The future of streaming at the Walt Disney Company faces a potential inflection point this weekend — and it all comes down to professional cricket in India.
On June 12, Disney will compete in a heated bidding war to retain the rights to stream and broadcast Indian Premier League cricket for the next half-decade. Disney has held the rights since buying the bulk of Rupert Murdoch’s 21st Century Fox in 2019, after Fox subsidiary Star India won the last 5-year rights auction with a $2.5 billion bid in 2017.
Some Wall Street analysts are hoping Disney will use this occasion to reset its streaming ambitions. “I would like nothing better than if they didn’t get the IPL rights and walked back their subscriber number,” MoffetNathanson’s Michael Nathanson recently told The Wall Street Journal. So far, Disney CEO Bob Chapek has stuck by Disney’s goal of reaching 230 million to 260 million subscribers to its Disney + streaming service by September 2024 — a goal that may be impossible to meet. Chapek knows that the competition over cricket rights presents an opportunity to restate Disney’s strategy in light of revised expectations for streamer growth generally, but he also know if Disney loses Sunday’s auction, analysts expect Disney+ will shed millions of Indian subs in the coming months.
The most popular game in the world’s second-most populous nation, IPL cricket has been the pillar of Disney+ Hotstar’s leading position in the vast Indian streaming market, where the service counts approximately 43 million subscribers, representing a whopping 30 percent of Disney+’s worldwide subscriber total (In its most recent earnings statement, Disney disclosed 50.1 million total subs in India and Southeast Asia combined — regional analysis firm Media Partners Asia estimates that at over 7 million of those subs are in Southeast Asia). In its fiscal second-quarter earnings report, Disney said about half of its 7.9 million new subscriptions in the period came from India, with many of them signing up at the start of the IPL cricket season in March.
Shoehorning pre-existing Hotstar users into Disney+’s global subscriber count back in 2020 was instrumental to the demonstration of rapid growth for Disney’s flagship streaming service during its early quarters of operation. But the economics of the IPL cricket rights would be hard for Disney investors to swallow even if the entire industry weren’t already grappling with a reassessment of the fundamentals of the direct-to-consumer model in the wake of the Great Netflix Correction.
This year’s IPL auction is anticipated to be especially competitive, with numerous tech and entertainment giants flocking to the table. Among them: Disney, Alphabet’s YouTube, Amazon, the newly merged Sony India/Zee Entertainment and Viacom18, the joint venture between Paramount, Indian conglomerate Reliance Industries, and former Star India CEO Uday Shankar and James Murdoch, who together acquired the IPL rights for Fox last time around. The minimum bid that will be considered, according to the Board of Control for Cricket in India, the governing body overseeing the auction, is $4.4 billion — and some analysts believe the sale price will end up sailing past $6 billion or more.
The low fees that streamers must charge in India to be competitive mean that local subscribers generate some of the lowest average monthly revenues per user, or ARPU, of any major market. In the first quarter, Disney earned just 61 cents a month per Indian user, compared to an ARPU of $6.32 in North America and $6.35 in international markets excluding India. Extrapolating for the year, Disney+ would be earning just $314 million in revenue from the estimated 42.7 million Indian users it had in Q1 2022. Hotstar also operates an AVOD tier in India, and Disney also generates significant revenues from the IPL rights from advertising on the many cable and broadcast TV stations it operates in India. Still, total monetization by Disney of the IPL rights in 2022 — spanning subscriptions and advertising — is estimated to amount to revenues of just $776 million, according to a comprehensive analysis by Media Partners Asia.
“At $5 billion to $6 billion or more, the rights would require a significant scale-up in video industry market share from Disney’s Star India, from about 20 percent of total video industry revenues today to 30 percent within three to five years,” says Media Partners Asia’s executive director Vivek Couto. “And that’s exceptionally steep in an increasingly competitive streaming and TV industry.”
“Ultimately, we think a disciplined approach to these rights makes sense, even if Disney loses the IPL,” writes Morgan Stanley analyst Benjamin Swinburne in a recent report. “It will likely put downward pressure on Disney+ Hotstar subs and maybe put Disney’s fiscal year 2024 guidance at risk, but the profit potential out of India is minimal in most scenarios, and we do not see this materially impacting long-term earnings power.”
On an earnings call in February, Chapek telegraphed the potential loss of the IPL rights, arguing that Indian users come to Disney+ for more than just cricket, namely its Pixar, Marvel and Star Wars franchises, as well as a growing slate of local Indian titles. “While certainly it’s an important component, that local content that we’re developing really will mitigate the impact,” he said. “It’s not like we see that business evaporating if we don’t get it,” he added.
Mihir Shah, vice president at MPA’s India branch, says his office believes Disney+ will drop a minimum of 15 million subscribers if it lets the IPL rights go.
The downward pressure on subscriber growth would be significant for several quarters — and the Wall Street reaction uncertain (already, owing to Chapek’s various challenges, Disney was the very worst performing stock in the Dow Jones Industrial average last year).
On the flipside, Disney’s global ARPU would get a boost — which metric do investors value most in a post-Netflix correction world? — and significant capital would be freed up for further enhancing Disney+’s slate of premium Indian films and series.
Cricket consolation prizes will also soon be up for grabs. Media rights for the International Cricket Council’s portfolio of rights, including the ODI and T20 Cricket World Cups, and the BCCI’s rights for India’s national cricket team both come up for renewal later this year. Disney+ currently holds the India rights for ICC tournaments and BCCI national team cricket, thanks to earlier, pricey acquisitions by Star during the 20th Century Fox era. And while neither sets of rights has the same market power as the IPL (think India’s version of the NFL), they are nonetheless attractive properties for India’s legions of cricket-mad fans.
“Without the IPL, the focus then shifts to investing at rational levels to retain at least one of the other cricket properties this year and further build and scale the premium entertainment content side —with local series in particular,” adds Shah of Disney’s likely India strategy.
In a recent report on the Disney+ subscriber outlook, MoffettNathanson’s Nathanson wrote, “There are a number of significant swing factors now in the air. The status of the next IPL cricket rights in India, the impact at Hulu from losing NBCU content this fall, the recent announcement of a new global ad-tier at Disney+ and the impact of a fully consolidated Hulu by 2024.”
Kim Masters and Georg Szalai contributed to this report.