Why Primedia stake in Kaya is controversial

With the imminent start of the licensing process for new commercial radio players in the Gauteng, Durban and Cape Town markets, ICASA and the Competition Authorities have to ensure that the liberalisation of the broadcasting market also benefits new owners who want to enter the commercial radio market.

Statutory mandate

At the same time the Competition and Broadcasting (Communications) regulators have to balance the need to have diverse communities controlling commercial radio entities, while ensuring investment in the radio market as enunciated in the Electronic Communications Act. However, the regulators also have a statutory mandate to promote competition in the broadcasting or ICT market by allowing more players into the market and giving listeners diversity of programming. .

The acquisition of Kaya FM stake by Primedia needs to be analysed with respect to the consequences it may have for the Gauteng commercial radio market, and how it may negatively affect competition in this market.

Firstly, one needs to look at the political considerations concerning how media ownership diversity, as hinted by the ICASA position paper on review of ownership and control published in 2004, may be affected by market consolidation and concentration .

The South African commercial radio market, in particular Gauteng, is dominated by Primedia and Kagiso Media, which creates a duopoly broadcasting environment.

The two players’ stations Jacaranda and Highveld are cash cows in terms of advertising revenue. Kagiso Media has a stake in Kaya FM and interestingly its sales house, Radmark, sells advertising airtime for Kaya. One must therefore remember that advertising strategy is critical to the success of any radio station. Indirectly Kagiso Media via Radmark has a potential to influence the strategic direction of Kaya FM.

Market power dominance

Primedia also has an outdoor advertising business which gives it access to lucrative advertisers and competitive advantage in terms of promoting its stations via the outdoor advertising business. Furthermore, the Kagiso Media and Primedia dominance has a potential to give them market power in the radio advertising market. Their dominance may be barrier to entry for new players in the medium to long term and lessen competition.

Even though the Tribunal says Primedia won’t control Kaya, practically there is no Chinese wall to ensure that. I do not think the competition authorities must only have to look at competition effects with respect to the Primedia merger if Primedia were acquiring a controlling stake in Kaya FM as implied by the Tribunal panel comments.

One must also note that Primedia has in the meantime delisted at the JSE, which in effect means your ordinary investors cannot get a slice of the company and its cash cow radio entities.

Some media analysts indicate that with Primedia and Kagiso Media as shareholders in Kaya, and their extensive broadcasting experience, chances of them exerting some influence with respect to Kaya business strategy are high, and their influence may fall within the definition of control as envisaged by the Competition Act, meaning chances of Kaya and Primedia being passive investors are very low.

The Tribunal decision does not appear to stop Primedia from entering into a management contract with Kaya FM, and it does not prevent the company from having director on the Kaya FM Board. Research shows that a shareholder may still gain control of a radio entity via a management contract or influence company strategy through the presence of a board director.

Other media analysts comment that for Primedia to have a so-called non-controlling stake in Kaya FM may be a strategy not to contravene the current broadcasting laws which prohibits a company from owning more than two sound broadcasting licensees, either on FM or AM in the same licensing or overlapping license area.

AM to FM move

Primedia currently controls two FM stations, Highveld and 702, and it is important to note that ICASA last year gave it permission to move 702 from low quality AM to the high-quality, competitive and contested FM band.

Audience trends for all the commercial radio stations in Gauteng suggest that the stations are competing for the same audiences and advertisers, therefore operating in the same market. Interestingly enough these stations are also competing for the same DJs.

It therefore means the acquisition of Kaya Fm must also be analysed against how it will affect the likes of 5FM and Metro FM, which are also commercial stations in terms of the Broadcasting Amendment Act.

At this point it is critical to dismiss the myth that Highveld and Kaya are not competing in the same market because of their different music formats as submitted during the Kaya FM tribunal hearing.

“Unfortunately”, some sections of the African and white communities are becoming socially intergrated in a sense that they have the same lifestyles; hence radio audience is identified by lifestyles. Kaya FM breakfast has hosts Eddie Jordan and Pat Cash who are competing with Highveld and Jacaranda breakfast shows. Bob Mabena, has until recently hosted prime time shows for HighVeld and Kaya FM. The sports and traffic shows of the two stations are not different at all, even their profile of advertisers.

Attractive investment

The latest RAMS figures indicate that Kaya FM and Highveld listeners and advertising revenues are on the increase, which means that Kaya FM is an attractive investment for Primedia. Looking at the Primedia and Kagiso Media 2006 financial results, it is easy to note that their radio business contributes more that 50% of the overall profit.

South Africa is currently under serious media concentration in print and electronic media and the presence of Newspaper Empire Caxton in Kaya FM is also worrying in the long run as cross media ownership restrictions have been initiated for some valid political reasons.

When the then IBA recommended that in the early ‘90s that SABC must sell Highveld, Jacaranda and East Coast Radio, the intention was to spread ownership of these radio entities to a diverse range of owners; however what we see today seems to go against the spirit of what the IBA aimed to achieve.

The challenge is now on ICASA and the Competition Authorities to ensure that as William Kirsh, CEO of Primedia once said, “The regulators must ensure that the commercial broadcasting industry is not owned by one company.”