Notes from the Fringes of Academia
…Or a Brief Note on Monopolies
South Africans and Indians are sports crazy people. Watching some competitive sport is a common feature of a weekend schedule in both countries, reaching particularly insane levels during high-stakes games (SA even declares public holidays to celebrate wins!).
But the financial reality of accessing sports reveals an interesting side of the two economies.
In India, a viewer can stream all sports (irrespective of whether their country is playing or not), on their devices for a nominal fee (sometimes even free), courtesy a relatively competitive market of streaming platforms. Monthly subscription for a premium service would be in the range INR 200–250 (ZAR 36-42). Add to that the low cost of high speed internet—uncapped 100–200mbps costs in the range of INR 750–1,250 per month (ZAR 135–230). That’s less than the equivalent of ZAR 300 per month for an Indian resident to be fully connected to the world of sport. If one were to be selective about their choice of sports, this could go down to about ZAR 200 per month.
In South Africa, a similar streaming subscription costs ZAR 800 per month. A similar high-speed internet connection costs ZAR 700–1,000; bringing the total to upwards of ZAR 1,500 per month. That’s a whopping 5-6X of what it costs in India.
In my personal opinion, this price gap is a perfect illustration of a deeply entrenched monopolistic tendency that cuts through both the private and public sectors in South Africa, resulting in a structural concentration of power that acts as a quasi-tax, actively sucking the disposable income of a common person dry.
The private sector in South Africa has consolidated its market power since the Apartheid era. The sports broadcasting market merely mirrors the broader economy. For decades, a single firm, arguably through rent capture mechanisms, has built an absolute fortress around premium sports rights. Because exclusivity is central to the pay-to-view-television business model, there is evidence to suggest that such firms routinely pay premiums to local sports bodies to keep matches off free-to-air channels. And even when such monopolistic firms are taken over by international firms that operate in otherwise competitive markets, the market strategy does not change.
When challenged on this market dominance, both broadcasters and sports bodies tend to deploy the same narrative, arguing that they are the benevolent saviours of local sport.
Their argument appears sound on the surface. Broadcasters say that without the billions of rands generated by exclusive, high-value subscriptions, local sports bodies would collapse. They claim that this concentrated revenue stream directly funds player salaries, world-class training facilities, stadium maintenance, and grassroots development programmes that discover the next generation. And then the clincher: if the government forces them to break up this monopoly, they warn that broadcast revenues will crash, and local organised sports will degenerate into amateur status almost instantaneously as talent will flee overseas.
At face value, this might be true in the short term. If the state does abruptly act against such monopolies, the sports bodies could face an immediate crisis. The alternative of the public broadcaster is unrealistic: much like other state owned enterprises, the public broadcaster is also broke, and cannot afford to match the market rates for sports broadcast rights. If they do try to match market rates, they will probably need massive support from the State fiscus. Other free-to-air commercial networks rely primarily on advertising revenue, which is fickle at best, and will probably require a significant time horizon to be able to match prevalent market-rates.
But is this benevolent monopolist argument grounded in reality? If one conglomerate does not control the market, does it mean that the money disappears entirely? Is that what we learn from contemporary economic history?
In the recent past, one can look at what happened with the IPL and the EPL.
In India, the legacy broadcasting monopolies were dismantled almost overnight once the cricket board (BCCI) had finalised the IPL model. Annual competitive bidding between broadcasters drove up the value to air so much, that the IPL became a cash cow for global cricket. One can argue that that had inadvertent consequences that shook up the erstwhile cricket establishment, but regardless of one’s views on that side of things, it all boiled down to the creation of a viable business product. The IPL.
EPL on the other hand did not become an overnight craze like the IPL. It evolved into a well-developed product over decades. The difference from IPL is the way in which the FA innovated on geography-based broadcast rights, which in turn has propelled English football to another level.
ECB too has been able to follow a similar model with their leagues and broadcasting rights thereof. Cricket Australia as well.
Essentially, evidence suggests that sports bodies made more money from a mix of viable business products, and innovations in creating (competitive) markets, which in the end resulted in consumer gaining in terms of (lower) price options.
Here, however, there’s a different story playing out. A lock-in on the technology front (streaming only services only entered the market during the pandemic), along with monopoly-influenced barriers to improving the broader digital ecosystem (essentially the cost of connectivity), has starved the market. On one hand, global streaming giants have been hesitant to engage in high-stakes bidding wars (as seen in UK or India or Australia) locally because the domestic market of people with affordable, high-speed internet is still too small. On the other hand, the sports bodies have not been able to (nor are there any signals of interest to) create a business model that will attract global players.
The prevalent system protects the sports bodies, and they are least interested in improving the conditions of access for the average sports fan.
But this is not just a private sector problem. Public sector monopolies also appear to achieve the exact same extractive result under the banner of state-led societal transformation.
Following the end of Apartheid in 1994, the new South African government dove headfirst into the philosophy of a developmental state. The stated inspiration from the state-directed economic success stories of East Asia was to use existing monopolies to cross-subsidise services for historically disadvantaged population groups.
All well and good, even applaudable in intent.
But did it succeed in execution? In the classic East Asian model, state-backed entities were subjected to ruthless performance metrics and international market discipline. If they failed to perform efficiently, the state withdrew support. Here, though, public monopolies appear to be legally insulated from any form of domestic competition.
Without competition, these state-owned enterprises appear to have mirrored the well-known pre-1991-liberalisation India story of institutional decay, fuelled by political interference and systemic corruption. So many (similar) stories to pick from Indian economic history from the 1970s and 1980s. Whatever said and done, the loser in all this has been the ordinary citizen.
When the rail monopoly failed here, cargo was forced onto roads, causing logistics costs to spike and invariably get tied to global energy pricing shocks. This inefficiency acts as a hidden tax on every single commodity moving across the country. Similarly, when the electricity behemoth’s historical failure to maintain its power generation facilities caught up with it, a well-documented loadshedding era was established. Once that started to be brought under control, it was followed by a double-digit electricity tariff hikes. Who suffers?
The playbook across both public and private monopolies is the same. Both sides claim that their structures are necessary to serve a greater (social) good. But the definition of what is good keeps shifting. And the so-called beneficiary, i.e., the common person, keeps bearing the passthrough costs.
Perhaps the most damaging aspect of this monopolistic landscape is the general societal acceptance of it.
On one side of the debate is a deeply ingrained, historical fear of privatisation. The argument that breaking up state monopolies or fast-tracking private sector participation will hand vital public infrastructure over to an unaccountable corporate elite is not unfounded. It has happened quite alarmingly over the last two decades in India.
Unfortunately, over in SA in particular, this fear is often weaponised to maintain the status quo, under the guise of protecting jobs and state benevolence. The role of the state to act as a watchdog for enabling competitive markets seems to take a backseat everywhere.
And this is not just happening in SA, it is quite evident in India as well. But India’s population size seems to smooth out shocks in a way SA just cannot.
And then we have the public sector on the other side. Has the alternative to the evils of privatisation been an egalitarian public sector? Or a similar a system of protectionism and cultivation of a new class of elites?
Stuck in the middle of all this are the ordinary people, who have come to accept all this as another tax, i.e., the premium on the cost of living.
As they say, after birth, only two things are certain: death and taxes.
(Aside #1: Which makes me wonder why Tax is not part of the Eternals…)
(Aside #2: Just tossing an idea out for future research. If we were able to generate high frequency (say, monthly) estimates of the income distribution and the consumption expenditure distribution for a given society, and given our extant knowledge about consumption smoothing, could we estimate a temporal tax of living in a given society? Would such a tax be progressive?)