With the rise of OTT platforms, will digital rights for IPL become more lucrative than broadcast?

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Sponsorship and ad revenue

Closely related with viewership is the advertising revenue, where television is still doing outstandingly well. Sony’s advertising revenue from the IPL increased from Rs 800 crore in 2015 to Rs 1,020 crore in 2016. For IPL 2017, the company’s target is Rs 1,300 crore. Sony had more than 80 brands associated with the IPL last year, according to reports.

This year, Sony has roped in Vivo, Vodafone, and Amazon as co-presenting sponsors. It also has Voltas, Havells, MakeMyTrip, CEAT Tyres, Vimal Pan Masala, Yamaha Motors, Parle Agro’s Frooti, Yes Bank, and Polycab as associate sponsors. This is apart from brands who have only bought ad spots.

Hotstar is trailing by a fair bit in comparison, but growing fast. In 2015, it netted an advertising revenue of around Rs 50 crore, according to a report in Livemint. In 2016, it was Rs 65 crore. The expected figure this year is Rs 200 crore, according to the company, because of its growing viewership. Industry experts, however, told the Economic Times that the figure for 2017 is likely to be around Rs 120 crore. The Hotstar app crossed 200 million downloads at the end of February this year.

Last year, Hotstar had seven sponsors – Flipkart, Raymond, Axe, Airtel, Nestle, Amity University and Volini – and 32 advertisers, including Lloyd, Hindware, Hero Fincorp, Airtel, Amazon, Hindustan Unilever, Nestle, and Vodafone. This year, they have signed up five marquee sponsors: Vivo, Maruti Suzuki, Reliance Jio, Dream 11, and AMFI. The sponsorship deals with Vivo and Maruti Suzuki are reported to be Rs 20 crore each.

Apart from the five marquee sponsors, Hotstar has also signed up ad spot buyers such as Vodafone, Airtel, Whirlpool, Oppo, Motorola, Myntra, Redbus, MakeMyTrip, and Dell, reported the Economic Times. Hotstar has also increased ad rates for IPL 10 by almost 100%, according to reports.

The nature of the digital medium makes it a far more effective one for advertising than television, industry experts said. “In TV, the spillover is very large,” said Varun Mathur, co-founder of Veqta, which claims to be India’s first OTT platform dedicated to sports. “In digital, the delivery and viewability is guaranteed, which obviously commands a lot of premium.”

Basically, on television, you don’t know who is watching your ad. That’s not the case on a digital platform such as a website or an app.

“On digital you know exactly who is watching – their age group, gender, location, liking history, credit card information, KYC [Know Your Customer] details in case of Reliance Jio,” said a senior executive who works for an OTT platform, but did not wish to be identified. “You have premium information. So, the CPMs for the ads you are serving may go up to Rs 700-750.”

CPM is cost per 1,000 impressions. If a digital platform charges Rs 500 CPM, it means an advertiser must pay Rs 500 for every 1,000 impressions its ad receives on that platform. “CPM shoots up if you have the detailed information about the user,” the OTT executive added. “Conversion and click-through rates are very high. Watching an ad, clicking on it, landing on the advertiser’s space and buying stuff – those are very high if you have detailed information about the user.”

Television will stay more important for the next four or five years at least because reach is important to advertisers, industry experts said. But with companies such as Reliance Jio lowering mobile data prices and the increasing number of smartphone devices, digital is bound to catch up. “In every household, you will have one TV on average, but four smartphone devices,” said Verenkar. “You can target more ads to the same household [on digital] as compared with TV, so there is more consumption. Advertisers will see more value on digital for sure.”

On digital, an advertiser can also look at consumption patterns of specific users and target their ads accordingly. “A lot of the time, TVs are turned on and nobody is watching, but on the phone there is a call to action,” Verenkar added. “People are searching, tapping, killing the video in the middle of the third minute, there is a lot of detailed data on consumption patterns, like what time of the day people are consuming data. While going to work, a consumer is consuming a lot of news and stock market content, throughout the day he may be following a cricket match, but on the way home he may be consuming a Kapil Sharma show or some other comedy. One consumer has different consumption patterns throughout the day. That is very specific information.”

Broadcast rights vs digital rights

Also directly correlated with viewership and advertising revenue is the value of the media rights.

