December 29, 2000
Sports is largely a pay market driving strategy internationally. It is an admitted fact that the potential pay market in India is more than three times bigger than the advertising market.
In India, Cricket had been central to sports business. Cricket is one game which could give competition to Hollywood’s biggest blockbusters. Recognizing the primacy of cricket in the sports arena, Zee Telefilms Ltd. (ZTL) had decided to formulate its strategy around cricket. Cricket thus was the driving content for our sports initiative.
Cricket started to become a super-currency in India. It became a national flavour over the last few years attracting the world’s largest share of eyeballs. This resulted in exponential increase in the cost of acquiring such rights.
The company consequently looked at acquiring cricket properties such as ICC rights and BCCI cricket rights. With this objective in mind, ZTL had acquired Buddha Films Private Limited (BFPL) during May 2000. BFPL had acquired the marketing rights for all domestic cricket (for the matches played under the aegis of BCCI) to be telecast on Doordarshan for four years.
In the recent past, the mega appeal and power of cricket has got sullied and soiled, with scandal after scandal and controversy after controversy breaking out, such that viewers romance for cricket attenuated. This resulted in a major drop in the TRPs (Television Rating Points) of cricket as also manifested in the TRP’s of recently concluded matches. While cricket may come back in the minds of viewers, it would take a long time.
As a result, the profitability of the rights acquired by BFPL has been adversely affected. The estimated loss currently is Rs.27 crores (net of claims of Rs 53 crores filed by BFPL against Doordarshan, due to violation of the terms agreed in the contract with them viz. converting DD Sports into a pay channel and dropping of Sri Lanka team from the itinerary during November 2000).
As a result, Zee Telefilms Ltd. concluded that a sport strategy revolving around only cricket is not a value creating option.
Consequently ZTL and BFPL have jointly decided to reverse the earlier agreement of making Buddha Films a subsidiary of ZTL. ZTL will henceforth have no equity ownership in BFPL. The money advanced by ZTL to BFPL would be refunded.
The owners of BFPL still believe that sports remain the central foundation of pay market.
BFPL will focus its strategy around soccer, which is internationally the largest revenue driver for sports. The game has similar potential in India, if properly promoted over a period.
While cricket is dominant in 12 countries, Soccer is prominent in over 130 countries. Soccer is a largest revenue driver worldwide but in India, the fan following for soccer has to be developed through promotion, which would however require investing for the future.
ZTL will provide the brand name to BFPL to promote various properties including soccer, which is likely to emerge as the other major sports property through promotion of Soccer clubs at state and district levels, and at international level.
Consequently, the sports channel with dominant content of Soccer will be persued by BFPL but as a reward to ZTL shareholders for having supported it in the beginning, BFPL will give preferential rights of carriage to ZTL because soccer would largely be a pay driver, even though it will also realize revenue through advertisement sales. ZTL would also be the advertising/marketing concessionaires for the sports business.
The channel would be funded entirely by the owners of BFPL.
As per terms of agreement between the owners of BFPL and ZTL, shareholders of ZTL on one hand would not be affected by the losses already been incurred by BFPL, and on the other, would benefit from the preferential rights of carriage & distribution and also act as the marketing concessionaire for the sports channel.
BFPL was offered to ZTL as a subsidiary more as a reward rather than encroachment of the profits. As a result of this changed scenario, BFPL is being divested as part of ZTL’s fresh review of its strategy to withdraw from its plan of launching a sports channel.