Revenue Model Innovation Way to Go for Pay TV in Africa
I am not much of a TV person, however I do enjoy an occasional movie of the spy kind, crime and nature documentaries and off course a ball game. The rest of the time when I am not fighting for the remote I spend it flipping through channels.
My preferred service provider, like most of Africa, is DSTV although a number of pure play local and regional Pay TV providers have cropped up over the last few years, heightening the competition for Pay TV while as the same time exerting pricing pressures and deteriorating industry ARPUs. The entry of these providers has been a boon to the Pay TV industry in Africa, heralding impressive growth with projections that African Pay TV subscribers will grow to about 37 million households by 2022 compared to 20 million in 2016, a 11% growth CAGR[1]. Furthermore these new providers are expanding the programming choice available to African consumers and forcing a certain level of innovation in the industry.
At the same time we continue to see the growth of subscription video on demand (SVOD) services with the foray of international brands like Hulu, Netflix, Amazon TV and emergence of African brands like Showmax. This trend is championed by telecom operators, broadcasters, media companies and Pay TV providers[2]. Underlying the growth of SVOD is the increasing availability and penetration of quality internet services in markets like Kenya, South Africa and Nigeria.
User penetration is set to almost double to 8% by 2022 while growing sector revenues by a 15% CAGR to over US$ 450 million, a faster growth rate compared to the 8% CAGR projected for pure play Pay TV sector.
As a result of these trends is that Pay TV providers like DSTV that have occupied the top end of the market and monopolistic positions in some cases, are faced with declining ARPUs while at the same time faced with increasing demand from consumers for customized offerings, an area where SVOD has a clear advantage so far compared to Pay TV providers. Taking an example of DSTV, in Kenya they offer about five service bouquets the most popular in my estimation being the Compact bouquet for which they charge Kes 3,500 (US$ 35) per month for a total of 114 channels. This standard bouquet is created to appeal to a wide range of interests and as a result there are households that pay for channels that they never view at all. In my household I estimate that we watch between 40–50 stations on a regular basis and as such I am paying for over 60 channels that don’t appeal to our interests and it is not for lack of trying. The question begs then whether DSTV understands how many of such households exists within their customer base and whether DSTV is actually making efforts to better curate their service package to improve the customer experience.
The second question is whether there is benefit for DSTV, and other service providers, to pursue a curation strategy. Prima facie there is a strong business case for it. As illustrated above DSTV is incurring monthly costs to maintain the satellite infrastructure, acquire programs, develop and list the electronic program guides, maintaining the back office and customer support centres together with all the attendant taxes. These costs should also be viewed in light of the limited advertising revenues that come from these fringe channels thereby pulling down the overall profitability of each service package.
Pay TV providers can thus improve ROI on their service packages by rationalizing these packages and curate them to suit the needs of their customers.
Pay TV service providers can further improve ROI through innovations of their revenue model, moving away from standard bouquets at fixed prices to more curated service packages at flexible prices. One concern around such a move is the need to secure a certain base revenue to offset fixed costs. However adoption of a base + ancillaries model as has become the case in air transport, hospitality and automotive industries will help overcome these concerns and liberate the Pay TV providers to pursue profit maximizing innovation strategies. These can then be augmented by product innovation to upscale existing subscribers to pay more thus improving ARPUs as well as attract new subscribers into the franchise.
Recruitment deep in the income pyramid can and should be a profitable activity for Pay TV service providers
Recruitment deep in the income pyramid can and should be a profitable activity for Pay TV service providers if they move away from competing on price but rather on the basis of innovative revenue models and product packages. For instance the African consumers across the income pyramid do enjoy a good football game however today those deep in the pyramid are locked by price from accessing these games with service packages designed for the apex of the pyramid. By breaking these traditional paradigms, Pay TV providers can design products that increase access of premium channels across the entire customer spectrum thus improving the overall profitability for each individual channel.
Future revenue performance and growth in the Pay TV industry will this depend on how current and new providers innovate around the revenue model and product portfolio in order to provide more customized content and improve the overall user experience. It will be instructive for the industry to learn from other industries and adopt workable best practices to spur revenue growth
