EAST LONDON - This week South African consumers got two pieces of heartening news - first that MWEB is launching uncapped broadband packages and secondly that On Digital Media (ODM) is set to enter the SA market as the second pay-TV operator in May. ODM's TopTV is not going to head to head with MultiChoice's DStv as it's targeting a lower income group - their research has identified 5.5m South Africans who are stuck with e.tv and the SABC  channels - who may well be itching to cough up between R99 and R249 for the ODM offering. Wisely, ODM has incorporated a strong Christian element among their channels that may just hit the spot with the God-fearing people of South Africa's lower middle class. But TopTV launch is good news for all consumers: the spectre of competition will probably means that MultiChoice  will respond with beefed-up cheaper bouquets. (Incidentally - or possibly not so incidentally - MultiChoice shares parent company Naspers (JSE:NPN) with MWEB.) This week I spoke to Vino Govender, CEO of ODM, about the company's strategy.        

QUESTION: I think that because in SA, we've only had one pay-TV operator for so long, there's a lot about pay-TV broadcasting with which we are not familiar. I know ODM has said that it won't be showing the same channels as DStv. Is that because MultiChoice has exclusive rights to a lot of content?

ANSWER: Not all of it... it depends. In some instances, they have exclusivity. Generally, the news channels like BBC World do not give any broadcaster exclusivity.

QUESTION: It was reported in Business Times last week that TopTV is going to have 50 channels and nine channels will be aggregated locally. What does "aggregating" mean in broadcasting?

ANSWER: It means that we buy both local and international channels and we aggregate them, in other words, we pack and put those channels together in our local office. Let's take the example of (DStv's) M-Net. M-Net is made up of a whole lot of different programmes. We will do precisely the same thing. We go to different content providers and buy certain movies and certain series, etc, and we also buy local programming ... and put that channel together by ourselves and it becomes our own branded channel going forward in the future.

QUESTION: The process of pulling this whole thing together over the past four years must have been a huge learning curve.

ANSWER: Absolutely. There's no book out there called "How to Start your Own Pay-TV Business" but I think we've risen to the challenge...

QUESTION: And pay-TV is an expensive business.

ANSWER: It is quite a cash-hungry business but it also produces very good returns once you grow your subscriber base.

QUESTION: Yes, you can see that in MultiChoice's results. (In the year to June 2009, MultiChoice SA reported that it had signed 450 000 new customers to lift the total to 2.4m and grew revenue by 38% to R8.9bn while net profit rose 25% to R1.9bn.) But you're-entering a market in which MultiChoice has had the monopoly for years. Marcel Golding (the CEO of e.tv) said he believed there was room for only two pay-TV operators when sister company E.sat relinquished its pay-TV licence to launch the 24-hour e.news service. What's your view on what Golding said?

ANSWER: I share his view - that there's space for only two paid platforms to survive well in this market. Any further entries by other operators - specifically on a satellite platform - will dilute market share and make it very difficult for operators to survive.

QUESTION: Well, we're all still waiting to see if Super 5 Media (previously Telkom (JSE:TKG) Media and now 75%-owned by a Chinese broadcasting company) will launch this year but there's very little information coming from them. I believe the interdict ODM was seeking against Super 5 Media was squashed by the High Court?

ANSWER: Let me correct you there. The interdict was not sought against Super 5 Media but against Icasa and Super 5 Media was one of the respondents by default. Yes, it was squashed on an urgency basis. The issue for us was that we didn't believe there was a level playing field in terms of the licence process. We have now made Icasa aware of that via our legal processes and I think that it's been dealt with in a fair manner by Icasa.

QUESTION: How has Icasa dealt with it, exactly?

ANSWER: Let me explain what our beef with Icasa was. When we applied for our licences, Icasa demanded that we produce signed shareholders' agreements upfront before those licences were issued. Now, in the current Super 5 Media situation there is no signed shareholders' agreement on the table and yet Icasa went ahead and issued a licence in the name of that company. That we believe was very unfair and, secondly, from a renewal-of-our-licence point of view, we were meant to start broadcasting last year. When we went to Icasa and said ‘Listen we need an extension for various reasons', Icasa demanded that we provide them concrete proof that we had secured our funding. Now in this instance, we fail to see how any company without a signed shareholders' agreement could secure any sort of funding.  So we said to Icasa: ‘Please make sure that the playing field is level. Treat other broadcasters in the same manner that you treat us'.

QUESTION: So has this resulted in Icasa treating everyone equally?

ANSWER: Well, we understand from the court records that the Super 5 licence would have expired on the 2nd or 4th of February this year because that was when they were supposed to launch. We haven't seen Icasa put anything out in the media in terms of extending that launch date so from that point of view, we trust that this process has been dealt with in a fair manner.

