[Satellite News – 6-26-08] Gateway Broadcast Services is on track to reach its target of 100,000 subscribers in its first year of operation for its GTV direct-to-home (DTH) platform.
    The operator launched the DTH service in July 2007, targeting Africa’s burgeoning middle classes. “We are not quite at the 12-month point yet, but we are getting close,” Julian McIntyre, managing director of Gateway Broadcasting Services, told Satellite News. “I am very confident that we are going to achieve that target in the first 12 months.”
    The first year of operations has provided numerous lessons for Gateway, in particular the need to beef up the distribution network after the operator “underestimated how critical effective distribution and effective management of distribution was going to be,” said McIntyre. “… We spend the majority of our time working on our distribution, making sure we have an effective distribution network that is well-planned and well managed, making sure we have different routes to market with the right organization and incentivization and sales management and so forth,” said McIntyre. “We are in the television business, and we are in an awareness building business, but without distribution you don’t have a business.”
    Still, McIntyre believes GTV will be profitable during the course of next year, as the market opportunity for satellite TV in Africa remains large. “The digital TV landscape in Africa is going to change massively over the next few years,” he said. “Pay-TV in Africa is growing faster than ever before in its history. I think it is possibly one of the last great opportunities in terms of a greenfield market in the world. There is no other market in the world where you have such a large and captive consumer base with so little access to digital entertainment. As that market develops in terms of income and disposable income, the opportunity to address it is just immense.”
    With distribution lessons learned, Gateway, already established in the Anglophone African markets, is intent on a building a strong pan-African business. The first challenge will be to bring GTV to French-speaking countries. “The major focus going into the end of 2008 will be looking at the Francophone markets in terms of expanding our coverage to the continent. We will be launching in key markets such as the Democratic Republic of Congo, Cameroon, Ivory Coast, Senegal, Gabon, etc. This is very exciting but very challenging. It will need a different product. We are extending our pay-TV product to include a French language product. We will be launching a number of new French channels in the next few months.”
    McIntyre expects competition in these markets to come more from the national level rather than the regional level. “We have seen a number of companies that are beginning to offer distribution on a domestic level, that could be through cable, mobile, Internet type of services,” he said. “At this stage, they tend to look at partnering with someone that already has some established content footprint like ourselves. I think it is unlikely you are going to see in the short term, pan-African DTH services emerge. Given the environment that exists today, with ourselves and other players, I think it is unlikely you will see more regional competition in DTH. It is more likely you are going to see more national competition, looking at distribution of content, along with communications and broadband.”
    One of the other main challenges is reducing the costs for potential subscribers. McIntyre believes the operator has made strong progress, cutting upfront cost from $200 to about $100 in many markets.

Next Steps

While looking to grow its customer base, GTV also wants to evolve its business model, said McIntyre. “Our strategy has very much been to keep the product simple, and gain critical mass in the short term,” he said. “That is not to say the product can remain static, and certainly in the next phase of evolution we will be looking at interactivity and how do we create a return path from the set-top box and what services can we layer on top of that. At the most basic level we have started to do some of that. We have already being doing some televoting using SMS. We have done some competitions on SMS. As that develops over time, it will become more about people using the return path to order content. That will be a move towards video on demand and other interactive services."
    But with Gateway looking to establish footprints in brand new markets, the need to bring in advanced services is not as pressing. “There is so much growth in offering basic DTH satellite television services in Africa, the complexity you add with interactivity is not the most effective use of resources and focus,” said McIntyre. [Video on demand] substantially increases the cost of the set-top box. There will always be a market that will pay a premium for that, but in Africa that is a market that has historically been addressed. The market where we are focused is the huge and rapidly growing middle market that has never come across satellite television before. They have a TV set. They have revenue that can support it and are just becoming familiar with the product and the concept. That is the greatest growth opportunity in terms of dollar spent.”
    With this in mind, it is unsurprising that high-definition (HD) services may not be on the agenda for quite a while. “Outside of South Africa, HD is not a viable proposition at this particular time,” McIntyre said. “The number of HD-ready TV sets is extremely low. The people are very unlikely, beyond a small part of the market, to pay a premium to receive a crystal clear HD picture. Most people are delighted when they move from terrestrial [free-to-air] to DTH. The signal is so much clearer. I think HD will only be viable a few years into the future.”
    However, while there may be opportunities to expand the nature of the service in time, building a pay-TV business in markets which are not used to having pay-TV services remains a big challenge. “Pay-TV is a relatively new concept. We have found out that we have been able to generate high levels of awareness, but the level of familiarity with what satellite television actually is,” he said. “These are things that take time to understand. It is not too dissimilar to early days in the [United Kingdom], where my mother would say, ‘Why I am going to pay for TV when I get four good channels for free?’ We are going through these types of stages of development and lessons in Africa. Financially, we have made a huge commitment to this market. We have invested $120 million over the last 18 months. We are committed to further investment. We see this as being a massive long-term opportunity, but it is a long-term opportunity. We have to build a market from scratch.”