Netflix vs Telegram: The problem with streaming movies in Africa.

How streaming services can update their strategy to enjoy massive adoption in Africa.

In 2020, Jason Njoku's Iroko TV closed their operations in Africa, due to the low revenue generated from the continent. Iroko TV decided to turn their focus to the diaspora(America and Europe) as it was responsible for most of their income.  In the words of Jason, “Iroko accumulated net operating losses of $30m+ over its lifetime….trying to build Internet TV in Africa”. In less than four years, IrokoTV’s decision can be said to be prophetic as another streaming platform (Amazon Prime TV) has announced plans of laying off staff in Africa and the Middle East, as they will stop producing original series in those locations to focus on more lucrative markets.

This raises the question of, “What makes Africa a graveyard for streaming platforms?” that even the best can’t neither survive nor strive. The top of the head answer is, “Africans are poor and cannot afford streaming service subscriptions fee, hence the low revenue.” Well, that answer sounds plausible and logical given the macroeconomic situation on the continent. However, on a closer look, it’s a lazy answer that doesn’t address the core issue(s) or reason for why Africans don't subscribe to content streaming platforms. So now, what are the real issues behind the non-adoption of internet streaming TVs in Africa? 

The first answer is cost. What is the cost of streaming content, particularly movies online? 

The most obvious cost of streaming content online is the cost of subscription to the streaming services, which is usually a time-based recurring payment i.e monthly or quarterly and in different categories based on the devices - there is a subscription class for mobile phones and another for laptops. But there is another cost to streaming content which is less obvious and more subtle, and that is the cost of internet subscription/access. To stream any content online, even after paying the due platform subscription fee, you will need to buy internet access from telecommunication companies before you can access the content you subscribed for initially. This means that to constantly stream content online, you need to make two recurring payments - platform subscription and internet access. 

The total cost of Streaming = Cost of subscription to streaming platforms + Cost of internet access

In the short equation above lies one of the major issues with subscription-based streaming platforms in Africa. No matter how low the platform subscription fee gets, it’s going to be an additional cost to the already existing cost of internet access. The problem for subscriptions-based companies is that there are very good substitutes for their product, which do not carry this extra cost of platform subscription - all you need is internet connectivity, and you will get access to entertainment contents for free. 

Another issue is the opportunity cost of streaming services. Economists define opportunity cost simply as “what you have to give up to buy what you want”. The opportunity cost of subscription to a streaming service is the cost of another internet subscription. What this means is that if an individual decides to pay for subscription to a streaming service, they are foregoing what could have been another internet subscription. This rather trivial detail becomes important when we begin to consider the next reason why the current model of streaming services won’t work on the continent, which is the presence of very good substitutes. 

Substitutes: In economics, substitute goods(products/services) are goods that can be used to replace other goods because they perform a similar role of function. For example, you can substitute a cold Pepsi drink for a cold Coca-Cola drink since they both perform the same function by refreshing you on a hot and sunny day. In the streaming space, there are a lot of substitutes to subscription-based streaming platforms. Most of these substitutes have on offer most of what the subscription based platforms offer as a unique selling proposition, some of them even have some advantages that subscription-based platforms don’t have. Considering the fact that most of these substitutes have no additional cost, other than the cost of the internet access, it makes no economic sense why the consumer will choose a paid platform over a free one.  Let’s consider some of these substitutes below. 

● YouTube: As a substitute to subscription based platforms, YouTube’s ad-model allows it to display content for free for consumers while playing ads in between the consumed content. Although YouTube also has a subscription based model, the ad-based model offers users to use the platform for free. So it’s no surprise that most users in Africa will rather go with the ads model in order to consume their favorite content on YouTube. The cost of streaming on YouTube is largely the cost of internet access. Youtube also enjoys an advantage in distribution that streaming platforms because it comes bundled with Android which make up more than 80% of the smartphone market in Africa. This distribution advantage makes it a choice site for content creators to reach their content consumers for free. It is a win-win situation for both the creators and the “poor” consumer who only has money for internet subscription. It’s no surprise that Jason Njoku’s Iroko TV initial traction came from uploading Nollywood content on YouTube. 

● Free streaming sites: YouTube’s copyright policy might not allow some contents to be uploaded on it, but there are multiple streaming sites whose moral compass aren’t as strong as Google's own, neither do they have a motto that says “Do no evil”. So they aren’t really concerned about the type of content that is uploaded to their sites as it is a case of anything goes. A friend recently showed me a site where you can stream any movie as long as you know the title and expect an average individual who knows such a site to pay for Netflix or Amazon prime? 

● Illegal piracy sites: For as long as the internet has existed, illegal piracy has existed. Various regulations, in time past, have been enacted to stop it. But it has been a game of whack of mole - you kill one, and another one pops up. One of the biggest pecks of streaming platforms is the investment they make in quality content to be released on their platforms.  But as soon as such content is released and promoted. It has already been pirated and made available for download on major piracy sites.  Why then will anyone pay for subscription knowing that the blockbuster movie that has been promoted to be watched on a subscription-based platform will be available for download in a matter of days or weeks on Telegram. 

● PayTV: PayTV has been one of the most successful and popular entertainment delivery models in Africa. Coming at a fixed cost of hardware in the form of a dish/antenna and decoder, plus a monthly subscription fee, PayTV offers a wide range of entertainment choices for the consumer, cutting across music, sports, films (local and foreign), lifestyle, religion etc. Comparing this to subscription-based platforms who are ultra-focused on delivering just one form of entertainment which is majorly movies. It’s no surprise that they are struggling. 

Having examined all the striving substitutes, one doesn’t need a soothsayer or an oracle to explain why streaming services aren't working as expected in Africa. And as clarified early, it’s not because of the purchasing power of the continent. It’s simply a case of the availability of good substitutes with less cost. Rather than do a subscription to a streaming service, it’s more cost effective to pay for internet access and get access to a wide variety of substitutes that will solve your entertainment needs.  

Does this mean that subscription based platforms can’t work at scale in Africa? No, I believe they can work, but they will have to redefine their cost in order to enjoy mass adoption. A typical example of redefinition of the cost is this. Showmax, a streaming platform running on the continent, bundles its subscription fee together with DSTV(PayTV) subscription fee for some classes of users. This means that ShowMax comes free for this class of users, ultimately turning the cost of platform subscription for streaming to be zero in the eyes of the customer. It’s no surprise that Showmax ellipsed Netflix as the market leader in the streaming space in Africa. 

Another strategy that can work is for subscription-based streaming services to bundle the cost of subscription and the cost of data together. This can be achieved by collaborating with Telcos. The way around this is, by subscribing to streaming services, users can watch content for free without paying for internet subscription or, by having a certain amount loaded in airtime credits, consumers can get to see some contents on streaming service without having to pay the prerequisite streaming fee. A basket of strategies such as this can further drive the adoption of streaming services in Africa. But if the current model stays like this and those two recurring costs still remain, subscription-based streaming services will still continue to hit hard bumps on the African road. It’s time for a strategy and model update.