Monday, June 19, 2006

The New Battle for Broadcasting Rights in Africa


In the next few years, the telecommunications environment of Africa will change dramatically as South Africa turns its formidable technological and economic prowess towards the rest of the continent. The history and context to these developments are just as intriguing as the new picture that is beginning to emerge as regulators, entrepreneurs, investors and industry players make their mark on the vast, open landscape.

Satellite Wars: The New Battle for Broadcasting Rights in Africa

Africa often seems lost in a perpetual technological and economic time warp, desperately isolated from mainstream of modern globalization. Oddly enough, satellite television in the Motherland reflects this same trend, yet also contradicts it, with certain peculiar complexities. Africa is the only continent in the world where one company—South Africa’s MultiChoice International Holdings (MIH) and its DStv platform of channels—maintains a tightly controlled monopoly on pay television broadcasting throughout the entire region.

But this decades old monopoly is being challenged, as a new Black-owned satellite television venture, Black Entertainment Satellite Television, or BEStv, was recently awarded a broadcasting license from the National Broadcasting Board (NBB) of Botswana. Moreover - in the wake of BEStv’s bold move - a host of players in South Africa’s sophisticated high-tech telecommunications industries are jockeying for position as the Independent Communications Authority of South Africa (ICASA) plans to issue licenses for new satellite and cable subscription television services. All of these developments will revolutionize the existing broadcasting environment in Africa, as the Motherland enters a new era of Pan-African programming, broadcast content and signal distribution. The history and context to these developments is as fascinating as the future promise of Africa’s new media age.

MultiChoice: Unlikely Beginnings of a Global Player

In 1982, Koos Bekker, a South African graduate student at Columbia University, diligently completed his broadcasting Masters degree thesis on the possibilities of establishing a subscription television service in South Africa. Bekker was fascinated by the budding success of HBO, which at the time was just beginning to pioneer the new market for pay television, as it targeted hotels, motels and home subscribers while experimenting with program content and pioneering cable and satellite broadcasting. HBO's company headquarters was located near Columbia - which had one of the world’s leading research units on telecommunications – and Bekker spent many hours interviewing HBO executives and technical staff. After obtaining his degree Bekker faced a crossroads between choosing a career with HBO, or returning home to grapple with the uncertainties of advocating his pay television ideas in the highly authoritarian broadcasting environment of South Africa.

Once back in South Africa in 1984, Bekker carefully completed his research and made a business presentation to Ton Vosloo, the chairman of Naspers, a publishing company that ran the nation’s top Afrikaans newspapers and was considered a mouthpiece for the conservative Afrikaner establishment that conceived, legislated and maintained apartheid. Vosloo was certainly very well connected; he was a member of the Broederbond, the secret society of lawyers, judges, parliamentarians, cabinet ministers, business and political leaders who ran the government and sought to empower the white Afrikaner population. Vosloo was intrigued by Bekker and was won over by his thoughtful planning and thorough command of the subject matter. Moreover, Naspers was keen to diversify its media interests, and was also very interested in television, although it was a new medium (television was first introduced to South Africa in 1976) and was tightly controlled (for propaganda purposes) by the apartheid government.

Bekker and Vosloo made their pitch to Foreign Minister Pik Botha, who also managed the Telecommunications portfolio. Like Vosloo before him, Botha was also thoroughly impressed with Bekker. Botha agreed to grant the new company a broadcasting license under the condition that no news would be broadcast and other publishing groups would be allowed to participate in a joint venture, albeit with Naspers as the managing partner. In a later interview Botha said he had never met anyone as singularly determined as Bekker, and that the 30 year-old entrepreneur had a wisdom and demeanor that was well beyond his age.

After securing their license, Bekker and his team of engineers began to identify and develop broadcast and encryption technology that would allow them to utilize terrestrial broadcasting systems to do what HBO was doing via cable. The new technology they developed into an over-the-air format would establish Nasper’s new company, M-Net, as a world player in subscription television for decades to come. M-Net made their first broadcast in September 1986, a few months after Canal Plus from France also went on air, making France and South Africa the first countries to operate over-the-air pay TV. By the time Rupert Murdoch’s British-based Sky TV followed suit in 1990, M-Net’s cutting edge encryption technology was already growing in demand throughout Europe and Asia.

