Pay-TV vs streaming: MultiChoice fends off rivals
MultiChoice has drawn labour’s ire over a jobs cull. But investors are backing the company as it fends off competition
The climb in MultiChoice shares — up 43% since hitting a post-listing low of R93.33 — belies an increasingly uncertain future for the pay-TV operator in both its home market and elsewhere in Africa.
For a start, MultiChoice is going ahead with 2,194 job cuts. Ostensibly, the retrenchments follow a shift in consumers using its digital self-service channels, as opposed to its call and walk-in centres.
But the bigger issue is whether MultiChoice will be able to fend off the threat posed by streaming services such as Netflix.
CEO Calvo Mawela seems to think it can.
"We must act decisively to align with the change in customer behaviour and competition from OTT (over-the-top) services because if we don’t reposition now, we run the risk of being completely misaligned and we put everyone’s jobs at risk," he says.
Ndzalo Mpangana, analyst at iAfrikan Digital, says the DStv operator is preparing for a time when its satellite business may no longer be its cash cow.
He hopes that savings in labour costs will be used to buy more content and secure rights for the company’s various platforms as it tries to grow its user base.
Michael Treherne, portfolio manager at Vestact Asset Management, says one of the major risks for MultiChoice is people replacing DStv with the likes of Netflix or Showmax. Despite MultiChoice owning Showmax, there’s potential that people may see it as a more affordable alternative.
The problem is that those switching to OTT media services tend to be DStv’s premium subscribers. With the average price for an unlimited home fibre connection at about R600, consumers can sign onto Netflix for R99, and to Amazon Prime Video for R84: against a DStv Premium subscription of R900.
For now, MultiChoice is still adding viewers: in its financial results, released last month, the operator’s subscriber base grew 12% to 15.1-million customers. That helped drive a 6% rise in revenue to R50.1bn and a 10% increase in core headline earnings, to R1.8bn.
But dig into the detail and the picture changes somewhat: DStv’s premium subscribers fell 7% in SA, but gained 16% in the rest of Africa. That rise was driven mainly by last year’s Fifa Football World Cup.
Besides sport, MultiChoice sees localised content in Africa as a key to its prospects.
"In the past financial year, we have increased our local content spend by 2%, which takes it to 40% of the general entertainment spend," says Mawela. MultiChoice wants that to hit 45% by 2022.
Africa’s appetite for pay-TV is MultiChoice’s gain, but there are also problems.
Michael Porter, a trader at Unum Capital, warns that MultiChoice carries considerable currency risk, operating as it does across 50 countries.
With international content making up a significant part of DStv’s programming, a lot of its payments are in US dollars. He says this makes MultiChoice vulnerable to rand volatility.
When the rand weakens, MultiChoice’s liabilities on foreign debt tend to rise. The company said rand depreciation from a closing rate of R11.84 in 2018 to R14.50 in 2019 had negatively affected its US dollar transponder lease liability.
For now, the market has seemingly shrugged off currency and competition threats alike.
Treherne argues that MultiChoice is still good as a five-to 10-year buy.
"There’s a solid business model there, they’re still making good money and the expansion in the rest of Africa is quite exciting.".
Competition from other pay-TV operators also has a long way to go to overcome the company’s 20-year head start.
Econet-owned Kwese TV mounted a good fight in more than 12 countries but couldn’t catch up, abandoning its model for a free-to-air approach at the end of 2018.
Satellite TV works well elsewhere in Africa because internet infrastructure is not as developed as in SA, says Porter.
And the streaming market itself is becoming increasingly fragmented. Soon, consumers will have to have an account with Showmax, Netflix, HBO Now, Hulu, Disney and new play Viu to have access to their desired content, Mpangana says.
DStv’s advantage over the years has been having all that content on one platform.