What to do about DSTV?

So many people are pissed off at DSTV for the obvious reason; they have raised prices on consumers again. Of course the excuses are the same; the price increase is only taking into account currency movements with the weaker Naira. The cost of content has increased and so they have to increase prices etc. The bottom-line though, is that DSTV is a de facto monopoly, and can therefore increase prices whenever it wants with little consequence. The traditional regulatory response to monopolies is to regulate prices or force competition in some way. The pricing issue won’t work for obvious reasons; most of the in-demand content is foreign and beyond the reaches of our local regulators. Secondly it will probably just result in DSTV cutting costs in other ways resulting in shoddy service. And of course instituting price controls does nothing to actually grow the local TV industry. If anything it will probably harm it. The second approach to dealing with monopolies is to force some kind of competition. The FG attempted to do this a while ago with the HiTV issue. It didn’t really work for reasons which I will explain later. So what can regulators do? To figure this out lets take a journey into the TV industry and understand how things work.

 

First lets break down the TV industry into its very basic form. At one end a bunch of people create content. Content like TV shows, movies, sports programs etc. At the other end you have the consumers, the people who watch the content. There is lots of content, lots of content creators, and lots of content consumers. Everything you have for a market to work efficiently. Back in the days, before we ever knew what a TV was, you had to physically go to a location and watch the content. Those days eh?   The TV changed the game though. For the first time you could actually watch stuff while not actually being there. A lot happened in between but slowly and surely the TV industry, and the broadcast industry, was born.

 

So this is how early broadcasting worked. People figured out that the could send information via airwaves to TVs, just like for radios. TVs would pick up the signal, via antennas, and translate into information that you see and hear on your TV. The technology then was similar to the technology for radio broadcasting. You have a broadcast center that transmits signals and people in homes with antennas that receive signals. Of course, like was the case with radio stations, there was no real way to prevent some users from receiving these signals once transmitted. From a business perspective there was no way to discriminate between paying and non-paying consumers. This resulted in obvious industry problems. How do you fund broadcast television. Different countries used different tactics. Some of the bigger markets pushed towards the advertiser driven model where revenue from adverts would fund the industry. Other markets moved towards the public ownership model. TV was deemed a public good and everyone who owned a TV had to pay a tax to fund the broadcasting company. And all was good.

Of course since the signals can be broadcasted all day and there were multiple frequencies to broadcast on, channels were born. Channels had the simple job of organizing content to be broadcasted on different frequencies. In the advertiser driven markets there was some competition between channels because of that. In the public ownership markets well, still public.

 

Technology disrupts things though and as you probably already guessed the broadcast industry was disrupted. Two key things happened. The first was satellite broadcasting and cable. To understand how they disrupted the then TV industry its useful to think about the limits of regular TV broadcasting. Culled from how stuff works:

“Broadcast stations use a powerful antenna to transmit radio waves to the surrounding area. Viewers can pick up the signal with a much smaller antenna. The main limitation of broadcast TV is range. The radio signals used to broadcast television shoot out from the broadcast antenna in a straight line. In order to receive these signals, you have to be in the direct line of sight of the antenna. Small obstacles like trees or small buildings aren’t a problem; but a big obstacle, such as the Earth, will reflect these radio waves.

If the Earth were perfectly flat, you could pick up broadcast TV thousands of miles from the source. But because the planet is curved, it eventually breaks the signal’s line of sight. The other problem with broadcast TV is that the signal is often distorted, even in the viewing area. To get a perfectly clear signal like you find on cable, you have to be pretty close to the broadcast antenna without too many obstacles in the way.”

 

Alternative ways of sending signals were invented. The cable system lays a physical cable from the broadcaster to your TV. This of course means clearer signals, a much larger coverage area and less distortions. The satellite system works in a similar way but without the cables. A signal is broadcast from the broadcast center to a satellite. A smaller satellite in your home then picks up the signal from the larger satellite in the sky and voila, content. The benefits over broadcast TV were of course the same, wider coverage and better signals. With both systems the signal is received by your decoder which sends parts of the signal to your TV depending on what channel you want to watch.

A second key innovation was in the encryption of signals. It became possible to encrypt signals and allow only certain individuals to watch the content. The ramifications of this were immense. It meant for the first time you could actually charge people directly to access the signal. Cue the rise of Sky and DSTV and Time Warner Cables etc, although the cable companies could just disconnect your cable. The technology to restrict access to the signal meant that a whole industry around television was born. In the advertiser driven markets it led to the decreasing influence of the broadcasters and the rise of the new guys. The NBCs and FOXs had to play with new businesses with better TV delivery technology, the Time Warner Cables and co. In the public ownership markets it meant there was no real need for public ownership. Private satellite companies sprung up and the associated TV content creation industry grew significantly as well.

