Disney (NYSE: DIS) has managed to sign up a lot of cricket fans for Disney+. In fact, the company pointed to the delay in the start of the Indian Premier League season last year as a reason for its weak subscriber numbers in the fourth quarter. But after failing to renew those streaming rights for future seasons, Disney may permanently lose a lot of subscribers. Estimates put the number around 20 million.
The question Disney investors need to ask is how much worse off is the entertainment giant after it failed to secure those streaming rights. Or is it worse off at all?
The rising cost of IPL rights
The winning bidder in the streaming rights for the IPL matches from 2023 to 2027 was Viacom18 — a joint venture between Reliance Industries and Paramount Global. It ended up paying just over $3 billion, slightly more than Disney paid to retain the television broadcast rights in India.
In total, the league will collect over $1.2 billion per year between the TV and streaming rights. That’s about triple the amount that Star India — now owned by Disney — paid the IPL from 2017 through 2022 for both television and streaming rights.
Simply put, Disney couldn’t justify the cost for its streaming service. At $600 million per year for streaming rights, Disney would need to draw in more than 65 million annual subscribers through IPL matches at its average revenue per user of $0.76 per month. Even factoring in the potential to improve monetization over the next five years, the IPL would need to draw in tens of millions of subscribers for the service every year to justify the outlay.
Analysts at Media Partners Asia think losing the IPL streaming rights will cost Disney 20 million of its current subscribers. The company may also miss out on some future Disney+ Hotstar subscribers who might have been interested in the service if it included IPL matches. But Disney’s internal financial modeling suggests that the high cost of the rights isn’t worth paying to attract those subscribers.
Why Disney may be better off without the IPL
There are a few things investors should consider before they conclude that missing out on the IPL rights will severely impact the growth trajectory of Disney+, specifically in India.
Not only would Disney have to attract tens of millions of subscribers in India to justify the price of the IPL rights, but it would also have to produce better subscriber rates than if it used that money for different content. And it could accomplish quite a lot for $600 million a year. Indeed, Disney could outspend some of its biggest rivals in India by using those funds to produce original content or secure the redistribution rights for popular series and films. More importantly, those rights might span well outside of India, reaching a much broader (and likely higher-paying) audience.
What’s more, Disney may not lose as many cricket fans as estimated. Since it’s retaining the television broadcast rights for the IPL throughout India — where it operates dozens of networks reaching 790 million viewers — it will continue to have opportunities to advertise Disney+ Hotstar to IPL fans. It could highlight other sports programming on the service, as well as the films and TV series it offers.
In order to consider the IPL rights a true loss for Disney+ Hotstar, Disney would have to have no better choices for spending that $600 million per year of its growing content budget than the rights to the Indian cricket league. Given the production power of Disney, it’ll very likely be able to spend that money more wisely and generate positive returns for investors.
Adam Levy has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.