As I have said before, the first question to ask of the management of a distressed company: Is it the market, or is it the company? Many companies are in financial distress as a result of a distressed market. However, many more companies are financially distressed while the market around them is thriving. Last week, I also wrote about the need for CEOs to be honest and truthful in the evaluation of their own performance.
Over the past two years, MultiChoice has been on the receiving end of its fair share of misfortune. Some of it has been caused by a set of uncontrollable forces caused by the COVID-19 pandemic and the global disruption of linear television offerings on both terrestrial and satellite platforms. Even streaming offerings are having a rough time of it given Britbox’s exit and difficulties at Disney+.
The linear television market and subscriber models are suffering from market disruptions as both technology and social changes gather pace. In South Africa that is aggravated by consumers cutting back on media spend as a consequence of the poor economy.
Are we seeing that the long-desired media and technology convergence leads to a lack of diversity and choice as the international tech model of “destroy the competition first and rebuild from there” cuts into the SA market leaders?
This disruption has not been well-received by the public, the company’s shareholders, and its investors. These key stakeholders, who play a crucial role in the success of any business, are understandably concerned. The recent decline in MultiChoice’s reputation, as highlighted in an article on the Daily Maverick website, is a sobering indication of the potential long-term effects of this decline.
Pressure in South Africa
For the first time in years, the number of MultiChoice’s subscribers in South Africa has dipped below eight million — 7.9 million, to be exact. This significant decline is not just a cause for concern, but a red flag that demands immediate attention. The company is losing customers in all income segments – even the premium tier that comprises consumers who are usually considered to be well-heeled and insulated from financial pressures.
Image By: Canva
Competition for these consumers and their wallets is not just intense, but cutthroat. They can generally afford not only DStv and Showmax subscriptions (Showmax is owned by MultiChoice) but also subscriptions to Netflix, Amazon Prime and other streaming services, making the market a battlefield for customer attention and retention.
The premium tier, which includes the DStv Premium and Compact Plus bouquets, saw the number of subscribers decline by 8% in South Africa, resulting in MultiChoice having only 1.8 million active subscribers (those having a subscription for more than 90 days).
MultiChoice’s subscriber base across various market segments is also experiencing a decline. The mid-market base, which includes the Compact package, saw a 9% decrease in subscribers, while the mass-market tier, comprising those on entry-level packages, saw a 2% drop.
MultiChoice has blamed two factors for the drop in numbers:
First, consumers face immense financial pressures, prompting them to cut their subscriptions to reduce household expenses. And second, the impact of Eskom’s rolling blackouts.
MultiChoice believes consumers become reluctant to subscribe to DStv when the electricity supply is unreliable. This is a clear example of how broader societal issues can directly impact consumer behaviour and business performance.
Some players expect MultiChoice’s problems in South Africa will only get worse.
Headwinds
Anthony Sedgwick, the cofounder of Abax Investments, told Daily Maverick: “We expect [MultiChoice] will continue to battle against the economic headwinds of operating in South Africa; at least where the economy is not growing and they can’t grow subscribers and will struggle to pass on cost increases [to consumers in terms of increasing subscription prices].”
Asief Mohamed, the chief investment officer of Aeon Investment Management, shared Sedgwick’s concerns about MultiChoice, adding that governance problems around the company had been a problem for a long time. Like Abax, Aeon also sold its MultiChoice shares.
But market watchers are emphatic that there is a third reason MultiChoice is often not willing to admit: There is intense competition in South Africa’s entertainment industry with the proliferation of content produced by players such as Netflix, Amazon Prime, Disney+ and others.
All three factors have created major financial problems for MultiChoice. Its financial loss ballooned to 42% during the 12 months ending March 2024, reaching R4.1 billion (from a loss of R2.9 billion in the previous year). It is the company’s worst-ever loss. The liquidity outlook is also not great.
This doesn’t necessarily mean that MultiChoice is on the verge of financial collapse because it can sell its other investments and assets to free up cash and pay down debt. It recently sold its insurance business, NMS Insurance Services, to Sanlam.
Image By: MultiChoice – Gallo Images / Luba Lesolle. Canal+ – Wikimedia BM Georgina Canal+
MultiChoice said it is also engaging lenders to ensure that its debt/borrowings are paid on time. However, its balance sheet has become uncomfortably riskier. This makes the case for MultiChoice needing Canal+ as its knight in shining armour.
Peter Takaendesa, the head of equities at Mergence Investment Managers, has argued that only companies with scale and a strong balance sheet are likely to survive changes in the entertainment industry.
“Canal+ and MultiChoice can leverage content and financial strength. However, there is still no guarantee of success, as the fight against global streaming giants is intense.”
Market responsiveness
So, it is the market that has deteriorated but management has also failed to respond at the operational level. Strategically the Chanel+ tie up makes sense for the African Broadcaster. Moves into sports betting and online gaming opens opportunities but also global competition for the broadcaster.
In addition to the three factors set out above there is the truth that free to air broadcasters understand only too well. The cost of switching is free, and the viewer choice is the ultimate market determinant.
It is about subscriber choice, pricing and the product offerings (the real drivers of media consumption) that challenge the bottom line.
But then what do eTV do differently and profitably? (and hats off to them).
Back to that “know the truth and talk to it” discomfort. So maybe it is you? The signs have been there for a while. Let’s see what the new owners do.
