Is there actually any competition between Netflix & DStv

When was the first time you heard that DStv is on the brink of death and Netflix (or streaming) is the cause? I’ve got another question – how often do you hear that DStv only continues to dominate because it has sporting content (specifically the Premier League) and once it loses the rights it’s Kaput?

These are commonly held views and for a while I’ve wondered what informs them. As always I decided to dive into some data to investigate how true these commonly held beliefs are prompted by a recent reveal that Netflix had 1.6 million subscribers in Sub-Saharan Africa. Not only did this figure seem alarmingly low but it suggested that growth had stalled or declined (at the continental level) since available data in 2021 suggested that the streaming video on demand (SVOD) provider would end that year with 2.1 million subscribers.

revealed preference theory looks at actual consumer choices within a proxy market good or service whereas stated preference looks at hypothetical consumer choices surrounding that particular non-market good or service.

Stated vs. Revealed Preferences: Part 1 | Anusha Ali – Researcher

Current state of affairs – hard times for streaming in Africa?

The recent reveal of Netflix’s subscriber numbers in Africa is actually counter-narrative – with Netflix being the ones who seem to be struggling on the continent. When you put Netflix’s 1.6 million subscribers next to DStv’s 9.3 million active subscribers its hard to see where the competition actually is between the two? During my research the first resource I turned to is a survey titled The Impact of Over-the-Top Television Services on Pay-Television Subscription Services in South Africa to try and understand if people were leaving payTV for streaming alternatives as is usually suggested.

Only 5.5% of participants in that survey agreed that they had cut the cord on their PayTV service to move onto a streaming alternative. The survey further established that participants were not cord-shaving (downgrading their traditional premium pay-TV subscription services to standard/lower packages and combining their pay-TV services with SVOD services) at a similar rate as people in the UK. The reason for this was attributed to the fact that internet data is not as affordable in South Africa.

The study revealed that contrary to what is happening globally, as noted in the literature reviewed, most of the studied population did not cancel their pay-TV subscription in favour of OTT TV services. This finding is also supported by one of the respondents, who, in the open-ended questions, noted that “pay-TV has a ±10 year life span if not more, as there is still much work to be done to strengthen the internet spectrum”.

The Impact of Over-the-Top Television Services on Pay-Television Subscription Services in South Africa | 2020

For the most part subscriber numbers and research suggests that DStv is for all intents and purposes fine. Beyond just dispelling the myth that Netflix is taking away MultiChoice’s customers, I also wanted to understand the context that informs Netflix’s struggles and MultiChoice’s dominance…

Living “factors”

There’s a graph we repeatedly reference that paints the picture of people’s quality of life when we explore SADC countries and try to explain why it’s difficult to do commerce within this region. Here we used USA as the reference since that is Netflix’s biggest market. In the US citizens typically don’t have to worry about access to electricity, about 92% of citizens have internet access and only 1.8% of their population is earning below the poverty line.

All these metrics are important because collectively it indicates how ready a population is to consume digital products offered on the internet. Without access to robust and widespread internet infrastructure along with high-levels of poverty most Africans simply have bigger fish to fry than a Netflix subscription…

Payment infrastructure

Streaming will continue to grow, but it will grow in SA and elsewhere in Africa as fast or as slow as the ecosystem around it can grow – meaning internet access and the local TV and film industry having the capacity, money and willingness to produce content to attract people to these services.

Communiqué 31: What makes South Africa attractive to streaming giants? | Thinus Ferreira

Most Africans simply cannot pay for Netflix because banking and payment infrastructure on the continent makes the process wrought with friction. In most African countries it operates in, Netflix doesn’t want to accept the currency used there which creates a lot of friction for would-be consumers. I’ll use my home country in Zimbabwe to describe what the process of paying for Netflix look like.

Because Netflix doesn’t accept ZWL, Zimbabweans typically have to go to a bank and acquire a “Prepaid VISA/Mastercard”. Anyone with this type of card gets to deposit US$ and then transacts online. This means if you’re just a regular guy/girl and you want to pay for your Netflix you have to physically go to a bank branch, wait in line, fill out some forms and then pay a deposit to acquire the card. All this just to pay for Netflix (or any other streaming service)!

