It has been a “R200-million legislated subsidy to the financial press”, according to business media expert Reg Rumney, and now it is over. Some stakeholders are relieved that listed companies are no longer obliged to spend fortunes on financial ads in the national daily business press. But those at the helm of these newspapers are reeling as they are left with a massive shortfall.
Business Day, for one, has used this as impetus to develop new multimedia packages to preserve as much of those corporate funds as possible. Ince, the company that created most of the ads for the corporates, has changed its focus. Sake24 is developing alternative revenue options and a new business model.
Although some say that the amount they were earning was not as much as R200 million and others claim it was around R264 million, it was the biggest single revenue spinner for these newspapers.
Since 1967, all companies listed on the Johannesburg Stock Exchange (JSE) were legally obliged to publish any “price sensitive information”, including their financial results, in two national dailies. One had to be in English and the other could be in any other national language, which generally meant Afrikaans.
For many years this was easy money for the biggest English business daily, Business Day, and, in the Afrikaans sector, Sake24 (which goes out in Beeld, Die Burger and Volksblad). A few other newspapers, such as the Citizen and Business Report, also scored but not nearly as much.
Publisher and editor-in-chief of Business Day Peter Bruce says, “It was a matter of just taking orders. We didn’t even have to try and sell them.”
For at least 10 years there has been a lobby against this business newspaper “slush fund”. One of its biggest rivals was acclaimed business journalist and founder of Moneyweb, Alec Hogg. Rumney says that Hogg’s argument was that this rule “channelled a lot of money into a duopoly, squeezing out small competitors such as Moneyweb”. Rumney adds, “It is true that any business that relies on one single source of revenue is vulnerable. The demise of the Sunday Express after it lost its property advertising is a case in point.”
When the news broke that the rule was changing, Hogg wrote in his Moneyweb blog: “Technology, or more specifically the internet, long ago made this (legislated financial newspaper ads) redundant. Exchanges in the rest of the world abandoned this archaic rule before the turn of the century.”
Back in 2003, when the JSE was under the leadership of Russell Laubscher, Judge Johann Kriegler was commissioned to chair a seminar to discuss changing the rules.
Hogg describes this in his blog: “Lined up on the one side of the room were rows of newspaper executives, some of whom had spent months building their case to retain the subsidy. One after another they took to the podium. They proclaimed falsely, even then, that financial adverts in newspapers were a lifeblood for investors (their own research shows 100% of the adverts are not read, but who needs facts when gazillions are at stake?) and was critical for ‘transparency’ among listed companies.
“Against them was my sole voice, stridently arguing this JSE requirement was effectively a legislated subsidy. That instead of supporting South African financial journalism, it hampered its development. By forcing the available advertising money into a tiny, protected duopoly, only crumbs were left for innovative, emerging businesses like our fledgling Moneyweb and other wanna-be competitors.”
Bruce says, “The problem disappeared then. But newspaper management were far too lackadaisical after that, including BDFM, and cranked up prices without giving added value to clients. We should have done things differently.”
But shortly after Nicky Newton-King took over as CEO of the JSE at the beginning of 2012, she made it known that this was going to be challenged.
Bruce says that in May last year, BDFM was presented with a draft of the new rules and “we were told that there would be one month of consultation and the rules would be implemented”.
Newspaper chiefs made representations but, says Bruce, “one or two days after the beginning of June, it was announced that the new rules were to be implemented in January 2013”.
Alban Atkinson, owner and managing director of Ince, explains that last year the Financial Services Board (FSB) took this on and acknowledged that these rules could be changed. According to sources, the JSE hid behind the mandate of the FSB and when a delegation from the print media tried to challenge this, they were told they were not entitled to do so.
Many in the industry say the media was simply not well organised and wasn’t united in fighting this. Others said simply that the JSE “outmanoeuvred” everyone.
The new rules still make it obligatory for listed companies to publish the information but only in one language and they don’t have use the national press. Also, they can do short form announcements.
So, while JSE-listed companies now have choices, there are some that are continuing to advertise as normal while others are having shortened and more creative ads published. Those who had begrudged this spending may be doing the bare minimum and are grateful to the JSE – considering that being listed is a big expense in itself – as their outlay is slightly less. Some people in the media are complaining that the JSE is making relevant information less accessible to its audience and more lucrative for itself.
The latter refers to the fact that the JSE has a site called SENS (Stock Exchange News Service), where listed companies are still obliged to advertise the same information they were putting in the newspapers. Since the changing of the rules, this site has become far more user-friendly and understandable. Interestingly, while the JSE doesn’t make anything financially in putting these ads up on SENS, they do then sell the SENS data to other data vendors.
“The JSE is becoming a little media company on its own,” says Bruce. “It lives off the companies listed on it, but that too may come to an end.”
Hogg, however, maintains that people who wanted the information that was provided in the newspapers were already going directly to SENS or finding it on the internet. “Nobody waits, nor even reads those expensive financial adverts in newspapers.”
He says that Newton-King had another compelling reason to cut down on the ads. ”The JSE has become one of the most expensive places in the world for a company to list its shares. Removing this enforced R200-million subsidy for the print media will buy Newton-King time to look for cuts elsewhere.”
But the impact has hit the newspapers. Recently, both Sake24 and BDFM retrenched a number of staff. In fairness, the newspaper industry has other challenges, so this may not be the biggest reason for that. Sake24 will probably be the hardest hit, according to Atkinson, because most businesses will advertise in English only. Some with specifically Afrikaans stakeholders will still use Sake24.
Rudolph le Roux, Sake24’s national business unit manager, admits the pain has been felt. “One of the biggest impacts is on pagination, effectively reducing the size of the newspaper with less space to report in.”
On the changed rules, he says, “Taking into account the need to communicate not only to shareholders, but to all stakeholders in the South African context and economy, the latest JSE rule change goes directly against this trend. Many recent large corporate failures highlight the need for more open communication with stakeholders and not less.”
He explains that a large number of pension funds (if not all) are currently invested in listed JSE-listed companies. “As we all know, the money in the funds normally belongs to the man in the street. He is not a direct investor, but the management and performance of the fund in relation to where it is invested has a direct impact on him and his family,” says Le Roux. “Also with the move to a more integrated reporting model, listed companies should be communicating more and not less as is the current trend.”
To limit the effect of the amended JSE legislation on Sake24 and the carrier titles, Le Roux says, “We are developing alternative revenue options and creating a new Sake24 business model. Financial notices and advertising still form part of this, but to a lesser extent.”
He adds that down the line the space limitation will affect reporting on smaller companies. They will get less space, “or none at all, effectively depriving the economy at large and our readers of business and related news.
“This will also affect these smaller companies negatively, since one reason you list is to gain access to capital. Being out of the public domain, fewer potential investors will be aware of these companies and opportunities they offer.”
Bruce admits that the potential revenue loss on Business Day is about R53 million a year. His solution is to develop a new multimedia package for listed companies. “We are hoping to buy a small company specialising in web-streaming business announcements which will be streamed on our website.”
The CEO would be able to have his announcement filmed and the video and a streamed online announcement would be flagged on the site. There would also be a related story online and in the newspaper, as well as an easily accessible online archive of reports about that specific company.
Also, companies that want to go with the old route of advertising are entitled, but a more engaging and impactful ad could be created. “We are hoping all this will still attract the JSE corporates. It might be a transient thing, but we have to try and hold on to what we have as long as we can.”
Like Le Roux, he is concerned about the impact this could have on the business press and the corporate world at large. “I have no idea what could happen to companies if left to the mainstream media. We are the people who are watching their backs.”