SABC NOW WANTS MONEY FOR 'MUST CARRY'

Thursday, January 14, 2016

Half of American pay-TV subscribers would immediately drop ESPN if they could which is actually the most expensive in-bundle channel. Here is what it means and why it matters.


Troubling new market research shows that more than half - actually almost two-thirds (56%) - of all American pay-TV subscribers would immediately drop the struggling ESPN sports channel if it meant that their monthly pay-TV subscription would decrease (by as much as $8 or R134).

Of course in America, like in South Africa, pay-TV subscribers can't pay per TV channel, but in the carriage fee break-down, ESPN is by far the most expensive channel.

It means that pay-TV operators pay by far the most money to ESPN (per subscriber) to have and to carry ESPN as part of their collections of TV channels, which means that ESPN makes it more expensive than other channels to have ESPN.

I always read ESPN stories with interest, and while I read them, I always substitute the word "SuperSport", since SuperSport is basically MultiChoice's version of Disney's ESPN in the American pay-TV sphere.

Of course the interesting thing is that ESPN, that was available on MultiChoice's DStv until it abruptly didn't want to be in Africa anymore and left two years ago in 2013, is in growing trouble.

The latest American market research about ESPN is very interesting and made me think about when SuperSport in South Africa and across the rest of Africa might possibly start to reach the same tipping point of becoming too expensive due to skyrocketing content and licensing costs - or framed in another way - might be something DStv subscribers would do without if it meant a lower monthly subscription fee.

Let's look at the market research from the American research firm Civic Science that interviewed 1 582 people in the first week of January 2016, of which 1 370 are pay-TV subscribers (87%).

A whopping 56% said they would cut ESPN to save R134 per month off their monthly pay-TV fee.

A large 60% of women and 49% of men saying they would drop ESPN from their pay-TV bundle if they had the choice and because it would make it cheaper.

If ESPN became available as a "choose than only" TV channel, and subscribers had to pay for just ESPN, the price would dramatically increase, to lets say $20 (because there would be a lot less subscribers).

Only 6% of people said they would pay $20 per month to get ESPN.

(Keep in mind that asking respondents about this $20 is conservative - the reality is that ESPN would actually need to charge closer to $30 for a stand-alone channel offering to be economically viable).

Now also remember that the troubled ESPN, the most expensive TV channel in the entire American pay-TV bundle, is losing subscribers by the millions - 7 million just the past two years.

ESPN also recently said its firing 300 people and downsizing.

"We continue to believe ESPN is in serious trouble as they spent far too heavily on long-term sports rights contracts, given the deteriorating state of the multichannel video bundle," said analyst Richard Greenfield.

He called ESPN's future growth prospects "dim".

It means that ESPN as a stand-alone channel or service, not tied into a pay-TV bundle would struggle: 56% of pay-TV subscribers will drop it immediately, and only 6% will be willing to pay to get ESPN at the much higher price that ESPN will have to ask to be viable given what it has to spend on sports rights.

What is the situation in South Africa (and across Africa)? Well, its very clear that the price of sports content and licensing rights for the big ticket sports events, especially international, are growing much faster than inflation.

Then there's also the constant devaluation of African currencies going on like the weakening rand.

I don't know when or if it will happen, all that is certain is that if this dual damaging trend continues of higher than inflation content cost increases, together with currency devaluations, that a point will come where,similar to ESPN, MultiChoice and SuperSport will no longer be able to bear the cost.

Similar to the BBC Worldwide channels BBC First and BBC Earth that is "too expensive" for MultiChoice in Kenya and other African countries to carry, SuperSport will have to opt out of acquiring those rights because its no longer economically and commercially viable.

SuperSport is not there. Yet. American's pay-TV business and ESPN as a sport content provider are also part of a much more mature business.

But it does offer a fascinating glimpse of what could be in South Africa and Africa's future as well as the pay-TV business on a global scale is going through seismic changes with the traditional bundled pay-TV model coming under threat from all different corners.