The Struggle For Supremacy: OTT Wars Heat Up With Free Sports Streaming, But Is Ad Revenue Enough?

In India, media rights for cricket events like the Indian Premier League (IPL) and International Cricket Council (ICC) tournaments are known to cost an arm and a leg to companies. Despite this, Indian streaming giants queue up to lap them up, aiming to give a high-octane boost to their viewership numbers and, in turn, revenues.

However, the real story paints a different picture — the one in which companies cough up billions of dollars just to make the cricket-crazy Indian audience stay with them a bit longer, even as they have now started to willfully take a revenue hit.

In a bid to comprehend the new rules of the race to fetch the media rights to the country’s most cherished game, cricket, let’s first talk about Star India.

The company, which was previously the holder of the most premium cricket broadcasting rights, such as IPL and India’s home cricket matches, tried to leverage the value of these rights to boost the popularity of its streaming platform, Disney+ Hotstar, in the Indian market.

The platform strategically cashed in on its rights to various cricket tournaments, including the IPL, to accelerate its subscriptions, and cricket stood out as one of the driving forces, compelling consumers to shell out for the content.

The scenario started changing when Viacom18, backed by Reliance, secured the digital streaming rights for IPL for the 2023-2027 period, outbidding Disney.

However, the bad news was yet to come. The Reliance-backed streaming giant, JioCinema, took out the tried-and-tested ace from its deck of old cards and disrupted the entire streaming market, precisely at a time when its peers were struggling to retain paid users.

Similar to what Jio did to disrupt the Indian telecom landscape with affordable data and voice tariffs, JioCinema, too, rattled the OTT market by offering free streaming of the IPL, which has now triggered a snowball effect.

Viewership Vs Revenue: All Bark But No Bite?

Close on the heels of its newest rival, Disney+ Hotstar announced that it would stream the Asia Cup and ICC Men’s Cricket World Cup for free for mobile users. The streaming platform registered a peak 2.8 Cr concurrent viewers during the India-Pakistan match of the Asia Cup, setting a new digital viewership record for any India match. JioCinema also saw 3.2 Cr viewers tuning in to watch the IPL 2023 final between the Chennai Super Kings and the Gujarat Titans.

Although both the major streaming platforms experienced record-breaking viewership, industry experts believe that offering free access to premium content like cricket may have negatively impacted their overall revenue stream.

This is because the cost of acquiring media rights is high, and compensating for the loss of subscription income with advertising revenue is a far cry. Furthermore, the growth rate of advertising revenue is not in sync with the increasing costs of media rights.

Disney+ Hotstar parent has won the rights to air ICC cricket events for four years (from 2024 to 2027), and it paid a staggering $3.1 Bn for it, a significant increase from the previous bid of $2.02 Bn for the same rights.

Similarly, the cost of IPL media rights has surged over the years. While Sony Entertainment Television won IPL media rights for a nine-year period from 2009-2017 for INR 8,200 Cr, the rights for the 2023-2028 period fetched the BCCI INR 48,390 Cr.

On the contrary, the broadcasters, Star Sports and JioCinema, are estimated to have earned a total of INR 4,700 Cr from advertising revenue during the IPL 2023, which is not even 10% of what they shelled out.

According to Karan Taurani, SVP, Elara Capital, it is hard to compensate for the money lost from people not paying for subscriptions. In India, pure-play subscription-based streaming services haven’t grown as fast as advertising-based streaming services. Sports has usually been a big reason people pay for subscriptions, and if it’s free now, it will likely make people less willing to pay later on.

To put things in perspective, India’s OTT audience universe stood at 428.3 Mn viewers in 2022. Of this, only 30% or 130.2 Mn viewers opted for subscription video-on-demand, according to a Deloitte report.

The Freebee Conundrum

Taurani also pointed out that it will be a significant challenge for JioCinema to recoup even 30-40% of the IPL content acquisition cost through the digital route if it remains free even for a short duration.

Moreover, JioCinema’s decision to stream IPL for free, along with the Disney+ Hotstar freebies, will have a notable negative impact on the Average Revenue Per User (ARPU) of other OTT platforms.

Currently, the ARPU for streaming services in India stands around $7 to $8. As both JioCinema and Disney+ Hotstar have started offering freebies, other OTT platforms will not be able to undertake any price hike to remain competitive.

Another media partner of a major consultancy firm believes that giving away premium content for free won’t last long, probably only for a year or two, as the expensive rights for sports events will make it hard to sustain this practice in the long term. Currently, Jio’s stance seems to be too aggressive when it comes to lapping up a market share, and Disney+ Hotstar is looking desperate to sustain its shaky market.

Instead, the analyst who wished to remain unnamed said OTT platforms could take a different approach, like providing a short free viewing period, such as streaming the first 30 minutes of the game, to attract users and persuade them to subscribe. However, as OTT platforms are struggling to embrace profitability, he added, free streaming for a short duration would also hurt their financial well-being.

It is to be noted that Novi Digital Entertainment, which operates video streaming service Disney+ Hotstar, posted a loss of INR 343.16 Cr for the financial year 2022 (FY22) even when it had IPL rights.

Interestingly, with IPL rights in its kitty, the company saw almost 2X year-on-year (YoY) growth in its FY22 advertisement revenue, which stood at INR 1,684.31 Cr. In addition, its subscription revenue rose 65.67% to INR 1,373.61 Cr in FY22 from INR 830.96 Cr in FY21. However, profitability still remained a distant dream.

Meanwhile, the net profit of Reliance’s media business declined 25.6% YoY to INR 29 Cr in Q1 FY24, even though revenue soared 141.7% YoY to INR 3,239 Cr during the quarter. The company said this revenue growth came on the back of JioCinema’s strong performance after it streamed IPL for free.

With the ongoing competition and the OTT industry standing at a crucial juncture, striking the right balance between capturing viewership and ensuring sustained revenues to become profitable is paramount. However, for now, it remains to be seen how OTT platforms innovate to attract and retain users as streaming services endure an unanticipated shift, triggered by free premium content such as cricket.