It could be that there was never a truer phrase coined in the service of making a living than ”fish where the fish are.”
Real fishermen will tell you this is easier said than done, but if your home reef happens to be South Africa’s commercial radio sector you probably reckon you won’t need to pack your depth finder and satellite navigation system. Cos, if you’ve been at it a while, you just know where the catch is; like a weathered sailor knows knots.
Not to beat the metaphor to death, but since privatisation of the old SABC stations in 1996 a licence to trawl in adult contemporary territory has been a licence to harvest commercial radio’s most fertile waters. The problem, of course, is that there are a limited number of licences available — and the people who hand them out are extremely conscious of overfishing depleting the stock.
What’s clear to the contenders is that the Independent Communications Authority of South Africa (Icasa) would ideally like to spread its ten new commercial radio licences (which will be awarded over the next two years) across a range of formats, and that any applications for adult contemporary licences will be scrutinised with a measure of circumspection.
”We don’t believe it’s in the interests of this country for stations to only go where the money is,” says Michael Markovitz, advisor to Icasa chairperson Mandla Langa.
”We don’t believe that a free market approach to formatting will deliver diversity. But that doesn’t mean that in the next round of licensing we’ll insist on new formats. What we could find is that the incumbent broadcasters will try and maintain exclusivity on specific formats; there is that concern. But some of the formats are generalised enough to allow for competition within them.”
So what is it about the adult contemporary licence that makes it so attractive for broadcasters and so tricky for Icasa?
The answer, in a word, is audience. Adult contemporary music appeals to the most economically active segment of the population, men and women in their 30s, 40s and early 50s who are peaking (or already at the peak) career-wise, and whom the advertisers are clamouring to get at.
In contrast, contemporary hit radio licences appeal to the relatively un-moneyed aspirants in their teens and 20s, and the talk radio or niched music formats (like classical or jazz) just don’t get the critical mass on listenership.
The financial results tell this story eloquently enough. Kagiso Media, which has stakes in three radio stations licensed to broadcast adult contemporary music, saw headline earnings from its radio division — on the audited results for the year ending 30th June 2004 — increase by 38%.
That’s a contribution of R76-million to the group’s total headline earnings of R90,9-million.
East Coast Radio, 100% owned by Kagiso Media, raked in advertising revenue of R181,9-million in 2003 (AIS/AdEx), which can in no small part be attributed to the station’s dominance of the KwaZulu-Natal market – at 2,1-million listeners per Rams 2004/’3 the station beats all the Gauteng contenders but one to claim the second spot in South Africa’s regional radio listenership stakes.
The number one spot belongs to another Kagiso Media station, Jacaranda 94.2fm. A few months ago the group upped it’s ante in the station from 42,5% to 60%, paying the disbanding Nail R55-million for the extra 17,5%.
The move was hardly surprising given the stats: Jacaranda returned revenue of R182,7-million in 2003 (AIS/AdEx) and current listenership figures are at 2,743-million (Rams 2004/’3).
Kagiso Media’s minority stake in Ofm is far less significant to the group’s bottom line — the Free State regional broadcaster only returned revenue of R17,5-million last year (AIS/AdEx) — but what this station does have in common with Jacaranda and East Coast (apart, of course, from the licence) is its history as an SABC station that got privatised, or sold off, in the mid ’90s. Something that adds to the heat Kagiso management takes for being in the right place at the right time.
Omar Essack, Kagiso’s executive director of broadcasting, is having none of it. ”We get the rough end of the stick on this,” he says.
”You have to give credit to our experience. All these stations were turned around, they were not doing well when we bought them. In the past [under the SABC] the stations formed a description of their format that was handed down from above. We went out and did extensive audience research, giving the listeners what they told us they wanted.”
Which also means Essack makes no apologies for the value of the adult contemporary licences to either his company’s bottom line or that of his competitors. ”That’s why William [Kirsh] paid over R300-million for Kfm. Our guys paid R40-million for East Coast in ’96 – what an investment!”
Not that the rumoured figure on Primedia’s acquisition of Kfm necessarily counts as over-paying. The analysts said as much when chief executive William Kirsh bought Highveld 94.7 from the SABC in the mid 90s, and they were proved hopelessly wrong.
At advertising revenue of R194,8-million for 2003 (AIS/AdEx), Highveld is today the biggest money-spinner of all adult contemporary stations, even though it’s only third in listenership terms.
Highveld is also the main contributor to Primedia’s profits, accounting for 47% in the year to June 2004 .The analysts weren’t bleating so loud when the group increased its stake in the station from 55% to 86% for R120-million earlier this year.
”That’s why William [Kirsh] paid over R300-million for Kfm. Our guys paid R40-million for East Coast in ’96 – what an investment!” — Omar Essack, Kagiso Media.
But the question for Kirsh is whether he can reach his own stated target of dropping Highveld’s contribution to Primedia’s profits closer to 25%, and whether Kfm will play a role in doing that.
While the latter may dominate the Western Cape market, station head Felicia Roman has admitted that 1,2-million listeners is probably the saturation point – at 1,224-million listeners (Rams 2004/’3), they’re already there.
The revenue figure of R129,7-million for 2003 (AIS/AdEx) could also be approaching the ceiling, and Kirsh knows it. ”[Kfm’s] revenue has shown astronomical growth in the last 18 months,” he told MoneyWeb’s Alec Hogg in August.
”We think we do a good job in selling radio air-time. How much value we can add to Kfm off its current base I’m not sure, but I think we can add some value.”
Which brings up the depleting stock problem again. The two new contenders in this market, P4 Cape Town and P4 Durban, have only recently righted themselves after the serious threat that they would keel over.
Aside from management and cash-flow issues, they had to deal with complaints that they were licenced as jazz and adult contemporary music stations, and that they were not playing enough of the former.
Having won that argument in front of Icasa, P4 Cape Town’s assistant station manager Philipa Hudson is confident that critical mass on listenership is being reached (556,000 per Rams 2004/’3).
”Revenue has been a little slower to catch on,” says Hudson. ”We’re now in a breakeven position for the first time in our history.” (Both P4s together returned under R4-million in 2003).
So, with AME’s two stations Ofm and Algoa respectively dominating the Free State and Eastern Cape (490,000 and 436,000 per Rams 2004/’3), it seems there’s not much left in these waters for the next generation. Like Essack says, ”if everybody wants to do the same thing, the market is overfished.”