Canal+ takeover: MultiChoice faces uncertain future amid strategy discrepancies

Some underreported comments from Canal+ chair and CEO Maxime Saada, who was in the country in June, suggest that MultiChoice is in for a rough ride once the takeover by the French pay TV operator succeeds. (At this point, there is no reason to suggest it won’t – it seems to have a plan regarding restrictions on foreign ownership).

Canal+ needs MultiChoice to bulk up ahead of its parent Vivendi’s split into three entities. Right now, Canal+ lacks the scale needed to be listed separately.

The plan is to list the group in London, with a secondary listing on the JSE (mostly to placate local shareholders and probably government).

The French operation is simple. It runs pay TV services in France and a number of European and African countries, as well as in French Overseas Territories.

ALSO READ: Canal+ wants all of MultiChoice

It operates channels. It also runs a production and distribution company, StudioCanal. Overall, it has more than 26 million subscribers in 50 countries worldwide.

By contrast, MultiChoice is focusing on everything but pay TV. In recent years, it has continued its shift beyond “video entertainment” and it runs an insurance business, has bought a Nigerian betting outfit (Kingmakers), set up a fintech unit (Moment), and has investments in two emergency response businesses (Aura and Namola), as well as SuperSport Schools and the SA20 league. It also resells internet (!) and has a legacy security and media technology unit Irdeto.

Saada does not appear convinced that this strategy will work.

He told News24: “We have chosen to focus the allocation of our resources on what we believe in our core business: distribution of content. And this is the focus. We’re happy we’re making [almost] half a billion euro in profits. We’re a profitable company.”

“They [MultiChoice] have a different approach. They diversified in home security, fintech, insurance, betting and so on. And we had discussions about that. And of course, they believe they’re right. And we’re not sure they’re right. But maybe they’re right. And then we will look at every single business. And if it makes sense, then again, maybe they’re right. But I don’t know yet.”

MultiChoice

MultiChoice’s core pay TV business is struggling. The upper end of the market has been under pressure from over-the-top platforms such as Netflix, Disney+, Apple TV+, and Prime Video for years. In the past year, it lost nearly half a million subscribers in total in South Africa – 5% of its base.

The declines in the Premium segment (DStv Premium and Compact Plus) and mid-market segment (Compact and Commercial) were even worse at -8% and -9%, respectively.

The drop in the rest of Africa was even greater – this unit lost 13% of its active subscribers (around 1.2 million).

Subscription revenue fell 7%, mostly because of foreign exchange headwinds. The group says, “Unprecedented currency depreciation across our core markets” (particularly Nigeria) has negatively impacted its trading profit by R9 billion since its listing in 2019.

Beyond the core business’s subscription revenue of R45 billion, it makes a further R4 billion a year from advertising, R4 billion from decoder sales, reconnection fees, content sub-licensing and production revenue.

ALSO READ: Sars and SABC: MultiChoice’s bold move stirs taxation debate

Altogether, this would be considered revenue from its core pay TV business.

It then makes another R1.7 billion from “technology” (read: Irdeto) and R1 billion in decoder insurance premiums.

Its other units don’t (yet?) generate meaningful revenue. DStv Internet will be a rounding error. So too the ‘fin-tech’ unit, which is effectively just a payments processor. At least betting associate Kingmakers, in which it owns 49%, has turned profitable.

It is no coincidence that MultiChoice sold 60% of that decoder insurance business to Sanlam in June for an initial R1.2 billion (up to R1.5 billion). It is doubtful the French would want to operate a licensed financial services provider.

Showmax

Showmax, an entirely separate unit set up to compete against Netflix, is another headscratcher for Saada.

“So, if I show you the [Canal+] app now, it’s the same content that I have on our set of [set-top] boxes.”

“They’ve chosen to say: Okay, OTT [over-the-top, or online streaming] is a different market, different audience, different offer, different brand [like] Showmax. And we will address that market with Showmax. [Then] you may have a situation where Showmax is not supporting DSTV and actually may compete with DSTV. But again, I don’t have enough information. Overall, I think DTH [Direct-to-Home, or satellite television] is an asset.”

ALSO READ: MultiChoice loses more than 100 000 subscribers – blames load shedding and economy

Showmax generated R1 billion in subscription revenue last year (to April), a 17% increase.

MultiChoice is betting a large part of its future on Showmax, which requires a ton of investment as the re-platforming of the service continues. In the last two years, this unit has reported trading losses of R3.7 billion.

It sold 30% of Showmax to Comcast unit NBCUniversal last year. The deal was done so that MultiChoice could leverage Comcast’s Peacock video streaming platform. It also offers access to the international group’s content across NBCUniversal and Sky.

What to expect?

The offer by Canal+ will close in April 2025. The billion dollar question is how much more ‘pruning’ of non-core businesses MultiChoice does in the next six months? Or will it leave those hard decisions up to the French?

What’s all but certain is that the Randburg group will be unrecognisable in a year or two’s time.

There are enormous efficiencies to be unlocked across the combined group. For one, it’ll have greater leverage (50 million subscribers) when negotiating for sports rights.

Expect some big cuts, asset sales and a slimmed down staff complement. Many of the bad habits from decades of ownership under Naspers will be undone.

As for subscribers? They’ll likely be better off. SuperSport is, by far, the most valuable asset inside the group. MultiChoice has been actively collaborating with StudioCanal on productions for years. There’ll be plenty more of that. There’ll probably be a bit more French content too (dubbed, or otherwise)!

This article was republished from Moneyweb. Read the original here