Is Video Killing the DTH Star?

What Africa boasts in nature and wildlife, it seems to lack in infrastructure. Yet this colossal void doesn’t deter demand for data and video; like anywhere else in this world, people expect access seemingly all the time and everywhere. As such, the continent has long been targeted by satellite operators for budding opportunities in video. This is even more so when the continent’s emerging middle classes are factored in. Largely untamed and untapped, Africa has long represented a wealth of opportunities.

Beyond satellite, such allure has done well to attract telco players, who have had a hand in achieving strong mobile penetration. So mobile-orientated the continent is, the GSM Association sees cell phone subscribers tipping 500 million by 2020. According to the association’s Mobile Economy: Sub-Saharan Africa 2017 report, there were 420 million mobile users at the end of 2016, a figure that represents 40 percent of the population. This is expected to grow to 535 million by the end of the decade.

With such strong mobile penetration, a couple questions are begging. The first is: Has Direct-to-Home (DTH) TV now missed its golden opportunity in Africa? The next is: How are people accessing content across the continent? According to PwC South Africa Entertainment and Media Leader Vicky Myburgh, the broadcast market is well contested, and with increased competition from online video platforms and Over-the-Top (OTT) providers, consumers have never had so much choice in what content they consume and when they choose to view it – across a range of devices.

“Even when focused on main TV set viewing, smart TVs and smart streaming boxes have driven audiences away from linear broadcasts. Consumers are now watching more video content than ever before,” says Myburgh. “As people continue to change the way they access content across increasingly sophisticated devices, more robust data is required to build a deeper understanding of consumer habits.”

Pay-TV on Point

What is well understood is that within the African broadcast landscape, Nigeria and South Africa are prominent. And within both of these countries, pay-TV holds the lion’s share of the market. In Nigeria, pay-TV has exhibited extremely high growth in recent years, says Myburgh, adding that offering low-cost entry-level packages, as offered by both StarTimes and MultiChoice, have proven successful in enticing new households into the market.

“By 2017, some 6.1 million households had taken subscription TV services – a pay-TV penetration of 32.4 percent,”says Myburgh. “The country’s vast population will provide strong long-term opportunities for operators if high levels of economic development can be sustained. Subscription revenues dominate the TV market, taking nearly three-quarters of total revenue at $608 million in 2017. This is set to increase at an 8.9 percent Compound Annual Growth Rate (CAGR) to reach $930 million in 2022.”

The majority of pay-TV households in Nigeria take satellite or pay-Digital Terrestrial Television (DTT) services primarily from MultiChoice and StarTimes. Pay-DTT has seen its lead over satellite grow rapidly in recent years, with 77.6 percent of pay-TV subscribers taking DTT services in 2017. Pay-DTT is set to grow further at a 2.6 percent CAGR to reach 5.3 million households in 2022.

“Satellite has struggled to maintain growth rates in Nigeria and will decline at a negative 1.4 percent CAGR over the forecast period, leaving just under 1.3 million households in 2022,” says Myburgh.

Satellite in South Africa, however, is proving more resilient. After a flat year in 2016, the number of households subscribing to pay-TV in South Africa grew by 5.7 percent to reach 6.1 million households, largely dominated by satellite services from Naspers’ MultiChoice. Although further expansion will be vulnerable to the wider macroeconomic environment, a growing middle class means there is still significant potential for pay-TV in South Africa, notes Myburgh.

“Poor broadband infrastructure also gives satellite an advantage over the OTT sector in terms of coverage. Pay-TV households will reach a new peak of 7.6 million in 2022, after growth at a 4.5 percent CAGR, while pay-TV revenue will grow even faster at a 5 percent CAGR to reach $1.9 billion (ZAR28.1 billion), up from $1.5 billion (ZAR22.1 billion) in 2017,” she says.

Kenya also features on the lineup of Africa’s broadcast stars, albeit burning less brightly than Nigeria and the South African giant. With Internet video struggling in Kenya, the starlet remains a competitively robust physical home video market. The purchase and rental of DVDs and Blu-rays is declining substantially on a global scale, says Myburgh, yet in Kenya, they still provide access to content for many households. The segment was worth $26 million in 2017 compared with just $2.3 million for internet video, and it is set to contract only at a negative 1 percent CAGR to $25 million in 2022.

Internet video’s struggle in Kenya is the result of extremely low broadband penetration of 2 percent. Even with investment in infrastructure, broadband penetration is only expected to reach 3 percent of households by 2022. In March 2017, Facebook tried to improve the country’s broadband coverage by launching a low-cost wireless internet service called Express Wi-Fi in partnership with local internet service provider, Surf.

“The deal saw 600 hotspots deployed across the country by August 2017. There is likely to be more of a market for mobile viewing, although this will require affordable data plans from mobile operators,” notes Myburgh.

Pay-TV vs OTT

With many pay-TV providers launching OTT initiatives around the world, OTT video is becoming increasingly core to service providers’ product portfolios, notes Myburgh. The blurring of the line that initially separated Pay-TV and OTT as competitors is partly due to consumer demand, as operators not offering access to the main Subscription Video on Demand (SVOD) platforms risk the churn of customers to other pay-TV providers who do include access. The rise of OTT video has led to a proliferation of routes to audience. Companies are finding themselves in a bidding war for premium content rights and production houses, as original programing gains importance.

If pay-TV dominates and has to have OTT at its core, then it’s fair to say that OTT has a bright future. Or rather, in the words of Mayur Patel, Chief Executive Officer (CEO) at Kwesé iFlix – OTT is the future.

