Submission to the Competition Commission on the sale of the Sowetan and the Sowetan SundayWorld by NAP to Johnnic Communications
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Submission to the Competition Commission on the sale of the Sowetan and the Sowetan SundayWorld by NAP to Johnnic Communications Freedom of Expression Institute Introduction The sale of the Sowetan and part of the Sowetan Sunday World, which form part of Nail’s total unbundling of its media assets, to Johnnic Communications, raises a number of questions about media ownership and control in the country. More importantly, the sale raises questions about the extent to which media concentration and consolidation enables or disables diversity and freedom of expression. In this submission we begin by first examining the overall South African media ownership and control landscape. In doing that we will examine the actual facts and also what regulations are in place to guide ownership and control. We will then examine what concentration and consolidation means in terms of diversity. In doing so we will draw inspiration from a number of countries that have gone through some of the shifts that we see unfolding in the South African case. After outlining our understanding of the actual implications of media concentration and consolidation we will then examine the possible impact of the sale on the nature of the newspapers that might result from the sale. Finally, we will examine the possible implications for freedom of expression, and diversity within the broader newspaper industry in particular, and the media fraternity in general. The South African media ownership and control landscape A few media companies dominate the South African. Besides the SABC, which is the biggest broadcast media house in the country, there are four companies that can be said to be monopolies within the sector. These are: Johnnic Communications; Caxton; Naspers (incorporating Media 24); and the Independent Group. Apart from the Independent Group, which is Irish owned, the other three companies are either wholly, or majority, owned by South African concerns. There are other media companies that are important and continue to play an important role. While it is a major player within the sector, Nail’s media subsidiary, NAP, has not attain the status of being a dominant player. It can be said that it has always been a medium sized company. Despite its relatively small size NAP has played an important in the developing picture of the media landscape in the country. It has, through its titles, particularly the
Sowetan, managed to offer a platform for debate. At the time of compiling this
submission, the Sowetan was competing with two other titles for the share of
the top three slots in the daily market. These are The Star (owned by the
Independent Group) and the Daily Sun (a tabloid aimed at the lower LSM
group, owned by Media 24, a subsidiary of the Naspers Group).
There is cross media ownership within the four major groups. For instance,
Naspers wholly owns the Media 24 stable, which comprises of newspapers
and magazines and also has stakes in the broadcast sector through M-Net
and Multichoice. It also has stakes in Internet business through M-Web.
Johncom has stakes in the newspaper and magazine market through its
flagship title, the Sunday Times, Business Day, and Financial Mail; and in the
broadcast sector through Summit Television and others.
On the other hand NAP wholly owns the Sowetan and 50% of the Sunday
World, and Leadership Magazine. It also has a stake in Sowetan Television.
Before examining this picture further and demonstrating what implications the
acquisition of the NAP’s shares will have, we firstly elaborate on the theory
and practice of acquisitions and mergers.
Acquisition and mergers: Euphemism for concentration and
consolidation?
One of the ‘natural’ consequences of the development of the current dominant
global economic system is that bigger companies easily swallow smaller
companies. The latter’s access to more capital makes it easier to acquire
stakes in companies that are unable to put off competition. While protagonists
of the market system may argue that this as a logical route to be followed and
also as a welcome development, there are a number of considerations that
must be made before these developments can be accepted as the only way in
which the direction of the media industry should be allowed to go.
The first argument advanced by proponents of acquisitions and mergers is
that such moves bring increased competition into the market.1 A related
argument is that there will be increased competencies that bring in increased
value in the ‘product’. This is understood to mean that through their more
powerful capital injection bigger companies, which are the ones that buy (out)
smaller companies, are able to bring in increased value.
The second argument is that because of their broad base of assets and
competencies, bigger companies are able to increase the ability of acquired
companies to compete better in the market.2 An example that is often given in
this regard is increased ability to have in-house or affiliated printing and
distribution ability that the acquired company might have lacked.
1
Ben Compaine (2004) Domination fantasies: Does Rupert Murdoch control the media? Does anyone.
In http://reason.com/0401/fe.bc.domination.shtml. Accessed on the 14th May 2004.
