Inflection Point Reached: Where does the Broadcast Market go Next?

Africa is a region where many satellite operators believe there are strong opportunities for growth, particularly in terms of the broadcast sector where pay-TV penetration levels are still low. Bubbling under the surface are some very interesting dynamics as the markets show signs of potential. Recently, Frost & Sullivan put out its “Digital Media — Pay TV and VOD in Africa” report, which gave a comprehensive update on the state of pay-TV markets across the region.

Deepti Dhinakaran, Information and Communication Technologies (ICT) research analyst at Frost & Sullivan, told Via Satellite about some of the report’s key findings. Dhinakaran says that despite MultiChoice’s DStv dominance, South Africa has the most developed pay-TV market, whereas triple-play services are more developed in Kenya; this was somewhat of a surprise to the research firm, she says.

Dhinakaran believes that despite stiff competition in the South African Video on Demand (VOD) market with key providers (for example, ShowMax and Netflix), an inability to differentiate offerings has resulted in market consolidation.

“Owing to slow internet download speeds and the high cost of access for video streaming, pay-TV and VOD services are still not mutually exclusive, but complementary in Africa,” she explains. “Partnerships between telecommunications providers, infrastructure providers, and VOD providers are helping subscribers to access content with zero-data costs while increasing traction for telecommunications providers. The IPTV services market remains virtually untapped in Africa, mainly because of under-developed fiber infrastructure and high data costs.”

OTT

Dhinakaran believes the Over-the-Top (OTT) market, particularly in South Africa, could be one to watch over the next year, especially given that industry titan Netflix recently launched into market. While Amazon Prime Video OTT service is yet to be launched, Dhinakaran believes that with the steady growth in mobile penetration and falling handset prices, we can expect a substantial increase in the percentage of OTT services consumed on mobile platforms during the next two years.

When looking at OTT, Vicky Myburgh, partner/director at PriceWaterhouseCoopers Africa, says there is strong growth potential in the VOD sector, but large international players just entering the market are lacking local content. As a result, TV market revenues will continue to be dominated by traditional pay-TV subscriptions and advertising. Furthermore, the broadband infrastructure needed for robust OTT services is simply not there yet.

“Broadband penetration was just 14 percent in South Africa in 2015 and is set to reach only 24 percent of households by 2020,” she says. “Significant investment in infrastructure will be required if online TV services are to gain significant uptake in the long term. In the medium term, premium TV packages and VOD services will be focused on the higher-income households of the largest cities.”

DTH

While the threat to Direct to Home (DTH) from OTT services such as Netflix is still in its infancy, satellite pay-TV still faces other forms of competition, notably from Digital Terrestrial Television (DTT). Myburgh says significant inroads have been made in many countries in Africa with the rollout of DTT, and as its bouquets bring additional choice at relatively low premiums, DTT may start winning some favor over DTH. “As consumers in Africa have been under pressure recently with their dispensable income, DTT bouquets might just bring the value they were looking for,” says Myburgh. “However, the environment is really challenging at the moment and I believe it will be some time before the investments made in DTT show an acceptable Return on Investment (ROI).”

Dhinakaran offers up a mixed opinion. She believes that while DTH will continue to remain the dominant pay-TV service, with more than 75 percent market share across Africa, its services are currently not affordable for the majority of the population. She adds that DTT’s market share is growing relatively faster due to its less expensive offerings, which will consequently result in an increase in terrestrial infrastructure investments.

“DTT services are expected to pose stiff competition to DTH over the next two to three years,” she says, echoing Myburgh’s sentiments. “While DTH services are dominant in the South African market, DTT dominates the Kenyan and Nigerian markets. DTH players such as MultiChoice and Wananchi should have positive growth trends, provided they correctly position themselves in the market, whilst also offering innovative ‘value for money’ service bundles with the right pricing and choice of content across TV and mobile platforms.”

The market is at an interesting inflection point; Dhinakaran points to a greater convergence across the VOD, pay-TV, IPTV and telecoms markets as an emerging trend, enabling providers to capture new revenue streams. She cites the examples of Ericsson offering pay-TV software services; pay-TV provider MultiChoice offering VOD services; and telecommunications service providers such as MTN and Safaricom securing pay-TV and IPTV service licenses respectively.

“Another major trend is that providers who have invested significantly in Fiber-to-the-Home (FTTH) network roll-out have emerged as triple-play service providers. This has enabled them to offer superior quality IPTV services that rely on fiber technology rather than satellite services. For example, Zuku in Kenya took advantage of its fiber infrastructure to offer innovative triple-play service packages that address multiple needs,” adds Dhinakaran”

Zuku

Usually, when you think of DTH in Africa, the first company that springs to mind is MultiChoice TV, the most established pay-TV provider in South Africa and other countries in the region. But other DTH alternatives have emerged in recent years. StarTimes, the Chinese company, has also invested heavily in DTH platforms. Another company that has launched satellite-based pay-TV services is The Wananchi Group through its Zuku TV brand. Jay Chudasama, CEO of Zuku TV, still believes the potential market for DTH is “massive.”

“Millions more households will be created from the population boom, and all of these households will become TV households. The DTH market is still very much in the growth phase, and this growth phase will continue at least for the next 10 years,” he says.

