Reference no: EM133031954

1. What is the summary of the case (e.g what is it about? What is the issue being faced?) 

2.  And what is the recommendation to the issue faced by the company (i.e. how well it addresses the case problem, how realistic, measurable and timely your proposal is)?

TopTV: Changing the Face of the South African Pay-TV Landscape?

Case

 In May 2011, Vino Govender, CEO of the Johannesburg-based On Digital Media's (ODM) TopTV, felt pleased about the 200 000 subscribers that had been secured in less than one year in the competitive South African satellite pay television (pay-TV) market. When TopTV commenced services on 1 May 2010, MultiChoice's DStv had been the dominant player for 15 years. TopTV made a calculated decision to target clients who had not been able to afford pay-TV. This included 60% of South Africans who wanted wholesome, family entertainment but were not particularly interested in sport, which was a major part of DStv's offering. TopTV had since extended its target market to include the LSMa 6-9 income bracket. Nonetheless, Govender wondered whether this repositioning was sustainable enough to compete successfully in the long run. What strategy, he wondered, should he follow to attract and keep a larger target audience to ensure future growth? 

The Pay-TV Industry in South Africa 

Although television (TV) broadcasting had been available in the country since 1976 through the South African Broadcasting Corporation (SABC), pay-TV only became a reality almost 10 years later when the country's independent regulatory body, the Independent Communications Authority of South Africa (ICASA)b , issued its first subscription broadcasting (or pay-TV) licence on 17 October 1985. This led to the establishment of the Electronic Media Network Limited (M-Net) by four big newspaper groups, two English and two Afrikaans: Times Media Ltd (now Avusa/BDFM); Argus (now the Independent Group); Nasionale Pers (Naspers); and Perskor (now defunct). The Natal Witness group also had a small share. It was decided that Naspers, a JSE Securities-listed multinational media group based in South Africa, would drive M-Net to become South Africa's first private subscription-funded analogue (using a terrestrial network1 ) TV service.2 At its launch in October 1986, the CEO of Naspers at the time, Ton Vosloo, noted that M-Net brought about a "genuine communications and marketing revolution in the country".3 In 1993, three divisions - among them the subscriber management division of M-Net - split from M-Net to form MultiChoice Limited, which was later renamed MIH Holdings Ltd. MIH Holdings Ltd later became a shareholder of MultiChoice South Africa Holdings (MCSA), which operated as a subsidiary of Naspers Ltd. 

In 1995, almost a decade after M-Net's launch, MIH's holding company, MCSA, launched a digital satellite service (as opposed to M-Net's terrestrial analogue service) in South Africa - its premium DStv bouquet. In 1996, MIH founded another brand, MultiChoice Africa (MCA), to take care of business expansions in sub-Saharan Africa. MCA grew rapidly and, by 2011, it had a DStv presence across 48 African countries. 

Expanding the Pay-TV Market 

In an effort to break the monopoly of MCSA, which had been the only licensed pay-TV provider for two decades, ICASA awarded four additional licences to new pay-TV operators (from 18 applications received) on 12 September 2007. The licensees were Telkom Media (later sold to become Super 5 Media); e.tv'sc sister company, e.sat; Walking on Water (WOWtv); and ODM trading as TopTV. MultiChoice's existing licence had also been renewed. However, this first step in bringing in much-needed competition in the pay-TV industry did not pan out exactly as ICASA had envisaged. Telkom, South Africa's fixed line operator was the majority shareholder in Telkom Media, with a 66% interest in the business. At the time, Telkom Media had planned on offering cut-price subscription-based TV services via satellite and broadband networks for access to Internet Protocol TV (IPTV). Telkom initially estimated that it would sign up at least 400 000 subscribers within 10 years. However, by 2008, Telkom - which by then had a 75% stake in Telkom Media - was urgently looking for a buyer to avoid liquidation. Telkom found a buyer and, in May 2009, it concluded a deal to sell its full share to a Chinese company called Shenzhen Media South Africa, a consortium of South African and Asian private equity investors.4 The company's name subsequently changed from Telkom Media to Super 5 Media. In 2010, there was speculation in the media regarding Super 5 Media's chances of survival, when rumours about financial difficulties facing the company5 were found to be correct. The company, which was scheduled to launch its services by June 2010, had not been able to settle its debts - which had run into millions by August 2010 - and it announced that it was closing its doors.6 Within months of having a licence awarded, the second licensee, e.tv's sister company e-sat, owned by media business Sabido (Pty) Ltd7 , changed its mind and decided to become a channel supplier instead, supplying content to its former rival, MultiChoice. During the initial ICASA hearings, e.sat argued that there was only space in the pay-TV market for two operators - a sentiment echoed by other analysts in the industry. The decision to award four licences swayed e.sat to take a "commercially sensible" decision to partner with MultiChoice - its first service being eNews, an independent 24-hour news channel.8 In addition to producing channels for DStv, e.tv and e.sat planned to distribute programming and channels to emerging markets in Africa and the Far East. The third licensee, WOWtv (Pty) Ltd, was a 100% black-owned company with two major shareholders - WindsObey (40%) and Cornastone Technology Holdings (Pty) Ltd (40%) - and three smaller shareholders.9 From the outset, WOWtv aimed at a niche market, providing clean, "Christian-friendly" family-oriented TV content that promoted "good values, free from nudity, sex, vulgarity and violence all the time".10 WOWtv CFO Luyanda Mangquku was quick to point out that "Christian-based does not mean a 24-hour church channel".11 WOWtv planned to reach children and teenagers as well, and would cover local and international content, including news and sport events, among its planned channels. Backed by its own commissioned research, as well as Statistics SA's finding that 80% of South Africans were Christians, CEO Nontokozo Mangquku believed that WOWtv would be able to attract a large slice of that market and would differentiate itself from other competition by its content.12 WOWtv's earlier advertised premium bouquet service, which comprised 10 channels at a cost of R99 per month, was later replaced by a subscription fee of R49 per month for the service. Despite its original plans to launch in early 2008, the company missed not only that deadline but several others that followed. By 2011, WOWtv stated on its website that it was still in the process of testing its broadcasting equipment - a final phase before launching.13 TopTV, the fourth licensee, was therefore the only broadcaster that was up and running since its launch on 29 April 2010, and which showed some promise in terms of competition for the formidable DStv. 

