2020 was supposed to be our year. We had a simple plan to execute. Grow member base to ~500,000 whilst in parallel, improving our Africa annual ARPU from ~$7-8 to $20-25 with additional services and features. We started well. January through April we added international content, we introduced celebrity Shoutouts which started slow but gave insight into our product-focused plan to blossom into an awesome business. We started the year adjusting the size to our new post-ROK acquisition reality. As the 1-year transitional services agreement came to an end, we closed the UK offices in Q1. Then COVID-19 happened. At first, this was a massive boon, our international subs daily additions grew 200% as people were locked in and forced to stay at home. In West Africa, people treated it like an extended holiday so even though we moved fast to pre-empt problems (first company to implement a 100% work from home policy and 47% furlough and cutting salaries of the teams). April was our best month ever, then the after shock of global economic collapse started to squeeze West Africa. Consumer confidence started ebbing, then completely collapsed. We spoke to thousands of our customers to understand what was happening. People were fearful, people were losing jobs. Entertainment is important, food is essential. With kids at home (they are weapons of mass food destruction) and salaries being adjusted downwards or outright disappearing, we saw a linear path of reductions in subs. Between April to July the monthly rate at which we added subscribers fell 70%. Our agents’ productivity (the ability to onboard new customers), which we have spent the last 18 months grinding out to all time highs, just stopped too. Below is some visibility.
Over the last 5 months, we have tried everything to figure out a way to arrest this decline; productivity hacks, shrinking the team sizes and increasing the supervisors, WFH wasn’t working so we figured out a safe way to find transport and work reduced hours at the IROKO offices. We couldn’t adjust prices as the primary aim was to defend revenues and cash flows, so cutting subs revenues and vanity subscribers wasn’t going to contribute to salaries come month’s end. Nothing really worked. Internationally, we were effortlessly growing. All of the macro and individual issues plaguing West Africa were essentially not major issues in the West. Yes, jobs were being lost. Yes, economies were contracting, but with all the stimuli leaders were injecting, it made the impact on the average person marginal. Our annual ARPU internationally is $25-30. When people talk to me about Netflix and their impact globally, and then in Africa, I always smile. My response is the same. Globally, streaming media is booming. In Africa it is regressing. It’s impacting everyone. No drama. No shaking.
Then the new round of devaluations started. In 2015, we introduced the N3,000 annual plan. It was affordable and an instant hit. It supported our invest in Africa growth ambitions and was priced close to perfection for our user base. It was readily taken up by hundreds of thousands of people across West Africa. Back then N3,000 = $18 (166/$). We went through the brutal 2016-17 devaluations and ended up N3,000 = $8.33 (360/$). A nightmare by all means, as we just lost real value. Like, tangible pay some bills costs. Today N3,000 = $6.3 (477/$). All indications are that the Naira devaluation hasn’t really finished. Some are saying it’s just starting and will end up at 550-600/$ before year’s end. What we are seeing now is distorted as the access to FX has been cut off for almost 6 months. A lot of our costs are in dollars – AWS, tech tools etc.
Arise, o compatriots!
If dealing with COVID-19, consumer confidence collapse and devaluation wasn’t enough, our great national comrades in Abuja thought it was a solid piece of regulation to quietly introduce the 6th Amendment to the NBC code. This singular, inexplicable act destroys PayTV in Nigeria. Let me be clear, this had a massive impact on the decision to discontinue investing (and losing money in Nigeria). I know they know this but whenever they do something silly in the name of ‘we are working’, it sets off a cascading series of conversations across Whatsapp, Slack, boardrooms or coffee shops as to whether investing in Nigeria is even worth it. Executives across Africa are literally defending being in Nigeria. My board consists of the lead investors in Gokada and #2 PayTV operator in Africa. As you can imagine it’s difficult to see what’s happened over the last 6 months and remain super enthusiastic. Alas here is where we are. How are they supposed to reverse the current, almost all-time low FDI figures of recent years? From ride hailing bans, to taxi services admin burdens, to increased taxation to bending the rules for locals, it all adds up. Naively, I thought we wouldn’t get that treatment in Nollywood. After all, what more Nigerian can you get than Nollywood? Music is local, but they also sing in Jamaican accents. Nollywood is Nollywood. It is one of the shining lights of ‘brand Nigeria’. When the entire industry is buckling under the destruction of non stimuli COVID-19, the rhetoric out of Abuja was not only ill informed, but just wrong and shows why the NBC DG needs to resign. He (and his entire team) don’t seem to even understand the industry they are regulating, let alone the nuances of how to grow it. One day, Toyin Subair will give up his dreams of being an entertainment mogul so those of us still toiling away in the space can rest.
Anyway, as IROKO has now been caught in their crosshairs and already labelled as an enemy of the State, an unpatriotic Nigerian enterprise carting away ill gotten gains (read blood sweat & tears of our glorious nation) back to foreign lands, I am in no position other than to fight these dark forces. Even though with 10 mins worth of research, they could have seen that IROKO has accumulated Net operating losses of $30m+ over its lifetime and has been bleeding millions of dollars annually trying to build Internet TV in Africa. Many have tried. Many have made noise and been buzzy. Most have failed. But IROKO, the plucky Nigerian local champion, was still in the game. On the ropes, but still in the game. As long as you are on your feet, you stand the chance of hitting a knockout blow. Or so the saying goes. Alas, that argument has been lost.
Between the COVID-19 fallout, rapidly devaluing currency and hostile regulatory environment, it’s time to pause the burn. It’s time to hunker down and see what the next 18 months brings. Over the next week, IROKO will be defocusing our Africa growth efforts and we will revert to focusing on higher ARPU customers in North America and Western Europe. Even after pushing incredibly hard in Africa for the last 5 years, our international business represents 80% of our revenue today, so by taking out Africa growth-related costs, we cut our $300k/month burn to <$50k/month. Still high, but once things normalise we should have a clear path to free cash flow + profits in 2021. This will unfortunately lead to a pretty dramatic change in the size of our Africa teams. There will be around 150 job losses. We are still working on the numbers, and in order to soften the blow we are speaking with a number of companies who have taken an interest in our highly trained telesales agents. The ambition in this terrible jobs market is to try and give our departing teams the best odds of success in what is unfortunately one of the worst job markets in decades. We wish them well on their adventures, it is no fault of their own. They definitely tried their best. We all did.
We still believe in Nigeria, We still believe Ghana, We still believe in Africa. It’s a strange thing to realise that even after almost 9 years with IROKOtv, 5 exclusively focused in Africa, we still may be too early for Africa. That in itself says so much about the current Internet opportunity in Africa. Many models have attempted to crack the consumer economy in Africa. Classifieds didn’t work. Lead generation didn’t work. E-commerce didn’t work. Free didn’t work. If we only had the Africa market (like so many before us who failed) then this post would be RIP IROKOtv. Thankfully we have an international business to fall back upon. For Africa, we are currently compelled in the short term to find a more efficient model to growing our paid membership here. We are introducing new products which we hope to move us up the ARPU chain and broaden our services beyond just entertainment. It’s still super early and we are veterans of experimental building of consumer Internet in Africa. For now we can only focus on cash flow. We will be waiting patiently, keenly, for the key signals to jump right back in to growth mode. We are still on ground.
Be Bold | Best Fast |Be Honest | Be Customers | Be Amazing | Be Africa