MultiChoice’s South African business is facing headwinds with increased competition, declining subscriber growth, and an assault on its exclusive sports rights.
To appreciate MultiChoice’s battle in South Africa, you have to go back to 1985 when Naspers secured a pay-TV licence to launch M-Net.
M-Net went live in October 1986, and despite a rocky start and losing R3.5 million per month for the first six months, the company pushed through and started to break even after two years.
By 1990, M-Net had surpassed half-a-million subscribers, and it realised there was a growing demand for more sport, movies, and general entertainment channels.
To respond to this need, MultiChoice was created, and in 1995, it launched South Africa’s first satellite TV subscription service, DStv.
Initial growth was slow, and MultiChoice only added 500 000 DStv and M-Net subscribers between 1996 and 2006.
Over this period, MultiChoice continued to invest in its pay-TV platform and launched its first PVR decoder in 2005. This investment paid off handsomely.
Growth started to accelerate, and between 2006 and 2016, MultiChoice grew its DStv subscriber base by 4.2 million users.
During most of this growth phase, M-Net and MultiChoice enjoyed a monopoly in the pay-TV market.
Even though competition arrived with the launch of TopTV in 2010, the under-funded operator had a poor content offering and could not put up much of a fight.
MultiChoice has grown used to operating in a monopolistic environment and had the freedom to increase prices yearly – which it did like clockwork.
Demand for DStv remained strong, especially with its excellent SuperSport offering and the SABC falling apart.
Over the last few years, however, things started to change. MultiChoice’s biggest money spinner, DStv Premium, started to lose subscribers in the 2016 financial year.
MultiChoice was hit by a perfect storm of increased uncapped broadband penetration and affordable streaming services arriving in South Africa.
It is no coincidence that Netflix launched in South Africa in January 2016 – the same year DStv Premium numbers started to decline.
At R126 per month, Netflix provided an attractive alternative to DStv for those with uncapped Internet.
Since the launch of Netflix, DStv Premium has declined every year. Over the last six years, MultiChoice lost hundreds of thousands of premium subscribers.
As if that was not enough, MultiChoice and SuperSport came under regulatory scrutiny for abuse of dominance.
MultiChoice defended its market position, arguing it operates in a highly competitive market amidst many over-the-top (OTT) streaming providers.
The company added that OTT providers like Netflix, YouTube, and Disney+ pose an existential competitive threat to its DStv offering.
Although MultiChoice most likely overplayed the risk OTT players pose to its DStv offerings, it is definitely feeling the competitive pressure.
In its latest results, MultiChoice revealed that year-on-year growth in South Africa was only 1%, the lowest in fifteen years.
It blamed rising unemployment levels, load-shedding and disruption caused by the July riots in Durban and Johannesburg impacted its business.
Its DStv Premium subscriber base was particularly hard hit, declining from 1.7 million in 2018 to 1.4 million in 2022.
Competition from streaming providers like Netflix and Disney+ played a big role.
FNB revealed that consumer spending on audio and video streaming services has increased by 70% from the period before Covid-19 to June 2022.
Raj Makanjee, CEO of FNB Retail, said their retail customers spend up to R190 million per month on audio and video streaming subscriptions.
MultiChoice SA’s revenue mix has changed significantly because high-end consumers ditch DStv premium for streaming alternatives.
In 2017, 52% of MultiChoice SA’s revenue came from premium subscribers. It has fallen to 37% in 2022.
Most of MultiChoice’s local subscriber growth now comes from the mass-market segment with cheaper products.
It means that the average revenue per user (ARPU) has declined significantly – from R346 in 2017 to R269 in 2022.
DStv’s biggest drawcard in South Africa – SuperSport – is also under pressure.
The SABC has lodged a Competition Commission complaint against SuperSport’s sub-licensing restrictions, which block the SABC from showing matches on satellite and online streaming services.
The SABC further complained about various sports associations’ role in helping SuperSport maintain its market dominance.
The ruling ANC has also compiled a new policy document which calls for an end to exclusive broadcasting rights on national sports events.
If enacted, the policy would prevent national sporting bodies for the Springboks, Proteas, and Bafana Bafana from selling broadcasting rights on an exclusive basis.
These factors do not bode well for MultiChoice South Africa, which is under pressure to grow subscribers and revenue.
MultiChoice fighting back
Despite the growing list of challenges MultiChoice faces in South Africa, it is upbeat about its prospects.
MultiChoice seems to realise that it cannot effectively compete against the likes of Netflix, Amazon, and Disney, and is now partnering with them.
MultiChoice CEO Calvo Mawela said their plan is to make DStv a one-stop shop where you pay one bill and get access to all streaming content, including Netflix, Amazon, Hulu, and YouTube.
The DStv Explora Ultra decoder allows third-party platforms to offer their services via DStv, and Netflix and Amazon Prime Video are already available on the device.
MultiChoice has recently added Disney+ to the mix following an agreement with Walt Disney Africa.
Mawela said adding OTT players to the DStv platform is a natural progression of pay-TV into the online space.
“We have always seen ourselves as a one-stop-shop where you can get content from all content producers in Africa and around the world,” said Mawela.
The company’s streaming service, Showmax, also showed strong growth.
Paying Showmax subscribers increased by 68% over the last year, while monthly online users increased by 28% overall.
A major driver of this segment has been the ongoing focus on localisation, including expanding local payment channels and enabling local billing.
Local content on Showmax fuelled growth. Titles like Devilsdorp, The Real Housewives, and The Wife grew interest in the streaming platform.
Mawela said the investment in local content and its super aggregation strategy would help MultiChoice to maintain its strong market position and fuel future growth.