When Covid-19 hits where you least expect it
The Covid-19 pandemic is raging through global economies with some sectors being especially hard hit; and they’re easy to spot. Leisure, entertainment and travel are in total shutdown and it’s going to be some time before they get back up to speed.
Other sectors such as financial services (banks and insurers) will experience pain as people start to default on loans while new loans and policies will be limited, or even lapse, due to rising unemployment. But they are still open for business and operating even as profits come under pressure and the likelihood of full-year losses mounts.
Other sectors such as food retail and medical dispensary will be doing alright as they continue to operate, albeit with higher costs associated with social distancing regulations and sanitising requirements.
But these are the easy ones to spot. What we need to be digging around for are those sectors that are harder to identify and those companies that are going to be impacted, especially those that we may not expect to see under pressure.
The example I want to use is MultiChoice Group, owner of DStv and licensee of Showmax. The latter being an online streaming service competing against YouTube and Netflix locally. This is a great place to be right now with the country in lockdown and people at home looking for entertainment.
But the DStv side of the business may be a real problem and that problem relates to sport. Pretty much everybody I know who has the DStv premium package says it is for access to live sport. Nobody pays the top price for the movies and sitcoms. What happens if the live sport stops?
That may seem like a crazy idea with most sporting bodies delaying events and leagues rather than cancelling (there are of course exceptions such as Wimbledon, the 2020 Olympics and the like). But these delays are kicking the can down the road and avoiding the ultimate reality.
There will be no live sport for the rest of 2020.
The idea of playing these sports in empty stadiums, as is currently being proposed, sounds easy and like a simple solution. But it is not practical.
Firstly, all players would have to undergo a 14-day isolation period before the game. So too would officials, medical and stadium staff. Heck, even the bus driver would need to be in isolation for 14 days.
Secondly, the players would need to sleep and eat so now we also need hotels, cooks and cleaners; all in 14 days of isolation. This quickly starts adding up to thousands of people for a league and with that many people isolating (and continuing to isolate during the season) the risks of a break in the chain become a certainty rather than a risk.
So as much as playing to empty stadiums is a great idea, live sport is not coming back this year.
So, where does this leave DStv premium?
Well first off, they’ve paid top money for the rights to the games and maybe they can claim some or all that money back. But the bigger issue is not the cost, it’s the profits they make off the live sports via advertising and sponsorships.
Further, if you’re paying for the top premium package for sport, and there is no live sport – do you carry on paying? The short answer is no. So now DStv is getting hit on two fronts: No advertising revenue in their biggest market of live sport and losing premium subscribers due to the lack of live sport (and I haven’t even touched on customers cancelling due to financial pressure).
Covid-19 effects are going to be felt everywhere. No business will escape unharmed and as investors we need to really dig deep before deciding how these businesses will come out on the other side.
This article was written exclusively for finweek’s 17 April newsletter. You can subscribe to the newsletter here: http://bit.ly/finweeknews