2
Ibid
2The third argument raised, which is of course honest enough, is that acquired
companies are able to increase their profitability.3 This argument builds on yet
another honest admission that is sometimes made by honest conservative
commentators and media owners, that is, the media does not exist to inform
the public accurately and objectively, or to generate debate. It is there to
make profits.
While at face value the above arguments may sound attractive, and even true,
the question that is often left out and that is critical in considering mergers and
acquisition is: at what price? At what price do so-called increased
competencies come? At what price are the benefits of increased abilities for,
say, printing and distribution come? At what price does the profitability come?
We would like to state from the onset that our argument is that the price paid
to achieve some of the above is often very high. While the achievement of
some of the above ideals can be said to often arise in favour of some of the
players in the transactions, it is smaller players, and the general public, who
find themselves at the receiving end of the negative consequences of the
transactions. We elaborate these arguments.
Central to the argument for mergers and acquisition is that media ownership
and control patterns or regulations should be liberalised to allow the ‘market’
to regulate itself. Liberalisation is seen as a means to encourage competition.
It is through this competition, it is argued further, that there will be ‘more value’
to the ‘products’ and a corresponding diversity of choice for the ‘consumer’.
Contrary to the above argument, or wisdom, experience in major developed,
and even developing countries, show that liberalisation, or the market
dictates, lead to concentration and consolidation which in turn lead to the
emergence of monopolies, therefore domination of the market by bigger
companies as opposed to a situation wherein smaller companies are also
allowed to survive.
Before proceeding to demonstrate how the marketisation of information leads
to the emergence of monopolies let us first consider the following theoretical
analysis of the scenario. Commenting on the general trends of a globalised
media, Karian Shubba argues that:
There is a strong nexus between commercial media and capitalism as
the commercial media have been providing a good tool to the
producers and the media is existing on the financial support of the
market. But, as a side effect of the market driven journalism, public
service news has almost reached a dead situation by now.4
The fact of the matter is that there is an increasing trend within the media
industry to treat audiences as consumers and not citizens. Products from the
market are sold to these consumers through the media.
3
Ibid
4
The Global Media in http://www.jmk.su.se/glbal99/kiran/essays/globamedia.htm. Accessed on the 5th
Feb 2003
3Others argue that in fact the advertisers directly or indirectly dictate to the
content of the media. The argument here is that it is highly unlikely that any
attempt will be made to have a media that is able to treat big advertisers with
no favours.
The above arguments bring into question the claim made by proponents of
liberalisation that competition and diversity are guaranteed in a liberalised
environment. It is important to put laid the confusion between the need for the
commercial media to afford a platform to other commercial interests to
increase their profits through returns form advertising on the one hand and the
promise of diversity of content on the other. Writing from an Australian
experience, Paul Sheenan captures the contradictions that arise when
addressing the question of commercial media and its claim to diversity. He
writes:
From a business perspective, the media has always been regarded as
unique as a it is comprised of private companies with public
responsibilities. Many fear that concentration of media would
concentrate power, restrict variety of opinion, reduce competition and
diminish local content.5
Respected US media critic, Robert McChesney, has identified two tiers of
media companies that dominate most of western markets, mainly the USA,
Canada, Australia, New Zealand, and some parts of Western Europe.6 The
first tier comprise of monopolies such as News Corporation, Viacom, Walt
Disney, AOL, Time Warner, Bertelsmann, Vivendi, General Electric, and
Sony. The second, which runs into just less than a hundred companies, also
has a ‘fair’ share of the market.
These companies own the media industry, from publishing abilities through to
production and distribution. A closer examination of the operations of these
companies reveal that they have ‘crowded out’ smaller players and have
developed what can reluctantly be termed as a very ‘incestuous’ pattern
wherein they are able to dictate how the ‘cake’ is shared within this bigger
family. This of course does not mean that there is no vicious competition
within this big cartel; but, like a real cartel, they ensure that other players
would not enter their territory.
What is clear from an examination of the effects of the high concentration and
consolidation resulting from the power and reach of these companies is that
they have laid to rest any claim to diversity.