In 2009, Sony, in association with World Sport Group, had paid $1.63 billion (Rs 8,200 crore at the time) for exclusive IPL broadcast rights in a nine-season deal till the end of the 2017 edition. This equates to around $181 million, or Rs 911 crore, per year. In 2015, Star India paid $48.7 million (Rs 302.2 crore at the time) for the global digital rights of IPL for three seasons. This is only about $16.2 million, or Rs 100.7 crore per year.

However, when Sony bought the broadcast rights back in 2009, there was no OTT. The broadcast and digital rights contracts for the IPL both expire at the end of the 2017 season and will go under the hammer later this year for the next cycle. While TV rights are being sold for the next 10 seasons until 2027, digital rights can only be bought until 2022. A reason for this could be that the Board of Control for Cricket in India, which owns the IPL, expects the value of digital rights to skyrocket in the next decade and thus does not want a long-term deal, experts said.

Digital rights are bound to command a higher price this time around at the auction. “My sense is that in the new bid, TV and OTT will be closely contested,” said Krishnamachar, who was part of World Sport Group when they won the broadcast rights along with Sony in 2009. “[The ratio for media rights] will be closer to 60:40 [in favour of TV], if not 50:50. If it was 90:10 or less than that earlier, it will be significantly higher this time, going by the interest showed by Amazon, Facebook, Jio and everybody else [in acquiring digital rights].”

Facebook, Twitter, Amazon, and Reliance Jio are among the companies that have purchased the tender documents for the next set of IPL digital rights. While Reliance Jio TV has never had any exclusive live sports content, this won’t be the first time for international biggies Facebook, Twitter, and Amazon.

In August last year, Facebook live-streamed Manchester United footballer Wayne Rooney’s testimonial match against Everton. Via Facebook Live, fans could not only watch the game live, but also chat with other supporters, send messages to Rooney and donate money to his charity foundation.

Last week, Amazon won the live-streaming rights for 10 of the United States’ National Football League’s Thursday Night Football matches in the 2017 season, according to reports. Amazon reportedly paid $50 million and replaced Twitter as the digital rights holder for TNF. The e-commerce giant paid five times more than what the micro-blogging platform paid last season, reports said. Facebook and YouTube had also bid for the rights.

What Facebook, Twitter, and Amazon have shown is that you don’t need to be a traditional television broadcaster to show live sport, or any other live content for that matter, on your platform. “Around 18 parties have picked up the bid document for IPL digital rights,” said Vikram Tanwar, another co-founder of Veqta. “Traditionally, rights values go up by 100% - 200% every time and I think digital will also see the same. Five years back, digital rights never used to command any values. Digital rights were sold with broadcast rights. But, today, digital is a separate right altogether. Sooner than later, it will overtake broadcast, especially in sports, because of the advantage of live content that can be seen anytime.”

Look East

Will digital rights soon cost more than broadcast rights in India? “We absolutely see that happening,” said Mathur. “That’s going to happen so fast that it will turn the world of traditional sports broadcast upside down. You don’t even have to look too far to see that. If you see China, the value of digital sports rights is far greater now compared to traditional TV properties.”

In January 2015, the US’ National Basketball Association announced its largest international digital partnership with Chinese internet giant Tencent, worth $500 million for five years. In November that year, the Women’s Tennis Association reportedly signed a nine-figure digital rights deal for 10 years with Chinese online streaming platform iQiyi, which also has exclusive agreements in other sports such as golf, NFL, racing, equestrian, and extreme sports. In February 2016, Le Sports, a subsidiary of Chinese entertainment company Le Eco, bought the online multimedia rights for the Chinese Super League in a two-year deal worth reportedly $414 million.

Mathur expects India to follow a similar path. His company Veqta recently announced a multi-year partnership with the US’ Major League Baseball. Veqta did not disclose the value of the deal, but Mathur said that with easy access to 4G internet in India, digital rights will soon become far more valuable than TV rights.

However, broadcast rights will continue to be valuable in India because the industry is still growing in the country, unlike a lot of international markets where cord cutting is already happening. “Broadcast is still in a growth stage because attrition levels are very low in India, but the growth of digital will far outpace the growth of traditional television” he said. “I think in a couple of [rights] cycles you will see that digital will become as valuable if not more valuable.”