Broadcasting21.06.2016

How ShowMax decided on R99

By Staff Writer

ShowMax launched its subscription video service in South Africa on 19 August 2015, offering a range of movies and TV series to subscribers.

One of ShowMax’s biggest selling points was its price: R99 per month.

ShowMax undercut its main local competitors at the time – MTN FrontRow (R149) and Vidi (R119) – and was also cheaper than Netflix.

MyBroadband asked ShowMax spokesperson Richard Boorman how they decided on R99 per month for the service.

Starting a video-on-demand business

Boorman said from a cash flow point of view, the initial price point chosen when starting a video-on-demand business is largely irrelevant. “It only becomes significant later on,” said Boorman.

VOD businesses typically require large up-front investment in things like back-end development, app development, and content rights.

“On launch day you start with a big red number in your bank balance. As your customer base starts to grow only then can you start to eat into that deficit.”

When one models this type of scenario, assuming it’s going to be a number of years before the business turns cumulatively cash positive, the initial price point only has a small impact on the overall picture.

Difficult to change the price later

Boorman said that while initial pricing is not critical, it’s not easy to drastically change the price down the road.

He said that small price changes, which may be caused by the weak rand, may not be liked, but are largely understood.

“However, suddenly tripling your price, on the other hand, obviously wouldn’t go down so well.”

Choosing R99 per month

With this in mind, ShowMax chose the price point based on the following factors:

How does it position us with respect to competitors?
How low can we go in order to make the product accessible to more people?
At what point is the price so low that it can’t sustain the content costs?

“We believe that the addressable market is much larger than just the higher-LSM audience, which is why we’ve invested engineering time into developing downloads with four different user-selectable file sizes, bandwidth capping options, and a cash payment voucher system.”

“As the cost of smartphones, tablets, and data comes down, we want to make sure we’re well positioned to get ShowMax into as many homes as possible.”

This thinking, said Boorman, had a big influence on the R99 price decision.