Our external business environment
We operate in a dynamic industry in markets that are often unpredictable. This requires us to anticipate and adapt to shifting circumstances in a way that allows us to consistently pursue our longer-term strategic objectives of providing the best video entertainment products and services to customers across sub-Saharan Africa and the best media and cybersecurity products globally.
As the summary below will convey, the operating environment was particularly challenging this year, exacerbated by the effects of the COVID-19 pandemic and associated lockdowns. While ongoing macro-pressure brings certain short-term setbacks to our business, we continued operating with excellence, and focused on areas of the business we can control. We remain positive about the long-term prospects for the African continent, which is well positioned for future growth as the prosperity of its people improves.
- COVID-19 and the associated lockdowns affected the global economy, with sub-Saharan Africa particularly hard hit. Due to budgetary constraints, the fiscal response to COVID-19 was more limited in sub-Saharan Africa relative to emerging market peers and developed markets, while vaccine rollouts generally lagged. Markets that heavily depended on oil exports, tourism and agricultural commodity exports (to a lesser degree) were particularly hard hit.
- Although there is reason for optimism, the shape of the nascent recovery in the global economy remains uncertain due to the emergence of new COVID-19 variants, varying vaccine rollout and take-up rates, debates around transmission and immunity, different government responses with regard to lockdowns and economic stimulus, rising government indebtedness and default risks, and increased money supply generating inflationary concerns.
- The World Bank estimates that gross domestic product (GDP) in sub-Saharan Africa declined by 3.7% in 2020(1), which represents the region’s worst performance on record. This follows two years of less than 3% growth per annum (considered anaemic in an emerging market context), which is forecast to recover to 2.7% in 2021.
- In this context, currency volatility (notably depreciation against hard currencies), commodity price volatility (notably oil), inflation in certain markets (driven by weaker exchange rates and food inflation), and unemployment (notably youth unemployment) continued to negatively impact our markets in the short term. Longer term, though, the continent continues to benefit from positive demographic trends (population growth, urbanisation and disposable income growth).
- Regulators continue cooperating more closely across the continent, with incremental scrutiny on the traditional linear pay-TV sector and competition matters somewhat offset by proposals to regulate nascent areas like OTT more consistently relative to traditional or established areas of the market.
|(1)||The World Bank Global Economic Prospects Report from January 2021 is the source for all GDP and GDP per capita figures shown here.|
- The South African economy was already on a weak footing heading into the COVID-19 pandemic. Economic activity was severely curtailed by one of the most severe outbreaks and strictest set of lockdowns in sub‑Saharan Africa, with GDP estimated to have declined by 7.8% in 2020 as a result (and forecast growth of 3.3% for 2021).
- On the back of soft demand, exacerbated by bouts of load shedding and rising unemployment, the inflationary environment remained benign. With growing concerns around the trajectory of South Africa’s public debt balance and limited appetite for the necessary public sector fiscal consolidation, the South African rand weakened by 9% YoY on average against the US dollar (although it began to strengthen towards year-end).
- A weaker advertising market due to the COVID-19 pandemic impacted our operations and those in the FTA space.
- Competition is increasing in a rapidly evolving OTT space and includes players like Netflix, Amazon Prime Video, Apple TV+, Viu and Vodacom’s Video Play.
Rest of Africa
- As always, different markets in our Rest of Africa segment experienced varying impacts from the broad trends summarised in the overview above. This spreading of risk across our footprint is a principal benefit of operating across a broad number of geographies.
- Nigeria remains our largest market in the Rest of Africa segment by subscription revenues. In addition to COVID-19, it was negatively impacted by oil price volatility and food price-led inflation. Although the oil price recovered to around US$60 per barrel in March 2021 from a low point of around US$20 in March 2020, the economy contracted by an estimated 4.1%, the Nigerian naira depreciated on average by 7% YoY against the US dollar and limited foreign exchange liquidity created challenges in extracting cash from the country.
- Despite a relatively large COVID-19 outbreak, partial lockdowns and the negative impact on tourism, Kenya fared relatively better than many other markets, with an estimated GDP decline of 1%, limited inflationary pressures, and the Kenyan shilling being 6% weaker YoY when compared to the US dollar.
- Zambia initially continued to suffer from droughts and power outages, with relief from rains towards the latter part of the year. The economy and currency remained under pressure, with GDP estimated to have fallen by 4.5% in 2020. Zambia also encountered challenges in managing its sovereign debt, including defaulting on its euro-denominated loans and seeking a debt restructuring. The result of these factors was that the Zambian kwacha depreciated 43% on average YoY against the US dollar.
