The Western Cape High Court's order that pay-TV provider StarSat discontinues broadcasting adult content could potentially be the last nail in the struggling company's coffin.
Judge Lee Bozalek's decision yesterday effectively cuts off a much-needed revenue stream for the broadcaster's parent company - On Digital Media - which has been in business rescue since last April.
On Digital Media (ODM), established in 2010, had its nose bloodied when it tried to enter the pay-TV space that is 95%-dominated by the DStv brand. The newcomer ran aground almost immediately after starting operations, with an offering dubbed TopTV. Chinese-based media group StarTimes took a 20% equity stake in ODM at the start of the business rescue process, renaming the pay-TV service StarSat.
The High Court found the Independent Communications Authority of SA (ICASA) had erred in issuing a licence to StarSat in April last year, allowing it to air hardcore pornography on television, via three dedicated channels - Playboy TV, Desire TV and Private Spice. These started airing in November as a standalone StarSat sex TV package, at a subscription fee of R159 per month.
However, Bozalek ruled the matter be remitted back to the second respondent (ICASA) for reconsideration. This comes after ICASA's decision was challenged by non-profit organisation the Justice Alliance of SA (Jasa), and supported by Cause for Justice and Doctors for Life.
In earlier court proceedings, the regulator conceded it had failed to appoint experts to study StarSat's porn plan, as Jasa argued the proposed adult content - as presented to ICASA - differed substantially to what was ultimately aired by the broadcaster. It was also found that ODM had failed to register with the Film and Publications Board as a purveyor of adult content.
The effect of the judgment is that ODM will have to halt broadcasting the porn channels with immediate effect.
Porn lifeline?
Despite several attempts, ODM could not be reached for comment this morning, but market observers speculate this could be a serious hurdle for the company. Last month, ODM interim CEO Eddie Mbalo admitted the company has not moved beyond the closing stages of the business rescue process, adding it now also has to apply for the transfer of ODM's electronic communications network services licence to StarTimes.
"We've had some shareholder issues to sort out and the only outstanding issue is the licence application that has to be lodged with ICASA." However, Mbalo stated the company is working on a timeline for this process, and notes there is thus no indication of when this might happen.
Mbalo also previously denied StarSat was relying on its porn offerings as a means to survive in SA's uncompetitive pay-TV landscape. "It's far from the truth to say that we are doing this as a means to save the business. We are fighting for the principle that South Africans should have the right to watch whatever they want in their homes.
"In this, I think we have succeeded."
While Mbalo would not be drawn on subscriber numbers for the broadcaster's adult offerings, only saying the uptake has been muted as the company has not actively promoted and marketed the channels, it reportedly emerged in court papers that some 400 subscribers had signed up for the package.
A big blow
Independent broadcast analyst Kate Skinner speculates the High Court decision would be a "major blow" for ODM. "It's a matter of survival for them - it will make it very tough for them to survive in the current market."
Skinner points out that the daunting market conditions - such as no access to premium content and lack of set-top box interoperability - still remain for pay-TV newcomers. On top of this, she points out, ODM has now lost a revenue stream.
"It goes back to the argument that we need regulation in this space. We need more competition and there currently is no benefit for new entrants into the market. Similarly, there is no push for the incumbents to lower their prices."
World Wide Worx MD Arthur Goldstuck previously said it would be difficult to gauge how much of a boost adult content has been for ODM, but added it has not created a good image for the broadcaster. "It's a valid commercial strategy, but probably not an issue you'd want to be associated with on your first attempt [to crack the market]. They should probably be looking at introducing sport content first."
Regarding the general health of ODM, Goldstuck has stated the prolonged silence from the company's side is a concern.
ICASA and ODM have 15 days to lodge an appeal. ICASA spokesperson Paseka Maleka said this morning it was too early to say whether the regulator would appeal. "We are studying the judgement and will decide how to proceed. Ultimately, we will abide by the court's decision," he says.
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