What Safaricom’s entry into digital TV market means for hurting firms

Safaricom’s entry into the television market is set to upset the Pay TV landscape that is currently in firm grip of two players.

The Free to Air channels (FTA), which are still hurting from the digital migration debacle, are also set to face a new competitor in Safaricom should the Communications Authority of Kenya grant the firm a broadcasting licence that will allow it to air its own content.

Signal distributors such as State owned Signet and Chinese firm Pang might also indirectly feel the impact of Safaricom’s entry into the broadcast space should it get the licence. This is because content producers who will use Safaricom may not need another signal distributor if the firm is aggregating and broadcasting.

And should the mobile firm later decide to allow its subscribers to watch free to air channels on its set top boxes without buying the monthly bundles because they are not connected, the impact will also be felt by hundreds of set top box distributors. But it is the players in the Pay TV market such as multichoice’s DSTV, Zuku and StarTimes who are set to feel the immediate impact as Kenya’s most profitable company seeks a pie of the subscription television market.

Consumers are set to be the biggest winners as this is set to trigger a price war or introduction of more competitive packages to attract subscribers.

The telecoms firm, which has already disrupted the banking sector with its revolutionary mobile money network, M-Pesa, now has its eyes cast on the billions in the digital television market after it launched an internet enabled set top box on Friday. In making its intention to claim a share of the television market, Safaricom’s Chief Executive Bob Collymore boasted that his firm is known for ‘its bold approach to explore and enter new market frontiers with outstanding results’.

Though it is still too early to tell, analysts say that the entry of Safaricom will likely hurt DSTV and Zuku, who have dominated the Pay TV market for long.

But it’s only Zuku, which is also the major player in the Internet television industry that will face off with Safaricom, which has a big marketing war chest. Wananchi Group, the owners of Zuku TV, currently offer voice, internet and broadcast as a package.

“Though Safaricom has suggested that the product is intended for consumers without a set top box, it is inconceivable that subscription TV customers will not be affected, especially DSTV which does not offer Internet services,” analysts at Standard Investment Bank (SIB) said in their note to clients.

“The main barrier however is likely to be on the cost of the device. The product is likely to be a key driver for data growth in coming years. We do not believe there will be room for any other major player to bring in a FTA STB as conceived by the mainstream media houses,” SIB said.

Sports bandwagon

The firm is now waiting for a licence from the Communications Authority to start broadcasting its own content in a move that is set to upset the current broadcasting environment which is yet to recover from a tumultuous digital migration process. “We have applied to the Communication Authority for a broadcasting licence that will enable us to develop and host more content,” Mr Collymore said adding that the firm is currently aggregating content.

“It has become imperative for telecoms service providers to also begin offering content as part of their overall ICT strategy. Provision of content will be key in remaining competitive in the retail market, particularly as a large player. To this extent, operators and service providers have begun to preposition themselves in the market for future content delivery,” Dobek Pater, Managing Director, Africa Analysis, a firm that tracks telecoms and IT in the continent.

Pater says that by deploying its own set-top boxes, Safaricom wants to own the client and be able to deliver a range of services.

“Safaricom may also want to place itself in a position where effectively it will be able to provide a range of remote ICT services plus content. The market may be very small at present and not yet ready for these types of services but it is important to begin positioning yourself now,” he adds.

Mr Pater adds that Safaricom’s success will depend on what type of partnerships they will develop with content providers.

On his part, telecoms analyst Peter Wanyonyi says that the TV market in Kenya is almost entirely content-driven, and sports and related content rate very highly.

“If Safaricom is able to get onto the sports bandwagon, it could be a game changer in what is a very expensive, staid, and almost monopolistic market. DSTV has such power and control of the Pay TV segment that other players struggle to make any headway into that market.

This is due to DSTV’s exclusive contracts with content suppliers for sports and some documentary channels, and if Safaricom can pry these loose, they will shake the sector up.

Safaricom, which has 3.1 million smartphones on its network, is hoping to grow its data business using the set-top box dubbed the ‘Big Box’. Consumers will access the content using 3G and 4G data network.

“Our subscribers will access a consolidated offering that is delivered via set-top box and which is shareable to many devices,” Safaricom Chief Executive Bob Collymore said.

As a sweetener, Safaricom has offered consumers a six-month free Internet upon purchase of the gadget, which will retail for Sh9, 999. Consumers will also have three months free access to YouTube in a bid to hook them to the gadget. The free YouTube introductory offer will build on usage habits if the firm doesn’t have an arrangement with Google. The device can also be used as a Wi-Fi hotspot for up to ten users. It is targeting the untapped demand in the home broadband market as well as reach an estimated 2.4 million households out of the 3.2 million that have access to digital television sets. Consumers will have two payment plans to pick from.

The firm says they will have an option of a six-month installment plan that will cost an initial Sh4, 999 and monthly installments of Sh999 for another six months. The package will include access to free to air TV stations as well as an allocation of up to 6GB a month in data bundles. Subscribers will also buy a 50GB bundle for Sh4, 000 every month. Customers will top up their balances by buying monthly bundles using their airtime or M-Pesa. The firm said mobile companies are already making inroads into the business of content creation and distribution.

“Globally, consumers are changing the way they consume content and the lines between traditional lines of business continue to blur in response to customer needs,” Mr Collymore said.

There are 16 million Kenyans with access to the Internet. Safaricom is hoping to convert some of these into its customers. The firm, which invested Sh33 billion in infrastructure in the last financial year, boasts over 2000km of proprietary fibre infrastructure.

This is also the first product launched on the 3G networks. On Thursday Safaricom reported a 38 per cent growth in net profit to Sh32 billion, as M-Pesa and data revenue growth helped reinforce the firm’s reputation as the most profitable in the region.