Independence for the Independent papers?

July 20th, 2009

The best news of the week is that Tony O’Reilly’s Independent News and Media may have to sell its South African assets, including its 14 newspaper titles. I can think of no South Africans that will lament ownership of these assets coming home - and the prospect of a new media owner emerging.

The global parent company of independent Newspapers is in trouble, losing money, unable to pay its debts and facing a looming deadline at the end of this week to do something about it. Some (like Moneyweb this morning) point to a declaration of bankruptcy, but I think that O’Reilly’s rival for control, Dennis O’Brien, will emerge to seize the assets.

Although O’Reilly at first reorganised, invested in and grew the South African company that he bought for a pittance form Anglo-American, for the last few years he has treated it like an extractive industry - pulling out every ounce of profit he could to subsidise his failing London newspapers. The South African operation has been cut to the bone and beyond, to the point where all the papers have suffered and some have become sad shadows of themselves. O’Reilly’s oversized ego has meant a reluctance to do the sensible thing, and close or sell its losing London operations.

Despite the massive profitability of his South African operation, O’Reilly’s local newspapers are mostly thinner than Michael Jackson in his last days. Most tragic is the flagship Sunday Independent, which has not even have a full-time editor for years, and is down to a staff of about two people. O’Reilly has wreaked havoc and destruction on South African journalism.

Independent’s South African newspapers are the most profitable in the global group, with margins of over 20%. They contributed Euro26-m to the international group’s profits last year, an increase of more than 30% over the previous year.

The question is who will buy the South African assets. There has been speculation that they could be broken up. I would doubt it, as the value of each individual newspaper is massively reduced outside of the strength of the group. The investment in outdoor advertising might be sold separately, but the newspapers really belong together. There has also been speculation that Avusa, Media24 or Caxton will step in - but I doubt that competition law will allow it.

That means it is wide open for a new black empowerment owner. Let’s hope so.

The purchase is not without difficulty. The price tag could be high, given the groups’ performance. But financiers are going to point to two major difficulties:

- Most of the Indepndent newspapers are highly dependent on classified advertising, and this if the first thing to move to the internet. The papers are therefore vulnerable to the imminent growth in local bandwidth.

- The printing presses are so old they need urgently to be replaced. The headquarters in Sauer Street, Central Johannesburg, are so run-down they look like something from an Afghan village recently visited by an American bomber. O’Reilly has made no recent investment in infrastructure.

The operation is going to need investment, so whoever wants in may face a high price tag as well as a rebuilding cost.

A likely scenario is that a buyer will junk the presses, and contract out the printing. Caxton is sitting pretty: as the player with major print capacity it is likely to benefit from whoever buys the operation by virtue of them needing a print contract.

There will be an outcry over a black buyer on the basis that it is likely to be someone with links to the ANC. Let me anticipate this by saying that almost any black buyer is likely to have links of some sort with the ANC. In fact, almost any buyer is going to have some political links somewhere. While we might prefer it to be held entirely independently by some entity with no political interest, one has to be realistic about it. What matters most is how the new owner treats the newspapers, and gives them space to do their journalistic work, not the party membership of that person or persons.

Let’s hold thumbs.

Entry Filed under: Anton Harber, Journalism, Print