Tecno Mobile Should Buy iROKOtv

Tecno Mobile is one of the fastest growing mobile device brands in Africa. It started business in 2006, in Hong Kong, and today operates as a subsidiary of Transsion Holdings. Tecno has won hearts with its balance on pricing and quality. It is a brand any mobile phone manufacturer that wants to sell in Africa must study. Today, the company competes for market share against Samsung in the smartphone mobile sub-sector. Apple is not necessarily in Africa to include it in any analysis. Blackberry is history!

The new age of mastering mobile device distribution in Africa cannot be discussed without the company that pioneered dual-sim, making it possible that one does not need to have two devices, to use more than one network, “simultaneously”. Tecno acts locally, but at the heart, it is thinking globally. The dual-sim was hugely successful because it saved people money while at the same time solved a major pain point – network quality varies across Nigeria, one telco could be good in Ikeja but when you get to Festac, another is doing better there. Using the dual-sim, a user can switch to the better alternative, at any point.

 

We estimate that Tecno commands more than 20% market in most African markets (excess of 12 of them) where it does business, today. Its products are really good and it has the local chemistry.  Its latest product, the new dual front Led flash device, Tecno Camon CX, is a great product for Africa, when you consider the price and the quality.

 

But beneath this achievement, Tecno has a real problem: It is nothing but a mobile device maker, which is nothing but operating at the center of a smiling curve where value is low. With no platform to enjoy, locking customers, it is vulnerable. A better executor will challenge it. ( Yes, I do acknowledge that customer service which Tecno delivers moves parts of its business to the edges of the smiling curve. This gives it a very huge opportunity, since through this service, it is not just a device maker, but a value-adder in the mobile device sector).

iROKOtv

iROKOtv is one of the most visible digital companies in Nigeria. In short, most of the excitements on internet business in Nigeria was unlocked by Jason Njoku, its founder. The vision was pioneering, attacking piracy at its source: take the product online where the piracy happens, but now, legally. You cannot write the history of digital business in Nigeria without iROKOtv.

irokotv is a web platform that provides paid-for Nigerian films on-demand. It is one of Africa’s first mainstream online movie steaming [sic] websites, giving instant access to over 5,000 Nollywood film titles. irokotv is a part of iROKO Partners which is one of Africa’s leading entertainment companies, housing brands such as iROKING, an online music platform and its YouTube website, Nollywoodlove. irokotv was launched on 1 December 2011. Its parent company, iROKO Partners, was founded by Jason Njoku and Bastian Gotter in December 2010, with its headquarters in London, United Kingdom. Dubbed the ‘Netflix’ of Africa, irokotv is the world’s largest legal digital distributor of African movies.

 

iROKOtv is a company of the future. It has strategic assets with local contents which no foreign brand can displace immediately. It has learnt so many things on taste and culture and understands its customers. Yet, it will take a really long time for iROKOtv to attend huge profitability because its product is video – it costs money to enjoy video in Africa. That is not changing any day, at scale, in near future. The company has raised millions of dollars from leading global investors like Tiger Global. Specifically, iROKO Partners, the operator of iROKOtv has raised excess of $35 million. Today, iROKOtv products are distributed across continental Africa and it remains a key leader in legal video on demand, for Nigerian Nollywood, the largest in the continent.

Why Acquisition Makes Sense?

These two companies – Tecno and iROKOtv –  are at their growth phases. They are excellent. But as noted, they have some challenges: Tecno risk of not having a platform as defense and iROKOtv hoping for years for broadband penetration to reach massive profitability phase. Bringing both together will help Tecno close its defenses in Africa while giving iROKO Partners a good exit.

iROKTOtv products are very popular in most markets Tecno operates. So this provides a natural ecosystem to help it drive further growth and lock customers in the video ecosystem.

We propose for Tecno to buy iROKOtv and use the product to deepen its capabilities in Africa and beyond. Our core idea is that Tecno needs to open a unit to be dubbed Tecno TV. It will be one place for anyone in Africa to access television, delivering unified TV experience. This ecosystem will meet the needs for TV shows, movies and broadcasting contents, across the continent. It will be TV and movie content-ready. Through the iROKOtv brand, it will close partnerships with leading local content providers.

To execute this, all Tecno will come with iROKOtv apps, installed. (It could re-brand iROKOtv to Tecno TV) The pioneering brand equity of iROKOtv will rub on Tecno, as it transitions.  Tecno will offer premium iROKOtv exclusive to Tecno users in Africa. That will be huge and can help attract new customers who will prefer Tecno over say Samsung.

Make Tecno TV so that no one switches to another platform, in Africa. 

The partnership with Manchester City which Tecno sealed will have more value if it begins to build Tecno TV business across Africa. The opportunity is here and iROKOtv offers it.

We do believe that if Tecno makes this deal and execute it, showing traction on customer growth, it will have leverage on many telcos in Africa. MTN, Glo, Airtel and 9Mobile (old Etisalat Nigeria) will surely like to consider Tecno as a special company since it will have customers that spend most on video and broadband. Possibly, the subsidization of Tecno devices for rights in Telco networks will come into play, from the telcos.

iROKOtv will give Tecno the strongest business model of the future which it can ride on to build a service business, via Tecno TV.

The Valuation and Deal

We value iROKOtv today at $100 million and Tecno can afford it.  It can raise money for the deal which likely will be all-cash based. Tecno generates a revenue of between $500 million and $1 billion. There is nothing on this deal that says that IROKOtv products cannot be available in other  devices, but they have to be built to show they are maximum-best on Tecno products.

 

Simply, Tecno has the capacity to finance such an acquisition and returning about 3X to iROKOtv investors will not be too bad.It is a deal that will make everyone a winner.

Rounding Up

Tecno will face real competitive challenges in coming years in Africa. Finding how to lock its present believers in a platform will be strategic. It has to do that as quickly as possible. iROTOtv provides a golden opportunity to make such “locks” happen. Tecno Mobile should buy iROKOtv and rebrand it Tecno TV, and rule the mobile device market in Africa, through service.

 

Editor’s Note: After this piece ran, someone noted that Tecno is working on Tecno TV. Great idea, but it needs to make it big with iROKOtv

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