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Kwese TV, a potential game changer or simple waste of money for Econet?









Econet is a bit of an enigma. While it has relatively solid fundamentals, it is considerably cheap when compared to some of its regional telecoms peers. Whether this is down to the Zimbabwe risk factor causing investor aversion, or  investors not just warming up to Econet`s governance and disclosure practices as some hypotheses go, Econet`s price has been rather depressed.

Now, as revenue is increasingly being put under pressure, Econet Wireless has been looking for new ways to shore up revenue, something the suits at Msasa Office HQ, like to call future-proofing the business. Essentially, these are ways of ensuring the business will continue generating money in the future. This has led to product offerings such as Econet`s vehicle tracking service, Connected Car, although chatter doing the rounds is that, this offering has not quite worked out to plan. For all the successful innovations Econet has brought out, there have been others that have failed woefully, and publicly.







Still, Strive Masiyiwa is a ‘dreamer’, and he does not seem like he is one to let such things bog him down. Enter Kwese TV, a pay TV service that will offer exclusive sports and entertainment content to Africa. This is set to be the rabbit out of the hat that will likely rejuvenate Econet`s fortunes amid falling voice revenues not just in Zimbabwe, but other countries too. So will Kwese TV be Econet`s Messiah, and do to Econet Wireless, what President Magufuli has done to Tanzania – shake things up a little bit? Well, honestly, it is a bit too early to say. Regardless of how Econet will try to spin this new venture to its customers, one thing is for certain, ultimately, subscribers will pay through the nose for this product. Having said all that, there are several important things that Econet will have to contend with in making Kwese TV a success.







Chief among those is content. Reed Hastings` Netflix is set to spend about $5 billion on programming and generating premium content this year alone. Though these two products differ somewhat, the underlying drawcard for their nature of service is premium content. Econet will have to fork out sizeable sums of money to have premium ad current content that appeals to Africa`s youthful population in particular. In addition, obtaining rights for content such as the English Premier League for instance will add to Kwese TV`s allure. All this does not come cheap. Added to the cost factor, content on the African scene will always be a gamble in terms of quality as well as quantity. Also considering Africa`s unique demographics, this will be no stroll in the park, but then again Strive and company pride themselves in going where no-one has gone before and leaving a trail. Though the case might be made that companies like Facebook that virtually own no content have been successful, considering the market that Kwese intends to break into, it would certainly need that “can`t get it anywhere else” X-factor. This would put paid to the questions to do with Kwese TV`s current Y-factor, as in “why is it even being launched?”

Kwese TV will undoubtedly have to attract and retain a sufficient number of customers to be able to produce returns that cover costs as well as please shareholders. Drawing parallels with Netflix, it is very clear that even while steadily adding new subscribers to its service, Econet Wireless will also have to keep raising subscription prices so that it is able to keep re-investing in generating new content as well as covering its costs.  In the absence of subscriber growth, this endeavour might as well just be tantamount to Econet Wireless flushing money down the drain. Obviously, questions on affordability and income levels on the continent begin to surface. Already, reports suggest that contrary to claims that Africa`s middle–class is northwards of 300 million people, the actual figure is close to only 18 million according to the 2015 Credit Suisse AG Annual Global Wealth Report. So will this new product even have sufficient demand on the continent in light of competition from other players like  Naspers owned Showmax, PCCW, Netflix and an even already established competitor in Multichoice`s DSTV. Even if Kwese were to launch successfully, generate exclusive high-quality content and attract subscribers, profits in this market have been relatively slim over the years, so this might not be that all important game-changer that Strive Masiyiwa envisions. Then there are existential concerns about internet penetration rates in Africa as well as the cost of data. These could also be potential setbacks that can curtail the Pay TV service`s growth in Africa.

Eddy Cue, Senior Vice President, Internet Services and Software at Apple, arguably the planet`s most valuable company, once said, “We do not try to do too many things at Apple. We want to do a few really incredible things.” While innovation is good, one begins to wonder whether Econet is over-extending itself a little bit through this foray into this Pay TV service? Will Econet turn out to be the Jack of all trades, and master of none? Time will tell.


 


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