THE bulk of MultiChoice’s subscriber growth is coming from its cut-price R275/month DStv Compact product — but Naspers’s PayTV arm is facing a renewed threat in this market from fledgling rival TopTV.
Eben Greyling, CEO of pay-television platforms at MultiChoice parent company Naspers, said last week the group had added 1.1million subscribers last year, and the Compact package accounted for 38% of this growth.
The bouquet was introduced in 2005. Brand research company Superbrands says it targets the LSM 5 to 7 market, or middle-income earners.
In 2010, On Digital Media launched TopTV, which then-CEO Vino Govender said would target the LSM 5 to 8 sector — a direct challenge to DStv’s Compact product.
MultiChoice responded by adding various channels — including hip youth stations Vuzu and MTV Base — to the package.
It also rained on TopTV’s parade by launching a new package that went head to head with TopTV’s cheapest bouquet, the 25 channel DStv Lite at R99 a month.
Meloy Horn, Naspers’s investor relations officer, puts a less adversarial spin to it: “We change the content on our various bouquets, [such as] adding more channels, in an effort to bring a better service to our subscribers.
“We continuously update our strategy to ensure we provide the best service to our subscribers.”
What makes life even tougher for TopTV is that MultiChoice subsidises the cost of DStv decoders — a move which cost Naspers R1.6bn last year. Horn said the subsidies were used to lower the price of the decoders to make the service more affordable.
It’s a smart move: the real profit for pay-TV providers lies in the monthly subscription. Nonetheless, at around R599 apiece, standard DStv decoders (with free installation vouchers) are more expensive than TopTV’s, which cost about R399.
While TopTV might be cheaper all round, On Digital Media hasn’t been able to translate this advantage into numbers.
It got into financial trouble, haemorrhaged subscribers, and lost star attractions such as movie and original series channel Showtime, entertainment news channel Star! and Nigerian movie channel Hi Nolly.
By December, it had only 360000 subscribers, and only half of those were active, according to CEO Eddie Mbalo. This contrasts starkly with the 4.4million subscribers reported by MultiChoice South Africa in March.
Unable to bring subscriber numbers to the level it needed to break even, TopTV applied for business rescue late last year.
It also applied to the Independent Communications Authority of SA for approval to broadcast three adult-content channels.
In March, two suitors submitted plans to rescue it: Chinese pay-TV operator StarTimes and the Dynamic TV consortium led by MSG Afrika Holdings, owner of the newly launched Power FM radio station in Gauteng, and Falk Trading, a little-known company led by former Umsobomvu Youth Fund boss Malose Kekana.
Oddly, MultiChoice provided financial backing for the Dynamic bid.
Shareholders and creditors of the company voted for StarTimes. In return, the Chinese firm promised to transfer skills needed to expand the business, inject working capital, restore the TopTV brand, and grow subscriptions in return for a 20% share of the company and 65% of the profits.
Signalling that it would tackle MultiChoice where it hurts — the pocket — StarTimes also promised to offer services at half of their current cost.
Crucially, Ms Horn admitted that MultiChoice might change tack to counter the renewed threat from TopTV.
But she added that: “It is too early to comment. The shareholding changes in TopTV still need to be finalised.”
Although the StarTimes offer was approved in March, TopTV has yet to implement the new plan.
Peter van den Steen, On Digital Media’s business rescue practitioner, said in an update to creditors last week that putting the rescue plan into action was not “straightforward”, therefore it was taking longer than anticipated.
The rescue process has also delayed the roll-out of the adult channels, which were approved for broadcast between 8pm to 5am daily on a separate, stand-alone package.
“A consulting agreement between [On Digital Media] and StarTimes has been prepared and is almost ready for signature,” he said.
“This will govern the strategic and operational input that StarTimes will provide to On Digital Media.
“A funding agreement has also been prepared that will allow StarTimes to provide ongoing working capital funding to On Digital Media. This will be signed once all the other agreements have been signed, in order to minimise the risk to StarTimes.”
Attempts to reach StarTimes spokesman Xuan Chuan for comment were unsuccessful.
Naspers’s Ms Horn said future revenue growth in Naspers’ pay-TV operations would be affected by competition.
“We can’t speculate on the extent of this or how the future will play out,” Horn said.
Maake owns shares in MultiChoice
• This article was first published in Sunday Times: Business Times