M-Net invested heavily in infrastructure in its early years, and lost more than R32 million (about $40 million, at the 1987 exchange rate) in its first two years of operation. But trends and ideas catch on quickly in South Africa, and sometimes it seems the South African economy can churn and grind with a speed that rivals America, Europe, Japan or Australia. By 1990 M-Net turned its massive losses into a profit of R19.9 million (about $7.5 million, at the 1990 exchange rate), and listed on the Johannesburg Stock Exchange with a bright outlook and ambitious plans for future growth.

In the ‘90s M-Net morphed into three divisions: MultiChoice International Holdings (MIH), its subscription television ventures throughout Africa, as well as Greece, Thailand and China; M-Cell/MTN, one of Africa’s most successful cell phone operators; and Open TV and its affiliates, which manage the MIH broadcast and encryption technologies. Naspers also still maintains its highly profitable newspaper and magazine publications, which have also been expanding into Nigeria, Angola, Kenya and other African markets. Because of its media and technology holdings Naspers is listed on NASDAQ. Ironically, Naspers – the Afrikaans publishing house with Broederbond roots - has grown into Africa’s most successful media conglomerate, a true multinational force in the age of globalization. In 1996 Naspers sold its European subscriber base to Canal Plus for R7 billion (about $1.62 billion), with Bekker - its chief strategist - leaving Europe to concentrate on China as well as other Asian and African markets. Bekker has always maintained a progressive view of the developing world, and believing that China was “the place to be” and “it didn’t help to go to mature markets like Europe.”

The MultiChoice Monopoly Faces New Challengers

At the turn of the century there was great speculation in the South African telecommunications industry that there was room for another satellite or cable pay TV operator, and many CEO’s and their marketing teams developing business plans and strategies for South Africa and the entire African continent. ICASA, South Africa’s broadcasting regulator, had been investigating the issue, and after receiving comments from the industry, announced that in March 2006, it would invite applications for cable and satellite subscription services, scheduling hearings for July, 2006, with an eye toward granting operational licenses by mid-2007. The expected competitors were institutional giants, like Telkom (South Africa’s telephone operator) SABC (South Africa’s public broadcaster), Sentech (SABC’s signal distribution arm), Orbicom (MultiChoice’s satellite company), WorldSpace (an African satellite radio broadcaster), and Vodacom (a South African cell phone company). All the muscle and might of South Africa’s telecommunications industry was primed to take on MultiChoice, aiming to bring the most successful 21st Century business models and high tech systems into the vast expanse of the Motherland.

But a news leak in January 2006 – that followed with a formal announcement - sent shockwaves through broadcasting and media circles. A small company in Johannesburg, Black Earth Communications, and its satellite pay television venture Black Entertainment Satellite Television, or BEStv, had been invited to apply for a satellite television license by the National Broadcasting Board of Botswana (NBB). Flying under the radar, BEStv’s daring coup now threatened South African competitors with the prospect of going on air a full year in advance of others players, thus stealing both potential program content and market share. Furthermore, by operating out of Botswana, BEC and BEStv challenged ICASA and South Africa itself with competition to its own previously unrivaled position as the dominant regional and continental force in satellite broadcasting and telecommunications.

Suddenly, South African newspapers, radio and television programs were awash with stories about BEC and its relatively unknown CEO, Andrew Jones, an African American television producer from Richmond, Virginia. Bloggers and Internet message boards were buzzing with excitement, as the South Africans and Botswanans - previously only peripherally attuned to the ICASA proceedings - were suddenly confronted with a more real and immediate potential alternative to MultiChoice. While many questioned how the service would work, what program content it would offer (MultiChoice has exclusive distribution agreements with CNN, BBC, Discovery Channel, ESPN, MTV, VH1 and other popular global channels), etc., the general sentiment was excitement about the prospects for new competition. A surprising number of people – Black and White – seemed to be frustrated with MultiChoice’s monopoly and its service.

Jones, who initially approached MultiChoice and later Sentech to broadcast channels on their satellite systems and was turned down, is bullish on the market and optimistic about prospects for going head-to-head with the MultiChoice behemoth.

“MultiChoice rakes in about R600 million a month in subscriptions and another R700 million a year in advertising, what they really need is competition,” Jones pointed out. “US customers get 500 channels and pay half of what they do here.”

