Star India CEO Uday Shankar, conqueror of TV news and entertainment business, is ready to wage a new battle in sports broadcasting.

When the BCCI rights came up for grabs after the abrupt termination of contract with Nimbus, Shankar quickly pounced upon it. He tiptoed in, surprising hot contender Sony to pocket the prized rights to telecast international cricket in India from 2012 through 2018. His winning bid: a whopping Rs 38.5 billion.

"We believe in the power and value of cricket as content in India. By acquiring the BCCI rights for telecast, we think it is a great opportunity to create a new business," he says.

Shankar's timing couldn't have been better. A couple of months later, joint venture partner Disney agreed to sell its 50 per cent stake in ESPN Star Sports, allowing Star to aggressively build and expand the sports broadcasting business in India.

"Drama and cricket are the two big pools of content that the masses love to watch in India. We are already a key player in entertainment. Now we can have independent charge over the sports broadcasting business," he says.

Shankar has placed huge bets on digitisation that would plug leakages in subscription revenue and dramatically increase the paying subscribers to broadcasters. "In the current construct, those rights are not profitable. The market is primarily so unattractive because of the theft and leakage in subscription revenues. Digitisation would enable content owners to get a better share of the subscription revenue," he avers.

In the first part of the interview with Indiantelevision.com's Sibabrata Das, Shankar talks about Star's game plan in sports broadcasting, the rise in acquisition costs, the huge opportunity that digitisation would throw open and the need to build a robust subscription income.

Excerpts:

Q. Why did News Corp. and Disney end their 16-year-old joint venture partnership in ESPN Star Sports (ESS) when it allowed them to lead the sports broadcasting business in Asia?
When the discussions started two years back, it was not on a buyout proposal but on how to take ESS forward in a changed market environment. The sports business was under financial pressure and both partners were worried. The Champions League T20 rights (for $975 million) did not bring much value. Acquisition prices were rising and competition was not helping stem it. This later turned into the need to go separate ways but the possession of the rights over sporting events made a split in the properties complex and impossible.

The obvious course was to acquire the entire 50 per cent stake of the joint venture partner and be the sole owner. The deal took time because Disney had to take the final call on whether it wanted ESPN to exit from Asia.

Q. When Star bid for the BCCI rights on its own, had Disney agreed to sell or it was an act of defiance to build a sports broadcasting business outside the JV?
We were still discussing the future of ESS when the BCCI rights came up for renewal. And because there was no clarity on the future of ESS, we could not come to an understanding on what its position would be on BCCI. We at Star knew the strategic value this property would add to our thriving entertainment business. We expressed an interest that in case ESS was not clear and since the bid had a final deadline which was approaching fast, Star would go ahead and bid for the rights as a one-off.

Even in the JV agreement, this kind of provision was there that either party (ESPN or Star) could go and bid for the rights. However, they could not use the rights on their own without the approval of the other party. So we agreed that instead of letting BCCI go away to a competitor, Star would bid for it as a one-off and then assign the rights to ESS in case they wanted it. If ESS didn’t want, Star could go ahead and broadcast it. So that’s how it happened.

Q. Did the BCCI rights tilt the deal in your favour as we understand that even Disney had expressed an intent to acquire News Corp’s stake in ESS (though they had made heavy investments in UTV and were looking at consolidating that business)?
The two are not linked. We were very clear that it would be a one-off bid (for rights). Now let’s assume that Disney had bought out ESS. Then they would have definitely insisted on a non-compete agreement and we would have had to find a way of handing over BCCI. I don’t know what would have happened; that’s a conversation one can only speculate on. But if Disney had chosen to play in the sports market here, then they would have definitely tried to also get a piece of the BCCI.

Q. When you realised the strategic value of the BCCI rights, did the fear of Sony haunt you as it had the lucrative IPL (Indian Premier League) rights and its entertainment business was on the upswing?
Of course, it was an important consideration. It would have made Sony a very formidable player in the sports space. And we were then not present in that space; we were only an entertainment company.

We also knew that there were a few others like Ten Sports and BCCL (Benett Coleman and Company Ltd) who had bought the tender documents. All of them were key competitors. And anybody who had the cricket rights would have a serious strategic weapon.

But that wasn’t why we decided to go for the BCCI rights. We definitely believe in the power and value of cricket as content. It gets the largest number of viewers across all target groups. We also genuinely believe that there is an opportunity to improve the quality of cricket on TV. And we thought the best place to start that would be the BCCI rights.

Q. Was the bid of Rs 38.51 billion on the higher side?
You would bid only what is the rational value of the tournament and not beyond reasonable limits. In fact, Sony and our bids were pretty close; it clearly tells you that there was a consistent logic that both of us were applying.

You must appreciate that nobody had the time to plan for it because it happened suddenly. BCCI (rights) wasn’t on Sony’s or anybody’s horizon. It was comfortably settled with Nimbus; they were holding the rights for almost six years and they were going to have it for several years more. If anybody says it was part of their serious strategic consideration, that wouldn’t be correct. How can you plan for something that is not available in the market? But when it came up for grabs, everybody thought it was a great opportunity. And we definitely thought of it is as a great opportunity to create a new business.

