At the time of going to print, all indications are that New Africa Investments Limited (Nail) will be bought by a consortium that includes its own CEO, Saki Macozoma. A bid from a consortium led by the Tiso Private Equity Fund counts Safika Holdings, of which Macozoma is chief, in its ranks. Notwithstanding Macozoma’s poor record since taking the reins, over half of Nail’s shareholders support the offer.
Given Macozoma’s much publicised frustration at the regulatory barriers to consolidation in the media sector, it is expected, should the Tiso consortium be successful, that most of the Nail assets will be sold off to willing buyers. Of the radio assets, Nail has 42,5 percent of Jacaranda and 66,5 percent of Kfm, as well as a stake in Kaya FM. In 2001, Nail’s attempt to up its stake in radio by acquiring Kagiso Media was blocked by the Independent Communications Authority of South Africa (Icasa), which gave as its primary reason the dilution of empowerment shareholding such a move would entail (Nail had a 5 percent empowerment shareholding against Kagiso’s 24 percent).
Alongside its stance on empowerment, Icasa is equally concerned with safeguarding media diversity. In this sense it enforces the stipulations of the Independent Broadcasting Authority Act (1993), which state that no organisation may control more than two FM stations and two AM stations.
Ironically, in 1993 Macozoma was the ANC’s media spokesman and a major force in pushing through the existing regulations. Earlier this year he was reported as saying, ‘it is time for change”, and he told the Financial Mail that such changes were necessary in order to ‘create a viable and sustainable radio industry”.
On this point, radio industry leaders agree. Stan Katz, CEO of African Media Entertainment (AME), has stated that the regulator needs to create the environment for “a new era of free competition among commercial players”.
Managing director of radio sales house Radmark Coen Gous says that growth in the private sector can only come about through increased competition. “Competition is good,” he says, “and while most people believe that consolidation will take place [if the ownership rules are changed], most people also believe the market is only big enough for two major players.”
It’s not that Gous thinks the small guys will disappear completely. He acknowledges that most of the ‘greenfield’ stations are growing and that most are profitable. And by all accounts, it is the regional radio stations that are showing the biggest growth. ‘Our experience abroad tells us that it usually takes a radio station five years to break even. Yfm did better than that, but all the others are also doing well,” he says.
Take East Coast Radio as an example. It’s seen weekly audience figures grow by almost 30 percent to 1,622 million listeners. For its part, Jacaranda reaches 2,093-million adult listeners per week, making it the country’s largest private and independent radio station.
Still, Gous asserts that major changes are necessary. “Consolidation will improve the profitability of the radio stations,” he adds. “They can’t grow the business on a small base of assets, which is currently the case.”
Recognising this need for convergence, the National Association of Broadcasters (NAB), which represents the country’s major broadcasters, has drawn up a 10-point plan that it says will make the industry more competitive at a global level. Ten years ago convergence was a buzzword; today it’s a reality.
Within all this, the fact remains that radio reaches the people. It is estimated that more than 320 out of every 1,000 South Africans own or have access to a radio, compared to the 45 people out of 1,000 who buy a newspaper (recent figures, it should be noted, indicate that 45 percent of the population read a daily paper). Radmark claims that “80 percent of 15-24 year olds listen to [radio] each week” and that they listen longer.
So with radio now garnering less than 15 percent of the country’s total adspend, it’s not surprising that the big players want to change the 1993 regulations. At about R1,6 billion, this is still a long way behind print, but it makes CEOs (and shareholders) sit up and take notice.
Interested investors, however, would also be well advised to note the challenges. Ten years ago the field consisted of only two private companies: 702 and Capital Radio. There are a lot more players now, and with SABC separated into public and public commercial divisions (as required by the Broadcasting Amendment Act of 2002, which came into effect earlier this year) the fight for adspend is going to get tougher.
Outside of the SABC, there are the major commercial radio owners Primedia Broadcasting (94.7 Highveld Stereo, 702 Talk Radio and 567 Cape Talk), African Media Entertainment (Algoa and Ofm), Kagiso Media (East Coast Radio and stakes in Jacaranda and Ofm) and Nail. If regulations ease cross-media ownership restrictions, we can expect Naspers to enter the fray and shop around for some of the smaller stations. Their shopping list would probably include the independent and niche stations, and the greenfields that were given licences in 1997, such as P4, Classic FM, Kfm and Yfm, which have been increasing their audience share to around 6 percent of listeners.
