A recent Supreme Court of Appeal decision that pitted e.tv and others against MultiChoice and the SABC on the issue of the digital migration and the specs of set top boxes, itself a reversal of a High Court decision, is now likely heading to the Constitutional Court.
At the same time, Caxton, after several setbacks, has eventually succeeded in the Competition Appeal Court, to get the Competition Commission to investigate a programme sharing deal between MultiChoice and the SABC with a view to setting that agreement aside. In a country where nothing is certain, the further delays in getting to a point where digital terrestrial television is viable is almost unbelievable.
Other countries, notably in Africa, are well ahead of us and have managed the process so much better. South Africa had a commitment to the International Telecommunications Union (ITU) to have completed the migration to digital terrestrial television (DTT) by 2015. A year after the deadline and we haven’t even close to that. We are right at the back, along with places like North Korea and such like. In the meantime, the SABC is turning into a farce.
While the litigation deals with things such as the powers of a minister to make policy and competition issues, the nub of the problem is the issue of the specs of the government subsidised set-top boxes (STBs) that are to be introduced.
On one side we have e.tv, (the ANC and cabinet? and certainly the SACP) along with prospective new entrants to the television sector like Caxton. They argue that encryption should be an essential feature that would give access new services, premium content and more pay-television services, which are currently delivered by a monopoly provider, MultiChoice.
On the other side, there is MultiChoice itself, the Minister of Communications, Faith Muthambi, and latterly the SABC, which argues STBs ought to be unencrypted or open devices because they are cheaper and that government subsidies ought not to be used to fund or subsidise new commercial services. This lot also says digital migration in other places did not come with encryption and as older analogue televisions get replaced, they now come standard with digital channel selectors meaning that, over time, the requirement for STBs falls away.
On either side there are also civil society organisations and different manufacturers with different interests. It should be remembered the current conflicts emerged from previous ones where the South African government wanted to use different standards to the ones used almost everywhere else. Happily, that diversion has long passed us by. Waiting on the sidelines are the telecom and broadband access providers looking to get hold of the valuable frequencies still occupied by analogue television.
It is obvious that all this confusion is the result of years of poor regulation coupled with a constantly changing electronic media landscape.
Poor regulation, an historic perspective
Actually, poor regulation goes back a long way in history. Some history first. Traditionally, television broadcasting has been divided into three, perhaps four categories: Public broadcasters that are independently funded, perhaps by licence fees; commercial broadcasters that are funded by advertising only; subscription/pay-television funded by subscription fees and topped up with a bit of advertising; and finally community broadcasters run by and operated on a non-profit basis. Public, commercial and community television was broadcast on a free-to-air (FTA) basis while pay-television was mostly delivered via cable or, in more recent times, via satellite using a scrambled signal unscrambled by a set top box.
The sale of television programming, including movies operated on a set waterfall over a time period as follows: first the cinema release, then the video rental market, then pay-television, then FTA. Television series missed the first categories and went straight to commercial television.
Commercial television programming was produced in such a way that commercials could be inserted during ad breaks, typically, three minutes for six 30-second ads scheduled 12-15 minutes apart. Each country or market had its own pricing for television content. Original programming or local content, often far more expensive (say in the order of 10-20 times more expensive per minute than foreign, especially US derived programming) often draws a better audience, especially if it is in the local language but was often loss-making unless it could be sold to other markets. In this way, news and actuality programming was just another version of local content programming.
So, we had a state broadcaster, pretending to be a public broadcaster, funded like a commercial broadcaster.
South Africa came late to television of any type in 1976 so skipped the first major transition in television elsewhere, the conversion from black and white to colour television. But our system was atypical: The SABC was not a public broadcaster in the traditional sense – it was a state broadcaster – there to entertain and push out government propaganda. Further, although licence fees contributed to funding the SABC, as television begun to be broadcast for most of the day, advertising became the main source of income. So, we had a state broadcaster, pretending to be a public broadcaster, funded like a commercial broadcaster.
