South African streaming services threaten Multichoice premium base

By Xolisa Phillip, in Johannesburg
Posted on Thursday, 11 August 2022 11:03

Satellite dishes connect township residents to South Africa's DSTV television network, owned by telecommunications giant Naspers, in Khayelitsha township, Cape Town, May 19, 2017. REUTERS/Mike Hutchings

Aggressive investment in local content, pricing, and new entrants in over-the-top (OTT) services – like Netflix – are driving a dramatic shift among premium customers, posing a threat to pay-TV providers like Multichoice, according to analysts.

Multichoice Group CEO Calvo Mawela recently told analysts that “after almost 40 years since we first launched pay-TV in South Africa, the business is starting to mature.”

“[We] … need to adapt and shift our focus,” Mawela said during the group’s results presentation for the year ended 31 March 2022.

“We have been reducing our dependence on the premium base by growing the mid- and mass-market customer base,” says Mawela, but “given its absolute contribution, premium remains important and retention has been a key focus of our strategy”.

In Africa, Multichoice pay-TV services DStv and GOtv are available in 50 and eight markets respectively. South Africa is the group’s biggest market by revenue, but the rest of Africa operations – with main territories being Kenya, Nigeria, and Zambia – comprise the bulk of its subscriber base.

Through its DStv and GOtv satellite platforms, Multichoice aggregates video entertainment, series, lifestyle, news, and live sport content packages – called pay-TV bouquets – ranging from R29 (about $2) for the mass market to R839 for premium subscribers.

In the financial year ended 31 March 2022, the Multichoice Group:

  • Reached nine million pay-TV subscribers, measured as 90-day active subscribers, in South Africa, representing one per cent growth.
  • Grew its rest of Africa pay-TV subscribers to 12.8 million, a seven per cent improvement.
  • Showmax, its subscription video-on-demand service that was introduced to the market in 2015, reached 68% paying subscribers.
  • Generated R55.1bn in revenue from, among other sources, subscription fees in South Africa (R28.8bn), subscription fees in its rest of Africa operations (R18.1bn), advertising (R3.9bn), and set-top boxes (R1.8bn).  

In the year under review, “we added another 3.4 million customers from our lower-end bouquet since [the] financial year 2016,” says Mawela.

However, “premium will get to a stage where it stabilises,” Mawela says. “We believe we are getting closer to that stabilisation point.”

He continues: “People on premium are at the higher end of the market … and like to have [access to] all video entertainment at any given point in time.”

OTT growth 

Since its 2016 debut in sub-Saharan Africa, Netflix has captured 42% of the OTT market to date, according to Kane McKenna, a research analyst at Omdia, who is part of the firm’s media and entertainment practice. In South Africa, Netflix packages range from R49 to R199.

“[Netflix] … is now experimenting with mobile-only and free versions of the service and, with the recent ad-supported model reports, Netflix could continue to skim market share from pay-TV operators,” says McKenna. “Online video represents a major threat to pay-TV in Sub-Saharan Africa.”

Subscriptions are concentrated in South Africa, Kenya, and Nigeria, with South Africa being by far the keenest adopters of online video

Media analyst Arthur Goldstuck says: “There’s a dramatic shift in the market at the top end as a result of all the streaming services coming in.” In the past five years, online video has risen from 2% of the market in 2016 to 11% at the end of 2021, according to McKenna.

“Subscriptions are concentrated in … South Africa, Kenya, and Nigeria, with South Africa being by far the keenest adopters of online video,” says McKenna.

McKenna adds that Multichoice recently saw the proportion of subscriptions between online and pay TV shift slightly towards the former: “While small, [this] represents a growing trend toward cord-cutting that threatens to grow.”

“Of the factors behind OTT growth,” says McKenna, “there are three that have the highest impact: aggressive content localisation, pricing and payments, and new market entrants.”

Although pay-TV market entrance has stagnated because of a recent history of failing businesses and company liquidations, the OTT market continues to see new players enter, he says.

In May 2022, Disney Plus entered South Africa and pitched its subscription at R119. “Disney Plus has had success elsewhere through strong brand recognition, quality content, offers, and partnerships,” continues McKenna.

“If this level of success can be replicated across sub-Saharan Africa, it poses a threat not only to its fellow OTT operators, but also to the pay-TV market as a whole,” he says.

Insurance policy

Goldstuck says Multichoice is alive to the changes taking shape in the market. “Showmax is, in effect, Multichoice’s insurance policy.”

Multichoice partnering with Disney Plus for the latter’s entry into South Africa could be viewed as the pay-TV operator’s way of “hedging its bets in offering Disney Plus on … [its DStv] platform,” adds Goldstuck.

“It has to be assumed that their [Multichoice] approach is one of: ‘If you can’t beat them, join them.’ Multichoice will take a cut of Disney Plus subscription sales,” he says. Goldstuck expects Multichoice to enter into similar deals with other streaming providers: “The strategy Multichoice is [adopting is] being all things to all viewers. Calvo has his finger on the pulse on what viewers want or prefer … It’s [Multichoice] taking out every insurance against premium subscriptions becoming out of favour.”

The clever subscriber is going to take a combination of Showmax, Netflix, Amazon Prime Video, and Disney Plus at about the same price

Goldstuck says when Netflix, Showmax, Amazon Prime Video, and Apple TV became available, Multichoice premium customers saw improved value for money by subscribing to the streaming channels for movies and series. In addition, Multichoice’s Showmax Pro option “includes most live sport you get on DStv premium at half the price.”

“The clever subscriber is going to take a combination of Showmax, Netflix, Amazon Prime Video, and Disney Plus at about the same price they would have paid for one DStv premium subscription,” Goldstuck says. “This is something Calvo must be aware of, and they have to prepare for a time when the premium subscriber base vanishes, but you can see they [Multichoice] are managing the transition skillfully.”

Mass appeal

Goldstuck also points out that, despite the shifting market dynamics, Multichoice retains a healthy dominant position in pay TV throughout the continent on the basis of rolling out low-cost services that have brought the mass market into its orbit.

“In South Africa, we will be focussing on initiatives to drive retention while in the rest of Africa our efforts will be aimed at reaching the all-important profitability milestone,” Mawela told analysts during the group’s results briefing.

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