Situated in the bustling heart of the tech startup hub of Lagos in Nigeria, iROKOtv’s studio appears out of place because of its towering Roman columns and large glistening windows facing the street.
But inside the three-storey building is a fully kitted out media production house staffed by over 50 people, including animators and editors. iROKOtv, which started as a subscription video on demand (SVOD) player but has expanded its services to also include a satellite TV channel, broadcasts ‘Nollywood’ movies and TV series to viewers across the globe.
The Nigerian startup has raised millions of dollars in investment by successfully leveraging digital media to enter into a market which was once dominated by well-resourced non-digital broadcasters such as satellite television service provider DStv.
“Digital media has transformed the African media landscape by opening up content to a far wider audience,” says Jason Njoku, CEO and founder of IROKO. “Before, we were tied to what the TV schedulers decided we were going to watch; now we have options, and people can track how popular content actually is.”
IROKO’s success comes at a time when entertainment and media revenues across the continent have experienced huge growth over the last decade. In the three largest markets in the continent – Nigeria, Kenya and South Africa – the media sector recorded year-on-year double-digit growth in 2016 mainly driven by digital media.
Africa has experienced growth at above global average levels over the last five years because of its youthful population, mobile internet penetration growth and the availability of streaming services. The continent, especially in the three largest markets, is expected to continue to see growth over the next four years, with Nigeria expected to grow the fastest by 12.2% to reach $6.4bn in 2021. South Africa will grow by 6% to R178bn ($13.1bn), and Kenya will grow by 8.5% to $3.2bn.
For media firms, the projections are mouth-watering opportunities. However, monetising that growth will be particularly challenging, according to Vicky Myburgh‚ PricewaterhouseCoopers (PwC) South Africa’s entertainment and media lead.
“The growth of mobile internet access via smartphone ownership, and of mobile media consumption, is yet to be fully reflected in the revenue generated by mobile advertising or consumer spend on mobile-only content,” she says. “Huge industry challenges remain around the effective measurement of consumer engagement, not just on mobile and digital platforms, but across all touchpoints. Without a full picture of how and when a consumer is accessing specific content, the potential for monetisation through advertising will remain unfulfilled.”
The challenge facing digital media firms is not only an African issue. As global online advertising revenues surpass television, US tech behemoths Google and Facebook have consumed the majority of advertising revenues, with both firms accounting for 75% of all new online advertising spending in 2016, and 99% of global advertising growth in the third quarter of last year. The bulk of the remaining revenue went to Baidu, Microsoft, Yahoo, Verizon and Twitter.
The remaining market players, therefore, are restricted in terms of generating revenues through advertising. Digital firms that do not belong to this elite group of firms – even the likes of Snap struggle to muscle in on the market – have to develop bespoke business models that exploit their customers’ preferences, according to Myburgh.
“For these companies to be able to monetise, they must harness technology and data to attract, retain and engage users and convert them into devoted fans,” she says. “These giants have the lead but not always the local expertise to know and understand their consumers. Ultimately it is possible but it won’t be easy.”
Advertisements are not the only source of revenue available to digital media companies. Content creators are also developing new strategies and focusing on multiple disciplines, says Abiola Oke, CEO of OkayAfrica, a digital platform publishing African content.
“In this current climate, it is difficult for you to get a return only on content – whether it is music, video or text – that you’ve created,” Oke says. “Publishers are going to have to diversify to survive in this market. So, we now do music distribution and live events which actually make up a significant proportion of our income.”
“It is an exciting time, but we all have to get the business model right. I don’t think anyone has it right today so it is a challenge and an opportunity to innovate,” he added. While digital media continues to grow in Africa, traditional firms are also having to adapt to changes in the market.
The end of analogue?
The media sector is experiencing a significant disruption due to digital and non-digital media has seen its market share decrease over the last decade. For example, while the number of households with TVs has increased year-on-year to reach 58.3m in 2016, there were around 181m unique mobile internet subscribers in sub-Saharan Africa.
Domestically-produced and branded low-cost smartphones are contributing to the rapid uptake of mobile Internet services in Africa, together with deals between mobile networks and media firms which give customers inclusive or reduced-cost access to services and apps, according to Myburgh.
The vast difference between the number of digital users and TV owners has even led some analysts to question whether traditional broadcasters have a role to play in the market. Yet despite ceding some of the market, traditional media still remains a central part of the media landscape, according to Biola Alabi, former head of satellite TV channel MNet.
“I don’t believe that the traditional media distribution model is obsolete in Africa, because, for example, DStv continues to see growth in its core markets, which is South Africa, Nigeria and Kenya,” she says. “As the middle class grows, there is still some who view having a satellite TV as a sign of success.”
“Also, if you look at iROKOtv, it has gone from a digital-only platform to both digital and linear so it shows that people are consuming content on multiple platforms, especially young people” she added.
Nevertheless, some traditional media firms are adapting to a digital world, with MultiChoice, owner of DStv, even rolling out its GOtv subscription-based online service across Africa. As some of the non-digital players move into digital, competition in the market will obviously increase, especially in the VOD market.
Video on demand in Africa
VOD services in Africa have emerged as a potentially lucrative market which has even seen US streaming giant Netflix being across the continent. While there has been plenty of excitement about VOD, growth has been limited because of the relatively high cost of data and internet connectivity issues.
The challenges facing service providers are common to all market entrants, including IROKOtv. “Access to reliable and affordable internet for our customers is the underlying challenge to absolutely everything we do at IROKOtv,” says Njoku. “We launched a digital product wholly reliant on internet connectivity, way too early. Our fans across huge swathes of Africa simply couldn’t access our content. They also couldn’t pay, due to poor payment infrastructure.
“Further to that, whilst a huge percentage of the population has a smartphone, outside of using it for calls, Facebook and Whatsapp, there’s little understanding of all the things you can actually do with an Android phone.”
With the current limitations, VOD in most African countries will remain stagnant, with companies jostling to best position themselves for the moment the challenges are resolved. But the key to resolving the issues lies with the telecommunications companies.
“Telcos have the potential to open up the floodgates by finding better ways to partner up with VOD suppliers,” says Alabi. “Or they could even decide to go at it alone and become content producers, this would have a dramatic effect on the VOD landscape. As data providers, telcos will be able to offer discounted packages which other VOD companies will not be able to compete with,” he adds.
Despite the restrictions, digital media is helping content creators bypass traditional media institutions by distributing their content directly to their audiences using standalone platforms such as iROKOtv or social media platforms.