Is IROKOtv pricing strategy sustainable?
I miss the Tuesdays of a decade ago. As a teenager, I anticipated the release of new records by my favorite artists. Visiting the record store was an excursion where you meet likeminded enthusiasts that cherished the ownership of creative works. Sadly, the ability to gloat about your physical collection of records or films on DVDs are in the rearview. Collectively, we have shifted to the streaming method of consumption.
The bet in the current sharing economy, rapidly spreading across the globe, is that our sense of ownership will not kick in during more prosperous financial period. Close to two decades ago, consumers wanted to own everything. From the CDs and cassettes that we bought to the car we drive, we wanted to own – maybe even needed to own. While most goods and services cannot be readily differentiated without significant marketing push by the companies, most goods and services have been commodified.
In the case of streaming platforms targeting videos or music, the commodification of music has allowed many companies to use technology to shift our preference from owning that new DVD or CD from Hollywood studios and record labels to a form of renting in perpetuity. The great thing about the streaming platforms is the relatively cheap cost to gain access to a large library of relevant music or films. $11.99/month gets you access to the Netflix library of films both original and licensed, $9.99 gives you access to Spotify and iTunes and the fast-rising Amazon Prime and Hulu catalogs. A lesser known streaming platform serving a niche market interested in Nollywood films is IROKOtv.
IROKOtv, started by Jason Njoku in 2011, is a streaming platform using a similar business model as Netflix, which licenses the rights to distribute the films produced in the industry and provide the streaming platform for audiences across the world for a recurring fee that can go on in perpetuity, if so decided by the user. The platform has been adjusted to reflect pricing across different geographies to reflect the purchasing power in the respective regions. The argument by IROKOtv for the different pricing strategies would be that the pricing strategy selected is to establish a customer-centric focus in its business model.
North America is charged the highest pricing at $15/3months, while the different regions across Africa ranges from a low of approximately $5.50/year in Lagos, Nigeria to over $10/year in Johannesburg, SA. Africa is expected to account for 50% of total subscribers this year and Africa increasing to the 90% range in the short term. At this time though, Nigeria is second to the US, while the UK comes in third place in terms of subscriber stronghold in its operating markets.
Six months ago, I looked up the pricing of IROKOtv for the North American region and had an option for a one-month, 3-month and a full year subscription. The total price for the service has not changed, but, North American users do not have the option to choose the 1-month or the full year. The full year subscription is $60, which is between six and twelve times the rate charged to residents in Africa.
Last month, Netflix announced that the pricing will be increasing on the basic selection from $10.99/month to $11.99/month, a $1 increase over the previous year, while also beating analyst estimates of additional subscribers of 5.3 million in the same month. Netflix provided a one-month warning for the increase without taking a dip in the number of total subscribers in the same reporting period. Customers have indicated with their actions that Netflix increase of $1 is inelastic to make a switch to a cheaper platform, however, Netflix has provided the additional added value of fitting into the categories of broadcasting, animated films, and original content creators rivaling television.
At this time, IROKOtv is not Netflix, while acknowledging that IROKOtv serves a niche market and lacks the level of capital investment, thus, the way it approaches price escalation in the future, which will happen, has to be thoroughly planned.
I believe that IROKOtv is developing insights into the elasticity of the audiences in the different geographic regions. While, I do not think the company has much room to increase pricing in the North American geography, which is at $60/year, Africa provides significant opportunity to grow the audience and then inject intermittent price increases.
The most recent projections for 2018 show an average of $5.6 million across the African continent in revenue. Ambitious plans, but not insurmountable for the six-year-old company.
My concern with the projection is how IROKOtv will ramp up its offerings, similar to the weekly original content that is dropped by Netflix, which has become a cult following like activity. IROKOtv has to move away from just the licensing platform for films, and become an original content producer. But, the company should not follow the content creation already in the marketplace. The stories have to resonate across the geographies served and not just specific to the type of content created in Nollywood.
Competition is tight in the streaming wars, and IROKOtv has positioned itself as the low-cost provider of Netflix content in the marketplace. Low-cost providers can attract audiences quickly, but IROKOtv has to be cognizant of the impact of rising production costs for original content and also licensing fees as more streaming platforms come online. Netflix is a competitor in the marketplace and eventually will start to invest in Nollywood original content. I am not confident that IROKOtv can compete at this level, thus more reason why the company has to deviate from the current filmmaking standards in the industry.
As I survey the landscape of streaming services, I come to the realization that IROKOtv has reduced the bargaining power of their customers in the African continent. The price being charged is less than $3/year less than the closest competitor in the space and $8/year less than the highest price charged. This is genius. Customers, so long as they are able to view their content with assurance, will not switch easily to substitutes because of the price difference. IROKOtv, while concerned with the bottom line, has figured out that suppressing the power of their buyers is the formula for success.
The company’s approach is not without criticism. Nollywood creatives are under-compensated for their creativity. The price being charged is based on the market, which is fair, but, could prove to be the negotiating power for the suppliers of the films as more streaming platforms focus on the Nollywood film industry.
Betting on the Nollywood industry by IrokoTV has worked well over the years with growing top line and a larger library of films and original content. The goal now will be to find ways to use the platform as a conduit for elevating the value of the creatives in the industry because the streaming platforms with bigger dollars to throw at the industry may erode the market share that IrokoTV currently enjoys.