Exited ROK. What now for IROKOtv?

So last week IROKO announced the successful sale of her incubated media assets ‘ROK Group’ (‘ROK Studios’, ‘ROK1–3 on DStv/GOtv’ and ‘ROK on SKY’). IROKOtv remains intact. Still with a mission. Bring affordable, paid content to the world. Whereas I can’t disclose the number due to sensibilities in France for Vivendi Canal Plus, it was, at least to my knowledge, easily the largest media transaction / deal in West Africa history and possibly Africa (outside of SA). Mrs Njoku didn’t sell her shares, Vivendi Canal Plus acquired IROKO Ltd shares in the ROK Group, so she retains her stake. This is a fantastic exit and considering ROK was only 6-years old and required <$1m equity and debt $1.4m (Bank of Industry Loans) it was a big exit. Incidentally, as a result, Mrs Njoku now earns more than me and is almost worth more than me. I need to crack on to accelerate forward. Man must be man.

So what happens now? Make no mistake, ROK has been the reason IROKOtv has been able to survive over the last 3 years. From being incubated within IROKOtv to generating >75% of 2018 revenue in short order, the cashflow and very positive EBITDA has enabled us to grow our subscription base x3 in that period, whilst just about staying afloat. Just about. But those days are behind us. Enough of the cash from the sale will be retained in IROKO, so in theory ,we don’t actually need to raise further financing anytime soon. We may not raise money at all again before we exit.

Hi Growth, welcome back. It's been a while.

We intend to continue to focus our efforts on subscriber growth as the only KPI which really matters. That will be at the expense of any cash flow or ebitda profitability in the near future. This is consistent with pretty much all of the SVOD services I am aware of both large (Hulu, Netflix, ShowMax, iFlix, iQiyi, WWE, Hotstar) or small (DramaFever, IVI, VIKI, Dailymotion, Vimeo et al), all are (or were) very cash flow negative. In the absence of the profitable media assets, it feels unrealistic to ask IROKO to buck that trend. 1m subscribers makes us a tier 1 paid service. Investments in content, product, engineering and most importantly distribution is required to even remotely stand a chance of reaching this goal.

The Devil Remains in Distribution

Selling ROK was for one simple reason. A bet that the team can solve content distribution in Africa with a cumulative investment of $15–20m in <18 months. Simple? Absolutely not. We have spent between $2–5m over the last 3 years with limited results.

Look at a few examples from my favourite startup place in the world. India

A few months ago I actually met the Byju founder Byju Raveendran in London at the Founders Forum event. Truly inspirational story and blockbuster growth metrics.

Byju

Possibly the world's largest edtech company based out of India. Raised $540m from Naspers in Dec 18 and just closed another $150m 2 weeks ago at a $5.75B valuation.

With 2.4 million paid subscribers and an audience of 35 million (registered users), Byju has all but capitalised the online learning market.
How did they do it? Sales driven organisation.

In its initial days, this person adds, Byju’s tried to sell its products over the phone, but found few customers interested in buying courses upwards of Rs 25,000 without any physical touch point. In fact, only one out of 20 leads would convert to a sale. The practice was finally abandoned in favour of in-person sales meetings, and today, the company has over 1,000 BDAs on the ground. Source

and

Part II of Byju’s organisation is the real deal. A 600-member sales team. And growing. Theirs is a fascinating job of waiting and hunting.

The Call

A subject downloaded the Byju’s app and began playing with it. Grade 6. Soon, the call came. The sales rep invited the child and the parent for a counselling camp over the weekend. In essence, a pitch to buy the subscription. The rep tried convincing the subject that the app is a new, alternative way of education in which the child learns faster and without the pressure of a classroom. When told that the subscription was too expensive, the sales rep said that a negotiation is possible

Once a user downloads the app, the team begins tracking usage. Like how many videos have been watched or how many questions answered. Once someone passes a certain threshold level of usage, the sales team starts calling; a parent in most cases. The pitch is, “Look, this is your child’s engagement on the app, these are the areas your child is good at, these are the areas where he can improve, how about a paid subscription to the Byju’s app.”

