ProfitNama

ProfitNama

Uncertainty in $1.5B ICC Media Rights Deal Explained for Investors

Uncertainty in $1.5B ICC Media Rights Deal Explained for Investors

 

Analysis of the Uncertain $1.5B ICC Media Rights Deal

Introduction

In recent news, the International Cricket Council (ICC) has sold the media rights to broadcast and stream ICC cricket tournaments from 2024 to 2027 to Disney Star for a staggering $3 billion. However, Disney Star then sublicensed the ICC tournament TV broadcast rights to Zee Entertainment Enterprises for $1.5 billion. Now, uncertainty looms over whether Zee will fulfill the contract, as they have yet to provide the required bank guarantees and ICC approval. This uncertainty places the entire $3 billion deal between ICC and Disney at risk, potentially requiring Disney to pay the full amount to ICC without the $1.5 billion from Zee to offset the costs. This situation could lead to legal action between Disney and Zee.

Impact on Retail Investors

Retail investors in Disney, Zee, or Sony should closely monitor updates regarding the ICC media rights deal. If Zee backs out, both Zee and Disney’s share prices may face downward pressure in the short term. Zee’s financial position is already strained, and the loss of $1.5 billion in future ICC broadcast rights revenue would be a significant blow. This could erode investor confidence in Zee’s ability to turn its business around. For Disney, should they have to bear the full $3 billion cost of the ICC deal, it could drastically impact the profitability of the Disney Star unit. With Disney Star committing $6 billion to upcoming cricket rights, doubts arise about their ability to generate sufficient advertising, sponsorship, and subscription revenues to cover these massive costs. Investors may factor these risks into Disney shares if the deal falls apart. In the longer term, Disney has the financial resources to absorb losses and restructure the Star business. As for Sony, if the Zee merger is scrapped, an opportunity to create a stronger rival to Disney Star is lost, but they also save $1.5 billion in cricket costs, benefiting Sony investors. Overall, most retail investors should consider avoiding shares in Zee, Disney, or Sony until the ICC deal’s outcome is finalized.

Impact on Industries

The media and entertainment industry in India would be most affected by changes in the ICC cricket rights deal between Disney Star, Zee, and Sony. Media companies often operate cricket broadcast channels at a loss, relying on high advertising rates during cricket matches to subsidize costs. If Zee backs out, Disney may air ICC matches on its Star Sports channels, but they might be forced to charge lower rates to sponsors and advertisers if ratings are weaker without Zee’s audience reach. Some channels may even face shutdowns. Rival sports broadcaster Sony could benefit if it picks up advertisers displaced by lower Disney rates, but Sony also avoids major cricket costs currently, which aids profitability. For over-the-top (OTT) streaming, Disney retaining ICC digital rights helps mitigate the impact of lost Zee TV revenues. Overall, TV broadcasters would suffer from a market-wide drop in cricket advertising money if the $1.5 billion Zee deal disappears. However, streaming platforms gain pricing power. For Indian cricket fans, a disrupted deal may also lead to some matches being unavailable if Disney channels have limited reach.

Long-Term Benefits & Negatives

In the long run, the cancellation of the Zee ICC sublicense deal could negatively reshape the sports media landscape. The $3 billion, four-year ICC rights deal is nowhere close to being profitable for Disney based on current Indian subscriber levels, ad rates, and sponsorship revenues. A potential merger with Reliance’s Viacom18 would have aided monetization, but if Zee backs out, the exorbitant ICC deal cost, combined with similar IPL cricket rights costs, could cripple Disney Star’s sports business. Without profits to justify cricket costs, Disney may reduce major sporting investments in the future. Sony has long favored a sustainable cricket rights strategy. In contrast, Zee’s aggressive bet on ICC rights likely relied on merging with Sony. If the merger falls apart, Zee will struggle to rationalize such inflated, loss-making cricket costs. Hence, for major TV broadcasters, unrealistic, highly inflated bidding for marquee cricket rights could become rarer without the scale of merged entities like Disney-Viacom or Zee-Sony to absorb losses. This may reduce future cricket access for fans on traditional TV and benefit deep-pocketed digital platforms like Amazon or Google instead.

Short-Term Benefits & Negatives

In the short term, if Zee fails to follow through on its $1.5 billion ICC broadcast rights sublicense deal, several negative implications arise. Disney Star would be saddled with the full $3 billion obligation to ICC over four years, straining its financials. With Zee missing a major driver to grow advertising and subscription revenues post-2024, its market position worsens, while Sony benefits from avoiding similar cricket costs. For the Indian cricket viewing public, the loss of Zee as a second broadcaster of ICC events could temporarily reduce reach and accessibility until Disney finds new TV partners. But Disney would likely prioritize ensuring flagship ICC World Cup matches remain easily available to all. While over-the-top streaming platforms like Disney+ Hotstar won’t be impacted, broadcast TV advertising rates and sponsorships around cricket could decrease from 2024-27 without Zee’s committed $1.5 billion. This may temporarily dampen the cricket media economy. However, post-2027, rationalization of unsustainable bidding dynamics could help reallocate capital among sports properties and balance competition. Hence, short-term pain may enable long-term stability.

Citation:

Javed Farooqui, “Uncertainty Looms Over ICC TV Rights Deal Between Disney & Zee”, Economic Times, December 28, 2023, The Economic Times.

error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here