One to watch: Pay TV in Africa

The pay TV market is starting to gather momentum in parts of Africa and the companies involved are working to create consumption and business models that reflect the region’s unique infrastructure footprint.

January 7, 2014

11 Min Read
One to watch: Pay TV in Africa
Sky is taking control of assets in Italy and Germany

By Digital TV Europe

The pay TV environment across sub-Saharan Africa has evolved rapidly over the past year or so, with new entrants emerging to confront the hitherto unimpeded dominance of South Africa’s MultiChoice and its DStv platform. The expansion in content supply, distribution networks and operators appears to be accelerating, even if the pay TV environment remains challenging. New entrants face an established and powerful incumbent as well as a lack of established distribution infrastructure and an extremely price-sensitive market—with consumption of pirated content widely seen as a viable substitute for legitimate services.

With these challenges in mind, new entrants are taking a variety of forms, ranging from relatively straightforward DTH challengers to DStv and operators hoping to ride the much-delayed wave of digitisation of terrestrial infrastructure, to small, agile companies attempting to take advantage of new distribution channels such as mobile.

Africa is of course not one market but many, with widely different conditions between and within individual countries. While South Africa and Nigeria present large, relatively rich, if diverse, territories with established production bases for TV, a growing number of industry participants increasingly see East Africa as a particularly dynamic market for pay TV services, with a significant number of competitors emerging to challenge MultiChoice. One of these, Wananchi Programming-backed Zuku TV, has expanded out of its Kenyan base to launch low-cost DTH services in adjacent countries including Tanzania and is now looking to expand further.

According to Wananchi Programming managing director Hannelie Bekker, Zuku plans to follow a Ugandan launch this year with a launch in Malawi before the end of the year, and may launch in Ethiopia next year, with Rwanda identified as another potential target market.

“There are both geography and language factors underpinning the plans,” says Bekker, who identifies Wananchi’s target market as ‘greater East Africa’. “There are linguistic differences but we are able to stick with series that are available in English,” she says. She says the company has, for the moment, ruled out launches in Portuguese or French-speaking Africa—although Rwanda straddles the boundary between Anglophone and Francophone Africa—while Ethiopia is a highly diverse territory with multiple language groups. Zuku recently moved from the NSS-12 satellite to SES-5, which Bekker says give it access to all of sub-Saharan Africa via a single footprint.

Zuku TV is not exclusively Anglophone—the service includes a raft of Hindi channels and also launched a Swahili-language movie channel earlier this year, which Bekker says has been received “exceptionally well” in Kenya and Tanzania.

“We were worried about sustaining it in terms of content but we have an outlet that is stimulating supply,” she says. Zuku acquires movie rights for the service and commissions some ‘behind the scenes’ and other content to complement it.

The service offered by Zuku is similar across territories with the exception of local free-to-air channels that have rights that are geographically restricted. Access to these is limited by the set-top box.

In addition to third-party channels Zuku offers a suite of its own services, and the operator plans to launch a new channel aimed at 6-12 year old children on November 1st. “The kids market is underserved by free-to-air channels. There is excellent content available that has never been seen except by traditional pay TV homes,” says Bekker. Most of the content for the channel will be licensed. “We have been lucky to get our hands on some strong African properties and we are just finalising three sets of interstitial programmes which is the only commissioning we have done.”

Bekker says she believes the pay TV market—certainly in eastern Africa—has experienced a transformation over the past couple of years, with new players such as Zuku and China’s StarTimes challenging the dominance of DStv, which has responded by launching its own low-cost digital-terrestrial-based pay TV offering GOtv. This has in turn stimulated the local content market and lifted the value of rights.

“There has never been a better time to be in production in East Africa. I also think we are all trying to raise the bar, and so interest in local content is becoming greater. We are all moving forwards cautiously but the market is very lively,” says Bekker. She says operators are currently only “scratching the surface” of potential users, with an expanding middle class meaning all players can grow without specifically targeting each other’s existing subscribers.

Uptake of DTH pay TV is also being driven by confusion about digital switchover—a process that has been subject to numerous deadline changes and lack of clarity about how and when the process will be completed in a number of territories.

In addition to DTH, Wananchi operates its own cable network in Nairobi, and the company has plans to develop its infrastructure play by investing in HFC-based networks—which enable it to market a triple-play of voice, data and video as well as advanced services such as VoD—in Mombasa and Dar Es Salaam next year.

Zuku TV remains a relatively straightforward pay TV operator in the territories in which it offers DTH, while it has established a classic fixed-line triple-play business in Nairobi. But one area in which Wananchi has not yet staked a claim is mobile—one of the biggest growth stories in Africa over the past decade. Mobile penetration —including 3G services—far exceeds pay TV or digital-terrestrial TV across Africa, and it is no surprise that a number of new media players have focused on this area rather than on traditional pay TV.

George Twumasi, CEO of South Africa-based ABN, believes that mobile offers an untapped opportunity for content providers. While pay TV has been dominated by DStv, which benefits from its strong South African subscriber base, free-to-air broadcasting has until now largely been the province of state monopoly broadcasters, leaving a gap in the market for innovative new entrants, he says.

“Telcos have created a model based on voice and they want value-added services. They have money and infrastructure and have cash to burn,” says Twumasi.

Broadband access in Africa is likely to be dominated by mobile and LTE in particular, he says, while triple-play bundling will likely be based on a combination of satellite with mobile infrastructure. But he is skeptical about the prospects for digital-terrestrial infrastructure and the timing of digital switchover.