From an economics and competition perspective, natural monopolies sprung up. Its difficult to have two satellite dishes in your home, or difficult to have two sets of cable companies running cables to your living room. As  a result in most markets an all or nothing type of competitive structure evolved. Markets with one major winner sprung up. This monopolistic structure was worse in markets with prior public ownership models. In the advertiser driven markets, content and TV channels were still kind of distinct from the cable companies. As a result deals still had to be made between the content creators and the content “deliverers”, and some competition still managed to survive between the two branches. In most of the public ownership markets though, the delivery companies owned and created the content organizers. So where as you could have the same channels and the same content on different cable companies in the advertiser driven markets, you had different channels and different content on different providers in the prior public ownership markets. This of course means that the winner takes all monopolistic structure was worse in these markets. One winner usually emerged as the de facto monopoly and the costs of competing on the content creation and delivery front made it virtually impossible for new participants to really compete.

As you would expect its very difficult for the either the content creation or the content delivery industry to grow under such as a set up. This is because all the benefits and profits are usually just sucked up by the monopoly. The monopoly has incentives only to invest just enough to keep its subscribers paying. For example, the de facto winner in Nigeria, and many other African countries, was DSTV and for a long time DSTV did just enough to keep its subscribers paying. No real investment in local content creation (until recently and I will explain why), no real new channels and that was that.

But of course humans are smart and are constantly looking for alternatives. Bring on the internet. The rise of the internet changed the game in the content creation and delivery industry. The internet meant that for the first time it was possible to get content without going through the traditional content delivery companies, the Skys and DSTVs and co. This shift is epitomized by companies such as Netflix and video streaming services. It meant content consumers could watch what they wanted, when they wanted without having to pay for a cable or satellite subscription. The same type of scenario played out almost everywhere in some form. In Nigeria for instance the spread of internet access, file sharing and cheap CDs meant, for most people, content was consumed outside DSTV. So in the general sense, competition for content was back. Not necessarily between content but across content delivery systems. Of course this has resulted in falling margins and has forced the DSTVs to make some efforts to maintain profits. Efforts like investing in more local content, and creating tiered subscriber packages etc.

 

Unfortunately the internet, especially in countries like Nigeria with not so fast internet access, has not conquered live television. DSTV is still a de facto monopoly as far as live content is concerned. Live sports broadcasts, live news, and so on. As a result the DSTVs still have the capacity to raise prices and pass on cost increases directly to consumers. The local content industry is also still under the thumbs of DSTV with very few alternatives for generating revenues.

 

So what can regulators do about the situation? What can regulators do to get a better deal for content creators, the part of the industry with the greatest potential for growth, and content consumers? The answer lies in promoting competition in the industry. Competition between content delivery companies and content producers and by reducing the barriers to entry. From that perspective there are a couple of options. The first is to force a split between the content creation and channels business, and the content delivery business.  In essence to force a break up between the content and channels side of the business, and the delivery side of the business. Forcing channels on DSTV to do business with other non DSTV satellite providers and forcing other non DSTV satellite providers to make their channels available on DSTV. A second option, which kind of goes with the first, is to force satellite companies to shift the pricing decisions to channels and content consumers. In essence to split of the pricing of purchasing content and delivering content and shift the decision making process for purchasing content to the consumers and content producers. In essence regulators can force a market structure where consumers pay satellite providers (DSTV and co) for delivering content and then pay the content producers for the channels they want. This should result in more competition amongst satellite and alternative content delivery platforms which is good. It should result in more competition and larger revenues for content creators which is also good. Finally it should result in lower total bills for consumers. Lower bills because you will actually only pay for channels you want.

 

This kind of regulatory move will be politically difficult of course. Anyone who has been following the net neutrality debates knows how political it can get. But it can work. There is nothing technically preventing it from happening. Just the will to make it happen. The prize of course is a much larger content creation industry and a much larger TV content delivery industry. And happier customers.

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One thought on “What to do about DSTV?

  1. DSTV service in Nigeria is getting worse by the day. They have no respect or even show any consideration for the customer. The info on their website or from their employees can not be relied on. They remove channels from bouquets at will and do not even bother to update this info about the change on their website. When I pointed out to them that a chose a particular bouquet based on information on the website, their response was that they have the right to change channels available in a bouquet. Refusing to acknowledge or totally missing or pretending to miss the point I was making (that they need to keep their website updated and their employees well informed, as customers base their decisions on the information received from these sources) as I got contradictory responses on the issue of channels available on a particular bouquet. I thanked them for letting me know the nonsense customers have to put up with until DSTV has competition in the industry, just like it happened in the telecommunications industry. I do not know the regulator to report them to.I am not even sure Consumer Protection Agency can get into this. I will try and see their response. Shame on DSTV!

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