The New South Africa

November 29, 2010 World Screen

 

This article originally appeared in the MIPCOM 2010 issue of TV Middle East and Africa.
 
The FIFA World Cup in South Africa was a golden moment for SABC. During the opening match between South Africa and Mexico on June 11, the public broadcaster set a record for the highest viewership ever in the country with a 76.1-percent share of television viewers on SABC1—even bigger than for the release of Nelson Mandela from prison in 1990. Ironically, the huge audience for SABC during the tournament came at a time of crisis for the broadcaster. Indeed, television in South Africa is in a phase of massive change across the board.
 
The World Cup was also a key moment for MultiChoice’s DStv, a pay-TV satellite service, which started a major marketing push based on a new pricing strategy. MultiChoice had always favored a one-size-fits-all pricing policy with no tiering. And for good reason. It complicates the business operation and reduces the ARPU (average revenue per subscriber). But the launch of its lower-priced Compact tier generated a surge in subs. DStv had 2.852 million subs as of April 2010, 60 percent of them Premium and 30 percent Compact. During the past financial year, the subscriber base grew by 450,000, with 245,000 signing up for Compact.
 
The reason for DStv’s big marketing push is competition. A new pay-TV platform, Top TV, launched in May 2010 as a lower-priced challenger. On Digital Media (ODM), the platform’s owner, is clearly trying to attract black African subscribers by being more affordable. ODM also presents itself as a company representing black empowerment, while MultiChoice might be viewed as an Afrikaner-led organization that initially achieved its privileged position under the apartheid regime.
 
But there is a bigger story in South Africa than pay TV versus pay TV. It is the competition between subscription satellite and free TV for viewers. The market is changing very fast.
 
“Satellite television is steadily getting a bigger audience share,” says Paul Haupt, the CEO of the South African Advertising Research Foundation (SAARF). “Pay TV is one of the things that people want to acquire as they become more prosperous. There is a lot of choice available on pay TV. Choice is quite restricted otherwise with only four channels. With the challenge of a new competitor, MultiChoice has been making a big marketing push and this has had an impact.”
 
TELEVISION BARRED
Incredibly, the South African public did not have television at all until the start of 1976 mainly because the apartheid regime saw the new medium as a modernizing threat to its power. Despite the late start of free TV, South Africa is actually one of the world’s most well established pay-TV markets.
 
In 1986, SABC’s television monopoly was broken. Not by the arrival of a commercial free-TV competitor, but by the launch of the pay-TV company M-Net by the Naspers media group (parent of MultiChoice), headed by Koos Bekker.
 
MultiChoice has since grown into a great financial success. Pay-TV revenue grew to R16.66 billion ($2.28 billion) in the 2010 financial year (ending 31 March), up 12 percent from R14.86 billion ($2.04 billion) in 2009. Pay TV accounted for about 60 percent of the group’s total revenue, but 88 percent of total EBITDA and 95 percent of total operating profits.
 
In 1996, two years after Nelson Mandela was elected as the country’s first black president, SABC’s airtime was finally apportioned more fairly among language groups, and Afrikaans programming dropped from 50 percent to under 5 percent of the total.
 
In 1998, SABC’s free-TV monopoly was ended with the launch of e.tv, which was also permitted to show news—a monopoly of SABC to that point. With two pay-TV platforms pushing hard for subs, e.tv’s current slogan is “Be Free.”
 
Television penetration is still growing in South Africa. “Penetration is closely related to the supply of electricity,” says SAARF’s Haupt. “As electrification proceeds, television follows, with a slight lag. Clearly, there is still scope for a lot of growth.”
 
Mains electricity expanded from reaching 73.1 percent of the population to 90.2 percent during the 1999-2009 period, according to AGB Nielsen’s All Media and Products Survey (AMPS). During the same period, penetration of television sets grew from 62.8 percent to 83.9 percent.
 
In the less affluent homes, very often the family does not watch TV during the week, and viewing figures shoot up on the weekend.
SAARF’s Living Standards Measure (LSM) ranks consumers in terms of living standards measure, measured on a scale from LSM 1 to LSM 10. This scale not only measures income, but also things like housing and ownership of appliances. Television penetration among the LSM 1-4 group is growing most rapidly.
 
Almost all of DStv’s subs are in the LSM 8-10 range. When DStv started to prepare for the FIFA World Cup last year it added a new tier, the Compact package, and this started to attract people down as far as the LSM 5 group (income about 5,500 rand ($744) per month. Top TV’s target is the LSM 4-8 demographic.
 
SEPARATE UNIVERSES
As of mid-2010, South Africa has 9.65 million television homes. Of these, 12.4 percent are English-speaking. This is considered the most affluent group. Speakers of Afrikaans and both languages make up 16.8 percent, while the rest are speakers of vernacular African languages; the biggest groups speak Nguni (39.7 percent) and Sotho (31.1 percent).
 
The potential coverage of the over-the-air networks has improved over the past few years, with SABC1 reaching more than 70 percent of homes, while SABC2 reaches more than 60 percent, as does e.TV, while SABC3 covers in excess of 50 percent. The big growth has been for DStv with coverage more than doubling since 2007 and now at over 20 percent.
 
