Cost of equipment, operations responsible for subscription increase – Multichoice, MD

Multichoice Nigeria, owner of the Dstv platform will be increasing subscription of its bouquet next month. Mr. Joseph Hundah, Managing Director, Multichoice Nigeria spoke with Princewill Ekwujuru on issues surrounding the price hike, and some economic variables that necessitated the increase.
Excerpt.

You recently increased subscription fees in your bouquets across board. What informed that?

Several issues. Firstly, we are aware that the price of things generally increases on an annual basis across the whole economy.

If you look at Nigeria’s inflation in the last two to three years, it has been hovering above 10 per cent, and in this year, it has been sitting at about 12 per cent on average. It was even as high as 14 per cent as far as last year September, October.  In the last six years, we have only increased prices twice, including this one.

The last time we put an increase through was September 2009, which is more than 18 months ago. Before that, the last increase was in 2005. We really have not been increasing our prices along the rate of inflation despite the fact that costs have been increasing at inflationary rate.

Over and above that, we also have the cost of acquisition of content and rights, which obviously pushes up the price of providing content. But the biggest contributor to the price increase is inflation, more than anything else.

Is the price increase now in proportion to inflation rate?

It’s significantly lower.

But inflation has always been there. In the last two years, inflation rate has been higher than what we have now?

Absolutely. It came to a point we were unable to cover our cost with our income. If your expenses were growing at about 14 per cent and your revenue, your price is not increasing along with it, guess what, you start making losses, and soon you won’t be able to run the company at all.

It’s simply the fact that because our costs have been increasing, we now have to make up some of those increases in cost with the price increase. But in the last six years, our price increase has been about 14 per cent on the average while inflation has risen by about 50 per cent, affecting the cost of goods, salaries, diesel, all those attributes that make a person run a company.

All these costs of running a company are growing at 14 per cent per annum without an increase in revenue, and this is bound to affect your business. That’s the place we are now.

Is the increase across Africa?

More or less. Some other countries are increasing more than the others. Each country has different cost levels. In some places, inflation is not 10 per cent, it is six per cent. And in some others, inflation is about 25 per cent.

So, your increases are based on your costing in that particular country. But in South Africa, they also have an increase coming up on April 1. Every country has increases but it differs based on the peculiar circumstances of that particular country.

What are the percentage increases in Nigeria?

In Nigeria, Premium is growing by eight per cent, Compact is growing by about 3 per cent, Family by 12 per cent, Compact Plus by six per cent, so it differs for each bouquet because each bouquet has different kinds of content. It depends on how those contents are increasing in costs, which also affect the price increase.

If inflation drops, are you going to reduce your price?

If inflation does come down, yes. But deflationary income is almost impossible nowadays. To get an income that goes backward is difficult but I think one can consider it. If there be any deflationary situation, everybody will be hard-pressed to increase prices. That means prices of diesel coming down, you are paying people less, etc. You just have to look at your prices and consider that.

Apart from this year that inflation has moved by about seven or eight per cent, for the past five years, inflation appeared to have been static.

Inflation rate has been static but it’s been above 10 per  cent consistently for a long period of time, especially in the last two years. But remember, I’ve not been increasing my prices every year. So, my costs are basically going up but my revenue remains static.

The costs have always been there in the last four, five, six, seven years. Apart from that, is there any specific investment that could have led you into increasing your prices?

I won’t like to attribute the adjustment in prices to invest ments we have made. Yes, we have made significant investment in Nigeria.

We have invested a lot in local content, soccer; we invested a lot in basketball; we’ve invested a lot in creating superdealers in the country, that’s about 30 businessmen nationwide dealing in MultiChoice products.

We’ve made investment in new channels like AfricaMagic Yoruba and Hausa, and have added more than 20 channels to the DStv bouquet since the last increase in subscription fees. But we don’t ascribe the price increase to the effect that we are making investments. We make investment regardless of any price increases.

What I am saying is that, if you’ve got a business, and you’ve got certain set of costs, those costs are going higher by 12 per cent on annual basis, something has to give in pricing too.

And the reason we have not increased subscription tariffs on annual basis is the consideration for the subscribers. Can we really afford to pass on the impact of what we are seeing as inflation onto our consumers? I’ll say, no. That is why, for example, we have only put increases at 14 per cent over the last six years yet compound inflation is sitting at about 50 per cent.

You are a service provider; manufacturers have not increased the prices of their products the way those providing services are increasing theirs. How come service providers are increasing prices while producers/ manufacturers, who actually should increase prices 100 percent, 200 per cent are not doing so?

