Media companies suprise with good results

July 2nd, 2009

South African media companies are producing better-than-expected results, despite the downturn in advertising.

Avusa last week gave us a surprise with revenue up 8% and profit from continuing operations up 7%. They put their good performance down mostly to cost-cutting across their operations. In the case of their media, this means thinner newspapers and smaller newsrooms. They spent R25-m on retrenchments.

But their media revenue was up by a surprise 6%.

It was notable that their BDFM division, the joint operation with Pearsons which produces Business Day and Financial Mail, moved from a profit of R7-m to losses of R9-m. In the mysterious language of annual reports, they put this down to “development costs”. I suspect this refers to the cost of the Weekender, their new Saturday paper.

There has already been serious cost-cutting in this operation, and I hear they have given the Weekender another year to prove itself viable. It would be a grave pity to see it go, because I think it is a good paper and a valuable addition to the weekend market, but it is hard to see it survive at its current sales level of about 12 000 copies, of which less than 8 000 are actually sold.

Also, the Times - the daily paper free to Sunday Times subscribers - needs watching. They put losses there at R25-m, down from R39-m the previous year, but this number does not quite make sense if one looks at their likely costs and the number of adverts in it. I suspect that costs are being hidden in the Sunday Times operation, and revenues being generously shared. (It is an old Avusa trick to shift costs and revenue between their publications to suit publishing goals. When they were still the old Times Media, they used this to close the Rand Daily Mail.)

I find the Times a lively and enjoyable addition to the day’s newspapers - but it is not yet strong or substantial enough to replace any other daily read. This is why their attempts to move it from a freebee to a paid-for newspaper have gone nowhere.

There is a hole in the Times strategy. Its audience is too dispersed for it to compete with the free newspapers, but it is not yet up to competing with the paid-for papers. It is a nice-to-have when it is free, but there is not enough in it to replace other dailies. It hovers somewhere in the middle, and is going to need a new sense of direction to keep it going.

Avusa, of course, has enough cash (over R400-m of it) and good cash flow to carry the cost. But Avusa’s boss, Prakash Desai, is a fierce accountant and well-know for his tight cost-management (which accounts for the good results, it seems) and will be watching costs closely.

Naspers also came in with very good results, but in their case this was put down to the pay-tv division and some of the international investments. Revenue was up a whopping 36%, but operating profit down because of the costs of “growing the pay-tv base” - which means keeping out the imminent competition.

What is striking is how much of their revenue comes from pay-tv (44%) and internet (21%) and how little from their traditional media like newspapers. Clearly, their aggressive internet investment is now paying off. And on the pay-tv front, anyone driving the streets will know that they have gone all out to protect their massive pay-tv assets and it is clearly working: subscriptions are up over 600 000 and in South Africa alone over 400 000. That is astounding and may account for why none of the licensed competitors have seen the light of day. Their are a formidable opponent in this market.

Things at Independent News and Media are somewhat different. Their South African operation continues to reap the rewards of aggressive cost-cutting in recent years, producing the best profitability in the international group. But the parent company is in trouble, with massive debt which they have been unable to service. It seems likely that Tony O’Reilly, who has already stepped down as CEO, will loose control. But either he or a new owner will need to sell assets to service their debt, and the South African operation is the saleable arm, I would think.

Expect Independent News and Media South Africa to be up for grabs in the next year. That will set the cat among the pigeons. I daresay it will be a healthy development, because it would be good to see this group of newspapers invest in their growth and future rather than spend its surplus servicing the parent company’s debt.

Entry Filed under: Anton Harber, Journalism, Online, Print, TV