It may be worth a meagre R19-million, but a fight for a 24.9 percent stake in Gauteng station Kaya FM is set to have far-reaching consequences for South Africa’s radio market.
Both African Media Entertainment (AME) and Primedia have made offers to buy the stake which is the final asset of New Africa Investments Limited (Nail), which unbundled more than two years ago.
The story is interesting for several reasons. Nail’s shareholders curiously chose to accept a lower offer from Primedia (for R19-million), as opposed to AME’s offer for R25-million.
The Competition Tribunal in Pretoria late last year held hearings to find out whether Primedia, which also owns Talk Radio 702 and Highveld 94.7, would enjoy an unfair monopoly if it controlled three of the four major stations in Johannesburg.
The Competition Commission approved Primedia’s offer to buy the stake but added certain conditions which caused Primedia to turn to the Competition Tribunal.
Observers say the deal would have disastrous consequences for advertisers and that Primedia, if it owned three of the four major Johannesburg stations, would be in a position to literally charge what it liked for advertising.
Advertisers would be left with Jacaranda 94.2 which has just eight percent of its listeners in Johannesburg.
In time, Primedia could forge agreements with other stakeholders and structure its three Johannesburg stations so that there is one advertising sales office running Talk Radio 702, Highveld and Kaya.
Despite all these potential threats to the advertising market, the bosses of three of South Africa largest media houses, OMD Media, Media Compete and Media Shop, all testified on Primedia’s behalf at the tribunal.
One of the clear directives of the World Federation of Advertising is that advertisers should be fighting against aggregation of media ownership, not encouraging it. Media monopolies push up prices for advertisers.
It is a mystery why the three big media agencies all testified for Primedia, fuelling speculation of untoward deals which have been vehemently denied by the parties involved.
Why is the Kaya stake so valuable? The short answer – media assets are scarce. Kaya caters for a growing black middleclass, a market any good businessman would want to invest in now.
Also, a letter from the broadcasting authority, Icasa, read at the tribunal shortly before it closed, said no new frequencies were available in Johannesburg and this was unlikely to change until the switch from analogue to digital formats in 2015.
“The letter from Icasa to the tribunal supports our view that the radio market is highly concentrated in Johannesburg,” AME lawyer Zenwill “Zubby” Lacob says.
Both AME (which owns OFM and Algoa FM) and Primedia have dismissed suggestions that they would split the 24.9 percent stake in Kaya.
There are many questions. What will Primedia do with its Kaya stake over time and what effect will this have on the advertising industry? Why spend R19-million if you are not trying to exercise at least some control? And why would Nail prefer the lower Primedia bid?
Some believe the radio knowledge Primedia will offer Kaya is worth more than money.
“Primedia has lifted South Africa’s radio out of the doldrums. Were it not for Primedia, radio stations might still be broadcasting out of a cave in Auckland Park,” a media analyst observes.
Others believe that Nail promised the deal to Primedia in behind-the-scenes negotiations long ago, and that the Nail shareholders feel they cannot go back on their word.
Even though Primedia told the Competition Tribunal that it would not have an influence over Kaya, its chief executive William Kirsh in his testimony hinted at the company’s intention to be involved in the management of Kaya when he referred to the station as being “under-managed”.
AME and Primedia will submit their closing arguments this month and the tribunal is expected to make a ruling in February.