Low subscriber numbers and debt kill Cell C Black

SA’s tightly-contested video-on-demand (VOD) market and a poorly executed strategy are the main reasons for Cell C’s termination of its VOD streaming service, Black.

Commenting on Cell C pulling the plug on Black, which was introduced in 2017, analysts believe that while there is still hunger for innovative streaming offerings in SA’s competitive market, a number of factors caused the telco to shutter the service.

Cell C reportedly spent over R1 billion on acquiring content rights for the VOD and live TV streaming platform, which focused on delivering entertainment, movies, gaming, sports, travel, music and children’s content, among others.

In a statement sent to ITWeb, Cell C confirms that due to low subscriber numbers, it will shut down its streaming content service at the end of December.

“Following a review of the company’s product portfolio and decision to redirect expenditure to revenue-generating initiatives, Cell C can confirm it will decommission its streaming content service, Black, on 31 December 2019. The subscriber numbers were not sufficient enough to make this a viable and sustainable service.”

The operator refused to disclose its subscriber numbers, saying it will not accept new registrations on the service, and will refund customers for outright movie purchases.

Ryan Smit, MD of local market research firm BMIT, says in the past two years, new players have entered the local VOD market, leading to estimated growth of around 75%, and some tight competition.

“The market has certainly been growing rapidly in the past 12 months and it has become extremely competitive both internationally and locally, with players such as Netflix, Showmax, Google Play Movies spending billions on acquiring the rights to movies and series.

“So for Cell C to compete in such a market, without the resources of those hyperscalers, was always going to be near-on impossible, and given their recent financial difficulties, it is not surprising they have decided to pull the plug.”

In terms of demand for international content, it is only likely to get more competitive in the future, as new entrants could come into SA, such as Disney+ and HBO Go, he adds.

The troubled operator has been experiencing major financial difficulties, reportedly placing core parts of its business up for sale as it struggles with almost R9 billion of debt and deepening losses.

In August, SA’s third-largest mobile operator was downgraded by ratings agency S&P Global Ratings to “default” status, after it failed to make interest payments in July.

Today, Cell C’s board of directors rejected a takeover offer bid from Telkom, after weeks of negotiations.

In recent months, the embattled operator had been cutting down some channels on Black, and stopped broadcasting others as it reviewed costs and redirected its expenditure.

Arthur Goldstuck, ICT analyst and MD of World Wide Worx, believes it was only a matter of time before the service shut down, given the telco’s financial woes.

“Closing Black had been on the cards for some time. A streaming service needs massive investment over many years to remain competitive in an environment with more players coming to market all the time.

“Given Cell C's massive debt, the need to service that debt, and the need to emphasise services that have the potential to deliver profit in the short- to medium-term, a streaming service is an unaffordable luxury for the operator.” 

According to Goldstuck, there is always a market for an innovative service that meets a demand in the way that the potential audience would be willing or eager to consume it.

“While there is always a market, the key to success of any new service is not the market. It’s the execution,” he asserts. 

Nozi Dikgale, researcher and media analyst at Africa Analysis, says Cell C made some unfruitful decisions in its execution of Black’s strategy.

“This year alone, Black restructured its plans to offer more simplified and cheaper plans. This was one of the strategies Cell C employed to try and entice customers. The strategy didn’t yield positive results for Black. The platform, shortly after launching new subscription plans, lost over eight channels, including all sports channels,” she notes.

This was shortly followed by the platform shutting down all its live channels, leaving its customers with a limited amount of content to watch.

“In addition, since Black launched, it has incurred over R500 million debt on content acquisition deals,” adds Dikgale.

Black not only competed with MultiChoice and VOD services such as Netflix and Showmax, it also took on competitors such as Vodacom’s Video Play, Telkom’s LIT Video and Music offering, and MTN’s MusicTime.

“Vodacom has had exceptionally strong uptake, thanks to its massive subscriber base and its deep knowledge of the spending habits and capacity of its customers,” notes Goldstuck.

“The key, however, is that it is just another potential revenue stream for Vodacom. It can afford to fail in a far corner of its business. For Cell C, it was a case of betting the farm, and losing.”

In terms of other VOD services such as Netflix, Showmax and DStv Now, Smit points out their numbers have increased significantly in the past 24 months, with more than 75% of those in high-income households saying they use at least one of these services.

“Vodacom Video Play reported they have just over 800 000 active users on their platform in the last reporting period, but it is unclear what the level of paid subscriptions they have for their services.”

Dikgalebelieves that with enough cash injection and successful implementation of the right strategy, any VOD service can survive in SA.

“The over the top/VOD market is a very competitive business; it’s a business that requires financial backing to survive. Showmax, Netflix, Vodacom Video Play and recent ones that came in the market this year, such as Viu, are still operational. This is a sign that the video streaming business is a viable one. Just like in any other business, there are many strategies that a business can adopt; however, there are no guarantees for success.”