MultiChoice wants to expand its pay TV business to the lower end of the market both in the rest of Africa as well as South Africa through utilising digital terrestrial television (DTT) (which has not commercially launched in South Africa yet).
MultiChoice is also working to provide its DStv pay TV platform's content anytime, anywhere and on any device as broadband access and speed grows inside South Africa and across the continent.
Naspers which includes MultiChoice as a pay TV business, announced its preliminary financial year results for the year ending March 2012 today with MultiChoice achieving strong growth and increasing its total subscriber base in Africa to 5,6 million households.
Pay TV subscriber growth is up 14% year-on-year (YoY) for MultiChoice which now operates in 48 countries across Africa, but competition is steadily increasing.
Regarding subscriber growth, Koos Bekker, Naspers CEO said "it was our second best year ever," in an hourlong conference call to investors this afternoon. "It didn't get to quite the World Cup heights, but it was in our view pretty good."
[Look at the blue columns above in the slide presentation Naspers made, and you'll see March 2012 has the second highest subscriber growth number of the past four years.]
In the conference call Eben Greyling, the CEO of pay TV platforms at Naspers said "we're very satisfied with the subscriber growth."
"Competitive pressures continue to increase across the continent and the impact of that can be seen in the increase in our cost and especially in content cost over the last couple of years," said Eben Greyling.
"Our strategey remain the same: we want to provide our DStv content anytime, anywhere and on any device. Globally we've seen pay TV operators being challenged by the entrance of new companies delivering content online directly to consumers. Africa unfortunately has lagged the developed markets in the online space; this will however change over the next couple of years and we have various developments in place to prepare for the shift to online distribution of content."
"The second part of our strategy is to expand our service to the mass market. The roll-out of DTT in our main markets is core to this strategy, so positioning the business is important," said Eben Greyling.
Interestingly, MultiChoice's programming costs has almost doubled over the course of the past 4 years to just over R6 billion. That is the costs associated with acquiring TV shows and movies exclusively and in a first-run window for territories; as well as the sports rights to major sporting events.
"Programming costs have increase on average 16% per annum for the last 4 years and the increase in the last year was 10% on a year-on-year (YoY) basis," said Eben Greyling. "That was due to additional sport rights coverage that MultiChoice included for the first time, and our investment in local content and new TV channels especially in the lower market segments."
"The pay TV business in South Africa performed well in the past year," said Eben Greyling. "We achieved growth of 493 000 subscribers on the back of extensive marketing campaigns and hardware specials. Growth in the DStv Compact bouquet remains strong. The popular PVR decoder recorded growth of 177 000 to end on 675 000 homes. The focus on growing the PVR base did result in an increased investment in decoder subsidies."
"For DStv BoxOffice we've now got more than 40% of our PVR homes registered for this service and average more than 300 000 movie rentals per month," Eben Greyling said.
In the rest of Africa MultiChoice is experiencing pressure on margins due to the start-up of new DTT operations and the development cost involved in the roll-out of DTT, investment in local content and new channels and sports rights.
"We're focusing in the field of pay TV much more on the bottom end of the market," said Koos Bekker [speaking specifically about the rest of sub-Saharan Africa - although its highly likely also true of South Africa.]
"You'll see a focus on driving household penetration, and digital terrestrial television is one of the ways that we want to open up that market," Koos Bekker said.
Operationally the accelerated DTT roll-out will have consequences for capital expenditure and operating cost for MultiChoice, the pay TV operator warned.
Eben Greyling was asked by an investment analyst about the impact of DTT, as well as the churn [customers who become subscribers, then cancel after a while, and have to be persuade to sign up again].
"It's too early in the roll-out of DTT to see a trend or what trend is developing on churn for DTT," Eben Greyling said.
"The moment you go into the lower end of the market, price sensitivity becomes an issue and if you manage to bring down the barrier to entry, if you bring down the price of the equipment, then you see a much larger take-up of the product because it has a lower price. But it also impacts on the quality of the customer that you get which will likely result in an increase in churn."