Download the Full Research Note: Download 02 04 09 RN GTV
On January 30th, the Board of Directors of Gateway Broadcast
Services (GBS) approved plans to liquidate the company. GBS was the operator
behind GTV, a popular, if niche Direct to Home (DTH) satellite Pay-TV service present
in 22 African markets. The collapse of GBS was sudden; for its employees, its
customers and those (like us) who have long believed that there is mass-market potential
in African pay-TV, it is a painfully absorbed reality kick in the stomach.
The
GBS collapse also leaves a number of larger questions: was the model flawed or did
GBS merely err in executing it? Did the credit crunch drive the company’s demise
or did it merely accelerate it?
A summary of our main observations:
1) The GBS model was ostensibly based on tackling a segment of the market abandoned by the two dominant players in African Pay-TV, Multichoice and Canal Horizons. While Multichoice and Canal went after business customers and the top 5% of households, GBS’s plan was to expand the addressable market to 10% of households or more.
2) In our view, the GBS model was effectively caught in a strategic no man’s land: price points too low to generate the cash flows that would cover mounting costs and debt, yet still too high to build the subscriber scale critical to the company’s model.
3) We see a number of lessons in GBS’s demise from an
investor’s standpoint: Potential doesn’t make up for faulty fundamentals, tackling
the African mid to low end is primarily a scale and cost-efficiency affair, and
lest there was any doubt, the credit crunch is real.
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