I’m writing this company review on Le Mans weekend, which is basically Woodstock for petrolheads.
After much research on SuperSport’s streaming packages, it became clear that the strategy is “soccer or everything” — the exact opposite of the on-demand content strategies that have been a feature of the millennial generation. It’s even worse for younger generations who can barely concentrate for more than five minutes of video, let alone pay for a bundle of content.
The result? I bought a streaming package directly from the intellectual property owners. FIA WEC (World Endurance Championship) TV was beamed directly into a laptop and cast to the TV, giving an HD viewing experience on a big screen with great commentary and some additional toys like team radio for each car in the race. It would have cost four times as much to have DStv for the month.
Obviously, if you wanted a lot more sport or DStv channels in general, that would be worth it. But based on a peer group of 30-somethings, there aren’t very many people with DStv subscriptions — and affordability isn’t the reason. They just don’t like paying a lot of money for stuff they don’t want. Ask around — almost everyone these days is a Netflix subscriber, so pricing is as much of an issue as the concept of bundles.
The world is moving under MultiChoice’s feet, even if the group benefits from operating in a region where broadband penetration is woefully low. With satellite dishes adorning informal dwellings across the country, MultiChoice still has a very large subscriber base and a business aimed at lower-income consumers that is focused on providing many hours of entertainment for a modest fee, delivered without needing internet.
This is difficult for the likes of Netflix to compete with, particularly due to the regional nature of the content. The economics simply aren’t there for Netflix to create South African content that resonates with lower-income consumers, as data is simply too expensive for streaming to be an option.
With the vast majority of the subscriber base unable to afford backup energy to run a TV and decoder, the screens are blank and advertisers aren’t interested in paying for nothing
This won’t be the case forever, something that MultiChoice has recognised through its important deal that combines Showmax with Peacock technology, which is part of the Comcast stable. If you’ve ever looked at an income statement for Comcast, Disney+ or even Netflix, you’ll know that streaming is anything but a gold mine for investors. The subscription price for streaming is far lower than for traditional television bundles and the impact on profitability is clear, with major providers introducing ad-supported tiers to try to improve the economics. In streaming, the winner at the moment is the consumer.
This doesn’t mean that streaming can be ignored by traditional TV networks. They run the risk of a Kodak moment, disappearing into obscurity as the world adopts the digital camera equivalent of television entertainment. It’s likely to be an expensive and painful journey for investors, where most media companies will need to eventually make a choice between creating content or distributing content. It’s probably not a realistic outcome that every media house will have its own streaming platform, even though the initial era of streaming has followed that strategy.
With this backdrop of an industry in flux, MultiChoice also has to contend with load-shedding. With the vast majority of the subscriber base unable to afford backup energy to run a TV and decoder, the screens are blank and advertisers aren’t interested in paying for nothing. Stage 6 is the worst, with the power off for four-hour stints during peak times.
Recent results from African Media Entertainment and eMedia Holdings have shown the shift from TV to radio advertising during load-shedding. Advertising revenue drops straight to the bottom line for MultiChoice, so this is bad news for margins unless this miraculous new run of electricity continues.
In the latest MultiChoice numbers, there are only a few important points worth noting. The first is lower average revenue per unit in South Africa, which can only be because of Premium subscribers cancelling. The second is South African margin contracting from 31% to 24%. The third is that Rest of Africa is the good news story, though this is where all the forex problems are.
There is no group dividend, as the cash is needed for the Showmax investment and Rest of Africa. Any dividend from MultiChoice South Africa to MultiChoice Group is shared with the Phuthuma Nathi structure, so there are other shareholders getting dividends long before group shareholders. IM does not see the bull case here (see Trade of the Month below).
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