The main challenge for the regulator will be to ensure that barriers to entry by the new players are minimised and monitored so that the incumbents do not get involved in what may be perceived as anti-competitive practices. It will therefore be important for the regulator to ensure that competition laws are enforced to ensure that the new players are not squeezed out of the market soon after they are licensed.
Currently, the debate in the market and media circles is whether the South African subscription TV market can absorb and sustain 18 players. Internationally, the trend is for a country to sustain at least four pay TV players, and where there are many players, consolidation becomes the regular feature, which keeps the regulators busy.
Looking at the performance of M-Net and DStv, with approximately 1 million subscribers, one may safely say the regulator has to seriously analyse the performance of SABC, e.tv, M-Net and DStv in deciding whether or not to license all the 18 applicants who want a slice of the pay TV cake.
Furthermore, the regulator will need to satisfy itself whether its regulatory and policy framework is conducive for the 18 applicants to thrive. One thorny issue is the requirement by the Electronic Communications Act that commercial communications operators must have a minimum of 30% BEE in their shareholding. As we all know, access to capital is very difficult for BEE companies and it will be critical to asses whether the applicants have real 30% BEE shareholding in their entities or the financiers are the real owners of the BEE stakes.
ICASA sport rights policy dictates that there should be no exclusivity with respect to nation sports such as soccer and rugby when the rights are awarded by the sport federations to broadcasting houses. With SABC being one of the potential players in the pay TV market, and the 2010 Soccer World Cup fast approaching, it will be rather interesting how the SABC is going to use its 2010 broadcasting rights to give itself a competitive advantage in the pay TV market.
Research shows that internationally, soccer and movies drive the pay TV market, and to acquire the lucrative soccer games rights, one needs deep pockets. The question becomes, “Will the new players afford to acquire the expensive sport rights? With the incumbents already having distribution rights with the big movie studios, given the current movies on their channels, the new players will scramble for the few left movie rights, and rights also don’t come cheap.
One will therefore have to carefully analyse the business models of the new players to assess how they intend to survive the cut throat business of negotiating sport rights. With 18 new players probably going to fight for the English Premier League, European Championship and South African Premier League, one wonders whether from a viewer’s perspective there will be any diversity in terms of programming offering, which takes me to the next issue of subscription fees.
M-Net and DStv target your high income earners, who don’t really mind about subscription fees as long as the programming content is good. It is public knowledge that the high income earners at most are white. It will rather be suicidal for the new players to target M-Net and DStv audiences as this audiences already have the incumbents decoders, and it has not yet been resolved by ICASA and competition regulator how the new players will have access to the incumbents’ set top boxes.
The only practical possibility will be for the new players to target the emerging black middle class. Also, the programming content will also largely determine who becomes the subscriber and the race group thereof.
With the recent interest rate hikes, the black middle class will be wary of acquiring a high pay TV subscription, and this may negatively affect the performance of most of the new players. ICASA regulations require that pay TV players may not generate more money from advertising; rather subscription fees revenue must be the main revenue stream.
Looking at SABC/Sentech, DStv and e.tv for example, the fact that they already have infrastructure means their start up capital for their pay TV businesses will be low, and for the new player who will have to build an infrastructure if the subscriber base growth is low, the business may not break even sooner to sustain itself. If you are then targeting black middle class who may take time to subscribe also because of their easy access to free-to-air e.tv and the public broadcaster SABC, there must be a huge capital injection which will sustain the business before it breaks even.
In terms of local programming content, research demonstrates that the ratings of SABC television channels have been boosted by the high local content in terms of drama and documentaries. The new players will have to ensure that they have to produce or acquire high percentage of local content to lure the viewers from SABC and e.tv. Currently, SABC and e.tv share approximately 20 million viewers. However, the subscription fees will have to be affordable for the penetration levels in the pay TV to increase faster.
With the ANC succession debate and the performance of the South African economy dominating the news bulletins, the new players will have to offer news channels with different angles from the incumbent’s news channels. The imminent arrival of CNBC Africa to the local pay TV via DStv has already raised the momentum with the poaching of the cream of SABC news anchors. The new players have to invest lots of resources in human capital to be able to offer competitive and quality programming.
As Johnnic sells its shares in Supersport and M-Net, the regulator must also ensure that with the 18 applications currently being processed, there is ownership diversity as required by the Electronic Communications Act.
In terms of viability of the 18 applications, if they all offer the same programming content and have the same target market, sustainability of their businesses will be quite unstable as they would be competing for the same audience. Furthermore, from an advertising perspective, they will also have to target the same advertisers, and the share will be less, which will ultimately affect the bottom line.
Lastly, whether subscribers will enter into subscription contracts with 18 players if they are all licensed will be a difficult milestone to achieve; however, let’s wait and see.
