A quick question: Why is Zee Telefilms CMD and maverick media baron Subhash Chandra willing to stick his neck out by bidding a humungous $308 million (plus $ 21 million for development of domestic cricket) for telecast rights of four years of Indian cricket?

An ongoing court case involving the rights and various explanations being offered by the industry notwithstanding, the answer is not simple.

AIMING HIGH: Zee's Subhash Chandra

The most plausible explanation for this high stakes gamble comes from the Hong Kong-based market research and analysis firm, Media Partners Asia whose analyst, Vivek Couto, exclaims, "Did Subhash (Chandra) and Zee overbid? Who cares? In the "mogul-ish" (as in media moguls for the untutored) scheme of things when Ted Turner bid for the Atlanta Braves or when Rupert Murdoch outbid Barclay Knapp at NTL to win the English Premier League in the 90s, sure the bids were inflated and early losses were sizeable. But long-term returns (both tangible and intangible) were there for the taking too."

QUEERING THE PITCH: BCCI supremo Jagmohan Dalmiya

Yes, in the grand settings that cricket has been ensconced in in modern India --- drawing parallels to the opulence associated with the Mogul emperors of yore is pretty apt. But not even in his wildest dreams could Board of Control for Cricket in India (BCCI) president Jagmohan Dalmiya have predicted the kind of windfall that is coming the world's richest cricket board's way.

A humungous $308 million for four years (or 144 days) or $2.1 million a day is no mean sum. But both Chandra and ESPN Star Sports --- the latter using every possible avenue including its last-ditch petition in the court to checkmate Zee --- have willingly upped the ante to levels that are dizzying.

ZEE HITCHES ITS FORTUNES ON CRICKET

Why? There's a lot at stake in the broadcasting business. Chandra's Zee Telefilms, which was once the king of the Hindi entertainment television space, is today a lonesome number three with numero uno Star miles ahead of it and second placed Sony Entertainment, also many yards in front. Chandra has been trying for some years to help Zee regain lost glory but has failed. Cricket could well give him that chance.

Points out Euro RSCG CEO Ishan Raina, "Cricket has moved to a different level and nobody really knows where the bar can be set. It's not about expertise (of production), it's how they (the successful bidder) build around it. This is definitely a shot for a turnaround because Zee's at a stage when it needs to make some big bets."

Nothing sells like cricket in India, unless of course it is movies or religion. Chandra already has a more than serious foot in the Hindi film sphere what with his group releasing one of the most successful Indian films movies of all time in Gaddar - Ek Prem Katha. Now he is angling for cricket having lost out in the past even after almost being in touching distance of the finish line.

Chandra feels that his group --- with diversified interests in various segments of media, entertainment and telecom --- will be able to repackage the property across his entire channel network targeted at various Indian language groups.

He has also conceded ground to Star in the cable TV market where it rules like a colossus and looks likely to continue doing so for some time. Chandra knows that if ESPN-Star were to bag the cricket rights, it is quite likely that it would have leveraged the matches on Star's joint venture DTH platform, Space TV, over time. (Agreed that Space TV has been caught up in the black hole of government clearances, but it can't stay there forever as the majority stake in the venture is held by a very credible Indian conglomerate, the house of Tatas.)

And Space TV may have well ended up capturing the direct to home television space too, going by how Star's owner, Rupert Murdoch, has dealt with sports telecasts in the UK.

A TURNAROUND OPPORTUNITY FOR ZEE: Euro's Ishan Raina

Chandra can ill-afford that. The Indian broadcasting sector also cannot allow a monopolistic situation in both cable TV and DTH. And a Murdoch monopoly in two spheres can be unhealthy and frightening, say media analysts. Now that the cricket rights are with him --- correction, almost within reach ---- Chandra can do what Murdoch wanted to do with cricket for his DTH platform. Use the property for special enriched telecasts on Dish TV, giving high quality ictures, action, commentary, special camera angles etc.

Already Chandra has a lead in DTH with his Dish TV claiming around 140,000 subscribers nationally. There is evidence that there is tremendous demand for DTH, going by the number of email requests for DishTV subscriptions that indiantelevision.com gets. If Zee gets the rights and it exploits the cricket well, it may well see a reversal in its fortunes even in cable TV.

