Kenya digital TV migration and the Trojan Horse race

When Odysseus led the Greeks to conquer Troy by using the Trojan Horse, little did the strategists then know about how much their tactic would be applied 3,000 years later in the Kenyan TV industry.

Kenyan households are the new Troy and Set Top Boxes (STB) are the Trojan Horse. Odysseus’ successful plan was to win the Trojan War; broadcasters and TV providers seek to extend their business model and therefore have the strategic interest to be the first to enter the household. So it’s actually a Trojan Horse race. More than licensed market players are participating.

The context of this race is the need to purchase a set top box to watch television once the digital migration happened. Today, according to a March 2015 Geopoll survey, digital STBs penetration was 38 per cent at a national level with Nairobi having the highest penetration at 53 per cent.

Broadcasters and TV providers that get in first, can extend their business model in several ways. The sales or rent of the STB to start with, but more important PayTV, either pay per view (Video on demand) or subscription based. Other paid value services can be the availability to access content from multiple devices and interactivity with the device such as to purchase products. These kind of interactive engagements are also of great value to advertisers, currently the top revenue source for broadcasters, with thus a growth potential for broadcasters. So, who is likely to win this Trojan Horse race? To answer this question, we should devise the market players into three groups:

1. Broadcasters: The leading and conventional Kenyan broadcasters like Citizen, KTN, NTV and KBC have shown great interest in distributing their digital content via their own STBs. Their key strength is the local content that they own that is sought by most viewers. Besides their asset is brand or TV-channel loyalty.

2. Package providers: Several Package providers like StarTimes, DSTv, GoTv, Zuku, Bamba TV have a strong footprint in the Kenyan market. Moreover, their Trojan Horses already got into the households before the country’s digital migration kicked off. Their key strength is that they are the first into the home as well as the variety of their content that they can aggregate.

3. New entrants: New entrants likely to disrupt the landscape are Safaricom, Apple TV and others. Their game is mainly IP-based and need a 4G or fiber connection to provide TV stable. Their key strength are innovation and the ability to integrate TV with interactive internet based services like VoIP (Voice over IP).

For all player-sections applies the same rule as it did to Odysseus. It was not the horse that won the battle, but rather the elite guard that was hidden in the horse. Or, in other words: it’s not the box, it’s the content that counts.

So, a key value of digital TV is the ability to provide viewers with both a variety of content and specialised content. Viewers are willing to pay to merely have more content and they are also willing to pay to access ‘exclusive content’.

Providers must also be well aware of the need to have local programming, although subscribers are unwilling to pay for local programming - it used to be free (to air) - it is a key decision factor when purchasing a STB.

Secondly and probably most obvious is the value for money. Providers are faced with the choice of trying to capture a niche at a premium price point or capture a large number of subscribers at a lower price point with revenue being either subscriber driven, ad driven or a mix of both. Whichever approach taken, the price will largely be determined by the first factor, content.

A third factor that will come into play in higher income homes and spread as client sophistication grows, is the availability of value added services. Such as social media integration. If we take the above into account, package providers seem to be front runners: they have their STBs in place, won’t suffer any child diseases during further growth and provide a wide choice of popular content.

The value for money range within this group is wide. From a high priced DStv exclusive sports offer Sh8.200 per month to Star Times’s basic offer Sh3.300 only once. Market evidence already supports this. As per a February 2015 report by Scangroup, the leading STB providers as at December 2014 were Star Times (41 per cent), DStv/GOtv (31 per cent) and Zuku (19 per cent), taking up about 90 per cent of the market share of STBs.

Carted into the city

However, broadcasters might play their strong card, being local content, smartly and become content-provider for the package providers, instead of ‘just’ a free to air TV-channel. A serious second option would be to diversify their broadcasting to both free-to-air as paid channels.

Moreover, the new entrants can’t be ignored because there business model is already more advantageous right at the start. TV is just an extra way of generating data or content revenues and not a core source that they are dependent on. For Safaricom TV is the start of a triple play game, so they ‘just’ spanned a third horse to their carriage.

This is only the beginning of interesting times for television in the market. Given the expected dynamism in the TV industry, it will it take further innovation to get the Trojan Horse in the living room. Unlike the times in Troy, one cannot simply leave their horse at shore and hope it will be carted into the city, not when there are a couple of dozen other horses on the same beach.

—Erik van der Dussen (Associate Director) and Cherotich Kiereini (Senior Manager) are part of Deloitte East Africa’s Strategy and Innovation (Media) team.