Issued by: Independent Broadcasting Authority
REASONS FOR DECISION
in relation to
APPLICATION FOR PRIVATE SOUND BROADCASTING LICENCE FOR HIGHVELD STEREO BY DAVID BLOOD AND ASSOCIATES, WORLDWIDE CONSORTIUM AND NEWSHELF 63 (PTY) LTD
DR SEBILETSO MOKONE-MATABANE CO-CHAIRPERSON
MR PETER J DE KLERK CO-CHAIRPERSON
MS LYNDALL SHOPE-MAFOLE COUNCILLOR
MR WILLIAM LANE COUNCILLOR
MR JOHN MATISONN COUNCILLOR
MR HARRIS GXAWENI CHIEF EXECUTIVE OFFICER
REASONS FOR THE DECISION
in relation to the
APPLICATION FOR PRIVATE SOUND BROADCASTING LICENCE FOR
HIGHVELD STEREO BY
DAVID BLOOD AND ASSOCIATES
AND
WORLDWIDE CONSORTIUM
AND
NEW SHELF 63 (PTY) LTD
1. BACKGROUND
The Independent Broadcasting Act (the Act), requires the Authority to conduct an enquiry into the protection and viability of the public broadcasting services, cross-media control of broadcasting services and South African Music Content.
In its Triple Enquiry Report to Parliament, the Authority recommended, inter alia, that Highveld Stereo be sold. Parliament approved that recommendation in March 1996.
As a result of this decision, the South African Broadcasting Corporation (SABC), advertised the sale of Highveld Stereo and a select tender process was used to obtain three bidders where practicable. In this case three bidders were shortlisted.
2. THE SALE AND THE LICENSING PROCESS.
The procedure approved by the Authority was as follows:
2.1 The determination of the price and the sale process was conducted by the SABC through its merchant bank, Investec.
2.2 After completion of the bidding process, the SABC presented the Authority with four shortlisted bidders, but one withdrew. The shortlisted bidders were David Blood and Associates, NEW SHELF 63 (Pty) Ltd, Dynamo Investment Ltd (which withdrew its final bid) and Worldwide Consortium.
2.3 The three remaining shortlisted bidders applied to the Authority through the normal licensing process as prescribed by the Act.
2.4 The SABC will, at the end of this licensing process, be a willing seller to the successful applicant as decided by the Authority.
3. THE DETERMINATION OF THE LICENCE APPLICATION ACCORDING TO THE ACT.
Section 42(1) of the Act provides the guidance on how the licence application is to be considered. This section provides as follows:
"The Authority after having duly considered the application, the representations (if any), made in accordance with the provisions of that subsection, the applicant's written response thereto (if any), any further information furnished in terms of section 41 and any other evidence tendered to the Authority, shall grant or refuse the application and provide written reasons for its ruling"
Section 41(6) of the Act provides:
"Within 14 days of receipt of any application in terms of this section, the Authority shall cause to be published in the Government Gazette a notice containing all the material particulars of the application and inviting interested persons to lodge their written representations in relation to the application in the manner specified in such notice within one month as from the date of such notice".
The three applications for the radio station were duly published in the Government Gazette number 17281 of 22 June 1996 as required by section 41(6).
Section 42(6) sets out how the Authority's decision is to be communicated. The section provides as follows:
"Upon having reached a decision on any application, the Authority shall by notice in the Government Gazette and by written notice addressed to the applicant make known the outcome thereof".
4. THE OBJECTS AND PRINCIPLES OF THE ACT.
The primary object of the Act is to provide for the regulation of broadcasting activities in the public interest. The concept of the public interest is dynamic and varies in accordance with factors such as the stages of socio-economic development.
The IBA awarded the licence for Radio Jacaranda at a cost of R70 million to Newshelf 71, which is held by New Africa Investments Limited.
Nail is a black-owned investment company, controlling 65 percent of Newshelf's equity, and recently took over Johnnic, which controls the TV pay-station M-Net and the Times Media Ltd newspapers.
Nail now has controlling interests in newspapers, a television station and a radio station, the IBA said in a statement read by de Klerk.
The IBA last year recommended the South African Broadcasting Corporation-owned stations be sold after conducting an inquiry into cross-media control, the protection and viability of public broadcasting services, and local content in South African radio services.
Parliament approved the IBA's recommendation in March this year, de Klerk said.
Three bidders were shortlisted for Highveld Stereo: David Blood and Associates, New Shelf 63 (Pty) Ltd and Worldwide Consortium. Two bidders were shortlisted for Radio Jacaranda: Newshelf 71 and Naledi.
The IBA's aim in awarding the licences was not necessarily to sell to the highest bidder. Issues of ownership and control, funding and the funding structure, human resources development and programming were considered, the IBA said in a statement.
Newshelf 63, which put in a bid of R320 million for Higheveld, is made up of Zerilda Investments, which controls 60 percent of the consortium, and Primedia which controls the remaining 40 percent.
