-year growth of the subscription revenue for the business, which means that in the next five years, sports viewing would cost four times as much as what the consumer is paying today. So, for a fully loaded sports viewer who watches all the channels, it would go up to 500 a month, which is upwards of 60 per cent of what he pays today for all he watches, including GECs and the razzmatazz.
The impact it has on channel positioning, packaging and the general a la carte structure is interesting and will require some serious shenanigans by the platforms to make it happen. The good news is that the content is becoming more compelling and HD sampling is driving serious affiliation to the genre.
I foresee that this dynamic will drive consolidation in the industry, and I would be very surprised if there are more than two players of any real size left in the industry in the next two to three years. The broadcaster needs to be in a dominant bargaining position to be able to drive the changes they want, but no one is there yet. Star is getting there and that itself should be a sobering thought for the industry.
If I were a regulator, I would see all this with a jaundiced eye. If critical content has to be kept at a manageable price—whatever that is—then what are the decisions to be made in terms of access. Moreover, the pricing decisions to be made on the non -critical channels have to be mulled over.
Then the next question could be the definition of critical content, and the national broadcaster’s role in distribution. With cable penetration at the levels that it is in urban areas, the argument resolves itself, at least in my mind. Given the lack of information on rural market shares of sport, cricket in particular, probably the only area where the national broadcaster still drives scale, that decision itself has no statistical backing. So, there we are, at an interesting pricing juncture in the industry.
So, if I were a platform, especially the one that has a reasonable pricing model going, like the DTH guys, I would be watching this space very carefully. Use sports to upsell and get a la carte going. Long-term growth deals with channels will be needed to drive pricing benefits, and more importantly to be able to take a package-oriented positioning with the consumer. May be take a position on some content, which is really compelling, and use it to drive affiliation. Of course, the consolidation rule applies here too, which is overdue and will happen sooner than later.
The content play itself has acquired a surreal dimension. Star is significantly overweight on cricket, at least in terms of telecast time, and some of the new content being created is fairly high quality. As they seem to be in a rebuild- and-reinvest phase, it would be interesting to note how long this lasts. The reality is that ratings are largely driven by live sports, and the other piece has to be sponsorship led. I hope the revenue equation is tied down to everyone’s satisfaction
Sony Six seems to be in the expansion era, and some of the recent wins seem to have come at prices that appear to be loss leaders, but they clearly have thrown the gauntlet to the other players in terms of the upcoming renewals. They will have to expand the bouquet to drive the sub-revenue the business will demand to pay for the costs, and that’s something which could well happen this year. Ten is fairly well placed in terms of their platform positioning and probably have the most robust financial model, and their real challenge will be some of the big-ticket renewals which are due this year.
One of the fallouts of all this is that the new league activity will slow down. There is not enough management bandwidth with the platforms to be able to execute this with so much happening. And the build-up phase and the cost impact of the new leagues are such that no one wants to acquire another red herring with the current challenges. The deferral of the football league—the JV between Reliance and Star—lends credence to this view, and this will slow down the other leagues too. IBL was a success, and that should have driven more participation of other products (basketball for example, where India needs a league as of yesterday) but is likely to be deferred to another day. Also, some of the league owners will also have to start owning the financial risk of their products, which was earlier being assumed by the broadcasters.
So, I am bullish about the consumer experience as more international sports get delivered to the platforms, and the ability of platforms to drive pricing upwards using sports. I am bearish about the emerging leagues, as the revenue model of the broadcasters settles down behind some of the recent acquisitions. The fate of the three major players depends on how the upcoming renewals and bids shape up which will drive the industry’s structural dynamics. Hopefully, the financials of the industry will start looking better this year.
My best wishes to my friends in the industry. 2014 is the year, which will set the trend for the new normal in the industry and everybody needs all the luck they can get. Have a great year!
(Atul Pande is the erstwhile Global Head of Ten Sports. He is available on firstname.lastname@example.org and his twitter handle is @atulspeaks)