QUESTION:  Much has been made about how much live sport TopTV will be able to muster. Personally, as a pay-TV consumer I couldn't care less about sport coverage but there are many South Africans for whom sport is a very important part of the pay-TV package. What is ODM doing about sport when DStv's SuperSport has that market wrapped up?  

ANSWER: There are many of you out there - that's what our research is telling us.

QUESTION: Would you tell me about this research?

ANSWER: We've conducted a couple of rounds of research and in the latest one, we focused specifically on people's viewing habits... and the numbers are coming back and telling us that 40% of the market are sports subscribers - who subscribe to pay-TV platforms mainly for their sport offering. There's another 60% of the market that are generally looking for good wholesome family entertainment and that's where our focus is on our launch.

As far as sports rights are concerned, MultiChoice has tied up those rights for extended periods. As these rights come up, we will bid on a fair basis and build a credible sports channel. That doesn't mean we don't have a credible sports channel on our launch - or more than one credible sports channel... (Click here to read a previous column on moves by Icasa to regulate sports broadcast rights.)

But if you look at our target market, we're targeting the under-served market. At the moment, there's roughly 5.5m households that can afford our product who do not have a multi-channel environment at home and we plan to offer them 50-plus channels.

QUESTION: In 2008, you said ODM was looking at a target market of LSM 6-9 (Living Standards Measure) and you were hoping for about 300 000 subscribers by year three. Is that the still the case?

ANSWER: Well, we've been conducting rounds of research and we've been looking at the price points in terms of our product and how the market digests our various prices. And we are now in the position to extend our offering even to LSM 4 and 5. It gives us a larger market share to target.

QUESTION: It seems to me that your USP (unique selling point) is: "We're going to give it to you cheaper". As we all know, DStv is pricey - even for middle-class South Africans who are under enormous inflationary pressures - and there's not very much in the (cheaper) DStv Compact Bouquet. 

ANSWER: We're pricing our product sort of in between the (DStv) Compact and Premium offering. Our Premium product is R249 and that comprises 50-plus channels. (The R99 package gets you 20-plus channels).

QUESTION:  You will allow consumers to pick thematics (of channels, such as movies, children and music, news). Why can't pay-TV operators offer consumers a choice of any channels they want so that can really tailor-make their packages?

ANSWER: From an administration point of view, it's physically impossible to manage as people will be changing channels every two or three days. That's the one reason but then from a content point of view, the content providers who sell you these channels wouldn't allow it... you pay them based on them sitting in a certain thematic bouquet...

QUESTION: But why couldn't you choose your channels and sign up for them on an annual basis?

ANSWER:  It goes back to the rights holders. They don't like that kind of approach... From any content provider's point of view, everybody would like to be in a big one-size-fits-all bouquet because they earn on a subscriber basis so the more they are in a big, basic bouquet, the more money they earn out of it.

QUESTION: Will you be covering the Soccer World Cup?

ANSWER: No, it's too soon and the World Cup is there for a month and a half. We have a much longer-term plan.

QUESTION: What would you like to achieve in your first year in terms of subscriber growth?

ANSWER: Our business model is based roughly on (signing up) 120 000 to 130 000 subscribers per annum...

QUESTION: Is the nature of this business that you have to play a long game?

ANSWER: Not necessarily. It depends on your product, your pricing and services are very important, At the end of the day content is king. If you have the right content at the right price and you're targeted at the right market, your returns will come much quicker than 15 to 20 years. 

QUESTION: Is the bulk of the revenue for pay-TV operations from subscriptions?

ANSWER: Correct. I stand to be corrected but I think from an Icasa point of view, we're not allowed as a pay-TV operator to earn more 5% of our total income from advertising revenue.

QUESTION: Would you say there's price sensitivity around pay-TV in South Africa? Apart from the recession, we have other pressures here such as the hikes in electricity so the cost of living seems to be on upwards trajectory.

 ANSWER: Absolutely. That's why it's great for us to launch in these times.

QUESTION: Are you expecting MultiChoice to come up with cheaper offerings to counter your entrance into the market? I would expect it.

ANSWER:  We expect that they will retaliate. The important thing to understand is that if you look at the way the packages on the MultiChoice platform are set up - you have a Premium offering you have the Compact offering and I think there's one called Select. The Compact offering is mainly driven by SuperSport 3 and 4 channels and some additional channels. Now we're competing at that level... so one has to be very careful how one competes in the market. But we do expect new bouquets, new channels, etc, (from Dstv) and we will react accordingly in the market in time. It's what competition is all about.

*Media columnist Gill Moodie spent 14 years as a salaried hack in print media in South Africa and the UK before escaping to the blogosphere and freelance journalism. She is the publisher of Grubstreet http://grubstreet.co.za/ in between unpacking and packing the infernal dishwasher and bringing up a four-year-old with attitude.

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