New Africa Investment Limited (Nail) boss Saki Macozoma is bidding for a pup in the shape of Johncom, the media and entertainment arm of Johnnic Holdings, media analysts have warned.
Macozoma confirmed last week that Nail is bidding for the group, which includes the coveted Sunday Times, half of BDFM (the company that owns Business Day and the Financial Mail), Sowetan Sunday World, which Nail co-owns, and a magazine division that includes the glossy Elle.
This week Macozoma told the Mail & Guardian that his group strategic vision for acquiring Johncom was driven by ”the need to have critical mass in print media and utilise its otherwise idle cash resources”.
Commentators this week pointed to the poor shape of the media industry. They emphasised that any purchase of print-media assets was a gamble that left the buyer with an entity yielding relatively low returns and, contrary to popular belief, little or no political influence.
The proposed sale comes at a time when the industry is struggling with falling or stagnant circulations and declining advertising revenue, with no respite on the horizon.
In addition to its print interests, Johncom owns the record label Gallo Music, the cinema group Nu Metro and the book retailers Exclusive Books. In electronic media, the group has a 26,1% interest in M-Net’s Supersport. It also has a 44,1% interest in CTP Caxton and a digital media division that includes news group I-Net Bridge.
Nail previously bid for Johnnic’s publishing division, but at the time Johnnic was reluctant to relinquish its lucrative stake in Caxton. Now, it seems, it is prepared to exit the media industry and become a focused telecommunications group, anchored by its ownership of the cellular phone company MTN.
The change of heart has been partly prompted by the National Empowerment Corporation, Johnnic’s largest empowerment shareholder, which needs to raise cash to repay debts used to finance the 33% interest in Johnnic that it bought six years ago.
There is also talk of a management buyout led by Johnnic Publishing CEO Connie Molusi. Approached for comment, Molusi refused to give credence to the idea, choosing instead ”to leave it as speculation”.
Another bidder may be a private equity fund, said to be bent on stripping the group’s assets. Johnnic is believed to be reluctant to sell its holdings piece by piece.
Macozoma indicated that, if the bid failed, he would ”not necessarily” pursue other media assets.
John Slettevold, a media analyst at UBS Warburg, confirms that media assets ”have traditionally not given good returns”, between 10% and 15%.
Slettevold values Johncom at R2-billion, with its listed interest in Supersport and Caxton worth R1,6-billion. He expects Nail to have few problems financing the deal. It has a cash pile of R600-million, of which R100-million is to cover contingency liability.
The group can raise up to R230-million from its 5,2% holding in New Africa Capital and the balance from loans and the sale of non-core assets. The most obvious of these is its 26,1% stake in M-Net’s Supersport.
Because of its shareholding in radio stations Jacaranda 94.2FM, Kaya FM and KFM, current cross-media ownership regulations forbid Nail from having an interest in a TV channel.
A media executive who declined to be named suggested that Nail might buy and then sell everything in Johncom except the media assets.
”Saki has no interest whatsoever in Johnnic’s entertainment assets,” the executive said. ”His motive is overridingly political.”
But a media and telecommunications business strategy consultant scoffed at Nail’s planned purchase and the idea that Macozoma could build his political influence through newspapers.
”Congratulations to Johnnic for managing to create such hype about this sale,” he said. ”Everyone knows these assets do not give great returns.”
Citing the faltering fortunes of Business Day and Financial Mail, he said financial publications have suffered because of revised stock-exchange rules that no longer compel listed companies to publish key financial announcements in national print media.
”Those titles are also suffering because of advertising declines in a bear market,” he said. ”Most importantly, the big hit has been from [information technology] companies.” These have slashed advertising significantly in the wake of an international slump in telecommunications.
The consultant said the idea that political influence could be wielded in South Africa by using newspapers was a ”fallacy. South African editors cannot be pushed around.”