Primedia owns the independent talk radio station Radio 702. Zerilda represents the investment interests of the National Union of Mineworkers, the SA Clothing and Textile Workers' Union and a women's group, the Women Investment Portfolio.
Sixty percent of New Shelf 63's shares were held by historically disadvantaged groups and the company's bid "compared more favourably' in respect of race and gender, the IBA said.
In deciding whether to grant a licence or considering who the successful applicant is amongst the competing entities, the Authority is guided by the policy framework and often has to weigh competing public interest considerations.
The application of these principles and objects differs according to the circumstances. In arriving at its decision, the Authority considers the particular needs of the coverage area and the history of the applicant to determine how it would contribute to the particular broadcasting service. The Authority is required to view a range of criteria collectively, the most relevant of which are, stated hereunder.
5. THE APPLICANTS.
5.1 LEGAL STATUS
5.1.1 D Blood and Associates
The applicant is a partnership.
5.1.2 The Worldwide Consortium (Oneshelf 22 (Pty) Ltd)
The applicant is a principal, authorised to act and duly empowered to bring the applications on behalf of Oneshelf 22 (Pty) Ltd.
5.1.3 NEW SELF 63 (Pty) Ltd
The applicant is a company registered in accordance with the company laws of the Republic of South Africa and a principal, authorised to act on behalf of Africa on Air (Pty) Ltd.
5.2 REPRESENTATIONS.
As provided for by section 41(7) of the Act, there was one representation by interested parties with regard to David Blood and Associates's application, nine representations in respect of Newshelf's application and one representation in respect of Worldwide Consortium's application. Reference will be made to some of the most critical representations to the applications in so far as they are relevant to this decision. The above-mentioned applicants submitted their written responses to the representations as required by section 41(8) of the Act.
5.3 OWNERSHIP AND CONTROL
5.3.1 By the historically disadvantaged:
The Authority believes that this key principle is fundamental to contributing to the diversity of voices in broadcasting. The applicants demonstrated, to various degrees, the percentages to which ownership and control by the historically disadvantaged was to be exercised.
D Blood and Associates
Twenty five per cent(25%) of shareholding will be owned and controlled by historically disadvantaged.
The Worldwide Consortium
Thirty one per cent(31%) of their shareholding will be owned and controlled by the historically disadvantaged.
NEW SHELF 63 (Pty) Ltd
Sixty per cent(60%) of the shares of NEW SHELF 63 (Pty) Ltd's shares are held by historically disadvantaged groups. Newshelf 63 (Pty) Ltd compared more favourably in respect of race and gender.
The Authority believes that ownership and control of broadcasting services by persons from historically disadvantaged groups are matters that extend beyond equity holdings in prospective licences. They relate to involvement in the nature and function of the broadcasting services in ways which enhance managerial and editorial excellence.In defining what is meant by the term historically disadvantaged, the Authority takes into account principally race and gender.
It has been argued that equity holdings of persons from historically disadvantaged background should be decisive. This ignores various limitation clauses on voting rights, loans obtained to purchase the equity and management and consultancy agreements in terms of which outsiders are given managerial and editorial control in the day-to-day operations of the service.
5.3.2 Funding and Funding structure
D Blood and Associates
This applicant did not furnish the necessary financial guarantees.
The Worldwide Consortium
The Worldwide consortium proposes to fund its shareholding by way of a bank loan.
NEW SHELF 63 (Pty) Ltd
The applicant proposes to have Primedia fund the historically disadvantaged component of the shareholding. This includes a loan arrangement in terms of which there is no obligation to repay the loan until the 10th year. The funding arrangement is that R25 million is interest free and the remainder is on a preferential basis, making the average interest rate approximately 11%. This is a significant empowerment tool. It, however, has the potential to be used negatively as a control mechanism by Primedia.
5.3.3 By people from the province of the coverage area.
The Authority is satisified that the applicants are representative of the coverage area.
5.3.4 By persons from diverse groupings
In terms of section 2 of the Act, the Authority is required to "ensure that private, community, broadcasting licences, viewed collectively, are controlled by persons or groups of persons from a diverse range of communities in the Republic."
The Authority is encouraged by the fact that the applicants have included ownership from diverse groupings.
5.4 HUMAN RESOURCES DEVELOPMENT
D Blood and Associates
This applicant had no human resources development plan.
The Worldwide Consortium and NEW SHELF 63 (Pty) Ltd
The other two applicants demonstrated a well defined human resourcs development plan. However, the Authority found the Newshelf 63 (Pty) Ltd plan to be the more comprehensive of the two.
5.5 DIVERSITY, SHARE OF VOICE AND CROSS MEDIA CONTROL.
5.5.1 Diversity
D Blood and Associates
This applicant would add to the diversity since it is a new voice.
The Worldwide Consortium
This applicant would add to the diversity since it is a new voice.
NEW SHELF 63 (Pty) Ltd
This applicant has as one of its components, a strong new voice in the coverage area. Newshelf 63 (Pty) Ltd has a combination that will make news and information resources that is more reflective of South African society. However, the Authority is aware that Primedia will have a stronger share of the audience in the area. By combining the elements of sales, marketing and advertising the applicant could have a dampening effect on the development of alternative media voices.
