DStv in deep trouble

Traditional TV is on its way out, and MultiChoice has no coherent strategy to replace the billions it makes from DStv satellite subscriptions.

Bob Iger, executive chairman and former CEO of Walt Disney, said traditional TV in all its forms – broadcast, cable, and satellite – is marching to a distinct precipice.

He said streaming TV is gaining viewers and that Netflix, Disney+, Amazon Prime Video, and Apple TV+ will continue to grow.

The latest numbers from Leichtman Research Group, which tracks the broadcasting sector, back up Iger’s prediction that Traditional TV is dying.

Over the last year, top pay-TV providers in the United States recorded a net loss of 5,425,000 subscribers, significantly higher than 4,550,000 over the prior year.

The trend is accelerating, and Q2 2022 was the second consecutive quarter with over 1.9 million net pay-TV losses.

Wells Fargo analyst Steven Cahall’s painted an equally bleak picture of the pay-TV market, saying they are seeing a big increase in subscribers cutting the cord.

“From a peak of more than 100 million in 2015, pay TV subscriptions are now about 82.5 million,” Cahall said.

“We estimate penetration to be around 55% of TV households, down from a peak of 81%.”

MultiChoice’s troubles have already started

South Africa is far behind the United States in broadband penetration and streaming adoption, but MultiChoice is not immune to the global cord-cutting trend.

MultiChoice started to experience a decline in DStv Premium subscribers seven years ago. Between 2015 and 2018, DStv Premium subscriptions declined from 2.35 million to 1.92 million.

In 2018, MultiChoice changed its reporting standards, but the trend of high-end DStv subscribers dumping the service remained.

Between 2018 and 2022, DStv premium subscribers declined from 1.7 million to 1.4 million.

Its latest financial results also revealed a 6% decline in mid-market compact and commercial packages, which has not happened before.

It means the trend of people dumping their DStv subscriptions is now moving down the value chain, which should be of great concern to MultiChoice.

The cause of people increasingly cancelling their DStv service is twofold.

  • More South Africans are accessing fast, affordable, uncapped broadband, especially in less affluent areas.
  • More streaming products are available in South Africa, and households must pick between them based on their budgets.

The bad news for MultiChoice is that the situation will only worsen in years to come.

Vumatel, Openserve, and other fibre network operators are aggressively rolling out fibre across South Africa and are now targeting mid and low-income households.

Mobile network operators are also offering affordable uncapped 4G and 5G data packages to people who cannot get access to fibre.

Therefore, the number of South African households with broadband access that can support streaming is rapidly increasing.

These households can now replace their expensive DStv service with affordable streaming options, like Netflix, Disney+, and Apple TV+.

To compound MultiChoice’s problems, Amazon is expected to launch its marketplace in South Africa in February 2023, with Amazon’s Prime membership programme following shortly afterwards.

Amazon Prime includes Prime Video with unlimited access to a large catalogue of movies, TV series, and documentaries.

The tremendous benefits of Amazon Prime will encourage many South Africans to sign up for the service.

They may reconsider paying hundreds of rands for DStv when they get access to Prime Video as part of their Amazon Prime subscription.

MultiChoice’s lacklustre streaming strategy

MultiChoice is doing its best to convince investors that it has an excellent digital strategy to protect against increased competition from Netflix, Amazon Prime, and Disney+.

In its latest results, MultiChoice said growth in Connected Video users on the DStv app and Showmax service is outpacing the market.

Paying Showmax subscribers were up 68% year-on-year, while overall monthly online users increased by a pleasing 28% year-on-year.

The company is also punting its strategy as a one-stop shop where subscribers pay one bill and get access to all streaming content.

The Explora Ultra set-top box allows DStv customers to access third-party applications like Showmax, Netflix, and Amazon.

However, MultiChoice does not release numbers related to its streaming products, like how many ShowMax subscribers it has or revenue generated from streaming.

The reason is simple. It is so insignificant that investors will realise that its streaming strategy is currently not much more than a vanity project in case it needs it later.

It leaves MultiChoice in the same situation that bookstores, newspapers, and video stores faced when the Internet started to disrupt their industries.

They know they must adapt, but it is nearly impossible because they made most of their money – and big profits – from their traditional business models.

MultiChoice is faced with a situation where its premium and mid-market segments are dumping their DStv subscriptions in favour of streaming services.

In turn, the decline in high-end customers is driving down the average revenue per user (ARPU).

The ARPU of MultiChoice’s 90-day active subscribers in South Africa declined from R317 per month in March 2018 to R269 in March 2022. 

To stem the decline in revenue per user, MultiChoice continues to increase the price of its DStv packages. However, it makes DStv even less appealing compared to streaming alternatives.

MultiChoice is now in a situation where it must decide whether it wants to become a streaming provider or sweat its satellite pay-TV service assets as much as it can.

Its current strategy is to play it safe by dipping its toe into streaming without risking its own streaming products cannibalising its lucrative satellite revenue.

This strategy leads to a slow deterioration of the business, which is clearly visible in its latest financial results.

Canal+ buying MultiChoice

MultiChoice’s best option, and something the company may be hoping for, is that French media company Canal+ will make an offer to buy it.

Over the last three years, Canal+ increased its stake in MultiChoice to over 20% by buying shares on the open market.

MultiChoice CEO Calvo Mawela said they continue to have monthly interactions with Canal+ parent Vivendi.

According to Mawela, the French media company likes MultiChoice, its management, and its prospects.

He added that their relationship with Canal+ is growing, and they are working together on many products, including content co-productions and sub-licensing content.

The increased shareholding sparked speculation that Vivendi, through Canal+, could be looking to strike a deal with MultiChoice.

The biggest prize for Vivendi is most likely MultiChoice Africa, which has around 12.8 million subscribers.

Vivendi tried to acquire MultiChoice Africa in 2017, but Naspers, the parent company of MultiChoice at the time, has reportedly rejected the $1 billion offer.

MultiChoice would not comment on a new deal, only saying it kept an open mind about its relationship with Canal+ and Vivendi.