Once you have the card there’s another deterrent. Netflix costs between US$3-US$10 in this region but some of the card providers also charge around $3 per transaction which is anywhere between 30%-100% of the subscription. This adds another layer of friction since consumers are spending a lot more and also need to do some thorough research before settling for which bank offers the lowest fees.

What all this friction translates to is that the few people in Zimbabwe who actually can afford Netflix won’t get the service as there’s simply too much work involved.

If Netflix was willing to have (at the very least) a distribution network of agents (think airtime) who sell subscription gift cards/vouchers across Africa I would like to think their subscriber numbers would look a bit healthier than they currently do and we’ll explore more about how something like that could materialise later. Of course the argument here is that they would still have to deal with the burden of weak African currencies and perhaps the company views it as not being worth their time but that’s a distribution model we’ve seen work with mobile money and airtime purchasing.

The problem with the living factors and payment infrastructure limitations is that these are key contributors to online audio/video streaming services having a real chance on the continent and yet they are largely outside of the streaming services’ control.

What this results in is a concentrated distribution of subscribers with nearly three quarters in South Africa – the country that is most developed and somewhat able to buy into digital services.

Source:TechCabal

The lopsided distribution is a reflection of Netflix’s refusal to play into Africa’s chaos which is understandable from a business perspective but this is where MultiChoice’s 38 year history on the continent allows them to shine – from day one they have been building for all of Africa’s idiosyncrasies. Let’s explore what MultiChoice’s advantages are and then look at Netflix in comparison later…

MultiChoice’s key strength

Our significant and growing investment in local content sets us apart from international competitors, especially as South African viewers love content in their own languages, with local actors and stories that resonate culturally. This is reflected by higher relative demand for local content than what is currently available on our platforms. Not only is local content cheaper on average per hour than international content, but it also reduces currency risk as it is priced in local currency and therefore matched to our revenues. By owning this content, we also have greater control and flexibility in how we leverage it across our packages, services and platforms.

MultiChoice Integrated annual reports | 2022

The biggest advantage for the regional giant is that they have been delivering content in Africa for nearly four decades. That valuable context has implications on the service they deliver. MultiChoice are likely to know what Africans want more than any other competitor in that space. Between 2016 and 2022, Netflix disclosed that they commissioned 20 original shows in South Africa (16), Nigeria (3) and Kenya (1). (The SVOD also licensed 456 titles during that period). It’s hard to make a direct comparison because the terminology is murky but in annual reports from 2015,2016,2020 and 2021 – MultiChoice aired 254 “new shows”.

(Whilst it’s easy to be dismissive about local content we actually have a case study of what happens when a PayTV service without localised content launches. In 2018 Econet Media launched Kwese – a DStv competitor and by 2020 Kwese had to close doors after realising just how much money is necessary for a PayTV business… Kwese had rights to sports like the NBA, the 2018 World Cup and some free to air sporting rights (including one EPL match every week) but even that wasn’t enough.)

It seems there are many more original titles being produced by DStv whilst Netflix is licensing more stuff but the story doesn’t end there. DStv historically also spent a lot more money than Netflix on putting out these shows. Netflix reported that between 2016 and 2022 they spent $148.6 million on content. Whilst MultiChoice stopped reporting on how much they spend on local content since 2019 we can use figures from earlier periods to know just how much they were investing in local content. Between 2015-2018, MultiChoice spent R14.4 billion (around *US$1.07 billion) on local content – this figure doesn’t include the Premier league or any other foreign content.

*Used Rand exchange rate midrates data from Pound Sterling from each year to convert to US$. Yes a bit crude but the only way to have a ballpark estimation of 

Employment

The next thing I wanted to compare was which of the two companies actually creates more jobs. Netflix stated that between 2016-2022 they employed 12,368 in Africa (7228 in South Africa and 5140 in) – which is not to be baulked at. MultiChoice claims they currently have 7204 permanent employees + 7052 accredited installers and 2983 independent service providers. This makes sense given the hardware element required to get the DStv service installed.

When we are talking about jobs in the film industry we are speaking about the following:

MultiChoice recently acknowledged that there is fierce competition for talent with rivals from streaming services looking to poach talent. It’s logical that streaming services looking to make headways would try to attract talent already existing within that region.

