Can Zee defend its high spend on ICC TV rights?

Disney Star won TV and streaming rights for $3.1 bn and licensed TV rights to Zee for about $1.4-1.5 bn (broadly akin to TV/digital rights for IPL). According to a Kotak analysis, $3.1 bn for 2024-27 ICC media rights (4 years; Indian sub-continent) as against $2 bn for 2016-23 (8 yrs; global media rights) implies 15 per cent CAGR (in $ terms). Such a sharp increase in cost of cricket rights could lead to higher sports loss/weaker profitability for OTT/TV players and pressure on entertainment (non-sports) advertising on TV

Mumbai: Zee's decision to step up investments in sports TV rights has triggered a new debate, especially since it's foraying with a masterstroke-'capturing' the crème de la crème of International Cricket Council (ICC), acquiring live TV rights of men and women World Cups. Zee's decision to acquire TV rights of ICC events (2024-27) for $1.4-1.5 bn (KIE) supports an emerging view that sports broadcasting is less vulnerable to OTT disruption and portfolio approach (entertainment + sports) is critical to safeguard core TV businesses.

Although not a profitable proposition, the monetary equations are unlikely to change because of the steep content inflation and TV-to-OTT shift.

Against this backdrop, analysts are not able to understand Zee's decision to focus on sports. Meanwhile, ICC has raised some queries that could potentially delay the Sony-Zee merger.

It may be mentioned here that Zee has signed a licensing agreement with Disney Star for exclusive rights (TV) to telecast ICC men cricket events (including U-19) in India over CY2024-27. In the recent past, Disney Star won TV and digital rights of ICC events (for the Indian market; men + women + U-19) for the entire 2024-27 period. The mega events during the period include men's T20 World Cups (2024 in US and West Indies and 2026: India and Sri Lanka), men's World Cup (2027: S. Africa); and men's Champions Trophy (2025: Pakistan). However, neither company has disclosed the deal value as restricted by ICC.

Talking to Bizz Buzz, Sandeep Goyal, Chairman, Mogae Media, which is into media consultancy, says: "It appears to be a pre-mediated deal. My own feeling is that the understanding may not have been reached overnight."

In a way, it appears good for both. Star can now concentrate on marketing IPL, while Zee can put its fullest might behind the ICC offering. The arrangement sounds a bit unusual, but then competition is the new norm across industries, he said.

Disney Star won TV and streaming rights for $3.1 bn and licensed TV rights to Zee for about $1.4-1.5 bn (broadly akin to TV/digital rights for IPL).

According to a Kotak analysis, $3.1 bn for 2024-27 ICC media rights (4 years; Indian sub-continent) as against $2 bn for 2016-23 (8 years; global media rights) implies 15 per cent+ 8-yr CAGR (in $ terms). In the case of IPL media rights, the five-year CAGR is 24 per cent in INR terms (Rs 484 bn for 2023-27 as against Rs 163 bn for 2018-22). Such a sharp increase in cost of cricket rights could lead to higher sports loss/weaker profitability for OTT/TV players and pressure on entertainment (non-sports) advertising on TV.

That said, we attribute it to the perception that sports broadcasting is less vulnerable to disruption from OTT as compared to entertainment genre, portfolio of entertainment and sports channels can boost subscription revenue meaningfully, Zee/Sony's intent to strengthen sports broadcasting to safeguard its core TV business and marginalize competition (TV18/Sun Network) in TV subscription market. Putting it in a nutshell, the cost of doing business (or cost of protecting core TV business) has gone up, the Kotak analysis said.

Harish Bijoor, a business & brand strategy expert, says, "this is a survival -oriented decision. As OTT has eaten into content of every kind, sports remains the last standing bastion. TV will face competition in sports broadcasting space from two fronts. One is from the digital realm, while the other is from OTT. But this shall take its own sweet time. Till then, it can reap the opportunity."

The next men's World Cup (the most valuable ICC property in the 2024-27 cycle) is five years away and monetization potential of this property on TV hinges on the pace of TV-to-digital shift over the next five years.

Experts say there are other risks as well.

Time zone risk: Analysts while pointing out that the men's T20 World Cup (2024) is in the US and West Indies, which means that its morning (IST) in India. This time factor will however work in favour of streaming platform Hotstar over TV (Zee) from a viewership perspective. Risks linked to India's performances: Even as 60-70 per cent of TV ad inventory of key sporting events is sold in advance, spot yields (ad rates) of semi-final/final matches is a function of progress of Indian cricket team. For instance, early exit of India from the 2021 T20 World Cup impacted TV advertising of the property by about 10 per cent. Currency risk: ICC contract is in US dollar terms and actual payout is in INR terms, which could be higher in the event of rupee depreciation.

Viewership split: This will be witnessed between streaming/TV for key ICC events as they would be influenced by difference in production quality (Hotstar versus Zee/Ten Sports) and subscription price of Hotstar (aggressive pricing could drive accelerated shift to streaming from TV).

Regulatory risks: Domestic subscription revenue of cricket properties is constrained by TRAI regulations around pricing/tariffs. Further, feeds of key ICC cricket matches (semi-finals/finals) are to be shared with Doordarshan (constrains advertising and subscription tariffs).

Analysts note that IPL's ad revenue potential is far better than ICC events. They expect Star TV to push for a significant increase in ad rates starting from the next IPL season in its bid to pass on inflation in content cost to advertisers. Furthermore, the ongoing liquidity pressure would weigh on startups which are big buyers of expensive ad slots on IPL/other marquee sporting events.

It remains to be seen if ICC events can maintain its fair share of sports ad pie on TV or does IPL gain disproportionate share at the cost of other sporting events, including those organized by the ICC, analysts say.