Media giant News Corporation (News Corp), which operates in India through its wholly-owned subsidiary Star India, has set the cat among the pigeons, by snapping up ESPN?s 50% stake in their joint venture in Asia ? ESPN Star Sports (ESS). Rival broadcasters are afraid that the Rupert Murdoch-controlled Star network, which has all along been a fierce competitor, is now invincible. The Star network now towers high above rival networks in India and other parts of Asia, ESPN Star Sports having amassed plum cricket properties such as the Champions League Twenty20 tournament, ICC Cricket World Cup besides the ICC Indian cricket rights for 2012-2018 which was recently acquired by Star India.
The Indian cricket rights deal with the Board of Control for Cricket in India (BCCI), in particular, was struck for a whopping R3851 crore. With this latest coup, Star is in a position to dictate television ad rates, especially for cricket properties. ?With the inclusion of sports, they (Star) are leading the television market. And that?s the uncomfortable truth we have to live with,? said an executive from a rival broadcasting firm who did not want to be named.
Early this month News Corp and ESPN announced that they were dissolving their partnership of 16 years and that the transaction will allow News Corp to own and operate all of the ESS business, while providing ESPN more independence and flexibility to support the overall strategy of parent company The Walt Disney Co in Asia. While ABC, which is an indirect subsidiary of The Walt Disney Co, holds 80% stake in ESPN, the remaining 20% is held by Hearst Corporation. James Murdoch, the deputy chief operating officer, chairman and chief executive?International, News Corp, said in an official communique that the acquisition simplifies their operating model and consolidates affiliate ownership structures. ?It furthers our commitment to sports programming to consumers across the globe, and particularly enhancing our position in sports programming in emerging markets.?
His view is echoed by Star India chief executive Uday Shankar who says, ?Sports was a key gap that Star had in its portfolio. India is a very dynamic broadcasting market, and sports as a genre has been dynamic too, and has seen a lot of activity. The competitive intensity is very high across all genres, including in sports. Even amongst existing players, the number of sports channels has increased from four in 2004 to 14 in 2012.?
Global news reports state that News Corp will pay much above $400 million for the stake, thus putting ESPN Star Sports valuation at nearly $1 billion. But the deal is worth it because it quite simply hands News Corp the goodie bag. Star will now own and operate all of the ESS businesses, which includes 25 television networks and three broadband networks, all of these will be transferred to News Corp. ?After the transaction closes, the networks currently owned and operated by ESPN Star Sports will be owned and operated by News Corp,? said the ESPN spokesperson. Website espnstar.com is also likely to be retained by News Corp.
The cold dissolution of this marriage has industry watchers intrigued. Vivek Couto, executive director of research consultancy Media Partners Asia said, ? I suspect that Star will continue to move out of joint ventures where it feels it cannot significantly contribute to value creation or have major shareholder say.?
In this particular case, parting of ways will benefit Star greatly, maintains Couto. ?The financial year 2013 will see a healthy contribution from the sports business as it monetises the following rights ? London 2012 Olympics, ICC World Cup T20 and India vs New Zealand cricket series as well as the tours of England and Australia to India. Monetisation will also grow as digitalisation of distribution gets underway. Many of the rights are long-term, notably the deal with BCCI and the recent renewal of England cricket rights till 2019,? Couto says.
Industry watchers agree with Couto. Chairman and managing director of leading media buying house Madison, Sam Balsara, remarks, ?Star is making all the right moves, and is proving to be the dominant force in the Indian television industry. There will be various cost synergies, now that ESPN Star Sports will be integrated with the Star network. It will help the Star network realise greater advertising and distribution revenues.?
Shashi Sinha, chief executive at media buying agency Lodestar Universal, adds that it is Star?s long-term plan to stock up on cricket properties. ?So far they were going slow on acquisitions because ESPN is very cautious about its investments. But now they will stock up.?
ESPN?s pullback comes as a surprise to many. John Skipper, president of ESPN and co-chairman of Disney Media Works, in a statement said that it has decided to independently pursue future opportunities in Asia. ?We are extremely proud of our role in building ESS into what it is today, and now with the growing digital landscape in Asia, we look forward to continuing to serve Asian sports fans through ESPN-branded digital businesses like ESPNCricinfo, the leading digital cricket brand in the world, ESPNFC and ESPN Mobile.?
