What it takes to dethrone MultiChoice (DSTV)
#DSTVmustfall trended twice (in April and in May) during the lockdown in South Africa. MultiChoice is the company that offers DSTV as its flagship product across the African continent.
It is a monopoly in the pay-TV space. Customers want the company to fall because they view the prices as too high for the content being offered.
The masses want MultiChoice to fall. Besides tweeting, what does it take to dethrone Multi-Choice from the position of power that it occupies in society? It is the sole purpose of this article to answer that question.
This is a long read so it’s best to summarize it now. The article will provide context to the public outcry, explain Multi-Choice's business model, explore how it can be challenged, and assess the feasibility of staging a successful challenge with special emphasis on what it takes to achieve that.
- Excessive Repeats
- Bad packaging
- Lack of pay-as-you-use type of billing
- Inconsiderate — not lowering prices during the lockdown
SA Twitter came out guns-blazing when MultiChoice increased the prices of some of its bouquets in the middle of a global health pandemic. Below is a noteworthy tweet exhibiting the anger in the streets.
There is a petition that has been signed by over 221,000 people requesting a price decrease.
There is another allegation that DSTV engaged paid social media influencers to defend itself.
- MultiChoice buys content from abroad, a transaction that involves paying hard currency (USD, GBP, and EUR) using a soft currency (ZAR).
- The company collects a significant portion of its revenues in weaker African currencies which are always weakening against the hard currencies.
- The increase in prices reflects the weakening currencies of the countries they operate in versus the hard currencies. Their base currency, the rand has been weakening against the dollar every year for the past decade.
- The price increases also reflect inflation, with respect to the cost of producing local content.
- The price increases also reflect the ever-increasing real cost of acquiring Sport TV rights. For example, the rights to broadcast the EPL have increased every four years. The current deal runs until 2022, and tech giants such as Amazon are expected to venture into this space.
- Broadcasting equipment rental costs are high.
- High prices reflect years of investment in Digital Satellite technology. Historical losses made in the high growth phase are only being recovered now, in the mature phase.
MultiChoice Business Model
Very few companies have business models that are well-crafted and on-point. MultiChoice has crafted its position in society through a business model that has very strong building blocks.
I have used the Business Model Canvas tool to present the MultiChoice business model in an easy-to-digest format.
If you are not familiar with a business model canvas here is a quick overview:
At the center is the Value Proposition, which is an answer to a problem, a solution to a customer’s need. On the right, there are Customer Segments, Customer Relationships, and Channels of delivering value to customers. The three C’s lead to your Revenue Streams at the bottom. On the left, there are Key Partners, Key Activities, and Key Resources that are used in creating value that will be offered to customers. These three “keys” lead to your Cost Structure. Your Revenue Streams and your Cost Structure determine your long-term profitability.
These 9 building blocks define the MultiChoice business model:
- Value Proposition — the company offers video entertainment and infotainment services that branch out into Live Sport, Movies, News, Local Dramas, and primetime soaps.
- Customer Segments — geographically the company has two main segments: South Africa and the rest of Africa. Based on affluence levels, the company has premium customers that subscribe to the Premium Bouquet, low-end bottom customers that just want Access to satellite television, and the mass market which is everything in between the extremes of Access and Premium. The Mass Market has been brewing trouble lately. They are not happy with the Value Proposition, even after DSTV has added extra content to that bouquet.
- Channel — there is no harm in thinking of these as DSTV channels. These are basically ways in which the company delivers value to customers. They do it via satellite and via Over-the-Top media services
- Customer Relationships — MultiChoice is automating its relationship with customers. They have been reaping huge cost savings from this. During FY2020 costs were reduced by ZAR1.4 billion. I suspect that automating customer relationships played a big role in this.
- Revenue Streams — MultiChoice obtain most of its revenues from subscription fees. They also get a few coins from set-top-box sales (a fancy way of saying decoder sales) as well as installations and licensing fees. Advertising also contributes a noticeable portion of revenues.
- Key Resources — The company’s key resource is basically digital satellite technology. They have their own transmission equipment and have the right of use for third-party transmission equipment. Other Key Resources that stand out are program and film rights, notably EPL broadcasting rights. Human resources, especially expert engineers are also key resources. The company has ZAR2.4 billion invested in Land and buildings and another ZAR2.6 billion invested in vehicles, furniture, computers, and office equipment. Even though the total is in excess of ZAR 5 billion, these are not key resources. They are merely resources they have.
