Our external 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 and provide the best video entertainment products and services to customers across sub-Saharan Africa.

Operating context

General
  • Gross domestic product (GDP) growth in sub-Saharan Africa remained below 3% for the past two calendar years, which is indicative of the broader economic challenges we see across our footprint. This is reflected in weaker external demand, global and local political and policy uncertainty, pressure on commodity prices and, in many instances, currency weakness.
  • Across the continent, extreme weather (droughts and floods) also had a severe impact on consumers' lives (homes, jobs and reliable electricity supply) with this risk element remaining wholly unpredictable and unmanageable.
  • Given the nature of our industry, regulatory developments continue requiring close management and proactive engagement with our counterparties across our markets.
South Africa
  • Our key market was on a somewhat precarious economic footing even before the COVID-19 pandemic. Declining GDP growth, load shedding, critical policy uncertainty, falling business confidence, rising unemployment and currency weakness featured throughout FY20 with the COVID-19 outbreak and associated lockdown exacerbating an already challenging situation. Outbreaks of xenophobic violence also had an impact in some of our Rest of Africa markets.
  • We entered FY21 with an inevitable Moody's downgrade of South Africa's sovereign credit rating to subinvestment grade (Ba1 with negative outlook) and a macroeconomic environment that is under extreme pressure, notably in relation to consumers and disposable income levels. Given the impact of COVID-19, the economy is expected to contract by 7.2% in 2020 (source: Finance Minister's Supplementary Budget Speech, June 2020).
  • Our competitive environment is seeing greater activity in both the OTT and free to air (FTA) space than in our core traditional linear pay-TV business. Netflix is our largest OTT competitor and, although it has not disclosed its subscriber base, we estimate a sizeable overlap between its base and our DStv/Showmax suite of offerings. In the commercial FTA space, eTV does not disclose current active viewers, but it disclosed 2m activated OpenView HD boxes post its March 2020 year-end in comparison to our 8.4m 90-day active subscribers.
  • The challenges at the SABC have been well documented and it remains in the interest of all South Africans to have a strong public broadcaster.
Rest of Africa
  • Our Rest of Africa segment faced headwinds in several key markets through the year.
  • Angola experienced United States dollar (US$) liquidity issues, ongoing and sharp currency depreciation (-47%) and high inflation in FY20 (14.7%). Consumers remain under financial pressure. COVID-19 and depressed oil prices represent a material increased risk for this market.
  • Zimbabwe remains severely challenged from a macroeconomic perspective, which was further aggravated by a severe drought during the year.
  • In Zambia, Zimbabwe and Malawi, which are largely dependent on hydropower, the widespread drought severely affected electricity generation with the resulting power outages in areas of up to 18 hours daily. This resulted in a negative impact on our subscriber base, as customers could simply not use their TVs, in addition to the broader economic impact. Rains in March/April have, however, alleviated the issue somewhat.
  • Nigeria (our largest market by subscribers in the Rest of Africa) is heavily exposed to the oil price but the currency held up through FY20 (average NGN364/US$). The closing of borders to imported goods increased food and other prices and the partial banning of motorcycle taxis in Lagos increased transport costs, which negatively impacted subscribers' discretionary spend. Ongoing oil price weakness remains an area of concern as it could negatively affect the Nigerian currency and the economy.
  • Competitive activity across our footprint remains focused in the mass market, notably via DTT, which offers a much lower cost of entry to consumers as decoder boxes are much cheaper. StarTimes is our largest competitor across sub-Saharan Africa and we compete with regional operators such as ZAP in Angola, Azam in Tanzania and Zuku in Kenya.
  • FTA is an important competitive consideration in many of our markets, notably in Kenya, given a high propensity for news consumption.
  • Although there is competitive activity, notably in larger cities with the requisite infrastructure, OTT is generally at an early stage of development in sub-Saharan Africa. This is mainly due to the high cost of bandwidth and the limited availability of connectivity suitable for streaming, but these elements will continue improving over time.
Technology
  • Differences in content protection laws across regions sometimes present both challenges and opportunities (such as stringent regulations and unique national standards in countries like Japan and China).
  • Irdeto is exposed to geopolitical issues such as the ongoing trade war between China and the US.
  • The COVID-19 pandemic directly impacted supply chains, causing a manageable delay of one month, but may potentially impact business development in a slower macroeconomic environment.
  • Given Irdeto's external customer presence in 71 countries, the portfolio is well diversified and fairly resilient to national issues.

