For TopTV, the feisty competitor to MultiChoice, 2011 has been a good year. But this may change. While it was lauded as one of the fastest growing TV platforms in emerging markets last year, take up of the pay-tv provider’s services has slowed.
This is forcing the company to sharpen its pencil as it heads into the new year.
In the 18 months since its launch in 2010 TopTV picked up 360 000 subscribers. It needs 400 000 subscribers to break even, a target that Vino Govender CEO of holding company On Digital Media (ODM) believes can be met in a year.
TopTV targets consumers in the LSM’s five to eight. Its entry level offering is R99 and premium offering is R269, a far cry from DStv’s premium bouquet of R590.
The challenge the pay-tv company faces, he says, is not simply expanding the subscriber base, it is retaining those customers once they have signed on. “In the LSM groups that we target there is a high churn rate. We are about 100 000 subscribers away from our break-even point.”
To attract new customers TopTV is launching new products, such as its Playboy bouquet. It also plans to enhance its current sports offering which includes football channel Setanta Africa, SABC sport and Euro Sport. The new sports channel was due to be introduced this year, but has been delayed. ODM is also working on enhancing its backend to improve customer service. The introduction of PVR (personal video recorder) is a priority. “When you start offering adult entertainment you need to offer a PVR service,” says Govender.
But PVR and high definition TV are unlikely to be available for another 12 months. “We are currently evaluating our options for implementing new technologies, and have issued a request for proposals.” Video on demand, another proposed offering, is not on the radar yet. “We can only consider video on demand once we have made decisions around which technologies we should use,” he says.
ODM does not own its TV broadcast platform. Instead its technology requirements are provided by SES, the European satellite operator and pay-TV service provider. It built the TopTV broadcast platform and manages the content scheduling and the broadcast signals. This is not an unusual decision for a pay-TV start-up, says Stéphane Goebel the VP for global sales at SES Platform Services, a subsidiary company. “This frees the company to focus on acquiring and licensing content and building a subscriber base.”
SES holds a 20% stake in TopTV, along with the IDC, the National Empowerment Fund and the Development Bank of SA. “We do not usually invest in our customers,” says Goebel, “but our objective is to grow pay-TV in Africa. With our experience we can give companies like TopTV a leg up.”
Initial funding for TopTV was R1bn, however a new round of fund-raising is about to begin. Govender did not indicate which partners were likely to contribute to the next round of funding. Any pay-TV business from start up would require about R3bn to reach the breakeven point, says Govender. “Our business plan suggested we would be fund raising as early as May this year.”
SES plans to exit its investment as soon as possible. Initially it was thought this would be via a listing, but a listing is not feasible yet, according to Govender.
It is possible a new partner could come on board, or buy out SES, in the form of another pay-TV platform. “SES has done what it needs to. Our satellite platforms work.”
A big brother could be a welcome addition.
Multichoice has turned into a more formidable competitor than initially expected. In the same time that TopTV picked up 300 000 new customers, Multichoice acquired another 900 000 – mostly thanks to the soccer World Cup. “We knew they would react to our offering. But we did not expect them to provide a competitive offering so fast, nor did we expect them to allow for the cannibalisation of their higher tiered products.”
He smiles. ““There is no book out there that says ‘How to start pay-TV 101’. We have spent time learning from foreign players. In many cases not having the knowledge has helped us to do things differently and more efficiently.”
What worries him is the economy. December usually sees high numbers of new consumers switching on their services, but this year may be different. “There are 8m households in debt. With disposable income as limited as it is, I don’t anticipate a lot of growth this Christmas.”
The weakening rand is also an issue as many of the company’s costs – content and satellite services – are dollar based.
But what is gladdening his heart is the fact that the company has the critical mass to attract advertisers. “We are heading down the road of selling commercial air time. We expect to be cash-flow break even within six months.”