Apparently, when Koos Bekker edited the student magazine at Stellenbosch University, a battered Volkswagen Beetle served as his office. Today, from the 18th floor in the Naspers building his office has views of Table Mountain and the Bay. The reorganisation of Naspers, MIH Holdings Limited (MIHH) and MIH Limited (MIHL) puts Bekker in control of the largest media company in South Africa, almost three times the size of its closest competitors Caxton/CTP and Johnnic. The only remaining similarity with his first editorial job is that he doesn’t earn a salary: he is paid if the share value improves. As he told Alec Hogg of Moneyweb: “I don’t believe in taking home a salary if you don’t really contribute any value to speak of if it turns out well I’ll make something, and if I don’t then probably I don’t deserve to make anything.”
Bekker won’t go hungry on the latest results. Although the Naspers share price dipped 5 percent to R20,50 as shareholders reacted to the proposed dilution of their holdings, this was up significantly from the September 2001 price of R14,95. Interim results posted for September 2002 showed group revenues grew by 26 percent, while operating profits before amortisation and impairment charges amounted to R78 million, compared to a loss in 2001 of R111 million.
Franca di Silvestro at HSBC Securities says: “The reorganisation was inevitable. There simply was no other way to make the group work.” The restructuring of the company meant that holders of Class A ordinary shares in MIHL and holders of MIHH shares other than Naspers and its subsidiaries swapped their shares for new shares in Naspers, while MIHH and MIHL were delisted and became wholly-owned subsidiaries of Naspers. Bekker explained to Hogg at the time: “[The old structure is] a pyramid structure at the bottom is MIHL, listed on Nasdaq and then above it MIHH, listed on Johannesburg and then above it Naspers, and the same assets are really underlying all three, so we’ve been requested by investors to collapse it all into a single entity.”
Does Pay-TV Pay?
The Naspers subscriber platforms pay-TV and M-Web contributed almost 60 percent of revenue in 2002. Print magazines, newspapers and books contributed just under 30 percent. However, earnings for the subscriber platforms were R182 million, whereas for print it was R406 million.
Pay-TV is what earned Bekker the nickname ‘electronic man.’ In 1982 he did an MA on the subject at Columbia University in New York. Home Box Office (HBO) had just launched in the United States, and Bekker realised it could work in South Africa. So he approached Ton Vosloo at Nasionale Pers (now chairman) with the idea of a pay-TV channel.
That was in the mid 1980s. Political unrest swept the land and the English language press were under siege. Nasionale Pers, with its links to the Afrikaner Broederbond and access to the National Party government, had little difficulty convincing the state broadcaster, SABC, that a pay-TV channel was not a threat. They pointed out to Pik Botha, who controlled the broadcast portfolio, that a pay-TV channel would not take away existing advertisers from SABC as it relied on subscriptions and, they agreed, it would only deal with entertainment, not news. Media analyst and former general manager of South African Associated Newspapers (SAAN), Raymond Louw, argues there was more to the agreement, and that the outspoken Rand Daily Mail was closed by its wealthy mine-industry owners in a “trade-off with the government for the M-Net licence.”
In the first year of operation, M-Net’s revenue was R500,000 against expenses of R3,5 million. But within two years this had been turned around. In 1990, M-Net was listed with MultiChoice as the subscriber management and digital services subsidiary. MultiChoice Africa was created in 1995 and today reaches approximately 1,3 million households in 49 countries across Africa, including the adjacent Indian Ocean islands. The television services comprise terrestrial analogue and digital satellite television (DStv) bouquets. The digital service consists of some 50 video channels, six data channels and 48 audio channels.
Naspers now derives more than 40 percent of its revenue from abroad. In Greece, NetMed manages the television platforms and offers 28 channels in Greek and more than 100 other European channels. In Thailand, United Broadcasting Corporation (UBC) provides a television service through two different broadcasting systems: digital satellite (DStv) and analogue cable. UBC ended the year with 413 000 subscribers. In China, Naspers has an interest in QQ, an instant-messaging company that processes more than 500 million messages per day and has some 1,5 million paying mobile subscribers. The sports portal, SportsCN, is one of the leading services of its kind in China.
Sticking with New Media
Despite these impressive assets, between 1998 and 2001 Naspers was under fire. It had injected more than R460 million into M-Web, the group’s online play. The funds poured in while the share value of M-Web fell from R4,50 when it was launched to R1,25 last year. Institutional investors demanded a buy out of minority shareholders in M-Web, which was apparently burning more than R27 million worth of investors’ money each month. In the six months to September 2001, it lost R152 million on revenue of R160,8 million. After delisting, Naspers laid off more than 200 people.