Major trends impacting our industry

LOWER BARRIERS TO ENTRY BRING INCREASING COMPETITION

  • In a connected environment, an OTT operator does not need to solve (extensively) for distribution via physical infrastructure (which is done by telecommunications companies (telcos)) and can therefore scale a platform and reach a larger audience at lower relative price points compared with traditional linear pay-TV operators.
  • Competition continues increasing from global and local OTT players, mainly through:
    • Dedicated OTT specialist services across subscription video on demand (SVOD) such as Netflix, transactional video on demand (TVOD) services such as the iTunes store and advertising video on demand (AVOD) such as Viu and YouTube
    • Traditional linear studios, networks or broadcasters going direct to consumer, such as Disney+ and HBO Max
    • 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 (OEMs) such as Apple (Apple TV+) and telcos such as Vodacom (Video Play)).
  • Evolving competitive dynamics are materially impacting the entire traditional video entertainment value chain, from formats and release schedules (such as box sets for binge viewing), windowing and exclusivity (such as studios erecting walled gardens) to price points for subscription services and/or demand for ad-supported content.
  • In certain markets such as the US, which historically enjoyed high pay-TV penetration and average revenue per user (ARPU) levels, increasing competition is currently 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 is driving change

  • The proliferation of smart, connected devices, the rise in fixed and mobile broadband penetration and speeds (such as 5G), and a steady decline in the cost of these products and services, are meaningfully impacting consumer behaviour.
  • Consumer attention is fragmenting across an increasing array of services, products and applications demanding their time. This is impacting all traditional industries including finance, retail and media.
  • In the video entertainment environment, access to acceptable quality broadband 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.
  • In 2014, the average American watched approximately 4.5 hours of TV daily and spent 2.5 hours on mobile devices (including multitasking between the two categories). In 2021, eMarketer estimates the average American will watch just over three hours of TV and spend almost four hours on mobile devices. While absolute levels of video consumption remain flat, it is increasingly shifting away from traditional TV platforms to mobile devices. As the world becomes increasingly connected, the need for security to protect people and industries becomes even more critical.

what these major trends mean in the context of our markets

  • We identified the evolving pay-TV industry as a material matter (refer to page 76 of our material matters section) that presents both risks and opportunities for our business, and a strategic need to adapt appropriately to changing trends. That being said, it is important to adopt a measured approach to change that is suitable in the context of our markets.
  • Broadband penetration, affordability and connectivity (speed and latency) remain significant challenges in most of our markets.
  • Satellite remains the most cost-effective and efficient means of distributing long-form video content at scale to the mass market across Africa. Therefore, we see ample opportunity to scale our core pay-TV business. In Africa, as in many parts of the world, OTT is expected to ultimately compete alongside traditional pay-TV. We are starting to see some evidence of this shift, but note that the adoption of our streaming services is typically limited to young and high-income individuals in urban areas.
  • While the promises of 5G are compelling in terms of speeds, latency and number of connected devices, 5G networks will typically need significant investment in network upgrades and densification (depending on spectrum allocations) and will likely have a footprint that initially services that segment of the population already able to access fixed broadband.
The COVID-19 pandemic and oil price shock
  • Although the COVID-19 pandemic only affected a limited portion of our financial year, its dual impact on the economy, society and business, as well as public health and safety, represents a significant, broad and potentially long-lasting challenge to the continent.
  • The weak oil price (impacted by weak global demand and disputes around output) triggered some speculation about a potential currency correction in Nigeria in the year ahead. While we hedge our net remittances 13 months out to mitigate risk, we are closely watching developments on this front.
  • Our markets of operation generally saw increased volatility in terms of currency movements and key commodity prices such as oil and copper.
  • In line with global video entertainment operators, we saw:
    • Increased subscriber numbers
    • A temporary freeze in live sport broadcasting and coverage
    • Pressure on our advertising business as companies cut back on costs
    • Various adjustments to our internal activities with regard to employees.

Our response to COVID-19

The MultiChoice Group, like most other companies across the world, was impacted by the outbreak of COVID-19. Many of our stakeholders, including suppliers, employees and the societies we operate in, were affected by the social and economic impact of the pandemic. We 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 were able to provide an uninterrupted service to our customers.

Content

The most immediate impact to our content offering was the cancellation or postponement of all live sport worldwide to mitigate the spread of the virus.
We negotiated with our partners and used our extensive library of archive material to repackage existing content and ensure continuity for our sport fans during this time. Our offering also included broadcasting some of the greatest sporting events in history, live in-studio discussions with celebrated guests and the screening of well-loved sporting movies. In addition, select SuperSport channels were opened up to a wider audience.

On the general entertainment front, lockdown restrictions resulted in the postponement of all local content productions for a period of five weeks. 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 library content and our established relationships with content owners to deliver quality replacement entertainment and keep our offering as 'fresh' as ever.

Subsequent to year-end, local content productions have largely recommenced under strict health measures and international content schedules remained unaffected to date. In sport, the group recommenced the broadcast of football leagues such as the English Premier League, La Liga and Serie A. Other sport content such as WWE, US PGA Golf, Formula One and UFC have already been on air and international rugby, cricket and tennis are finalising plans to recommence on a 'behind closed doors' basis.