BEStv – which was formally awarded its broadcast license on April 3, 2006 - is targeting the emerging Black middle class with an initial service of 5 – 10 channels at a cost of less than R100 a month (about $16, at the current exchange rate), then plans to upgrade their service to an additional 100 channels within a year, without a significant increase in price. The initial BEStv channels will include music, sports and entertainment. MultiChoice currently offers 55 channels, for about R399 (about $66) per month. While MultiChoice offers CNN, ESPN, VH1, MTV, Discovery, E! and other popular international channels, its subscription offerings do not include any of the American subscription channels like HBO, Cinemax or Showtime. BEC and BEStv has adopted an innovative strategy aimed at cultivating content for its African market, which includes courting African American and African Diaspora programming from the United States, the Caribbean and Latin America, programs from Asia, Australia and New Zealand, and creating HIVtv, the world’s first dedicated HIV - AIDS channel. Currently, Black Entertainment Television (BET) is not broadcast as a part of MultiChoice’s DStv platform, and thus BEStv – as well as the major South African pay TV hopefuls – will be vying for the African American channel.

Jones said the question of who will license BET’s programming will be a key factor in the development of the satellite television playing field in Africa.

“Well that’s the $64,000 question. Without giving up any company secrets, obviously, we plan to approach the big cable channels in the US that might appeal to Black audiences in Africa and in South Africa and see if we can be the entry point by which they can come into the African market,” Jones explained, adding that securing the Botswana license allows BEStv to negotiate the content it would like to bring to the Continent. “By all means we intend to get the best programming and the best content that will appeal to our Black market. If you look at the big Black cable channels out there, this looks great... And that certainly includes bringing the best and most established people from the United States as well as Europe and the Caribbean.”

Perhaps the most fascinating and innovative aspect of the BEC venture will be the dedicated AIDS channel, which will actually be the flagship of the BEStv satellite platform. Jones describes HIVtv as a “non-partisan channel dedicated to educating the global population on HIV/AIDS and celebrating the progress made in the fight against the disease.” He said HIVtv will feature interviews with medical professionals, psychologists, celebrities, those living positively with the disease, documentaries, footage from conferences, music videos, peer group discussions, entertainment and AIDS news.

“The AIDS Channel would be launched initially on BEStv in late 2006 or early 2007 and then be made available immediately on any satellite platform or any broadcast outlet willing to carry it. BEC expects that at maturity, the channel will be watched by hundreds of millions of people on every continent daily,” Jones said. “In fact, we firmly believe that HIVtv has the potential of becoming the most important satellite TV channel in the world. It would be an unbelievable channel, and if BEC fails it can succeed.”

While BEC and the BEStv venture appears strategically well-positioned amongst its larger South African competitors, it faces a number of legal and technical battles to successfully operate its platform, which include using MultiChoice decoder boxes to distribute its broadcast signal to African audiences. To receive the BEStv service, customers will be able to buy a new smart card, which can be used in any MultiChoice decoder, which range anywhere from R250 (about $41) to R3,000 ($500) in price. The low-end, R250 decoders are sufficient for receiving the BEStv signal, Jones said. BEC’s legal position is that the decoder is the customer’s property, and MultiChoice should have no right to determine what customers do with the decoders once they’ve been purchased.

In response to Don’t Panic, a 24-hour pornography channel that sold smart cards to distribute programming originating outside South Africa, Multichoice installed software in their decoder boxes that made other smart cards inoperable. Don’t Panic, which has been operating since 2002, has had an ongoing legal battle with MultiChoice since 2003, and the case was referred to ICASA. In April 2006, ICASA issued a decision stating that question of smart cards for use in MultiChoice decoders should be “self-regulated” by the industry. MultiChoice has stalled somewhat on the issue, claiming that their decoders will only accept DStv services. In this respect, Don’t Panic and BEStv – as well as other operators who plan to use MultiChoice decoders - may now have to turn to the South African Competition Commission, if agreements can’t be reached with MultiChoice.

Jones feels very strongly that the legal winds auger in BEC’s favor, and he feels the Competition Commission will compel MultiChoice to remove the blocking software.

“What we’re saying is that those decoders do not belong to Multichoice. They were sold to the consumer and Multichoice made a whole lot of money selling those decoders to consumers,” Jones pointed out. “Therefore Multichoice doesn’t have a right to put anything into those decoders other than what it needs to get its programming to its subscribers.”

Even after hurdling the decoder problem, BEStv faces the issue of acquiring a broadcast license in South Africa and facing the competition of much larger rivals like SABC, Sentech and Telkom. Yet while there are still questions to be answered for BEStv, it is clear that in the coming months more eyes will turn towards Africa as the new “winds of change” hit the broadcast airwaves.