Q. But since it was unplanned, you could have overestimated the value of the property? Or how did you arrive at a right value?
There was a reserve price that BCCI had indicated and based on that we did the mathematical calculations. The ad rates for India cricket matches per 10 seconds and the kind of distribution revenues that can be earned are available in the market. So based on that we did our calculations.

Q. Media analysts say those numbers wouldn’t make up for the bid amount unless digitisation happens. Did you bet too heavily on digitisation when you did the calculations?
In the current construct, those rights are not profitable. The market is primarily so unattractive because of the theft and leakage in subscription revenues. More than Rs 150 billion gets collected from the ground in form of subscription income. But the net off carriage fees that comes to the broadcasters and content owners is a small fraction of that.

Our big punt is that in the next couple of years when digitisation moves significantly forward, a lot of that would change. The leakages would have been plugged, there would be more fair and transparent business processes. And that would enable content owners to get a better share of the subscription revenue.

Sports nowhere in the world has sustained on advertising revenue; that is a small part of it. Wherever it makes money, it makes it on the back of subscription income. And that is what we are hoping would happen in India as well.

Q. Since Star has a very strong entertainment broadcasting business, will the network power not enable you to push up advertising rates for your sports properties?
You can’t move that synergy to up the ad rates much just because you have more properties under your belt. The target audiences and the set of advertisers are different. The big advertisers on sports, for instance, are telecom and auto companies. General entertainment channels primarily address a female TG.

So you can’t play much on network strength. We have not factored in any dramatic upside in advertising revenues. Let’s face it; ad rates can’t go beyond a certain level of elasticity.

Q. Are you expecting ARPUs (average revenue per subscriber) to climb with digitisation of cable networks?
No, I am not factoring in a tremendous increase in ARPUs. India is always a value conscious market and cricket is a mass market product. There would, of course, be some people who have the ability to pay higher value. But most people won’t pay that kind of money.

There is also enough competition in the market which would ensure that the ARPUs don’t go beyond a certain limit. What we are looking at is the big shift in cable that should happen. In case of transparency, we clearly see a visible link between the subscriber base and the payouts.

Q. What sort of paying subscribers would sports broadcasters attract?
If the whole country goes digital, you are talking about 120-130 million C&S homes in the next few years. Even if you say 60 per cent of the entire universe goes cable, you are talking about 70-75 million C&S homes.

The 8-9 million paying subscribers for sports currently under analogue cable would go up significantly. Sports is driven by events. But at any time, the genre would be attracting 60-70 per cent of the total subscriber base. I think that is the ratio that DTH (direct-to-home) gets.

Q. After having acquired the BCCI rights for such an aggressive price, will Star match that aggression for the upcoming cricket boards that will be up for grabs within a year?
We neither choose to nor can afford to be over aggressive. If we are also aggressive, then rights prices would shoot up. Now it is Sony’s and Ten Sports’ turn to be aggressive.

Q. Do you see acquisition prices climbing further?
If the competitive norm stays, then there will definitely be a tendency for the acquisition prices to go up. A lot, however, depends on how the distribution market pans out. If the distribution market continues to be so leaky and porous and cable stays largely analogue, then even the current prices will be unsustainable. However, if the digital transformation happens and if there is a matured digital distribution market that comes up, then definitely the prices will go up.

Q. Even if Disney decides to come back after the two-year non-compete period is over and India continues to have analogue cable?
I am not too sure if it continues to be analogue, how many players would be interest. That is the biggest stumbling block. But on the other hand, I also think analogue cable will not survive even if the current digital initiatives fail to go through; analogue will dies on its own. This is a funny market. The analogue experience is poor and the number of channels that the consumers can watch is very few. The cable operator doesn’t pay taxes; nor does he pay fair value to the content owner. How long will the society tolerate this kind of a distorted model?

Q. Consumers are probably tolerating analogue cable because the ARPUs are low?
The ARPUs are not that low. How much does DTH charge? You can’t charge beyond a certain reasonable price. What you can charge consumers also depends on affordability and the kind of value that they attach to it. Price doesn’t escalate in isolation; there has to be a realistic basis.

In certain areas of Mumbai, cable subscription is Rs 300-350 per month. In low income areas, people are paying less. ARPUs are not uniformly low. That will happen in a digital environment also.

Q. Can’t acquisition prices for cricket rights go up because of strategic value that the property brings?
No mature media company will pay irrationally high for strategic reasons unless this can translate into business value. If they do that, they will go bankrupt. There are a couple of media companies who are prime examples of that. There is a company that launched an entertainment channel and decided to go completely crazy for what they thought was the strategic value. The strategic value worked so well for them that they had to sell out. The news companies have gone ahead and spent so much money on all kinds of distribution, etc. We know the financial mess they are all in.

