Digital Yorker Seals ‘IPL Auction’ Innings
A win-win proposition for BCCI/IPL teams; premiums in line
The auction of media rights for the Indian Premiere League (IPL) yielded a massive INR 484bn, largely in line with INR 500bn estimated as per our report dated 3 June 2022 “Force mult(IPL)ier on front foot”. This was driven by a 30%/70% premium on TV/digital base price, which too was as anticipated. In terms of the split, 48% of the media rights were digital (inclusive of the cluster). However, this segment accounts for a mere 22% of revenues. We believe, the hefty premium paid by Viacom 18 is more a strategic manoeuvre, to benefit: 1) Jio subs retention (possibility of a bundling plan) and 2) improve valuation for the OTT platforms. Digital media revenues may grow at a faster clip of 30% (SVOD and AVOD), versus TV revenue’s narrow growth band of 6-8% in the next five years. The cost of rights per match for digital is now at par with TV, with the overall cost of rights massively breaching global leagues such as EPL, reaffirming the compelling nature of IPL content.
Unbundling of rights – Digital to have the upper hand
In terms of advertising verticals, key segments such as ecommerce, FMCG, Auto and Banking dominate the overall ad pie across TV and digital (~60% of the ad pie). However, in the case of IPL rights being sold separately, expect stiff competition between the TV and digital platforms for advertising budgets. We expect some verticals such as fintech, commerce, ed-tech and EV to see a rapid shift to digital, whereas FMCG and auto may continue to rely heavily on TV for their mass campaigns. In terms of break-even, we estimate TV to attain profitability in the second year itself, as related premiums were limited over the base price. For the digital segment, the break-even may ensue in the fourth year due to hefty content costs, propelled by sharp premiums on packages B and C of the media rights. However, digital has the potential to generate a gross margin of 24% in the fifth year, helped by strong growth prospects and future monetisation models (Web 3.0), as compared with TV with its gross margin peaking at 13%.
IPL teams’ revenue to multiply with higher profitability
IPL teams’ FY24E revenue is estimated to move up 2.2x on an average (in INR 6.5bn-8bn range), helped by:
1) a surge in media rights revenue and
2) an increased number of matches (40% rise versus the previous cycle).
On profitability too, EBIT margin may spike to 40-48%, as player costs remain capped to a certain extent. We had already factored in the above revenue/profits for the listed entities – United Spirits (UNSP) and Sun TV (SUNTV) – into our estimates. We maintain our view that SUNTV may see a bigger delta as its team’s market cap contribution is 40% versus UNSP’s 14%. We maintain BUY on both UNSP and SUNTV.
*The author is Karan Taurani, SVP – Research Analyst (Media, Internet & Consumer Discretionary), Elara Capital