M-Web remains SA’s biggest dial-up service provider with approximately 249 000 subscribers. At the time of the delisting, then chief executive of M-Web, Antonie Roux, talked of the importance of integrating the group’s subscription and media platforms. “In this way we will be able to expand our subscribers’ experience seamlessly to television and other services,” he told Business Day. The delisting, he said, would give the company a chance to expand the business with internal funding. (Internal funding is not lacking. Analysts estimate that the current reorganisation of Naspers unlocked more than $220 million held by subsidiary MIH Limited.)
But are they throwing good money after bad? Naspers executive director Steve Pacak says that in the 1980s people criticised the millions spent developing the now hugely successful pay-TV businesses, M-Net. “We believe that the Internet industry is going to grow here and abroad,” Pacak told Business Times, “despite the current market turbulence.” Yet the rationale that throwing money at one particular problem resolved it does not necessarily mean the strategy will work for another.
Using the America Online (AOL) paid-for content business model in an attempt to reach profitability makes sense, but only if the content is compelling enough to warrant the price. AOL’s new chairman, Jonathan F. Miller, who took over in August 2002, is hoping that the mantra the company abandoned five years ago ‘content is king’ will work today. However, last December AOL Time Warner announced that the AOL division’s 2003 advertising/commerce revenues are projected to drop 40 to 50 percent. Many analysts say Time Warner should lose AOL.
Like AOL, M-Web has access to a vast amount of original information. But very few pure Internet companies make profits without resorting to penis enlargement pills, pyramid schemes or porn. And Naspers like AOL Time Warner is struggling to figure out how to come up with online content and services that mainstream consumers will pay for.
According to the Financial Mail’s Top Companies Survey 2002, “you would have been no worse off investing in Argentinean bonds” than the JSE’s Media index. Not surprisingly, shareholders and investors are asking how companies plan to keep existing audiences never mind increase them and whether these companies have any smart ideas for getting more revenue out of each user. Ultimately, investors must ask whether M-Web’s metamorphosis from the nation’s largest access provider to a leading provider of premium content services will work and whether it will stop users leaving the ‘walled garden’ for a competing provider.
The Old Media ‘Cash Cow’
So, will even more pressure be put on the traditional print media to feed the cyber beast? Naspers has more than 30 titles in the Media24 Magazines stable, and is the largest publisher of consumer magazines in Africa. Its biggies are Huisgenoot (1,4 million copies per month) and YOU. Media24 Magazines also publishes big-selling women’s magazines Fairlady, Sarie, True Love and Woman’s Value.
Media24 Nasnews’ owns the weekly newspapers City Press and Rapport and the daily titles, Die Burger and Beeld. Bekker has invested in the newspapers in a bid to make them serious contenders. The division showed an increase in operating profits over the last year, and profit margins improved. It has a foothold in the English language market through City Press, Sunday Sun and The Natal Witness (of which it owns 50 percent).
Still, with investors and shareholders battering at the door, the temptation to slash news budgets, shrink the news hole and cut back on reporting staff is ever present. After all, Media24 is by no means immune from conditions in the print market, where stagnant advertising revenues are squeezing margins across the board.
Bigger Brother, Bigger Threat?
Naspers now has a large war chest; a portion of which will be used to fund further expansion. In March 2002 MultiChoice launched return-path interactive television (iTV) services, including enhanced television programming, t-mail (e-mail via television) and t-commerce (e-commerce via television). If the regulator allows, it might also move into radio the most promising medium in terms of advertising revenue growth.
But would an even bigger brother, with assets across all media types, pose a bigger threat? If you speak to writer and critic Robert Kirby he will undoubtedly say yes. Kirby claims that in 2001, the Naspers board pressured Jonathan Ball, of book publisher Jonathan Ball Harper Collins (wholly-owned by Naspers), into pulling his novel Songs of the Cockroach because, amongst other things, it satirised some of the people you might find in Naspers today.
Ball says the decision to abandon publication was his own and was done because the novel was “highly defamatory.” Kirby claims otherwise, and is supported by the Freedom of Expression Institute (FXI). FXI issued a statement saying that it was “deeply distressed” by the decision not to publish Kirby’s novel. It went on to say: “If publishing decisions were to be driven by the fear of attracting defamation action primarily, then the publishing industry would grind to a halt. The promotion of literary forms such as political satire would become impossible, as would investigative journalism and a range of other activities that are premised on pushing the boundaries of free expression.”
Whatever the truth of the Kirby debacle, it raises the fundamental dilemma of modern media. Bekker has brought Naspers home, he has unlocked significant shareholder value and added substantially to the overall market capitalisation of a small and battered sector. Whether the younger man, that guy editing a student magazine from his Beetle, feels his vision has been realised for the good is something only he can answer.