MultiChoice Group recently described the macroeconomic environment as the “most challenging” in its history.
Earlier this week, the JSE-listed pay-television broadcaster reported a 99% slump in interim profit for the six-months to 30 September 2024, describing the operating environment as “extremely hostile”.
From consumer distress in key markets to huge investments in relaunching Showmax, MultiChoice is a business under severe pressure. Its share price is only being kept aloft by a mandatory offer to its shareholders from France’s Groupe Canal+.
So, is the worst over for MultiChoice, or should investors brace for more bad news? TechCentral editor Duncan McLeod sat down with MultiChoice Group CEO Calvo Mawela to discuss the difficult position the broadcaster finds itself in, and whether investors can expect a turnaround anytime soon.
Duncan McLeod: Looking through the subscriber losses you reported in this period (down by 5% in South Africa and 15% in the rest of Africa), are DStv’s bouquets priced correctly given the current market conditions in the countries in which you operate. Does there need to be radical surgery to your bouquets or a reduction in pricing to encourage uptake?
Calvo Mawela: No, we don’t believe so. We have never seen so much going against us from a macro perspective on the African continent. We used to think it was the worst in the past years, but the last 18 months have been the worst ever. For the Nigerian naira to move from ₦460 to ₦1 700/US$ and fuel subsidies being cut across many of the markets in which we operate – which is the right thing for the governments to be doing – we are seeing people struggling to pay even for public transport to get from home to work. That’s the kind of environment we find ourselves in.
The pressures are real, and we understand our move will impact our ability to get new customers, and we are comfortable with that. We can’t keep on subsidising dollar-denominated costs and then go and recover the money in naira, which is continuing to deteriorate. We knew the numbers would come down and that there would be churn. But the numbers stack up, in our view. If you take out the subsidies during this time, then price in line with inflation, the numbers will help you offset the forex headwinds.
DM: In other words, you are going to ride out the storm. But when does this storm end?
CM: We think it’s at its worst. People are adjusting to the new norm. What we have seen, though, is that as much as people have left us, when there are big events, they tend to come back. We are going into the festive season now – we believe strongly that people will come back. After six or 12 months, people’s lives will adjust to the new norm. The worst is over and going forward we should see the end of the pressure we have seen in terms of subscriber numbers coming down. Unless of course everything depreciates even further during the coming cycle.
DM: We’ve seen how the mobile operators have changed their business models from serving contract customers to serving the mass market, where people buy airtime and data in small quantities when they can afford it. Is broadcasting going the same way, where people buy a piece of content when they want to watch it – for example, a big soccer match? Should MultiChoice move to more of a prepaid/pay-per-view model?
CM: On the linear side, it has been proven that this does not work. With Showmax, we now have weekly passes. That is a test to see how people respond. It will give us a sense of how they engage with us when we give them weekly passes on a new platform. But on the linear side, you are sitting with huge fixed costs, and so it’s harder to change the business model.
DM: You have said you see Showmax as the future of video entertainment in Africa, that this will become the predominant platform owned by MultiChoice. Does that mean you see it displacing linear, direct-to-home satellite – and if so, by when?
CM: No, we don’t think that is going to happen. If you look at the First World, with all the broadband everybody needs, there is a period where linear stagnates. But we think the two will be complementary.
DM: There’s a growing push by big telecommunications operators in South Africa, led by the Association of Comms & Technology, which represents the big operators, for the concept of “Fair Share”. The view is that content providers, so-called OTT players – which I presume would include Showmax – should pay the telecoms operators to carry their traffic. Do you have a view on this lobbying effort, and do you think the proponents of Fair Share have a point?
CM: No, it’s misplaced. They should encourage us to continue to provide content over what they do best, which is providing networks. The more content people consume, the more revenue you make as a as a telco. And there is always a way where you can structure these deals where everybody makes some form of contribution towards each other for us to be able to run successful businesses. Market forces are going to make a determination on how best we partner. We have good deals with MTN in South Africa and Nigeria and with Safaricom in Kenya, and we continue to do such deals. So, I think it’s misplaced. Let the market evolve on its own. The two are complementary, in my view, and we should allow the market to make the determination.
DM: You’ve spent billions of rand redeveloping the Showmax platform with Comcast’s NBCUniversal. How do you determine whether that money has been wisely spent. When do you see a return, and how long is it going to take?
CM: We have made commitment that within a five-year period we anticipate making $1-billion in revenue from Showmax – that is our target. There is no question about the quality of the new platform; it’s much better, people are enjoying it and they give us positive reviews on it, and everything works. Of course, when you spend this much money in the beginning of your investment, everybody will question whether you are able to get the returns. You need to really think hard about how you position this business for the disruption it is facing. Of course, people will have questions about that, but we think we are making the right calls.
DM: Given the pressures you’re under, are you confident your strategy still makes sense around not unbundling SuperSport?
CM: What we know is that very few people subscribe only to one service. Even on Showmax, despite us having added football, we see the biggest uptake is of both football and general entertainment. With Showmax, we are trialling a product with sport we know is the most popular and most followed – football is like gospel on the continent, and we’ll see how it plays itself out, and that will help us understand viewer habits and what the preferences of customers are. It’s still early days.
DM: How is Showmax subscriber uptake going since the platform’s relaunch. Is this tracking your expectations?
CM: There is still a lot of integration that we need to do on the payment side, because we have limited payment options available. We think it’s doing as well as we expected, but as soon as we ramp up the payments across many of the territories and go hard on marketing, that will be the test of whether the numbers we had in mind are going to be reached. But we are comfortable so far.
DM: What is the situation with your business in Nigeria currently. I know it’s been rough. Are there any signs of green shoots yet?
CM: Things have stabilised in terms of foreign exchange, and we are seeing some stability in the market. What we are focused on is making sure we retain customers and keep prices in line with inflation so the economics of the business stack up. We need to ensure it remains a positive contribution to our finances. So far, we think it’s playing out the way we want it to. If nothing changes, Nigeria will still be a business worth investing in. It contributes to our fixed costs. So, if it’s making a positive contribution towards our cost base, we believe very strongly, outside of something bad happening to exacerbate the problem, that we should continue to ride the wave in Nigeria.
DM: What is your take on communications minister Solly Malatsi’s decision to withdraw the controversial SABC Bill. Do you think it’s a positive move by the minister, and what needs to happen next?
CM: The minister has a predicament. There are people strongly opposed to the draft bill, and there are people who are sympathetic to the urgent need for intervention in the SABC financials for the company to be able to address some of the shortcomings it has. I take it he had discussions with the SABC and explained where he comes from, and hopefully they have agreed that he needed to pause before he can come back with something better. But as a private entity, it would be inappropriate for me to comment on whether it’s good or bad. That said, I have interacted with the minister. He comes from a good place and I’m sure he has good reasons for withdrawing the bill.
DM: This is all linked, of course, to the reworking of the Broadcasting Act and the Electronic Communications Act and the creation of a white paper on audio-visual content services. How do you see all this playing out in the coming years, and how urgent is it that the legislation governing the sector is overhauled?
CM: For us, it’s very urgent. We have been calling for the overhaul of this legislation for some time now, and we believe there are new developments that we can learn from the EU that has tried to level the playing field between OTTs and traditional broadcasters like ourselves. We think it’s long overdue. The sooner the minister can come to a position on how these things need to be put into one piece of legislation, the better for the industry to move forward. So, we hope it’s coming soon. – © 2024 NewsCentral Media
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