ShowMax: the good, the bad and the Naspers conundrum

Naspers’ video on demand (VoD) service ShowMax launched late yesterday. It comes with a reasonably large library (including plenty of classic South African series and films) and, at R99 a month, a competitive price point. Those two things alone mean that it’s a step ahead of the other VoD services that have launched in the country but that’s no guarantee of success. There are still plenty of obstacles it has to overcome, some of which come from Naspers’ other video entertainment products.

That’s not to say that ShowMax is doomed to fail though. It’s clear that Naspers has spent a lot of time and money on it. It’s very well designed, the UI is slick, and making it available on a variety of devices from day one just makes sense. And by launching it at a lower price point than Netflix, it’s ensured that people will investigate whether they should switch over.

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It’s also worth expanding on ShowMax’s library. With 400 movies and more than 750 series titles at launch, there’s already plenty to keep even the most obsessed binge-watcher satisfied. On its own, that wouldn’t be enough to keep players like Netflix away. Its real point of differentiation is the South African portion of the library with shows and movies stretching back more than 20 years.

Read more: ShowMax: 7 things you should know about Naspers’ new VoD service

That said, international competition is still a very real threat.

Can ShowMax beat Netflix at its own game?

Because of the methods required to access them, it’s impossible to tell how many South Africans currently subscribe to Netflix and other VoD services. But anecdotal evidence suggests that it’s widespread in geek circles and growing outside of it too.

Naspers is clearly well aware of that. It said as much in its most recent financial statement:

“Competition from international online players with global reach, such as Netflix, Amazon and Google, is increasing. MultiChoice is investing in its online offering, expanding its delivery platforms and improving products and services”.

And with Netflix announcing that it will officially be available before the end of 2016, it had little choice but to launch first.

Read more: It’s official: Naspers’ launches video streaming service ShowMax

Thing is, you’ve got to wonder whether ShowMax’s offering is different (and cheap) enough to get the people currently using streaming services on a semi-legal basis to move away from them.

ShowMax’s library is big, but is it big enough?

When Netflix does launch in South Africa, it’ll do so with a reputation for an incredibly large video library and high quality original content. ShowMax has a decent library. It also says it’s going to produce its own content, but what are the chances that that content will be as good as House of Cards or Orange is the New Black? So just how many people are going sign up for ShowMax when they know Netflix is coming?

All about the numbers

If ShowMax is to be anything like the success Naspers wants it to be, it needs the answer to that last question to be “plenty”. While ShowMax GM John Kotsaftis wouldn’t be drawn on how many users the service would need to be sustainable, he did acknowledge that it has to be scalable.

“This isn’t going to work with 20 or 30 000 users,” he said at the ShowMax launch event.

John Kotsaftis says that ShowMax has to scale

But just how much can it scale in South Africa? The country currently has around 25-million internet users, about half of the population. That sounds great, until you remember that the vast majority of those connections are on mobile. In 2014, there were still fewer than 2-million fixed line broadband subscribers in the country. Even fewer than that will have fast enough lines and enough bandwidth to use the service on a regular basis.

Read more: Netflix prepares for global expansion [Update: it’s coming to South Africa]

Sure that number will grow, but even if there’s demand, will it grow fast enough to make ShowMax sustainable?

Netflix has more than 62-million global users and even it struggles with narrow margins. In fact, it only expects to generate material global profits by 2017. Remember, this is the world’s most successful VoD service we’re talking about.

And that begs another question: just how much time and money is Naspers willing to plough into ShowMax?

The weight of expectation

In ShowMax’s favour is the fact that Naspers will be desperate for it to succeed. In part that’s because it knows that online offerings will start eating into its pay TV revenues (which brought in R42.4-billion in revenue for the company in FY15). But it’s also got to with pride.

It’s an open secret that Naspers chairman Koos Bekker resents the fact that Naspers hasn’t had an organic internet success story. The vast majority of Naspers’ internet successes have come through acquisitions, most notably its stakes in Tencent and In fact, its stake in Tencent is actually has a higher value than Naspers’ current market cap. By comparison, even its most successful homegrown online offerings — and Kalahari — barely register.

Read more: Naspers reveals the true numbers behind Takealot, Kalahari merger

It’s not for lack of trying either. Naspers has attempted to copy and beat international tech business models on a number of occasions. Perhaps the most infamous of those attempts is Search24, which was meant to “kick Google out of Africa”.

Heard of it? Nope? Well the domain’s up for grabs if you want it:

Naspers will carry on supporting ShowMax up to a point, but if it doesn’t start bringing in serious revenue on its own, that support will dry up.

A fair chance

At the launch event, Kotsaftis explained that ShowMax isn’t really about getting the latest shows and movies. Instead, he described it as a binge-watching product, designed to help you catch up on the series you’ve always wanted to watch but never got around to.

In other words, if you’re looking to get the latest episode of Game of Thrones legally, you’ll still need a DStv premium subscription. And if you’re looking for the latest movies, you’ll have to either go to a cinema or have a DStv box office subscription. Compare the movies available on BoxOffice

Read more: Naspers invests $40m in Brazilian app developer Movile

That suggests Naspers may be hedging its bets, which is understandable. DStv is a major money-spinner and, according to Naspers, BoxOffice sees around 600 000 downloads a month.

But if it really wants ShowMax to be disruptive, then surely it has to be prepared for it to disrupt other Naspers products. You can’t ask to be treated like a startup, as Kotsaftis asked the press to at last night’s launch, if your “startup” has a big corporate telling it what it can and cannot do.

Sometimes you’ve got to be prepared to “burn your boats“.

If anyone can afford to gamble on a service like ShowMax, it’s Naspers. But if it wants the gamble to be a good one, it has to go all-in. Otherwise it’ll find Netflix, and others, eating into its video entertainment revenues and ShowMax will be just another failed attempt at creating a world class product.

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