But producers are increasing their prices. Who says they are not increasing their prices? It’s only because they are not as permanent in people’s faces like DStv is. Right now, airlines have increased their prices significantly.

The price of diesel is increasing quite significantly. Remember, we must try to understand what drives the inflation. Inflation is not driven by DStv; inflation is driven by other factors in the market. Those costs are increasing on day-to-day basis.

As men, we may not know that the costs of items in the market are increasing, but my wife tells me that the price of grocery is increasing steadily on a monthly basis. What she’s paying for a loaf of bread today may not be what she’s going to pay later. The same goes for vegetable. We might not know this because we are not directly involved in procuring these items on daily basis.

Should customers expect increase in service delivery as a result of the price increase?

If you compare our services the last time we had an increase, about 18 months ago, you’ll discover we have added 18 new channels onto the DStv bouquet without a single price increase. 18 new channels! We said to ourselves, if we have this amount of content, why don’t we create bouquets that can suit people’s pockets differently?

That’s how we created five bouquets in our portfolio. But the Premium bouquet, which right now costs N9,500 has almost 90 channels on it. You have Compact Plus bouquet, which has close to 70 channels on it and it goes for N7,000 from N6,800; and you can watch 90 per cent of the English Premier League on this bouquet.

There is Compact bouquet, which is right now going for N4,500 and contains about 50 channels on it. There is Family bouquet, which has 47 channels on it for N2,500. And there is Access bouquet with 40 channels for N1,500. So, we’ve tried to spread our content in such a way that we can really suit the pockets of all possible pay-TV consumers in Nigeria.

The increase does not affect the lowest bouquet, which is Access, still being kept at N1,500. That way, we make content accessible to as many people as possible. In August last year, we introduced the English Premier League and I am sure you know it was at a huge cost. The costs were driven up by competitors in the market, paying high prices for that content.

Essentially, if we had not paid for that EPL, probably right now in Nigeria, no one would be watching the Premier League. But we came to the rescue. What I am saying is that despite the fact that we have added 18 new channels, we’ve included the EPL, we didn’t increase our price at all.

All that time, with the increasing costs of goods, even milk that we buy for tea is increasing as the tea that you buy is increasing in price; everything is increasing in price, but we kept our prices the same. Now it comes to a point my financial team says, if I look at my expenses, they are growing vertically but my revenue is not growing at the same rate.

We need to put through a sort of price increase to the consumer. We don’t like doing it but if we don’t do it, we’ll not be able to run the business at the end of the day.

Are you saying that as from April 1 when people have to pay more, there is nothing new to add to your services?

No, I’m not saying there’s nothing new to expect. All this time since September 2009 when we added 18 channels, I didn’t ask of anything from anybody. I didn’t ask anyone to give me any additional kobo when I added 18 channels. But now, I’m choking under the weight of the expenses, and I cannot manoeuvre anymore.

There comes a time when you just have to say, if I don’t get salary increase, if I don’t do something here, I’m not going to be able to survive. Something then has to go so I can maintain the same amount of content that I’m able to give to customers.

Remember one thing, MultiChoice always tries to better our services to our subscribers. Last December, we decreased the price of acquiring our decoder from N29,000 to N9,000. Is that not a benefit to try and make pay-TV accessible to everybody? That was an attempt from our own side, and the promotion was so popular, way beyond our expectations. DStv is constantly trying to make its products accessible and improve our services to make things better for our consumers.

Aside reducing your decoder price from N29,000 to N9,000, what other benefits will subscribers be able to get from your company? MultiChoice is a very big company but one has not heard much about your corporate social responsibility projects?

In terms of corporate social responsibility, we have done a lot. Maybe we have been too quiet about it, but we do try to publicize whatever we do. Right now, we have three main areas for our CSI or CSR projects. The first is what we call MultiChoice Resource Centres.

Currently, we have 191 resource centres across the country. For the MultiChoice Resource Centre, we go to disadvantaged public schools, give them a decoder, a recording device, TV, and a generator, and we give them access to some of our educational bouquets for free.

They are allowed to use the special bouquet in teaching the students, thereby giving them more exposure and incorporate visual elements to their education. We go back from time to time to ensure the facilities are maintained.

Every year, we’ve been adding 40 schools to what we have. Apart from that, we are also involved in partnership with the Sickle Cell Foundation as their media partner, assisting them in trying to publicize the menace of sickle cell. We also have Adopt-a-School, which is an initiative of the government of Lagos State.