Customers

At the onset of the outbreak, we observed an increased demand for our 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. Our responsibility to provide quality content to help maintain the wellbeing of our customers has never been more crucial.

During the lockdowns, we adapted our content, pricing, and value-added services to provide a compelling product offering to customers as follows:

  • We assisted parents and students by enhancing and extending our kids and educational channel line-up to all subscriber packages, including the introduction of the Toonami channel during the school holidays; revision lessons for high school learners on Mindset PoP and Catch Up; and the recently launched education channel, Da Vinci.
  • We introduced pop-up channels across the genres of series, movies, education, religion and kids to entertain, inform and educate those confined to their homes.
  • We expanded our BoxOffice offering by adding 10 movies, increasing the kids and family line-up and reducing pricing to ZAR25 per movie, with Premium subscribers receiving four free movie credits.
  • We made news content and some local content available to non-subscribers to promote transparent and freely available information. We also opened up our 14 dedicated news channels to lower tiers.
  • We provided a free month of Showmax for Compact Plus and Compact subscribers taking up the service, as well as a limited period 50% discount offer for standalone Showmax subscribers.
  • We extended our Joox VIP music service to all subscribers at no extra cost, and offered various online learning benefits and solutions to customers and industry participants.
  • We supported impacted commercial subscribers, mainly in the hospitality industry, across the continent with payment holidays or discounts while they could not operate due to government restrictions.
  • Our Rest of Africa business introduced the We've Got You! campaign, providing active and disconnected DStv and GOtv customers with the opportunity to access packages above their current package at no extra cost.
  • In addition, we collaborated with the World Health Organization (WHO) to broadcast public health announcements across our channels and are supporting the United Nations' global COVID-19 awareness campaign against the spreading of false information associated with the pandemic.
Employees

During the reporting period, we took necessary precautions to protect our employees:

  • We implemented work-from-home procedures from an early date for employees who were able to do so to protect our staff who are required to work onsite.
  • We proactively halted international and local travel before the respective national lockdown imposition.
  • We provided private transport to our South African onsite staff so that they could avoid using high-density public transport.
  • We appointed a public health expert to guide our initiatives and standard operating procedures. Onsite inspections were conducted at all sites and recommendations for improvements were made and implemented.
  • The workplace was revised for onsite staff to enable safety in operations, with the following improvements:
    • We introduced social distancing measures to onsite staff - these measures and other safety guidelines are followed strictly, buildings are continuously sanitised, while access is also closely monitored
    • We are keeping our employees informed of health and hygiene measures, including medical testing. Employees have access to onsite medical professionals for COVID-19 and any other health-related matters. Where employees experience symptoms or are exposed to potential contamination, one-on-one consultations with the public health expert are conducted and tracing is initiated
    • We implemented mandatory temperature screening using thermo scanners at all sites. These scanners are operated by nurses to scan all employees and customers prior to entering the location.
  • We are supporting our leaders and our workforce as a whole to continue engaging at scale, hosting digital wellness engagements; mental health and financial management workshops to alleviate anxiety and stress; and building skills to thrive in the changing social context. For example:
    • Staff have access to ICAS, an employee wellness platform, for any mental health-related issues
    • Staff have ongoing access to financial coaches to assist with alleviating financial strain during the crisis
    • Staff are equipped with the necessary tools to operate and communicate digitally − managers are provided with support on how best to manage teams remotely
    • A tailored digital learning programme was developed and made accessible to allow teams to operate effectively or develop and enhance their skills
    • Our employee service Dooble supported staff during the COVID-19 lockdown by delivering procured goods and providing employees with access to tutoring services for their children.
Communities

The entertainment industry across the world 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.

MultiChoice leveraged its 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. Our COVID-19 contributions to the industry and broader communities were as follows:

  • 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 for impacted cast, crew and creatives across sub-Saharan Africa, with a further commitment of ZAR14m made thereafter.
  • We committed to guarantee 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 and amounted to ZAR24m.
  • We created an online MTF training portal to support 40 000 entertainment industry members in improving their skill set.
  • MultiChoice South Africa teamed up with two local premier soccer league teams, Orlando Pirates and Kaizer Chiefs, in partnership with the Ministry of Health and the Ministry of Sports, 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 the Rest of Africa, we worked with governments and health authorities in countries where we operate to help with the distribution of 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 the payment of salaries.

Future impact

While potential macroeconomic implications such as sharply weaker currencies, a decline in consumer activity and the impact of job losses are largely uncontrollable and will take time to materialise, we are taking steps wherever we can to counter potential future headwinds as a result of COVID-19. This includes taking a deeper look at our cost structures and implementing further cost-saving initiatives across the organisation.

However, the business remains relatively well positioned with a sought-after product offering geared toward people spending more time at home, a large and diverse footprint across the continent, a robust business model that has low reliance on advertising revenue and a strong balance sheet.