MultiChoice implements cost-saving strategies in response to falling revenues and subscriber numbers

In a detailed account of the recent financial challenges faced by MultiChoice, the South African media conglomerate, the company’s Chief Executive Officer, Calvo Mawela, has made a public statement in the wake of the fiscal year ending March 2024. MultiChoice experienced a downturn in both revenue and the number of subscribers. Despite this setback, Mawela has expressed confidence in the company’s ability to identify and implement significant cost-saving measures without resorting to layoffs.

A report by MyBroadband has shed light on MultiChoice’s strategic plan to counteract the downward trend. The company has set an ambitious goal to achieve R2 billion in cost savings by the year 2025, which is expected to bolster its financial health. To accomplish this, MultiChoice will be scrutinizing and optimizing major cost areas, with a particular emphasis on expenses such as satellite leases. Notably, the contracts pertaining to these expenses are approaching their renegotiation period, presenting an opportune moment for the company to negotiate more favorable terms.

In addition to cost-cutting efforts, MultiChoice is actively working on the development of digital products that can complement its existing pay-TV offerings. The aim is to create new streams of revenue by integrating these digital products with the current subscriber base. CEO Mawela has highlighted that this approach to expanding revenue is not merely aspirational but is already making substantial progress.

The operational performance report for MultiChoice Group for FY24 has revealed a concerning 9% drop in the total number of active subscribers. This decline was particularly pronounced in several African markets, including Nigeria, Angola, Kenya, and Zambia, where the number of subscribers decreased by 13%. South Africa, however, fared slightly better with a smaller decline of 5%, which the company attributes to its concerted efforts to retain customers.

The subscriber losses in the aforementioned markets, collectively referred to as the “Rest of Africa,” were exacerbated by the depreciation of local currencies against the US dollar. This currency fluctuation resulted in a significant 32% reduction in the Group’s USD-denominated revenues.

Despite these challenges, MultiChoice reported a 3% increase in organic revenue. However, when considering the impact of currency fluctuations and other factors, the reported revenue saw a 5% decline, amounting to ZAR 56.0 billion (approximately £3.04 billion). Similarly, while subscription revenue grew by 2% on an organic basis, it ultimately fell by 7% when reported figures were taken into account.

Calvo Mawela, the CEO of MultiChoice, has expressed optimism about the future of the company’s streaming service, Showmax. He projected that Showmax is on a trajectory to reach a significant milestone of $1 billion in revenue within the next five years. This ambitious target is backed by the service’s recent performance, as highlighted in the company’s latest operational report. Showmax experienced a robust 22% growth in organic revenue, reaching ZAR 1.0 billion (equivalent to approximately £54.475 million). Despite this positive revenue growth, it’s important to note that Showmax did face some trading losses during this period.

In the context of potential corporate developments, Canal+, a major player in the media industry, has been actively increasing its stake in MultiChoice. The French company is currently engaged in discussions to potentially acquire MultiChoice for a sum that could be as high as R35 billion. Amid these talks, Canal+ has made a statement reassuring stakeholders that it does not intend to alter the existing brands under MultiChoice’s portfolio post-acquisition. This decision underscores the recognition of the strong brand value that MultiChoice’s various brands hold in the market. Canal+’s approach suggests a commitment to maintaining the brand equity that MultiChoice has established, while possibly seeking to leverage and enhance it further under new ownership.

Peter Takaendesa, an analyst at Mergence Investment Managers, has provided a critical perspective on the financial situation of MultiChoice, particularly concerning the company’s efforts to diversify its revenue streams. According to Takaendesa, the new sources of income that MultiChoice is developing, such as its streaming service Showmax, may not be sufficient to fully counterbalance the difficulties faced by its traditional pay-TV segment. He pointed out that the pay-TV business is under both structural and cyclical pressures, indicating that the challenges are not only due to current economic cycles but also to more fundamental changes in the industry, such as the shift towards digital and streaming services.

Despite these concerns, Takaendesa acknowledged a silver lining for MultiChoice shareholders in the form of Canal+’s interest in the company. Canal+’s proposal to purchase MultiChoice shares at R125 each has become a significant factor influencing the company’s share price. This acquisition offer is seen as a positive development for shareholders, as it could potentially provide them with a lucrative exit opportunity or a premium on their investments.

The report also highlighted that MultiChoice’s South African pay-TV operations are facing considerable hurdles. These challenges have been intensified by the financial losses incurred during the initial phases of funding and developing Showmax. The start-up losses for Showmax suggest that while the streaming service is showing signs of growth, it is still in a phase where it requires substantial investment to establish itself in the market. This investment in the future of digital streaming comes at a cost to the company’s current financial stability, adding to the strain on the traditional pay-TV business model.