Muddy waters for MultiChoice as its pay-TV monopoly crumbles

When the restructuring of Naspers eventually happens — and it surely must, given the Tencent factor — there’ll be two pieces in its portfolio that won’t fit into the future of what’s become an internet firm, or rather a venture capitalist in the vein of those found in Silicon Valley. The businesses in question are its video entertainment division that houses MultiChoice, as well as its smaller and sadly long ignored media division that owns some of the oldest newspaper titles in the country. While question marks have long hung over the future of the media businesses headed by Esmare Weideman, going back decades, it’s that of its MultiChoice operation that has come into sharper focus in recent years as disruptors abound, eating into its once dominant position in the South African market.

The pay-TV monopoly has held sway over its rivals, SABC and e.tv, for decades, its deep pockets unchallenged as they were “competing” for the best content.

While it’s a dominance that largely still exists, it has been the rise of content distributed by internet streaming services such as Netflix and Amazon that has emerged to really challenge its business model. The bluster and arrogance of old have certainly gone as executives consider the rise of these content providers, who will soon challenge them on even the fields that are their most hallowed, and in fact also for all pay-TV operators globally: sport.

As long as exclusive shows and big sporting events were tied up,

MultiChoice’s status was unchallenged, its deep pockets ensuring that popular shows such as Game of Thrones were on its bouquet.

Those days are no more; satellite broadcasting has reached its limits.

Cheaper bouquets — while offering growth — don’t promise the margins of its grand offering, where the company is losing the bulk of its subscribers. The rand has over the past five years weakened almost

36% against the US dollar, driving international content costs higher.

Perhaps a response of old to rand weakness would have simply been to increase subscription costs. But in this age, that would only prove a boon to Netflix and others.

So what is Naspers to do with its worsening problem of pay-TV? There’s definitely the unbundling option, as pay-TV doesn’t fit into what is its internet future. If that’s some years off, the other option may be to dedicate more of CEO Bob van Dijk’s time to fixing a disrupted business model. That means spending some of the billions raised by the sale of a portion of the Tencent stake and the sale of its entire stake in Flipkart to Wal-Mart. Given Naspers’ internet future, unlikely.

MultiChoice has called for regulation of streaming services to level the playing field, something that’s unlikely to garner much public sympathy. The other tried and tested option is to continue seeking out partnership agreements with mobile operators to solve the infrastructure hurdle the business faces. There’s an over-riding fear among telecoms companies that their infrastructure will one day become nothing more than pipes for media and technology firms to make fatter profits.

While the major telecoms players have been slow to show their hand with regard to content, they could soon become rivals. It’s rumoured that Vodacom has shown interest in bidding for PSL broadcasting rights. So I’m not too sure such partnerships are viable in the medium to long term. If anything, I would think MultiChoice is more than likely to find itself becoming a takeover target for its skills in content gathering.

The waters have never been so muddy for a Naspers pay-TV operation that is ready to join its media unit, which has become accustomed to that unnerving position. What is clear is that within the Naspers portfolio, there’s no rationale for it to remain. Either a major media listing is soon upon us, or one of the mobile operators makes a move, or the pay-TV operation becomes an appendage that no longer pays its way. I wonder if Naspers shareholders, who have become so much more vocal, will stand for that.

It is more than likely to find itself becoming a takeover target