Will MultiChoice’s pricing strategy save it from the disruptors?
DStv has raised the cost of its subscription by modest amounts. But will that shield it from the havoc wreaked by Netflix?
Will MultiChoice’s pricing strategy be enough to save it from the disruptors banging at the gates? International online streaming giants Netflix and, to a lesser extent, Amazon Prime have been breathing down DStv’s neck.
In February, Africa’s largest pay-TV operator — which left the Naspers nest last year — announced what it calls "minimal" price adjustments for 2020 for DStv subscribers (after a price freeze in 2019).
The cost of its high-end Premium package has increased from R809 to R819, a mere 1.24% change. On the low end, DStv Access cost R105 last year and is just R5 more this year. The most affordable package, DStv EasyView, remains R29.
It’s no secret DStv, which has more than 8-million customers in SA, has been haemorrhaging lucrative Premium subscribers in favour of unlimited internet data plans and online streaming subscriptions.
Premium subscriber numbers have been declining since 2015. MultiChoice’s financial results for the half-year to September show it lost 3% in that time.
Its Premium service accounts for 19% of DStv subscribers, down from 21% over the same period last year. And average revenue per user has dipped from R308 to R292 as more users switch to cheaper packages.
For about the same value as one Premium subscription, a customer can choose to have unlimited fibre internet access for R600, subscribe to Netflix or DStv’s own streaming service, Showmax, for as little as R99 a month and still have change left over to try out Disney’s new streaming service, Disney Plus.
The paltry DStv price increase is probably just part of MultiChoice’s strategy to hold onto the subscribers it hasn’t already lost.
Zukisa Pityana, an equities analyst at Old Mutual, says investors are paying close attention to how MultiChoice prices its products. The earnings and cash generation of this business "are at risk".
He says MultiChoice is transitioning from a reliance on Premium bouquet margins to appeal to a mass market. DStv’s Premium offering will continue to struggle, he adds, as more streaming platforms come online.
"Its pricing strategy has been necessary to maintain Premium subscribers for as long as possible," he says. But once its targeted shift to lower-income users is complete, it is far more likely to apply inflation-linked annual increases. "But oOnce its shift to lower-income usersthe transition is complete, inflationary increases will becomewould be sustainable for the mass market."," he says.
Mass-market subscribers increased by 7% for the year to September, which helped push the number of DStv subscribers in SA from 7.6-million to 8.2-million.
But MultiChoice tells the FM its pricing strategy is intended to soften the blow for cash-strapped consumers.
Joe Heshu, group executive for corporate affairs, says: "We have made every effort to absorb costs in order to accommodate the pressure that the SA consumer finds itself under. We believe that over time as the economy improves, we will see people moving up into higher-tier packages, where there is even more value to be found."
Heshu says MultiChoice’s pricing is informed by factors including the cost of content, the rand-dollar exchange rate, infrastructure costs, labour costs and general macroeconomic conditions.
In contrast to DStv’s defensive pricing is Netflix’s confidence: the streaming giant increased prices across its packages by between 13% and 18% in 2019. That trend continued this year, with US prices from January having risen between 9% and 17%.
With greater exposure to streaming services, viewers are starting to recognise other benefits. Unlike entertainment services like YouTube or Spotify — where users upgrade to a paid subscription to avoid watching advertising — DStv has been "double-dipping" for years. Users pay for a subscription to the service but are still bombarded with adverts.
So far, MultiChoice has seen growth in the mass market mostly from countries outside SA. In fact, it now has more subscribers outside SA, close to 11-million, than inside. MultiChoice credits much of this growth to local content produced for each area or country.
But it may soon be facing even more competition from Netflix, which has started investing in local content for Africa. Last month it unveiled its first original series for the SA market, Queen Sono, starring local actress Pearl Thusi. Other series are due to be released by the end of the year in Nigeria, Kenya and Zambia.
MultiChoice’s ability to invest in content production dwarfs local competitors like the SABC or e.tv. Netflix is said to be spending more than $15bn on original programming around the world in 2020.
Dorothy Ghettuba, who heads African Originals at Netflix, says getting the attention of the streaming giant to pitch an idea for a series or sell an existing show is "as simple as sending an e-mail."
Netflix is also toying with changing its pricing model for African users. Netflix chief content officer Ted Sarandos says the company’s pricing has tended to be "one size fits all" across the world but this is likely to change as it get to know more localised markets.
Sarandos says Netflix may also consider a mobile-only subscription for the SA market, given the high penetration of smartphones and tablets in this country. It already has such packages in Latin America and India.
MultiChoice is already on to this trend. Last year Showmax launched a mobile-only package that costs half the standard rate.
To compound DStv’s problems, the English Premier League wants to build its own streaming service for matches and games. The football league will sell matches on a "Netflix-style channel" directly to soccer-loving customers, possibly doing away with the middleman approach where broadcasters buy rights to air the games.
In SA, the DStv SuperSport offering’s catalogue of sporting events and matches, particularly soccer, has been a big drawcard.