Naspers to cast off Pay-TV arm

By Chris Gilmour

Naspers has announced its intention to list its video entertainment business separately on the JSE and simultaneously to unbundle its shares in this business to its shareholders.

The new company will be named Multichoice Group and will include Multichoice South Africa, Multichoice Africa, Showmax Africa and Irdeto.

Multichoice is unquestionably the leading operator in its field on the African continent, but in recent times there have been signs that it is taking increasing pressure from internet services such as Netflix, which provides stiff competition to Multichoice’s products at very competitive prices.

The conclusion to be drawn from this action is that Naspers is exiting what is rapidly becoming a far less attractive proposition.

When Multichoice’s predecessor (MNET) began life in the late 1980s, the only competition was the state broadcaster, the SABC/SAUK, which was the propaganda arm of the apartheid government. In those days, it was illegal for private individuals to access satellite television – and those who tried, with massive dishes that managed to get a small amount of “spillage” from international broadcasters like CNN, very soon had their equipment rendered inoperative by the authorities.

By the mid-1990s, Multichoice’s DStv began offering satellite TV to individuals, and this was like a breath of fresh air. All of a sudden it was possible to access international broadcasters like CNN, CNBC, BBC and Sky TV, as well as Discovery Channel and many others.

At the time, it was transformative. Multichoice/DStv was very clever insofar as it managed to offer top quality content – and frankly, the few competitors that tried to compete failed dismally, as they were unable to access that world-class content.

But their monopolistic behaviour began sowing the seeds of a longer-term malaise.

Until very recently, South Africans had only limited access to reasonably fast broadband, and that access was very very expensive. But all that changed with the arrival of Fibre Broadband to The Home (FTTH), spearheaded by operators like Vumatel.

In a remarkably short space of time, hundreds and then thousands of suburbs all over the country were able to access fast, reliable broadband without having to use Telkom, and at significantly lower prices.

FTTH offered South Africans the ability to access global entertainment at a fraction of the cost that DStv was charging.

It took a little while before many people cottoned-on to the fact that they could access hitherto undreamt of entertainment, sport and cinema online – but when they did, the effect was shattering.

Netflix offered a South African version of their global offering at R100/month.

To put this in perspective, to access the full bouquet of DStv products, it is necessary to have their Explora PVR decoder and pay an access fee for using the decoder’s facilities for around R900 per month.

First, you need to buy the decoder itself, which with installation and a new dish can cost just under R2 000.

Netflix is a streaming product and doesn’t require any extra hardware.

The effect of Netflix and other streaming products on DStv has been noticeable.

In the year to March 2018, Multichoice lost over 40 000 subscribers, due mainly to those subscribers switching from DStv to Netflix and other internet services.

At this point, it is worth doing a few calculations to illustrate just how expensive DStv/Multichoice is, both in local and international terms.

Take Britain’s Sky TV as a base of comparison. The basic Sky setup costs GBP20/month and then it is left up to the individual to decide which extras he or she wants.

For this 20 pounds, you get the basic Sky entertainment features such as Sky Atlantic, Sky One, National Geographic and many others. Sky Cinema – the equivalent of a Netflix – will cost another ten pounds. The complete Sky Sports package costs another 20 pounds. So in total, a relatively full Sky subscription will cost approximately the same as a Premium DStv subscription – but the difference is in the much higher degree of versatility offered.

For example, Sky Cinema offers up-to

-date movies that in a DStv context one would each have to pay R35 for, via their Box Office option.

And on the Sky Sports front, one can opt not to buy a monthly package at 20 pounds but instead just go for a daily or weekly pass at a significantly reduced rate and without having to be on any form of contract, via Sky’s subsidiary, the internet-based Now TV.

And of course, all of the free-to-air channels like BBC, ITV, Channel 5 etc are available for no cost.

So, DStv is expensive compared to Sky TV, especially when one considers the choice and versatility offered by Sky.

South African viewers can access the UK’s free-to-air channels by utilizing what is known as a Virtual Private Network (VPN).

These free-to-air channels are only available in the UK but by using a VPN, South African viewers effectively change their location to the extent that these channels think that they are being viewed in the UK.

A typical VPN subscription costs about 8 pounds per month. South African viewers can access Now TV and enjoy Sky Cinema, Sky Entertainment and Sky Sports via a VPN, once they paid for their subscriptions.

The bottom line is that the competition to Multichoice is likely only to intensify in future.

As FTTH becomes more widely available and more and more people understand what is available, they will carry on deserting DStv in favour of more versatile offerings such as Amazon Prime, Netflix and their own VPNs.

It is not clear how Multichoice intends countering this threat, other than by attempting to get the South African regulatory authorities onboard and forcing Netflix to pay tax in SA.

By being more innovative – by offering more versatile and appealing packages – oh, yes, and by drastically reducing their prices – they could easily counter this threat.

But somehow I don’t think they will.

It will be interesting to see how successful or otherwise this new listing will be.

I, for one, will not be buying shares in this new company.

Chris Gilmour is an investment analyst, writer and commentator

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