Market Insight

China seeks a foothold in Africa and the Middle East

April 25, 2013

Constantinos Papavassilopoulos Constantinos Papavassilopoulos Principal Research Analyst, Service Providers & Platforms

Want to learn more?
Have an expert contact you.

Chinese Media company, StarTimes Group is backing a rescue plan for the beleaguered South African pay TV operator TopTV. On DigitalMedia (ODM), the parent company of TopTV, has faced serious financial problems for some time. Among the TopTV shareholders is Luxembourg-based satellite operator SES, which owns a 20 per cent share of the South African company.

According to reports in the South African press, the StarTimes Group move is supported by funds from the China Development Bank and China's Africa Development Fund. While the exact amount of money that the Chinese company has proposed to inject to the loss-making company has not been disclosed, the debts of TopTV exceed 200m Rand (around €17m). If the StarTimes plan is approved (apart from ODM's decision, a regulatory reform is needed to ease the restrictions on foreign ownership of South African media) the Chinese entity will became TopTV's principal capital investor and will actually control the company.

This latest move represents just one from a plethora of deals and agreements not only in Africa but also in the Middle East where a Chinese entity is involved.    

TopTV is the second pay TV operator in South Africa after Naspers's Multichoice, which operates both satellite pay TV DStv and analogue terrestrial service M-Net. Last year was a disastrous one for TopTV: subscriber numbers declined throughout the year and the CEO was removed. TopTV started losing channels as well, weakening its challenge to DStv. TopTV offers no sports channels. Furthermore, the packaging options it offers were unattractive and TopTV did not keep up its promises of offering HD channels and launching a PVR service in 2012. On top of that the operator clashed with the regulator ICASA over the possible offer of porn channels. Finally ICASA ruled against that but TopTV suffered a severe reputational damage due to the fact that it was launched back in May 2010 as a TV service for the whole family.

TopTV ended 2012 with a loss of 60,000 subscribers over 2011 (a drop of 20.13 per cent) while at the same time DStv experienced a 12.7 per cent growth in subscriber figures from 2011 ending the year with 4.18m customers. We estimate that TopTV's revenues fell around 22.47 per cent in 2012 at the same time that DStv had a healthy grow in revenues of 19.3 per cent. As the financial situation seemed desperate TopTV had no real alternative but to file for business protection (in October 2012) in effect seeking a partner (and primarily a foreign investor) to inject much-needed cash.

For StarTimes, setting a foothold in South Africa constitutes a real challenge. The Chinese company already runs pay TV services in eight Sub-Saharan African countries (Nigeria, Tanzania, Kenya, Rwanda, Uganda, Guinea, Central African Republic & Burundi), offering up to 140 channels and attracting around 2.3m subscribers. StarTimes benefits from the financial backing it receives from China Development Bank and China's Africa Development Fund (both state-controlled bodies facilitate Chinese investment in the African continent) and it is ready to funnel over $100m in order to rescue the South African operator. The snag is regulations which prohibit foreign-registered companies from acquiring more than 20 per cent of the shares of a South African-licensed media company.

The Chinese plans involve the offer of low-cost packages (at half the price of the existing ones), the renegotiation of all content and carriage deals, the offering of HD channels and other value-added services like a PVR. South Africa is a pivotal country for the expansion of StarTimes business in the African continent. According to IHS Electonics and Media data, pay TV penetration in South Africa for 2012 was just below 40 per cent something that indicates that there are positive prospects for growth in the near future. The country has the most advanced television market in the whole continent and serves as the main trendsetter for all African countries. The first company that understood this potential was Naspers, which launched a pay DTT service called GOtv targeting all Sub-Saharan countries in 2011. GOtv has now attracted more than 1.8m customers in seven countries (Zambia, Uganda, Kenya, Nigeria, Namibia, Ghana and Malawi). Naspers will be a really tough opponent for StarTimes. The South African company is active in the pay TV business for more than two decades, has more than six million customers in the continent and the expertise and know-how to grow the market offering new services (like the GOtv DTT service) and creating new business propositions. If the TopTV bail-out proposal of StarTimes is accepted by the regulator, then the South African pay TV market will spice up.

Apart from Africa, the Middle East region seems to be another attractive target for Chinese investment in the media sector. In Jordan. China Television Corporation (CTV) inked an co-operation agreement with the Jordan Radio and Television Corporation. The Chinese have already set a media office in Jordan's capital Amman and will focus their investment in Jordan Media City (JMC), the media hub of the country from which currently more than 210 satellite channels are broadcast. Jordan is a centre of Arabic historical drama production and recently the Jordanians signed a deal to dub Indian channels into Arabic thus targeting the large Indian expat community in the Gulf States. In another development, the Chinese State administration of Radio, Film and Television headed a delegation of state broadcasters to the studios of Tele-Liban, the Lebanese public service broadcaster, in March. The visit was followed by the signing of an agreement through which the Chinese will assist in rebuilding the station.

Parallel to these activities, China is eager to promote its own digital terrestrial TV transmission standard globally. The DTMB standard (Digital Terrestrial Multimedia Broadcast) is China's response to the European's DVB-T, Japanese ISDB-T and US ATSC. Currently, four Middle East countries (Jordan, Lebanon, Iraq and Syria) are conducting DTT trials using the Chinese standard and one Latin American country, Cuba, has already adopted it. The Chinese have promised to provide the Cubans with the necessary equipment with very favourable terms. The Chinese system is used in mainland China, Hong Kong, Macau and Laos.

Organization
StarTimes Group
Share facebook Twitter Google Plus Linked In Add This Contact Us