Content platform failures from South Africa – Where did it all go wrong?

As African broadcasters prepare for digital disruption what are the lessons from nearly a decade of high-cost failures in the South African market? Here are 12 lessons to survive the next decade.

By Patrick Conroy, CEO Telemedia

To avoid the million-dollar traps others have fallen into it is worth recapping recent history in the South African market to explore the uncomfortable failures that have plagued broadcaster and telcos alike.

Take a deep breath, it's going to be brutal.

The History of Failures

Once upon a time, in 2014 it seemed the digital revolution had arrived.

Electronics manufacturing powerhouse Altron launched its Altech Node. This offering promised to be "the world's first fully converged home gateway console, offering the latest in movie entertainment, TV series, sports and business content, Internet access, and wireless smart home solutions".

Within a year it was shutdown with losses estimated to be close to $3000 000.

That same year the former newspaper giant, Times Media (now Arena), launched its SVOD offering, VIDI. It was dead within 16 months.

Also caught up in the race to lead the digital disruption of traditional media was telecommunications behemoth, MTN, with its content offering FrontRow. With big money behind such an offering what could go wrong?

FrontRow flopped from the start, and even an attempt to rebrand it to VU failed spectacularly. By 2017 MTN had enough and pulled the plug.

Despite these offerings failing to convert consumers to their platform the attempt to disrupt the traditional media market went on.

Kwesé, the company backed by Zimbabwe's richest man and telecoms titan Strive Masiyiwa, collapsed in 2019 owing content providers an estimated $100 000 000.

Also to fall were the telcos Cell C's Black and Vodacom's Video Play. Again, tens of millions of dollars lost.

(Full disclosure; I consulted to Cell C after it launched Black and ultimately advised them to shut it down)

More recently Telkom's streaming service TelkomOne was shuttered and relaunched with the national broadcaster as SABC+. This too has been problematic with SABC+ embarrassingly crashing as users tried to livestream the 2023 Rugby World Cup.

Who has succeeded?

Well, define success.

The DStv challenger, Openview, has reached 3.2million households and is cash positive, but must still recoup its very large investments into the platform.

(Full disclosure; I was the MD of Openview when it surpassed 1million households. My successor Mmatshipi Matebane as achieved even better results to-date. Find him on LinkedIn here)

Similarly, MultiChoice's Showmax offering, launched in 2015, continues to valiantly defend the organisation from competitors like Netflix, Disney Plus and Amazon Prime. But it is still a loss-making business, and subscriber numbers have not been disclosed.

The bottom line – local streaming services are not cash cows.

12 Lessons for Africa

1. Know where to find your market

Beware the dazzling lights of Hollywood and slick presentations from consultants. It is easy to understand why executives are mesmerised by the box office takings of international content. It seems almost logical that if you go digital the audiences, and revenues will follow. Not so.

Consider this. According to the Broadcast Research Council in 2022, the most watched TV programme in South Africa was the soap opera series, Uzalo, on free-to-air SABC 1 with 5.6 million viewers.

Close behind is eTV's Scandal at 4.78 million viewers, and SABC's Generations: The Legacy amassing 4.51 million.

At the same time Digital TV research puts Netflix subscriptions across the entire African continent at 2.6million, less than half of South Africa's top watched show.

Source: Statista

While SVOD offerings will increase, it is estimated that Netflix will have 15.5m subscribers by 2028. That is still hardly enough to dominate market share of audiences.

2. Beware the Hype

It is clear that digital offerings will transform the media landscape across Africa overtime. However, it will be a transformation and not a revolution.

The South African failures repeatedly prove the point that those who move too quickly, fail to understand audience trends, and try to be the next Netflix offering are highly likely to fail.

According to the pan-African research group, PAMRO, linear television is still the dominant form of media consumption across the Continent.

Not all markets are the same, with varying levels of media development.