There is a huge split in the viewing audience among the ethnic groups, according to Lorna Long, the client services director in South Africa for Telmar Media Systems, a worldwide supplier of research software and systems for the media industry.
 
“SABC is really the single source of contact with the African vernacular audiences,” she says. “It’s practically a monopoly in that sense. SABC1 is aimed at the Nguni speakers, the Zulus. SABC2 is a family channel, which caters part of the time to Afrikaans viewers and Sotho speakers. This is a strange cohabitation, which some of the Afrikaans audience apparently resent. SABC3 is aimed at English-speaking and, especially on Thursday evenings, also Afrikaans viewers. E.tv appeals to lower-income viewers who are comfortable in English as well as more affluent viewers.”
 
Nguni/Sotho adult (16+) viewers watch SABC1 for an average of an hour and eleven minutes (01:11) per day, according to SAARF figures released in July, making it their most popular channel. But for English/Afrikaans viewers, the most popular provider is the pay-TV service DStv, with 1:19 of viewing per day. In contrast, they watch only 00:20 of SABC1, while Nguni/Sotho viewers watch only 00:22 of the DStv platform.
 
SABC2 attracts 00:49 of viewing among English/Afrikaans adults and 00:29 among Nguni/Sotho viewers. For SABC3, the respective figures are 00:43 and 00:24.
 
The channel with the broadest appeal is e.tv, viewed for an average of 00:49 by Nguni/Sotho adults and 00:38 by English/ Afrikaans adults. Among children these gaps are similar.
 
PROGRAMMING APPETITES
A glance at the weekly top ten programs of the various channels shows almost the same divergence.
 
On SABC1 (in July), three shows ranked in the top ten for both Nguni/Sotho and English/Afrikaans audiences. They are the long-running soap opera Generations, and two local drama series, Zone 14 and Tshisa.
 
No shows on SABC2 make the top ten for both groups. On SABC3, Knight Rider is number one for both sets of viewers, while Days of Our Lives and The Oprah Winfrey Show also rate in the top ten for both.
 
World Wrestling Entertainment, e.TV’s ratings stalwart, rates in the top ten for both groups of viewers. But the African drama Rhythm City is far and away number one among Nguni/Sotho viewers (22.2 percent AMR), while not cracking the chart for the white audience. In 2004 e.tv started showing The Young and the Restless, which aired on SABC3 until 1999. It has been successful in its new home.
 
In 2009, SABC admitted to having a deficit of R784 million ($107.4 million) and the picture has probably not improved. But its crisis actually goes far beyond the bleak financial picture, which may lead to bankruptcy. The word ‘corruption’ crops up again and again too.
 
GREAT EXPECTATIONS
As Telmar’s Long describes it: “SABC has several big problems. One is that too much has been expected of it. The regulator ICASA, the Independent Communications Authority of South Africa, has set out quite onerous requirements for programming that cater to all the communities with local production. There has been an estimate that this costs 14 times as much as running the channel without the requirements. With the charges of management corruption, there is operational chaos. A number of top people have been suspended and protracted legal battles are underway. SABC would want to have these people back. But it might take a long time for innocent people to be cleared, and they will go elsewhere. There is a void of talent. And there is no budget. They are showing Chinese movies with English subtitles and Afrikaans programs from the 1970s.”
 
She adds: “Advertising budgets in South Africa are small. Ford might spend £600 million ($935 million) a year on tele­vision in the U.K. In South Africa, that might be R40 million ($5.5 million).”
 
The crisis has knocked the wind out of the local production industry, which has strongly depended on SABC.
 
E.tv is 64 percent owned by Hosken Consolidated Investments, whose chairman Marcel Golding is the channel’s CEO. Hosken earned a profit before taxes of R570.9 million ($78 million) on its media activities (meaning e.tv) in the latest financial year (ending March 31, 2010).
 
“If e.tv could have anything it wanted, it would be more airtime to sell,” says Ian Woodrow, the chief content officer at the pay-TV company Top TV. “It’s a good product aimed squarely at middle South Africa.”
 
In its annual report, however, Hosken acknowledged: “Both audiences and revenue share for e.tv are under pressure from the growth in pay TV, which has seen an unprecedented increase in middle-income earners.”
 
Audience attrition is a fact of life for all free-TV networks as pay TV grows. Figures show big year-on-year drops in audience for SABC1’s most popular series, Generations, and SABC2’s major series, while Days of Our Lives lost ground on SABC3.
 
NEW ENTRANTS
In 2006, media regulator ICASA decided to open up the subscription-TV market. There was a rush of interest with 18 applicants for five licenses. The licenses were awarded in September 2007.
 
One of them was On Digital Media (ODM), created five years ago when two people from MultiChoice, Mergan Moodley and Heather Kennedy, set out to launch a competitor. They went to the Industrial Development Corporation (IDC), and European satellite company SES Astra was brought in as a partner, with a 20-percent stake. The bid was driven by Vino Govender of First National Media Investment Holdings, now the CEO at Top TV. Other partners include Black Economic Empowerment (BEE) companies First Aone Trade & Investment and Red Gold Investments, plus the National Empowerment Fund.
 
