When the Independent Communications Authority of South Africa (ICASA) granted five of the (initial) 18 hopefuls a subscription broadcasting licence in September 2007, it granted licences to operate in probably the most expensive and complex of all businesses in the television broadcasting arena.
Let’s, for argument’s sake, put aside the fact that pay-TV is pay-TV – where folk (in the LSM 6-9 bracket – the market the new operators are supposedly targeting) have to pay a monthly subscription fee of at least R150, plus the cost of a decoder and dish installation.
This has to happen against the backdrop of a global food and fuel crisis which has arrived in South Africa, the cost of which is driving up inflation and contributing towards interest rate hikes.
Let’s also put aside the fact that the new operators have to build a platform in order to receive and transmit international channels direct-to-home (DTH) as well as buy in an encrypted subscriber management system. Added to that, they have to build facilities and install systems that are required to construct, schedule, compile and manage all the channel assets, rights clearances and play-out periods of the locally produced channels we have read quite a bit about. All of which is absolutely possible, but at a cost that would eventually find its way to those subscriber fees.
Which leaves us with the essence of pay-TV: content that drives and maintains subscriptions.
Subscription drivers
For the most part, sport and movies are the major subscription drivers. Series, documentary and news channels add value to the subscription and for families with kids, Cartoon Network and Disney Channel are winners.
Music and lifestyle channels also have their appeal, particularly amongst younger members of the subscriber family. Typical pay-TV platforms such as MultiChoice (in the South Africa context) are multi-channel. There are hundreds of channels that are constructed and compiled for broadcast on pay-TV platforms around the world.
Discovery Channel, for example, probably “sits” on every single pay-TV platform around the globe, where the bulk of their revenue is generated through the rate the platform provider pays them per subscriber on a monthly basis. The stronger the channel brand, the more valuable that brand becomes to the platform provider, the higher the cost per subscriber (CPS) rate is for that particular channel. Operators without subscribers therefore have a tough time at the negotiation table when they are up against platform providers in a territory with close to 2-million subscribers.
This pushes up the CPS per channel even further as new operators try to muscle in, which is ultimately passed on to the subscriber every year. Having established that sport and movies are the major subscription drivers, SuperSport and M-Net certainly have all that content covered, as both companies compile for the DStv bouquet broadcast off the MultiChoice platform.
Most of the research I have seen illustrates that the M-Net-compiled channels (including the main M-Net general entertainment channel) and the SuperSport channels are the most popular amongst subscribers. And rightly so – between both M-Net and SuperSport, the DStv offering has the very best of global content offerings.
SuperSport has sown up all the rights to broadcast the major sporting events for years to come, including their spectacular Premier Soccer League (PSL) coup. Sport is typically the driver that “gets a subscriber in”, so if the new pay operators don’t have any live sport to speak of, what would they use to “get ‘em in”?
Let’s look to movies and the ever-popular series. For starters, M-Net “owns” all the first pay-TV movie rights, which have a two-year window in South Africa, meaning other broadcasters don’t have access to those premium blockbuster movies for two years.
The free-to-air channels, e.tv and SABC1, 2 and 3, buy those movies straight after the M-Net window closes, which begs the question: Why would people without DStv pay for movies they will eventually see for free on either e.tv or one of the SABC’s channels? Between M-Net’s main channel, M-Net Series, M-Net Action and Go, the pay-TV channel compiler has bought up all the premium series. In the earlier days (before the pay-TV wars), all the great M-Net series would premiere on M-Net’s main channel and move to M-Net Series as a rerun.
The company acted swiftly at the 2007 LA Screenings, where series are screened and bought by broadcasters, just prior to the new licences being awarded. It literally bought the entire new product available from “LALA Land” to the globe’s broadcasting fraternity.
Since M-Net has now bought so much new product, we not only see series premiered on the M-Net channel, but on their three other entertainment channels, Series, Action and Go, which has just made the M-Net product offering as a whole even more valuable to subscribers. This strategy, which includes M-Net’s great billboard marketing, has certainly positioned the “series genre” as content that makes subscribers feel they would miss the service if they no longer had it.
The SABC also buys blockbuster series like “Desperate Housewives” and “Prison Break” after those shows have premiered on pay-TV, so again: Why would people without pay-TV pay for content they could access on free-to-air channels after the series have premiered on DStv?
Beyond the top channels on the DStv bouquet compiled by “brother” and “sister” companies SuperSport and M-Net, MultiChoice itself sources the very best of the global channel brands which adds “weight” and big brand status to the bouquet – namely Discovery, National Geographic, Cartoon Network, MTV, BBC Prime, BBC World, Sky News, CNN, Al Jazeera, etc.
And whilst these channels appear on pay platforms around the world, the uniqueness in this territory is that MultiChoice (barring a few news channels) has exclusive deals with the majority of these big channel brands.
They can afford to with nearly 2-million subscribers across the continent against new licensees with no subscribers at all. What is left of the big brand channels for the new operators? There are a few, but they certainly aren’t heavyweight subscription drivers.
Not the answer
To add even more insult to injury, MultiChoice has worked very hard over the past year to either compile or acquire so-called library channels. In M-Net’s case, the M-Net Stars channel, which M-Net has compiled and packaged, made up of movies from the major studio libraries, primarily from the ’80s and ’90s. And in MultiChoice’s case, Sony Entertainment channel, which it has acquired, made up of both movie and series libraries from the studios.
Whilst there is plenty of library material available for broadcast buyers, M-Net and MultiChoice are ensuring that the new operators will have limited choice as and when they start compiling and/or acquiring. Library channels are certainly not subscription drivers; they merely add to the volume of channels across a bouquet. And for the most part an enormous amount of library content is bought by the free-to-air channels as well.
There has been some commentary about UGC channels (user-generated content) and local content. Quite simply, UGC is the domain of the internet and the next big trend in the digital economy, but it’s not enough to drive subscribers to a pay-TV service; and as for local content, not enough is produced or could ever be produced to fill multi-channel bouquets compelling enough to get people to become subscribers.
My sense of the local content market and the viewers attracted to the product is that both the SABC and e.tv offer a good fare to people who don’t have pay-TV. Given the facts about the content market, I do not believe there is room left in that space to create a compelling offer to attract a whole new subscriber base.
I do, however, believe there is room to “open up the market and create competition” in other ways. E.tv, through its new satellite-TV sister company, e.sat, understood the dynamics of this market perfectly well when five operators were granted licences. It opted to create channels for an existing (and successful) pay-TV platform operator, starting with a 24-hour news channel. Good on e.sat for going this route. Since the news channel sits on a number of the DStv bouquets (premium and compact), I believe it may stimulate subscriber growth in the compact subscription market.
MultiChoice may stimulate the market further if it uses the “long tail” theory in its tiering structure. Essentially the “long tail” theory illustrates how endless choice is creating unlimited demand.
MultiChoice is in the process of tiering “downwards” as it tries to penetrate the market the new operators want. If ICASA really wanted to create more competition and open up the market, it should have issued MultiChoice with a licence along with all the conditions appropriate to a pay-TV operator and opened up the market by issuing more free-to-air (FTA) licences.
There is enough product after pay for more FTA single channels, people without pay-TV would have had more choice, advertisers would have had more opportunities and the local content industry would have had a real shot at upscaling their production capacity.
Clare O’Neil is a media and broadcasting consultant. She is a former general manager of SABC TV sales, was part of the team that set up e.tv, and is a former employee of M-Net and Oracle Airtime sales.
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!_LT_LIThis article first appeared in !_LT_EMThe Media!_LT_/EM magazine!_LT_/LI!_LT_/UL
