Battle of the streaming services

You can also listen to this podcast on iono.fm here.

Download the free LiSTN audio app on Google Play, Apple or here.

JIMMY MOYAHA: Streaming services – they are all the rage. They have been for quite some time and we all have one.

Whether you’re on Netflix, Amazon Prime, Disney+ Showmax – all of them are available, but which one is really the best to go with? They each offer very different value points, and we’re going to take a look at that, from an offering point of view, a content point of view, and possibly even from an investment point of view.

I’m joined on the line by Leslie Adams, who is sales director at Reach Africa, to take a look at this. Good evening, Leslie. Thanks for taking the time. Let’s start with MultiChoice – why not? MultiChoice has been on a big drive for local content. They’ve just launched or announced the launch of Showmax 2.0, and it’s even cheaper than the first Showmax at R89 a month. Their unique edge and their unique value proposition has always been local content. Is this going to continue to serve them well?

LESLIE ADAMS: It absolutely will. I think MultiChoice is a really great example of paying school fees early, making the adjustments, and trying to plot the way forward in the African market.

When it comes to the African market – like any other market, in fact; Africa is not unique to this – localised content, where the audience can see themselves as part of the content, is the way to success.

Africa adds an additional sort of layer of complexity around connectivity prices, the avoidance of subscriptions. So we are very price-sensitive, we are locally driven and motivated, but we can see how the rejigged and relaunched Showmax 2.0 actually will work in our regions.

JIMMY MOYAHA: Leslie, let’s take a look at Netflix next. Netflix has gone a slightly different route. They did announce a big investment into local content. I think it was to the tune of some R900 million in local South African content, and they have been wanting to expand their reach.

Their subscriber base has grown recently, as per the numbers that they reported, but they’ve also now introduced live events. They announced that they’ve partnered with TKO [technical knockout], which is the new group that owns the World Wrestling Entertainment [WWE] business, and the UFC [Ultimate Fighting Championship] business and the WWE business is now coming on board for live events.

How is that going to change up what we know from Netflix as that place to binge series or binge bundled packages? How are live events going to change their offering?

LESLIE ADAMS: I think globally we’ve really seen a pullback trend in terms of growth across the board. A couple of years ago Netflix saw the first drop in subscriber base as a whole. They very recently announced their financial results, showing growth both in subscriber base and overall revenue. But they’re also really a great case study in terms of paying their school fees and adapting very quickly.

Famously the CEO of Netflix said they will never have advertising on Netflix, and they subsequently now have announced that they will have advertising on Netflix.

Similarly they’ve also moved into the sports arena which, if you get the global case studies of Apple TV with the MRS [TV] and Amazon with the NFL, sports seems to be the new big ticket to Ghana and to grow subscribers within the sort of streaming space.

One of the biggest threats right now in streaming is ultimately churn. So yes, we’ll all try out a streaming service, we’ll all watch a show or two, but the moment we don’t see value we tune out, we stop subscribing.

Sport is one of those creative ways, one of those ways where we can dial into an existing audience who are willing to pay the price to watch the sport they love. This looks to be the next sort of frontier for streaming services – not only internationally, but also locally because you’ll also see, similarly to Netflix launching and partnering with the WWE, Showmax has launched an EPL [English Premier League] package, specifically focusing on soccer. So it’s definitely a trend that I can see growing – not only locally but internationally.

JIMMY MOYAHA: I like that you’re bringing the sport element into it because at some point that was the only thing that really kept a lot of people subscribed to platforms like DStv before streaming, and I wonder with MultiChoice as well cutting a lot of those sporting deals very, very close last year – things around the Cricket World Cup and not being able to finalise those deals.

Do you think this is an area of opportunity that others might be able to leverage off?

I know the likes of ESPN are often bundled with Hulu and other platforms. ESPN is owned by Walt Disney – and we will look into Disney in a second. Do you think this is an area of opportunity on the sporting side that someone like Disney might be able to take advantage of?

LESLIE ADAMS: A very little secret in sports broadcasting is that profits and licensing fees have been falling for years.

So the audiences on TV for sport have actually been in decline; not on a growth trajectory. And streaming looks to be a saviour for all of these sorts of sporting houses, where they’re looking to find ways to increase the finance and revenues for each of their sporting codes. So a really great example for the MLS, which is a sort of regionalised football league in America and quite a niche sport. Soccer’s not a big sport in the US.

But then you come to the table with an Apple as a partner who pumps in $100, $200, $300 million to license that sport, and suddenly you have this massive cash injection.

So on the one hand you’ve got streaming partners who are willing to dig deep into their pockets and spend big to acquire their sporting codes, which obviously makes them a preferred partner to the likes of the NLS or an EPL or, in our case, the Rugby Union.

What’s quite interesting about it actually is that these audiences who follow these sporting codes will then obviously shift their spend.

I think you mentioned at the top that for a long, long time many, many consumers said they stayed with DStv Premium because of the sport. Now that you offer more options at possibly a lower cost, I think it will sway quite a lot of subscribers to switch from their traditional pay TV into the streaming service.

But it’ll also cost the streaming service quite a pretty buck to license those sports as well.

JIMMY MOYAHA: I suppose it is easier for the likes of Apple; with the MLS deals it is a bit difficult. But it is easier for the likes of Disney, given that they own something like ESPN. But this has been Disney’s play, right?

