South Africa's media sector records strong revenue growth

South Africa’s media sector is perhaps the largest, and without a doubt the most sophisticated and dynamic, on the continent. It has certainly come a long way since 1976, when the country aired its first broadcast. With more than 850 print titles, around 250 radio stations, and 16 television providers offering more than 170 channels, the country does not lack for choice. The reach of broadcast in particular is impressive, with a steady rise in channels and advertising revenues.

Ownership is diversified as well, with hundreds of independent and community options both in radio and print providing targeted local and language-specific coverage, although outlets owned by a handful of major media groups – including the JSE-listed firms of Naspers, Caxton and Times Media Group (TMG), along with privately held Primedia and Independent News and Media – are responsible for a majority of audience figures.

As in media markets worldwide, traditional mediums are being shaken up by the rise of digital access and “platform agnostic” (a lack of preference for a specific medium) content consumption, with print readership being among the most visibly impacted. According to Kuben Pillay, the chairman of Primedia, “Slow, unstable and expensive broadband will be the only impediment that could delay the digital shift. Content will always be in demand but it is the transition from one format, like print, to another that will take time.” However, the sector is facing broader headwinds, from pressure to allow closer government regulation to job cuts, to a delayed digital terrestrial migration.

Strong Performance

Yet this has not stopped the broader sector from posting strong overall performance. According to PwC’s “2015-19 Entertainment and Media Outlook”, published in September 2015, the media and entertainment industries – which include print and broadcast media, alongside segments such as books, video games and live events – posted an 11.5% year-on-year (y-o-y) growth in revenues in 2014, down a couple of percentage points from the roughly 14% in 2013, but still an impressive double-digit showing, particularly against advanced economies such as Europe. Growth is expected to stabilise somewhat in the years to come, slowing to high single digits by the end of 2016, but according to PwC is nonetheless expected to see an increase in revenue to roughly R176bn ($15.2bn) over the next five years, up from R112bn ($9.7bn) in 2014.

Highlighting the importance of digital content and programming for South Africa’s outlets, just under half of that is forecast to come from digital activities, including internet access and online advertising, rising as a proportion of revenues from around one-third currently; in 2012, by comparison, that figure was only around one-quarter.

Print Prospects

The strong headline performance of the overall sector obscures varying prospects for different mediums, however. The rise of online content has created a challenge for media houses around the world, and South Africa is no exception: although the country benefits from strong literacy rates of 93%, and a high level of urbanisation of 62%, many of the country’s biggest print titles are now looking towards new or innovative solutions to reverse a slowdown in revenues.

As a contrast to the strong recent and expected performance of digital activity, print has seen compound annual growth rate of less than 1% over the past two years, a trend that PwC expects to continue over the coming five years.

Similarly, according to South Africa’s Audit Bureau of Circulation (ABC), circulation for newspapers and press has declined by 1.7% between Q1 and Q2 2015 to 9.8m. This is part of a broader trend, with press circulation down by about 700,000 between Q1 2014 and Q2 2015. This figure is even more pronounced among magazines, which have seen circulation figures decline by roughly 3.5m since Q1 2014, including an 8.3% drop from Q1 to Q2 2015 to 15.7m. In both cases, free copies made up the bulk of circulation figures, at roughly 60% of the total. This has had a noticeable impact on the segment. Between Q2 and 2013 and Q2 2014, for example, the print segment shed at least 600 jobs, primarily through retrenchments at Media24 – the print division of Naspers – and TMG, while the South African Press Association, a non-profit press agency that provided reporting services following its launch in 1938, shuttered its doors in March 2015 due to a lack of funding.

The overall number of print titles of 858 is also down slightly against the end of 2014, when there were 875, but still remains impressive for a country with a population of roughly 55m.

Sustainability

However, while growth is under pressure, the sheer diversity of the print segment may prove one of its most resilient traits. According to the ABC, by mid-2015, the segment had just under 350 newspaper titles, including 28 dailies, alongside weekly and weekend titles and a number of local and free outlets. There were just over 500 magazine titles as well, including more than 200 consumer-orientated publications and 180 business-orientated publications.

Encouragingly, this still gives print an edge over digital content, particularly among lower-income segments of the population where internet access is still limited. Overall, a 2014 All Media and Products Study conducted by the South African Audience Research Foundation found that newspaper and magazines combined reached 63% of the overall adult population. This was roughly double the reach of internet content: according to a 2014 study by Omnicom Media Group, only 35% of the adult population regularly accessed the internet.

Print Players

In spite of the large number of titles available overall, a few major media houses dominate the print segment. In the Gauteng province, for example, which contains both Johannesburg and Pretoria – two of the largest urban markets in the country – the eight largest by circulation daily titles overall are owned by four firms, while the nine largest by circulation local newspaper titles are owned by a single publisher.