Television viewership in Ghana grew by 2% in 2022 at 80% daily reach compared to digital at 63%. In Kenya both daily TV and Digital consumption is lower at 64% and 41% respectively.

The graphic below gives an overview, including Mozambique, Niger, and Senegal.

Source: PAMRO

At the recent International Broadcasting Conference (IBC) in Amsterdam Zee Entertainment Enterprises reported it reached 700 million viewers daily in India alone, of which 100 million were digital consumers. That is still only 14% of the total addressable market.

3. The Pitfalls of a Content Deal

Where once content providers could only sell their pay-window content to pay-tv operators they are now able to monetize the same title multiple times through the various telco and media offerings. And, with differing price points you can expect there to be price wars leading to smaller margins for your streaming business.

Most content houses or distributors will want you to agree to Minimum Guarantee payments, known as MGs. This has been the norm for decades, but changes are happening slowly.

Essentially a minimum guarantee will mean you have to pay a monthly amount for content regardless of the viewership. This ensures that the content provider gets their money upfront. These deals can commit you to a multi-year term, and if you cancel early, you are still liable for outstanding fees.

However, linked to minimum guarantees are set subscriber levels. Once you go over the pre-agreed number of subscribers you pay more for every additional sub. Cost Per Subscriber fees (CPS) may range from $0.50 to several dollars.

The more successful you are at acquiring subscribers the more you pay. For the content providers it is an additional boost to their revenues, even if your business is still running at a loss or unable to scale.

It is hard to acquire valuable content without agreeing to these conditions. Numerous failures in this market can be linked to over-paying for content which is usually US Dollar based – a danger if you have an erratic currency.

If this is new territory for you take the time, spend the money, and get independent advice from a third party.

4. Go Hyper Local

As mentioned above when looking at the most watched programmes in South Africa it is clear from the Broadcast Research Council's data that local programming is king, with approximately 9.3% of the country watching a single linear broadcast of the show at the same time.

Even on pay-tv we can see local programming is dominating DStv's most watched shows in August 2023.

Having a hyper-local content offering will help shield you from the big international streaming services who cannot compete with the frequency and quality of homemade content. If they plan to capture local markets, they will have to invest heavily in the type of content which is still the domain of the analogue airwaves today.

5. The CEO isn't always right

The big mistake being made in new content platform offerings is that the market wants what the CEO is watching. This may not be true.

In analysing the data, it is clear that viewers watch content according to their culture and not their income. Viewing preferences do not change with a salary increase. The driver of content uptake in local markets is local content – period.

If the decision makers in your organisation are not reflective of the broader market, or in tune with their needs, they may impose their own content tastes on the business.

6. Linear must be part of your streaming mix

This may appear to cut against the grain of most modern thinking, but an analysis of the data will show that the number of minutes viewed on a linear offering will typically be higher than Video on Demand.

It turns out that choice is a chore and consumers are happy to sit back and have content pushed to them. That is not to say VOD is pointless. It is a critical component of any media offering, just don't be surprised if linear dominates in terms of minutes viewed, and data consumed.

7. Revenue Share Deals are Better

If you can try and negotiate a revenue share deal with suppliers rather than pay onerous guarantees for which there may be little or no return. These arrangements are rare but are on the increase gradually as content suppliers face the prospect of being unable to secure MG arrangements like they have in the past.

The explosion of OTT (Over-The-Top) offerings around the globe has put pressure on the content owners, particularly in the US. Where once they had a captive market today content competitors are increasing exponentially. They are now seeking to recover their loss of earnings at home by targeting new markets such as Africa. Negotiating power thus lies with you.

8. Middlemen – be careful of the slick sales pitch

Over the course of the last 10 years, I have witnessed the smoothed tongued pitches to executives in multiple boardrooms. The playbook usually goes something like this:

a) The use of fear: Your business model is under threat, and you will be disrupted by competitors who have a digital first strategy.

b) You don't know anything: We are the experts with the contacts and the experience to get you through these challenging times.

c) We can do it for you: Outsource your business (and your thinking) to us, and sit back while we do all the hard work for you and watch the revenue come streaming in. (Excuse the pun)

Firstly, as the data and research shows, you are unlikely to be disrupted, but rather transformed over time as audience behaviours shift and access to mobile internet services become ubiquitous. The market is still largely where you last saw them – on linear TV.

