The illusion of regulation

In South Africa there seems to be an assumption that Pay TV broadcasters can expect to attract huge audiences and make hefty profits. This is, of course, an illusion. But both the Independent Communications Authority of South Africa (ICASA) and the newly-licensed broadcasters have eagerly bought into this illusion.

The question is: Will both reap bitter fruits of their wasted labours? ICASA creates the expectation that all is well in the Pay TV broadcasting sector. The licensing authority does so by inviting applications for Pay TV licences. It is not obliged to invite television broadcasting applications but it does so on the basis that competition best serves viewers and the industry.

More broadcasters create greater programming choice and drives down prices for consumers. Again, this is another illusion. While competition is sometimes an engine for greater choice and lower prices, the entry of more Pay TV broadcasters into a market dominated by the colossal DSTV does little to increase choice or reduce prices.

DSTV’s wide range of thematic channels, its exclusivity agreements with channel owners and its acquisition of programmes over a long period gives it a premier broadcasting status among viewers. Pay TV viewers demand the best and that’s what they can get from DSTV: the best international live sport programmes, the newest movies, digital animation, series, documentary, news channels and reality programmes. And, since the nineties DSTV has built up a formidable audience.

So what can the competition offer? Very little, if anything.

The important question is why ICASA has awarded licences in a sector of the market where the barrier to entry is now so high that the newly-licensed broadcasters are staring at a looming financial disaster even before they go on air.

But these broadcasters are not blameless, simply because they decided to respond to ICASA’s invitation to apply for the licences in a bloody market. Their responses were telling. They made huge efforts in their applications to show how deeply they believed in ICASA’s myth that Pay TV broadcasting is a market that will reward their labours – and hundreds of millions of investment rands.

So far the fall-out in the market had been disastrous. In 2006, ICASA awarded five Pay TV satellite licences. Only DSTV is making profit. Star Sat (formerly Top TV) is limping under a business rescue in the hope that the new Chinese investor will turn their fortunes. OpenView HD has moved into the satellite free-to-air market but is yet unable to match DSTV’s premier offerings. Of Walking on Water TV nothing is known. Sentech runs a small satellite free-to-air service based on a broadcasting licence ostensibly given under the now-repealed Telecommunications Act.

All this should have signalled to ICASA – and to interested investors – that something is not quite right and that perhaps some sort of intervention is necessary to lower the barriers to entry or to re-examine the need for more licences in the Pay TV market. But that is expecting too much from a regulator that appears unconcerned or unaware of its earlier mishap.

In May this year, the regulator licensed another five Pay TV broadcasters. Would ICASA have made a study of the Pay TV broadcasting market before inviting applications for these licences? It would be shameful if it did not. Such study would perhaps have averted further ruin for broadcasters or even caused them to be more realistic in their expectations when making financial decisions. Failure in the Pay TV broadcasting sector will only continue to erode further what’s left of the tattered reputation of the regulator.

To those of us unfamiliar with the arcane world of regulation (and of ICASA) the grant of the new licences is somewhat astonishing, and mostly confusing. Now flushed with the success of their applications the new licensees, beckoned by the myth of profit, are preparing to go live. New licensees have been granted to Close TV, Kagiso TV, Mindset Media Enterprises, Mobile TV and Siyaya TV.

They all say they’ve found gaps in the market and they’ve used the gaps in the market to build their plans for profit. Some say that they are bringing programmes from the East. They say that they will bring channels the competitor does not have. But what they do not know is whether viewers, wary of the failures in the market, will respond to their marketing.

A level of expected churn is the first problem. Expecting viewers to switch to your offering depends on many factors including price, the number of channel offerings and the quality of the programmes.

The second problem is whether there are sufficient numbers of terrestrial free-to-air viewers who can afford the new service. Most of the country’s TV households are still tied to terrestrial free-to-air broadcasting served by SABC’s three channels and e.tv. These viewers either cannot afford Pay TV or they do enjoy the programming fare on these services. The simple proofs are the high audience ratings of these channels and the airtime demand from advertisers.

E.tv’s success is an example of how a broadcaster broke the three-channel SABC monopoly over audiences and advertisers. E.tv successfully competes with SABC channels which demonstrates that this market is open to several new players.

It is in the terrestrial free-to-air market that ICASA should license new players, not in the Pay TV market. South African viewers should expect quality programmes in the terrestrial free-to-air market which should sustain a diversity of new voices. The licensing of the terrestrial publically-owned airwaves to private interests should not be used to entrench incumbents at the expense of diluting a wider and more varied media expression.

Since 1998 e.tv is the only new voice that has been added to the terrestrial free-to-air market which is greatly in need of new voices and new owners. Rather than licensing more services in the market which services the majority of the country’s viewers, ICASA spends its resources to give the illusion of greater choice and diversity in a market that services the rich.

So, ICASA makes merry by garnishing a market that adds nothing to the experience of the majority of the country’s viewers. It is ICASA’s illusion of regulation, a cheap trick, that disappoints broadcasters, and particularly the under-serviced majority of viewers. It may be that ICASA is ignoring its statutory remit to regulate in the public interest.

ICASA’s first round of Pay TV licensing failed miserably. So why does ICASA think that the second round of Pay TV licensing will succeed?

 

Abbreviated version published 22 August 2014, Business Day Live, http://www.bdlive.co.za/blogs/2014/08/22/blog-the-illusion-of-regulation