Netflix brings digital disruption and Multichoice wants its regulated. They have even suggested that they need to BEE compliant. They argue that they want to have a level playing field. This call surprised me. The reason I have always admired Multichoice’s approach to innovation, entrepreneurial spirit and approach to digital disruption.
They have seen that their industry is being disrupted. To stay relevant and ahead of the digital disruption curve they created Showmax as an online streaming platform. To give Showmax the best chance of success they set it up outside of the traditional DSTV business. This way the traditional immune system can not kill it and it had a chance to thrive.
So what’s the deal and why do I feel that Multichoice is being disingenuous.
Multichoice’s Loss Is A Win For The Consumer
Business Live reported that Multichoice has lost a total 140’000 subscribers. That’s 100’000 in the last financial year and 40’000 in this financial year.
I wanted to get a sense of the number. As I subscriber to both, I looked at what I am paying. I pay a total of R899 for DSTV and R168 for Netflix. The calculations below are not a 100% accurate as not everyone will be paying the same as me. But it is good enough to make the point around the impact of digital disruption.
So by taking the 140’000 lost subscribers and multiply that by R899, we see Multichoice’s monthly loss is R125’860’000. If we extrapolate that out to a full financial year its a total of R1’510’320’000. That’s a big number and leaves a massive hole in their financials.
I am going to make another assumption here to get more context. Let’s assume that all those 1400’000 subscribers moved to Netflix. I know Most families are struggling and not all of the 140’000 subscriber signed up to Netflix.
My Netflix subscription is R168,05 (subject to the exchange rate). South Africa generates R23’527’000 per month for Netflix. This translates into R282’324’000 annually.
What this really means is that the 140’000 subscribers save about R1’227’96’000 per annum.
Just a note on the cost of internet. I have chosen to ignore this for the following reasons:
- You will probably have an internet connection and cost already irrespective if you have Netflix or not.
- The amount you pay for the internet connection gets paid locally and only reinforces my overall point.
The Self-Serving Call For Regulation
MultiChoice SA CEO Calvo Mawela calls Netflix unregulated competition. And he has a point. Netflix is not subject to the same regulation.
But the regulation argument that says an unregulated Netflix is bad for South Africa and the South African Consumer is wrong.
The net outcome of Netflix’s digital disruption is that it gives the 140’000 subscribers an additional R1,2 odd billion more purchasing power. This money will be going back into the South African Economy. It will generate revenue for the SARS through Vat and other taxes. It will stimulate jobs in other industries as opposed to just Multichoice.
The only real negative net effect here is that the R1,2 odd billion is no longer going into Multichoice’s bank account. And for me, this is the real motivation behind the regulation calls.
Now I am not against some form of regulation per say. Yet I am not on board with Multichoice’s call for regulation. As illustrated I feel that they are trying to protect a dwindling revenue stream. They are shouting that the lack of regulation is unfair. And yes, to a point they are right. But the world has changed and everything will go through some form of digital disruption.
Their argument that the South African economy and tax authorities lose is wrong. Sure Netflix does take money out of the country without paying taxes or Vat. But their turnover is less than 20% of Multichoice’s. The other 80% that stays in the country and gets spent on something else locally.
The economic impact for South Africa outweighs the revenue loss to Multichoice and their shareholders.
The One Winner That Takes All
We call this the WTF Moment; where you sit back in your chair and ask yourself:
WTF do I do now. Digital tech has disrupted everything we know. How do we Thrive in this new digital economy?
So yes, I do feel Multichoice pain and the frustration of competing through a legacy business model in today digital economy. Digital disruption has made it hard for Multichoice to compete in their traditional industry – even with the Showmax and DSTV Now solutions.
Digital Disruption as we know it today typically has one winner. Just look at Facebook, Google, Apple, and Netflix. Google owns search. Facebook owns their form of Social Media. Netflix is disrupting the satellite TV model. They will be that winner. And yes, this creates a new type of monopoly that I am not 100% comfortable with.
But not liking this type of monopoly does not wish it away. And to be honest I want to see digital disruption happen to Multichoice. Here is why:
- I want to pay about 10-20% less for a better, more convenient service.
- The hardware hassle that comes with Multichoice is a pain in the ass. I have to install and set up a whole of hardware.
- The hardware upgrades are expensive and not always a good thing. The worst thing that ever happened to me was upgrading from my PVR to my Explore. Apart from the costs of upgrading the darn thing did not work as well.
- I have to maintain the hardware and make sure my dish is pointing in the right direction. Of course, this also needs upgrading to make sure I get the quality offered.
- And maybe most importantly, when there are issues with the above, I have a grumpy with and two teenagers.
Here is what a decent online streaming service like Netflix gives me:
A Big One – I don’t have any adverts on Netflix.
- Netflix makes it super easy for me to access their content. I pay and off we go. No setup. All I need is a decent Internet connection.
- Their streaming technology works like a bomb. I never get any buffering like I do with DSTV Now or Showmax (I have a 50mg up/down fibre line)
- They track what I watch, analyse this, and make predictive suggestions. Wow. My life just got easier.
- Given their ability to scale around a focused business model my selection options are huge.
- They are producing some of the best content in the world now. I wonder why?
I am sure you can add a few points yourself.
Go Where The Consumer Wants To Go
The reason why I watch TV has not changed but technology is changing how we do this. As my points show above, digital disruption is a good thing. The truth is that technology is becoming more networked and distributed. As technology evolves each category winner will be disrupted, Netflix included.
So when Multichoice moans that digital disruption is not fair it comes across as a sore loser. We have seen this disruption before in the music industry or traditional print media. They sound like privileged spoilt brats who want to hold onto their legacy monopoly. The bottom line is this.
You have to go where your customers want you to go. You have to provide the value that they are looking for. The idea that a corporation owns a customer is a naive, arrogant believe.
No-one owns you or me.
So, to summarise. I think is trying very hard to protect a revenue stream that wants to move away. It’s too late. The horse has bolted.
Netflix’s Top Class Response
As an add-on to this article, Netflix just released a brilliant response that really sums this all up.
This article is part of a presentation that I put together for the Johannesburg Digital Swarm event on the 25 July 2018. If you want to book the full presentation please send me an email and we will set it up.