“Strategic value is pointless if it does not deliver business value”

The calm exterior does manage to conceal Uday Shankar’s emotions. Fresh from winning a $2.5 billion bid, the 56-year-old chairman and CEO of Star India optimistically speaks of the untapped potential in both cricket and sports at large. He also opens up on how he plans to recover that money and Star India’s corporate strategy. Excerpts:

What factors did you consider while making the IPL bid? Was your decision just a gamble for survival? 

In 2015, we managed to get the digital rights for IPL and in those two months we realised its pull on the digital platform. We were anyway working on both broadcast and digital, and the bid made more sense for us. If we wouldn’t have won the bid, we would have to be a lot more aggressive in renewing our BCCI rights. 

We had to consider everything for the bid, including return to shareholder and strategic intent, since all of it is interconnected. For a mature company like ours, strategic value is pointless if it does not deliver business value. They cannot be compartmentalised. Each of our businesses is at a different level of maturity. While we have worked for five years in our sports business to create a franchise that fans love, Hotstar is at a different maturity level altogether. They have to benefit the company on parameters such as profit and cash flows to future-proof the businesses. 

Five years back, you were averaging an RoE of over 20% consistently, following which things got erratic. Do you see this bid generating a return like that?

Five years ago, we were in the business of entertainment which was already steady. At the same time, it was important to identify another growth trajectory, which was sports for us. The impact on the RoE was not accidental, but by design. When there is so much disruption, just being in entertainment seemed short-sighted. We were aware that this would mean margins and profit taking a hit. So we decided to back digital and further expand within the sports segment by introducing sports such as kabbadi, badminton, hockey and football.

But digital monetisation both in India and elsewhere in the world remains really weak. What is your digital monetisation strategy? 

We are bidding for something over five years. And digital is only one segment of the business. Up until three years ago, the IPL digital rights were going abegging. Then we came in and picked it up for three years (Star paid Rs.302 crore). It’s a bit premature to say that something you are going to have for five years will not have new monetisation models. I think the advertising revenue in digital will get better. In India, subscription is an uncharted territory, since mobile data is expensive and, before Hotstar, online content was available free of cost on YouTube and Facebook. Additionally, payment mechanisms in India have not fully evolved. If you just want a large number of subscribers, you will start subsidising. It was the case in television earlier and now things are different with digitisation and DTH. I do not think the consumer is fundamentally averse to the idea of paying.

Is broadcasting being threatened by digital?

No. Let’s take Rs.400 as the average revenue per user for a television package, which is really high. With that you get all channels at no add-on cost. Thanks to digital delivery on DTH and cable, you can get high-quality visual experience anywhere. 

On digital, you first have to pay for data, which has become much cheaper after Jio. But you still pay for content separately. So I feel, that television being threatened by digital in India is a bit of hogwash. From an advertiser’s perspective, television is a cheaper medium in India since every rupee spent on television gets you a lot more audience than in the digital space. 

Outside of Google and Facebook, we sell most inventory in this country. That has allowed us to see a lot of things closely. Hotstar is also about 6-7x more expensive than television for advertising. In contrast, digital happens to be a cheaper alternative in the US.

By extrapolation, is there a possibility that digital revenues could outstrip television? 

Yes, but that is where you have to strike the right balance between volume and yields. If you keep the yields at the same level, getting volumes could be a problem. The beauty of television is that it is so affordable that one can advertise on it day after day.

So, if the cost per thousand is higher on digital, won’t it be a challenge justifying it to the advertiser? 

But the advertiser gets a huge benefit of full addressability on digital. One key reason why television gained popularity is because it was cheaper than newspapers. The latter raised prices unsustainably compared to their delivery. Today, digital is expensive and television sits in that virtuous space, where it is still for the consumer and the advertiser. The cost of a television bundle that a consumer pays is Rs.200-300; compare that with the cost of a newspaper, where one day’s copy is Rs.5. 

Digital is surely a new medium, but is there an untapped potential that advertisers can benefit from?

Whether you put it on one medium or ten mediums, people will not watch if they have already seen it or just do not want to watch it. You will watch it on digital in the absence of television or if you want a private screen.

What is your overall corporate strategy from here on? 

We have a very strong portfolio in entertainment — Hindi, English and other major Indian languages and we are planning to build on that. With sports, we will continue to focus on cricket which is a big driver — not just at the national level but also on the regional front (Tamil Nadu and Karnataka’s cricket league).

Another strategy we are focusing on is to not limit people by their linguistic preferences or geography.Instead, we want to offer programmes in multiple languages. We would like to make it available anytime and anywhere. This is where Hotstar comes in. 

Would you hazard a guess on what would be the viewership numbers for digital and Hotstar in five years? 

It would be foolhardy to hazard a guess on that. But if you see the numbers going around, it is easy and dependent on two to three things. We will create very high-quality content compared with the best in the digital platform. After that, comes the cost and availability of data followed by the kind of competition we face.