While we are seeing increasing competition for talent from our OTT competitors across all our markets, our recent partnership with Comcast, NBCUniversal and Sky does provide access to some of the leading OTT talent globally.

MultiChoice Integrated annual reports | 2023

What makes Netflix attractive to African content creators?

We’ve already hinted at talent wanting to work for a more prestigious and much larger (globally at least) company – and Netflix offers that.

Working on a Netflix show was different. There was more thorough planning leading to a better, smoother shoot.

Netflix’s socio-economic impact| Crew member on Disconnect: The Wedding Planner

The one thing that isn’t ambiguous though is that Netflix offers African filmmakers a better opportunity of global reach than DStv. That is one of the advantages of SVOD services have over PayTV – geography is not a limitation. Between 2016 and 2022 we saw a number of African Netflix shows actually chart globally:

• Blood & Water Seasons 2 & 3 both reached Netflix’s Global Weekly Top 10 charts for a week (South Africa)
• Blood Sisters: Limited Series reached Netflix’s Global Weekly Top 10 charts for a week (Nigeria)
• Aníkúlápó reached Netflix’s Global Weekly Top 10 charts for three weeks (Nigeria)
• Disconnect: The Wedding Planner reached Netflix’s Global Weekly Top 10 charts for a week (Kenya)

The opportunity to have your show in front of global audiences is simply greater on Netflix – not to mention it is also a big badge of honour for the filmmakers. Once they have a film on Netflix they have credibility because the service has global reach whereas once you leave Sub-Saharan Africa you’ll be hard-pressed to find people who know what MultiChoice’s DStv is…

The big hypothetical – live sports

I saved this for last because it is the least interesting part of the conversation because there’ isn’t much data to back or dispute the argument.

As mentioned earlier a commonly held belief is that when Netflix or any of the streaming giants get the rights to the Premier League it is over! The problem with this argument is that it falls apart pretty quickly for a couple of reasons.

The first and most important is pricing. Netflix in Africa is still priced to acquire users. What this means in essence is that the price for Netflix we get to experience right now is meant to bait subscribers in. We’ve seen this in many other markets where Netflix has been gradually increasing prices to reflect the capture the real value of the service. The United States is the best example of this:

If this is the evolution of pricing over the last decade – what do consumers expect to happen when Netflix adds live sporting content (aka some of the most expensive content in the world)? The price will rise again further reducing the price differential between SVODs and PayTV making SVODs less attractive. One example of an SVOD service that currently offers live sporting content in the USA is YouTube TV and that costs $72.99/month – 3x the price of a premium US Netflix subscription.

Beyond these potential implications – the live sporting argument is frustrating because it predicts a simple, clear future and plays into the Africa rising narrative. A future in which (i) sporting rights go to SVODs, (ii) Africans suddenly have access to the internet, (iii) the disposable income and (iv) payment infrastructure to participate in this economy.

You know who else was this bright-eyed and hopeful about Africa? The researchers who reported that Netflix had reached 2.61 million subscribers in 2021 and that the number would double by 2026:

Netflix may end 2021 with 2.61 million streaming subscribers in Africa and more than double that to 5.84 million by 2026, business intelligence company Digital TV Research projected on Thursday.

Hollywood Reporter | 2021

So where do we land?

Netflix and DStv are too differentiated to be considered direct competitors. MultiChoice has a huge library of local content spanning 38 years and sporting rights exclusivity within the region for the foreseeable future. Netflix has a huge library of international content exclusive to them. To prove that this isn’t competition in the traditional sense a look at MultiChoice’s hardware offerings can give us some answers. The company introduced the Explora Ultra – a set-top box allowing anyone with the hardware to subscribe for Netflix which comes preinstalled. The DStv website actually has a section dedicated to users looking to add Netflix to their DStv account. That doesn’t sound like competition from where I’m sitting?

The only sense in which I see Netflix and DStv as competing is that consumers’ dollars and time are finite resources – therefore by choosing to consume one the other is robbed. Where that gets complicated though is that by extension any platform that a person spends time doing something that is not watching either platform is competition. So do you by extension believe that Spotify, Facebook, YouTube and all other platforms where we consume content today are competition to DStv? If your answer is yes, then I’ll give you a pass when you say Netflix is competition to DStv. If no, well then there’s nothing more for us to discuss…