“Absolutely, the future of TV is the internet, and the home of the internet in Africa is mobile,” says Patel. “Smart phone penetration rates continue to grow at a rapid rate on an annual basis. In the next five years, mobile TV will be ubiquitous. With the flexibility and freedom that OTT offers consumers via mobile, in comparison to traditional linear TV services, it is impossible to discount the growth Video on Demand (VOD) will have in Africa.”

However, growth is dependent on data costs across markets decreasing. This, adds Patel, is an addition to flexible pay-as-you-go payment options being offered to enable customers, as well as increased access of Fiber to the Home (FTTH). On top of this, OTT faces another challenge: storage capacity.

“To help with this, Kwesé has formed partnerships with Africa’s leading mobile operators across our markets. We have worked closely with them to create affordable video data bundles specifically for the Kwesé iflix app, often with off-peak access, making it easier for our users to watch content on the go. To address storage capacity on people’s devices, we gave our users the choice to download content in three qualities – low, medium or high – so that they can decide what’s best for them,” says Patel.

On the payment side, Kwesé iflix offers flexible options, with users choosing to buy a one-day, three-day, seven-day or 30-day VIP pass. Consumers can also pay using airtime or mobile money, rather than having to rely on a credit card, explains Patel.

DTH’s future

According to Joseph Hundah, President and Group CEO of Econet Media, continued investment by various players within the industry has been made toward improving DTH and OTT infrastructure across the continent. While these improvements have contributed towards enabling better services, they have also played a hand in safeguarding the future of DTH across Africa, says Hundah.

“At present, we see a 20 percent increase in DTH numbers year-on-year. While we cannot deny or neglect the increased uptake of OTT services on the continent, we do believe there is a place for DTH services,” he says.

Citing figures from Digital TV Research, Hundah says there were 7.36 million subscribers of pay-TV via satellite in Sub-Saharan Africa in 2012, and the number is expected to reach 15.9 million in 2021.

“These numbers, as well as the positive uptake of our DTH offering across the continent, give us confidence that our DTH platform, with premium family viewing content, still has a place within the industry and audiences to cater to. That being said, we do know that DTH growth will start to decelerate over time as OTT services proliferate,” says Hundah.

With OTT penetration being significantly high, there is no denying that OTT is the future of content consumption in Africa, says Hundah. However, given the nature in which DTH is consumed, he adds, it will continue to be the platform of choice for family viewing, complemented by OTT services.

“In our view, customers will continue to enjoy DTH viewing at home, supplemented by OTT services as an additional viewing option for younger audiences, but also utilize mobile devices for on-the-go TV viewing. In the current media climate, TV viewing is no longer singular. That being said, our view is that the lower end of the DTH market will continue to grow, while the higher-end – where there is a clear move towards an a-la-carte model of TV viewing where customers want to choose the content they consume – remains stagnant,” says Hundah.

DTH in Africa also faces other challenges on the commercial front. These include the high cost of content acquisition, which translates to pressure to build and maintain sufficient subscriber bases, and the cost for and installation of Set-Top Boxes (STB). In slow growing African economies where disposable income is limited, the costs associated with STBs still remain a barrier for customers who want to join DTH, notes Hundah, adding that on top of this, significant levels of piracy also continue to erode margins for content businesses.

Yet, the broadcast market shines bright, being buoyed by younger households and millennial audiences who don’t seem to ever get enough of consuming content. At the same time, with many governments across Africa advocating for the lowering of data costs, in due course, we will see a thriving video market.

South Africa: The Continent’s Broadcast Giant

With growth achieved last year in revenues from pay-TV subscriptions, physical home video, public license fees, internet video, and TV advertising, South Africa is by far the largest broadcast market on the continent, says PwC South Africa Entertainment and Media Leader Vicki Myburgh. South Africa’s total TV market revenue grew 3.6 percent year-on-year to $2.20 billion (ZAR32.2 billion) in 2017. Stronger growth at a 4.8 percent Compound Annual Growth Rate (CAGR) over the forecast period will produce total revenue of $2.8 billion (ZAR40.8 billion) in 2022, and this will be driven by the pay-TV market, accounting for 69 percent of the total at this time.

With repeated delays to national digital terrestrial transition, pay-TV services have been the only way for many households to receive digital-quality channels, says Myburgh. While analogue switch-off is now scheduled for December 2018 and the majority of the country will then be covered with free digital services, pay-TV is expected to grow further.

“A burgeoning middle class and improving infrastructure will see pay-TV subscriptions grow at a 4.5 percent CAGR to reach 7.6 million households in 2022. Digital transition will also help the country to fight piracy, which has been a growing problem in recent years,” she says.

A Future for OTT?

Much of South Africa is punctuated by poor broadband infrastructure, but despite this, there has been growth in the number of Over-the-Top (OTT) video platforms available. In 2016, both Netflix and Amazon Prime Video arrived in the country as part of their global launch, and have since continued to invest in original content. Access rights to premium shows, however, pose a challenge, explains Myburgh.

“While Netflix did not have access to all of its premium shows on launch due to earlier rights deals with MultiChoice, the satellite TV provider is likely to find it more difficult to secure such rights in future as the SVOD platforms are keen to build their own subscriber base,” says Myburgh.

MultiChoice also has its own OTT platform in the Showmax service. However, the long-term success of Internet video in South Africa rests on significant investments being made in broadband infrastructure.

“These broadband issues and MultiChoice’s strong sporting content position mean there is not overwhelming evidence yet of OTT platforms being successful enough to lead to any meaningful cord-cutting in South Africa. Even among wealthier households in the big cities, services such as Netflix are more likely to be in addition to a traditional pay-TV package. Internet video revenue is set to increase at a 17.5 percent CAGR and reach $148.3 million (ZAR2.1 billion) by 2022,” she says. VS