Listed MultiChoice regroups to take on Netflix
MultiChoice, which listed on the Johannesburg Stock Exchange (JSE) yesterday, is looking to take the war to competitors like Netflix.
Speaking after the company listed on the JSE, Tim Jacobs, MultiChoice's chief financial officer, said the company is taking all competition seriously.
Africa's biggest pay-TV operator began trading on the JSE yesterday with shares opening at R95.50, giving the company a market capitalisation of R42 billion.
The listing comes after Naspers last year said it was planning to list MultiChoice separately on the JSE and unbundle the shares in the business to its shareholders.
The pay-TV operator is facing competition from the likes of Netflix and other over-the-top (OTT) providers.
"I don't think we will be taking a new direction, but now we are looking to go and fetch the big, organic opportunity that we see on the rest of the African continent," said Jacobs on the company's strategy.
"We have a dual growth strategy: the first part of that strategy is in the linear pay-TV business. We see a massive addressable market of 40 million subscribers both in South Africa and the rest of Africa. The second is the growth opportunity at a much smaller scale, of cause, for our OTT products."
Jacobs believes a very small percentage of the population will start to shift some viewing habits over time.
"Our focus in the short-term is to make sure we go and aggressively fetch the growth opportunities in the OTT space as much as we can.
"We already have about a million subscribers using a combination of DStv Now, which is our mobile app for our pay-TV product, DStv, and Showmax, which is our standalone OTT product. At the moment, we offer Showmax to premium subscribers for free and if you are on one of our other DStv packages, you get it at half price. It is also offered as a standalone product for R100 a month."
In a bid to attract more viewers to its video-on-demand service Showmax, MultiChoice recently started offering a free two-month trial for DStv Compact and Compact Plus customers.
"It's not that we don't take Netflix seriously; we take all our competition seriously. However, the reality is that our best estimation is that Netflix has about 500 000 subscribers and seven out of 10 of these subscribers...have a DStv product," Jacobs said.
"So we are not seeing people switching off our product and going to one of our competitors."
He explained that the trend MultiChoice is witnessing relates to affordability due to the tough economic situation.
Jacobs believes that once economic circumstances improve, customers will be able to return to the DStv platform.
"Obviously, there is a long play on the OTT space and the reason that we have invested in DStv Now and Showmax is to make sure that as viewing habits start to change, we own that habit across the continent.
"However, apart from the high data costs, our research is telling us that fixed-line broadband penetration in five years' time in South Africa will only reach 12%. If we think about the rest of Africa, in five years, it will only reach 5%. When you think about that in those terms, there will be a growth opportunity for a niche part of the market for these OTT products but there will be a significant runway for our pay-TV business to continue growing," Jacobs said.
Commenting on the listing, David Shapiro, deputy chairman of Sasfin Securities, says MultiChoice's debut price was disappointing.
However, he adds there is a large body of offshore holders of Naspers who have no interest in retaining MultiChoice and will cash in. Shapiro believes this is likely to weigh on the share price for some time.
"I can't complain about MultiChoice - they give me the business and sports channels - but I'm not sure you can build a prosperous business around my particular needs. And that's what concerns me about their revenue model.
"Their prosperity depends on their ability to attract viewers with cheaper offerings focused on locally produced entertainment. Streaming services will continue to eat away at their subscriber base, although in the short-term expensive data costs will probably give them some protection."