Are pay-tv and OTT in the same relevant market in South Africa?
This research note is aimed at answering the question of substitutability between pay-television services (e.g. Multichoice’s DStv) and over-the-top services (OTT), (e.g. Netflix), in a South African context. This question is especially relevant, against the background of the planned listing of Multichoice on the Johannesburg Stock Exchange during the first quarter of 2019, and the ongoing inquiry into subscription broadcasting services by the sector regulator, ICASA.
The nub of the issue is the question whether pay-television and OTT services fall in the same relevant anti-trust market. The answer to this question will determine who has market power and whether ex-ante regulation of such market power is justified. These are important issues as policy interventions should not stifle the rapid technological developments that are characteristic of this sector.
This occasional note considers these issues from an economic perspective. We highlight the fact that relative to markets with high levels of OTT penetration (e.g. the United States and Canada), South Africa has low levels of internet penetration, slow internet speeds and comparatively high data prices, all of which limit the potential substitution of pay-TV with OTT services. This requires original thinking and application of economic principles about relevant markets, in this country-specific context.