Don't be rushed by consultants into making hasty decisions and investments. Not all have your best interests at heart and may not be disclosing backroom content deals they have with third party suppliers. Do your research on the past performance and results of the guy claiming to have all the answers, me included.

Stay close to your own business and if you do hire help make sure you are not being taken for a ride.

9. Payment Channels are Critical

Content businesses targeting the mass market will require multiple methods of payment from customers. Credit cards are not found in most wallets, and even those who do have one are reluctant to divulge their details due to security concerns.

How a content player can extract ongoing revenue from customers will depend on their ability to offer flexible and easy to use channels, such as:

• Vouchers
• E-wallets
• Add-to-bill
• Mobile payments
• Content as a value add to other purchases such as mobile contracts

Alternatively, you may need to explore advertising funded models to secure revenue.

10. Yes – There are Hidden Costs

You will incur costs in most cases after signing a content agreement. Suppliers will not typically include fees owed to artists or regulatory bodies. In many markets a content business will have to pay unavoidable royalty fees. Make sure you have money set aside each fiscal just for them.

11. Where are the advertisers?

One of the draw cards to go digital is the ability to measure consumer data and more accurately target consumers with advertising that matters to them. This will increasingly be important.

However, the digital advertising rate card is much lower than traditional advertising fees. The trade-off between traditional ad spend and digital results in a deficit in most cases.

Furthermore, advertisers still target mass media for an important reason – it works.

"In 2021, the media and publishing sector spent 1.37 billion U.S. dollars on TV advertising in South Africa, up 17 percent from 1.15 billion dollars in the previous year." - Statista

12. Barriers to Entry

In many developed markets access to streaming services are almost ubiquitous. African markets will follow a similar path, however that is still a long way off for most of us.

The GSMA Intelligence report predicts that Africa will have 120 million new mobile subscribers by 2025, taking the total number of subscribers to 615 million – approximately 50% of the Continent's population. That is still an impressive number, but still only half the addressable audience.

While the cost of data is declining and networks expanding the costs incurred by the end customer cannot be ignored. In markets where data costs remain high and/or consumers are economically squeezed streaming platforms need to bare this in mind.

Consider this quick sum, 15 minutes of streaming will consume approximately 250MG of data. This is an added tax to the consumer, particularly if they are paying a subscription fee and are also being charged a rental fee to watch a movie.

In the South African market, the DTH offering Openview, has become a formidable competitor to streaming as it offers:

• No monthly subscription costs
• Good mix of international and local content
• VOD as a value-add service – not the primary offering

Although other markets are further down the digital path, they still face the "bow-tie conundrum".

This is where markets experience an increase in content producers on one end of the spectrum and a proliferation of digital platforms on the other. The centre of the bow-tie is the throttle point were legacy systems are still largely used by the consumers.

Conclusion

African media companies have the benefit of carefully and strategically adapting their businesses over the long-term as audience behaviours change. These decisions should be driven by data, research, and consumer understanding.

The lessons learned from South Africa's multiple failures highlight the dangers of moving too quickly, over investing in new technologies and failing to understand market forces.

The power still lies with traditional media organisations. While you must innovate and adapt for the future, take your time. Be strategic. There is no need to rush.

About the Author:
Patrick Conroy is the CEO of Telemedia, one of Africa's largest communication and satellite teleport companies. He is the former Managing Director of both Openview and South Africa's first 24-hour news channel eNCA, which he launched for eMedia in 2008. Prior to joining Telemedia he was the head of PR Strategy for Ogilvy South Africa, and Global Marketing Director for Duke Corporate Education.