Prominent among the primary players are: Media24, owned by South Africa’s largest media company, Naspers; Caxton Publishers and Printers; TMG; and Independent News and Media. Together, these firms – the first three of which are publicly listed – own an estimated 90% of print media, with Media24 and Caxton accounting for as much as 60% of the overall market alone, according to the Association of Independent Publishers (AIP). M&G Media, which is owned by Zimbabwean investor Trevor Ncube, also retains a prominent profile through its weekly title, Mail & Guardian as does TNA Media, which owns weekly title The New Age, launched in 2010.

The companies have been particularly active in recent years, with Caxton having acquired digital media house Habari Media, which represents clients including the BBC and MTV, in 2013.

The same year saw TMG acquiring the remaining 50% stake in The Business Day and Financial Mail brands from the UK conglomerate Pearson, as well as the R2bn ($172.8m) acquisition of INM by the local private equity firm Sekunjalo Investments from Ireland’s News and Media.

However, there is also a sizeable population of local and grassroots newspapers, with more than 150 titles that according to the AIP – an industry body which represents small publishers – have a circulation of approximately 8m and a readership of up to 28m. With a handful of exceptions, most titles have individual circulation figures well below 50,000 but offer significant variety in terms of language as well as black and woman-ownership.

Still, the largest print circulations remain those controlled by the listed companies. According to the ABC, in Q2 2015, the largest daily newspaper was Media24-owned tabloid Daily Sun, with 240,513 – roughly double the next largest, The Times, owned by TMG. For weekend press, the roles were reversed, with TMG’s Sunday Times holding pole position with 355,414 for Q2 2015 versus 146,079 for Media24’s Sunday Sun.

Radio Performance

Of all of the different forms of media available throughout the market, radio provides the single greatest reach; this is perhaps unsurprising, given the large low-income population as well the sizeable number of urban commuters. According to the 2014 All Media and Product Survey (AMPS) by the South African Audience Research Foundation (SAARF), radio reaches 92.4% of all adults on a weekly basis.

Using a slightly different metric, the National Association of Broadcasters (NAB) in a 2014 report suggested that regular listeners constituted an average audience of roughly 33m in 2014.

This marks a significant improvement from 20 years prior, when there were only 19m radio listeners across the country. The number of stations has also gone up significantly during the same period, with six new commercial radio stations but more than roughly 200 new community grassroots operators – many of whom have large audiences. This is a stark change from the apartheid era, when there were only two independent radio stations broadcasting alongside the public operator.

Most pertinent radio revenues have also increased significantly during that period, with the NAB reporting that it brought in nearly R4.5bn ($388.8m) in 2014, 10 times the amount in 1994. Much of this growth has come in recent years, with revenues increasing by an average of R500m ($43.2m) y-o-y, from R3.5bn ($302.4m) in 2012 to R4bn ($345.6m) in 2013, with peak revenues coming during morning and afternoon rush hours.

This is in spite of the fact that listener figures declined 2% between 2012 and 2013 and then rose just 7% a year later for public broadcaster South African Broadcast Corporation (SABC) – the largest operator. Radio audience numbers remained flat in 2012-13 and increased only 2% for commercial radios during the 2013-14 period.

Radio Owners

As with print, radio benefits from a wide variety of owners and outlets. The more than 250 radio outlets broadcast in all 11 of South Africa’s official languages, with English and Zulu the two most prominent according to the NAB. A majority of stations focus on music programming, followed by talk shows and current affairs, as well as local news. For broadcasters that spend 15% or more of their broadcast time on music, local content is mandated – at least 25% of the music broadcast on commercial radio must be South African content, and that figure rises to 40% for community and public outlets.

The largest broadcaster is publicly owned SABC, which, with a reach of more than 40m listeners, has more than double the market of all 38 commercial radio stations, which between them have just under 16m. SABC’s 19 stations include Zulu-language Ukhozi FM, the single largest radio station in the country with roughly 7.5m weekly listeners, according to a 2014 AMPS. SABC also operates the second- and third-largest stations: adult contemporary music and news channel Metro FM, with 6.4m, followed by Xhosa-language Umhlobo Wenene, with 4.7m. Youth-oriented Yfm, owned by local firm Hosken Investments, is the most popular non-SABC commercial music station, while Primedia’s 702 is the most popular talk-only station.

