One Alliance terminates distribution deal with Neo Sports Broadcast

One Alliance terminates distribution deal with Neo Sports Broadcast

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MUMBAI: For founder-promoter Harish Thawani, fresh trouble is brewing. TheOneAlliance, the brand of the joint venture company between Multi Screen Media (MSM) and Discovery, has terminated the distribution contract of Neo Sports Broadcast?s two sports channels.

Already weakened by the scrapping of BCCI?s rights to India cricket, Neo Sports Broadcast will suffer a huge revenue loss. Sources familiar with the deal said Sony Entertainment Television India (now called MSM) had agreed to pay a minimum guarantee of Rs 2.7 billion net for the three-year distribution of Neo Cricket and Neo Sports.In 2009, Nimbus had renewed through to 2014 its contract with the Board of Control for Cricket in India (BCCI) for Rs 20 billion. After the exit of Colors and the other Viacome18 channels MTV, Vh1 and Nick in mid-2010, Sony found an opportunity and signed up Neo Sports Broadcast?s channels.

For Neo Sports Broadcast, which was tossed out by Star India on review of the high price it had agreed to pay for distribution of the two channels, TheOneAlliance?s decision to end the contract has come as a huge setback. Neo had set up its own distribution team but could not kick in substantial pay revenues. TheOneAlliance came as a blessing as the MG (minimum guarantee) price was high and Neo also kept the digital part of the distribution business.

"We terminated the contract with Neo Broadcast on 3 January. We had specifically mentioned in the contract that the deal would be valid if Neo had the BCCI rights. We have communicated to them about the scrapping of the contract," MSM Discovery president Rajesh Kaul told Indiantelevision.com, without disclosing the size of the contract.

Neo Sports Broadcast COO Prasanna Krishnan declined to comment on the issue.

The BCCI cancelled the deal after Nimbus repeatedly defaulted on payments. India?s cricket board, which has time till mid this year when India plays a home series, is expected to come out with fresh tenders for the remaining tenure of the contract. Nimbus, however, is saved by the courts so far as the BCCI has not been able to encash the Rs 20 billion bank guarantee.

The termination of the contracts with BCCI and TheOneAlliance means that Neo will find bargaining hard if it wants to sell its broadcasting buiness. Indication is that Sony wouldn?t weigh the option of buying out Neo.

"After deciding to end the distribution contract, it is highly unlikely that Sony will look at buying Neo. The Times of India Group may be a contender. Or even Mukesh Ambani via Network18. These are entities who could be looking at entering the sports broadcasting market. But the big debate could be valuation," said a media analyst.

Nimbus Communications had filed, late 2010, the draft offer document with the Securities and Exchange Board of India (Sebi) to raise Rs 3.50 billion via an initial public offering (IPO). Out of the issue proceedings, the company intended to use Rs 1.29 billion for launching of new channels (Neo Cinema and Neo Zindagi) and Rs 132.45 million towards the geographic expansion of Neo Cricket. It also stated that it would use Rs 1.16 billion to obtain bank guarantee and provide security deposit for sports rights. It further intended to use Rs 349.87 million and Rs 500 million of the net issue proceedings for upgradation of Neo infrastructure and acquisition of new broadcasting rights respectively.

For the fiscal ended 31 March 2010, Nimbus Communications had posted an income of Rs 7.33 billion from sales and services, while net loss stood at Rs 1.42 billion. As of March 2010, Nimbus had accumulated loss of Rs 4.98 billion.

"Nimbus is in a tight corner so far as its proposed IPO goes. The stock market has tumbled and it is no season for fresh IPOs," said an analyst at a local broking firm.

So how will the exit of Neo impact MSM? MSM?s gameplan could be to bid aggressively for the BCCI rights and launch a sports channel with the lucrative Indian Premium League (IPL) forming the fulcrum. They already have rights to New Zealand Cricket, FA Cup and NBA.

Some multi-system operators (MSOs) said on condition of anonymity that the payout to TheOneAlliance would fall a bit as they would be left without the sports channels. "But they would be better off as the MG they were paying to Neo was on the higher side. Without the BCCI rights, it doesn?t make sense for them to continue. They will save on the payout while incurring a smaller loss in revenues," said the chief executive of a leading MSO.

Counters Kaul. "All our channels are doing exceedingly well. And with the impending IPL in April-May, the strength of our bouquet will not be impacted with the Neo exit."

MSM will have time to stitch together a strategy with or without a sports channel as the IPL telecast rights will be a big driver for subscription revenues till May-end. "They can get the BCCI rights and launch a sports channel. Alternately, they can add more channels and strengthen their third bouquet," said a media analyst.

(With inputs from ASHWIN PINTO)

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