Africa: The Land of Pay-TV Opportunity

Building a pay-TV business in Africa is far from easy, despite a greater demand for video content. The continent has a population of more than 1.1 billion people, and they want more video — this is the good news. Finding content propositions that strike a chord with households/users is the challenge, but one many are looking to embrace.

MultiChoice remains a standard bearer in the market. It has 8 million Direct-to-Home (DTH) subscribers and 2.2 Digital Terrestrial Television (DTT) subscribers across Africa. Gerdus Van Eeden, CEO, Broadcast Technology at MultiChoice, admits the operator is not growing heavily in terms of satellite capacity usage. He says the company is seeing moderate growth, and this is really coming from the launch of new High Definition (HD) channels. “But, it is not the growth we have seen over the last 10 to15 years. We now invest heavily in protection (back-up capacity) as well. That is why we essentially are getting Intelsat to put another satellite up. So, it is a combination of moderate need, as well as protection,” he says.

However, despite a growing DTT offering, Van Eeden expects satellite will continue to be important over the next decade, while admitting MultiChoice will adopt more of an Over-the-Top (OTT) approach going forward. “We have large outlying areas of geography, and yes, in the biggest metros, people might migrate to other means of delivery but we still have large market segments that will take a long time to be properly served by Internet,” he says. “That is why we now invest in more capacity, and back-up protection. The fact we still invest a lot in satellite is telling.”

MultiChoice uses Intelsat for Southern Africa and Eutelsat for the rest of sub-Saharan Africa. In the case of Intelsat, it actually expects a collocated satellite — IS-36 — to join IS-20 so it has in-orbit protection. Van Eeden says the operator is investing a lot in recovery options should the worst happen. This gives the pay-TV operator a lot more options in terms of capacity. In terms of Eutelsat 36, it has an in-orbit protection but E36A is quite close to end of life and will be replaced by E36C, which brings MultiChoice more capacity and better in-orbit protection. “Both those satellites launch in the next 18 months, so we are investing heavily in satellite capacity,” says Van Eeden.

In terms of trends in the market, Van Eeden says there has been a large appetite for Video on Demand (VOD) consumption in Africa. MultiChoice is finding ways to give people VOD services in Africa despite the lack of network infrastructure. “I am not saying ‘live’ is dead, but the take-up of VOD is strong. We always speak about the weak networks in Africa, but they are improving. For the people that have that quality Internet service, they are adopting online VOD. Our OTT product also offers live TV channels and VOD channels in one app. The take-up is good if a little limited. Mobile consumption is growing. But, I think that is a trend throughout the world,” he says.

Van Eeden admits that, with mobile and Internet penetration on the up, the market has the potential to change very quickly. He says with linear services being provided by DTT providers, the question will be how will pay-TV operators compete. “Potentially, there will be a proliferation of [Set Top Boxes] STBs. Secondly, DTT is free compared to a DTH service. It is going to be interesting to see who wins that linear war,” he says. “DTT could be a game changer and a threat to pay-TV. It also allows OTT to come into the market and take marketshare. We have a platform bubble in terms of VOD. There has to be significant consolidation in the market. I think then VOD will emerge as a significant threat to linear businesses.”

On Digital Media

MultiChoice has long held a dominant position in the market, but others such as the Wananchi Group and On Digital Media (ODM) have also been trying to build successful pay-TV businesses based on satellite. On Digital Media, the owners of the StarSat platform (formerly TopTV) tried to start a satellite pay-TV business but found the going tough. Two years ago, the pay-TV operator found itself in trouble and needed investment. This process eventually saw Startimes from China come onboard with the aim of building a much stronger pay-TV operation going forward. Startimes now has a strong presence across Africa.

Eddie Mbalo, director of strategy at ODM is optimistic for the platform’s future. “I think bringing in Startimes Group from China, which already operates in the rest of the continent around DTT, will assist in creating scale for ODM,” he says. “The problem it is the same price for content whether you broadcast to 100,000 people or one million people. So, we think Startimes is bringing scale. They are a technology company also.”

In terms of the capacity it uses, Mbalo says thanks to its relationship with Startimes, it has upgraded up to eight transponders. “The relationship with Startimes is also going to play a key role in taking DTT to some of the most rural parts of Africa. But, there will be a need for satellite. Satellite will have to play a role alongside other technologies,” he says.

Mbalo admits that, for a new player such as ODM, trying to compete against MultiChoice was/is a tough task, particularly when the operator started to target different market segments. “The problem in South Africa is you have a major player like dsTV (MultiChoice), which has had the support of the previous government. They have secured a lucrative space for themselves. But, for new players, an opportunity like this didn’t really exist. Therefore, it means whoever gets into this space, they need to have deep pockets. Of course the regulator could assist by ensuring that the dominant player does not behave in an un-competitive way. The license was issued to address a market failure, where people at the low end of the market were not getting access to pay-TV,” he says. “Therefore, the licenses were created to provide that opportunity. This meant that you needed to have a price structure that was affordable. What no-one anticipated was that with all the resources that they had, MultiChoice started to get into this market.”

Markets Outside of South Africa

Kenya is still somewhat nascent, but like many other emerging territories, growth is being driven by new players like Wananchi and Zuku. Subscription TV penetration was at only 11.9 percent in 2014, but new competition will see this rise to 18.2 percent by 2019.

