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Analysts Examine Satellite Pay-TV Failure in Africa

By | February 10, 2009

      [Satellite News 02-10-09] The closure of the GTV satellite pay-TV service is a huge blow to the nascent sub-Saharan Africa pay-TV market. GTV was one of the first low-cost pay-TV services to launch in the region. The service was launched in July 2007, and when Satellite News spoke to the then GTV president Julian McIntyre last May, he said GTV was “very much on track” with its business. At that point, the operator had just under 100,000 subscribers, which it said was in line with its first year targets.
          However, McIntyre admitted at the time that the operator’s distribution strategy left a lot to be desired. He said, “We underestimated how critical effective distribution, and effective management of distribution, was going to be.”
          While GTV may have come close in gaining the subscriber numbers it targeted, this alone did not save it from being closed down. Its fate was announced on Jan. 30 when Gateway Broadcast Services (GBS) said its Board of Directors has unanimously approved a plan to liquidate the company. GBS operated the GTV platform and supplied its services throughout Africa. The company blamed the current financial and global crisis, which it said had severely interrupted the company’s ability to secure further funding for the continued operation of the business. GTV was closed down straight away.

      “A Blow to the Industry”

      Shane Walker, a digital TV analyst at IMS Research said he was surprised by GTV’s failure, and that it was a blow to the pay-TV industry. He told Satellite News, “(My reaction was one of) surprise and disappointment, it’s a blow to the industry, expectations were very high. They were doing fairly well in a few countries, This was the only potential challenge to MultiChoice and it is unlikely another competitor will come forward anytime soon (probably not within three years).”
          In some markets, GTV had appeared to be performing strongly. Walker added, “Yes, there is demand (for pay-TV services in sub-Saharan Africa). GTV had been active in 17 markets with aggressive expansion plans. Much of MultiChoice and Gateway’s subscriber growth came from countries such as Angola, Uganda, and Namibia. MultiChoice has sold more than 30,000 digital decoders to its Ugandan customers, and Gateway was estimated to have 40,000 customers between Uganda and Kenya.”
          MultiChoice refused to comment when asked what impact the closure of GTV would have on the pay-TV markets of sub-Saharan Africa.
      Stéphanie Villaret, a satellite analyst at IDATE said when taking into account the current financial and global crisis, “the liquidation of GTV is not such a great surprise.”

      Risky Strategy

      Villaret believes the business model that GTV used made it difficult for it to succeed and that the operator deployed very risky strategy. She said, “Its ambition was to enter the African pay-TV market with a low-cost offer in order to compete with DStv/MultiChoice, a leader in the market. This ambitious positioning requires the ability to offer attractive content (a mix of local and international sport and entertainment) at a lower price than the competition. GTV’s idea was to bet on the acquisition of the UK Premiership rights for 40 sub-Saharan African countries to seduce new pay-TV subscribers and get subscribers to switch from the incumbent DStv bouquet.
          She continued, “Sports content is extremely expensive and pay-TV operators have to regularly invest in this type of content. One huge investment in a specific sport event such as the UK Premiership can be good advertising to launch a new pay-TV bouquet, but it is not enough to sustain a viable business model. The company must have the financial capacity to regularly invest in that kind of content, while waiting for a critical mass of customers. And it was a risky bet in a region where the financially solvent market was already being addressed by MultiChoice, and CanalSat Horizons to a lesser extent (in Francophone regions).”
          Villaret believes the global financial crisis was the final nail in GTV’s coffin. She said, “Moreover, it  (GTV) lacked time to implement its strategy, due to the sudden global economic crisis. These economic conditions are not favorable to the introduction of a new entrant into the market.”

      Other Platforms to Emerge

      Patrick French, a senior analyst at NSR, said the loss of GTV from the pay-TV landscape in Africa is unlikely to impact other platforms emerging in the region, as there is a strong demand for content.  He said, “NSR fully expects strong continued growth in the TV markets in Africa both for new DTH platforms and specialized bouquets as well as new commercial channels entering many national markets (for distribution terrestrially, on cable, or DTH). There is a great demand for more content including international channels, sports, and especially local content for each country.”
          New platforms will emerge. “NSR believes that this demand for greater variety of TV programming will lead to new DTH platforms, often but not exclusively of the low-cost variety (MultiChoice is relatively expensive) as new entrants to the market try to build up subscribers in different countries. Having the right programming mix will be critical for a successful service, though NSR does not pretend to know what the mix of content should be to be successful in each country. A good distribution and installer network will be important as well as having the right tiers of programs and pricing for each tier,” noted French.
          Villaret also believes there is strong potential for pay-TV to grow in Africa. She says, “Pay-TV has less than two percent penetration in Africa, mainly via satellite. The financially solvent market was already largely addressable, but even slowly, the demand for pay-TV will continue to grow in sub-Saharan Africa over a long term period.”

      Size of Opportunity

      Ironically, when Satellite News spoke to McIntyre last year, he spoke about the huge potential market for pay-TV services in Africa. He says, “The digital TV landscape in Africa is going to change massively over the next few years. Pay-TV in Africa is growing faster than ever before in its history. I think it is possibly one of the last great opportunities in terms of a greenfield market in the world. There is no other market in the world, where you have such a large and captive consumer base, with so little access to digital entertainment. As that market develops in terms of income and disposable income, the opportunity to address it is just immense.” It will be up to others now to make the most of that opportunity.

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