The Independent Communications Authority of SA, Icasa, is not helping to open up the pay-TV market, writes Anton Harber in Business Day. MultiChoice has proved able and willing to throw considerable resources into defending the territory it controls against new entrants.  

Anton Harber writes in Business Day:

SOUTH African television is being held back by the power of the incumbents to prevent change. A couple of years ago we were looking at the possibility of new pay-TV broadcasters challenging MultiChoice’s monopoly. There was a flurry of applications, a few were granted, and the market looked like it was opening up. In particular, there was the promise of cheaper options to MultiChoice’s costly one-size-fits-all model.

That promise has faltered as the strength of MultiChoice became apparent. chose to go in with MultiChoice rather than compete, and the result has been a mutually lucrative deal. Telkom Media never got off the ground and has since been bought by Chinese shareholders, who have gone silent. OnDigital Media is still going two years after getting its licence and promising to be on air in May this year with about 40 channels aimed at the 10-million households who do not have pay-TV.

Sport, news and porn drive pay-TV. MultiChoice has sewn up the first two and has been considering whether it needs to close the gap in porn. It would be a tough move for a family-values brand and a company with deep conservative roots.

OnDigital says it is not going the “adult content” route, so MultiChoice is likely to back off.

OnDigital’s trick is to come in cheaper: it says its premium package will be R249 a month, its cheapest R99, as opposed to MultiChoice’s Compact, which is about to go up to R289. It also promises greater flexibility, in that there will be a number of different packages one will be able to buy.

Faced with the possibility that rivals could come in cheaper, DStv introduced its Compact bouquet — a cheaper, smaller package. And this is the danger. Whatever a new player does, MultiChoice can match and do better, and throw a lot of cash at it.

Its growth continues to be phenomenal after more than two decades in the market. In November last year — in the midst of the most serious recession in decades — MultiChoice reported recruiting 238000 new South African subscribers within six months, taking it into 2,6-million households — about 25% of the market. The explanation was terse: “Decoders were subsidised and lower-priced tiers promoted in the emerging market.” Translation: we moved into the gap in the cheaper end of the market before any potential competitors could get there. Of the new subscribers, the Compact bouquet delivered 132000 of them, and the growth of the rest indicates it was not at the expense of the premium package.

One cannot underestimate MultiChoice’s compulsion and capacity to fight for the territory it controls. Pay-TV produced just under 50% of parent Naspers ’s revenue and an astounding 65% of its operating profit last year. Naspers is a R118bn company and its nearest rival in the media sector is Caxton , at R7,5bn. It has revenue of more than R13bn in a total television market of a little more than R20bn. You have to have a lot of guts and cash to take it on.

Its rivals depend on Naspers making a strategic decision to allow them space in the market. Meloy Horn, who runs investor relations for Naspers, told me yesterday that this is MultiChoice’s attitude: it sees the advantage of having another small player in the market and doesn’t intend to block them out.

Let’s see. It is not a coincidence it is investigating porn at this time. In the background, there is a serious squabble over access to the next wave of television roll-out: digital terrestrial TV, which will make a lot more channels available and is due (though unlikely) to come online next year. A number of consortiums are eager to get into the market and one would expect the kind of boom we saw in radio in the late 1990s.

But the incumbents are proving successful in ensuring the regulator looks after them. Of the two bands of channels on offer, the regulator proposes to give one to the SABC, and the other is almost entirely shared by MultiChoice and, with just a sliver available to potential new players.

This the price we pay for having a weak regulator that is the captive of the incumbents, which can muster teams of lobbyists, make threats of legal action and throw masses of information at them.

* Harber is Caxton Professor of Journalism at Wits University. This column first appeared in Business Day on 3 March 2010.