Founder: Turnaround Talk
Anybody with common sense knows that the quickest way to start a fight in a family is to get out a Monopoly board. The reason for this is simple, very few people favour monopolies as they are bad for business. Multichoice should remember this.
Over the past few months, we have witnessed the slow dismantling of one of South Africa’s biggest monopolies. Multichoice (operators of DSTV) have come under severe pressure and are battling to come to terms with market forces shaking the foundation of their operating model.
But what went wrong with one of South Africa’s most loved brands? Did they underestimate technology’s influence on their business and overestimate the value of loyalty? Did they not feel that they were overcharging their subscribers for the content that they were providing? It is a bit of both mixed in with a blatant disregard for Porter’s Five Forces, a guide commonly used for risk identification and management.
Ebbs with very little flows
A recent article by Mybroadband pointed out that MultiChoice’s latest annual results show its pay-TV service DSTv lost South African subscribers between 31 March 2022 and 31 March 2023.
Its subscribers declined from 8.16 million to 8.016 million between these two dates — a reduction of roughly 144,000 or 1.8%.
The article adds that, between the two previous years, 2021 and 2022, the decline was much lower — from 8.177 million to 8.16 million — a loss of about 17,000 year-end subscribers. Before these decreases, DSTv was adding subscribers every year.
Another Mybroadband article points out that this means that MultiChoice has reported a R2.9 billion after-tax loss for its financial year ended on 31 March 2023. This is down from a R2.8 billion profit last year.
Although the weak rand weighed heavily on the company, it also blamed load-shedding and other macroeconomic factors for its poor performance.
The article adds that in South Africa (Multichoice operates across Sub-Saharan Africa), MultiChoice reported a 23% drop in trading profit from R11 billion to R8.4 billion. South African revenue declined by 2% from R35.6 billion to just under R35 billion.
The article pointed out that Multichoice even went as far as blaming Eskom for its woes, saying that rotational power cuts and these other macroeconomic factors negatively impacted its South African pay-TV subscriber base and activity levels. Multichoice said there was a noticeable increase in churn when load-shedding reached stage 4 and above, even when consumers had disposable income.
It’s a valiant effort on the part of Multichoice to try and place all of the blame onto loadshedding. However, the blatant disregard of Porter’s five Forces is evident.
Let’s take a look at Porter’s Five Forces in more detail.
Image By: Harvard Business Review
Competitive Rivalry
The first of Porter’s Five Forces looks at the number and strength of your competitors. Consider how many rivals you have, who they are, and how the quality of their product compares with yours.
The article points out that, in an industry where rivalry is intense, companies attract customers by cutting prices aggressively and launching high-impact marketing campaigns. This can make it easy for suppliers and buyers to go elsewhere if they feel that they’re not getting a good deal from you.
On the other hand, where competitive rivalry is minimal, and no one else is doing what you do, then you’ll likely have tremendous competitor power, as well as healthy profits.
In Multichoice’s case, it was the only Satellite Television Provider in South Africa for many years. And even when Open View came along, it couldn’t hold up to the customer base that DSTV already had. This means that DSTV did become complacent in their product offering and could show repeats of movies every weekend because consumers had nowhere else to go.
Multichoice 1 – Disruption 0.
Supplier Power
The article adds that suppliers gain power if they can increase their prices easily or reduce the quality of their product. If your suppliers are the only ones who can supply a particular service, then they have considerable supplier power. Even if you can switch suppliers, you need to consider how expensive it would be to do so.
The more suppliers you have to choose from, the easier it will be to switch to a cheaper alternative. But if there are fewer suppliers, and you rely heavily on them, the stronger their position – and their ability to charge you more. This can impact your profitability, for example, if you’re forced into expensive contracts.
For Multichoice, this is different. Suppliers had very limited powers in that DSTV was the only satellite television company in Sub-Saharan Africa that would showcase supplier content. Therefore, they couldn’t move to other suppliers.
Multichoice 2 – Disruption 0.
Buyer Power
If the number of buyers is low compared to the number of suppliers in an industry, then they have what’s known as “buyer power.” This means they may find it easy to switch to new, cheaper competitors, which can ultimately drive down prices.
