MultiChoice bets on a future beyond pay TV

While pay TV is still growing in Africa, as MultiChoice keeps reminding investors, it’s hardly booming.

The pay TV operator itself says it sees the total addressable market (TAM) in Africa growing at an annual compound growth rate of 3% over the next four years. Its single biggest opportunity here is to narrow the gap between its current 23.5 million base and the TAM of 53 million.

In South Africa, though, the market could be euphemistically described as ‘mature’. The only growth is at the lower end of the market, around R100 a month. The upper and middle segments are in decline.

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MultiChoice has already warned that sustained load shedding has hurt the business in recent months.

Just how badly will be clearer in three weeks’ time when it reports its annual results. The timing of its capital markets day, held on Tuesday (23 May), was curious given how close it was to the results presentation.

Still, its home market churns out tons of cash (R7.4 billion in FY22). Dividends from the SA business as well as technology unit Irdeto meant R5 billion in cash was available to the group in the past year.

The loss-making African pay TV business continues to require a chunk of this, but it should break even this year or next.

Anything but linear

In theory, the plan is simple. Use this cash, as well as increased debt, to rapidly diversify beyond pay TV.

The plan focuses on four verticals: streaming (Showmax), sports betting, fintech and home services.

The last of these is where it has mostly been fiddling around the edges. Selling decoder insurance and emergency response services (Namola) as well as reselling fibre/mobile internet packages in SA is hardly going to move the needle materially.

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It has entered the payments space, together with global provider Rapyd and venture capital funder General Catalyst. It owns 26% of the joint venture, Moment.

Right now, the biggest opportunity is cost savings for the group by shifting DStv subscription payment processing onto this platform. Longer term, the opportunity is enormous but finding space in a market increasingly dominated by mobile operators will be challenging.

Moving the needle

So, then, to the two real nearer term opportunities beyond pay TV …

Showmax, which is being inserted into a joint venture with Comcast/NBC Universal/Sky, will become a far better and more formidable competitor to other streaming players (for now, Netflix, Disney+ and Prime Video).

Versus its original estimates for the next 10 years, the group now sees more than three times the number of subscribers for the service. It also expects the business to be profitable within the next three years.

This should offset some of the declines in the linear TV business.

That was always the bet. Before that, though, there will be a sharp increase in costs as it pays partner Comcast the cost of moving Showmax to the Peacock streaming platform.

One wonders what took MultiChoice so long to enter the sports betting market, an obvious adjacency for any pay TV operator, particularly one in emerging markets.

The group finally acquired Nigerian sports betting business, KingMakers, in two transactions in 2020 and 2021. This didn’t come cheap, however. It paid $393 million – nearly R7 billion – for a 49% stake.

The plan is to focus on its home market Nigeria, where it owns one of the market leaders (Bet King), and South Africa. Intended forays into Kenya and Ethiopia have been “paused”.

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It will operate in SA under the ‘SuperSport Bet’ brand and its entry, where it will face two very formidable market leaders in Betway and Hollywoodbets, is imminent.

MultiChoice should enjoy lower costs of acquiring betting customers because of the acres of airtime on SuperSport (and ability to integrate its betting products into content in a way competitors can’t).

Kim Reid – Takealot founder and former CEO – has been parachuted in as CEO of the sports betting business.

At least the Nigerian business is profitable and generating cash, with the group’s business plan fully funded ($167 million).

Given the challenges in getting cash out of Nigeria, concentrating the investment in this market might prove to be a miscalculation.

Can it generate a return on the near R7 billion paid for half a betting business (it took on R4 billion in debt to fund this)? Executives are, by definition, bullish. Time will tell.

Beyond that, how many more of these big bets can it self-fund if the cash flows from a struggling SA business start to stutter? This is something investors will no doubt be paying a lot of attention to in the next year or two. Perhaps even as soon as this June.

This article originally appeared on Moneyweb and was republished with permission. Read the original article here.