Streaming services, including Netflix and Google’s YouTube, pose a significant threat to MultiChoice’s future growth potential, but they are by no means the only risks exercising the minds of the pay-television operator’s management team.
MultiChoice Group on Monday published a pre-listing statement ahead of its planned debut on the JSE next month. The document makes for interesting reading, especially because it sets out in detail a long list of risks the broadcaster believes could undermine its future performance.
Regulation, policy changes, and rival satellite and terrestrial pay-TV providers are all listed as big potential impediments to the group’s continued success.
“The group competes directly with other video entertainment services and licensees, including state-owned and private free‑to‑air broadcast networks and international over-the-top services for customers, programming, audience share and advertising revenue,” it said in the statement. “The group also competes with motion picture theatres, mobile network operators, gaming, and other entertainment and leisure activities for general leisure spending.”
Netflix and other streaming providers, including Amazon Prime Video, often charge a lower fee than the charges levied by MultiChoice, or give their content away for free (in the case of YouTube, for example). In the rest of Africa, outside South Africa, “various competitors have entered or plan to enter the video entertainment market”.
“The entry of additional competitors using any of the existing and/or new platforms, could impact and/or erode the group’s video entertainment subscriber base,” it said. It lists its main competitor as China’s StarTimes, which operates a satellite service in South Africa and satellite and terrestrial services in various African countries, including the major markets of Nigeria and Kenya.
‘Unpredictable environment’
“The group’s business environment is subject to rapid technological change and changes in consumer preferences and viewing habits, which could render the products and services it offers less attractive,” MultiChoice added.
“The rate of technological change and adoption of new technologies currently affecting the video entertainment industry is rapid. Trends, such as the convergence of television, the Internet, mobile telephones and other media, have created an unpredictable environment. New technologies or industry standards have the potential to replace or provide lower‑cost alternatives to products and services that are currently sold by the group.”
Consumer preferences could change as new services and products become available, including less expensive or more innovative alternatives. MultiChoice’s ability to remain competitive and develop successful products and services “depends on its ability to predict accurately and to anticipate changes in consumer demand”.
“The availability of affordable broadband, together with smart consumer devices in the rest of Africa in the longer term, will allow consumers greater choice and therefore can impact on the (satellite) and (terrestrial) subscription services provided by the group. The group may lose subscribers and revenue if it cannot acquire, produce or retain attractive programming.”
Regulatory changes could also have an adverse impact, it warned. “It may become more difficult to maintain exclusive rights to programming, particularly in the light of the fact that the exclusivity of content rights is under increased scrutiny by regulators throughout Africa.”
Other risks that MultiChoice has identified include:
- Reducing or removing the consumer subsidy of decoders and their installation. “Should a decision be taken to reduce or cancel the subsidy of decoders and installation, the group’s offerings may become less attractive to new subscribers and could result in a decrease in the number of new subscribers.”
- Material long-term commitments, which could impact revenue. These include content rights and satellite transponder lease agreements and related liabilities.
- Steady or declining subscriber levels, which could prevent further growth of the business. This could happen as a result of “down-trading” by subscribers to cheaper plans, competition from new entrants and from other sources competing for discretionary income, economic and other local difficulties, the loss of popular general entertainment and sport and programming content, and seasonality associated with the markets in which the group operates.
- Lower advertising revenue as viewers with personal video recorders increasingly choose not to view any advertising.
- Its intellectual property rights not being adequately protected under current laws in some jurisdictions, which could adversely affect its results and ability to grow the business.
- Piracy, where there is risk that its programming signals will be accessed by unauthorised users. “The delivery of subscription programming requires the use of conditional access technology to prevent unauthorised access to programming. The group mainly utilises conditional access technology supplied by its subsidiary, Irdeto… Conditional access technology cannot completely prevent piracy, and virtually all video entertainment markets are characterised by varying degrees of piracy that manifest themselves in different ways. In addition, security technology cannot completely prevent the illegal retransmission or sharing of a television signal once it has been decrypted, although it can help trace it and identify its source.”
- A Competition Commission investigation — the result of a complaint from rival On Digital Media into alleged anticompetitive behaviour by MultiChoice South Africa — which could result in adverse regulatory action, including administrative penalties and negative publicity.
- An inquiry by communications regulator Icasa into the subscription broadcasting market, which could have a negative outcome for MultiChoice. The outcome of the inquiry is “uncertain and could have a material adverse impact on the group and its business”. Icasa is also reviewing sports broadcasting regulations, and should it decided that the number of listed national sporting events that must be broadcast by free-to-air broadcasters be expanded, this could also have an adverse impact, too. Also, if Icasa amends “must-carry” regulations, MultiChoice could be forced to pay for the public broadcaster’s channels it carries on DStv. It currently carries the SABC channels for free. — © 2019 NewsCentral Media