Also winning licenses were a consortium led by local telco Telkom Media, e.tv, MultiChoice (technically without a license before) and a black empowerment group called Walking on Water (WOW), which has not progressed since.
 
E.tv planned to launch a pay-TV news channel but Golding soon got cold feet. Instead of going it alone, he made a deal with MultiChoice to make the news channel an exclusive part of the DStv bouquet with a plan to provide other channels in the future.
 
The exit of Telkom’s consortium, in which the telco held 75 percent, was probably more surprising. After a brief flurry of buying programming, Telkom sold its stake to China’s Shenzhen Media, which created a new local entity now called Super 5 Media. Significantly, a 15-percent partner is Videovision Entertainment headed by Anant Singh, South Africa’s top movie producer.
 
With the stated aim of providing “converged services,” Super 5 Media says it “believes that advances in television, Internet and wireless technologies have created opportunities to build value through the provision of online and interactive services.” So the idea is to leapfrog over digital satellite into IPTV.
 
That has left Top TV alone facing off against MultiChoice. Top TV’s programming strategy is built on carrying third-party channels. Top TV offers seven packages, ranging from an entry price of R99 ($14) for 24 channels in a basic tier, including Fox News, Eurosport, MSNBC, BBC World, Al Jazeera, the MGM movie channel and Zee Cinema from India.
 
The package at R159 ($22) adds either 13 children’s and music channels or 11 entertainment and knowledge channels, including Fox, BET, three Discovery channels and Fox Retro (featuring vintage series). For another R30 ($4) subs get both those additional packages. For R249 ($34) they can add six movie channels as well, including FX and Showtime.
 
Top TV also has seven channels of its own (Top Movies, Top Gospel, Top One, Top Junior, Top Crime, Top History and Top Explore). These are made in Germany and packaged with the Top TV brand.
 
To break even, the platform needs 300,000 to 400,000 subs. With 300,000 subs, it would start to attract advertising revenue as well. Top TV already has 100,000 dishes in the market, but not that many subs.
 
Responding to the lower-priced entrant, MultiChoice now offers six different packages ranging from R550 ($75) down as low as DStv Lite with 26 channels for R99 ($14) and even a service for improving the signal for people who have difficulty getting terrestrial reception, called EasyView with 15 channels for R20 ($3).
 
Almost all of DStv’s channels are exclusive. Only very strong operators such as BBC World or Al Jazeera have insisted on non-exclusive deals. Disney, Discovery, National Geographic, CNN and MTV are all exclusive.
 
COMPETITIVE SPIRIT
Most important of all, DStv has exclusive sports. As one programmer puts it, “DStv’s SuperSport-branded channels have everything in the known universe. Go down the list of every property in the world and they have it exclusively.”
 
Top TV offers only Setanta South Africa, with no premium content. Robin Welch, the founder of consultancy Pharare Associates, says, “Not having a real sports channel is a big obstacle. Pay TV has never worked without sport.”
 
But Top TV CEO Govender has indicated that his approach is lateral. Before Top TV’s launch, he said of his company’s market research, “The numbers are coming back and telling us that 40 percent of the market are sports subscribers, who subscribe to pay-TV platforms mainly for their sports offering. There’s another 60 percent of the market that are generally looking for good wholesome family entertainment and that’s where our focus is.”
 
Part of Top TV’s game plan seems to be to sign up subs while the progress of digital terrestrial television is stalled. DTT was supposed to launch for the World Cup. “But the government, which has invested billions of rand in the transition, did not seem to take account of the cost to consumers at the lower end of the scale,” says Telmar’s Long. “If a family in the LMS 3 group has a monthly income of R3,000 ($411), it is unheard of to lay out R600 ($82) for a box. There is discussion with the Chinese about technology. There is no fixed date for launch now. It might possibly be by the end of this year. It’s highly politicized.”
 
The Department of Communications has begun a review of the standards to be used for DTT and appears to favor switching from DVB, which the country adopted in 2008, to ISDB. M-Net and e.tv have been running DTT trials together in DVB. “The decision to open the debate is not only silly but undermines the co-ordinated and determined efforts by all parties, including the SABC, to get our country ready for this migration,” observes Hoskin’s Golding.
 
Despite the arrival of pay-TV competition, the market for programs in South Africa remains weak, according to Pharare Associates’ Welch. “It is very much a buyer’s market,” he said. “SABC is not buying. Top TV buys channels, not programs. E.tv screws prices down and MultiChoice is brutal, very hard on prices.”Injecting vitality in the program market will no doubt require SABC to get back on its feet. 
 
Beyond the current television landscape, the fragmented South African market, with its many languages and identities, would seem to be ideal for new-media delivery.
 
PC penetration rose from 7.6 percent in 1999 to 18.8 percent in 2009. That is lower than digital satellite. But MultiChoice is already developing IPTV, and the Chinese are waiting quietly in the wings.