/ 21 November 2005

Conservative Route

There’s a perception in the market that Kagiso Media’s success has a lot to do with its entrenched monopoly in the adult contemporary space. How do you respond to that?

I recall a Sunday Times article that was published on June 6th 1999 on how the media sector was booming. I had been in this position for six days, and neither Kagiso nor I were mentioned. Of those companies that were mentioned, hardly any exist today. We took a decision that we would go the conservative route and its paid off.

For a long time East Coast Radio was the only station we controlled, and our share price was languishing. But after East Coast was privatised we increased the listenership five-fold. The revenue quadrupled. Not because it was a monopoly, but because we invested real money in real talent. We transformed it.

Assuming we had failed, would this argument still be made? Maybe if we were failures we would be allowed to own more stations?

But there’s also the view that the margins on South African adult contemporary radio are higher than anywhere in the world. Given that you’re responsible to shareholders, why would you want to go after any other type of content?

We’ve looked at the operating margins of similar radio stations globally, and they’ve come in at around 46 percent. I would argue that we are in the same ballpark in terms of global benchmarking.

If you have one owner covering several radio stations you are more likely to have diversity of content. The alternative is several owners all playing Neil Diamond. We are more likely to cover talk and rock ‘n roll, for instance, if we have more stations.

What is Kagiso Media’s position on the new commercial licences that the regulator is granting in secondary markets? Assuming the revised ownership structures allow it, will you be applying?

During the ownership review we said we were sceptical about the viability of these stations. The jury is out on whether they will work. Look at the greenfield licences, stations like Kaya and P4, they had serious difficulties when they were launched.

But our position on these new entrants is that we would like to support them as technical partners or minority investors.

Radio is losing out to television in terms of its share of overall advertising revenue. What’s your strategy to correct that?

We have to have a view to grow radio’s share. There are several factors influencing why adspend goes to TV in this buoyant economic climate. Young viewers are growing up with immense visual stimulation. The agencies will favour TV in some instances, which seems to be a factor in our desktop research.

In the medium- to long-term, the 30-second spot on radio will need to become more innovative. We are putting together our own package of measurements to address what TV can do to radio advertising revenue. It raises the bar for us, and pushes us to be more innovative in our offering.

Also, unlike in other markets where private radio sells against private TV, here private radio sells against public TV. We know that the muscle of the SABC is such that when it comes to cross-selling, it is difficult for us to compete.

Isn’t that something all private radio players should be addressing together? Wouldn’t a strong lobby of commercial radio broadcasters be able to better argue the point?

A lobby can bring the issue to the attention of the policy makers, but in the end it will still be the policy makers themselves deciding how best to handle the mix.