Netflix and chill? Not so much

What is digital terrestrial television. Picture: City Press
What is digital terrestrial television. Picture: City Press

In mid-May, the Independent Communications Authority of South Africa (Icasa), held public hearings as part of its inquiry into the pay-television market in SA.

In Icasa’s Block C hearing room, two narratives emerged.

For many stakeholders, MultiChoice is far too dominant in the market and its hold on premium content like sports rights and Hollywood movies makes it impossible for other operators to compete.

These stakeholders, which included free-to-air broadcasters like the SABC and and pay-TV players like Kwesé and Cell C black, want Icasa to intervene and are in favour of the unbundling of sports rights and limiting exclusivity periods in contracts. stated that free-to-air television households were in decline, sitting at 8.1m in 2016, down from 8.4m in 2012. Over the same period, it argued, pay-TV households rose from 3.9m to 6.2m. told Icasa that limits on advertising revenue for pay-TV operators are an imperative if free-to-air television channels are going to survive. It argued that 48% of TV advertising in 2016 went to pay-TV players, a 7% increase from the previous year.

On the other hand, MultiChoice told the Icasa panel that the idea of premium content was “obsolete” and that over-the-top (OTT) operators like Netflix are about to turn the South African television sector on its head and eat DStv’s lunch at the same time.

They argue that this is unfair, as Netflix doesn’t face the same regulations as a licensed television player in SA.

MultiChoice’s position was that Icasa had not paid sufficient attention to the OTT players in its discussion document, which was released during the inquiry process.

MultiChoice’s chief operating officer, Mark Rayner, pointed to a presentation slide that showed attitudes of US consumers when asked what they can’t live without.

A total of 67% answered that they couldn’t live without YouTube, 51% Netflix, 48% social media and 36% pay-television.

MultiChoice sees its competition as Facebook (2bn users worldwide), YouTube (1.5bn), Netflix (125m) and Amazon Prime (100m). And it points out these players are spending billions of dollars on creating original content, and to buy content licenses.

Facebook made an unsuccessful bid of $600m for the digital broadcasting rights of the Indian Premier League (IPL) last year, while earlier in June Amazon secured broadcast rights for the English Premier League.

MultiChoice argued that it is the rise of OTT players that makes conversations about premium content irrelevant.

Cell C, which entered the pay-TV market with its black offering last year, argued during its presentation that MultiChoice was being disingenuous when it argued that OTT providers posed a significant threat to it in the near term.

Cell C chief legal officer Graham Mackinnon argued that MultiChoice enjoyed a significant head start in the pay-TV market and was firmly entrenched.

It also accused MultiChoice of buying up sports rights and sitting on them, urging the operator to be transparent with its content contracts so it can show that it is “not controlling content in these markets”.

Pan-African pay-television player Kwesé also argued that access to premium entertainment and sports content is essential to the success of new entrants into the pay-television market, as it was a key driver for the uptake of subscribers.

“The extensive acquisition of premium entertainment and sports content by MultiChoice on an exclusive basis, as well as its access to exclusive local content, has resulted in significant barriers to entry for new market entrants,” argued Kwesé.

But Cristina Caffarra, an economist at Charles River Associates who was part of the MultiChoice team, dismissed these claims, telling the Icasa panel that “we are not all obsessed with soccer and Hollywood”.

Kwesé said MultiChoice is in a position to pay “well in excess of the market price” for premium content. Its submission states that MultiChoice had on occasion paid substantial amounts for sports rights under circumstances where it was the sole bidder, as a means of ensuring that no new entrant would be able to afford – let alone match the price – paid by MultiChoice when the rights are once again put out to tender.

While the debate about OTT players versus licensed pay-TV players is important in any discussion about the future of television, and Icasa’s next move will be watched closely, it’s important to remember that less than 10% of South Africans have a permanent Internet connection at home that would allow them to take advantage of television streaming alternatives.

So, the future of television, if that’s what Netflix is, is only a reality for some.

This article originally appeared in the 21 June edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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