The term “platform business” tends to be overused these days. In its purest form, it means a business model that creates value through connecting two or more groups. Just think of how Meta’s apps connect advertisers and social media users or how Apple’s App Store connects developers and device owners. These businesses are incredibly valuable because they are highly scalable and become exponentially more powerful as the number of users on both sides of the platform increases.
Of course, the success of these businesses has created many copycats and platform-esque businesses that are trying to channel some of that investor sentiment in their direction. When you come across businesses that talk about building platforms, you need to immediately question whether they genuinely have the features that make platform businesses so powerful, like network effects and improving unit economics over time. Of course, you also need to think about the likelihood of the business achieving its growth targets. As always, cynicism is your friend.
Thankfully, there are a few examples of platform businesses on the JSE to learn from, with two listed companies releasing updates in the past week that give us examples of where this type of business model is playing out. I’ve deliberately chosen a highly successful example and a struggling example, as it shows that not all platforms are created equal.
Prosus acquires La Centrale in France
As platform businesses go, Prosus is probably the best example we have on the JSE. The group has positioned itself as a technology giant outside of the US, with exposure to numerous markets and various businesses that genuinely exhibit similar characteristics to the US technology stalwarts. This is precisely why Prosus is a significant portion of my personal portfolio.
It certainly isn’t sitting on its hands, with its latest deal being the acquisition of 100% of La Centrale in France. The deal is being executed through OLX, the classifieds platform within Prosus. La Centrale is a leading automotive classifieds platform in France, which means it offers a ripe opportunity for Prosus to flex its muscles and demonstrate how its AI-led European strategy will work.
Read more: OLX drives R22.35-billion La Centrale deal into France
The deal is worth €1.1-billion, so this is a meaty transaction. La Centrale is currently owned by private equity investors, which means it’s already been through a round of professional ownership. That’s usually helpful when you see these corporate deals, as private equity investors tend to bridge the gap between founder-owned businesses and the demands of being part of a corporate machine.
Importantly, this acquisition represents OLX’s market entry into Western Europe. Although these countries aren’t exactly famous for achieving high growth at the moment, Prosus hopes to change that through the use of AI in these platforms. There are further reasons to believe that the French market might work out well for them, with a far lower percentage of vehicle deals being done by professional dealers compared to what you’ll see in more mature markets like Germany. Therein lies the opportunity to connect more dealers to consumers, getting a greater share of deals through this platform.
Canal+ takes the reins at MultiChoice
It’s certainly taken a while, but we’ve finally reached the point where all the conditions for the Canal+ acquisition of MultiChoice have been met. Canal+ now has a 46% direct stake in MultiChoice, and the company has announced that shareholders of a further 2.2% in MultiChoice have accepted the offer. I believe it is likely that more shareholders will do the same before the offer period ends.
Thanks to the completion of the restructuring steps that were required in South Africa to meet regulatory requirements, Canal+ has jumped through all the necessary hoops for its voting interest to be the same as its economic interest.
Read more: Canal+ seals R55bn MultiChoice deal, thanks to some impressive compliance gymnastics
This means that Canal+ has effective control of MultiChoice, as in practice you don’t actually need more than 50% to control a company. This is because meetings never achieve 100% attendance rates by shareholders, and thus the stake already held by Canal+ would almost certainly represent a controlling share of the votes actually in attendance.
Deal mechanics aside, what makes this worthy of inclusion as an example of a platform business? To answer that question, we can look to the gold standard in streaming as an example of the size of the prize: Netflix.
Netflix has taught us that streamers can become valuable at scale, as a large subscriber base attracts the best content creators to the platform. The Netflix originals strategy turned out to be the right one. But Netflix also taught us that the journey to get to that point is extremely difficult and expensive, as it burnt through billions of dollars on its way to emerging as the market leader.
MultiChoice is nowhere near the level of Netflix in terms of creating original content, but its regional strategy means it is a critical source of support for the local film industry. Even if the production value can’t match what the likes of Netflix and Disney+ are putting out there, it’s undeniable that people crave content in their home language, telling their homegrown stories. Unfortunately, this means that MultiChoice has been struggling with the cash burn phase that plagues all media businesses that are trying to transition into streaming.
Canal+ has thrown it a lifeline, quite literally. The combined business has 40 million subscribers across 70 countries, which means that one side of the platform has been boosted considerably. With that kind of audience and with regional specialisation, it’s likely that the quality of content will go up and hence the stickiness of subscribers will improve. If all goes to plan, then the combined Canal+ MultiChoice group could find itself on a similar growth curve to Netflix, albeit in a different part of the world.
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That’s the plan, at least. We will have to wait and see what the reality will be. In the meantime, purely wearing my hat as a South African, I’m thrilled that this deal went through. It would’ve been a disaster for the local industry if MultiChoice failed. DM