MultiChoice, Africa’s leading pay TV operator, is making strategic moves to expand its business beyond traditional pay TV. While pay TV is still growing in Africa, MultiChoice acknowledges that it is not growing significantly. The total addressable market (TAM) in Africa is expected to grow at a compound annual growth rate of 3% over the next four years, according to the company. MultiChoice intends to close the gap between its current 23.5 million customer base and the TAM of 53 million. However, the South African market in which MultiChoice operates can be described as “mature,” with growth primarily seen in the lower-end segment, which offers affordable packages starting at R100 per month. The upper and middle segments are in decline.
MultiChoice has also faced difficulties as a result of ongoing power outages, which have had a negative impact on its business in recent months. The extent of the impact will be revealed in the upcoming annual results presentation in three weeks.
Despite the challenges, MultiChoice’s South African market continues to generate significant cash flow, with R7.4 billion in FY22. Dividends from the South African business, as well as the technology unit Irdeto, have provided the group with R5 billion in cash over the last year. While the African pay-TV industry is still losing money, it is expected to break even this year or next. MultiChoice intends to use this cash, along with increased debt, to rapidly diversify beyond pay TV into four key verticals: streaming (Showmax), sports betting, fintech, and home services.
While MultiChoice has made some strides in the home services sector, such as providing decoder insurance and emergency response services (Namola), as well as reselling fibre and mobile internet packages in South Africa, these initiatives are not expected to have a significant impact on the company’s overall trajectory. MultiChoice has also entered the payments space through a joint venture with Rapyd and General Catalyst, with a 26% stake in the venture called Moment. The group will immediately save money by shifting DStv subscription payment processing to this platform. Long-term prospects, on the other hand, face challenges in a market increasingly dominated by mobile operators.
Showmax and sports betting are the two primary opportunities for MultiChoice beyond pay TV. Showmax hopes to become a strong competitor in the streaming market, competing with platforms such as Netflix, Disney+, and Prime Video through a joint venture with Comcast/NBC Universal/Sky. The group anticipates a significant increase in the number of subscribers and expects the business to be profitable within the next three years. This increase in the streaming segment is expected to compensate for the decline in the linear TV business.
The entry of MultiChoice into the sports betting market was a long-awaited move. In two transactions totalling $393 million (nearly R7 billion), the company acquired Nigeria’s sports betting business, KingMakers, for a 49% stake. MultiChoice’s sports betting operations will be concentrated in Nigeria, where it owns a market leader (Bet King), and South Africa. Expansion plans into Kenya and Ethiopia have been halted. MultiChoice will operate in South Africa under the ‘SuperSport Bet’ brand, entering a competitive market with established leaders such as Betway and Hollywoodbets. MultiChoice anticipates lower customer acquisition costs as a result of its extensive SuperSport airtime and ability to integrate betting products into content, giving it a distinct advantage over competitors. Kim Reid, the founder and former CEO of Takealot, is in charge of the sports betting business.
While the Nigerian sports betting industry is profitable and generates cash, the concentration of investment in this market may present difficulties due to difficulties in repatriating funds. To finance the acquisition of KingMakers, MultiChoice took on R4 billion in debt, and it remains to be seen whether the near R7 billion investment will yield a satisfactory return.
In the future, MultiChoice’s ability to self-fund future ventures is dependent on the cash flow generated by its struggling South African business. Investors will keep a close eye on the company’s cash flows and growth prospects, particularly in the next year or two. The coming months could be crucial in determining MultiChoice’s success in its expansion efforts.
