MultiChoice will ramp up its insurance, internet, sports betting and streaming businesses to grow its top-line as its traditional business is under pressure, with more than a million subscribers dumping the pay-TV provider.
The group lost 9% of its base in the year to March 2023, down to 15.7-million subscribers. In South Africa, 400,000 stopped paying for the service mainly due to intense load-shedding and high subscription prices, while in the rest of the continent it had 13% fewer customers, ending the year at 8.1-million.
CEO Calvo Mawela said the group has ambitions to build a portfolio of digital products layered on top of the traditional pay-TV base to drive ongoing top-line growth. “Our strategy to grow these additional revenues is no longer only a vision, it is gaining real traction.”
The insurance business grew 19% to 3.3-million active policies, while revenue rose 35% to R969m.
CFO Tim Jacobs said the DStv Stream business recorded a sharp rise of 139% in subscriber numbers. “We think that combined with our bundled internet products, we can really start accelerating (DStv Stream).”
Commenting on the insurance business, Jacobs said, “What’s been really pleasing is that the growth has come from a lot of the new products we’ve added to the mix.”
While the rest of Africa’s traditional pay-TV business showed improved profitability, it is still far from achieving attractive returns on capital, and further local currency weakness in West Africa will put further pressure on that business in the near term
— Peter Takaendesa, head of equities at Mergence Investment Managers
The insurance business includes life and funeral policies as well as device covers.
MultiChoice said its Showmax streaming platform, which was relaunched in February, delivered record single-month growth in March 2024, with the paying subscriber base growing 16%. Investments in Showmax continue to negatively affect MultiChoice’s overall earnings. Showmax increased trading losses to R2.6bn, due to higher staff costs and sales and marketing expenses due to its relaunch.
Mawela said Showmax was on track to achieve $1bn in revenues in five years.
MultiChoice blamed the loss of subscribers on intense load-shedding in South Africa, while the rest of its Africa businesses faced double-digit inflation and extreme depreciation of local currencies (especially in Nigeria, Angola, Kenya and Zambia).
Mawela said the subscriber losses were skewed towards the mass market where activity levels and average revenue per user contribution are much lower. He said negative growth was also influenced by the group’s decision to reduce decoder subsidies, which affected new subscriber additions.
The decision to increase prices twice in some markets outside South Africa in a bid to offset the effects of high inflation also put pressure on growth. “With such interventions we expected our subscriber numbers to be under pressure. But we decided that during these times we need to manage our business for cash.”
Mawela said the negative impact on “our business and its revenues cannot be underestimated. But we should bear in mind that we sell a discretionary product, which is linked to the economic cycle and dependent on people’s discretionary income.”
He is confident the company will claw back subscribers. “It’s not like we are at the end of our growth when markets where we operate in are matured and there is no opportunity for growth any more.”
MultiChoice’s total revenue declined 5% to R55.9bn, while headline losses per share widened to 715c from 301c.
Peter Takaendesa, head of equities at Mergence Investment Managers, said the financial year to March “was a year to forget for MultiChoice as the business faced headwinds from all directions”.
“While the rest of Africa’s traditional pay-TV business showed improved profitability, it is still far from achieving attractive returns on capital, and further local currency weakness in West Africa will put further pressure on that business in the near term.”
MultiChoice’s cash cow, the South African pay-TV business, remained under structural pressure while the start-up losses to fund the Showmax joint venture and higher finance costs drove significant cash flow pressure for the group. “MultiChoice remains a high fixed cost business and any revenue shortfall amplifies the pressure on profits and cash returns to shareholders,” said Takaendesa.
He said while the group has been working on growing new revenue streams — insurance, sports betting, fintech and Showmax — they “are not enough for now to offset the structural and cyclical pressures on the traditional pay TV business”.
MultiChoice is targeting R2bn in savings. Jacobs said while cost savings will be across the board, the group will look at “big ticket lines like satellite” contracts that are due for renegotiations.
Mawela said the company has ruled out any retrenchments. “We can still realise a lot of cost savings without retrenchments.”
MultiChoice is in the process of a takeover bid by French pay-TV group Canal+, which is already the largest shareholder with a 45% stake and has made an offer to buy out the remaining shareholders.
The Public Investment Corporation (PIC), which has a 15% stake in MultiChoice, said it "is assessing the offer presented to shareholders and will engage directly with MultiChoice as the investee company. The PIC will act in the best interest of its stakeholders and would prefer the entity to remain listed on the JSE.”
Takaendesa said “fortunately for shareholders, the Canal+ offer of R125 per share is now the dominant factor driving the share prices and we think Canal+ was fully aware of these operational headwinds facing the business”.
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