Dstv’s bad choices

No business can take their current market share for granted.Technology is changing so fast that existing business models are rendered inadequate overnight just like that. And DStv is not spared.

The traditional subscription based business model may not be adequate to deliver sustainable shareholder value in the medium and long term. Something must change and now.

StarTimes and Zuku TV are a big threat to Multi-choice’s market dominance. Although Multi-choice responded with GoTV, the market share has been threatened. Zuku Premium subscribers are very satisfied with the offering at just Ugx. 33,500 (US $9) monthly. At that fee, a Zuku subscriber enjoys a range of entertainment and news options including all popular international news, movie and series channels specifically BBC, Aljazeera, Bloomberg, Fox, CNBC, SkyNews and more with exception of CNN and sports options. Recently, Zuku made all popular Indian channels freely available for their subscribers at that fee. StarTimes offering are almost the same save for lots of Kungfu channels which they give in plenty.

Dstv’s main differentiator has been football, specifically the English Premier League. Not anymore. Kwese TV has broken the monopoly and offers the same league unlimited. In Kenya, where Facebook has established WiFi hotspots to offer Internet at very affordable rates, Dstv finds itself in front of a major threat: Netflix. The barrier to the growth of Netflix in Africa has been the high cost of Internet access. Not anymore. At just US $12 monthly for the Netflix premium subscription, you can access all popular and premium content, series and some exclusive movies too not available anywhere on any Dstv offering. In addition, with the 4G Internet access unlimited subscription also coming down, some Ugandans are preferring to subscribe to Netflix for their personal entertainment since it is handy on their phone.

Dstv’s brand positioning is synonymous with Celtel, whose business model was exclusive offering for the super-rich. Given a small market segment of such a class in Uganda due to massive inequality, the brand struggled on the arrival of MTN which disrupted the telecom industry. MTN launched after a thorough market research. They understood the typical pains by a Celtel customer. The first pain was awful customer care. High cost of service. Scarcity of mobile phones. Customers had to pay in advance before receiving their phone. MTN reduced the cost of handsets. Provided first turn around time (TAT) and transformed customer care in telecoms. The rest is history.

GTV, Gateway Broadcasting Services, saw a great market opportunity like MTN and launched PayTV services in 2008, a market that had been monopolized by DStv. Within a period of just one year, they got 50,000 subscribers. However, GTV’s financing strategy was not ideal to sustain their pricing model. The company is said to have financed rapid expansion with short and medium term debt, which was a mistake with their low cost penetration model that required volume numbers to break-even. GTV’s initial success with low prices made Dstv to wake up by reducing prices to the smiles of customers. However, GTV’s balloon burst a year later in January 2009, a foundation for entry into PayTV had been opened. Chinese went back to the drawing board. The Chinese saw this as an experiment and came up with a sustainable business model: low cost penetration to disrupt Multi-choice’s Dstv. They launched StarTimes at very affordable pricing for the mass market which has seen the company grow in subscriber numbers thanks to their launch coinciding with the national transition from analogue to digital. At present, Multi-choice’s Dstv and GoTv are said to control about 40% of the PayTV market share in terms of subscriber numbers. StarTimes, Zuku and Citi Cables control the rest. Kwese TV is seen as a possible challenge to the status quo and competes directly with Multichoice which had exclusive English Premiership League broadcast rights.

Broadcasting

In a market report, October – December 2015, by Uganda Communications Commission reveals the number of Free –to- Air TV stations stood at 28, digital terrestrial TV stations were 2 and digital satellite TV stations remained unchanged at 2.

Seven (7) Pay Televisions were operational in the market, two (2) of which broadcast using terrestrial, four (4) use satellite and one (1) broadcasts over cable as of December 2015. Four Pay TVs broadcast country wide. StarTimes and Zuku tv broke DStv’s monopoly of country wide broadcast. By June 2016, Uganda had fully migrated from analogue to digital broadcast.

In response to this digital revolution and threats from new providers, Dstv launched the PVR Explora, the Personal Video Recorder – that promised to transform home entertainment. A product once positioned for the super-rich, it launched at Ugx. 1.2m, and later reduced to Ugx. 398,000. At this price, Explora is still out of range for most Ugandans considering that you need at least Ugx. 282, 250 monthly to enjoy the PVR experience. One Dstv subscriber on PVR Explora explained to SummitBusiness that he found the offering overrated saying the experience is like “being in a comedy show you had been promised endless laughter only to sit there ready to laugh but no joke is worth it and you just stay there grinning with your teeth helplessly waiting to laugh in vain.”

