A targeted, tailored and affordable pay television offering for eight million households is what South Africa needs. That is the thinking behind the Dynamic TV consortium’s dramatic bid for Top TV, announced yesterday.
Chief Investment Officer at MSG Afrika Investment Holdings. Andile Khumalo, told The Media Online he wasn’t yet in a position to detail plans the consortium has for Top TV. “The decision is up to the creditors of ODM to make the decision to consider our bid. Once they have given us a nod, we will be in a position to outline our plans in detail,” he says.
Dynamic TV is described as “a broad-based consortium led by Given Mkhari of MSG Afrika Media and Malose Kekana of Falk Trading”. Mkhari, of course, is the media man behind the upcoming launch of Power FM, a radio station challenging the supremacy of Radio 702 in the talk radio space. Kekana was previously CEO of the Umsobomvu Fund and is described as having a strong grounding in investment evaluation, deal negotiation and structuring and corporate finance disciplines.
Top TV has been under business rescue since late 2012, and has been battling Icasa for the right to broadcast porn channels, a move that would certainly help keep it sustainable. The licence to broadcast adult television was granted last week. Khumalo says this had nothing to do with Dynamic TV’s decision to pursue a buyout of the business. “·We started working on the bid before Icasa gave permission for the channels you are referring to,” he said.
Dynamic TV’s reasoning is that eight million households in South Africa don’t have access to affordable pay television. This is the gap in the market it intends to fill. In a statement, Dynamic TV said its bid was 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”.
To do this, Dynamic TV will have to fend off an alternative bid by Chinese operation, StarTimes, which is after a 20% stake in the business. But Khumalo says because one of the primary objectives of the Electronic Communications Act is to “promote the empowerment of historically disadvantaged persons”. He says 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, however with only a 20% black economic interest in the business”.
He says this is a “sophisticated version of ‘fronting’ that “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, StarTimes refers to a new BEE partner but does not identify this partner, making it unclear and uncertain who the ultimate beneficiaries are.”
Khumalo also unpacked the financing behind the StarTimes bid, saying it would in fact invest more than the Chinese firm. He said the “total amount of investment by South African Development Funding Institutions and investors in ODM is in excess of R1.4 billion of which StarTimes has, in terms of the Business Rescue Proposal, proposed to acquire 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”.
He also claimed that the spin offs from the deal, such as the manufacture of decoders, would be outsourced out of South Africa. Unlike Dynamic TV, which says it will “to build a credible and sustainable South African Pay-TV broadcaster”.
Such a vision requires funding. Dynamic TV has sourced investment funding from Multichoice – the company that would in fact be its rival should it win the licence to operate Top TV.
“We have secured R500 million of initial funding from Multichoice. Once we have done our due diligence on On Digital Media and have taken over the company, we will have a better view of the full operational requirements of the company,” Khumalo told The Media Online.
Does that mean they will have some kind of shareholding?
“No they have not and they cannot. They are providing enterprise developmental support to our consortium. Most industries, including ICT and mining, have taken advantage of enterprise development benefits. We welcome Multichoice’s support, as this will go a long way in ensuring the sustainability of the sector as well as the South African economy. The funding terms are clear and includes strict adherence to the competition regulations of the Republic,” Khumalo says.
The consortium firmly believes the turnaround of ODM’s fortunes lies in South African hands. Khumalo says the time is right for a “credible” second pay television operator. “This also represents a rare opportunity for black people to own a commercial broadcasting licence, generally considered to be a scarce resource and asset of national interest,” he says. And the Dynamic TV consortium has the “capacity, expertise, support, know-how and commitment to turn around the business of ODM”.
According to Businesstech.co.za, Top TV’s main shareholders include the Industrial Development Corporation (IDC); First National Media; Kopano Ke Matla (Cosatu’s investment arm); National Empowerment Fund; and satellite businesses.
