Market Insight

StarTimes launches low cost packages in South Africa

December 05, 2013

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

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South African satellite pay TV operator StarSat is planning to launch five pay TV packages in the country this month and in the first quarter of 2014. The parent company of the pay TV operator is the Chinese StarTimes Group and it has rebranded the company from its former name TopTV to StarSat.

StarTimes Group is revamping the offer of TopTV by adding two foreign-language packages (one Indian and one Chinese) and by adding more channels and more hours of programming in an effort to boost uptake from an estimated 168,000 at the end of Q3. The introductory package, StarSat Special, offers 47 channels for a monthly charge of 99 Rand ($9.50). Medium tier package StarSat Smart offers 67 channels for 149 Rand ($14.30), while top tier package StarSat Super consists of 81 channels for 199 Rand ($19.05) a month. The two foreign language packages, which can be purchased only as an add-on, are StarSat Indian, offering nine channels for an extra charge of 99 Rand ($9.50) and StarSat Chinese - 17 channels for 149 Rand ($14.30).

The content proposition includes the NBA TV channel but no other sports and not Hollywood blockbusters or HD. StarTimes management have publicly stated that they are planning the introduction of HD channels in the second half of 2014. The company has also revealed a new HD set-top box which StarSat subscribers are able to buy for a cost of 599 Rand ($59.20). The new set-top box is manufactured in China, but StarSat's managers have hinted that they are in talks with South African manufacturers to discuss the possibility of producing the boxes locally. 

StarTimes Group entered the South African pay TV business market in Q2 2013 after acquiring a majority of shares of the beleaguered pay TV operator TopTV. TopTV started offering pay TV services in May 2010 but competing with a powerful operator like Multichoice has proved to be tough. TopTV struggled to stay in business and 2012 we estimate that it ended 2012 with a loss of 60,000 subscribers over 2011 (a drop of 20.13%). Over the same period DStv, Multichoice's pay TV satellite service, experienced a 12.7% growth in subscriber figures from 2011, ending the year with 4.18 million customers. We estimate that TopTV's revenues fell around 22.47% in 2012 at the same time that DStv had a healthy growth in revenues of 19.3%. On Digital Media (ODM), TopTV's parent company, filed for business protection in October 2012 and was faced with the prospect of liquidation. It was at this stage that StarTimes Group entered the scene in March 2013 backing a rescue plan and winning over the ODM shareholders who almost unanimously voted on April 2013 in favour of the Chinese group taking over the company.

The StarTimes Group's plans involve a massive overhaul of TopTV business proposition and the new business plan will be backed by an injection of $50 million in funding. StarTimes officials declared their determination to halve the prices of TopTV packages and to add more channels in order to lure more South African households into subscribing. Their motto is 'to give every South African family the opportunity to own digital television'. Furthermore, StarTimes stated that it was planning to add more premium content and restructure the packaging of the channels.

For StarTimes, setting a foothold in South Africa represents an excellent opportunity to expand its business in the largest, most sophisticated and most lucrative of all African pay TV markets. The Chinese company is very active in the continent, assisting the plans of the Chinese government to project 'soft power'. StarTimes is offering a pay satellite and a pay-DTT service in Nigeria, Tanzania, Kenya, Rwanda, Uganda, Guinea, Central African Republic, Burundi, Mozambique and Zambia. According to company data, total subscribers were 2.5 million in June, including 1.3 million in Nigeria.

Their main competitor, exactly as in South Africa, is Naspers, the parent company of Multichoice. Its pay satellite/DTT service GOtv offers between 16 and 27 channels on two different packages (GOtv and GOtv Plus) at a cost of around 52 Rand ($5) to 80 Rand ($8) depending on the country. The service is offered in Zambia, Kenya, Nigeria, Uganda, Namibia, Zimbabwe, Malawi and Ghana. Angola might be added soon. Naspers claims that it is planning to spend 2.5 billion Rand ($247 million) on GOtv's expansion into the rest of Africa. Furthermore, Naspers announced in June 2013 their plans to establish an assembly plant for decoders (set-top boxes) and other appliances in Nigeria. According to their Q3 2013 report they now have around 2.56 million GOtv subscribers outside South Africa, 541,000 of those are DTT subscribers.

Unlike the rest of Sub-Saharan Africa, where competition between the two companies is head-to-head, in South Africa it is Multichoice which is calling the shots. According to IHS TI data, in Q3 2013 Multichoice's satellite service, DStv, was controlling 96.5% of the total pay TV market in the country with respect to subscribers' figures. By the end of September 2013 DStv had managed to attract 4.7 million customers, a figure which is 28 times higher than the 168,000 subscribers of TopTV. Referring to the revenues side of the equation the dominance of DStv is even more impressive: at the end of 2013, IHS forecasts DStv revenues from its subscribers will rise to €1.75 billion while StarSat (known as TopTV up to Q3 2013) revenues will be a meagre €34 million, that is 51 times less than DStv.

Currently, StarSat cannot compete against DStv by offering premium content as Multichoice controls all the major sports broadcasting rights for South Africa and has exclusive first-run deals with the major Hollywood studios. StarSat is offering only half the packages that DStv does, and around half the number of channels. StarSat's strategy to boost its subscriber numbers is based on low price. While DStv is offering its cheapest introductory package at 29 Rand per month, StarSat is considerable cheaper in every other category. Starsat's medium tier package StarSat Smart is around 17% cheaper than the DStv equivalent while StarSat's top tier StarSat Super is between 38% and 214% cheaper than DStv's premium packages. StarSat's Indian packages are between 115% and 400% cheaper than the three DStv Indian packages. StarSat is also offering a Chinese package, while Multichoice is offering a package for Portuguese-speaking customers.    

Organization
Naspers StarTimes Group
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