MultiChoice dead, or alive and well?
SINCE listing on February 27, the MultiChoice share price has been steadily moving upward. Trading started at R95.50 and the first day ended at R106.
In general, investors didn’t exactly accept the listing with excitement and open arms. A lot of South Africans are biased against MultiChoice, there is resentment for what you have to pay to watch repeats on DStv, and for a few channels that you might be interested to watch. Ahead of its listing, analysts put forward widely differing opinions and divergent valuations.
The most popular view is that DStv’s high-growth phase is over and younger people prefer the likes of disruptors Netflix and other online streaming services. The opposing view is that MultiChoice has great prospects; pay-TV penetration remains low in the rest of Africa and connectivity to the internet remains expensive to most South Africans.
The reality, is that DStv’s core business is not collapsing. On September 30, 2018, DStv had 7.2 million active subscribers in South Africa, up from 6.9 million six months before. The South African market is still growing. Across Africa they had a total of 6.7 million, representative of 49 other African states, where internet penetration levels are generally lower.
Though a fairly good offering, Netflix does not offer local content or sport. Even if you have the broadband, do you only want to watch movies all the time? We should not underestimate the importance of local content and sport. Although most South Africans resent paying the high DStv subscription, what other choice do you have? Sport remains the trump card for DStv; they have built up a reputation in this area over many years and a streaming service will find it difficult to beat the DStv offering.
For most people Netflix is an additive. Some subscribers might have cancelled their DStv subscriptions, but a multiple more have added Netflix over and above their DStv accounts. The worry for MultiChoice is that a host of global research shows that households’ monthly budgets for entertainment are fixed at a percentage of their expenses. Over time, as Netflix becomes more pervasive in the middle market, DStv may see customers downgrading their packages so their overall monthly spend is still constant.
The potential market for Netflix locally is probably the same as the number of home fibre connections. Fibre broadband penetration is only expected to reach 12 percent of households in the next 5 years, while in the rest of Africa it’s considerably less. The perception in the market bears little resemblance to this reality. The share is probably reasonably priced.
This is a solid company with a proven business model.