According to Spatial Access managing partner and former Zee hand Meenakshi Madhwani, "This (cricket) is definitely a big breakthrough for Zee. It will mean more eyeballs and a ground for accelerating sampling."

At the very least, Chandra's DTH venture will get a tremendous boost. Needless to say, as will the group's bottomline. Zee has a reported 4.5 million paying subscribers, whereas ESPN-Star Sports has 6-7 million subscribers. Cricket may just help Zee take that subscription figure up to a minimum 6-7 million and that will add a lot of subscription moolah to Zee Telefilms profit and loss accounts. It would also help bring Zee back under the arc lights as a darling media scrip.

ZEE'S TOTAL OUTGO $ 345 MILLION OVER FOUR YEARS

Let's have a look at some hard figures, assuming of course that the rights costs remain at $ 308 million, which will of course become irrelevant if a re-bidding, as suggested by the Bombay High Court, takes place.

FIGHT TO THE FINISH: ESPN Star Sports Asia MD Rik Dovey

The sticker price of $308 million, which is the benchmark now, represents a six-fold increase from the $ 54 million paid by national broadcaster Doordarshan for the last four years.

A point that the Zee group CMD made was that the ramp up in the bid amount from $ 260 million to $ 308 million is not really that crazy when it is borne in mind that there has been a "33 per cent increase in the number of cricketing days" from the 108 earlier guaranteed to 144 (the increase is even higher if it is borne in mind that 160 days is what all the calculations are being made around). It is worth recalling here that the original tender document put out by the BCCI had guaranteed a minimum of 27 days of international matches a year (hence the figure of 108).

Zee has also promised to invest Rs 930 million in development of domestic cricket (a further $ 21 million at an $: Re exchange rate of 1:45). So the total payout to the BCCI would be $ 308 million plus $ 21 million or $ 329 million as the amount Zee has committed to pay the BCCI over the next four years.

What is the further payout involved? --- production and marketing. Calculating a per day production cost of $ 75,000 and a marketing and promotion budget of $ 25,000, it totals $ 100,000. Over 160 days that tallies up to $ 16 million. So, the total outgo from Zee would be $ 345 million over four years.

POTENTIAL AD REVENUES $ 175 MILLION

The $ 345 million investments that Zee is seeking to be making would have to be recovered across four years just to break even. And there are principally three streams from which these revenues can be garnered --- domestic advertising, subscription (international and domestic) and syndication, as pointed out by Chandra himself.

According to MPA estimates, Zee's cricket coverage could potentially bring in revenues between $320 and $350 million over a four-year period, against total cost estimate between $350 million and $375 million. The Hong Kong agency also estimates that net advertising revenues have the potential of touching approximately $160 million with distribution or subscription revenues at around $140 million, with 80 per cent generated from India.

Indiantelevision.com has done its own calculations and this is how it pans out:
The formula that has been used is that each series will, on an average, have three Tests (5 days each) and 5 ODIs, or 20 days per series. Across 160 days that would mean 8 series with 40 ODIs and 120 Test days. Forty ODIs will rake in $ 30 million, while the Tests $ 27 million, for a total of $ 57 million. If one adds the "extraaa innings" activity it adds up in a 1:1.3 ratio so the total there would be $ 74.1 million over four years.

What else could be leveraged from ad income? If the different channels across the network are leveraged well that could raise some extra revenues but not more than $ 100,000 per series, which works out to a total of $ 800,000.

MORE EYEBALLS WILL TUNE INTO ZEE: Meenakshi Madhvani

The total domestic ad revenues in four years would therefore come to about $ 75 million in a "worst case" scenario. Why worst case? Because it does not factor in high-octane tours like Australia's tour in November and Pakistan's tour in April next year. Such tours would have maximum value (remember the historic India tour to Pakistan earlier this year raked in a massive $ 26 million out of that single series) which we therefore believe will mark up the total ad revenues by about $ 50 million. So, a $ 125 million satellite ad revenue and domestic inflow is within the realms of possibility.