You think anybody would pay obscenely high just because it has strategic value. Star would not do that; nor would Sony and Zee. If BCCI prices were double this and tomorrow if IPL is available for three times more, would I go and buy those rights? No way. I don’t want to go and acquire rights and be sacked or drive my company bankrupt.

Q. With the current distribution of cricket properties across sports broadcasters, what sort of dominance will Star have?
It is very difficult for anyone to have any kind of very big position in market share, let alone dominance. In this market, every sector of broadcasting and media is so competitive. Whether it is entertainment, news or regional, one thing that we have seen is that there is new competition coming in every day.

If anything, sports all these years has seen less and less of competition in India primarily because there was a JV between ESPN and Star. Until IPL came, it was just ESPN-Star. Sony had a game only because it got the IPL; without it, it would have been a marginal player. Ten Sports continues to be a marginal player except for a few rights they have like the South Africa and the Sri Lanka boards.

Sports broadcasting requires heavy investments. And not everybody may have the appetite to take big risks unless you are a Zee or Sony, specially because the distribution deals are so uncertain.

Since ESPN and Star have parted ways, it is only a matter of time that Disney and ESPN will come back to India. So I think over the next 5-10 years, you will see a new round of competitiveness and aggression in the sports market. Sony has launched a sports channel; they will have to really work hard to build that and will need more rights. I am sure they will surely bid aggressive for whatever rights come up. Ten Sports will also be forced to bid for a few more rights if they want to stay competitive in the game. You saw how expensive their bid was for the South Africa rights. The price they paid was pretty high and they got it.

Sports had been relatively less competitive in this country because the two big players were together. That phenomena is set to change.

Q. But in UK you have News Corp as a big player and ESPN as a much smaller player. Wouldn’t India replicate that market?
Those are very settled markets and even there that is not quite the case. In India tell me one sector of media where one single player sits with 50 per cent share. When it started, that may have been the case. About 20 years ago, Zee had a large share. Then Star came and build a large share in Hindi entertainment. See how competitive the market is today.

Take regional. The only market where one player continues to build a very big share is Sun network in Tamil Nadu. And we all know the reasons behind that. But if it’s a freee market, then it is difficult for anybody to take a 50 per cent or a 40 per cent share. Very, very difficult.

India is an emerging market. So global attention is on this market. Media, despite all the softening, is still delivering the second largest growth rate in the world year-on-year. And that will continue to be the case for a long time. The most attractive growth rate market is not available so easily for media. China does not allow media that easily. So where can you dominate ? India has a huge consumer base; you are talking of 120-130 million C&S homes. Incomes are going up. I think there will be more and more people coming in.

Western media companies are looking at India primarily because they are not getting growth in their own markets. More and more large Indian companies are stepping in. You have seen what has happened in the last 2-3 years. Big Indian corporates have made their foray into media. Reliance Industries Ltd (RIL) and Aditya Birla have come into media. I think media is going to get more and more competitive. And no matter how much money you might have, no matter how aggressive you might be, I don’t see a situation where anybody will be able to build a 50 per cent share in any vertical.

Q. Since Rupert Murdoch had said that IPL was a big miss, would Star’s next big stretch be on acquiring its rights when it becomes available in future?
Of course, it was a big miss. I don’t even know what the contractual agreement between Sony and BCCI is. They may have a preferred access to renew it. But if it comes up and continues to be a strong property, then we will surely be interested. We have seen a little bit of softening in IPL and hopefully that’s temporary. But the renewal is long away and it would depend on what BCCI’s price expectation is at that stage.

Q. Do you see cricket viewership plateauing?
Cricket viewership depends on a variety of things. First and foremost is the nature of the tournament. Following immediately afterwards is the performance of India. I think there is a value to be obtained from that.

The quality of TV broadcast can make a big difference to how much the viewership can grow. Sports broadcasters generally have done a very good job of providing a professional cricket experience to the viewers. But it seems to have plateaued.

The only rule of content – and that applies to drama, sports, news, anything – is that the sameness brings in fatigue. And there is a certain amount of sameness that seems to have settled in sports. That is the reason why cricket viewership might be peaking. If we can disrupt that sameness, bring in innovation and fresh approach to connectivity, to visual and to graphics, I think given the passion that cricket generates in this country only sky is the limit for viewership. When cricket is played in every nook and corner literally, how can you say that the viewership has peaked. I think the viewership can grow a great deal more provided we continue to grow and build on the experience that we can provide. And there the broadcasters and the boards can do a lot more together.

Q. Are you talking of introducing doses of entertainment?
No, I am not suggesting that. You can’t turn cricket into soaps; you have to stay true to the sport. But within that, you have to innovate. And there is so much of technology to be used - you see what has happened in the last 10-15 years! New graphic technology has come in and the kind of replays that we get to see only can enhance the viewing experience. You can further enhance that experience a great deal more.

Creativity is about pushing the limits. If you continue pushing the limits, you will further enhance the consumer engagement.

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