- The Angolan economy experienced ongoing pressure and was severely affected by the low oil price, with GDP down an estimated 4% YoY. On average, the Angolan kwanza depreciated by 47% YoY against the US dollar. Angola successfully restructured its sovereign debt with private creditors.
- StarTimes remains our largest competitor across sub-Saharan Africa, competing largely in the mass market (notably in DTT). We also compete with regional operators such as ZAP in Angola, Azam in Tanzania and Zuku in Kenya. FTA remains an important competitor for viewership in a number of our markets, such as Kenya, Ghana and Ethiopia. News consumption, which notably picked up during the COVID-19 pandemic, is a critical driver of demand, and local content and mass market affordability are other important considerations.
- Global platforms like Netflix and YouTube, and local platforms like iRoko in Nigeria and ViuSasa in Kenya compete with Showmax. These markets offer relatively better connectivity and are attracting more interest from OTT competitors.
- The COVID-19 pandemic initially impacted supply chains, notably through manufacturing delays in China, but this was relatively short-lived and ultimately had a limited overall impact. However, the pandemic resulted in a general slowdown in new project-based workflows due to its impact on broader economic activity.
- A more pressing industry development is the global shortage in supply of silicon chips, which is primarily driven by: soaring worldwide demand and exacerbated by the trade war between the US and China; the long lead time in building new chip fabrication plants; droughts impacting manufacturing in Taiwan; a cold spell which shut down plants in Texas; a fire that impacted a factory in Japan; and new 5G phones requiring more computer chips than previous generations.
- This led to a combination of rising chip prices and manufacturing interruptions for those industries worst affected (e.g. auto manufacturers). This may have an impact on the group for the next 18 to 24 months in terms of managing chip supply for set-top box inventories for MultiChoice and Irdeto’s external video entertainment client base.
Major trends impacting our industry
The state of play
The state of play
- In our top 14 markets in sub-Saharan Africa, we estimate that household electricity supply is approaching 55%. This acts as a short to medium‑term cap on both traditional linear pay‑TV and OTT penetration, but represents a long‑term growth opportunity.
- In this context, we estimate that TV household penetration is closer to 45%. Considering factors such as household income levels, we estimate that the addressable market for traditional linear pay‑TV services in our top 14 markets in sub‑Saharan Africa is approaching 50m. This suggests that traditional linear pay‑TV penetration is around 32%.
The structure of the new competitive landscape is taking shape
The structure of the new competitive landscape is taking shape
- In a connected environment, an OTT operator does not need to solve (extensively) for distribution via physical infrastructure (which is done by telecommunications, cable and cloud hosting companies). Therefore, the operator can scale a platform and reach a larger audience at lower relative price points compared with traditional linear pay-TV operators who own and lease their dedicated distribution infrastructure.
- Competition from global and local OTT players continues to increase, mainly through:
- Dedicated OTT specialist services across SVOD such as Netflix and DAZN, transactional video on demand such as the iTunes and Google Play stores and advertising video on demand (AVOD) such as Viu and YouTube
- Non-video businesses deploying their value-added services to drive user engagement in their ecosystems, notably in the retail sector such as Amazon (Amazon Prime Video), original equipment manufacturers such as Apple (Apple TV+) and telecommunications companies (telcos) such as Vodacom (Video Play)
- Linear broadcasters introducing OTT services to complement their existing traditional linear pay-TV offerings, e.g. Sling TV by Dish or Now by Sky, StarTimes ON by StarTimes as well as FTA operators launching services, e.g. ITV and BBC’s BritBox app joint venture, and traditional studios, networks or media companies going direct to consumer, e.g. Disney+, HBO Max
- Most major US studios and media houses have launched their direct to consumer platforms and are at various
stages of a global rollout. This rollout typically prioritises developed markets in North America and Europe before
moving into emerging markets like Latin America and Southeast Asia. The rollout into Africa seems to have been
deprioritised due to connectivity, payment collection and affordability constraints. However, this dynamic is changing,
partially enabled by partnerships with established providers such as traditional linear broadcasters and telcos.