About your purchase of the European Premier League (EPL) last year for $100 million, you did pay as much as that amount when HiTV could not pay?

We didn’t pay $100 million. HiTV paid that amount.

But you paid some huge amount to secure the right?

No. Let’s get the facts right. Remember one season had already gone. HiTV won the European Premier League EPL, and ran it for three years, and then renewed the right again.  They also bought the Champions League, and then they bought the EPL for the subsequent three years. Then HiTV failed to pay for the rights, so we paid for the seasons that we bought; we didn’t pay the $100 million HiTV paid. We are only paying for the seasons which we’ve bought.

What you are saying is that Nigerians would not have been able to watch the EPL if DStv had not come to the rescue?

They wouldn’t have if we had not paid. Let’s put the fact straight. HiTV got the right for the EPL and couldn’t pay for it. The EPL were the ones who came to MultiChoice and said HiTV had failed to pay for the right, are you interested in the right? And we said, for this price that he paid, we cannot afford it.

Remember that they shot the price up extremely high? And people complained. I even said to HiTV’s MD, personally, “How can you pay such an amount for the EPL?” Then EPL came and said, “Do you want the EPL as second bidder?” then we said, we need to go back to our board and consult because the amount that was involved was much. We went back and we did our numbers, we negotiated with them and we paid.

I can’t remember how much it was now. We paid for the right for the portion that was left. We paid because HiTV couldn’t raise the guarantee; couldn’t pay for the rights that they won. But my point is, if we had not done that, Nigerians wouldn’t have watched the EPL.

Who can cough out that kind of money? And despite the heavy investment that we’ve made, the actual thing would have been, see we bought this thing at such a high price, please subscribers if you want this, give me more money. We did not do that. The whole season has gone without a single price increase. That’s what I’m saying.

But now, I’ve come to the point where I need to let subscribers know that we have spent such huge money on the EPL but the EPL is such a small component of DStv. One channel on DStv shows the EPL but there are 90 channels on Premium bouquet. That’s one-ninetieth of the total content bouquet. I don’t focus on the EPL as the reason for price increase; it is not the reason. There are other factors.

Why did you reduce the price of your decoders from N29,000 to N9,000? Secondly, when your distributors did not sell at the advertised promo price, what did you do?

These are two different issues. On one hand, we have the reason for decreasing the price of the decoders, and on the other, the distribution issues. These are two completely separate issues and let’s differentiate them accordingly.  The reason we reduced the price is we needed to try and make this product more accessible to Nigerians.

The cost of bringing in the decoder is not N9,000, we had to put in money to reduce the price so people can enjoy DStv and ensure the product is available to more Nigerians. Now after decreasing the price, the dishes are made in Portugal, decoders are made in South Africa. So all along we made projections and we know from history how many decoders we sell especially when we reduce our prices from N29,000 to N18,000. Over the last five years, I can tell you the trend of that.

However, N9,000 has never been done before  so we asked ourselves: how many decoders do you think we would sell if we reduce the price to N9,000?

So we made an estimation which we thought was a very aggressive estimation. We thought we would sell maybe three times more and you say to the person, here is the box for N9,000 and you go to the market and expect three people to come and then 10 people come and say I want it. It’s so bad that even my driver is coming to say, how can I get a box?

Before now I would not have expected someone in that income bracket to be able to afford a DStv decoder. So my admission to you is that my estimation of what we thought we would sell was significantly lower than what eventually happened. We told the manufacturer that I need you to make 10 of these, not knowing that back home demand would turn out to be 20.

Unfortunately, it is a three-to-four month lead time from point of order to point of delivery. Demand was significantly higher than what we thought it would be and as a result, we ended up with a shortage.

What then happened was that some of our distributors, realising there was a shortage, took advantage of it and started harassing our customers saying they don’t have boxes but if you want me to bring one, pay more money.

Each time we found that out, we stopped supplying such distributors. We told them that they were cheating our customers. We can’t as DStv be saying N9,000 and here you are selling for N15,000. You can’t do that.

We took actions against those people and stopped supplying them decoders. The promotion started in November; we are still suffering the consequence of that even today because of the lead time that you have to give from point of order to point of delivery.

If they were making them last week and I can get them here today, there would be no problem since I would have been able to make more quickly and I would ask them to make more saying my demand is higher than I thought.

But it’s not that simple. All we can do is apologise to consumers that we really wanted to do this for as long as we could but even the dishes that come from Portugal are delayed at the port and without a dish you can’t install.  There are so many logistical challenges.

Source : Vanquard