South African development funding institutions and investors have invested R1.4 billion in On Digital Media, which announced in October 2012 that it required a rescue plan following extended financial difficulties.
In terms of the business rescue proposal, StarTimes proposed to acquire On Digital Media for a cash consideration of R98.4 million. This implies that the first R1.4 billion in profits must be repaid to StarTimes and repatriated offshore, tax free, before local shareholders can benefit.
One of the primary objectives of the Electronic Communications Act is to "promote the empowerment of historically disadvantaged persons." Because of this objective, ICASA awarded Pay-TV licences to four new players, including On Digital Media, which was the only licensee that launched a satellite subscription service, with TopTV.
It therefore follows that a turnaround of On Digital Media's fortunes presents the only realistic opportunity for the Pay-TV market to have a credible second player providing diverse content and choice for the average South African. This also reportedly represents a rare opportunity for black people to own a commercial broadcasting licence, generally considered a scarce resource and asset of national interest.
According to Andile Khumalo, chief investment officer at MSG, "It would appear that the shareholding structure of the StarTimes plan circumvents the foreign ownership restriction provisions of the Electronic Communications Act. StarTimes claims to enable 65% black shareholding, with only a 20% black economic interest in the business. This sophisticated version of 'fronting' undermines the strategic objectives of BEE, as it will probably not result in any meaningful value to the black shareholders.
To further entrench this mirage, it refers to a new BEE partner but does not identify this partner, making it unclear and uncertain who the ultimate beneficiaries are."
Dynamic TV Consortium's approach to the business rescue is informed by the strategic desire to promote a successful South African business; support local manufacturers, distributors and installers; and to stimulate the independent production of locally developed, home-grown African content. Having analysed On Digital Media and the market, the consortium believes there is a gap for another viable Pay-TV operator. The business rescue plan is designed to be implemented in a way that promotes the developmental objectives of South Africa.
Khumalo adds, "The StarTimes plan may also adversely affect local manufacturers and content providers, as it is likely to source its decoders and other technology products from its holding company and affiliated offshore foreign subsidiaries. We are concerned that its plan may not result in any skills transfer, but instead become a displacement of local skills. In short, we seek to build a credible and sustainable South African Pay-TV broadcaster."
The consortium has approached the leading South African Pay-TV operator, MultiChoice South Africa for enterprise development support to ensure the commercial sustainability of On Digital Media post-business rescue.
On 24 April 2013, the MultiChoice board approved R500 million funding to implement a credible business rescue plan and securing the on-going sustainability of On Digital Media. The loan is consistent with the objectives of enterprise development and meets the requirements of both the generic and ICT Codes of Good Practice.
"The consortium has the capacity, expertise, support, know-how and commitment to turn around the business of On Digital Media. We believe that our plan represents a realistic opportunity to retain a South African owned and operated Pay-TV operator that would be commercially viable and complies with the regulatory framework of the country," concludes Khumalo.
Updated at 7.54am on 2 May 2013.