Platforms include SVOD, AVOD and hybrid models (US or global subscriber base shown in brackets as relevant):
- Disney: Disney+ (104m), Hulu (38m SVOD and 4m with Live TV), ESPN+ (14m)
- ViacomCBS: Pluto TV (50m), global streaming with Paramount+ etc. (36m)
- Comcast: Peacock (42m sign-ups) and Xumo (24m)
- AT&T: HBO Max (41m)
- Discovery: Discovery+ (13m)
- Others: Tubi TV by Fox (33m), Starz by Lionsgate (17m) and AMC Networks (6m)
- Evolving competitive dynamics impact the traditional video entertainment value chain, from formats and release schedules (such as box sets and full series release for binge viewing), to windowing and exclusivity (such as simultaneous cinema and SVOD release or bypassing of cinema release and studios erecting walled gardens).
- OTT services are typically competing on a low-price, large-scale model which impacts consumer value perceptions across the market, especially where connectivity costs are not associated with the cost of an OTT service.
- In certain markets such as the US, which historically enjoyed high linear pay-TV penetration and high average revenue per user (ARPU) levels, increasing competition is driving a rebalancing in their industry. It is not clear where this will settle but, so far, there appears to be scope for multiple service providers to coexist with aggregators continuing to operate in the in-home video entertainment environment.
Connectivity underpins the rate of change
Connectivity underpins the rate of change
- The proliferation of smart, connected devices, the rise in fixed and mobile broadband penetration and speeds (notably through innovations such as 5G), and a steady decline in the cost of these products and services, are supporting shifts in consumer behaviour. Nascent initiatives like Starlink’s network of low Earth orbit (LEO) satellites to provide high-speed, low-latency broadband services are likely to complement connectivity improvements in the terrestrial telecommunications networking infrastructure.
- Consumer attention is fragmenting across an increasing array of services, products and applications demanding their time and attention. This is impacting all traditional industries including finance, retail and media. In media, in addition to dedicated video services as outlined in the preceding section, consumers also have increased access to other media formats such as social media, music streaming, podcasting, educational content, audiobooks and e-books.
- In the video entertainment environment, access to broadband at an acceptable speed, latency and cost typically results in a change in consumer behaviour as it leads to increased viewing with the benefits of on-demand consumption that is more personalised, often cheaper and offers location and device independence.
- For the US market, Nielsen estimates that between 2018 and 2020, total media usage (including simultaneous usage) increased by 1 hour and 15 minutes per day, driven by increases in smartphone usage, while TV usage decreased by 30 minutes to 4 hours and 16 minutes per day. Media consumption is thus shifting away from traditional TV platforms to mobile devices.
- Although the promises of 5G are compelling in terms of speeds, latency and number of connected devices, 5G networks will typically need significant investment in upgrades and densification (depending on spectrum allocations). 5G networks will likely also have a footprint that initially services a segment of the population that already has access to fixed broadband. In addition, services from LEO satellites will likely be impacted by issues such as the upfront cost of the devices required to access the signal, spectrum allocation issues and rain fade on the signal.
What these major trends mean in the context of our markets
We identified the evolving video entertainment industry as a material matter. We see the ability to adapt appropriately to changing needs as a key strategic requirement. It is important to adopt a measured approach to change that is suitable in the context of our markets.
Our ongoing response to COVID-19 and associated lockdowns
Like most other companies, we were impacted by the COVID-19 pandemic and the associated government lockdowns over the full course of FY21. Many of our stakeholders, including customers, suppliers, employees and the broader societies where we operate, were negatively affected, particularly in terms of the economy, and public health and safety. It is unclear what the longer-term repercussions of the pandemic will be for the continent and the world.
While potential macro-economic implications such as sharply weaker currencies, a decline in consumer demand and the impact of job losses are largely uncontrollable, we are taking steps wherever we can to counter potential future headwinds related to COVID-19. This includes taking a closer look at our cost structures and implementing further cost-saving initiatives.
Despite facing some challenges, the business remains well positioned with a sought-after product offering geared towards people spending more time at home, a large and diverse footprint across Africa, a robust business model that has a low reliance on advertising revenue, and strong balance sheet.
Impact on our business
The impact of the pandemic and associated lockdowns on our business varied:
- We initially experienced significant business disruption due to the nationwide lockdowns implemented across our markets in March and April 2020, but acted swiftly to ensure that, as an essential service provider, we could provide uninterrupted service to our customers.
- At the onset of the outbreak, we observed an increased demand for our traditional linear pay-TV and OTT products as people began to self-isolate, schools closed and lockdowns were implemented. We recognised this as an opportunity to ensure our audiences were entertained and delighted during times of isolation and quarantine, and largely retained the bulk of those subscribers through FY21.
