MultiChoice needs an African Showmax miracle

MultiChoice will need its new Showmax 2.0 offering to succeed in South Africa and the rest of the continent, as the country’s streaming spend alone cannot make up for the company’s massive investment in its product.

Business development head of FNB Card Ashley Saffy told Kaya Biz that their retail customers’ spending on streaming services amounts to over R190 million a month.

Spending on streaming services jumped over 70% from the period before Covid-19 up to the end of June 2022. The R190 million spending has grown by 24% since 2022.

FNB retail customers are increasing their spending on Netflix, Apple, iTunes, Showmax, Youtube, Spotify, Disney+ and local companies like Mr Delivery.

While South Africans’ spending on streaming services has grown significantly post-pandemic, this number is insufficient to make up for MultiChoice’s significant investment in its Showmax 2.0 offering.

This is compounded by the company’s declining DStv customer base, which cannot subsidise MultiChoice’s significant investment in its streaming service.

MultiChoice launched Showmax in 2015 and has pumped billions into the streaming service since.

MultiChoice revealed its Showmax numbers for the first time in its interim financial statements for the period ended 30 September 2023 at the end of last year.

The company announced the launch of Showmax 2.0 in early 2023 and said it has partnered up with NBCUniversal to own the new Showmax in a 70/30 split.

This new Showmax group – Showmax Africa Holdings Limited – is 70% owned and controlled by MultiChoice and 30% by NBCUniversal.

The total price for the sale of 30% of the existing Showmax business was an amount of $29 million (R536 million).

The new platform was officially launched on Monday, 12 February 2024.

The pay-TV operator is pinning much of its future growth on Showmax, especially with the pressure on its satellite TV business.

It is upbeat about the prospects of its streaming platform, which it said will benefit from rising connectivity and smart device uptake in Africa.

MultiChoice said Showmax will enable it to double its customer base and deliver an additional $1 billion (R18 billion) in revenue in the medium term.

This is a very ambitious target, especially with stiff competition from global giants like Netflix, Amazon Prime Video, and Disney+.

However, the company believes its established role in and understanding of the African market will allow it to take on these global competitors.

According to MultiChoice’s latest results, Showmax showed strong subscriber growth. Its active subscriber base increased by 13% year-on-year, growing revenue by 46% to R555 million.

Despite the strong revenue growth, Showmax’s losses increased because of increased costs related to support for the existing business and investment in the new platform.

Trading losses widened by 186% from R279 million to R799 million.

MultiChoice has not revealed Showmax’s revenue and profits or losses in previous years.

However, the company recently informed shareholders that Showmax would be receiving a boost of over R3 billion from its two parent companies.

MultiChoice and Comcast subsidiary NBCUniversal will pump $177 million (R3.3 billion) into its new Showmax offering during its current financial year.

Since MutiChoice and NBCUniversal own the new Showmax in a 70/30 split, both owners provide funding in proportion to their shareholding to ensure their equity stakes remain at 70% and 30%, respectively.

MultiChoice and Comcast have not disclosed the initial sum NBCUniversal paid for its 30% stake in Showmax.

However, MultiChoice revealed at the start of February how much the companies will contribute to Showmax until its financial year-end on 31 March.

The company revealed that, prior to its announcement, MultiChoice and NBCUniversal provided, in the aggregate, $20 million (R374 million) in equity funding to Showmax, each in proportion to their respective shareholdings.

On 2 February 2024, the two parties provided $30 million (R561 million) in equity funding to Showmax, again proportionate to their respective shareholdings.

Additional equity funding to a maximum of $127 million (R2.38 billion) is also anticipated for the remainder of MultiChoice’s financial year ending 31 March 2024.

70% or up to $88.9 million (R1.6 billion) of this figure will be carried by MultiChoice.

This shows that MultiChoice needs the revenue from its Rest of Africa segment alongside its South African business to make its Showmax investment worthwhile.