Thursday, June 28, 2012
It's like a puzzle - a financial statement or year-end report. Besides having to know how to decode and read it, you need insight, background and savvy context about both the company as well as the specific business environment within which it operates to interpret all of the hard information, to gleam from it what isn't explicitly stated, or what isn't obvious at first glance.
Luckily I started my journalist career as a financial journalist before I moved to hard news and then decided to focus on specifically the TV industry. So let me give you the insight and new perspectives which you won't be reading in strictly financial publications, but which you also won't see from entertainment 'lite' journalists more interested in Bonang than broadcasting.
MultiChoice, folded into the greater Naspers media company, announced its preliminary financial results for the year ending March 2012 yesterday, with a conference call to investors late yesterday afternoon.
MultiChoice continued its strong subscriber growth to achieve 5,6 million subscribers in Africa; and is now focusing strongly on the lower end of the market - HERE is what else MultiChoice said and presented during the conference call.
The Naspers financial report which includes its big pay TV business contains numbers, statements and comments which needs to be lifted out in context to get the full(er) picture. Here's the "secrets" not immediately self-evident regarding DStv - and I'll tell you why it matters.
1.DStv's programming cost has almost doubled over the past 4 years - monthly subscriber fees have not
MultiChoice's programming costs have almost doubled over just the past 4 years from R3,2 billion to R6,037 billion. This is the cost - largely attributed to (the escalating) cost of international sports rights. (MultiChoice's SuperSport will have to negotiate a new Premier League contract towards the end of the year by the way.)
These costs also do however also include costs associated with the roll-out of new TV channels, as well as investment in local TV content.
This is a huge amount of money, and that it almost doubled over just 4 years is very important (an average 16% per annum increase for the last 4 years which is massive). Why? Well, unlike Eskom who simply passed the cost on, MultiChoice - although it is a business and not a charity and has a profit motive as its bottom line - haven't almost doubled their monthly subscriptions in the past four years. In real terms DStv subscribers are actually getting more for their rand, since MultiChoice has been paying incrementally more per year for content that what subscribers do.
Why it matters: While DStv subscribers have come to almost automatically assume that MultiChoice will just have and show everything - especially sport, it is conceivable - given the very sharp rise in programming costs - that a point will come where even MultiChoice will just not be prepared to buy the broadcasting rights to a certain event anymore. To contain this cost or to keep it down, MultiChoice might reach a point where it refuses to pay and play ball when rights become too priced out. Programming costs can't continue to rise like this without some major difficult decisions at some point - sooner rather than later - in the future.
2.DStv is very well aware that there is competition and is reacting to it.
Some griping subscribers refer to MultiChoice as "MonoChoice" - a jab at the South African pay TV provider they would say is out of touch and behaving like a monopoly. Not really true. MultiChoice has in the past year significantly increased its decoder and installation subsidy (also for the HD PVR - its most expensive model, so it is not just subsidising the lower-end of the market).
MultiChoice is therefore clearly aware of competition, increased competition, churn, and that subscribers have choices. For the first time in years MultiChoice also talked about digital terrestrial television (DTT), meaning that MultiChoice is aware that in South Africa, it needs a strong pro-active strategy to maintain and grow market share when this tsunami of new television hits.
Why it matters: I think MultiChoice is pro-actively trying very hard to lower the biggest single barrier of entry to pay TV uptake in South Africa (as well as the rest of Africa) (where DTT already exists, but also where it hasn't commercially launched yet). If MultiChoice can sew up more new entrant subscribers, it "removes" those people from trying a DTT decoder later when DTT becomes available. It grows the captive audience before they're given the chance to be lured away. TopTV's ongoing 100% subsidy on installation and 90% on the decoder also clearly promoted MultiChoice to respond to the changing market conditions and new subscriber perceptions in South Africa around pay TV.
3.Why a video store franchise in South Africa is definitely no longer a good idea.
Why it matters: Only 40% of all PVR subscribers are registered so far, who are using DStv BoxOffice. A big number, but that's actually less than half. It means that these figures can still more than double in future.
If you don't run a niche video shop, or if you run a normal video shop or a movie cinema where people throw popcorn and talk loudly on their cellphones, you had better start doing something fast about your positioning, brand experience, offering and marketing mix, since its very clear that DStv BoxOffice is very fast starting to lure DVD renters and cinemagoers away. This is clearly very quickly having an impact on DVD rentals and cinema ticket sales in South Africa.
4.A little bit less attention to the top end subscribers?
MultiChoice's DStv Compact bouquet is performing exceptionally well, so much so that by the end of March 2012 DStv Compact has added 293 000 new subscribers (out of a total of 492 000 new subscribers). MultiChoice is also saying it has and will have a strong focus on the lower end of the market in an aggressive ongoing attempt to enter the mass market.
Why it matters: MultiChoice has lacked and DStv is far behind the rest of the world in the roll-out of high definition (HD) TV channels. It's mostly due to limited remaining satellite bandwidth and MultiChoice needs to wait for the next Intelsat. With HD channels still the privileged domain of DStv Premium subscribers, does it mean that with more attention, effort and money going to the lower end of the market, that DStv Premium subscribers are getting less innovation and value-added services although they pay top rand for more bells and whistles? When will DStv Premium be making another leap to differentiate the top bouquet which indeed got somewhat diluted the past few years by the addition of a myriad of new TV channels being sold through on DStv Compact?
5.Get ready for major growth in time-shifted viewing (TSV)
MultiChoice's PVR is now in a further 177 000 more TV households in South Africa after another year for a total of 675 000 PVR households. It's major growth, which MultiChoice only mentions in a one-liner. This is however building and advancing a seismic shift in not just the way South Africa TV viewers consume television (time-shifted viewing will surely continue to grow, although from a small but significant base) but also how viewers interact and increase the level of familiarity they feel with this TV techonology.
Why it matters: The strong growth suggests that increasingly a PVR and PVR technology is no longer seen by the South African consumer and TV viewer as a luxury but as a must-have necessity to enhance their TV watching experience. Possible new entrants in the pay TV sphere as well as existing players (will) simply look old-school and dodgy for not having PVR capability as a standard-default design in decoders. Viewers and pay TV subscribers now definitely know about this technology, is figuring out how it works, and loves it. It would also be prudent for the advertising community to educate themselves about the growing relevance and influence of time-shifted viewing (TSV) in South Africa.
6.The value that consumers are placing on paying for (better) television in SA is increasing
Pay TV is of course discresionary spending. With the South African and African consumer under increasing pressure with a shrinking disposable income, it is very interesting that they choose to use some of that money to pay for television. Despite tougher economic conditions, a huge amount of people still decided to keep, and to get pay TV for the first time.
Why it matters: This means that TV, watching television, and being willing to pay for subscription television is, or has become, an even bigger priority to average consumers, relative to all the possible monthly expenses they could incur. Since consumers are not getting richer (thanks petrol price increases, thanks electricity and food price increases) it means that consumers are deciding to keep and get pay TV, and are possibly letting go of spending on other luxury items. It means they value their television and their pay TV subscription more in relation to the value they perceive they're getting from other things.