Balsara, however, doesn?t see ESPN making a comeback anytime soon. ?The fact that they have divested stake in Asia, only proves that they don?t have much ambitions in this market. It?s a complete exit, as far as ESPN is concerned. I would be surprised if they make a comeback,? ESPN Star Sports has a cumulative reach of more than 310 million viewers in Asia. The two broadcasters got together specifically for the Asia market in 1996. The joint venture ended the chaotic period of the early 90?s when the two were competing for sports properties and escalating costs in the region. But over time, the venture is said to have come under significant pressure with News Corp pitching for expensive properties such as the Champions League and the ICC Cricket World Cup.
?The end was coming for a long time. ESPN Star Sports has paid $1.1 billion (R6160 crore) for the ICC Cricket World Cup rights and it has not been able to milk it adequately. Many of these investments on cricket had happened because News Corp was keen on these properties. Recovery has been slow because of a slowing market and ESPN did not want to have its books in the red,? said a former Star India executive. The executive, who did not want to be named, added that the end of this joint venture will come as a relief to both partners. ?I think it was a clash of cultures really. They never saw eye to eye on sports acquisitions.? According to him, the next World Cup (based in Australia) will have a lot of morning matches as per Indian Standard Time, and recovery on this property will again be slow, he predicts.
A Dow Jones Wires report also adds that News Corp is said to be contemplating the launch of a national cable sports network in the US. Such an initiative would put News Corp in direct competition with ESPN. This could again explain why the partners were keen to go their separate ways.
Dissolving the joint venture will be a Herculean task, says Indranil Das Blah, chief executive of KWAN Entertainment and Marketing Solutions. ?The company release says that News Corp will fully own and operate ESS businesses in Asia after transaction closes. But one would think that sports properties around non-cricket sports such as the English Premier League (EPL) will continue to be owned by ESPN,? he says. The company also has a unit called EMG (Event Management Group) which manages and promotes sports events around Asia. EMG specializes in creating, managing, promoting, consulting, producing and syndicating leading sporting events such as KIA X Games Asia, FIH Men?s Junior World Cup, KL World 5s and the World Netball Championships. It has over 1000 events in over 11 countries. The future of this unit is not known, say analysts. The end of the joint venture means going back by more than a decade, says Blah. ?The two have been jointly pitching for sports properties since ages. Who retains what is still unclear.?
Star?s Shankar says that he sees a lot of creative potential in sports content in India. ?We want to use our learning in entertainment to improve the experience of viewers in sports. While ESS has been at the forefront of providing quality sports content to the Indian viewer, we believe that improving consumer experience is an ongoing and never-ending exercise and we will remain focused on improving the consumer proposition.?
By Shankar?s own admission, sports contributes to a small share in eyeballs. Sports as a genre has a small 5% share in overall viewership. ?But it has high affinity when the content is live,? he says. While on one hand the Star network is consolidating its sports business, on the other hand it is shedding flab and getting out of joint ventures where it has little management control. Shankar says, ?We are just focusing on areas that are core and strategic to us. As we mentioned during the Hathway divestment, there are only so many areas that we have management bandwidth for.?
Couto says that the Star network has an exceptionally strong presence in Hindi general entertainment, regional content and Hindi movies genre and with the ESS acquisition, now sports content. ?The addition of the sports content will substantially push network ad sales. Star will be looking to focus on creating franchises such as Life OK, Movies OK, etc., and will expand regional business- especially in the southern markets.?
A rival broadcaster says that the near monopoly of Star will create issues for both advertisers and channels. ?They can and will, raise ad rates on cricket dramatically, and advertisers will have no choice except to buy airtime on their network because the fact remains that they are the top network. You can?t do without them.? He added that News Corp is sitting on a pile of cash and it is possible that they will outbid rivals in any bids that come up. ?They don?t have ESPN at their heels anymore and can afford to put in as much cash as they want in cricket bids and also bids for other sports.? Satyajit Sen, chief executive of Zenith Optimedia, adds, ?Rival networks will really have to buffer up, and think of alternative strategies in case they want to stay in the game.?
That Star may push up prices for cricket inventory is a positive development, says Rohit Gupta, president, Multi Screen Media. ?Sports channels have been under-selling their cricket inventory. It was about time we had a correction in pricing. The fact is that Star has bought cricket rights at a huge price, and obviously, they will look to make the most of it. At the end of the day, cricket brings eyeballs and nobody?s forcing the advertisers to buy the inventory.?
The flipside is that, network powerhouse or not, advertisers are of the view that Star will not be able to take arbitrary decisions on pricing. Abdul Khan, senior vice president, Tata Teleservices, said ?Monopoly or not, no can raise prices arbitrarily and expect advertisers to cough up the cash. Advertising rates on properties – especially sports, is a function of supply and demand.?