October 9, 2013
There is a lot of anticipation in South Africa about the possibility of consumers finally getting an alternative to the Multichoice satellite TV monopoly after it emerged that Telkom, the incumbent fixed line operator, was in negotiations for rights to stream NETLIX content. Telkom is reportedly planning to offer the NETFLIX video services as part of their VDSL services.
It is very likely that Multichoice will use all its "legal weapons of mass destruction" to derail the deal and maintain its stranglehold on video monopoly in South Africa. But in the unlikely event that the deal goes through, this could herald a new chapter in the industry in South Africa. We hope that such a development will trigger other operators and service providers throughout the African continent to negotiate similar deals with other video content providers.
Investment in FTTX in Africa has been stifled in part by the lack of video content rights monopolised by Multichoice. For any FTTX deployment to result in a reasonable breakeven point, multiple services including video, data and voice should be offered over the network. Otherwise Internet access alone cannot generate enough revenues for service providers to justify the large investment required to deploy FTTX infrastructure.
A number of service providers and investors who have considered deploying FTTX networks in Africa have shelved their plans because of lack of video content rights. Others have looked at alternative sources, such as from India, where they can get content without encroaching on the Multichoice monopoly.
Kenya’s Mwananchi is one example of a service provider who has "looked east" for video content and is offering Indian movies and cricket, in addition to Internet access and voice, over its Hybrid Fiber Co-axial (HFC) network. Unfortunately, Indian content is no substitute for Western content which is very popular in Africa.
Others have attempted to partner with Multichoice for video content but Multichoice has insisted on supplying their own set-top boxes, and on billing the customer directly. The model completely negates all the advantages that consumers expect to enjoy from triple play service providers – such as one bill from one service provider and the reduced cost of service bundles.
Other service providers have gone ahead and deployed fibre to the home in affluent communities primarily for the provisioning of high speed Internet. This model has not been very successful and some of these service providers are finding it impossible to stay afloat.
That said, for those service providers contemplating negotiating with NETFLIX for video content, caveat emptor. NETFLIX started off as a great service in the USA, charging about $8 per month for great "all you can eat" video content. It became so popular that at some point, over 30% of all Internet traffic in the USA was due to NETFLIX video streaming.
But for reasons we don’t fully understand, NETFLIX has pulled off a lot of the most popular movies from their database or offer it at extra cost on DVD. Consumers are unsubscribing from the service en masse. So before African service providers settle for NETFLIX as an alternative video content source, they should do some homework and consider other possibilities, such as VUDU pay per-view service.