How many other media brands in the world show growth like this? An investment of R10 000 in M-Net shares in 1993 would have fetched just under R150 000 last year, or so the Sunday Times noted in its 2003 “Top 100” survey.
The sum placed dual-listed M-Net/Supersport third on the newspaper’s index of 10-year South African business success stories, not too far behind Gencor and Impala Platinum.
But the private media investor can stop salivating right about here. The impending prospect of losing its lucrative open-time licence and the maturation of the local pay-TV market do not bode well for the perpetuation of M-Net’s vertical trajectory. Besides, the shares were delisted a few months ago.
“In a listed environment we were under a lot more scrutiny; when unlisted [the performance expectation] is up to the two shareholders,” explains M-Net CEO Glen Marques. “A lot of the old pressures aren’t there now.”
Of course shareholders such as Naspers (60%) and Johncom (40%) will not be easy to please either, so Marques is not being glib about his task. Margins in the media game have been severely squeezed by a five-year global slump in advertising spend and, while a recovery seems likely, the big conglomerates are still leaning on proven subscription-based assets.
Which means the question to the CEO stays the same: can M-Net sustain its growth path and deliver net profits better than the R127-million recorded for the year to March 2003?
“Whether we can continue to grow at around 20% a year? It’s a challenge faced by any other business. Our levels of penetration in the black market have traditionally been low and now a high percentage of our new subscribers are black. A lot depends on the economy of South Africa. If the black middle class grows, we will grow.”
Marques also points, predictably, to the opportunities for growth presented by M-Net’s push into Africa. Angola is currently the service’s second-largest market outside South Africa.
“We’re not entirely sure ourselves why that is,” Marques admits, before offering an explanation anyway. “There’s a lot of money coming into the country. Many foreign businesses began moving in there towards the end of last year.”
Still, influx of foreign capital aside, M-Net’s programming has always been the key to its success, for Africa as much as for the local market. The broad strategy out of the Naspers group is to migrate the old analog subscribers on to the digital DStv platform and, contrary to what one might think, the proliferation of choice has not really affected the stalwart pay-TV channel.
“The fact remains that M-Net is the most watched channel on DStv,” Marques confirms. “That comes through even in a digital environment.”
But this has something to do with reality TV, right? And how sustainable is that?
“We know Big Brother II never caught the public imagination like Big Brother I,” says Marques. “There was a lot more critical stuff in the press about it. But from a pure ratings point of view it did just as well as the first show. And our advertising revenue was better for Big Brother II. Idols II was the same, although we thought it was a far better show than the first one. It was more popular because of word-of-mouth, the ratings were much better, and the revenue was up.
“Is it sustainable? That’s an interesting question. A lot of people think reality TV is a fad, and sure, we need to ride the wave while we can. We need to follow the trends in the rest of the world, but at the same time make sure that in this country we’re in front. We’ve tended to go for shows we can create an event out of. We hope Fame and The Block will do the same.”
Marques adds that M-Net took a “huge risk” with Idols. He says that Popstars, which was also pitched to the channel, looked at the time to be the safer option, as it had already been done in 15 other countries. Ultimately, the decision to go with Idols was based on M-Net’s assessment of its superior format, a decision Marques seems pleased with in hindsight. And he won’t be drawn into comment on what Popstars did for the SABC.
Unexpectedly, comment from Marques is forthcoming on the well-publicised possibility of M-Net’s loss of its open-time licence.
In May the Independent Communications Authority of South Africa (Icasa) announced the start of a public process that could lead to the removal, in 2006, of M-Net’s daily 5pm to 7pm open window. According to Michael Markovitz, adviser to Icasa chairperson Mandla Langa, the process is driven by a stipulation in the IBA Act that demands “fair competition” among broadcasters.
In 1997, when the open-time licence was reviewed and re-awarded for the umpteenth time, the second private broadcaster e.tv had not yet made an appearance. So is it fair that M-Net draws revenue from subscription fees and mass market free-to-air advertising while e.tv only has access to the latter?
“It doesn’t follow logically,” says Marques. “How can you advance fair competition by getting rid of a competitor? If you want to advance competition, you increase it. There’s been this hysterical reaction from the market and commentators, that the licence should be taken away. But there’s no evidence that our advertising revenue will go to either e.tv or SABC. It could damage the local production sector, because if we lose the licence we’ll have to seriously consider whether we continue with Egoli.”
So how much revenue does M-Net stand to lose, then?
“We’ve never given an answer on the revenue split between subscription and advertising. Obviously Icasa has it, but even the analysts were never given it when we were listed. In Finance Week they said we could lose anything between R70-million and R200-million a year if the open-time licence goes. I don’t know where they got those numbers. The spread is an indication of what a guess it is.”
All fighting words from an understated and demure chief executive. During his career Marques has worked as a journalist, a public prosecutor for the Department of Justice and Constitutional Development and an attorney for a private law firm. Between 1994 and 1997 he was senior legal adviser at the Independent Broadcasting Authority, predecessor to Icasa, and he has been at the helm of M-Net since 2000.
Although every indication is that his channel’s stratospheric growth is about to level off, he could be the man for the challenge.
Kevin Bloom is editor of The Media magazine