Neo Sports has had a testing time. The distribution deal with Star did not work out and the two channels - Neo Sports and Neo Sports Plus - did not find space on cable networks. This, in turn, impacted ad revenues.

Now with Australia and Pakistan touring India, Neo is ramping up the distribution of its two channels. And it is hoping that strong content will drive in viewership and revenue.

In an interview with Indiantelevision.com's Ashwin Pinto, Neo Sports CEO Shashi Kalathil reveals the gameplan for the company.

Excerpts:

Has Neo Sports gone through a rough weather ever since its launch almost a year back?
The going has been tough. There was uncertainty on the regulation front. We had mandated Star to handle our distribution, but our channels had serious problems of being carried on cable networks. Cricket also went through its ups and downs, with the World Cup being the lowest point for the sport. There was a lot of media hype which made a not - so - good situation worse.

What were the factors that made you terminate the distribution contract with Star and decide to do it on your own?
We had an arrangement with Star. While I do not want to get into details as the matter is under arbitration, I will admit that we got almost zero delivery. We found that we would not be able to survive as a channel if we did not reach anyone. Besides, the payments that were contractually due to us were delayed - or never arrived.

Did it also badly impact your ad revenue?
Our ad revenue was hurt as a result of the Star deal. We got away with it to some extent in the Sri Lanka series by keeping ad rates high and through strategisation where some matches aired on Doordarshan. However, we could not fully exploit the Bangladesh Test series. That would have been worth at least Rs 70-90 million. We could not realise even one fifth of that.

How have you worked out on your distribution strategy?
We have covered one third of the cable networks. We went to the smaller towns first as there the declaration is much better. A lot of viewership comes from rural areas. We signed with direct-to-home (DTH) service provider Tata Sky. We expect to sign with Dish TV soon. We are also stitching deals with the south-based cable networks.We are now approaching the big multi-system operators (MSOs) like Incablenet, Hathway Cable & Datacom and Siticable. By the time the Australia series starts we will be in three fourths of cable & satellite (C&S) homes.

Since the matches have to be shared with Doordarshan, doesn't it affect the kind of deals that Neo is able to strike with the cable operators?
No! The sharing of feed has been going for a long time. The 2003 World Cup was shared. There are guidelines. Last year for a while, the Supreme Court had taken a view on this kind of activity. India-South Africa was a rare example where DD did not air the matches.

We have a situation where the pubcaster does not bid for cricket but takes feed when it wants to do so. Besides, there is the issue of encryption.

What was the write off that Neo Sports got from BCCI due to the non-encryption of DD's signals?
DD's footprint extends from China to the Middle East. We had a protection clause in case of circumstances that dilute the value of our BCCI rights. If DD sends an unencrypted signal, then how can you sell the rights in those markets?

Right now there are a lot of cricket rights coming up for grabs. Is Neo Sports going after any of these or are you first trying to justify the BCCI investment?
It isn't a sequential process. If there are rights that are of value, we will bid for them. Right now what we are seeing is that the price appreciation for these boards has not been as high as what it was for the ICC and BCCI rights.

If someone gets the BCCI rights which are huge, you will see polarisation happening around the ICC rights. These two rights are the definitive ones in the cricket world; nothing else comes close. About 70 per cent of cricket that India plays in the next 13 months will be on Neo. That is an awesome depth to have.

For the Australia and Pakistan tours, in terms of coverage what are the kind of innovations being looked at?
We are keen on language feeds. You can get 30 per cent viewer addition doing this. Traditionally, the South has been neglected in terms of the regionalised feed. Neo Sports Plus will be broadcasting the matches in Hindi, Tamil and Telugu while Neo Sports will have English language transmission.

We are looking at virtual advertising and programming innovations. We are also looking at interactivity on DTH.

How challenging is it to push up ad rates to match rising acquisition costs?
The cricket market is well set up. There are certain clients who advertise heavily in it. The economy is opening up which will allow you to have better inventory utilisation. There are ways to exploit cricket like having multiple language feeds.

There is also a proliferation of general entertainment and movies channels which is resulting in further fragmentation. This will make the monolithic viewership of cricket more cost effective for brands and more valuable. Break viewership is becoming a serious issue for advertisers. On movie channels, often the break might be too long and people surf. Cricket's format is built to counter this.

You will eventually be able to do multiple visual feeds for advertising. Now, though, it is still expensive and messy. With addressable delivery platforms like DTH coming in, the dependence on advertising will gradually fall.

How would you describe the perception of cricket at the moment among viewers and advertisers?
I don't think that it is changing. Yes, there is noise made in the media on perceptions of how India is faring. It has to do with the quality of the opposition, how they are perceived. However, I do not think that cricket viewership or ad revenues are as sensitive as what the media says it is. When India did not do well in South Africa last year, people said that the sport was in trouble. Then we did well at home against Sri Lanka and the same media said that this was the best team for the World Cup.

There is huge interest in the Australia series as it takes place during the festive season. Cricket in media parlance offers viewership that other programming cannot match. This will not change.

Which are the clients with whom Neo Sports has signed long term deals?
Perfetti and Hero Honda are our anchor sponsors. The concept is to have someone who wants a long term relationship with cricket on board. We have predictability to our calendar. So a client knows that Australia, Pakistan England, South Africa or Sri Lanka will be visiting us. So if a client does media activity, he knows that a footprint is available.

How many anchor sponsors do you want to have?
Initially, we had thought of having four anchor sponsors. However, the media space is getting so competitive that we held back a little bit as we did not want to preclude a large media buyer. There are emerging segments like retail and financial services that will become large. We are waiting for the media environment to settle down before we make more long term deals. There is a risk and also a de-risk in long term deals. You might end up paying more. You might end up paying less. Management is about dealing with it.

We don't air every domestic match. Cricket is tiered at various levels. We broadcast the best part of it. I have heard arguments about having less matches and fewer teams which I will leave for the administrators to settle. But at the end of the day, a Ranji Trophy final has value. It is the question of packaging it. There is also an awareness issue. People have not gotten used to watching domestic cricket. However when they find that the coverage quality is as good as what you get for an international match, there is stickiness. Last year's data shows that domestic cricket has potential. It is for us to develop that.

Neo Sports Plus also airs other sports like German soccer, Italian league. We have badminton, cycling, motorsports. We have also found that rugby got a strong niche viewership among males.

Can we flesh out the definition of Neo Sports Plus to go beyond cricket? That is something we are working on. Other sports have a growing niche. In the long term, you can grow it to a mass level like what EPL has done. Activities were done that led to the product definition being unique. However, no other sport can substitute cricket. The assumption that if India does poorly, a cricket fan will watch another sport is wrong. Our research tells us that a lot of ODI watchers in India do not watch any other sport.

On the production front, we have installed Vizrt Virtual studio, a virtual studio for sport production. This allows Neo to create a number of different sets for each sport and change it at the flick of a button. There is no need for storing and changing physical sets. The advantages of using Vizrt virtual studio are flexibility in different backdrops, virtual monitors in the set and incorporation of sport results directly to the set. Vizrt Graphics are template based, allowing for rapid changes and are especially suited for the ever changing sport environment.