DStv owner in serious trouble

MultiChoice is facing an uncertain future with declining broadcast numbers, and its strategy around new revenue streams is far from being a sure thing.

Market researcher Nielsen has revealed that the time people spend watching cable and broadcast channels has fallen to less than half of all TV viewing.

The market research further showed that streaming hit a new high, clearly illustrating the changing use patterns.

Broadcast fell to 20% of all viewing in July. Cable channels came in at 29.6%, and streaming services led by YouTube, Netflix, and Hulu accounted for 38.7%.

The long-term trend spells more gains for streaming services as consumers increasingly cancel their cable TV subscriptions in favour of on-demand entertainment choices.

Netflix co-CEO Reed Hastings said the trend was so significant that people could expect the end of linear TV over the next five to ten years.

MultiChoice’s DStv service is not immune to these challenges and has seen significant declines in its premium subscriber base for years.

Its latest results revealed that South Africans continue to dump DStv Premium and Compact Plus packages in favour of more affordable services.

DStv Premium subscriptions, which include Premium and Compact Plus packages, declined by 6% over the last year.

Mid-market subscriptions, which include Compact and Commercial packages, declined by 3% year-on-year.

The impact is seen in DStv’s average revenue per user (ARPU), which declined from R269 to R256 over the last year.

MultiChoice felt this impact on its top and bottom line. Its South African revenue declined 2% to R35 billion due to a 3% decline in subscription revenues.

Share of viewing time. Source: Nielsen

MultiChoice’s management is well aware of these challenges and has launched a few initiatives to diversify its revenue streams.

These include selling Internet packages, pumping billions into its Showmax streaming service, and acquiring a large stake in sports betting service KingMakers.

However, none of these new revenue streams are guaranteed to produce big profits. In fact, it can be challenging to make them work.

Let’s take sports betting as an example. MultiChoice has already lost a tremendous amount of money after investing nearly R6 billion in KingMakers, formerly known as BetKing.

Between 2020 and 2021, MultiChoice bought a 49% stake in KingMakers in multiple transactions worth $393.5 million – equivalent to around R5.9 billion.

KingMakers did not live up to its promise. It managed to increase its revenue, but the costs associated with this growth were far higher than anticipated.

As revenue increased, the company’s profits have done the opposite. Since the MultiChoice acquisition, KingMakers’ losses have grown to a record high.

In the last financial year, KingMakers recorded a loss after tax of $28 million (R500 million).

Its expansion plans also did not work as expected, and KingMakers exited operations in Kenya and Ethiopia.

MultiChoice announced in its latest results that an increase in the discount rates in Nigeria prompted a R2 billion write-down in the value of KingMakers.

MultiChoice said sports betting creates a natural extension to its video entertainment platform to enhance its product set further.

“The global sports betting market is experiencing a growth surge. Africa comprises only 2% of global sports betting revenue and is poised for significant momentum as it plays catch-up,” it said.

It sounds great on paper, but making the business work is easier said than done.

Fox, for example, is winding down its Fox Bet online wagering business. Some smaller sports betting apps have also called it quits, unable to survive in an expensive, competitive landscape.

The reason is that it is a small-margin business. The money wagered with sports betting apps can be eye-watering, but that does not tell the whole story.

Sportsbooks return much of that money to winning customers. The percentage companies keep, known as the “hold”, is usually less than 10%.

KingMakers’ bigger losses despite increased revenue show the challenging business model behind sports betting.

Considering the migration from linear broadcast pay-TV products to streaming services, it looks logical for MultiChoice to make Showmax its next focus area.

MultiChoice executive Yolisa Phahle said Africa is the final frontier for subscription video-on-demand (SVOD) growth which is why many international players are targeting the continent.

Phahle is confident that Showmax can become the leading streaming service in Africa, especially following its partnership with Comcast.

MultiChoice expects a step-change in customer numbers by leveraging this partnership and launching new products and price offerings.

MultiChoice is ramping up its investment in Showmax and local content to facilitate this growth. It wants to create ten times more local content within ten years.

MultiChoice expects Showmax to have the same 3 to 5-year J-curve as its global peers in the streaming industry.

“We are aiming to generate revenue of more than $1 billion after five years, with a trading profit breakeven target in full-year 2027,” she said.

“We are targeting EBITDA margins of 25% and free cash flow margins of around 20% at scale.”

However, making a few J-curve projections in Excel, which leads to $1 billion in revenue, is easy. Successfully executing a profitable streaming strategy is more difficult.

For example, CNN+, the streaming service promoted as one of the most significant developments in the history of CNN, was shut down one month after launch because of poor performance.

Even large streaming providers like Disney+, Warner Bros. Discovery and HBO Max struggle to make money.

In March, The Media Leader reported that major streaming services from Disney, NBCUniversal, Paramount, and Warner Bros had reported losses in excess of $18 billion since 2020.

This shows that streaming is a complex business for almost every entertainment company and is difficult to make profitable.

MultiChoice revealed that Showmax lost R1.2 billion in the last financial year but would not disclose all historical losses.

MultiChoice CFO Tim Jacobs told analysts they would not disclose Showmax’s historical losses and has no plans to do so in future.

However, the international examples show that MultiChoice will find it challenging to achieve its EBITDA target of 25% and free cash flow margins of around 20%.


Considering these challenges, it is unsurprising that JPMorgan downgraded MultiChoice from neutral to underweight in July with a price target of R80 per share.

An analyst note revealed that the Nigerian naira weakness negatively affected JPMorgan’s revenue outlook for the broadcaster.

Other challenges highlighted include the significant investment in Showmax and the harmful effects of load-shedding on MultiChoice’s South African operations.

The company admitted that its South African consumer-facing business environment faced severe challenges during the last financial year.

Higher interest rates, elevated inflation, high levels of unemployment, and load-shedding put pressure on people’s finances.

These factors negatively impacted the South African pay-TV subscriber base and activity levels, with a noticeable increase in churn when load-shedding reaches stage 4 and above.

MultiChoice warned investors that sustained high levels of load-shedding significantly impacted the activity levels of the DStv customer base.

Based on these challenges, JPMorgan adjusted its revenue outlook for MultiChoice and said it expects trading losses in 2024 and 2025.

It adjusted its MultiChoice price target by 38% to R80 per share.

The MultiChoice share price plummeted on the downgrade and is now trading at its lowest level since the 2020 pandemic.

MultiChoice share price in 2023