MultiChoice hoping for a Showmax miracle

MultiChoice plans to more than double its customer base in the next five years to reach 50 million subscribers, and it is banking on Showmax to deliver this growth.

In an interview with Daily Investor, MultiChoice CFO Tim Jacobs admitted that this was an “ambitious” plan for the company since it has taken decades to reach its current subscriber base.

Over the past 17 years, MultiChoice has increased its subscriber base from 2 million subscribers to 21 million.

These subscriber numbers include Dstv subscribers in South Africa and the rest of Africa, but exclude Showmax subscribers.

At the end of the 2023 financial year, MultiChoice reported a total subscriber base of 23.5 million users. Only six months later, it shrunk to below 21 million.

Despite the challenges, MultiChoice revealed that it aims to grow its combined Showmax and DStv subscriber base to 50 million users in five years.

Showmax is at the centre of this strategy. MultiChoice previously said it wants to generate $1 billion (R18.2 billion) in revenue through Showmax.

MultiChoice is ramping up its investment in the Showmax platform 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.

Former MultiChoice executive Yolisa Phahle said they have a trading profit breakeven target in full-year 2027.

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

These plans sound fantastic on paper. However, it will be very challenging for MultiChoice to reach its subscriber, revenue, and profit targets.

Daily Investor performed an analysis to estimate Showmax’s subscriber numbers based on MultiChoice’s latest results.

For the first half of the 2024 financial year, Showmax reported subscription revenue of around R500 million. It equates to R83.33 million per month.

Based on Showmax’s average subscription price, it can be estimated that Showmax currently has around 1 million subscribers.

This is very far away from the 25 million Showmax 2.0 subscribers the company aims for in the next five years.

To put its ambitions in perspective, Showmax was launched in August 2015 – eight years ago. It, therefore, grew by around 125,000 subscribers per year.

MultiChoice’s new plan is to increase the subscriber growth from 125,000 per year to 4.8 million per year through Showmax 2.0. It will, therefore, need to increase subscriber growth by over 3,700%.

The chart below illustrates the historic Showmax subscriber growth in blue and the planned Showmax 2.0 subscriber growth in red.

Showmax is a risky investment

For MultiChoice to succeed in its Showmax ambitions, everything the company envisaged around the boardroom table has to come to fruition.

It is easy to generate a J-curve projection in Excel to reach $1 billion in revenue in five years. However, achieving this growth and generating a profit are far more challenging.

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 of over $18 billion since 2020.

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

The challenge to make a streaming service profitable is clearly illustrated in Showmax’s financials, which MultiChoice released for the first time.

Showmax is grossly unprofitable and, in the past 12 months, recorded a net loss of R1.41 billion, translating to a net loss margin of 144%.

This situation is not expected to improve anytime soon as MultiChoice continues to burn cash to make Showmax 2.0 the top streaming service in Africa.

Despite the tough sector, Jacobs believes Showmax can become profitable by appealing to the African market and offering more than just general entertainment. 

MultiChoice will be banking on its offering of the English Premier League (EPL) and other sports and local and global entertainment to attract new subscribers.

“We think that can be a winning combination to effectively scale this business quicker than what we’ve seen anything else scale,” he said.

“We’re expecting to try and do this exponentially, and that’s why we went into the market and said we’re targeting 50 million customers in five years.”

“It’s taken us 40 years to get to 23 million households. Now, we want to go five years and get to 50 million. So, we’re quite ambitious.”