Still, it is perhaps because of the fierce rivalry that Radmark has seen a 25 percent growth in revenue for the first half of 2003 over last year, with sales house competitor United Stations posting a 16 percent increase for the period July ’02 to June ’03. Further, Gous says that total adspend for all radio should grow by at least 16 percent this year (current AC Nielsen figures confirms this).
Whatever the numbers, it’s clear that if you want to sell something – be it soap or politics – radio is probably as good, if not better, than any other vehicle. Given the vast reach of the medium, a number of commentators have highlighted the need for South African marketing and advertising people to take a more serious look at who they could target through radio. Group managing director of The MediaShop Harry Herber makes a telling analysis of the amount of spend that the audience of various radio stations have, and compares it to the amount of adspend that those stations received (Herber was working on the AC Nielsen AdIndex figures for 2002, but the point he was making remains relevant).
Leaving aside the issue of whether the failure to use radio stations that target black listeners is a racist plot, his figures throw up some interesting ideas. For example, the amount of money in the total pocket of Metro FM listeners is a huge R8,64 billion per month; R3,5 billion per month more than in that of the Highveld listeners’ total pocket. Even if you narrowed down the listeners to those who fall within the LSM 6-10 bracket, the Metro listeners are R6,18 billion per month compared to Highveld’s R5,02 billion.
What Herber goes on to point out is that, during this same period, Metro’s ad revenue was only R138,3 million per year compared to Highveld’s, which was R156,2 million per year. Metro reaches 5,661 million listeners while Highveld reaches 1,107 million (RAMS 2002B).
A similar case can be made with 702 and Yfm. The 702 listeners’ total pocket is worth R1,3 billion per month against the R2,73 billion of Yfm. Yet 702’s annual revenue is R32,5 million, a mere R7 million less than Yfm’s.
So it shouldn’t take more than one or two rocket scientists and the odd media buyer to work out that with some smart marketing and careful planning, radio could get some great results. And in a time when return on investment is almost a mantra, it should provide some hope.
Looking to the foreign example, some major brands, such as Virgin Mobile in the UK, have capitalised on the fact that radio creates and encourages interactivity. Figures show that 28 percent of people have taken part in some kind of radio station activity in the past. Virgin played on this to get listeners strongly involved in their campaign.
The local policy is to move away from looking at the audience in terms of ‘black’ or ‘white’, to a view seen simply as ‘lifestyles’. It places the South African advertiser in a great position to get a piece of the Virgin-style action.
In 1993, as ANC media spokesman, Saki Macozoma was a driving force behind existing broadcast regulations. Less than a decade later these selfsame regulations would hamstring Macozoma when, as chief executive of a Nail, he would attempt a merger with Kagiso Media.
Earlier this year, Primedia Broadcasting merged the sales forces of 94.7 Highveld Stereo and 702Talk Radio. According to Jeremy Maggs, writing in the Financial Mail, some media strategists said this was driven by a “need to increase 702’s flagging financial fortunes”. But Primedia Broadcasting’s CEO Terry Volkwyn (above) said it was a strategic move designed to provide advertisers with a single point of access to the same upper LSM Gauteng audience reached by the two brands. Under Volkwyn’s leadership over the past four years, Highveld’s revenue base has grown by 65 percent from R108 million to R178 million.
Two major sales houses handle the advertising for the bulk of the independent commercial stations: Radmark and United Stations. Radmark managing director Coen Gous (above) says that the market has over the last six years experienced “spectacular growth” in revenue and listeners, but he does provide a cautionary note. By all accounts, 2002 was a shocker, and given South Africa’s inflation rate, radio adspend was probably down by about 3 percent, so the industry is coming off a low moment. “You must take into account that the first quarter of this year was bullish, helped by the Cricket World Cup,” he says. “I expect a good year, though, and expect it will be profitable.”