- Key Activities — The company’s key activities are broadcasting and transmission. Equally important is content creation. Customer service (those call center calls) has been a key activity in the past but it looks like it's set to change.
- Key Partnerships — Partnerships are very crucial in ensuring business success. MultiChoice partners with Space Satellite providers, transmission equipment owners, and set-top-box manufactures. They also partner with approved installation entrepreneurs. Most importantly, they partner with content creators and content resellers. This allows them to secure exclusive broadcasting rights for certain content such as Live Sports.
- Cost Structure — this refers to all the costs associated with the business. MultiChoice probably leases satellites in space, incurs broadcasting and transmission costs, content creation costs, content acquisition costs, and operating costs. Payroll is included in operating costs.
Notable MultiChoice Competitive Advantages
- Satellite Technology
Do you own a satellite up there in the sky? Do you have enough resources to rent a satellite that allows you to broadcast your signals? If you don’t, then you have a disadvantage versus MultiChoice.
MultiChoice broadcasts its content (movies, sports, etc.) as encrypted signals from something like this.
And you receive the content as encrypted signals through something like this outside your house.
And your decoder translates/converts those encrypted signals into its original format (video and audio that you can watch and hear from your TV).
They have mastered this technology. This gives them an advantage over everyone else who tries to do this. Cable TV has no chance in Africa. Delivery of content via the internet is not yet offering the same pixel quality and reliability as a digital satellite because most Africans have no access to fiber at home.
- The Numbers
MultiChoice has been in the game for a long time now. They have built their user base from the days of M-Net in the ’80s to now and they keep adding millions every year. When you have the numbers, unit economics always makes sense. A competitor who ventures into space now has to build a user base from scratch. Unit economics will be hard to model and the service will have to be offered at a loss, initially.
Who can Potentially Challenge MultiChoice?
- Another Pay-TV operators such as Kwese TV and StarSat. These fellas do not have the financial muscle needed to pull this off.
- Netflix — if they can add a little bit of Live Sport such as the EPL, that’s the end of DSTV. They do not have a balance sheet that allows them to pull this off, but they can easily raise funds needed from investors. There have been concerns from institutional investors that Netflix is becoming a Zombie corporation so the ability to raise further funding from this segment of investors is limited.
- Amazon Prime Video — they have the financial muscle to pull this off. They have shown some intent but have halted this move for reasons I do not know. It is even hard to speculate why they have not done this especially given their track record for risk-taking.
- HBO — just like Netflix and Amazon Prime Video, these fellas do not have live sports as part of their offering, but they have the ability to do it.
- Facebook — more than able to pull this off. They are probably waiting for the global implementation of their currency (Libra) before launching something like this. They probably want people to pay for subscription services using Libra.
- ESPN — they do not operate in the geographical space called Africa and they are used to the old cableway of doing things. They are excellent at delivering content and commentary but do not have the foresight, wisdom, and ever-burning internal annoyance for change.
- Google — they have ignored paid television and on-demand streaming. These fellas can do anything if they want. Who can stop them from streaming ad-free subscription-based live sports on YouTube? #PutItOnYouTube
- New Player — the space is open for a new entrant that dedicates to Sport or even carves a niche of soccer, especially the EPL.
A couple of factors have hindered most tech giants from venturing into the Live Sports arena.
- The Destructive Outbidding Market for broadcasting rights
- Fear of failing to garner sufficient demand to cover content costs.
Let’s assume a New Player enters the space to challenge MultiChoice. Let’s call the new entrant ‘YourChoice’. During FY2020 MultiChoice revenue was ZAR 51 billion which translates to around USD 3 billion. If YourChoice grabs 40% of the market from MultiChoice within a short period of time, they get a solid base to build on because +/- 40% market share gives them a healthy billion dollars in subscription fees (after a price decrease). The financial incentive is huge.
Let’s explore how and where a competitor can launch an attack and what the competing business model should look like.
If any company dares to challenge MultiChoice it needs to have a winning strategy. It needs to stage an attack on the business model and on the blocks that can easily be won. All blocks are important but for this move the Value Proposition and Customer Segments are crucial. Those are must-win areas.
- Customer Segments
In order to knock DSTV off its perch, the attack has to be on its main turf, the home ground; South Africa.
For the FY2020, 43% of the MultiChoice subscriber base was in South Africa with the rest of Africa making up the remaining 57%.