The same is the case with the PVR Explora. Though it boasts of a 2TB hard drive, up to 220hours HD recording duration, 20 Box office movies and Catch up with 60hours series and 30 movies, the experience is quite a disappointing one. You come home expecting a new blockbuster movie in vain. The movies on Explora’s Box Office do not get updated for over a week or more.

“As a subscriber, I expect to find at least two new movies daily so that I have a choice. And if a new movie goes to Cinema, one would expect that Dstv will show that new movie as upcoming and state the time it is expected on Box Office. That way, the subscriber is able to plan and optimize their viewing experience.”

One wonders whether DSTV was ready for the product before launch. The movies on Catch Up are nothing other than a collection of so many Nigerian movies – which obviously may not be of preference for the kind of target market Dstv boasts of as subscribers. To make matters worse, be updated.

The Netflix phenomenon

The rise of the Internet created many new markets and opportunities. Trailblazers like Apple transformed the music industry with their innovation of distributing music online. Amazon changed the way high quality books are published and accessed globally. Rental movies stores fell on their knees. Once upon a time there was Blockbuster movie rental. It had a good business model of renting quality movie rentals. Clients would visit the store or call to have their favorite movie shipped. Despite the high quality service and fast turnaround, the model could not survive the disruption brought about by the Internet.

Many people still wanted movies and their favorite series in a complete set. Blockbuster could not deliver such a thing. Netflix and Amazon prime put all exclusive movies and series in all formats and provided total access to the subscriber. You pay one fee and gain access to all entertainment. You can download and watch several times over. You can skip through the series. You have all the access on your mobile phone and if you are a premium customer, you can access the same on your TV.

For long, the high cost of fast Internet speeds affected the penetration and growth of Netflix. However, theirs was a model built for the information age. As the cost of accessing fast Internet came down thanks to fiber optic, Blockbuster started seeing fewer and fewer customers. It came to a final end on 23rd September 2011.

Accordingly to analysis, Blockbuster collapsed because it kept its head buried in the sand for too long. It could not respond to the emerging market forces specifically (i) increased competition in the media entertainment industry; (ii) technological advances that changed the landscape of the industry; (iii) changing consumer preferences; (iv) the rapid growth of disruptive new competitors; among others. These same forces now face Dstv.

Pricing vs offering

Dstv has kept the prices very high. DStv Access, the least priced package goes for Ugx. 38,000 monthly subscription with an offering of 91 channels. Mid-level packages Family and Compact packages go for Ugx. 66,000 & Ugx. 120,600 respectively. For a subscriber to enjoy premium content on Compact plus and Premium, they have to pay Ugx. 190,700 and Ugx. 287,250 respectively.

Zuku’s least priced package; Zuku Smart Pack goes for Ugx. 10,500 with a total of 42 channels. Zuku Premium on the other hand costs Ugx. 33, 500; Ugx. 4500 less than DStv Access package. Zuku Premium has an offering of 103 channels; 20 more than those on DStv access yet this is Zuku’s premium package! Does DStv’s pricing offer value for money?

The new economics of TV

For long, pay TV business model has been built on monthly subscription. However, as Internet prices come low in most African countries, Dstv finds self in a tough battle for market share and relevancy especially offering all round quality entertainment. Since Dstv does not produce content, it can remain relevant by buying broadcast rights for high popular shows. This involves a huge expenditure. In Nairobi, Facebook has launched low costs WiFi spots, introduced Facebook live and this promises to threaten the incumbent big television players.

Dstv wants to sell to middle and high end but their service quality and offering always falls below the expectation of such customer segment. For example, Dstv PVR Explora is so inadequate in the sense that Box office movies take long to be updated. As if that is not enough, one is required to re-rent the movie after 48 hours! Why can’t the movie that had been previously rented be available for viewing for as long as it is on the Box Office menu? Such pricing compares well with Amazon prime or Netflix premium.

Dstv must remove their head from the sand to avoid ending the way Blockbuster ended – filing for bankruptcy for failure to proactively respond to market dynamics.

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