TopTV: Dawn of Low-cost Pay-TV 

Owner of TopTV, ODM, referred to itself as a proudly South African incorporated company with a mix of local and international partners and a black economic empowerment (BEE) shareholding of 68%. Setting up TopTV had not been cheap - it had cost ODM in the region of R1 billion to become operational. As part of its seed capital, ODM had received a R100 million investment from the National Empowerment Fund, an agency mandated by the South African Department of Trade and Industry (DTI) to facilitate black economic empowerment.15 TopTV launched on 28 April 2010 and commenced its formal services to South African subscribers on 1 May 2010. 

Marketing Strategy 

In aiming for a distinctive identity, TopTV's marketing strategy embraced the concepts of real choice and affordability. Govender was clear from the beginning that it was targeting the 5.5 million South African TV households that had access only to SABC 1, 2 and 3, and e.tv. 16 In reality, that meant customers in the lower- to middle-income class (LSM 5-8) who had not been able to afford pay-TV and who were more interested in family entertainment than sport. This meant that women, in particular, would be targeted. Prior to the launch, Govender also said their research indicated that only 40% of the respondents were sports fans, while the remainder looked for general family entertainment. He added that TopTV would initially broadcast niche sporting content such as martial arts.17 It should be noted that, at the time, DStv had already secured exclusive sports rights for all major sport events until 2012, and was targeting customers in LSM 8-10. TopTV, therefore, had no choice but to position itself differently from DStv. TopTV's original stance was thus not to target DStv customers and duplicate content unnecessarily. 18 However, following an unexpectedly high number of decoders sold in the first month (70 000), TopTV spokesperson Melinda Connor said that, although its core market still remained those people who had not previously had access to pay-TV, they were now also targeting ex-DStv subscribers, after a number of exDStv subscribers notified TopTV that they were turning to TopTV. 19 Moreover, they had found that there was an increasing number of subscribers who wanted both TopTV and DStv. 20 TopTV's original target to reach 360 000 subscribers within three years to break even had been adjusted in March 2011 to 500 000 subscribers by April 2012. Later statistics revealed "well over" 200 000 subscribers - almost halfway (40%) to its target - and over 800 000 viewers (on an average of four viewers per household).21 In terms of technology, TopTV was able to compete with the best, with the benefit of proven state-of-theart technology at its disposal. Among its many technology partners was a German company specialising in broadcasting services, ASTRA Platform Services (APS).22 Chief operating officer (COO) of ODM, Frans Lindeque, described the overall performance of APS and the quality levels it met as "superb", and its operational standards as "incredible".23 TopTV had decided to outsource as much as possible of its technological and operational needs to specialists in their respective fields, and SES ASTRA and its subsidiary APS had been "fantastic partners [who] know this industry very well", Lindeque concluded.24 Call centres, conditional access and SMS services would still remain under TopTV's control. While DStv was way ahead of TopTV in terms of introducing personal video recorder (PVR) decodersd and transmitting High Definition Television (HDTV)e , ODM chief marketing officer, Eloise Kelly, said that its roll-out strategy included PVR - despite the fact that its market of top-income earners who would be able to afford it was still relatively small.

Services 

TopTV launched with seven pricing packages ranging from R99 to R249 (the full package comprising 52 channels) per month, as opposed to DStv's premium package of almost double the number of channels at R529. TopTV channels included local (albeit it on a limited scale) and international content. TopTV offered four different pay-TV packages: Variety; Kids & Music; Entertainment & Knowledge; and Ultimate Movies. DStv, however, reacted swiftly to the new competition and not only came up with a range of new packages a day before the newcomer's launch, but was also repositioning itself to compete with TopTV by targeting the lower LSM groups. Apart from the premium package, the new options were: DStv EasyView at R20 per month, DStv Lite at R99, DStv Select 1 at R148, DStv Select 2 at R148 and DStv Compact (aimed at emerging markets) at R232. However, less than a year later, DStv increased the rates of three of its packages [Premium (R559), Compact (R246) and Select bundle (R157)] claiming they were annual increases - yet three packages remained unchanged [DStv Lite, PVR access (R65) and DStv Mobile (R36)]. What counted in TopTV's favour in its early days, and contributed to its extraordinary growth, was the opening offer of a TopTV decoder (set-top box) and dish (available at all top SA retailer stores such as Game, Makro and Pick n Pay) plus installation fees at a total cost of R499.27 At the time, such a package for DStv would have cost significantly more. 