The Canadian experience offers valuable lessons against a blind embracing
of the liberalisation as a guarantee for diversity. In 2002 a dispute arose
between Canada’s largest media company, CanWest Global
5
Media ownership and control: the next step.
http://www.nwsweekly.com.au/articles/2002sep21_media.html. accessed on the 5th Feb 2003
6
Robert W. McChesney (2001) Global media, neoliberalism and imperialism, Monthly review,
volume 52, number 10, New York
4Communications, and the Canadian Association of Journalists (CAJ) over
practical restrictions on editorial independence. CanWest had attempted to
increase the number of ‘prescribed’ editorials (written by company executives
at its head office for all newspapers) from once a week to thrice a week.7
The company said that locally written materials should not contradict the
company’s official line handed down to corporate editorials. The company’
chair, Israel Jasper, told an annual shareholder meeting on the 30th January
2002 that “on national and international key issues we would have one, not
14, editorial positions”. This reversed the promise of local autonomy for
newspapers that the company made to the Canadian communications
regulator when it bought over a number of titles in the 1970s and 1980s.
The move by CanWest was attacked by the Newspaper Guild of Canada
which demanded that company should “immediately cease its attack on
divergent opinions”. In a response to concerns raised by journalists over
editorial independence CanWest’s publications committee chairperson had
this to say: “I can say to our critics and especially to the bleeding hearts of the
journalist community that it is the end of the world as they know it – and I feel
fine”.
The International Federation of Journalists responded to this direct violation of
diversity which, if no names were attached to it, would have been thought to
have come out of some authoritarian country. The IFJ observed that:
If this happened in the Eastern Europe 15 years ago there would have
been widespread protests from media owners and journalist groups.
The issues today are no different – the fight for editorial freedom and
protection from censorship.8
In 1991, after acquiring a stake in New Zealand’s TV3, Jasper asked
journalists in that station what business they were in, to which they answered,
“… to make sure that our audience gets the most carefully researched news
and information possible.” He responded coldly, yet honestly, “You are all
wrong. You are in the business of selling soap (selling airtime to advertisers –
emphasis added).”
In another complex example that explodes he myth of diversity of opinion,
media magnate Rupert Murdoch is said to have compromised the editorial
independence of some of his companies in China in view of the fact that he
would benefit from the ‘booming’ Chinese economy.9
It is also said that some of Hong Kong’s newspapers take a soft stance on
China over its alleged bad human rights record. The single reason for this is
that the owners of these titles are seeking to penetrate to lucrative Chinese
7
James Winter (2002) Canada’s media monopoly: One perspective is enough, says CanWest. In
http://www.fair.org/extra/0205/canwest.html. Accessed on the 20th May 2004
8
Ibid
9
Gerald Caplan (1997) Advancing free media: A discussion paper for open markets, open media?
Vancouver
5market.10 So, the so-called interest in diversity is nothing but a smokescreen
that disappears when profit interests rear their head.
These are but a few examples of how media concentration can destroy
diversity instead of promoting it. One of the facts often ignored by proponents
of mergers and acquisitions is that profits are at the centre of business
ventures and not a quest to generate news content. In this regard, the
newspapers, especially when their ownership is transferred to bigger
companies, become motivated by a single index, the profit-motive. In a
commissioned response to the Federal Communications Commission (USA)
Dean Baker makes the point that talk about diversity must take into
consideration the fact hat media outlets are heavily influenced by the
advertising industry.11 He agues, and convincingly so, that most of what is
contained in the news content of major news media is what would ordinarily
not offend advertisers. He further makes a more telling observation that the
bigger a media company becomes the more it would prefer equally stronger
advertisers who would have to be treated with some ‘care’, meaning that they
should not be offended.
Another element which often arises when examining merged media concerns
is the ‘merging’ of content. Instead of allowing different titles within one
company to develop varied content it is sometimes the case that content is
shared between those titles. This can lead to the loss of jobs on the side of
journalists but also the imposition of content that might not be relevant to the
readership of a particular title on two grounds, first location and, second, the
question of audience or readership. The worst case in ‘content regulation’ is
the case of ‘prescribed’ content as in the case of CanWest’s attempt to
impose editorials on their Canadian titles.
This latter possibility closes the claim to diversity on the basis of limitation.
Diversity is limited by the sharing of information or news irrespective of the
fact that such news might not be relevant. It should be clear that in this case
the sole motivation is cost recovery or containment. The use of syndicated
‘copy’ becomes a norm.
To illustrate the above point on content restriction let us turn to the example of
the Independent Group. The Group has a number of titles that are spread
nationally. It is a norm within the group that copy (articles) is syndicated to a
number of titles. The group even has what is called a group political editor.