Twumasi believes there is an appetite for homegrown African content that remains unsatisfied. “Until now, Nigeria has shaped the market with a high-volume production base,” he says. However, the output has largely been dominated by Nigeria’s ‘Nollywood’ drama content, leaving genres including kids content and factual programming under-supplied.

Above all, says Twumasi, there is a need to build a functioning distribution network for African content to deliver content both to the diaspora and to Africans in Africa. He says that an installed base of 600 million mobile phones and 100 million TVs is crying out for content, with mobile content to date largely dominated by games and music. “The price of mobile data is artificially high, and video is a powerful facilitator in bringing price points down,” he says. “That model has not been effectively configured because content is in short supply. The next step is to create an enabling environment that will trigger the creation of a new industry.”

A number of new entrants including iRoko TV—which focuses on Nollywood content—Afrikan Dust Media and Buni TV have already attempted to create businesses based on OTT and mobile distribution. Afrikan Dust Media, a production outfit that has an eye both on the African diaspora market and on content-to-mobile distribution across Africa, is developing an OTT service targeted at the African overseas diaspora, offering a range of content for US$5.99 (€4.38) a month. In parallel, it is also rolling out mobile distribution of content across Africa itself, launching an Android app and linking its content with popular social media networks including Mixit.

“We are looking at third-party content from Africa, focusing on all sub-Saharan Africa, initially the English-language markets and then the Portuguese and French-speaking markets,” says Simbarashe Mabasha, director of Afrikan Dust Media.

The African service is free-to-view and essentially comprises four-minute micro-episodes of content from 500KB to 4MB in size. While the Android app and a launch on the Blackberry platform will address the growing smartphone market, Mabasha says Afrikan Dust Media also intends to build on the wider penetration of feature phones in the market. The company’s content is also available via Mixit’s Cinemo app. The company currently has about 400,000 users on mobile, according to Mabasha.

Mabasha says the infrastructure necessary to support OTT services is now emerging across Africa, with large CDN providers building out networks and the launch of LTE and HSPA+ mobile networks that can support high-quality streaming. While mobile is Afrikan Media Dust’s core play, Mabasha also says that the company is “very open-minded” about HbbTV-based hybrid platforms and fibre networks. He says that “plans are afoot” for non-mobile launches outside South Africa over the next six months.

Regarding mobile distribution, says Mabasha, data costs remain the biggest challenge. There are notable differences in rates across the continent, he says, with South Africa more expensive than East Africa. He says that Afrikan Dust Media has elicited some interest in partnerships from telcos, although voice remains the most significant driver of revenue for service providers. Tie-ins with social media companies may therefore represent a better way to drive usage and build the platform.

Another company looking to benefit from the massive growth in mobile across African is Buni TV, which launched a free-to-view service in April last year, complementing an online offering.

Marie Lora-Mungai, founder and CEO of Buni TV, says that the company’s experience to date has shown that “Africans are ready to discover and watch content on their mobile devices”. She says that about 60 per cent of Buni TV’s total traffic comes from Africa, with about 43 per cent of that traffic currently coming from mobile phones. “We are now getting ready to launch our premium subscription service which will give our users access to full length films and TV shows,” says Lora-Mungai. “Buni TV’s distribution strategy includes our website, mobile site, Android app, and various strategic partnerships. We’re also looking at branded channels opportunities on other platforms.”

Coming next for the platform is the launch of a subscription service, and Lora-Mungai says that the company will work hard to grow its catalogue of pan-African content as well as to “transform free users into subscribers”. She is confident that OTT services can play a major role in the emerging African TV environment. “OTT content providers might ultimately very well become the first real competitors to DStv in Africa. The infrastructure still needs to improve before we can see any real explosion of these services, but there’s been a very strong market demand for more high-quality African content for a while now,” she says.

Buni TV’s proposition is based on the streaming of full-length videos to smartphones rather than bite-sized downloads to feature phones. “In our case we are addressing the middle and upper middle class, people who own smartphones or computers and are in general familiar with technology,” says Lora-Mungai. “There is an assumption that mobile video consumers will gravitate towards short form content, but we have found that it is not necessarily the case. The mobile video market is still in its very early stages, and tastes and behaviours haven’t been fully established yet.”

For now, Lora-Mungai concedes, mobile distribution remains a complement rather than a substitute for other video distribution channels. “There are many challenges, the first one being that we are developing an ecosystem from scratch,” she says. “Obvious challenges also include accessibility, internet speed, bandwidth and data costs and low smartphone penetration. Those will all sort themselves out in time as mobile operators respond to market pressure.”

Finding secure payment mechanisms that subscribers are comfortable with is another challenge, but creative use of mechanisms that mobile users are already familiar and comfortable with could point the way forwards. “I’m particularly interested in the potential of airtime as universal currency,” says Lora-Mungai. “Ninety per cent of mobile users in Africa are on pre-paid, which means that they have to regularly load their phones with airtime. In Kenya, mobile users have been using their airtime to purchase music, wallpapers, or games, and to subscribe to news or jokes services for several years.
Airtime payments might be the easiest way to drive massive adoption of premium video services across the continent.”

The various players looking to tap into a boom in African Pay TV may disagree on the current state of available infrastructure and how realistic it currently is to build a business based on mobile video—and it is certainly not yet clear exactly what kind of business model is likely to work. But there is at least an emerging consensus that Africa’s huge base of mobile users is there for the taking if it is presented with a compelling, affordable and distinctive product.

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