Can the picture change in SA’s monopolistic pay-TV space?

The local pay-TV landscape has been a one-horse race since its inception, and industry observers are not bullish about the prospects of the tables turning in the near future. But the dominant player’s only challenger plans to change that perception.

Currently holding over 95% of the market, MultiChoice has held the monopoly of pay-TV since it launched DStv in 1995 – an event that started nine years prior with the introduction of SA’s first subscription TV station, M-Net.

It was not until 2010, with the establishment of TopTV, under the umbrella of On Digital Media (ODM), that the status quo was challenged. But the glimmer of hope that South African consumers could soon have choice – and the industry competition – did not take long to fade.

Just two years in and struggling to gain a foothold in the pay-TV market, ODM filed for business rescue in October 2012. In April last year, Chinese technology company Startimes, which currently has a pay-TV offering in 10 African countries, was brought on board to back ODM financially. As part of the process, TopTV was rebranded as StarSat, which was launched in December last year.

StarTimes will hold a 20% stake in the company – the maximum percentage allowed in terms of the Electronic Communications Act – but will have 65% economic interest, which means the Chinese company will be funding the majority of ODM’s operations.

ODM is now in the final stages of business rescue, a process interim CEO Eddie Mbalo says is set to be concluded in the next few weeks to two months – at which stage the company aims to pull out all the stops to pose serious competition to MultiChoice.

At the time of the second pay-TV operator’s unveiling, then CEO Vino Govender said the moment would change the face of South African TV. ODM hoped to acquire 500 000 subscribers within the first few months.
 
However, ODM never even reached half of that. Mbalo says the company does not give out subscriber numbers, but according to the last numbers available, as of August 2012, then-TopTV had 400 000 decoders installed in households, but only 150 000 of those represented active paying monthly subscribers.

According to World Wide Worx research, in 2012 TopTV had around 166 000 subscribers (3.8% market share).

MultiChoice had just under 4.5 million subscribers in the first quarter of last year – a number it says grew by 470 000 in the year to March alone.

According to the Department of Communications, in 2012 there were about 11.5 million TV-owning households in South Africa, approximately 72% of which relied on free-to-air broadcasting services.

BLEAK OUTLOOK

Time will tell whether or not StarSat can bring competition to the sector, but industry pundits are not holding their breath. ODM has also been mum on how it plans to make a comeback. Mbalo says this information will be clearer when the business rescue process is concluded.

Analytics and insights strategist Jocelyn Duff says she believes TopTV floundered because of incompetence and lack of clear direction. “This did not bode well in the industry, because the simple fact was that they were up against the mighty force of MultiChoice and surely cognisance of this was taken into account at the very beginning and, therefore, into their strategy.

“It became apparent that this had not happened and now, with a lot of face having been lost, I am not sure that they will get it going. But StarSat is a big company and may just be slowly getting it right. Without much transparency one cannot tell.”

Duff notes that TV is not a cheap medium to set up and without proper funding and proper strategic business plans – “of course they will fail”.

In terms of new entrants challenging the dominance of MultiChoice, she says those who do their homework and consult with the industry can make it work.

“As usual we wait and see, but we are not holding our breaths for the excitement of a forthcoming participant this year. We are still waiting for digital terrestrial TV (DTT) to be launched.”

REGULATOR ROLE

About six years ago, the Independent Communications Authority of SA (ICASA) tried to open up the market by awarding ECNS licences for more pay-TV providers to enter the market alongside MultiChoice. Initially, 18 companies applied, but the number was whittled down to just five companies – Walking on Water, ODM, e-SAT, Telkom Media and MultiChoice Africa – after others withdrew.

ODM was the last man standing as the other four failed to take the process further and put their business plans into action.

ICASA tried opening up the pay-TV market again last year, but the call for applications for licences was met with an unenthusiastic response. Five companies gave presentations during the regulator`s hearings – Close-T Broadcasting Network, Kagiso TV, Siyaya Free To Air, Mindset Media Enterprises, and Mobile TV. Whether any of these will follow through this time remains to be seen.

Industry experts believe ICASA dropped the ball years back – and may not be able to set things straight and introduce competition to the pay-TV market at this stage.

Marketing analyst Chris Moerdyk says MultiChoice is way ahead of the two-man pack. “I don`t believe ICASA can do anything to create competition with MultiChoice. It has handed out licences left, right and centre in the past and none have actually come to fruition.”

Ovum analyst Richard Hurst says he believes much more could be done to inject competition into the pay-TV market in SA. “It is clear that the dominant player has been able to maintain its commanding position of the market and I don’t foresee this changing over the next two to three years, especially when looking at key content points such as sport etc.”

Hurst says ICASA may look at issues such as local content, the use of the decoders as and when the DTT transition happens, and even spectrum allocation for the broadcast of satellite services. “However, most of these regulatory measures are extremely complex and will take some time to implement.”

Kate Skinner, broadcasting researcher and policy analyst, says ICASA must start playing a much more active role. “[The regulator] needs to do some careful analysis and research, and then move swiftly from there to introduce new pro-competitive regulations. As time passes, it becomes more difficult to address these issues, so we need a swift response.”

Mbalo feels ICASA has let the industry down. “It is important that ICASA is not just there to play big brother. They have to guide the market to where the future is in terms of their research, so when they regulate they do so for the future - rather than play catch up. ICASA is critical, because they are the custodian of development and growth of our sector.”