This odd situation became even stranger with the introduction of M-Net in 1985. Ostensibly, it was a pay-television operation but for the purposes of signal distribution, it used a scrambled signal on terrestrial television channels delivered to subscribers via a set-top box. But in prime time (the early evening), it had a two-hour open window where it could operate as a regular commercial broadcaster. What is more, the old Act dealing with postal services and telephones made it a criminal offence to tamper with your set-top box (which was quite easy to do), effectively getting the state apparatus to help out with subscriber management. No news was allowed so M-Net could focus on pure entertainment by scooping the best available programming. It was a dream investment – a state chartered licence to make a lot of money.
Other oddities like Bop TV
There were other oddities, Bophuthatswana TV (Bop TV) which also had a transmitter in the south of Johannesburg but absurdly, operated with a cage device on the transmitter so its signal could only be picked up in Soweto. Radio 702, which first operated as a commercial music radio station, also came into existence as a result of being able to use an AM transmitter based in the “independent” country of Bophuthatswana.
By the early 1990s the powerful position of television, particularly the SABC, was recognised and the establishment of the Independent Broadcasting Authority of SA (Icasa) to regulate broadcasting pre-dates our 1994 first democratic election and even the interim constitution. In fact, an independent broadcasting regulatory authority, like others such as the public protector, is one of the Chapter 9 institutions set up by our Constitution that is supposed to operate independently.
The first task of the then Independent Broadcasting Authority was to set out rules following its triple inquiry into viability of the public broadcaster, local content rules for radio and television, as well as cross-media rules prohibiting significant ownership of both broadcasting and print interests. While there were efforts to try and regulate broadcasting using more conventional categorisation of public, private, community and so forth, a lot of the pre-existing mess was “grandfathered” into a new more conventional regulatory regime. At the same time, massive changes in television elsewhere were underway under a new concept called ‘convergence’. While ITU radio spectrum allocations once clearly demarcated between telecommunications services and broadcasting services, it became harder to do.
The rugby factor
The internet, still in its infancy, was one change with the introduction of the World Wide Web in 1991 but satellite television using new frequencies also started to emerge with a powerful value proposition – exclusive rights to rugby, which itself had just turned professional. Elsewhere, valuable sports rights, particularly football, also drove pay television adoption. In South Africa, Naspers controlled SuperSport and its satellite service, MultiChoice, became significant listed entities. But until 2005, MultiChoice as a multi-channel satellite television service operated without any regulation at all. During that period, it had established its total dominance in what mattered – sports rights.
The one big change to our television sector was the licencing of a new service, won in the end by several trade union investment companies but lead by Southern African Clothing and Textile Workers’ Union (Sactwu) Investment company under former trade unionists Jonny Copelyn and Marcel Golding, formerly of the National Union of Mineworkers. This service came to be known as e.tv.
The desire to open the television sector to players that had been excluded was so strong that this commercial licence was granted to a bidder with an absurdly low working capital requirement. That it was able to secure the licence demonstrated a good degree of naivety on the part of everyone involved. In its application, e.tv had said that it would need less than R500 million to get it going, whereas it topped out at R2.3 billion. Sactwu had to flog its Vodacom investment and get Remgro as a co-investor to get it over the hill. Thereafter and until quite recently, e.tv has been a great earner. While it competes with the SABC for adspend and programming, it has had no other competition.
The effort to deal with a converged electronic environment (telecommunications – two way and broadcasting – one way) started with the convergence of the IBA and the telecommunications regulator to form Icasa and the introduction of the Electronic Communications Act of 2003. One can discern an overall scheme but it is a rather confusing piece of legislation. Further, as far as broadcasting is concerned, the earlier Broadcasting Act of 1999 still regulates the SABC separately as sets out some process towards DTT.
Efforts to introduce competition to MultiChoice have been an utter failure. Icasa, traditionally cautious by introducing gradual liberalisation, for some reason, went positively libertarian in 2006 when it invited applications for new subscription television services and then went on to licence no fewer than five such services. Only a few of them even started up and none of them survive to today despite valiant efforts and wasted investments of some of them, like Top TV.