- The disruption to typical school holiday calendars from subsequent lockdown activity did have some impact in the seasonal trends we observe in a normal year, e.g. in South Africa, children returned to school in mid-February after an extended two-month holiday, which pushed out our normal drop-off in subscriber activity in January by one month.
- The initial lockdowns resulted in a temporary freeze in live sport broadcasting and coverage, followed by the return of sport leagues with compacted fixture lists and no live crowds. Our SuperSport team worked to fill the consequent gap in the sport content line-up with proprietary and partner library footage, as well as thematic channels. Our offering included broadcasting some of the greatest sporting events in history, live in-studio discussions with celebrated guests and screening well-loved sporting movies. In addition, select SuperSport channels were made available to a wider audience.
- The initial hard lockdowns in markets like South Africa and travel bans in our Rest of Africa markets created disruptions in our local content production process. Local productions in South Africa were slowed by health compliance requirements but normalised over time, while local productions in the Rest of Africa suffered from our inability to move essential employees to the requisite locations to kick off or participate in key projects.
- Our international content schedules were also impacted by delays in the release of certain Hollywood movies and postponement of series production. To ensure continuity, we leveraged our extensive content library and our established relationships with content owners to deliver quality replacement entertainment and keep our offering fresh.
- The first half of FY21 (1H FY21) saw severe pressure exerted on our advertising business as companies cut back on costs in a weak economic environment where many businesses were prevented from operating and live sport disappeared or resumed with more limited formats. Encouragingly, our DStv Media Sales team was able to make up much lost ground in the second half of FY21 (2H FY21), reverting to normalised monthly run rates in the process.
- Our commercial business was also negatively affected and is taking longer to normalise due to the ongoing impact of curfews, alcohol bans, and tourism and travel restrictions on the travel, hospitality and leisure sectors through much of FY21.
- We lost some sublicensing revenues due to the lack of live sport, notably in 1H FY21.
- We accelerated digital migration, resulting in a 28% and 23% reduction in call volumes in South Africa and Rest of Africa respectively, and growth in the overall self-service user base by 77% in South Africa and 107% in Rest of Africa.
- Irdeto’s project-based revenues were somewhat negatively impacted due to the softer global macro-economic environment.
- Given that we had early line-of-sight on the pandemic ahead of the start of FY21, we were able to accelerate cost-saving initiatives with ZAR1.5bn in costs saved during the year. We also benefited from ZAR0.4bn in temporary COVID-19-related cost savings in areas like travel expenditure.
Impact on key stakeholder groups
We sought to mitigate the impact of the pandemic and associated lockdowns on our employees and the communities where we operate:
- Over the course of FY21, we continued to take the necessary precautions to protect our employees. This included ongoing travel bans (local and international) and ongoing work-from-home processes for most of our teams, including our sizeable call centre operations. A public health expert guided us on best practices, and we implemented strict social distancing, screening, hygiene and testing measures at the office to protect employees working on site. We also ensured that our work-from-home employees were fully supported in terms of capacity to do their jobs, and through employee wellness and mental health-related initiatives.
- The worldwide entertainment industry was particularly susceptible to the effects of the lockdowns and COVID-19, which resulted in devastating job losses for freelance actors, producers, directors and camera operators. We leveraged our partnerships and network to implement several measures aimed at safeguarding the income of creative industries because we acknowledge the critical need to protect income stability for the sector. We made an industry support commitment of ZAR80m at the beginning of the outbreak in South Africa to ensure productions could pay full salaries in March and April 2020 for impacted cast, crew and creatives across sub-Saharan Africa.
- We committed to guaranteeing the income of freelancers in our SuperSport productions and our broadcast technology environment. The commitment was made to freelancers who could not work due to the suspension of sport and the national lockdown. We supported the salaries of travel employees servicing our account for six months.
- MultiChoice South Africa teamed up with two local PSL teams, Orlando Pirates and Kaizer Chiefs, in partnership with the Ministry of Health and the Ministry of Sport, to help government in the fight against COVID-19 with the contribution of personal protective equipment to the value of ZAR28m for frontline responders (nurses, doctors, etc.).
- In Rest of Africa, we worked with governments and health authorities in countries where we operate to help distribute test kits and personal protective equipment to safeguard medical workers. The overall COVID-19 public health support for Rest of Africa was valued at US$2.1m. In addition, we provided financial support to our network of installers and independent service providers to assist with paying salaries.
- More recently, we established our first MultiChoice vaccination site at our head office in Randburg to provide vaccinations to consenting and eligible employees in order to further safeguard our people against the virus and to support the national government in its Mass Vaccination Programme.