With analysts predicting a data boom in Africa in 2015 and beyond, the question is whether telecommunication operators are ready to meet the expected spike in demand from data-hungry consumers. These fears are well-founded going by the teething problems with the voice revolution. Olubayo Abiodun, Clifford Agugoesi and Chimezie Ndubisi look at how stakeholders are positioning themselves to take advantage of the opportunities
AS voice average revenue per user (ARPU) continues on a downward trajectory worldwide, telecommunications service providers have intensified their search for innovative ways to keep revenues up while delivering quality services. Africa’s demographics present attractive opportunities for investors looking for an upturn in profits to turn to data, something that is beginning to grow on the continent.
Dov Bar Gera, CEO of YooMee, a regional 4G/LTE operator in West and Central Africa, was asked by Connecting West Africa (CWA) ahead of its Dakar meeting in June, how operators intend to generate revenue from data. He said: “It is the key question: what are the revenue drivers in the coming five years in such a fast changing market? In a world driven by players like WhatsApp proposing free voice and video communication, a world where international business communication with video conference and document exchange is offered free of charge by Skype, users who are consuming 90 per cent of the capacity for video, operators live in constant instability and uncertainty.
“Pure players like YooMee Africa are growing thanks to this instability. We maximise the capabilities of the consumer to engage with the changing world and to enjoy the new offerings. YooMee’s job is to ensure fast, stable and top quality connection to the worldwide web independently of disruptive new applications or services. Over time, YooMee Africa will accelerate the arrival of these new applications into the markets and enable the business and residential internet users to buy all services from one provider.”
Increased internet access will generate more consumer spend than any other media product or service in the next five years in the South African entertainment and media industry, according to a report issued by PwC recently. South Africa’s entertainment and media market is expected to grow by 10.2 per cent compounded annually (CAGR) from 2014 – 2018 to a value of R190.4 billion. By far the largest segment will be the internet. Combined revenues from internet access and Internet advertising will account for an estimated R71.6 billion in 2018, accounting for 37.6 per cent of total revenues, according to PwC’s South African Entertainment and Media Outlook: 2014-2018.
Entertainment & Media Industries Leader for PwC South Africa, Vicki Myburgh says: “Growth in the South African entertainment and media industry is largely being driven by the internet and by consumers’ love of new technology, in particular mobile technology, such as smartphones and tablets, as well as applications powered by data analytics and cloud services. Technology is increasingly being driven by consumers’ needs and expectations.”
The fifth edition of PwC’s ‘South African Entertainment and Media Outlook’ presents annual historical data for 2009-2013 and provides annual forecasts for 2014-2018 in 12 entertainment and media segments.
The Outlook includes historical and forecast data on the internet, television, filmed entertainment, radio, recorded music, consumer magazine publishing, newspaper publishing, consumer and educational book publishing, business-to-business publishing, out-of-home advertising, video games, and sports. It gives a detailed breakdown of these sectors.
The Outlook also includes detailed information for South Africa, Nigeria and Kenya in each of the 12 industry segments.
Aside from the internet, The Outlook predicts that the fastest growth will be seen in video games and radio, which will enjoy growth rates at nine per cent and 8.2 per cent respectively. “Video games has made the greatest transition to digital, largely due to the popularity of mobile gaming, but also because of the increased potential for digital distribution of console games,” adds Myburgh. The study projects that 27 per cent of console revenues are forecast to be digital in 2018.
The slowest growing segment in the E&M industry will be the music industry, according to the survey. South Africa’s music market was worth R2.13 billion in 2013, down from the 2009 figure of R2.41bn. Annual revenue is forecast to grow marginally by a CAGR of 0.5 per cent to remain relatively flat at R2.18bn in 2018. “Continued growth in broadband and smartphone penetration is accelerating the shift to digital music. Digital music is cheaper, offers instant access and is more portable – these are all major advantages,” adds Myburgh.
