With Huge Investments into African Originals, are Netflix and Showmax Taking too Big a Risk?

Global streaming services such as Netflix and DStv’s Showmax are not investing billions of dollars into the production of African originals just to tell international audiences Afrocentric stories. They are competing for the leading share of Africa’s largely untapped video-on-demand (VoD) market, with a clear focus on making commensurate returns on investment.

Most recently, Showmax announced the production of its first Kenyan original series “Crime & Justice” in partnership with French TV company Canal + . Back in November last year, Showmax had disclosed that its first Nigerian original “I Am Laycon” will debut in February 2021.

Recall that in the same month Netflix launched a content development lab for creative African writers in Nigeria, South Africa and Kenya. Earlier in February, the streaming giant had debuted its first African original, “Queen Sono”. A production budget of a whopping $15 billion had been designated by Netflix for African originals.

Evidently, Netflix and Showmax are pumping colossal sums into creating African originals but what are their chances of success in capturing Africa’s largely untapped VoD market?

Africa’s Tiny Streaming Population

Africa has over 1 billion people. But there are only 2.7 million VoD subscribers on the entire continent. For instance, Netflix has just 1.4 million subscribers in Africa – a paltry 0.7% of more than 200 million subscribers worldwide.

It’s a very minute figure, especially considering that over half a billion (527 million) Africans use the internet and more than 250 million have smartphones. The concern here is that a great percentage (99.44%) of the internet population are not even viewing streaming platforms at all.

The creation of African originals by international streaming platforms is a part of the strategy to get more people on the continent to use these VoD services, but that may not exactly work out as planned.

A case in point is Netflix’s subscriber growth since it ventured into Africa’s over-the-top (OTT) media space in 2016. The streaming giant has amassed just 1.4 million African subscribers in 5 years, despite Africa’s internet subscribers growing by 200 million in the same period.

In other words, Netflix gained one subscriber out of every 143 internet users within that period. Based on that metric, it could take three to four years before that subscriber population is doubled.

This brings up the question of affordability.

VoD Subscriptions plus Internet Data Costs are Quite Expensive

Going by the population of paid subscribers using streaming services in Africa, it is apparent that the likes of Netflix are not realising sizable revenue from the continent’s VoD market. Only a very small percentage of Africans can actually afford to pay for VoD subscriptions, let alone purchase internet data to stream content.

The majority of Africans do not earn sufficient income to offset these costs.

Take Nigeria, Africa’s largest country, as an example. The minimum wage in Nigeria is N30,000 ($75.9) and Netflix’s basic plan costs about N3,000 ($9) per month, which is a significant 10% of the minimum wage.

Factoring the amount required to purchase internet data further goes to show why less than 2% of over 25 million smartphone users in Nigeria are subscribed to Netflix. And 25 million is a conservative figure for smartphone users in the country.

According to Netflix, viewers spend 1gb of data per hour to stream a standard definition video, 3gb per hour for HD videos and up to 7gb for ultra HD quality. For smartphones, 1gb data costs an average of N700 in Nigeria, so a subscriber who watches standard quality Netflix videos five times in a month would have to spend N3,500, 11.7% of minimum wage, on mobile data.

How many Africans would spend 21% of their monthly income watching a Netflix African original? The vast majority would not.

The proposed introduction of cheaper mobile-only plans could add a few more subscribers, but millions of potential subscribers would still be unable to pay for the streaming service due to low purchasing power.

Regulatory Constraints are also another crucial factor for VoD services to consider. Countries like Nigeria and Kenya have made efforts to collect digital tax on streaming platforms while South Africa is trying to force the collection of TV licence fees.

Going forward, these do not bode well for Africa investments by Netflix, Showmax and other VoD platforms.

Without a doubt, exclusive original African stories are now being streamed to audiences worldwide. However, the end goal of driving paid subscribers’ growth in Africa for the likes of Netflix may not be achieved anytime soon.