Tag: monopoly pricing

On Sony Six telecasting Pacquiao-Mayweather

Summarising the blog post:

1. Having paid for the rights to the fight, the incremental cost of showing the fight to a customer is negligible, making this a great case for “revenue management”.
2. Each television market is independent, and in each the holder of the rights indulges in “monopoly pricing”. The monopoly price for the US is $~100. For India, it is close to zero. 
3. Television is a two sided market, and by offering the content at Zero rupees in India, the rights holders are maximising the sum total of what they can earn from viewers (subscription fees) and what they can earn from advertisers. 

Now for the harikathe:

So the much-awaited bout between Manny Pacquiao and Floyd Mayweather is going to be telecast on Sony Six tomorrow, as per this tweet:

Some people are surprised that this fight is being telecast on a “normal” sports channel in India, considering that elsewhere in the world it is being mostly telecast on pay-per-view channels, with the payment for one connection running close to a hundred dollars. Yet, in India, we will get to see this without shelling out any incremental cost over what we have already shelled out to receive Sony Six (and most people who are interested in the fight are likely to have already subscribed to the channel since it telecasts the ongoing IPL. The difference between {people who want to watch Pacquiao-Mayweather} and {people who want to watch IPL} is infinitesimal and can be ignored).

So why is it that a fight that is being sold at an exorbitant premium in most places in the world, and billed as the most sought after boxing bout in over twenty years, is being shown at a throwaway price (close to zero) in India? The answer is simple – revenue management.

For the holder of the telecast rights of this fight, having paid for global telecast rights, any further costs of telecasting to an additional television set are marginal. In that sense, any marginal revenue that they make from the further sale of these rights goes directly to their bottom line. Hence, this is a classic case for “revenue management”, where they will try to maximise the revenues from the rights they hold.

Given that they hold monopoly rights over telecast of the bout, we can expect them to follow “monopoly pricing” to price their product. Monopoly pricing, as the name says, is how a monopoly would price a product, which is literally true in this case. For every price point, there is a certain demand, and monopoly pricing prices the product at a level that maximises revenue (price x quantity). And considering that television rights are usually at a national (or even sub-national) level, monopoly pricing can mean that there are different prices in different markets.

The US, for example, is a market that has an established model of pay-per-view, and the price they’ve arrived at there (of USD 90 per connection, or whatever) is a function of this history. Based on historical responses to such events, and what people have indicated as their willingness to pay, this rate has been arrived, and from what I notice on social media, it has probably been successful in terms of raising revenues.

In a market like India, however, firstly there is no established pay per view model, and no “channels” for exhibitors to show pay per view content (Tata Sky Showcase might be an exception but it’s too niche). Moreover, boxing is also not that big in India – while Indians (like me) might be interested in big fights like this one, it is not as big for us to actually pay money to watch. In that sense, even if the channels had offered this fight at a low (but non-zero) price, the uptake would have been small.

In other words, for an event like this one, the “monopoly price” that the owner of the content could charge in India would be extremely small, and even at that price, the number of people watching would have been small, leading to small revenues.

But then television is a “two-sided market”. The content is simply a platform to bring together the advertiser and the viewer, and the amount that an advertiser will be willing to pay for an advertisement can be considered to be proportional to the viewership. In India, where the volumes for a non-zero price will be low, the price that the broadcaster can command from the advertiser will also be similarly low, leading to low revenues all along.

Instead, by offering the rights to Sony Six, which will offer the content for “free” for all its currently existing viewers, the owners of the rights are ensuring that a significantly positive section of the population is going to watch the fight. Which in turn means that a significant premium can be extracted from advertisers, which will form strictly positive revenues for Sony Six, a part of which will go to the global rights holders. And these revenues are significantly greater than what the rights holders would have achieved in case the content had not been offered at all in India.