South Africa: Naspers braces for pay-TV price war in South Africa

Distribution

South African pay-TV monopoly Multichoice expects the onset of competition next year to spark a profit-eroding price war and says fixed-line phone operator Telkom will be its toughest rival. Multichoice, which is owned by media firm Naspers and runs Africa's DStv pay-TV network, says it may have to cut its prices when South Africa's regulator licences competitors next year and is braced for higher content costs.

"We will lose staff to competitors, we will see price wars, our margins will be affected and we will see churn which means ultimately revenues may be affected," Multichoice Chief Executive Nolo Letele told a media briefing on Wednesday.

He declined to put a number on how many subscribers Multichoice expected to lose and how that would affect revenue and profit. Multichoice contributes more than half of Naspers' revenues. South Africa's communication regulator is due to issue pay-TV broadcast licences by March 2008, introducing competition for the first time to a market dominated by Multichoice.

Telkom, public broadcaster SABC and 16 other firms have applied for a licence, with most applicants aiming to undercut Multichoice, which, at R439.90 (US$63), has made its main monthly package too expensive for many South Africans. "Telkom Media is the frontrunner, they will be our toughest competitor. They are throwing a lot of money at pay-TV," said Letele, adding he expected his new rivals to launch offerings below R200 (US$29) a month.

Telkom is investing R7.5 billion over 8 years in TV in a bid to offset sagging phone revenues. It will offer packages of channels starting at about R100 (US$14.50) a month. Multichoice said it would compete at the lower end of the market by launching cheaper channel bouquets rather than cutting the price of its traditional premium DStv package.

"Our competitors will probably launch with various prices under 200 rand," he said, noting the firm had recently launched a new package for 139 rand which was being marketed and distributed by cell phone operator Vodacom. The company also hopes to retain an edge over new competitors and safeguard margins by launching new technologies like mobile TV, high-definition TV and video on demand.

Multichoice has tested mobile TV with all three mobile operators in South Africa and said it was ready to launch the service commercially as soon as a licence is awarded and frequency allocated.

Vodacom, owned by Telkom and Britain's Vodafone, and its rival MTN have both said they want to partner with Multichoice to offer mobile TV. Multichoice said it hoped to sign as many deals with both operators. Shares in Naspers fell 1.64 percent to 183 rand by 1258 GMT, lagging a slightly firmer Johannesburg Top-40 index of blue-chip stocks.

(Reuters, 11th July 2007)