Among the largest operators in the radio segment is privately held media group Primedia. Primedia, which is based in Johannesburg and also has holdings in the entertainment, advertising and digital segments, operates over 50 stations covering a wide variety of programming, particularly with local and community stations. In addition to 702, Primedia also has the largest footprint among operators in key urban markets, such as Gauteng – where it operates the two largest stations Kaya FM and Highveld Stereo, which have a combined weekly listenership of 2.8m according to PwC’s “2015-19 Media and Entertainment Outlook” – and the Western Cape, where its Kfm station is the largest operator with around 1.2m.

Competition is likely to increase in the short-term, as a number of new licences have recently been granted. Three new commercial stations launched in 2012 and 2013, including Smile FM in Cape Town, Vuma FM in Durban and Power FM in Gauteng. Broadcast regulator the Independent Communications Authority of South Africa (ICASA) (see below) also awarded a licence to the operators of Capricorn FM in Limpopo and Gauteng-based Power FM. Print house TMG has also begun expanding into the radio segment, acquiring MP ower in Mpumalanga and taking a large stake in Vuma FM.

Community operators – defined by the government as “broadcasting which is for, by and about the community, whose ownership and management is representative of the community, which pursues a social development agenda and which is non-profit” – fulfil a key service role within the sector, with more than 200 outlets.

According to the June 2015 SAARF Radio Audience Measurement Survey data, these community stations collectively account for 8.8m listeners. The operators are spread throughout the country, with roughly 40 in Gauteng, 30 in the Western Cape, 27 in the Eastern Cape and 23 in Kwazulu-Natal, according to the University of Witwatersrand. Jozi, in Gauteng, is one of the largest community radio outlets, with an average of 519,000 listeners.

Television

South Africa in many ways was late to the game when it comes to television. The first national broadcast was not until 1976 – well after many other African countries. Until 1986, when subscription service MN et was launched, the state broadcaster SABC had a monopoly, and until the end of apartheid, there were still only two operators. However, the past 20 years have seen a remarkable change. The country now has 16 television operators offering well over 170 channels, according to the NAB, with an average regular audience of roughly 40m. Television also has the second-greatest reach after radio, according to the 2014 AMPS, with 91.8% of the adult population having access to television programming.

Household consumption is impressively high as well: a television audience measurement survey conducted by the SAARF estimated that the average South African adult in 2014 watches 3 hours and 3 minutes of television every day.

Equally impressively, advertising revenues for the segment have also shot up, from R559m ($48.3m) in 1994 to R7.6bn ($656.6m) in 2014, based on NAB figures, with the highest revenues coming during evening prime-time slots. Meanwhile, overall revenues, including from subscriptions and licensing fees, reached close to R28bn ($2.4bn) in 2014, a notable jump up from R25bn ($2.2bn) in 2013 and R21.5bn ($1.9bn) in 2012. This is in part a result of a steady increase in subscription customers, with press reports indicating that in the five years leading to 2012, the number of households with TV subscriptions doubled from 13% to 25%.

Television Players

This has been aided by a steady increase in viewership in recent years, in contrast to the relatively flat performance of radio. Public broadcaster SABC, which remains the largest operator by audience, has seen an increase in viewer figures for all of its major free-to-air channels of between 1m and 2m each over the past two years. The largest, SABC1, focuses on entertainment, had a 2014 viewership of around 29m per week, according to AMPS, while local-language and local content SABC2 and full-spectrum SABC3 has audiences of 27m and 21m, respectively.

For some of the private operators, that increase has been even higher: Naspers subsidiary and private premium provider Multichoice, which offers satellite services such as DS tv and subscription-based MN et, has seen its viewership jump from 9.7m in 2012 to 13.4m in 2014 according to NAB. E.tv, which is the largest private operator and provides free-to-air programming, also saw an increase from 24m in 2012 to 25m in 2014. E.tv, which was launched in 1998 as the first private free-to-air operator, is owned in part by Hosken Investments, who also owns Yfm.

Competition in the segment has been increasing as well. A number of new private operators have recently been licensed for the pay-TV segment. In 2014 provisional licences were issued to Close-T, Siyaya, Kagiso TV, Mindset Media and Mobile TV.

Furthermore, as with radio, television also benefits from community stations, although these are far fewer in number. Currently, there are seven such outlets, Cape Town TV, Soweto TV, Bara TV, North West Television, Bay TV, One KZN and Tshwane TV.

Digital Migration

In line with the broadcast sectors around the world, South Africa is moving from analogue to digital transmission for television content. The objective is not only to improve efficiency and quality in terms of transmission for television providers, but free up valuable frequency spectrum for telecoms companies which are in the process of rolling out 4G long-term evolution services – which often rely on the same spectrum traditionally allocated to television (see Telecoms chapter). The global deadline to make the transition was June 2015, and while several African markets were able to meet it – including Namibia, Tanzania and Zambia – South Africa was not among them.