As of date, Byju’s claims that the app has close to seven million downloads; Google Play Store and App Store combined. Byju says that despite its best efforts, the team is currently only able to reach some 27% of the total leads. He wants to improve that number to 50%, which means adding more sales people. The conversion from download to a paid subscriber is about 5%, he claims. Source

Is this abnormal? It's actually not. In India. Sales driven organisations are what is driving some of the most valuable entities there.

Justdial (NSE listed, valued at ~$700m)

Justdial is a company that provides local search for different services in India over the phone and online. Founded in 1996 by VSS Mani, the company is headquartered in Mumbai, India. FY 2019 revenue stood at $140m

You are reading it right. They have over 9 thousand agents

Addition in sales team
Bansal said that employees are split it into two broad categories: Sales and non-sales. The company does not foresee major additions in non-sales, and sees automation as a means to reduce manpower. However, on the sales front, the company wants to hire more people for feet-on-street operations, cold calling roles, as these elements have helped revenue growth and provided traction. Bansal added, “subsequently, once that particular cold calling team is able to call a particular customer, the telemarketing team does a very good job of renewing that particular customer for the second year. So, there could be subsequent additions in telemarketing as well. So, sales is broadly where we would want to add. Non-sales is where we would ideally want to add as much automation as possible”.

Sales team is made up of 4,057 employees in telesales, 1,410 feet-on-street (marketing), and 2,663 feet-on-street (JDAs — Just Dial Ambassadors) as on Q4 FY18. Overall, JustDial’s employee count increased to 11,452 in Q4FY18 from 11,334 marginally up by 1% from the same quarter last year. Sequentially, increased by 4.6% from last quarter. Source

Infoedge (NSE listed, valued at ~$3.9B market cap)

The most profitable classified group in India. 67% of the employees are in sales.

Info Edge’s success stems from Bikhchandani and his team’s ability to stick to a few quirky decisions that defied the basic tenets of internet business. Take for example Naukri’s massive fleet of inexpensive field sales executives when remote sales was the norm at internet startups.

The logic was simple. When in India, behave like an Indian. The leadership was convinced that in India, nothing beats an in-person sales pitch. “You need to focus on customers and make sure that you are solving their problems. If you are, then cost of customer acquisition goes down, defensibility goes up, capital requirement goes down. If you don’t, you need lots and lots of capital to stay in the same place,” Bikhchandani told Forbes India in an earlier interview. Source

There are so many examples of this in India. It appears regressive but it's the way Indians have gotten Indians to transact. And in the end, if you are not selling advertisements, then that is literally the nature of the business. Getting folks, relatively price-sensitive ones, to part with their money, requires individuals.

Outbound at IROKO

The entire plan to ‘solve distribution’ requires us to successfully scale our outbound (telesales) efforts. The plan has us scaling agents to 1,000 by 31 Dec 19, 2,000 total agents at 31-Dec-20 and 2,500 total agents at 31-Dec-21. We now have more than enough capital to invest in marketing and productivity (new hardware / CRM system) which we believe will yield immediate results from August onwards. Most of the biggest consumer internet companies in India have used telesales scale to build massively valuable businesses (as above).

Dealers

We are currently in the process of discontinuing the kiosks programme which is currently operating in Accra, PH, Lagos and Abuja. It has been great for visibility and customer support but super difficult (expensive in cash and management) to scale. This will effect 70–100 people who will be folded into the telesales organisation at their preference or at a discount price, migrated to our dealer network. We will focus on taking our current dealership programme from 112 currently to 500 before the end of the year. This will then be scaled to Accra and throughout Ghana in order to extend the content distribution reach. Our key is to remove the friction of content. Right now that friction is data. We don’t see a way around that so will focus on removing it.

International and Africa

In the past, we have had to hard pick and choose where we could invest. The International underinvestment vs Africa investments shows in the product, marketing and subscriber mix of the last three years. As we focus on subscriber growth, we need and will invest equally in both. At ~$60/year IROKOtv has alway been seen as relatively expensive. We are introducing an International annual plan of $25/year in order to reinforce value for money. We will support this new price point with a consistent and performance-driven marketing budget equal to that in Africa. A grand total of <$300k in marketing has been spent over the last 3 years, during one of the biggest recessions in Nigeria’s recent history and massive currency devaluations across our key markets (inc Ghana).