Challenges Facing TopTV 

Apart from the pressure of having to have everything in place in time for the launch, TopTV also had to deal with other challenges prior to, during and after its launch. 

Promotion 

According to Kelly, the SABC refused to flight any of TopTV's advertisements, stating that it regarded TopTV as competition. The broadcaster later denied this.28 Consequently, TopTV had to make do with less media exposure than planned, at a very crucial time. 

Technical Issues 

TopTV also had to deal with technical challenges relating to the installation and activation turnaround time, as well as technical hitches regarding the billing process. At the time of its launch, TopTV's call centre had difficulty recording large volumes of messages. However, considering that sales exceeded TopTV's wildest expectations, from a technological point of view the system held its own, Lindeque noted.29 In an effort to deal with the backlog, TopTV had, within the first two weeks after the launch, increased the size of its call centre from 40 support staff to more than a hundred. As for the installations, TopTV had trained almost 1 000 companies to install its satellite dishes and decoders, but its rapid growth caught everyone by surprise, which resulted in a backlog.30 Nevertheless, Lindeque indicated that TopTV would increase capacity and technology to meet the demand.31 An independent online customer site, Hellopeter.com, cited complaints from customers over the past year that varied from technical issues to unhappiness about content and repeat programmes; from remarks about unfriendly call centre staff to double debit orders that were accidentally run in early 2011.

Content

 Admitting that TopTV lacked in local content, Kelly stated that TopTV was planning to set up production studios as early as 2011.33 For the most part, analysts criticised the broadcaster's lack of new content, and particularly lack of sports content, arguing that it prevented TopTV from attracting a much broader customer base. There were also complaints from customers about old movies on TopTV. 34 TopTV, however, planned to bid for sports rights - soccer rights, in particular - when the licence came up for renewal in 2012, Kelly noted.35 That would include rights to Premier Soccer League matches, for example. 

Analysts also pointed out that DStv had not only secured major sports content but had also signed up other long-term exclusive deals with some of the biggest channels and studios in the US, which would make it difficult for TopTV to compete.36 Long-term deals were often standard procedure when a company made significant investments in acquiring programme rights, because it allowed that company time to recoup the investment.37 ICASA also identified exclusive rights to premium content as a possible barrier to effective competition, in its study conducted prior to the issuing of additional pay-TV licences. [The second barrier identified was a lack of interoperability of decoders (set-top boxes) of pay-TV providers.

Deep Pockets

 Unlike DStv, which had the considerable financial muscle of MultiChoice and Naspers behind it, TopTV had only seven shareholders. While 200 000 TopTV subscribers signing up in less than a year was considered a pleasing figure, MultiChoice, in comparison, grew its subscriber base in the same period by 450 000 to 2.85 million in South Africa and 1.2 million in sub-Saharan Africa. Overall, Naspers reported that the pay-TV segment expanded revenues by 12% up to January 2011.39 However, during the period January to April 2011, MultiChoice experienced a slower period of growth. In its 2010 annual report, Naspers attributed this slowdown to MultiChoice's "operating costs being lower due to the cost of building the subscriber base, as well as higher content costs resulting from increased competition and more local content production".40 This indicated that TopTV had nonetheless, albeit in a small way, impacted on MultiChoice's financial situation. 

Technology

 TopTV's current technological infrastructure was indeed state-of-the-art. However, by 2011, MultiChoice had already invested in high-definition PVR; started to roll out HDTV in South Africa; and invested in mobile-TV (DStv-Mobile) in Ghana, Kenya, Namibia and Nigeria, whilst awaiting a licence to operate in South Africa. In addition, DStv also offered its subscribers XtraViewf capability. 

The Way Forward 

The expansion of the pay-TV market in South Africa was supposed to have been a positive step towards introducing competition. In reality, DStv had only one competitor by 2011 - instead of the anticipated four - and had grown even stronger over the years. Although TopTV's marketing approach to bring affordable pay-TV to South African households was commendable, only time would tell whether those millions of TV households that TopTV was targeting could afford to pay even the lower subscription rates in the long term.41 In the meantime, Govender knew he was up against a financial giant - but he was also convinced that, with the right business strategy, TopTV stood a chance of surviving in the industry. He had already adjusted TopTV's target group to include the higher income groups. However, with its current limited sports content, TopTV would probably not attract sports lovers, although it intended to bid against DStv in 2012 for sport content rights. 

What strategy should Govender follow to compete successfully with DStv so as to become a strong opponent?