— Vicky Myburgh, PwC

While South Africa remains a key target market for pay-TV in the region, attacking markets in sub-Saharan Africa and other markets across the region remains a priority. Interestingly, one such market in Africa is highlighted in PriceWaterhouseCoopers’ (PwC) “Global Entertainment and Media Outlook: 2015-2019” report, which analyses the states of media markets across the world. In this major report, PwC highlights five territories that will enjoy double-digit growth rates in terms of subscription-TV households by 2019: Greece, Saudi Arabia, Kenya, Indonesia, and Thailand. While Greece and Saudi Arabia are developed markets beginning from relatively low bases, it is the latter three countries that demonstrate the continued prestige attached to TV in developing markets.

“Kenya is still somewhat nascent, but like many other emerging territories, growth is being driven by new players like Wananchi and Zuku. Subscription TV penetration was at only 11.9 percent in 2014, but new competition will see this rise to 18.2 percent by 2019. Subscription TV household numbers in Indonesia are expected to grow rapidly over the next five years, although there will still remian plenty of room for growth beyond 2019,” Vicky Myburgh, owner at PwC, says.

Van Eeden highlights Nigeria, Kenya and Angola as the three biggest markets in terms of potential for MultiChoice. “Nigeria and Angola are both oil-based economies so they have had economic woes on several levels due to that. Talking long term, those are very big markets for us. The smaller markets are also not devoid in growth. We recently launched DTT in Mozambique, so we hope to see some good growth. With DTH, we have been serving sub-saharan Africa for many years now. So, the growth lies on the DTT level,” he says.

Mbalo believes that, outside of South Africa, a country like Nigeria offers the most potential for satellite pay-TV. He also believes Ghana has strong potential, and name checks Mozambique and Zimbabwe as other markets to look out for. But, Nigeria remains a major target for ODM. “Nigeria has the numbers; it has been opening up to outsiders. The economy is opening up. I would say Nigeria is the immediate target,” he says, adding that Startimes is already operating in Nigeria and rolling out DTT in more than 17 countries in the continent.

South Africa

In South Africa, Myburgh says the outlook for pay-TV remains bright, as incumbent subscription TV services have moved quickly and successfully to counter the potential impact of OTT and other disruptive influences. She says operators here have implemented attractive product and price initiatives, such as different packages at different price points, that meet changing consumer demands for the integration of stand-alone services into a consolidated user experience.

“The subscription business continues to build its subscriber base and increase its revenues. As the new middle class emerges, so does the opportunity for operators to sell subscription TV services, especially those that are adapted and improved to meet changing consumer expectations. Pay-TV subscription revenues are expected to grow at a CAGR of 3.7 percent, from R17.1 billion ($1.22 billion) in 2014 to reach R20.6 billion ($1.47 billion) in 2019,” she says.

Impact of OTT

OTT has come to Africa and will likely have a major impact on the market going forward. Myburgh admits OTT has been gaining ground in South Africa over the past year with a few launches, and talk of more to come. She admits broadband penetration and download speeds have acted as inhibitors, although both are slowly improving.

“Over the forecast period, the impact of OTT in South Africa is expected to be small but noticeable. By 2019, 21.3 percent of households will have fixed broadband access, with access spreading from the major urban areas into suburban and rural ones. This dynamic means that South Africa will be a market in which OTT content, broadcast television and TV advertising will all be flourishing as it marches on toward maturity,” she says. “With a growing middle-class audience willing and able to pay for TV content, TV and OTT/streaming are both growing at above average (global) levels in South Africa. OTT video services are generally seen as a complement to TV subscription services rather than a substitute.”

The Trials of Wabona

The market is opening up to new players and new business models. However, building a business in Africa is far from easy. Wabona, a company that aims to offer content to mobile and online customers, has had its share of struggles. Having a successful model in the online business has proved elusive. Wabona launched services in 2011, but in the middle of this year closed down its online video business. It is now going to try and concentrate on building a mobile business, but as yet, it is still to work out the business model.

The company has had funding issues and its future is far from certain. It hopes to relaunch its mobile business soon, once funding issues and its business model is straightened out. Simbarashe Mabasha, co-founder of Wabona, believes other platforms, such as mobile, can emerge in what is a very fragmented pay-TV market.

“I think platforms other than satellite will have to emerge. If you look at MultiChoice, and where they are spending a lot of their money, you see they are spending a lot of money on African content. They are spending money to attract lower middle classes and not just the premium subscribers. They are putting a lot of money into attracting the mass market,” he says. “However, in some areas of Africa, people are more comfortable with accessing content on-demand via a tablet or a smartphone. The mobile device is dominant. Satellite pay-TV services are under some pressure.”

If the company can get its business rebooted, it can target a number of markets where mobile penetration is on a strong upswing. “There is potential in markets like Ghana and Nigeria. In Kenya, the market is becoming much more competitive, as the government is laying down its own fiber. The addressable market via mobile I would say is around 5 million. The issues are broadband, smartphone penetration and price points,” Mabasha adds.

The big issue in any of these markets, however, is the price of data, which will need to come down if customers are going to access significant amounts of content on their mobile device. “Your mobile device is a multi-functional device, but all of this is powered by data. The cost of data situation is changing, but perhaps it is not changing fast enough. Telcos are still struggling to make a decision on whether they should be a pipe only. I think VOIP is making it very difficult for them to make money via voice. Can telcos become ‘smart pipes’ rather than ‘dumb pipes’? That is the key question. Once they make that decision, and they start to provide OTT services on their own pipe, things could change. An ad-supported service in Africa will make sense as a Freemium model with a subscription component. There is not enough ad revenue going toward digital media yet,” he says. VS