5.5.2 Share of Voice
There is a fair amount of media diversity inn the coverage area, including:
(a) The Times Media Limited Newspapers;
(b) The Citizen which is owned by Perskor/Kagiso Publishers;
(c) Star and Pretoria News owned by the Independent Group;
(d) The SABC commercial stations;
(e) Radio Jacaranda;
(f) Four new radio stations to be licensed later this year.
5.3 Cross Media Control
None of the applicants have any cross media ownership.
5.6 PROGRAMMING
5.6.1 News and Information
In the provision of a substantial news service for the coverage area the applicants have shown the degree to which they will promote diversity. They presented a clear strategy to improve and diversify their respective news programmes and to diversify news sources.
D Blood and Associates
The applicant proposes to comply with the minimum requirements of the Authority.
The Worldwide Consortium
The applicant proposed to provide an innovative and more relevant news service programming content and to exceed substantially the minimum requirements of the Authority. It committed itself to providing 100 minutes of news with a strong news gathering facility and commitment to staffing and training.
NEW SHELF 63 (Pty) Ltd
The Applicant will be able to draw on the considerable experience of its minority shareholder. The Applicant's broad and intensive commitment to the origination of news will enrich the spectrum of information for the audience. The applicant committed itself to providing a new news service independent of 702.
5.6.2 Language
The three applicants satisfied the Authority that they would cater for a language need of the area.
5.6.3 Local Content
David Blood and Associates
The applicant said he would comply with the Authority's requirements in due course.
The Worldwide Consortium
This applicant has a vision of what it wishes to achieve in the promotion of local artists and music. It undertook to exceed the requirements of the Authority.
NEW SHELF 63 (Pty) Ltd
The applicant undertook to comply with the Authority's requirements.
5.7 OTHER FACTORS RELATED TO THE PUBLIC INTEREST.
5.7.1 Meeting the needs of the community.
David Blood and Associates.
The applicant made no specific undertakings in this regard.
The Worldwide Consortium
The applicant proposes to contribute to the well being of the community in a variety of ways.
NEW SHELF 63 (Pty) Ltd
The widespread nature of the shareholding would bring a direct benefit to many communities.
5.7.2 Commitment and contribution to the industry
David Blood and Associates
This applicant's members have made a contribution to the industry through their involvement over a number of years.
The Worldwide Consortium
The authority is satisfied that the applicant would make a positive contribution to the industry.
NEW SHELF 63 (Pty) Ltd
The applicant has demonstrated a long term commitment to the industry backed by significant capital.
5.7.3 Contributing to competition in the industry.
Highveld Stereo will not be the first private radio station in the Gauteng province as one other, Radio 702 exists. This station owned by Primedia, has a particular niche market in that it is a talk show radio station. It, in addition, operates on an AM frequency. Because of the highly competitive environment this area needs strong players. Given the potential synergies with the radio interest of Newshelf 63 (Pty) Limitd's minority shareholder, this applicant is likely to be a strong player.
Those same synergies could have the potential to stifle competition. However, this group's media interests are restricted to radio. Given the diverse and competitive media environment, the Authority believes this would not prevent fair competition.
5.7.4 History of the Applicant
David Blood and Associates
This applicant has a long and successful history in broadcasting.
The Worldwide Consortium
The applicant has made significant contributions to the present broadcasting environment.
NEW SHELF 63 Pty Ltd
This applicant has a history of contribution to and involvement in the broadcasting industry. It also has a record of involvement in community projects and the empowerment of the historically disadvantaged persons.
7. BID PRICE
The Authority does consider price to be one of a number of factors to be taken into consideration, but not an overiding one. In considering the difference in the bid price between applicants, the Authority weighs the monetary value against the value of the contribution that the applicant with the lower bid would make towards the total industry.
The applicants bid as follows:
David Blood and Associates : R60 million The Worldwide Consortium : R130 million NEW SHELF Pty Ltd : R320 million
8. THE DECISION
Taking into account the provisions of section 46(1) of the Act, the representations made and the bid price, the Authority saw in NEWSHELF 63 (Pty) Ltd an experienced applicant seriously committed to the long term development of the broadcasting industry in a way which will benefit a wide range of people not previously associated with broadcasting. Accordingly, the Authority decided unanimously to grant the licence to Newshelf 63 (Pty) Ltd.
9. LICENCE CONDITIONS AND PROMISE OF PERFORMANCE.
It remains for the Authority to specify the licence conditions under which the licensee will operate. The Promise of performance by the licensee will become part of the licence conditions. However, the authority will ensure that ownership and control by persons from historically disadvantaged persons will endure. In this regard, the Authority intends to specify the licence conditions in a manner which will guarantee that such ownership and control is neither watered down nor reduced in any manner without the prior approval of the Authority.
All the criteria which the Authority has considered in granting this licence will be added to the licence conditions of the licensee.