Africa pay-TV likely to recover

MultiChoice, the pay-TV operator that Naspers plans to unbundle onto the JSE in late February, expects its rest-of-Africa business to return to profitability in a few years’ time.

MultiChoice, the pay-TV operator that Naspers plans to unbundle on to the JSE in late February, expects its rest-of-Africa business to return to profitability in a few years’ time.

The company expects annual reductions in trading losses from the rest of Africa, with that unit returning to profitability “in the medium term”, MultiChoice said in a presentation posted on its website on Wednesday.

The rest-of-Africa business is seen as key to MultiChoice’s growth prospects given that pay-TV penetration rates are comparatively high in SA.

The non-SA unit has been steadily adding subscribers and growing revenues, but remains unprofitable. In the 2018 financial year, that operation recorded a trading loss of R4.6bn, from R4.9bn the year before.

The far more mature SA business recorded a trading profit of R10.4bn in financial year 2018, from R9.8bn previously.

Meanwhile, in the face of new competition from large global streaming companies such as Netflix, MultiChoice is banking on local content to give it an edge.

The company said in its presentation that its production costs were about 40% lower than those of its international rivals, and that it was spending R2.5bn a year on local productions, excluding sport.

The operator, which has 13.9-million subscribers in 50 African states, said Africa’s “addressable” pay-TV market would be 46-million households in 2022. About 15-million of those were in SA, where the company now has about 7.2-million subscribers.

In SA, MultiChoice’s streaming services Showmax and DStv Now now accounted for 9% of the company’s subscriber mix.

Some analysts are concerned that the group will lose customers in SA to Netflix and other streaming services.

However, Elize Rich, economist at Stellenboschbased Econex, said in a note on Wednesday there was evidence that consumers currently deem pay-television and streaming content as complementary, rather than substitutes.

And when taking into account the cost of internet subscriptions in SA, the total prices of these streaming services remains higher than most payTV bouquets. Given the high cost of data and the relatively low level of internet penetration in SA, “in the short term, pay-TV and [streaming services] cannot be considered to be in the same relevant market”, Rich said.

While MultiChoice is largely expected to remain in the JSE’s top 40 index when it is unbundled, predictions of the company’s valuation are wide-ranging.

Most valuations range from R50bn to R90bn.

US bank JPMorgan values Naspers’s share of MultiChoice at $5.5bn (R74bn), or just under R200 a share.

To retain and attract investors, the company plans to pay a R2.5bn dividend to shareholders in 2020.