The country has spent over R8.5bn ($734.4m) on the process since the first gazetting of the digital migration policy in 2008, according to press reports. Following the initial roll-out of the policy, a deadline for the transition was set for 2011, but a series of technical problems – including disputes from a number of private operators over planned digital terrestrial television regulations and a shift from DVB-T-based transmission technology to ISDB-T technology – led to significant delays over the course of 2010 and 2011, exacerbated in part by turnover at the cabinet level.

By March 2015, media reports indicated that digital coverage extended to 84% of the population, following the upgrade of the 178 necessary transmission sites around the country. However, to receive the transmission, households also need to install new decoders and receivers – set-top boxes – which is proving slow. For 5m of the poorest households, the new equipment will be subsidised by the government but several million still must purchase it to avoid losing any TV service once analogue is switched off. According to reports in the local press, the government is aiming to ensure the migration is fully completed by 2017.

Media Oversight

The broadcast sector is subject to fairly stringent government regulation, with enabling legislation provided by among others the Broadcasting Act of 1999, the ICASA Act of 2000 and the Electronic Communications act of 2005. The Broadcasting Complaints Commission, an independent body, has the ability to mediate complaints against broadcasters, but the primary regulator is the ICASA, which is responsible for a number of functions including issuing broadcast licences, ensuring universal access, enforcing compliance within the broadcast sector, managing spectrum allocation and arbitrating public complaints.

ICASA, which also regulates the telecoms and IT sectors, has rolled out a strategic plan for the next five years, which has as its primary objectives: the increase of competition in the communications sector; the promotion of the “digital agenda”, including improving broadband access and digital broadcasting and improving the stakeholder and customer experiences, through reducing bureaucracy and streamlining oversight.

There are also a number of civil society watchdogs, including the SOS Coalition, which looks to ensure the public broadcaster SABC fulfils its mandate of public service and objectivity, along with Africa Media Monitoring, which looks to ensure professionalism and accuracy of news coverage.

Print oversight remains largely self-regulated, with an independent Press Council, Ombudsman and Appeals Panel set up by the industry to resolve disputes both among the media and with the public. The Press Council, which was reformed to include greater public representation in 2013, has also rolled out a revamped Press Code, to help improve professionalism and objectivity among journalists, with some 640 titles adhering to the guidelines. The code has recently strengthened its ability to issue sanctions, although there is still room for improvement; according to research by the journalism department at the University of Witwatersrand, 2014 saw the highest number of complaints submitted to the Press Council, at 530, although only 142 went to ruling.

Potential Reforms

The media sector has come under increasing pressure to submit to greater government scrutiny in recent years, prompting discussions about political interference and accurate reporting. Indeed, in 2010 the governing African National Congress (ANC) party began to explore the establishment of a new regulatory body, the Media Appeals Tribunal, for arbitrating public disputes with the media and monitoring objectivity. The push began out of a 2007 ANC resolution that argued that the “right to dignity” and “right to privacy” were as important as the “right to freedom of expression”, prompting concerns that it might lead to a chilling effect on reporting. The tribunal is still under discussion but was a primary impetus for the subsequent reforms to the Press Council.

The tribunal is far from the only potential regulatory reform being considered. A large debate over censorship arose following the introduction in 2013 of the Protection of State Information Bill, also known as the secrecy bill, which sought to expand the categorisations of classified or secret material. The bill passed the National Assembly, but President Jacob Zuma refused to sign it and sent it back to the legislature for further consideration.

President Zuma’s refusal to sign the bill was cited by Reporters Without Borders as the main reason behind South Africa’s jump of 11 places in the 2014 Annual Press Freedom Index.

In the 2015 ranking the country inched up slightly higher, from 42nd to 39th position.

Outlook

As with many media sectors throughout the world, South Africa’s biggest outlets – whether public, private or community-owned – are facing a number of challenges including ensuring sustainable revenue streams and growing audience figures in the face of digital consumption.

However, in spite of the hurdles, the general momentum of the sector seems to be moving in a far more favourable direction than in European or American markets, with sizeable room for growth in the television segment at both the low- and highend and high revenues from radio and television broadcasting. Print does face a more opaque longterm outlook, but still benefits from greater reach than digital content, while tailored local and community options help ensure sustainability in niche areas. To help sustain the sector’s double-digit growth in the future, the private and public sector will need to work to improve audience metrics and reduce government restrictions, as well as improve digital infrastructure, however, on the whole, the media’s prospects seem comparatively bright.

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The Report: South Africa 2016

Media & Advertising chapter from The Report: South Africa 2016

The Report: South Africa 2016

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