While OTT and DTT are emerging as serious threats to DTH in the region, Chudasama thinks satellite will remain dominant over the next decade. “Some of the studies that have been done in this part of the world show that more and more households will get connected to the electricity grid. Although the market is competitive, it is not getting saturated. Right now, you have swaths of Kenya, Uganda and Tanzania which are still not connected to electricity. When they do get connected up, they are potential customers as they can then have a TV set. Their next option is then a pay-TV connection. The pay-TV market continues to grow,” he adds.

Interestingly, Chudasama says with alternative energy suppliers growing rapidly across Africa, that Zuku will look to partner with them to provide a pay-TV solution for their customers who are getting solar energy.

Zuku’s product portfolio includes fiber optic home entertainment. It has a triple play of internet, telephony and TV, as well as pay-TV through satellite. Chudasama says both options fit in well with its strategy. “OTT/streaming technology works perfectly with our fiber triple-play product option. However, the demand for value for money pay-TV content will also continue to grow in this part of the world,” he says.

However, building a pay-TV business is far from easy for a player like Zuku TV, even if the market opportunity is “massive.” Chudasama believes the biggest challenge is to reduce the initial set up and installation cost to the customer.

“The initial installation price can sway the customer to decide which provider to connect with. We are also investing in new technology, which will remove the need for [Set Top Boxes] STBs in new TV sets. This technology will also support our partnership to deliver content to the energy (solar) companies,” he says.

In terms of satellite capacity, Chudasama admits the operator is “maxed out” on its transponders. He says that due to consumer demand for more choice and the need for localized content, the operator will acquire at least one more transponder in the next 12 months, and one or two more over the next three years.

Millennials

One of the big challenges facing any pay-TV operator is attracting the younger generation of user to pay to access content. In Africa, this is a particularly interesting challenge. Myburgh says with mobile remaining the most popular way of accessing the internet in South Africa, penetration is forecast to rise from 45 percent to 72 percent over the next few years. She says young people are propelling Entertainment and Media (E&M) growth.

“Today's youth are very comfortable with digital consumption of content and they are also used to staying connected for most of their day. They have the time and resources to consume entertainment and media content. They certainly do consume most of their content via mobile but, increasingly so, the content should be available on any device and format to reach young consumers,” she says. “Younger people consume more media than older people, are more open to adopting digital behaviors, and therefore more open to digital spending. In addition, many of the most youthful markets have rapidly growing middle classes whose discretionary spending power is on the rise — and E&M spending is usually discretionary. The opportunity for media companies is to understand how the youth spend on digital content and to be able to predict when and how they will pivot from, for instance, paying for downloads to streaming content and paying for a streaming service.”

“We still simulcast the live streams from eight of our SuperSport channels, but we now do additional live-streaming-only feeds as well,” Van Eeden says. “As an example we had seven additional live court feeds from the Australian Open Tennis, three additional live feeds from the U.S. Masters golf tournament and one additional live feed from the Open Championship Golf. This allowed viewers to select specific matches or feeds on their mobile app or PC that are not available on broadcast.”

Dhinakaran says the Millennial generation primarily uses mobile platforms to watch videos. She says it is more common in countries like Nigeria, due to falling handset and mobile data prices. “They find the mobile platform very convenient to watch content as they can download and view it offline later at any convenient time they want to,” she adds.

From an operator point of view, Chudasama says the consumer choices of accessing and consuming content continue to increase. “The advent of 4G technology and smart phones and tablets has further enhanced those options. We have a strong product development function and we continue to invest to delivering options to our subscribers, enabling them to view quality content of their choice, wherever and whenever,” he adds.

Gerdus van Eeden, group CTO of Naspers Ltd, the parent company of the MultiChoice Group and channels like SuperSport, one of the region’s leading sports channels, says as part of SuperSport’s strategy, it has introduced a number of eSports events which target the younger and mobile audience. The company delivers these events both on mobile apps and the web, as well as on broadcast.

This year SuperSport has had a focus on doing a number of additional live streamings of major sports events where it streams live content that is not broadcast.

Digital Migration

With demands for satellite capacity likely on the increase and low pay-TV penetration rates, the market is clearly on the cusp of change. Chudasama believes the key change has been “digital migration.” He believes this has initiated a different thought process and has allowed people to have a greater variety of channels than what they could access with only analog.

“I believe FTA is commanding the most popularity, but if you continue to focus on regional channels and content, you will be successful,” he says. “For example, Swahili is the most popular local language; it appeals to the masses here. From a regional perspective, it is very sensitive by a country-to-country perspective. What might be popular in Kenya may not be in Tanzania. We need to understand what content these local markets require. I think it will be localized content which will support the growth of businesses like ours.”

Myburgh, when looking at the market, points to the latest PwC research, saying that for the first time this year PwC saw a near-perfect correlation between countries whose average population is under the age of 35 years and the projected higher entertainment and media growth for these countries. She says PwC believes this is caused not only by the fact that younger audiences are incredibly comfortable with digital consumption but also by staying connected for most of their day and having the time and resources to consume entertainment and media content.

“On average E&M spending in the 10 youngest markets is growing three times as rapidly as in the 10 oldest markets. We see this trend in Africa with more than 60 percent of South-Africa’s population being below the age of 35, in Kenya and Nigeria it is 80 percent and we expect to see some of the fastest growth rates in entertainment and media spend in these countries,” Myburgh says. “The opportunity for media companies is to understand how the young spend on digital content, and to be able to predict, for example, when they will pivot from paying for music downloads to streaming music services.” VS