Cricket rights sale could open Disney to redefine its streaming ambitions

The future of streaming at the Walt Disney Company faces a possible tipping point this weekend, and it all comes down to professional cricket in India.

On June 12, Disney is waging a fierce bidding war to retain the right to broadcast and broadcast Indian Premier League cricket for the next half-decade. Disney owns the rights after it bought a large stake in 21st Century Fox from Rupert Murdoch in 2019 after Fox subsidiary Star India won the latest 5-year rights auction with a $2.5 billion bid. in 2017.

Some Wall Street analysts hope Disney will use the occasion to redefine its streaming ambitions. “I don’t want anything better than not getting the IPL rights and not returning the subscriber number,” Michael Nathanson of MoffetNathanson said recently. Wall Street Journal. So far, Disney CEO Bob Chapek has defended Disney’s goal of reaching between 230 million and 260 million subscribers to the Disney+ streaming service by September 2024, a goal that may be impossible to achieve. Chapek knows the competition for cricket rights provides an opportunity to refresh Disney’s strategy amid heightened expectations for Streamer’s overall growth, but he also knows that if Disney loses Sunday’s auction, analysts predict Disney+ one million Indian subscribers will drop in the coming months.

The most popular game in the world’s second most populous country, IPL cricket, was the pillar of Disney+ Hotstar’s leading position in India’s huge streaming market, where the service has around 43 million subscribers, representing 30% of the total number of Disney games. +. subscribers worldwide. (In its latest earnings announcement, Disney launched 50.1 million subscribers in India and Southeast Asia combined: regional analysis firm Media Partners Asia estimates that more than 7 million of those subscribers are in Southeast Asia.) In its report In fiscal second quarter earnings, Disney said about half of its 7.9 million new hires came from India during that period, many of them recorded at the start of the IPL cricket season in March.

Shoehorning played a key role in demonstrating the rapid growth of Disney’s flagship streaming service in the first quarter of its operations, outside of the number of existing Hotstar users for 2020 in the number of global Disney+ subscribers. But the economics of IPL cricket rights would be hard for Disney investors to swallow, even if the entire industry was no longer struggling to reassess the fundamentals of the consumer model in the wake of Netflix’s big correction.

This year’s IPL auction is expected to be particularly competitive, with many tech and entertainment giants flocking to the table. Among them: Disney, Alphabet YouTube, Amazon, the newly merged Sony India/Zee Entertainment and Viacom18, a joint venture between Paramount, Indian conglomerate Reliance Industries and former Star India CEO Uday Shankar and James Murdoch, who together acquired the IPL rights. Fox lately. The minimum bid considered, according to the Cricket Control Board of India, the body that oversees the auction, is $4.4 billion, with some analysts estimating the sale price at $6 billion or more.

The low taxes that streamers need to charge to be competitive in India mean that local subscribers generate the lowest average monthly revenue per customer, or ARPU, of any major market. In the first quarter, Disney generated just 61 cents per month per Indian customer, compared to ARPU of $6.32 in North America and $6.35 in international markets, excluding India. In the first quarter of 2022, Disney+ generated just $314 million in revenue from 42.7 million Indian users. Many broadcast and cable television stations operate in India. However, the total monetization of Disney’s IPL rights in 2022, which includes subscriptions and advertising, is estimated at just $776 million in revenue, according to a comprehensive analysis by Media Partners Asia.

“From $5 billion to $6 billion or more, the rights require a significant increase in Disney Star India’s video industry market share from approximately 20% of total video industry revenue. today to 30% in three to five years,” he said. . Vivek Kuto, CEO of Media Partners Asia. “And this is very much accentuated in the increasingly competitive broadcast and television industry.”

“Ultimately, we think a disciplined approach to these rights makes sense, even if Disney loses the IPL,” Morgan Stanley analyst Benjamin Swinburne wrote in a recent report. “This will likely put pressure on Disney+ Hotstar subscribers and could jeopardize Disney’s fiscal year 2024 guidelines, but India’s earning potential is minimal in most scenarios and we don’t see this materially impacting long-term profitability.

Asking for revenue in February, Chapek cabled the potential loss of IPL rights, arguing that Indian consumers were flocking to Disney+ not just for cricket, particularly its Pixar, Marvel and Star Wars franchises, as well as the growing number of local Indian subtitles. . . . “While this is certainly an important component, the local content we are developing will really mitigate the impact,” he said. “That’s not how we see the business evaporate if we don’t,” he added.

Mihir Shah, vice president of the Indian branch of MPA India, says his office estimates Disney+ will lose at least 15 million subscribers if it releases the IPL rights.

The downward pressure on customer growth will be significant in some quarters, and Wall Street’s reaction is uncertain (already, due to several challenges from Chapek, Disney was the worst-performing Dow Jones Industrial Average last year).

On the other hand, Disney’s global ARPU would receive a boost: which metric do investors value most in the world of Netflix correction? – and significant capital will be allocated to further enhance Disney+ Premium Indian movies and series.

Cricket consolation prizes will also be awarded soon. The International Cricket Council’s media rights, including the ODI and T20 Cricket World Cups, and BCCI’s rights to the India National Cricket Team, will be renewed later this year. Disney+ currently owns the Indian rights to the ICC tournaments and the BCCI national cricket team, thanks to Star’s previous expensive acquisitions in the Fox era of the 20th century. And while no set of rights has the same market power as the IPL (think Indian version of the NFL), they are still attractive features for legions of Indian cricket fans.

“Without IPL, the focus is to invest at a rational level to retain ownership of at least one more cricket this year and continue to build and expand the premium entertainment content side, especially with local series,” adds Shah’s alleged India. . Disney. strategy.

In a recent report on the outlook for Disney+ subscribers, MoffettNathanson’s Nathanson wrote: “There are several important factors in the air right now. The upcoming status of IPL cricket rights in India, the impact on Hulu due to the loss of NBCU content this fall, the recent announcement of new global advertising on Disney+, and the impact of Hulu fully linked through 2024.

Contribution to this report by Kim Masters and Georg Salai.