MultiChoice, the popular satellite TV provider, is experiencing a decline in its subscriber base as economic challenges and power outages take a toll on the middle class in South Africa. Between January and March, the company lost approximately 100,000 subscribers, reflecting a growing trend of middle- and upper-income households discontinuing their DStv subscriptions.
Specifically, the number of mid-market customers, particularly those on the Compact package, has decreased by 3% compared to the previous year. While MultiChoice does not disclose the exact number of Premium subscribers, it notes that the decline in this segment has slowed down. However, Compact Plus, which is part of the premium segment (but distinct from the Premium package), is experiencing a more rapid decline, contributing to the overall 6% decrease in the upper-income base. In 2016, the premium segment accounted for 55% of the company’s subscriber revenue, but that number dropped to 37% last year. While the figures for 2023 have not been disclosed, it is likely that the dependency on the premium segment has further reduced to below 35%, possibly as low as 33%. This changing landscape reflects a significant shift compared to just five years ago.
On the other hand, MultiChoice has observed growth in its mass market segment, which includes the Family, Access, and EasyView packages. This segment, with an average revenue per customer of R92, has seen a 10% increase in its customer base over the past year, contributing to an overall subscriber growth rate of 3% in South Africa. However, relying on the mass market segment alone cannot fully compensate for the loss of mid-market and premium customers. To replace a single mid-market customer, MultiChoice needs to add more than three mass market customers on average. Similarly, losing a premium segment customer requires even higher numbers of new customers to offset the revenue loss.
A major concern for MultiChoice is the impact of load shedding on price-sensitive customers. During periods of power outages, households find it difficult to justify paying monthly subscriptions of R449 for Compact or R579 for Compact Plus when they cannot watch TV during prime time for a significant portion of the week. It is reasonable to assume that Premium subscribers are more inclined to stay loyal and are less likely to pause or suspend their subscriptions; instead, they might outright cancel them. MultiChoice has reported a 12% viewership decline during Stage 6 load shedding, in contrast to the industry’s overall decline of 31%.
While some customers who cancel their subscriptions tend to return eventually, this high churn rate is not healthy for the company. MultiChoice’s subscriber base experienced a net loss of approximately 100,000 subscribers between January and March, a period marked by frequent and prolonged load shedding (ranging from Stage 4 to 6). However, the number of active customers during any 90-day period increased by 300,000 compared to the previous year. This churn negatively impacts revenue since the average number of days subscribers remain active in a year has dropped by 12 to 269 days. Consequently, the typical subscriber now pays for a subscription for only 74% of the year, which is less than three-quarters.
Load shedding is not the only factor affecting the pay TV operator’s performance. MultiChoice attributes its revenue decline in South Africa to interest rate hikes and elevated inflation levels, which have left a significant portion of its customer base unable to afford or sustain video entertainment services. As a result, the company’s revenue in South Africa decreased by 2% (equivalent to R631 million) to R34.99 billion for the 12-month period, with trading profit also declining by 23% (or R2.5 billion). Subscription revenue specifically declined by 3% to R28.1 billion, in contrast to R20.4 billion generated in other markets.
Despite the challenges faced by MultiChoice, advertising revenue has remained relatively stable, likely boosted by the 2022 FIFA World Cup. However, the trading margin in the core South African business currently stands at 24.2%, and the company’s African operations are unable to influence this margin, causing concern among MultiChoice’s management. The costs associated with the Comcast deal, including the transition of Showmax to the Comcast platform, have contributed to this decline. However, the more significant factor is the noticeable shortfall in subscription revenue. As the company’s subscription revenue declines, it directly impacts profits, leading to what is known as “negative operating leverage.” Going forward, MultiChoice expects its margins to be in the mid-twenties, representing a significant decline from the above-30% margin achieved previously.
Fortunately, MultiChoice’s rest of Africa operations have performed well, contributing to the company’s overall profitability. Due to the challenging South African market, uncertain currency outlook, funding requirements for the rest of Africa business, and the investment needed to establish Showmax as the leading streaming platform on the continent, MultiChoice has decided not to declare a dividend for FY23.
In conclusion, MultiChoice is grappling with a loss of subscribers, particularly in the middle- and upper-income segments, as economic pressures and power outages continue to affect households in South Africa. While the mass market segment shows growth, it cannot fully compensate for the decline in mid-market and premium customers. Factors such as load shedding, interest rate hikes, and inflation levels have all contributed to MultiChoice’s revenue challenges. The company’s management is closely monitoring these issues, aiming to navigate the evolving market and maintain profitability while making significant investments in expanding its streaming services across Africa.
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