The practical implication of this can only mean that individual titles would have
minimum independence in deciding what goes into the political sections of the
titles. While this might not necessarily be the same as the dictating of content
by the executives what it means is that regional subject editors would not
have ‘enough room’ to produce much more focused and relevant copy in
terms of having the space to explore different angles.
10
Ibid
11
Dean Baker (2002) Democracy unhinged: More media concentration means less public discourse – A
critique of the FCC studies on media ownership. A report commissioned by the Department of
professional employees, AFL-CIO, Washington
6Going back to the question of advertising, what can be argued here is that
these dictates will not only affect the nature of content, and its independence.
The other possibility is that new owners can change the nature of the
newspaper so that it could suit a particular class interest (in terms of
readership) in order that they increase the revenue from advertisers who
might be interested in that class of people.
In other cases, the content of the newspaper may be ‘dumbed down’ in order
to boost circulation. It can happen that a particular owner has not been able to
reach a particular market through existing titles within the stable and through
the acquisition of a new title such an owner will be able to reach such
markets. We will elaborate on these possibilities when we address the
particularities of the sale of the Sowetan and Sunday World to Johncom and
what we think are the likely scenarios that might arise.
Having examined, a bit theoretically, but more in comparative terms, what
mergers and acquisitions mean, we can conclude by arguing that these are
simply euphemisms for concentration and consolidation. The scenario that
emerges in the media sector is no different from what obtains in the broader
corporate world. In the name of ‘added value’, ‘new efficiencies’ and other
attractive terms, the world is seeing the concentration of capital in a few
hands.
Instead of living up to the promise of liberal economics, that mergers and
acquisitions will create competition which will lead to the ‘consumer’ being
offered more choices, the inverse is true. The ‘consumers’ of acquired and
merged media are denied choices. What is presented as choice in the form of
many titles is not necessarily choice. As we have tried to demonstrate, such
‘choice’ is limited by a number of factors, such as syndication, prescribed
editorial content, the creation or destruction of target markets and many other
strategies.
As we will further illustrate in the last section, diversity is also compromised.
Correspondingly, freedom of expression is compromised by increased
concentration.
In the final analysis, concentration serves a single group within the society,
that is, the elites who own the media and who are able to acquire more media
assets. Also, concentration also serves the interests of related industries such
as the adverting and marketing fraternity. The old dictum that media
companies do not exist to create news but to sell advertisers’ products and in
the process maximise their own profits apply. In Jasper’s words, they are
there “… to sell soap”.
Having made the above arguments we now turn to the sale of NAP media
concerns and test the arguments made in the above sections against the sale.
It is our considered opinion that the sale will gradually lead to an evident
concentration and consolidation of the media n South Africa.
7The possible impact of the sale on the nature of the
newspapers that might result from the sale
In considering the impact of the sale of the Sowetan and Sunday World by
NAP to Johncom let us first consider some of the regulatory conditions that
obtain even if these meant for the broadcast sector. We also consider some of
the competition rules that exist that might be of relevance to the subject
matter.
In making this submission we draw from the existing legislation, that is, the
Competition Act, Act number 89 of 1998. The Act outlines what is termed
prohibitive acts that inhibit fair competition. Also, the restrictions on cross-
media ownership which are contained in the Independent Broadcasting
Authority Act, Act number 153 of 1993.
The Independent Communications Authority of South Africa has recently
made a recommendation to the ministry of Communications to relax
restrictions on foreign ownership of commercial broadcast media.12 The new
recommendations states that foreign ownership of broadcast media will be
increased from 25% to 35%.
While the newspaper industry is largely self-regulating and it is therefore
rather difficult to draw lessons from the broadcast industry, it would not be
hyperbolic to argue that changes in the broadcast sector will have ripple
effects on the print sector. It is possible that the print sector might soon
experience increased ‘push’ for the relaxation of restrictions that might apply
to this sector, even if they only pertain to the competition rules as contained in
the Act.
The argument here is that the relaxation of restrictions sets a precedent that
might well be followed by the print sector. Let us now turn our attention to the
restrictions placed by the Competition Act.
