MultiChoice’s long shot

DStv-owner MultiChoice is betting on Showmax to become the biggest streaming service in Africa but faces stiff competition, an under-connected market, and a smaller share of that market than anticipated.

A partnership between MultiChoice and Comcast-subsidiary NBCUniversal has created a revamped Showmax that was transitioned over to the Peacock platform.

MultiChoice is rolling out its new Showmax throughout Africa and has ambitious plans and expectations for the streaming service, particularly in Africa.

Africa is a relatively underserviced continent compared to the international market, and many expect this to change in the near future.

The continent is seen as having immense growth potential, and many new and established players are vying for a share of this growth.

Between large global streaming players like Netflix, Disney+, and Amazon Prime, there is much competition to capture the biggest share of this growth.

However, MultiChoice believes Showmax will be able to compete with these players through its understanding of and experience with the continent and its unique local content offering.

Steep competition

Sanlam Private Wealth investment analyst Dumisani Chiume recently said the company has sold MutiChoice’s shares from most of its clients’ portfolios, as it found MultiChoice is not a business it would like to own over the long term.

One of the reasons for this is the steep competition Showmax faces from global streaming giants like Netflix.

Chiume explained that while MultiChoice may be able to compete in terms of content, the price it can charge is limited by the competition.

“Put differently, if there is a mass migration from DStv to Showmax, this will likely come at lower margins than MultiChoice is used to,” he said.

In addition, a Daily Investor analysis has shown that the market may be far smaller than MultiChoice may hope, making competition on the continent even more difficult.

Showmax is expecting video streaming uptake to undergo exponential growth in Africa, making it possible for the streaming service to thrive on the continent.

Following the release of its most recent results, MultiChoice said it wants to increase its total subscriber base to 50 million users in 2028.

Assuming this number will be split between DStv and Showmax, this implies Showmax will increase its subscriber base from around 1 million users to 25 million users in five years, according to calculations done by Daily Investor.

Since Showmax’s launch in 2015, it has achieved a compound average growth rate (CAGR) of around 35%  in terms of subscriber numbers.

It has onboarded about 125,000 subscribers per year on average.

Showmax’s Africa growth estimates put the expected CAGR at 90.4% for each of the next 5 years – this is an unprecedented level of growth for the company.

Connectivity issues

Showmax’s subscriber growth was largely achieved in South Africa, one of the richest countries in Africa with a national broadband coverage of over 90%.

Digital TV Research predicts that the total number of video streaming subscribers in Africa will only be 15.6 million users by 2028, significantly less than what Showmax will require to meet its target.

According to the Global System for Mobile Communications Association, only 21% of the sub-Saharan African population had smartphones. However, only 17% of the 21% were connected to a mobile network.

The World Bank estimates that only 36% of Africa’s total population had access to broadband internet in 2022.

Broadband is also relatively expensive in Africa, with 1 GB costing 3.5% of the region’s monthly GDP per capita.

This is well above the international target price of 2% for 1 GB of broadband, making it inaccessible for many, especially for the poorest continent in the world.

Streaming services are inaccessible without network connectivity, and Africa, being underserviced, is likely going to be a more difficult market for streaming services to penetrate.

Internet access is becoming cheaper and more accessible to lower-income individuals, and Africa’s network landscape will most likely change.

However, Sub-Saharan Africa has poor network infrastructure access and has a low-income population with very little disposable income to spend on entertainment.

Companies like Showmax, therefore, face some harsh realities that will make Africa a much more difficult market to penetrate than what they have experienced in South Africa.

It will especially make MultiChoice’s 50 million subscriber goal very difficult to achieve.

$1 billion ambitions

MultiChoice has also said it has an ambitious plan to generate $1 billion (R19 billion) within the next 5 years with its Showmax 2.0 service.

PwC recently released its outlook for Africa’s media and entertainment market. It looked at South Africa, Nigeria, and Kenya – the biggest streaming markets in Africa.

Currently, South Africa and Nigeria alone cater to 54% of Africa’s total video streaming market, with the remainder being scattered between 33 countries.

In this report, PwC predicts that these three markets will reach a total size of R9.5 billion in 2027 – considerably lower than the R19 billion target set for Showmax.

Canal+ hope

If MultiChoice’s Showmax bet does not pay off, the company may still have a saving grace in the form of a buy-out offer from French media giant Canal+.

Early this month, Canal+ made a non-binding offer to buy MultiChoice for R105 per share.

The company has steadily been buying MultiChoice shares and now owns around 35% of the company’s shares.

However, MultiChoice rejected Canal+’s offer, saying the price significantly undervalues the company.

Despite this rejection, Protea Capital Management senior investment analyst Richard Cheesman told Daily Investor that the deal could still go through.

He explained that MultiChoice’s rejection of the offer is seemingly a classic negotiating “dance” between companies in situations like this and could actually be to the benefit of MultiChoice shareholders.

MultiChoice has invested heavily over the past few years, particularly in its Showmax platform, which the company believes will make it the leading streaming service in Africa.

While it is still unclear whether these massive investments will pay off, there is a lot of potential and MultiChoice and its shareholders have yet to benefit.

If Canal+ were to buy the company now at what some consider a “low” price, it would reap the benefits of these investments, while MultiChoice shareholders would not.

Chiume also said that Pay TV and streaming are not mutually exclusive, and MultiChoice should not expect Showmax alone to be a silver bullet for the company.

He said pay TV still has some runway in Africa, which is likely what attracted the Canal+ offer.

In addition, there are definite scale benefits to combining the MultiChoice subscriber base with that of the leading operator of pay TV in French-speaking Africa.

“Whether or not the deal goes ahead in the long run, DStv will likely struggle to defend its profit pool or grow it in real terms,” Chiume said.


This article was first published by Daily Investor and is reproduced with permission.

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MultiChoice’s long shot