After the Bell: Can MultiChoice add to Canal+?

How do the shareholders of MultiChoice respond to the R30-billion bid made for the group on Thursday, 1 February, by French telecom, publishing, advertising, computer games thingie Vivendi? Commiserate? Celebrate?

I suspect the first thing they do is learn how to pronounce the “plus” in French because you don’t pronounce it the way you think you should. Canal+ in French is pronounced “Canal pluhs”. 

Canal+ is the television unit of Vivendi and the nominal acquirer. Vivendi is both one of the most exciting French companies out there and also the most chaotic. It almost went bust in the early 2000s after then CEO Jean-Marie Messier took what was a water utility and turned it into an entertainment group (where did that idea come from?), but things have straightened out now. Messier was forced out after the company produced an eye-popping loss in 2002, but he did leave the group with some fabulous assets, including as it happens Canal+.  

Vivendi now owns booksellers; publishers; some residual stakes in mobile companies; a huge advertising company; a bit of Universal Music, the world’s largest music company; computer games; and a whole lot else. Being part of this group could be a huge bonus for MultiChoice, which is transitioning as fast as its little legs can carry it from being a satellite TV bouquet into being a streaming service called Showmax. 

But there are complications – there always are – and they are multifaceted. First, Vivendi is also in the process of trying to reorganise itself. The idea is to split off the company’s advertising assets, its investments and Canal+, which it will list separately – and, presumably, if the deal with MultiChoice goes ahead, that company will have a secondary listing in SA. 

For Canal+, it would be great to have MultiChoice in its pocket when that listing happens because, in our brave new world of streaming video entertainment, what matters is scale. MultiChoice has about 20 million subscribers, and Canal+ has just under 24 million. These include lots of subscribers in French-speaking Africa, so you imagine lots of synergy with MultiChoice’s huge African audience – perhaps a bit too much from the competition authorities’ point of view. We will see.

But on the “scale” issue, here is the problem: As fast as Canal+ and MultiChoice have been trying to shift from being satellite distribution into internet distribution platforms, it transparently hasn’t been fast enough. Even with 40 million-plus subscribers, this pales in comparison to the big gorilla here, which is of course Netflix, which has 260 million subscribers. Netflix added the total quantity of MultiChoice’s subscriber base over the past year alone. Even the combination of Canal+ and MultiChoice doesn’t really put them in the frame and both companies are financially still very dependent on their upmarket audience.

So, weirdly, that may be another reason MultiChoice might welcome this bid (and it hasn’t yet pronounced one way or the other) because, essentially, the company’s business model is seriously under threat. MultiChoice’s business model is to charge a whack for more television stations than you can possibly digest; to do that, it needs to put satellites up in the sky and sell large dishes. Netflix’s business model is to charge a fraction of the amount MultiChoice charges premium clients and it makes a good portion of its own content, which it distributes over the internet. The hard issue is that to compete in the new world, MultiChoice has to cannibalise itself and, to some extent, the same applies to Canal+.

As a result of this massively disruptive force, MultiChoice’s profits have been under pressure, making a loss in the first half of 2023, partly because of the joys of Eskom, although it has bounced back in the second half. Still, only R600-million of its R28.3-billion in turnover came from streaming. It’s not like MultiChoice is unaware of this issue: it’s just announced a whole new streaming team-up with Peacock, Sky and HBO – which might be a problem now too. But the point is that everybody else is having to deal with the Netflix juggernaut, too.

And that’s just the start of the problems. SA has legislative protection against takeovers of media companies because that’s the way we roll. There is no limitation on how much MultiChoice Canal+ or another foreigner can own, but its voting shares are reduced proportionally so that local shareholders have 80% control. There is some movement to reduce this stipulation, presumably, Canal+ has been talking to local politicians about this issue. And really, best of luck to them on this score (prepare yourself for a huge required contribution to local film schools and stipulations about how you can’t fire people, especially the useless ones). Well, Canal+ is a French company, so they are used to all that. 

And then there is the money. The Canal+ bid is a 40% premium to the trading value of MultiChoice and it’s a nice, juicy, R30-billion cash bid, valuing the company at about R40-billion, including its existing stake. But even after the bid is built into the valuation, MultiChoice is still trading below its 2019 listing price. This premium is not quite as generous as it seems. It’s the same feeling you get when your foreign guests can’t believe how it’s possible that they paid the same price for a restaurant meal with wine and drizzlings in Cape Town as they would have for a crusty croissant in the 16th arrondissement. To call the bid opportunistic would be a bit of an understatement. 

So, all in all, MultiChoice has, um, how should we put it, multi choices facing it. How it responds will be interesting. This is not essentially a hostile bid, but neither is it an agreed deal; it might be described as a process of high seduction. 

But I think we should look at it positively. Vivendi started out as a water distribution company, created by the imperial decree by Napoleon III in 1853. If nothing else, maybe it could help sort out Johannesburg’s water distribution issues. Now that would be useful. DM