Think about how many buyers you have (that is, people who buy products or services from you). Consider the size of their orders, and how much it would cost them to switch to a rival.
When you deal with only a few savvy customers, they have more power. But if you have many customers and little competition, buyer power decreases.
When DSTv first started, and for much of the platform’s existence, buyer power was low as there were no other platforms like it. Therefore, without the ability to move to different platforms, DSTv could show repeat content.
Multichoice 3 – Disruption 0.
However, there was an inflexion point in the industry which proved to be a game changer. The Covid Pandemic saw the rise of streaming platforms that boasted impressive libraries. And with consumers already arming their homes with fibre (for work and education purposes), suddenly, Porter’s Forces became a reality for Multichoice. And the rate at which technology changes creates a UEFA Champions League Away Goal situation where an away goal is worth the same as two home goals.
Multichoice 3 – Disruption 2.
Image By: Alvaro Reyes via Unsplash
Threat of Substitution
This refers to the likelihood of your customers finding a different way of doing what you do. It could be cheaper, or better, or both. The threat of substitution rises when customers find it easy to switch to another product, or when a new and desirable product enters the market unexpectedly.
In the case of Multichoice, the flood of substitute products that had such impressive libraries at a low cost (compared with DSTv) saw the beginnings of the writing on the wall for Africa’s Satellite Television Pioneer. And the fact that Multichoice ignored innovation for many years meant that the company was very slow out of the blocks.
Television channels such as E Entertainment, M-TV and Channel O were originally the only way that consumers could catch up on celebrity news and listen to music in the background while working or studying (a practice popular among the younger generation). However, celebrity news is now popularly accessed across social media and streaming services like Spotify and YouTube allows consumers to curate their own playlists and not be governed by what the channel shows at that point.
Multichoice 3 – Disruption 4.
Threat of New Entry
Your position can be affected by potential rivals’ ability to enter your market. If it takes little money and effort to enter your market and compete effectively, or if you have little protection for your key technologies, then rivals can quickly enter your market and weaken your position.
However, if you have strong and durable barriers to entry, then you can preserve a favourable position and take fair advantage of it. These barriers can include complex distribution networks, high starting capital costs, and difficulties in finding suppliers who are not already committed to competitors.
Existing large organizations may be able to use economies of scale to drive their costs down and maintain competitive advantage over newcomers.
If it costs customers too much to switch between one supplier and another, this can also be a significant barrier to entry. So can extensive government regulation of an industry.
So what do streaming services do well? They focus on the customer journey curating content based on search history and what the consumer watches on a regular basis. So, when a new consumer first uses a streaming service, they will have to search for content. After one movie or television series, they can survive for months just using the suggestion-based viewing list the streaming service’s artificial intelligence provides. Additionally, the ability to build playlists and watch desired content when you want to is another game changer.
Multichoice 3 – Disruption 6.
Is it game over for Multichoice?
There is the old Aesop’s Fable which points out that in a race between the hare and the tortoise, slow and steady often wins the race. However, in a 100 m dash against Usain Bolt, I don’t care how steady the tortoise is; it will not win.
What does this have to do with DSTv? Even if they took Porter’s Five Forces and applied it to their operating model right now, have they lost too much ground to streaming services to challenge their relevance? We have seen businesses that took a similar approach only to fade into the sunset. Think of Blockbuster and Musica.
Image By: Supplied
Where does Multichoice go from here? They can double down on their native streaming service, Showmax, and migrate exclusive content to that platform. They can also create a bouquet of streaming services that would serve a specific demand. In Mzanzi Magic, kykNet and Supersport, the company has two platforms that create and tell narratives from a very specific cultural perspective (African and Afrikaans) and a platform that caters for South Africa’s obsession with sports.
If we are being honest, these three platforms are what is keeping Multichoice alive. There will always be a demand for content that is created to suit a specific cultural consumer base, and this demand will always remain as long as people hold onto their culture and want to educate the youth on this culture. And there will always be a demand for sports.
How does Multichoice take this demand and turn it into a profitable business model? Focus on what streaming services do well in terms of content, pricing and enhancing the customer journey and follow that model with Mzanzi Magic, kykNet and Supersport. Further, expectations will need to be managed in that the company may not realise the profits it once did; however, it is better than fading into irrelevance.