Chapter 2 of the Act outlines transactions that can be considered to be
restricted. Section 4 (1) (a) states the following:
(An agreement is prohibitive if) it is between parties in a horizontal
relationship and it has the effect of substantially preventing or
lessening competition in a market, unless a party to the agreement,
concerted practice, or decision can prove that any technological,
efficiency or other pro-competitive, gain resulting from it outweighs that
effect.
Section 5 (1) makes similar provisions for restrictive practices with regard to
vertical transactions. It states:
12
Icasa (2004) Final recommendations to the minister of communications to amend certain provisions
of the Independent Broadcasting Authority Act (Act No. 153 of 1993), Johannesburg
8A agreement between parties in a vertical relationship is prohibited if it
has the effect of substantially preventing or lessening competition in a
market, unless a party to the agreement can prove that any
technological, efficiency or other pro-competitive, gain resulting from
that agreement outweighs that effect.
Part B, section 7 of the Act outlines the conditions under which a firm can be
considered to be dominating the market. Three conditions are placed. These
are:
(a) (If a firm has) at least 45% of that market;
(b) it has at least 35%, but less than 45%, of that market, unless it can
show that it does not have market power: or
(c) it has less than 35% of that market, but has market power.
The Act continues to outline transactions or practices that are prohibited from
dominant players.
It can be argued that strictly in terms of existing legislative provisions the sale
of the Sowetan and the Sunday World, together with 33.3% of Allied
distributors, will not constitute both horizontal and vertical advantage by the
new owners over other groups. It is true that the market share of the
expanded Johncom share on the weekly table will still not constitute 50% of
the respective markets.
The initial agreement over the holdings within Allied distributors, that no one
company can have a majority over the other partners, will also ensure that
Johncom does not enjoy dominance over the Independent Group.
At a technical and legal level it would seem that there is no immediate threat
to current ownership and control patterns which are such that there is no
outright dominance of the market. We use ‘immediate’ advisedly and
deliberately.
It is our considered view that whereas there might not be any immediate
threat to ownership and control patterns there is reason to be concerned
about what might develop in the future.
There is reason to argue that there is some suggestion that ownership and
controlling stakes of a company like Johncom are growing since 1994.13 If this
progression can be found to be holding, then we can argue that on the basis
of incremental growth of any business, Johncom is likely to grow from where it
is currently into a bigger company.
13
Compare the current stakes with Clive Emdon (1998) Ownership and control of media in South
Africa, in Duncan, J and Seleoane, M, Media and democracy in South Africa, Johannesburg, FXI
and HSRC
9The above trend can be observed in a number of jurisdictions where media
monopolies start out on a small but steadily incremental route till they become
giants that are able to simply ‘swallow’ other smaller companies.
The above is exemplified by the slight growth that Johncom will experience
when it acquires Sunday World. The total share of its Sunday market will
increase from 53,1% (through Sunday Times) to 55% when we add Sunday
World’s 1,9%.
It would not be hyperbolic to argue that the above can simply replicate itself
as time goes on.
The implications on freedom of expression and diversity
In general, South Africa, at least the little that we know, has not reached such
frightening levels of editorial control as seen in the case of Israel Jasper’s
CanWest. This is something to protect.
However, the non-existence of editorial control tendencies by managements
should not be interpreted as a guarantee that such will never happen. As
demonstrated earlier in this paper, the newspaper industry is motivated solely
by the profit-motive. In cases where a title is not yielding the type of profits
that are envisaged by the management it is possible that such a results can
be interpreted as being of the making by the editorial collective. The recent
example of the firing of the Sunday Times’ previous is illustrative.
International experience, which can well be supplanted here, shows that there
is a tension between increased acquiring of more titles in one stable and the
ability of the management not to interfere with the work of the editorial
collective.
The second consequence of increased acquisitions is that the diversity that
can be said have been growing in South Africa is busy shrinking. The
acquisition of titles by giant companies invariably lead to decreased diversity.
An example has been made in this submission about how, within the
Independent Group for example, political editorials might be centralised.
Should this type of practice, in the above form or any other form, be reached,
it will mean that there will be little internal diversity within the group and,
correspondingly, less diversity within the newspaper industry in the country.