Reasons why the primary target should be SA:
- it is a developed market with regards to this product. The country has 11.1m subscribers. If we assume an average of 5 family members, the subscriber base translates to 55m individuals which is very close to the country’s population of 60m. There is no more room for DSTV to grow in this market. It is usually easier to introduce a product to a mature market than to break new ground.
- South Africans have higher disposable income, they can afford to pay for entertainment, millions in the rest of Africa do not have the same luxury.
- The internet penetration level in SA is high. Fiber is being laid out in almost every street. The cost of accessing the internet is fastly going down.
Using the geographical segmentation method, the target clearly has to be SA. On the socio-economic customer segmentation approach, the target has to be the mass market.
Reasons why the primary target should be the mass market:
- The mass market is actively looking for alternatives.
- Premium subscribers don’t care, and they are a tiny fraction of the total. If they can afford to pay that much for DSTV, they can afford to pay for anything. They can easily be harvested without being targeted and with very little marketing effort.
- The low-end, bottom segment, will not be in a position to afford internet costs for the foreseeable future.
- The business segment is a tiny fraction and is difficult to target.
2. Value Proposition
Mass market customers are questioning the Value Proposition offered by MultiChoice. On this block, it is of essence that the attack should not target taking everything being offered by MultiChoice. The attack should only target the most profitable proposition which also happens to be the most contentious.
The issue of variety and repeats can be ignored. The issue of pricing has to be addressed. Offerings such as News, Movies, and Others can be totally ignored.
Reasons why the Value Proposition needs to be directed at Live Sports:
- People are consuming news on social media.
- The ‘movies’ offering has been attacked by Netflix, no point in venturing into that.
- Other content such as documentaries, kids’ cartoons, and religious content are increasingly being consumed on internet platforms such as YouTube and Facebook.
- That leaves Live Sport up for grabs.
The Live Sports section is costly, broad, and protected.
Competitor Business Model
To better illustrate what a competitor can do, we can use a core business model and then use an augmented business model that captures the totality of the competition.
Core Competing Business Model Canvas
The Core competing business model is sleek, lean, and sexy. It is something that minimalists would love. By offering a single choice, the model eliminates clutter associated with multi-choice.
A customer subscribes only if he or she is interested in sports. This model, if executed well, with the right pricing, can easily grab live sports fanatics from MultiChoice to YourChoice.
Instead of being a generalist with regards to Live Sports, the model can even go a step further and be specific. It can offer soccer only, or even offer the English Premier League alone. One offering, simple pricing, simple delivery, easy platform management, and a simple billing system.
From the comments that people make in the streets, the EPL is apparently very important that it deserves special mention.
EPL Soccer is the Key
DSTV is nothing without the English Premier League (EPL). This is the main drawcard. In addition to this, people want local content. Men want to watch soccer and women want to watch the local primetime soapies.
Anything that offers these has a minimum viable product that can compete with DSTV.
That being said, the basic core business model suffers from several weaknesses when pitted against the solid MultiChoice business model. The main concern is internet availability, cost, stability, and reliability. The secondary concern is the absence of local dramas.
This necessitates the need for an augmented business model through the use of partnerships.
Augmented Competing Business Model
The augmented business model covers the shortfalls by roping in several key partners. Internet Service Providers come in to ensure internet availability. Without cheap, reliable internet, the value being proposed cannot be delivered to the customers. This is the crux of the matter.
Netflix comes in offering movies. This has been perfected. The next challenge is having local content available. This area can be offered by a specialized local content operator along the same lines as the operator of live sports.
The augmented business model is essentially breaking up the monopoly into silos that can challenge MultiChoice.
Breaking Down the Monopoly
Only a bundle can totally break down the monopoly. Individual product offerings like Netflix are not complete enough to destroy DSTV but collectively these can complete.
The imaginary Competing bundle below would totally annihilate MultiChoice.
This fictitious bundle of ZAR 640 is superior to any bundle MultiChoice can offer. In order to create such a bundle YourChoice would have to tidily partner with the above players under a cross-selling arrangement whereby:
- YourChoice sells internet services on behalf of ISP’s when it sells its own offering. In return for the salesmanship role, it obtains discounts for its customers. There are more than 20 reliable ISP’s in South Africa right now. For example, YourChoice can partner with Sonic Telecoms under an arrangement where every Sonic client that comes through YourChoice gets a 20% discount on the monthly internet fee, as well as free installation of fiber at home.
