DStv under siege
South Africa’s biggest pay-TV broadcaster, DStv, is suffering a subscriber exodus due to increased competition from video streaming services.
Parent company MultiChoice reported a record loss of R4.15 billion in its 2023/2024 financial year.
That disastrous performance came on the back of a loss of R2.92 billion in the previous financial year.
As a result of this financial deterioration, MultiChoice’s liabilities now outweigh its assets.
That means the company is technically insolvent and would not be able to settle all its debts if it were liquidated.
The primary reason for MultiChoice’s poor financial performance is a decline in subscription revenues, which plunged 7% from R48.66 billion to R45.24 billion across all markets.
Between March 2023 and March 2024, MultiChoice lost roughly 1.62 million of its 17.31 million subscribers — a substantial 9.4% decline.
When using its preferred 90-day active subscriber account, the drop from 23.51 million to 20.93 million was an even more worrying 11%.
The company’s advertising revenue also slumped 6.8% from R4.2 billion to R3.9 billion due to declining linear TV viewership.
The primary problem DStv faces is that Africans and South Africans in particular are increasingly using video streaming services for entertainment.
At current prices, it is possible to subscribe to all of the major international streaming services and MultiChoice’s own Showmax for far less than a DStv Premium or even a Compact Plus package.
MultiChoice has acknowledged that international players like Netflix and Amazon Prime Video are a major existential threat to its businesses.
Looking at the trend in subscriber changes over the past few years, it quickly becomes evident that Netflix’s global launch in early 2016 played a big part in accelerating DStv’s misfortunes.
In the years leading up to Netflix’s rollout in South Africa, DStv’s top-end Premium package recorded positive growth, which was fantastic for revenues.
Just three months after Netflix’s debut, MultiChoice reported its first big decline in Premium subscribers.
That trend continued in the next two years and likely thereafter, despite MultiChoice’s attempts to obfuscate the actual numbers.
Broadband improvements boosting video streaming
In South Africa, the growth of video streaming has been supported by a reduction in capped mobile data prices and an explosion of uncapped data packages across multiple technologies.
According to Statistics South Africa’s latest General Household Survey, 78.6% of households had Internet access in 2023, up significantly from 59.3% in 2016.
Eight of the biggest fibre-to-the-home (FTTH) networks in South Africa currently have around 1.9 million homes connected to their networks.
Considering there are dozens of smaller fibre operators in the market, it is likely that the number of homes with this type of fixed broadband far exceed 2 million.
That is double the peak number of ADSL customers South Africa had in March 2016.
A report from the Internet Service Providers’ Association of South Africa estimated that 54% of South Africa’s population had access to FTTH connectivity, working out to more than 32 million people.
In addition to substantial FTTH rollouts and uptake, mobile networks have improved their infrastructure to support more uncapped fixed-LTE packages and launched fixed-5G services in many of the country’s most populated areas.
These technologies offer more than sufficient speeds for using video streaming services.
The increased broadband penetration has made cutting the cord easier for traditional TV viewers.
In the larger African market, the growth of lower-earth orbit satellite Internet services like Starlink is poised to be a game-changer for fast and uncapped Internet connectivity.
After an initial slow start, Starlink is now available in ten African countries and is set to roll out in most of DStv’s markets.
Diversification strategy
MultiChoice hopes its diversification strategy — with a focus on ancillary businesses in video entertainment, interactive entertainment, and fintech — will help it turn its fortunes around.
“Our focus now shifts to building on these solid foundations to drive growth in these new areas, and on further enhancing business efficiency across our operations,” MultiChoice said.
However, this strategy is at risk if French media giant Canal+ pulls off its buyout of MultiChoice.
The company’s chairman and CEO Maxime Saada does not believe that diversification is the right approach to ensure the broadcaster’s future success.
Saada said that Canal+’s focus is on its core business of content distribution, suggesting that the company could dispose of or divest from MultiChoice’s shareholdings in businesses outside of broadcasting or streaming — like SuperSportBet, Irdeto, Namola, DStv Insurance, and DStv Internet.
Canal+’s offer to buy MultiChoice’s outstanding shares at R125 will likely be a great relief to those shareholders who are sceptical about DStv’s future direction.
The fact that MultiChoice’s independent board accepted an offer much lower than the share price’s all-time record of more than R144 in March 2023 suggests that it is well aware of the company’s precarious financial position.
Investors who first bought MultiChoice shares when the company was listed on the JSE in February 2019 would have paid R95.50 per share.
If they held on to their shares before selling them to Canal+ at R125, their return would be about 30.9% higher than their original investment.
The compound annual growth rate works out to about 5.5% per year, higher than the average 5.1% inflation rate over the same period.
That return also excludes three dividend payouts of R5.65 per share in September 2020, September 2021, and September 2022.
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