The battle for eyeballs pits a David against a Goliath, with eMedia — a diversified free-to-air television broadcasting group — being dwarfed by the giant subscription video entertainment business MultiChoice (which also features in more detail in this month’s company review segment).
MultiChoice, which played a key role in building Naspers into the technology giant we know today, holds a market value of more than R40bn. eMedia, which was started from scratch in the late 1990s by investment company Hosken Consolidated Investments (HCI), has a market value of just R1.65bn.
MultiChoice had just reported results at the time of writing. While the R2.9bn loss will raise eyebrows, IM would be more worried about the group shedding its valuable premium-content subscribers. This trend is likely to continue as South Africans feel the increasing pinch from higher interest rates, high (food) inflation and elevated fuel costs. There are a good number of cheaper viewing alternatives (Netflix, Amazon Prime and so forth), not to mention a willingness by viewers to seek out “free” content in more dubious corners of the internet.
The weaker rand will no doubt hike the cost of securing popular offshore content — especially for MultiChoice’s important Showmax thrust — and international sports broadcasting rights.
MultiChoice’s decision to skip its dividend in the year to end-March speaks volumes about its shorter-term prospects.
eMedia comprises the well-established e.tv business, news channel eNCA, satellite television bouquet OpenView and — most recently — on-demand video streaming service eVOD. It’s a company that has been largely ignored by investors, though that might have more to do with a lack of share liquidity than operational attributes.
For the most part, eMedia still relies mainly on advertising revenues, with the pay-per-view eVOD initiative barely a year old.
The most impressive aspect of eMedia’s results is the clear market outperformance in terms of advertising revenue
The 2023 financial year (to end-March) was a tough trading period. But eMedia managed to match 2022’s earnings before interest, tax, depreciation and amortisation of R667m, and net profit of R381m was not too disappointing considering that the 2022 figure of R419m included a deferred tax asset of R16m. The latest net profit figure also included a marked R20m jump in marketing spend to “ensure consistent audience and revenue share”. Then there is also the matter of 282 days of load-shedding — which has a direct impact on viewing — to consider.
Regarding load-shedding, the group’s directors note that the available revenue for television was affected so severely that it resulted in a drop of almost R500m in advertising revenue for the industry.
The most impressive aspect of eMedia’s results is the clear market outperformance in terms of advertising revenue. CEO Khalik Sherrif says the strong showing in advertising revenues can be attributed to eMedia maintaining its prime-time audience market share at 34.5% in March 2023, from 34.1% in March 2022.
Sherrif says further analysis of the group’s market share will reveal increases during both “shoulder” (off-peak) and prime-time viewing. These shares ended at 31.8% and 34.5% respectively — which effectively makes eMedia the biggest broadcaster in audience share in prime time, and second to MultiChoice’s DStv in shoulder time, in South Africa.
OpenView is gaining more traction, with niche channels like eExtra, eMovies Extra and eReality now ranking in the top 15 of all satellite channels available in South Africa. Sherrif indicates that a few more channels will be launched on the platform in the new fiscal year.
OpenView’s set-top box activations for the year topped 513,800, which brings the total estate of activated set-top boxes to just under 3.2-million. It might be worth watching how technological advances drive OpenView’s business, with the launch of a smarter set-top box with memory facilities and Wi-Fi capability. IM has to wonder whether there might not be a tie-up with fibreoptic provider Vumatel, whose main shareholder, Remgro, is also a major shareholder in eMedia.
The group’s eNCA news channel remains incredibly popular and has (significantly) secured another five-year agreement to be carried by MultiChoice. Of course, this does mean the channel remains exclusive to MultiChoice.
On balance, broadcast entertainment might not be the best place to be flinging hard-earned capital at, with load-shedding by no means resolved and the economy looking brittle. MultiChoice is probably being prudent in investing in its growing African footprint and honing its Showmax offering. Such endeavours should pay off over the longer term, though the shorter-term picture might not be that compelling (even in a Rugby World Cup year that should be a boon for SuperSport).
eMedia, on the other hand, is plain cheap. The group’s strong cash flows (R452m, or more than 100c a share) should guarantee a decent dividend flow — especially with the likelihood of acquisitions and share buybacks very low.
With a dividend yield of 11%, an earnings multiple of less than 7 and a NAV of 615c a share, there is a pretty compelling picture at eMedia. The X factor, of course, is whether parent company HCI and the other major investor, Remgro, will prefer to take eMedia private.
There is a distinct lack of liquidity in both classes of share (ordinary and N shares), but the major shareholders would certainly need to dangle a fat carrot in front of minority shareholders.
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