Deal with James Murdoch will only strengthen Viacom18, say industry insiders

The timing of the deal between James Murdoch and Uday Shankar to pick up equity in Viacom18 has been quite uncanny. For one, May 10 is the last day to purchase the tender for the media rights for the marquee IPL (Indian Premier League). Besides, Viacom18's launch of Sports18 took place just a fortnight ago. To put it quite simply, it is critical for the broadcasting network to get it right in sports, a business in cricket in India is not just an obsession but a constant money-spinner.

In September 2017, the then Star India, under the chairmanship of Shankar, clinched the IPL broadcasting and digital rights over a five-year period (2018-22) by cutting a cheque for Rs 16,348 crore. It was twice as much as what incumbent Sony had paid but for ten years; in effect, Star was now paying 4x and still believed it could make money. Now, Shankar, with his old boss, James Murdoch, who, in June 2018, sold 21st Century Fox, which included Star India, to Disney, is back in a deal with Viacom18 - it is learnt Reliance will hold 51 per cent, while Bodhi Tree Systems, a company backed by Murdoch and Shankar, will have around 40 per cent, with the other 9-10 per cent lying with Viacom. From the earlier holding of 49 per cent, Viacom will pare its stake and over time, could exit India. In monetary terms, Bodhi will raise and invest Rs 13,500 crore in Viacom18, while Reliance will bring in Rs 1,645 crore. As a part of the transaction, Reliance will transfer its JioCinema OTT app to Viacom18.

To get to the more critical part, sports is what drives a broadcaster's business. It gives him the ability to charge high advertising tariffs, bring in more subscribers and push his bouquet of channels. How Sony's fortunes changed IPL, the most expensive advertising platform today in India, or for that matter, how it has upped Disney Star's broadcasting and digital piece is proof enough. Now, Viacom18 wants to do exactly that.

On the face of it, Reliance, along with Murdoch-Shankar, looks like a powerhouse combination.

"I think it has the best combination of money power, outreach and experience. Uday brings the experience of many years of cricket at Star and its monetisation. He is astute and very, very deep," says Sandeep Goyal, MD, Rediffusion. Besides, there is a significant difference between the traditional broadcaster and this partnership. "Reliance and Murdoch are the money bags. Plus, Reliance has the mobile outreach that is unparalleled," he emphasises, before adding "together, they are a potent combo."

Unlike the last bid in 2017, there is no scope for a consolidated bid. Said to be Shankar's brainchild, it had Star not being the winner in any of the categories but clinched it the consolidated level. The Board of Control for Cricket in India (BCCI), for the upcoming bid, has set a base price of Rs 32,890 crore for the IPL broadcasting rights - the number for television rights is Rs 18,130 crore, while it is Rs 12,210 crore for digital, with Rs 1,440 crore for 18 non-exclusive games and finally Rs 1,110 crore for rest of the world games.

According to Balu Nayar, former MD, IMG and a key architect of the IPL, Viacom 18 has been a marginal player in the OTT space so far.

"The IPL rights can lift its relevance and value significantly as we have seen with Hotstar," he points out. While maintaining that there are ways to ensure Jio gets benefitted too, Nayar is quick to say that the IPL rights this time have been structured in such a way that "at least category A (television) and B (digital) have to be owned by the same player for any real value." That means it is quite clear that Viacom or for that matter, Disney Star, the incumbent and to perhaps lesser extent, Zee and Sony will be very aggressive. That is the broadcasting part of it, while the digital rights are expected to see the likes of Amazon, Facebook evincing interest. Nayar expects the sale of IPL rights to garner close to $7 billion (Rs 53,500 crore).

In terms of sports as business, Murdoch has had a wealth of experience with Sky Sports and Fox Sports, in addition to bringing Star Sports to India. A former Star official says Murdoch and Reliance bring technology, money and experience to the business.

"Obviously, it will not be cheap for the advertiser with a 10 second spot at expected to cost upwards of Rs 30 lakh."

There is a lot at stake for Viacom18, a network that is still behind Disney Star, Zee and Sony in terms of revenue.

"Winning the IPL bid gives them a chance to become a strong OTT player and get a deeper share of a deeper share of a fragmented market from a wallet perspective," says Utkarsh Sinha, MD of boutique investment bank Bexley Advisors.

Clearly, the battle for the IPL is getting red hot. Once that is out of the way, the battle for the ICC tournaments and the rights to BCCI will unfold. Of course, nothing is as important as the IPL. For now, that is what will keep the broadcasters busy. Actually, very busy.

Also read: Uday Shankar, James Murdoch's firm to invest Rs 13,500 cr in RIL-backed Viacom18