What of TERRESTRIAL AD REVENUES? While the general focus in the media has centred on how any successful bidder would have to share the rights with terrestrial broadcaster DD, which would therefore take some sheen off ad income, indiantelevision.com is of the opinion that this in fact offers an opportunity for further increasing revenues.

Take the revenue share model that ESS had worked out with pubcaster Prasar Bharati. About $ 15 million is what indiantelevision.com estimates is the MG that would have to be paid. DD telecast would earn about $ 75 million in ad revenues in four years, that would leave $ 60 million that remains. At an 80:20 revenue share the amount Zee would take out of this would be $ 48 million.

So the total ad revenues as per this calculation works out to $ 173.8 million ($ 125 million + $ 48 million + $ 800,000) or about $ 175 million as a round figure.

SUBSCRIPTION INCOME $ 135 MILLION

"We see multiple revenue streams for Zee and the upsides from declared subscriptions going up can be huge, whether through implementation of conditional access or simply from a market evolution standpoint," explains Relay Worldwide (the Sports Practice of the Starcom Media Vest Group based in Mumbai) general manager Chetan Madaya.

The Zee Network's current paid subscriber base is less than 5 million. At a Rs 60 bouquet rate, the group generates Rs 2,880 million. Assuming Zee reaches 6 million over the next four years on the back of cricket, the revenues will climb to Rs 3,660 million per year at the present subscription price.

The Zee sports channel on its own should at least be able to garner an average Rs 20 per subscriber across four years. Therefore, the total subscription revenue over four years that Zee can expect should be Rs 5760 million (20 x 6 million x 12 x 4). Rounded off, that means Rs 6,000 million or $ 133.33 million. So subscription revenues will have pulled in roughly $ 135 million at the end of four years.

ACCRUALS FROM DTH $ 35 MILLION

A lot of new domestic business that Zee is looking to tap will be coming from DTH. Zee's subscriber base, which is climbing rapidly, is currently at 125,000 according to indiantelevision.com estimates (Zee officials however put it at 160,000). The pace of growth would be expected to really shoot up once the cricket starts and even if the urban markets are completely ruled out as far as set box offtake is concerned, the pull from the rural markets will be humungous. DTH is expected to pull in about 25 per cent of what the sports channel delivers in subscription revenues through cable and this translates to just under $ 35 million.

Total domestic revenues will therefore be $ 345 million at the end of this deal.

ESTIMATED NET PROFIT $ 86 MILLION

What's the profit? Since international business has not been covered in the calculation, this is from where any revenue overflow will come. As per estimates, international business will account for 20 per cent of total revenues or $ 86 million as the Net profit Zee could expect from this deal at the end of four years.

Looked at in Rupee terms, that's about Rs 3.9 billion Net that Zee would be hoping for.

IS ESPN-STAR SPORTS A BAD LOSER?

A few years ago, when ESS lost out to SET India the World Cup rights, the then ESPN India MD Manu Sawhney had told a financial daily that beyond a certain point, trying to outbid Sony would not have made "business sense" and that's why ESS let go of the cricket properties.

No court cases were resorted to. Neither were questions on ICC's bidding process raised. But this time round, not only has ESS gone to court, but has also raised doubts over the tendering process, pointing fingers at the cricket board and also the till now highest bidder , Zee Telefilms, and its production capabilities of sporting events.

PUTTING UP A BRAVE FRONT: ESPN India MD RC Venkateish

At a time when ESS is claiming to be technically highest eligible bidder, one can recall ESPN India MD RC Venkateish statement that cricket rights is the "icing on the cake for us. If we don't get it, we still have the cake." The Indian Express also ran a story on ESS' claims on revenues earned from telecasting other games, and in conclusion stating, "For all ESPN-Star Sports' wealth of TV rights - from soccer, tennis, and even cricket rights of England, Australia, South Africa, New Zealand, Zimbabwe and Bangladesh - all this contributes only 10 per cent of revenues compared to the 90 per cent that comes from cricket played in India."

In such a scenario, the fact that it MAY have no Indian cricket till end-2006 puts ESS in a real spot on the distribution side. No wonder that the cable frat, who far prefer a Zee than ESS when it comes to money negotiations, have been rooting for the Indian company on the cricket issue. That no one plays the hardball game better than ESS on the broadcast side is well known.