- YourChoice can make the same partnership arrangement with Netflix. Anyone who signs up for YourChoice and wants Netflix as well can get a 20% discount on Netflix subs because YourChoice has acted as a salesperson.
- The same arrangement can be made with the provider of local content.
- These cross-selling arrangements can reduce the total cost of the entertainment bundle to the consumer.
Because all of these Partners in the “Bundled Offering” are actively seeking ways to penetrate their respective markets, there is room for downward price adjustments so as to pick up extra volumes needed as contribution towards fixed costs. It is not unthinkable for the bundle to look like this based on the penetration strategy:
Under these bundles, consumers can choose that which suits them and reduce the cost of the total bundle. They can choose the Internet plus Netflix alone if they do not enjoy local content and sports. They can choose Internet plus Sport if they do not enjoy movies and local content. They can also choose internet and local content alone. That power to choose what you want and what is in line with your pocket is what they are asking for.
The net outflow per household versus the value obtained will be far superior to DSTV. Furthermore, there are some extra benefits from having unlimited internet which further lowers the cash outflow per household.
Consumers do not have to fork out more cash for the following:
- Rest of the Internet
Critical Success Factors
Internet, Internet, Internet
The internet is the key to unlocking this. We all want fast and reliable internet that is unlimited, unshaped, and uncapped. Not all of us can afford it.
I think for streaming, a basic 10 MB line that is unlimited is a must to pull this off. Most ISPs have a decent offering that is close to this, ranging between ZAR500 and ZAR 1,000. The cost has been coming down, but it must come down further for the mass market to be able to reach it.
The Numbers, The Numbers
We are back again at the numbers. Any subscription platform-based business is in a numbers game. The New Entrant has to get numbers behind it very quickly. Numbers will solve other problems. The mass market is ripe for instant scaling. A good offering can quickly go from thousands to millions within a couple of years.
The TV Rights, The TV Rights
This is a money game. Whoever places the highest bid gets to walk away with the rights. Whoever has rights can charge customers the amount he/she wants.
In a bid to earn more, I think the next auction of the EPL TV rights will allow multiple broadcasters per jurisdiction instead of an exclusive mandate to SuperSport.
Just to throw random figures:
- The last EPL global rights were auctioned for GBP 1.7 billion per year
- MultiChoice does not pay that amount, pays way less for EPL
- MultiChoice FY2020 reports a figure of ZAR 18 billion as their total content costs across their offerings.
What it Takes
Straight to the point, this is what it takes to dethrone MultiChoice.
- The cost of an unlimited 10-meg line has to come down to under ZAR 300 per month.
- The cost of obtaining TV rights does not skyrocket further and more players are allowed to broadcast Live Sports in a single jurisdiction.
Once these two factors are in place, everything else considered in the article will align.
How Likely are these factors to take shape?
Both are highly unlikely. It will take maybe 5 more years for the cost of reliable, fast, stable, and unlimited internet to come under ZAR 300.
The TV rights space is for big boys (especially the EPL) who know each other from way back. MultiChoice will not be easily knocked off from that position of privilege, regardless of how many tweets people send. The only way to win this will be to place a bid that far outweighs the current figures that MultiChoice pays. Doing so, however, will hurt your unit economics. Moreover, the chances that TV rights will be auctioned in a way that does not create geographical monopolies are very low. It might be a decade or two before that happens. Alternatively, it might take an active revolt from fed-up consumers.
MultiChoice Projected Response
For argument’s sake, let us say the cost of internet access comes down and another player is allowed due to legislation that enforces auctioneers of TV rights to offer a minimum of two companies to foster competition. How would MultiChoice respond?
I think they will fight fire with fire. It is highly likely that MultiChoice will move from Extortionate Pricing to Predatory Pricing. They will lower their prices to the floor until the New Entrant is forced out of business and then raise the prices again. So, the legislation to enforce competition will be useless as new competitors enter the space and get bullied out before they set a firm footing.
MultiChoice has an extremely strong balance sheet. Its strength on steroids. The company boasts liquidity of about ZAR 14 billion with ZAR 9 billion of that being cash. They have the resources to defend against any attack.
We have comprehensively explored what it takes. In my opinion, MultiChoice will be with us for a while. A lot of uncorrelated factors need to converge before anyone can challenge the dominance.