Our content and brand has been 100% Nollywood focused. In Africa, our ambition over the next 18 mths is to diversify away from just Nollywood into being a major African distributor of Bollywood, Telenovela, Korean and Kids content. This will ultimately help us increase our annual ARPU from ~$8.3/year (Nollywood only) to a more meaningful $12–15. For comparison’s sake MCA’s DStv & GOtv, The largest PayTV operator in RoA generated annual ARPU of $32.4/customer in their last FY. That is between DTH and DTT. $12–15 annual ARPU remains reasonable considering the content offerings.

Liquidity

Last month I asked where the $100m exit were? IROKOtv is 7.5 years old. I received a ton of positive feedback so definitely felt this question remains open and needs answering. I hope we start to figure out paths for this in the nearest future. I don’t believe it unreasonable for a 10-year old company to explore liquidity options, I actually think it's irresponsible not to. We will be 10 years old in 29 months. So the plan is to focus on the business with an eye to liquidity event in the near future. I don’t see this current retained capital as a step to another funding round at a higher valuation. The team's motivation is to list the business. The entire executive team is super excited about that challenge over the next few years.

Once IROKOtv gets to 1m+ subscribers, the intention is to explore a listing on London Stock Exchange AIM. The target valuation would be anywhere north of $100m+. This will most likely be in 2022, where our revenue would be $20m+ with an operating margins of <$1m (or possibly negative). The consumer focused niche video services I am aware (righsized) were all within this range, exited sold for between $120–295m. Dailymotion (Vivendi $295m) Dramafever (Softbank & Warner Bros $100m), Magisto ($200m) and VIKI (Rakuten $200m), Pluto TV ($340m Viacom). They were all <$30m VC funded and primary focus was on North America. We are focused on English speaking Africa minus SA. I have looked at the last decade of VC-backed tech and media exits in Africa and none have gone beyond $100m and none were actually operating primarily in Nigeria. (Jumia doesn’t count unless you have $1B somewhere you wish to invest). Multichoice Africa RoA business is $1B Revenue ($340m from Nigeria) But remains in very EBITDA ($250m) negative.

Paid content in Africa is a crazy difficult market. Econet plowed >$300m into Kwese before collapsing with $130m in debt a few weeks ago. I don’t say that lightly. I'm still in awe of the ambition of the team. I always felt it was too ambitious and not fully respectful of the nature of the business. Not to mention Showmax has spent $250m+ alone on content and platform development since launch. This is a game for those who can embrace bleeding out in order to reach scale. It's only by taking bold fucking ninja moves to still be in the game. ROK saved us. The ROK acquisition now gives us jet fuel to be able to seize an opportunity which is still there. But the fact we are still alive with a paltry $41m invested? What’s fantastic is that even after 7.5 years, we are still here, making an impact and dominating such a nascent market.

What's great is the market is starting to reflect our core principles in price and approaches to grow the market. Just last week in Nairobi I saw Showmax being priced at $10/year. Fantastic. No one (Netflix included) has more than 250k+ subscribers in RoA as of now. It is probably one of the only white spaces left globally.

$10/year for ShowMax!

Some may not believe me but Netflix isn’t crushing it everywhere. They mentioned India 8 times in last weeks earnings miss. But only have ~1.2m subscribers there. Reed Hastings’ India target is 100m. For further reading ->Netflix and Amazon Trail a Local Video Rival in India That’s Now Disney-Owned

So in summary. I feel like for the first time we at IROKOtv have a clear path to 1m subscribers. Most of the expected competition is no more. Looking at India subscribers for Hotstar (Disney), Amazon Prime and Netflix, gives you a sense of the difficulties of reaching that 1m subscriber number. It's not easy. It's not for the faint hearted. We have a real opportunity. Mrs Njoku has literally given us a window to go for greatness. Now run and fly through it.