DStv’s rivals dropping like flies
Naspers CEO Koos Bekker is drawing little comfort from Telkom’s decision in April to withdraw from a venture aimed at tackling MultiChoice, the media conglomerate’s lucrative pay-TV arm.
Telkom plans substantially to reduce or even completely sell its 66% stake in Telkom Media, which was seen as the company most likely to break MultiChoice’s stranglehold on pay-TV. Telkom Media is one of four new pay-TV licences awarded by the Independent Communications Authority of SA (Icasa) in 2007.
Telkom is not the only company to renege on its initial plans. E.tv sister company e.sat decided late last year to pull the plug on its own pay-TV plans, complain ing that Icasa had licensed more operators than the market could sustain.
It’s a view shared by Khulekani Dlamini, portfolio manager at Renaissance Specialist Fund Managers.
Dlamini believes Icasa put the cart before the horse. Instead of licensing new pay-TV operators, the authority should first have created the regulations that would have helped ease the entry of new players into the market.
Icasa is only developing these regulations — which will deal with content rights, among other things — now that the new players have been issued with licences. Zolisa Masiza (pictured), the former Icasa councillor who oversaw the pay-TV licensing process, concedes this but says Icasa was working under very tight deadlines imposed on it through legislation.
Despite e.sat’s withdrawal and the cloud over Telkom Media, Bekker insists that serious competition is coming, and says MultiChoice cannot afford a moment’s complacency. “There are hundreds of channels available for a competitor to launch against MultiChoice,” he says.
“Walking on Water Television, On Digital Media (ODM) and Telkom Media will all launch competing services,” Bekker says. “ODM, which has raised R1bn in funding, will be a formidable competitor. Telkom Media, too, will launch with its war chest of R5bn and give us a good run for our money.”
Telkom Media, which has pumped hundreds of millions of rand into hiring staff and building broadcast studios, is expecting news on its future soon. A source says the Telkom board, which was due to meet on Thursday, after the Financial Mail went to press, would discuss an offer from a consortium interested in acquiring its stake in Telkom Media. The board is also expected to consider an approach from a consortium led by Tokyo Sexwale’s Mvelaphanda Group, which has expressed an interest in acquiring Telkom. However, the Mvela consortium is not involved in the bid for Telkom Media, says the source.
What is known is that the consortium interested in Telkom Media will mostly include local investors, since Icasa rules prohibit foreign ownership in local pay-TV operators of higher than 20%.
Consumers will be waiting anxiously for the news. Telkom Media, whose name will have to change once Telkom sells or reduces its stake, initially secured more than R7bn in debt guarantees from local banks, underwritten by Telkom. This has since been reduced to R5,3bn.
Telkom Media staffers contacted by the FM this week remain optimistic that a white knight will rescue the company. However, its planned launch, initially expected in the second half of 2008, is likely to happen only next year, giving MultiChoice some breathing space.
ODM is now expected to be the first new player to market. MultiChoice SA CEO Nolo Letele acknowledges that ODM, which has kept its plans largely below the radar, could prove to be a formidable competitor. The new rival — whose shareholders include labour federation Cosatu’s investment arm Kopana, the Industrial Development Corp, and European satellite group SES Astra — has raised R1bn in financing, of which R800m is equity provided proportionately by the shareholders and a R200m loan from the Development Bank of Southern Africa.
Unlike Telkom Media, which plans to produce a significant volume of local content, including its own 24-hour news channel, ODM will initially buy ready-made programmes from local and international sources. This, coupled with a plan to outsource many of its back-office processes, will help it achieve a break-even position with 300 000 subscribers.
The company will target LSM 6-9, and will not go after the very top end of the market where MultiChoice is strong. Subscription fees will range between R99/month and R349/month.
Walking on Water Television is also a dark horse. Though it plans to launch only one channel, made up of family values-orientated programming (not overtly Christian in nature), it will be the cheapest offering in the market at R49/month. And, say analysts, it could do well given that SA is still fundamentally a conservative society.
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