As far as competition in this market segment is concerned, MultiChoice’s dominance is stronger than ever. The only plausible threats to MultiChoice are internet based services like Netflix, Naspers’ own ShowMax but also a rapidly maturing YouTube service and digital terrestrial pay television services. Regulation of internet based services is also confused. Icasa takes the view that IPTV is a broadcasting service whereas video-on-demand is an electronic communications (telecom) service.
As far as FTA broadcasting is concerned, but for e.tv, we are pretty much stuck where we were 30 years ago. The SABC is pushing out government propaganda and uses its unparalleled reach to secure for itself in 2015 just under R6 billion of advertising and sponsorships or 80% of its total revenues.
The advertising perspective
Reliable figures are hard to find but some research done shows that SABC has a 48% share of all television advertising, e.tv has 25% share of the market but has recently been surpassed by MultiChoice and as time goes on, MultiChoice’s share has shown significant increases .
So where do we stand now? Out of about 12 million television households in South Africa, DStv has perhaps five million subscribers or 41% of all televisions. Going forward, the loss of premium subscribers might be compensated by DStv Compact subscribers. MultiChoice will definitely be gunning for more advertising revenues and is quite happy to see any competition via digital terrestrial services kept at bay even as it expands its DTT offerings in other African countries.
The arrangement of having the SABC with its supposed public service mandate funded by advertising won’t be able to last into the future. Kicking that future of multiple channels far into touch or limiting its impact obviously serves its own interests but at the cost to the general public. e.tv is in an interesting position. The current set up suits it but far less than just a few years ago. It must know that it has to get into the pay TV game and defend its slice of the television advertising market. For new entrants, whether FTA or subscription based, DTT is the only way into this market.
What to do?
So what to do? The only way the full complement as many as 30 to 60 different channels enabled by DTT can be filled is via pay TV channels. The crisp question again is whether the government should subsidise the entry of new pay television operators via a standard encrypted set top box that is subsidised and more expensive than the unencrypted version.
MultiChoice’s argument that the state ought not to be involved in subsidising commercial ventures at taxpayers’ expense certainly has merit. But, as we have seen, it is highly hypocritical of MultiChoice to be making that argument – it is the singular beneficiary of 30 years of regulation both intentional and inadvertent. Its parent company, Naspers, has since gone on to do great things with that advantage. Besides, from BEE legislation to different types of industrial policy, the state supports all manner of private commercial businesses.
One thing that may help things along is a ludicrously delayed investigation into the pay-television market, something that should have been done long ago. It may come too late to help out with the DTT/set-top box conundrum but following on regulation elsewhere, such as the EU which makes extensive use of competition law. Where there is no effective competition in a defined market, European regulators are required to impose obligations on providers with significant market power.
Markets are defined in terms of their functional assessment of the services provided. Where this identifies significant market power, regulators must impose obligations on that operator such as transparency, non-discrimination, accounting separation, access to and use of specific network facilities, cost recovery and price controls, or functional separation. Perhaps MultiChoice would prefer having a sustainable competitor instead – even if it were to be subsidised?
That leaves us with the SABC television services. While recognising the reach of the SABC to audiences that don’t have many alternatives along with its important role in commissioning programming in all of South Africa’s languages, the odd arrangement of having a public broadcaster funded largely by commercial advertising cannot be sustainable, more especially given the SABC’s bloated overheads and poor management.
Other countries that insist on public broadcasting pay for it directly. Maybe the whole SABC model needs a whole re-think. In a multichannel and converged environment, perhaps the way to go is to directly fund local content production and not do it indirectly through a traditional broadcaster. In a multichannel environment, public broadcasting does not need a public broadcaster. We will be needing answers to this problem – sooner than we might have expected before it becomes another perpetual loss making state owned enterprise.
Dirk de Vos runs a corporate finance and transaction advisory service, QED Solutions, out of Cape Town. It is mostly involved in ICT, media, telecoms and renewable energy. Follow him on Twitter @DirkdeVos.