West African film-streaming service IrokoTV will seek to list on London’s Alternative Investment Market within the next 12 months, CEO Jason Njoku tells The Africa Report.
The sale would aim to raise between $20m and $30m, and would value the whole business at between $80m and $100m, Njoku says from his base in Accra. Discussions with brokers will start in the coming weeks, says Njoku, who holds a stake of 18% in the debt-free company.
Iroko has the world’s largest online catalogue of Nollywood films. Njoku has redefined the company’s strategy to target diasporic markets in Europe and North America, rather than growth in its main West Africa markets of Nigeria, Ghana and C?te d’Ivoire.
He points to the weakness of the region’s currencies and reduced levels of disposable income as a result of Covid-19 as factors that prompted the shift.
“Consumer confidence has essentially collapsed,” he says. “The macro has dominated us in Africa.”
The company closed its offices in New York and London, and cut jobs last year to reduce costs.
When Iroko started in Africa in 2015, an annual subscription fee of N3,000 was worth $18, he says. That has since declined to $7.5 at the official naira exchange rate and $6.4 on the parallel market. Iroko responded to the economic crisis in December by raising prices by 3.5 times in Nigeria and Ghana.
It means the company is targeting a smaller, more affluent market. Njoku says Iroko can afford to lose 70% of customers in Nigeria and Ghana at the new price.
Prices for diasporic customers, meanwhile, were increased to $60 per year from $25. The increase was pushed through without any impact on international customer numbers, says Njoku. That reflects the lack of streaming service alternatives for the West African diaspora, he says.
The number of international subscribers increased last year without the company concentrating on targeting them or spending any money, he says. The company has even been attracting Caribbean subscribers in New York.
“An international subscriber base is much more sustainable,” says Njoku. The number of international users and average revenue per user are both set to increase in 2021, he adds.
Currency woes
It’s a major turnaround for Njoku, who in May 2020 wrote that Iroko’s strategy “seemed pretty simple and logical. The belief went that our exit value was directly proportional to our ability to demonstrate to potential investors or acquirers the size, scale and fantastic unit economics of the African entertainment opportunity.”
Successive naira devaluations and the risk of more to come have prompted the shift. The IMF this week said the naira is 18% overvalued and that further devaluation is needed – advice rejected by the Nigerian government.
A weaker currency, Njoku says, pushes costs up while reducing revenue. The best solution, he says, would be to “set the naira free”. That would lead to a weaker currency in the short term, but the lack of forward visibility on the naira is even more critical than its level, he says.
The current system of multiple exchange rates makes it impossible for businesses to plan beyond three to six months, he says.
“Let the market decide, and then people can decide how to make it work.”
Bottom line
Iroko’s strategic shift gives it a much better chance of achieving a stock market listing.