Television is the second-largest segment, with combined revenues from TV subscriptions and advertising projected to reach R39.6 billion in 2018. A growing middle class with more disposable income will lead to a rise in pay TV households. This, alongside regular increases in the licence fee and the perennial popularity of television as a mass medium for advertisers will account for growth.
The study shows that advertising accounted for 38 per cent of revenue in the E&M industry in 2013, although this share is expected to fall to 33 per cent in 2018, largely due to internet access increasing its market share significantly over the same period. Despite its share decreasing, revenue generated through advertising will still increase by R18 billion between 2013 and 2018, with the fastest-growing segment – internet advertising – showing a double-digit CAGR as a result of the substantial increase in Internet access over the period.
The strongest drivers of growth in the sports segment will come from sponsorships and media rights. South Africa will see total sports revenues of an estimated R20.5 billion in 2018, up from R14.8 billion, and rising at a CAGR of 6.7 per cent. Gate revenues are predicted to reach R5.1bn in 2018, up from R4.3 billion in 2013. However, the 2018 figure will be well short of the exceptional year of 2010 when South Africa hosted the FIFA World Cup.
End-user spending, consisting of spending by consumers and other end-users on products and services produced by the entertainment and media industry, will rise at 12 per cent CAGR over the next five years from R72.8 billion in 2013 to reach an estimated R128.1 billion. This will largely be driven by 2.7 per cent increase in consumer spend on Internet access. Excluding spend on Internet access, consumer growth would only come in at 4.6 per cent CAGR to 2018.
Although there is a significant change in the way consumers spend their money, digital revenues in other segments remain relatively small. Nevertheless digital is on the rise both in terms of consumers and advertising revenues. Digital consumer revenue is expected to overtake non-digital consumer revenue in 2016 and account for 55.3 per cent of the market in 2018, assisted by substantial increases in the number of mobile Internet subscribers.
The study also shows that revenue in the film industry is expected to grow by a 7.1 per cent CAGR over the next five years to reach R3.4 billion in 2018. Electronic home video is also catching on rapidly in the film segment. Myburgh says: “Consumers are gradually shifting their viewing patterns in filmed entertainment, spurred on by a reduction in bricks and mortar stores stocking physical video.”
Far less digital take-up is being seen in the magazine, newspaper and book segments, with digital revenues for each forecast to be under seven per cent of the total, even in 2018. Although consumers may be browsing newspapers and magazine-style websites online, monetising these consumers presents much more difficulty for E&M businesses.
Nigeria’s entertainment and media revenues will reach an estimated $8.5 billion in 2018, more than doubling from the 2013 figure of $4.0bn at a CAGR of 16.1 per cent. This represents one of the fastest growth rates in the world. As in South Africa, the Internet will be the key driver for Nigeria, where the number of mobile Internet subscribers is forecast to surge from 7.7 million in 2013 to 50.4 million in 2018.
Mobile internet access revenue alone will add more than $2.2 billion over the forecast period. Television in the form of advertising and subscriptions and licence fees, will also become a $1 billion-plus market in 2018, while the market will grow steadily.
Kenya recorded $1.7 billion in entertainment and media revenues in 2013, and this is forecast to rise to US$3.1bn in 2018. Once again, it is internet access that is driving growth. Internet access revenues alone are expected to surpass $1 billion in 2018 as mobile Internet access moves from being a luxury purchase to an affordable essential for the country’s growing middle class. Television and radio will account for combined $1 billion-plus of revenues at the end of the forecast period. Despite increasing levels of urbanisation in Kenya, radio remains the most important medium in rural areas.
As the most mature of Africa’s markets, it should be no surprise that South Africa tops the Index as it offers significant potential as a strong entertainment and media market. Although South Africa scores highly (83 per cent) across current connectivity and quality of connectivity, there is still room for improvement, according to the report. Mobile broadband services are still expensive for consumers with almost 0.5 per cent of a South African consumer’s average GDP per capita going towards mobile broadband services.
