MultiChoice is betting its future on online streaming and video on demand services becoming its bread and butter, beyond its now declining satellite business, in a R3bn gamble.
Africa’s largest pay-TV operator is fighting a storm of headwinds that have battered the business. These range from a cost-of-living crisis that has seen households cut entertainment budgets, to those same inflationary pressures pushing up operating costs across its 50 markets and shifting consumer preferences for entertainment towards alternatives such as gaming and social media. All this while facing off deep-pocketed international streaming giants such as Netflix, which see Africa as their next frontier for growth.
MultiChoice is the subject of a takeover bid by French broadcaster Canal+.
Against this backdrop, which has seen the company losing more than a fifth of its subscribers in the past 18 months, the group sees investment in online streaming as the best way to ensure its future.
“We believe in the future of streaming on the continent and that’s why you are seeing this big investment into Showmax,” MultiChoice boss Calvo Mawela told Business Day.
“And we think that is the right strategy because we can see streaming is going to take off and we need to invest now for the future ... once everybody is ready to take up streaming on the continent.”
The group unveiled an updated version of Showmax, available in 44 countries, in January. The new platform is underpinned by technology from US giant NBCUniversal and was made available to new customers on January 23. Existing customers were migrated in February.
In September, MultiChoice and NBC said they had invested almost R3bn in Showmax since April, as they seek to counter growing competition in the sector.
“From a financial perspective, we believe the business is still on solid ground. We’ve got R10bn in available funds, and therefore it gives us a buffer for us to be able to make this kind of investment, but we are investing in our future,” said Mawela.
“If we are going to just stick to cost savings and not invest in our future, we’re going to find ourselves in a difficult position.”
In its earnings report for the six months to end-September, the group reported that Showmax delivered a 30% year-on-year increase in paying subscribers, or 50% year on year when excluding discontinued services, namely Showmax Pro and the Showmax diaspora offering.
The Showmax segment’s trading losses increased by just over three times year on year to R2.4bn on a gross basis before NBCUniversal’s 30% minority share of funding these losses, “impacted by a step change in general entertainment content costs, increased technology costs — notably the Peacock Africa localisation investment and partner integrations, and higher sales and marketing expenditure to support market and partnership launches.”
Cost-sensitive consumers
In addition, the group has been working to make its offering more attractive to cost-sensitive consumers, striking a deal with Capitec that allows its customers to access Showmax at half the price.
In addition to Showmax, MultiChoice is also investing in other new areas of business that it hopes will yield results in a digital economy.
“In some of the value-added services that we have put in, we have seen very good growth coming through. DStv Stream has grown by 71%, DStv Internet by 69%, insurance by 31% and Kingmakers also reported a healthy between 27% increase in its online monthly active users in Nigeria, with growth in Naira terms at 53%, while SuperSport Bet is also showing encouraging early signs of traction,” said Mawela.
“We are still on the right track, making the right investments and where we find headwinds, we are able to adjust the business according to what we are facing at the time.”
This comes as MultiChoice said that “unprecedented foreign exchange volatility” combined with macroeconomic challenges sent its annual profit, or adjusted earnings per share, nosediving from R1.5bn to R7m.
Subscriber numbers — measured on a 90-day active basis — fell 11% (or 1.8-million) to 19.3-million, from 21.7-million in the previous comparable period. In SA, the group has lost 400,000 customers from a year ago, with the biggest drop being in premium subscribers.
Revenue increased 4% year on year to R25.4bn on an organic basis, benefiting from price increases and growth of new products. However, on a reported basis, revenue fell 10%, affected by foreign exchange pressures on the rest of Africa business and a stronger rand against the dollar.
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