In recent years, the print media have experienced falling circulations and declining revenues, and Slettevold expects it to show a ”pedestrian” performance this year. ”I do not see it nose-diving — but I do not see it skyrocketing either.”
In times of recession, Slettevold suggested that ”companies closely monitor costs and have the right product mix” to facilitate cross-subsidisation.
He said empowerment at major newspaper titles meant more than having black owners, managers and editors, and should not be confined to equity participation, but that ”will not happen overnight”.
Writing in The Media magazine, Gordon Patterson, MD of media planning company Starcom, argued that print — in particular newspapers — was in for a tough year. In the face of declining circulation, the hardest-hit area would be street sales. This, combined with a moderate advertising rates increase, would trim advertiser value.
Figures from the research firm AC Nielsen show that the print media have benefited from a nominal increase in advertising spending, but their share of the advertising budget has been falling over the past five years. Between January and November 1998, print attracted advertising worth R2,8-billion and commanded a 46,9% share of advertising spending. Over the same period last year, advertising revenue was at R4-billion — 43,6% of advertising budgets.
Patterson told the M&G that if television broadcast sponsorship was included, the drop would be even more pronounced.
Print has also lost ground to cinema, which has invested in new digital technology. He expected outdoor media, such as billboards, to continue eating into print’s share of advertising.
Patterson said he was baffled by media owners’ decisions to increase advertising rates while raising discounts to large advertisers. ”What that does is to make a title dependent on a few big advertisers,” he argued.
He believes the current slide started 10 years ago, when ”the connection between editors and readers was broken” and the repositioning of publications was commercially driven. Even a big event like 2004’s election will not necessarily act as a panacea.
”Publications must serve the interests of readers. If they chase the advertising buck with coverage that panders to the advertisers, it will hasten the decline.”
One outfit that is doing well in hard times is Naspers, owner of the major Afrikaans newspaper titles, City Press and the influential magazines Drum and True Love, among others.
Its print interests are housed in Media24, which has Newspaper24, Magazine24, distributing division Nasionale Nuus Distributors, the magazine printing division Paarl Media and the Internet news service News24.
In the six months to last September, the print media division improved its revenue by 7% to R1,1-billion, with the growth attributed to higher advertising revenue from newspapers. The company launched a mass circulation daily, the Daily Sun, which now has a circulation of about 60 000.
About R1,5-billion has been pumped into the division over the past five years to upgrade printing infrastructure, launch new titles or revamp existing ones.
Despite its financial success, Media24’s main problem is that it lacks an empowerment partner. Finding one could not be perpetually deferred, noted an industry observer close to the group.
”[Naspers] must do a deal soon and bring in a black equity partner at the level of Media24. They cannot just sit by and watch deals happen elsewhere. The kind of players being spoken about need not be the usual, familiar figures. It must be someone who has a connection to the [political] establishment, who can make things happen commercially.”
The observer said the mining magnate Patrice Motsepe was an example of a potential new media player. A source inside Media24 said: ”I think they are ready.”
A Naspers executive who asked to remain anonymous refused to say if moves were afoot to recruit a new equity partner for Media24 and pointed to the parent company’s empowerment credentials. He said Naspers had 17 000 historically disadvantaged shareholders through the Welkom share scheme. Through the Phuthuma share scheme, it had another 40 000 empowered shareholders in M-Net.
The media industry is also mildly abuzz at the news that Tokyo Sexwale’s Mvelephanda Holdings is seeking a deal with the Independent Newspapers group, the dominant force in English-language media and the owner of The Star, among other titles.
Mvelaphanda’s CEO, Mark Wilcox, told the M&G: ”We can never rule out a possibility if a good deal comes along. But at the moment we have no intention of getting into media.”
Any involvement would be as a minority in a consortium.
Expanding into media would stretch Mvelaphanda. Until recently it was a focused mining group, but it has just spent R36-million to acquire 30% of the institutional asset manager Abvest with a view to becoming a serious player in financial services.