Forget increasing declarations or even maintaining it at present levels, when it comes to a straight choice between a Ten Sports, for instance, and ESS, the price differential is so huge (Rs 14 Vs Rs 39) that it's a no-brainer as to which channel would be the preferred choice. Especially because the cable trade is anyway girding itself for the next big hike in prices that will come once all the new channels that are planning their entry debut.

As one Delhi cable operator has pointed out, "If ESPN-Star Sports doesn't have Indian cricket, it would be easier to negotiate with them on subscription revenue as also convince customers that other channels are showing more relevant cricket."

What is rather strange is the very shrillness and tone of the ESS' protest. Without going into the pre-bid shenanigans that BCCI supremo Jagmohan Dalmiya was up to --- we feel he has the right to hawk his fare at the highest price that he can imagine --- there is no denying that the ESS was out thought and out manoeuvred every step of the way.

ZEE CAN PRODUCE AS WELL AS ESPN: Ravi Kiran

Take, for instance, an accusation levelled against Zee Tele by ESS that it has no previous experience of producing sporting events, especially cricket, and also does not boast of an in-house production unit for the purpose --- a point that was certainly stated in the tender document.

Even while very few would dare to question the production capabilities of India's largest vertically integrated media company, Zee Telefilms, which has been in the business for over a decade now, ESS has said in its petition that Zee does not have in-house expertise for cricket.

While Zee has a list of cricket it telecast on its international feeds, what merits a mention is that even ESPN and Star Sports had outsourced production work of cricket tournaments it had telecast to specialised companies.

Way back in 2000, the ICC Knockout tourney was produced for ESS by World Sport Nimbus. The ICC Cricket World Cup 1999 on ESPN was produced with the help of Sky and BBC facilities. The 1996 World Cup, shown on ESS, was produced by Worldtel. The 1999-2004 England domestic series was produced for ESS by Sunset & Vine. Even South Africa domestic series 2000-2004, shown by ESS, was produced by TradeMark.

There are some more cricket series that have gone on air on ESPN and Star Sports, but produced by outside companies specialising in such work, which makes it amply clear that very many major series/events are produced by specialist production companies, including all the series that are broadcast over channels in India. What's more, it is a matter of record that the BCCI's own licensees in the past 10 years have engaged specialist production companies to produce the coverage of cricket.

However, when these facts on outsourcing of production work were presented to ESS by indiantelevision.com today, an official spokesperson for ESPN India said that ESPN has produced in-house and telecast Asian test Championship in 1997, the two Asia Cups in 2000 and 2004, TVS cup in 2003, South Africa's Bangladesh tour in 2003 and England's Bangladesh tour also in 2003.

When further queried whether a lot of cricket on ESPN and Star Sports has been produced by outside companies, the ESPN India spokesperson refused to comment. Though indiantelevision.com would not like to opine on the issue because it is sub judice, there is a feeling in certain quarters of the industry that ESS is raising a hue and cry in desperation.

CONFIDENT ABOUT ZEE: Raj Nayak

Spatial Access' Madhwani opined, "As for ESS claiming expertise in the cricket arena, ground production has never been done by channels. Even ESS outsources their production to the specialists. Also, everybody thought (Sony) Max would not do a good job, while there is adequate proof and more of how well Max has handled its bet on cricket. It's (production capability) a non-issue in my opinion."

Concurs Starcom MD (west and south) Ravi Kiran: "Some people have a raised a concern on Zee's technical expertise in producing and packaging cricket. But in our view, there is no dearth of qualified technical vendors whom Zee can hire."

While agreeing that ESS has done a good job of telecasting cricket up till now, NDTV Media CEO Raj Nayak says, "But, at the same time, it does not mean that others (like Zee and Sony) cannot compete and do better."

There is a sound business proposition behind Chandra's gambling the way he is. After all, did he not do the same 12 years ago when he launched the country's first Hindi satellite channel Zee TV?

(ADDITIONAL INPUTS BY HETAL ADESARA AND SONALI KRISHNA)