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Interview: DEOD MD discusses industry rocking DSTV/Showmax merger

September 21, 2017 • Features, Online & Social, People, Southern Africa, Top Stories

Interview: Showmax-DSTV merger "to contain costs and seek efficiencies"

Stephen Watson, MD of Discover Digital.

IT News Africa recently spoke to Stephen Watson, MD of Discover Digital, in an interview which looked to reveal his perspective, as a small role player in the video on demand scene, on the recent announcement from Multichoice that Showmax will be available for free to DSTV premium subscribers.

Stephen established Discover Digital, the digital entertainment and video on demand services company, in 2013. Stephen started Discover Digital, which subsequently launched Digital Entertainment On Deman (DEOD), with the intention of bringing internet television solutions to the African market via Internet Service Providers and Telecommunications Networks.

In this interview, Stephen discusses his view on the merger, how smaller role players in the market can compete, the type of content that these services need to provide in order to compete, the role of telcos and other companies and how DEOD plans to set themselves apart.

1) When ShowMax came onto the scene it was portrayed as the competitor to DSTV who will finally drive down the price. Now the two have somewhat merged, did you see this development coming?

I honestly believe the original message conveyed was just ‘Smoke & Mirrors’ and an attempt to dilute a high level of anti-monopolistic sentiment that has been building in the market. However, the merger happened sooner than I expected and I believe this has more to do with Showmax not achieving the market uptake that they had originally forecast for the market. Now, of course, the official numbers are all hush, even shielded to a degree in Naspers Financial Statements, but the market is small and intel, plus recent polls, suggests after two years Showmax has less than 180,000 subscribers after considerable marketing investment and subsidised content pricing. I see the merger as more a need to contain costs and seek efficiencies across technology, content and ultimately human resources.

2) How are smaller SVOD services, such DEOD, supposed to compete with the financial might of Multichoice?

For us, Discover Digital is first and foremost a technology business, building video on demand (VOD), media and fintech technology products. DEOD enables us to show off some of these products and to assist other partners to play in the VOD & OTT Channel space, without the high technology costs and the added benefit of content aggregation efficiencies. We see DEOD as a VOD enabler for partners who want/need to play in this sector but do not have a base to attract the attention of Netflix or the appetite to build their own broadcast divisions. We are essentially a B2B2C company and our partnership with Sun International, and now with Lenovo (and more to come), gives testimony to our model. DEOD is an OTT Television & VOD business that is run by passionate people; our product staff count for this specific product is less than 12 people and we now own our own Content Management (CMS) technology and are developing the product in-house. We don’t have or need an empire to make this work and as a result, we can be very nimble and therefore disruptive, for the benefit of the consumer. So watch this space.

3) What sort of content will smaller companies look to provide in order to compete with DSTV/Showmax?

There are so many different approaches to content: local, niche, premium, free, advertiser-funded, 1st Run Right exclusives, sports, short-form, long-form, original productions etc for both Channel Playouts and VOD etc. The premium content is subject to such high rates of piracy from high and lower LSMs. Add to this the fact that channels, studios and sports are leaning more and more towards direct to consumer offerings. (Note, for example, Disney’s recent announcement to withdraw its content from Netflix and go direct to consumer with Disney on Demand in the USA). This will ultimately cause a level of fragmentation that will be inconvenient to the consumer. We will stick with our strategy to offer a mix of content, from Free to Premium and we will continue to put more pressure on pricing on the equitable content.

4) In South Africa, are there other companies, such as telcos, willing to collaborate with services like DEOD in order to provider sterner competition?

Some of the telecommunications operators will try to do their own thing with high costs and others are open to non-exclusive reseller opportunities. The South African market is soon going to be very crowded with another two services expected to launch before the end of the year, in addition to Kwese Play and iFlix. Copycat strategies of reselling Netflix, Amazon, adding Free Application content on an array of different devices and applications and then zero rating data for on-network clients will become common practice. Bidding for content will go up and consumer prices on subscriptions will come under pressure and slide south. Very few telco’s will make money from this strategy (as we have seen in mature markets). These services could well become nothing more than a cost for consumer retention. We have a number of local and international deals in the making but we de-risk and reduce the barrier to entry for a number of different business sectors who almost have to play in this space or risk irrelevance. So yes, there are companies and telcos that we will launch with and we will make more announcements in due course and you will also see some new technology products from our stable launched before the year is out.

5) What are the biggest trends in this industry and are there any signs of a major disruption to the Multichoice monopoly?

Multichoice South Africa is still in pretty good shape but MutliChoice Africa has been under pressure and is known to be available for sale to the right buyer. I have never seen Koos sell too many things that are working, so there is a message in that. There is always room for major disruption, but you have to do it differently. Investing in a DTH play for the African market and throwing millions of dollars at trying to outbid SuperSport on sports rights, is not a smart play in my opinion. That’s not disruption, that’s just doing the same thing, with the same logistics costs and high operational expenditure that currently is not working. Uber didn’t disrupt the taxi industry by buying cheaper cars from China and undercutting the market by offering better fares and well-dressed chauffeurs.

6) What are you at DEOD doing to set yourselves apart and how will this merger affect you?

As Discover Digital, we are using DEOD to enable businesses who want to play in this space without the high set-up and content costs. We still currently offer them unique components that none of the other players are offering and they see advantages in that. Other platforms expect you to commit to high minimum guarantees on reseller numbers, no continuous annuity income after a period and no rights to include your brand within the service and you have the privilege of having to market and build their brand too. You simply pay to resell and build Netflix’s brand, with no messaging or own content placement rights on their service.

As Discover Digital, we also license our VOD, linear channel and COBI technology, independent of DEOD. Our local South African developers and team are keen to show the world what we can do and we have an advantage that we can bill our technology out in Rands, which negates forex risks for locals and/or higher $ costs. Our lower operating costs and aggregation efficiencies mean we don’t have to achieve hundreds of thousands of subscribers to be profitable and/or have 2021 break even plans. Local shareholders of organisations with such roadmaps should be concerned. Look at the investment that the big US firms are putting into original content, which they are amortising over a base of 50 million-plus subscribers and ask yourself if you really think your investment will see a ROI, when you setting off but playing the game the same way. I don’t see it.

By: Dean Workman
Follow Dean Workman on Twitter
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