Africa: French Pay TV Operator Canal+ Eyes Anglophone African Expansion - Two and Two Might Well Make Five

30 October 2020

London — With the bankruptcy of Kwese TV, there's been much less competition in the Sub-Saharan African pay TV market. But over the last moths there have been two developments that seem to indicate that may change soon. Russell Southwood looks at whether two and two might well make five.

Just before GTV went bankrupt in January 2009 it was in talks with Canal+ about the possibility of it buying the company, with its Anglophone operations. It passed and the rest is history. During these years, Canal+ had an 'entente cordiale' with DStv. It would stay out of Anglophone country markets and DStv would stay out of Francophone markets.

In those times, Canal+ saw itself as an international pay TV operator with its core operation in France. With piracy, it was tough going developing paid subscribers for its high-end subscriptions in Africa. This has changed and now Canal+ is struggling in France, its African operations are one of the more plausible parts of its story.

It has made two purchases that have transformed its position. In 2014 it bought Thema. At the time Jacques du Puy, CEO of Canal+ Overseas, said: "The acquisition of the Thema group will speed up our development strategy, particularly in Africa, and will also provide us with vital marketing and publishing know-how with regard to ethnic content." It has used this to add a number of Africa-focused channels.

In 2019, it bought the production and distribution activities of iROKO. It gave Thema access to a range of different content and distribution assets: the production of 300 films a year and 20 TV series, 3 existing ROK channels on DStv and a ROK channel on Sky in the UK. Plus it bought the talents of Mary Njoku, whose expertise has built the content portfolio and who agreed to stay on both in a producing and acting capacity.

So two things have happened that seem to take Canal+'s African strategy forward. In July 2020 Canal+ announced that it would launch a pay TV bouquet in Ethiopia. In October this year Multichoice announced that Canal+'s stake in the company had gone above the 5% threshold to 6.5% so it was having to inform the Johannesburg Stock Exchange of the news. On 12 October, according to a MyBroadband report, it increased its shareholding to 12%.

According to the same report:" MultiChoice added that it has filed the required notice with the Takeover Regulation Panel. The Takeover Regulation Panel, which reports to the Minister of Trade and Industry, oversees the country's takeover regulations".

Whilst Multichoice is still a formidable operator, it is not the almost untouchable giant it was when it had Nasper's arms round its shoulder. The sinking Rand has also made it less profitable.

Although Amharic is not English, Ethiopia is by all accounts an Anglophone market so has the old 'entente cordiale' broken down? Canal+ and Multichoice are now direct competitors and whether the content is in English or Amharic is probably beside the point. Industry rumors point to Canal+'s willingness to invest heavily in the market to come out on top. Ethiopia is one of Multichoice's weaker operations and you might ask if Canal+ succeeds here, where will it go next?

According to Joanna Darlington, Chief Transformation Officer, Eutelsat, which is providing the satellite services:"Our satellite has a specific Ethiopian beam and the Canal+ service is targeting the Ethiopian market". It will be a mixture of international and Ethiopian content. Comment was sought from Canal+ but there was no reply.

The small shareholding in Multichoice through the JSE looks tantalizing. Canal+'s parent Vivendi loves deal-making and Multichoice offered itself for sale (before it went public) to the now bankrupt Kwese TV among others.

But the fly in this particular ointment is that South African law forbids foreign investors holding more than 20% in any South African media company. Vivendi is happy to make deals against opposition but this is a tough one to square.

According to Tech Cabal, Multichoice has already alerted investors that it is permitted to reduce the voting rights "so that the aggregate voting power of MultiChoice shares that are presumptively owned or held by foreigners to South Africa will not exceed 20% of the total voting power." In its 2020 integrated annual report, foreign shareholders held 35.7% of Multichoice's shares (not voting rights) compared to 48.1% for domestic shareholders.

However, viewed in strategic terms, perhaps two and two really does make five. If Canal+ makes a success of Ethiopia, it can say that the current management of Multichoice is underperforming. If it was underperforming in Ethiopia, how many other countries might that be true of?

Perhaps the minority shareholding in Multichoice is the equivalent of "parking your tanks on their lawn." As an activist shareholder, it could begin to argue from inside that the company was underperforming and demonstrate its case by outperforming it. One key question is whether anything up to 19.99% of voting shares would give it a seat on the board?

So where does that take Canal+? It could argue that Multichoice should focus on its core territories and it will take the rest off its hands. No change in ownership required there. It could argue that Multichoice's location in a country with a failing currency is undervaluing its operations and it should move to a more secure jurisdiction. Harder to see that working but it depends how the Rand fares over the next 2-3 years. And another jurisdiction might not have the 20% international limit.

South African attitudes to large international share deals sank the MTN-Airtel merger back in the day. What if the Government was to be more flexible? Economic hard times might just force them to react more flexibly but it seems unlikely.

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