So Disney, instead of saying we’re going to sort of adapt to some of the other conditions, have gone the Apple route – and this is what Apple did with its initial business model: ‘We’re going to build the ecosystem around us. We’re going to own all our content.’

They took back everything from Marvel, they own all of ESPN. So effectively they’ve decided to say: ‘We’re going to control the content and if you want that particular content, you’ll have to come through to Disney+, for example, to catch the Marvel content that we’ve taken off Netflix. Is that a smart strategy?

LESLIE ADAMS: On one hand it looks to be a very smart strategy, especially when you have a library and the content library strength of the likes of Disney. What I do think is interesting is that we’ve seen different partners – where they do have more niche content – try to use the strategy and fail.

I think what’s quite interesting ultimately is that the more we see streaming services behave like pay TV, it almost seems as if you’re going full circle for the consumer, because ultimately we can afford to pay only so much.

I read many, many articles on a regular [basis] where we compare streaming services.

You can subscribe to seven or eight streaming services for the same cost as a DStv Premium account, ultimately delivering exactly the same value.

So what’s going to be quite interesting in time to come is to see how this sort of content library extends, and then a diversity of streaming services can actually benefit the end consumer because no one service provides all the content that any one consumer needs.

I think it’s critical to understand that, as much as we have the juggernauts of Netflix and Disney, they don’t meet every single requirement of a household that wants to consume content on a regular basis – which means we have to subscribe to more than one. Unfortunately, given the cost of living, there’s a limit to how many we can subscribe to.

JIMMY MOYAHA: Let’s move away from the juggernauts for a second, Leslie. Let’s look at something small, like a Viu for example, which by comparison might be considered quite small. They’re out of Hong Kong, but they’ve also gone with a slightly different approach. They’ve gone for a bundled offering where they partner with a Vodacom. You can access their service through Vodacom in South Africa. Is that competing on the same scale at this stage, or is it one of those things where it’s a preference point of view to say someone wants to watch K-dramas, Korean dramas, which predominantly would be found there? It’s easier to get that from a preference point of view or from a value point of view, as you alluded.

LESLIE ADAMS: I think it’s a pretty interesting sort of exercise to explore, because I think what View or Viu shares with us and shows what the market is willing to do, is to accept to take on more free content in exchange for ads.

Now, if you [asked] early streamers, ‘Would you trade your ad-free environment for a low subscription?’ they would’ve said ‘absolutely not’. But now that we’ve gone down the pipeline, having all these streaming servers, costing you R700/800 to subscribe to every single one of them, it becomes a question of: If I have only R500, what is the best way to access value and value for content so that I can consume on a regular basis?

This is where Viu does really well, because when it comes to Hollywood content, a lot of the Hollywood content is shared across all of the streaming services. So you’ll find the same Hollywood content on eVOD, on Viu or on Showmax. The difference is their own content and then of course, their local investment into local content.

The business model around not paying for content we are very familiar with, by using our everyday YouTube. I think as our belts become a little tighter, platforms like Viu will see a spike in growth simply because to access that level of content at no charge is very attractive to the consumer.

JIMMY MOYAHA: Leslie, you touched on this limited budget thing, right? So if I’ve got a limited budget – let’s say I’ve got R1 000 and I’m looking at the juggernauts, I’m looking at Walt Disney, I’m looking at Netflix, I’m looking at MultiChoice …

Where do I buy, as an investor looking to invest in these?

MultiChoice is up about 2.5% for this month. It hasn’t broken back above the R100 level. Netflix on the other hand is up 15% for the month. It’s at about US$556, nearing that $600 range there. And Walt Disney has been sort of range-bound trading at around $94. It is up about 3.7% for this particular month, sitting at $94.

So, as an investor, do you then invest based on how the business models are structured, considering you want to maximise on the future potential of these businesses? They’ve all got stable management teams in place. I don’t think there are any real concerns around management. The likes of Bob Iger has returned to Disney, which he had left in the past.

So assuming all other things are equal – and we’re basing this on what the value is that they add into the market – where do you put your money?

LESLIE ADAMS: I think I’d like to take an earnings look at that approach. I think quite simply Netflix have released their earnings quite recently, and on every single market indicator they’re doing well – they’re growing subscriber place, they’re growing in terms of profitability which, by the way, Disney is not.

Disney is growing, but they’re not making very much money while doing that. So that’s quite an interesting one.

On the flip side of that I think MultiChoice has always remained a very strong and steady business. And the growth and their strength on the African continent I think are to be admired, because we see announcements coming out from the likes of Amazon, who are pulling out of Africa because they just can’t compete at the same level as MultiChoice.

So it just gives you an idea of the strength of our local players to invest in.

If you had to ask me where I would bet, naturally I think, because Netflix is the only profit maker in the space, Netflix is a definite.

And of course MultiChoice is still a solid business all around – be it pay TV, be it streaming, and their value-added services.

JIMMY MOYAHA: Well, we’ll leave it at that. We’ll see how these companies continue to perform throughout the rest of the year. Obviously those numbers will fluctuate as subscribers move around. But thanks so much for your insights.

That’s Leslie Adams, who is the sales director at Reach Africa, on his thoughts around streaming services and the battle of streaming services. Which one comes out on top?