On the strength of the above observations and points, it is possible to argue
that the acquisition of the Sowetan and the Sunday World should not be
sanctioned. We are of course aware of the countervailing arguments that it is
NAP, or Nail to be more precise, that wants to sell off its media assets. We
are also aware that there seem not to have emerged an offer from other
companies that sought to buy the media assets of Nail.
The selling of Nail’s media assets to a new company would have been the
most ideal option. In fact, we would like to suggest that instead of the
10transaction being allowed to proceed, the Competition Commission should
instead encourage to look for other possible buyers. This will effectively mean
that the intended transaction should either be reversed or cancelled.
Should the above option not be realisable or proof difficult to adopt for
whatever reason we would like to argue for mechanisms to be put in place
that will ensure that the transaction does not lead to the ‘closing’ down of
diverse opinions that, as argued earlier, might result from the acquisition.
We would like to express a concern, even if it may not be based on any
substantial evidence, that the transaction should not lead to the ‘dumbing’
down of the contents of the Sowetan in particular. Recent circulation figures
show that the sales of the Sowetan have gone down. A possible explanation
for this is the success of the new tabloid, the Daily Sun.
There have been talk about the newly acquired Sowetan having to position
itself to recapture the ‘market’ taken by the Daily Sun. If this line of thinking is
taken to its logical conclusion it might mean that the Sowetan might be forced
to ‘dumb down’ its content. This will be a great loss for a paper that in recent
times has improved its content substantially to cater for a vibrant and
increasingly sophisticated content.
To the extent that we express these concerns we also would like to submit a
number of proposals. Hereunder follows the summary of the major points
made in this submission and the recommendations to the Commission.
1. Acquisition and mergers serve mainly to bolster the power and growth
of a few companies.
2. International experience shows that freedom of expression and
diversity become the first casualties after the acquisition of certain titles
by bigger media companies.
3. While in technical terms there is no indication that by acquiring Nail’s
media assets Johncom will turn into a dominant player as outlined in
the Competition Act, it is still possible to argue that if allowed to
proceed the suggested transaction might lead to Johncom setting on
the road to ultimately become a dominant player.
4. It is reasonable to have concerns that given Sowetan’s ‘slump’ in
circulation, and the parallel success shown by Daily News, Johncom
might be tempted, after acquiring the Sowetan, to ‘dumb down’ its
content in order to regain lost market share. This will be a great loss for
a newspaper that is read mainly by a black readership. An implication
for this will be that there will no longer be a ‘content heavy’ daily
newspaper that caters for a black readership.
5. We submit that the acquisition should be reversed or cancelled.
116. We also submit that whatever the outcome there should not be loss of
jobs. We leave this argument to the relevant trade unions that operate
within the Sowetan and Sunday World.
7. Should the acquisition proceed irrespective, we suggest that there be a
Code of Principles which will outline and uphold basic principles of
journalistic independence from the management of whichever entity
that will end with the ownership and control of the Sowetan and
Sunday World. This Code should, among others, safeguard the
independence of the editorial section of the newspapers from the
management. It should outline how the independence will be enforced
and monitored. It should also outline recourse mechanisms that will be
at the disposal of journalists and editors in the event where
management would want to interfere in the affairs of the newspapers.
The Code should be binding on both management and the editorial
section. There are international precedents of this kind of Code. The
three well-known ones are the Australian, the American and the
International Federation of Journalists’ one.14
Conclusion
In this submission we have tried to demonstrate how acquisition and mergers
are effectively concentration and consolidation of media. We have also
demonstrated that where there is increased concentration and consolidation
there are also increased risks of the shrinking of space for freedom of
expression and diversity.
This paper has, unlike others that we suspect will be submitted to the
Commission, tried to go beyond legalistic arguments. Instead, we have tried
to introduce political arguments which we know are sometimes ignored in
processes such as this one.
It is our hope that the arguments advanced in this submission shall be taken
into consideration by the Commission.
Compiled by:
Console Tleane
Head: Community Media Policy Research Unit
Freedom of Expression Institute
Johannesburg
Tel: (011) 403 8403
Fax: (011) 339 4109
Email: tleane@fxi.org.za
© Freedom of Expression Institute
20 May 2004
14
See Christopher Warren (1998) Editorial democracy: A fight for our space, in Duncan, J and
Seleoane, M, Media and democracy in South Africa; Johannesburg, FXI and HSRC
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