He says ICASA should have stepped in to even out the market when TopTV emerged. “The biggest problem with ODM was that, as soon as MultiChoice was aware that there was another player about to launch, they went into a market where they never played before. And this is where I think ICASA should have stepped in, because the new licences were issued to address a particular failure in the market – and that was the fact that the majority of the people had no access to alternative satellite broadcasting.

“It would seem to me we have a regulator that is rudderless. They have no clue where they are supposed to be going and everyone is looking up to them to give leadership and direction. Or otherwise the markets will just take over.”

FUTURE TV

Moerdyk says it is next to impossible for any other pay-TV player to make it in the current market, with the current perceived pay-TV broadcast model.

“The mistake being made is that the current pay-TV model is being treated as the model for the future. It isn’t. Netflix is the model for the future – or at least one of the models for the future, and if you look at what MultiChoice has done with its Explora decoder, you can see quite clearly that the future of pay-TV is going to be all about delivering content on demand.

“Right now, Japan is offering Internet download speeds capable of downloading a full-length HD movie in just a few minutes. And an experiment in the UK between Alcatel-Lucent and UK Telecoms just a week or so ago saw them achieve a download speed of 1.75 terabits per second. That is capable of downloading 44 full-length movies per second.

“Admittedly, SA is still pretty far behind, but the broadband speed here is increasing exponentially and it won`t be long before we are watching everything via the Internet."

At the end of the day, he says, any new entrant blindly following the current model will struggle. "I have difficulty in seeing any newcomer making a success of it.”

That said, Moerdyk notes there is "a lot of room" for Internet-based models. "I would not be surprised if some print media houses are the first to get in on the act – mainly because their own future lies not in print but as Internet-based, on-demand information resources."

Duff says: “I think that a lot of the future of TV will be through digital formats that may not need pay subscriptions in the old form.”

In an interview with iWeek, Mbalo alluded to just this. He said StarTimes is a highly-rated technology company that has made strides in Africa and could do the same for SA.

STARSAT STRATEGY

Mbalo says the time is not right to release details on how ODM’s StarSat product will develop, but he says StarTimes is the ultimate strategic equity partner to have in terms of being able to compete in the “new” broadcasting space.

“First of all, StarTimes is a technology company which is highly rated in China and we know they have made strides in Africa. It is our ambition as ODM to expand the direct-to-home TV (DTH) operation to the rest of the continent. That is what scale is about.

“At the moment our satellite reaches out to sub-Saharan Africa and so we still pay for that transponder. It was always the plan that we would expand to the rest of the continent, but of course many technologies are new to Africa.”

Mbalo says the DTH platform is relatively new to the continent. “In my view, there is a huge difference between the DTH offering and the DTT offering. DTH is the premium offering, which has to be clearly defined and totally different to DTT.”
 
He says in this light StarTimes is the “best thing that could have happened to ODM”. He notes the company owns its own patents and rights to certain materials and certain intellectual property. “They are also producing their own decoders.”

The Chinese tech company, says Mbalo, is very well aware where the future of TV lies. “We know that a lot of people in SA already have access to Netflix, which we know is the future. We know Internet protocol TV is the future. We know that the technology improvement brings access to the most rural, and to the most isolated places through mobile.

“The companies that are going to grow are visionary companies that know what is going to happen in the next 10 years.”

The involvement of StarTimes in ODM, says Mbalo, ultimately gives the company an advantage over MultiChoice. “The problem is that MultiChoice is still working on old technology and that’s why it becomes important that new players are able to take advantage of new technologies.”

LEARNING CURVE

Mbalo says, going forward, it is important the company learns from its mistakes and puts a strong business plan together to build a solid operation.

“I anticipate it will take another three to five years for the business to get on its feet. I hope everyone would have learnt not to repeat the mistakes that were committed in the past.”

One of these mistakes, he says, was that the business plan was flawed. “I think it exposed some of the inexperience among the shareholders and the management at the time. But also it exposed the fact that business of this nature has to be recapitalised from time to time and I think one of the big issues when we came in two years ago before going into business rescue, was that the business was never fully funded.

It was like a drip feeding of the business and survival on a month to month basis. When you are stuck in that kind of environment, you are never able to plan in the long term. As soon as you’ve secured capital you can plan for the next three to five years.

On how ODM differentiates itself, Mbalo says the operator is one that is not afraid to break new ground.

With the relaunch of TopTV as StarSat last year ODM became the first broadcaster ever in SA to offer a pornography package, Playboy TV. The company fought for almost two years for ICASA`s green light on this and was finally given the go-ahead last year April.

Mbalo says ODM prides itself on being anti-censorship. “The struggle is ongoing, because the issue is much bigger than just broadcasting adult content. It is about broadcasters having the freedom to broadcast what the audience wants to see. Or otherwise, if we stop adult content, you then begin to wonder what’s going to be next. It will become a downward spiral.”

He refers to MultiChoice’s attempt to introduce adult content in 2010, which the company abandoned following an outcry from certain South African factions.

“We have, however, shown that we are going to be a different broadcaster. We will not be censored by anyone. We are going to be that broadcaster that is going to break new ground. We are not going to suck up to whatever institutional structure. What we will do every time, is we will do what we think best for the audiences that we serve.

“This is one of the ways we will differentiate ourselves. We have to be different. We can’t continue to follow or allow MultiChoice to be the one that sets the agenda.”