Kenya (75 per cent) also performs well in the rankings with the continued rise in its international bandwidth usages. However, the country scores poorly on affordability, especially for mobile broadband services.
The surprise market in the ranking is Côte d’Ivoire (74 per cent). The country scores particularly high in terms of the extent of international bandwidth available to its population.
Although broadband penetration may be high – as in the case of Nigeria- this does not necessarily mean that a country scores highly. At 0.6 per cent of the average GDP per capita in Nigeria, the cost of mobile broadband services is too high. The DRC and Madagascar stand out as markets with poor bandwidth availability and very expensive broadband services. These factors will need to change if these markets are to become connected, and if the digital divide which stands between these countries is to be bridged.
Myburgh concludes: “The future may well be digital in South Africa, as with the rest of the world – many of its products and services can already be delivered in digital form. But we believe that progress in the South African E&M market will be gradual and that there are still plenty of opportunities for ‘old’ and ‘traditional’ media yet.”
In 2001, the industry was talking about traffic in kilobits where subscribers would carry their phones and make calls or send short message service. However, since 2010, the game has changed, experts say. The volume of traffic that one subscriber alone generates is unimaginable! This underscores the dire need for broadband.
Shedding light on why broadband is a necessity, Director of Spectrum Administration (DSA) at the Nigerian Communications Commission (NCC) Austine Nwaulune says: “The kind of traffic that is being carried on fixed and mobile networks today are unprecedented and because of that we actually need broadband to be able to accommodate those services.
“Sometime in December 2014 in the International Telecommunications Union (ITU), we talked about the internet of things (IoT) talking about 50 billion devices going to be connected to the Internet by 2020- the zettabyte of data they are talking about generating in such a way that it is no longer somebody communicating with another. People’s devices on their own would be communicating to their owners when they are stolen. These are possibilities that the world is looking forward to. And what do you need? You need broadband to be able to carry out those things.”
But, are telcos ready to meet the demand of the African data boom? The telcos, themselves, say they are. Indeed, a senior manager at one of the GSM firms in Nigeria, who pleaded anonymity, while responding to our questions, said telcos are ready to meet the needs of broadband thirsty consumers, not just for commercial reasons, but because of their commitment to deepen and broaden broadband development on the continent.
However, telcos’ commitment in this direction is skewed in favour of commercial considerations than commitment to broadband development. There is a school of thought which reasons that telcos are businesses and must create and distribute value to all their stakeholders.
An independent telecoms expert based in Cape Town, South Africa, Peter Karaszi explains that telcos are clearly not ready to satisfy the broadband hunger of Africans. “The boom has been much stronger than they have anticipated and they need to urgently invest in more modern infrastructure to keep up with demand, to protect their images and keep their customers. The gap between what they are selling and what they are supplying is widening too fast.”
Telecommunications analysts believe the telcos have got a lot of work to do before becoming stable. Part of this work, they say, is investment in network infrastructure. Africa is not one of those markets where fixed infrastructure is robust, thus leaving mobile as the most attractive option for the telcos to jumpstart services for the interest of their subscribers. While it is true some telcos are enhancing their networks with multi-billion dollar investments, their rivals are not as committed. To the latter, the mantra is: make all the money you can make now, encouraged by a docile consumer-community.
Analysts say nobody should be deceived by the kind of amounts the networks claim in the media they are committing to enhancing their networks. “If the service providers are sincere in the claims they are making, this would have clearly shown in the quality of service the consumers are getting,” noted one
The CWA Team asked Bar-Gera whether telecom operators were facing a lack of innovation and how services innovation can be encouraged. He said: “Incumbent telecom operators never participate in the innovation game. They are by definition followers and they are cash rich. As they are capable to understand that they have missed the entry but don’t want to miss the party, they will acquire the players that are already in the party.”