SABC turnaround strategy; with Deputy Minister

Meeting report

The Chairperson welcomed everyone, and said it was not good that Minister Mokonyane was not in attendance when a matter of such importance was on the agenda. The apology received indicated she was helping to arrange the funeral of the late Minister of Environmental Affairs. The turnaround strategy of the SABC was a month overdue, and alignment with the shareholder was not yet in place.

Ms P van Damme (DA) commented on the Chairperson’s assertion that the alignment of the turnaround strategy with the shareholder was not yet in place. According to the Broadcasting Act and the court judgment, final decision-making rests with the board. The Minister’s role was limited to a consultative one. All the Act says was that the Minister must be consulted but ultimately final decision-making lies with the board. Whether the Minister is unhappy or not was quite irrelevant. The law had to be followed to the letter.

Mr B Bongo (ANC) asked Members to allow the meeting to proceed. The identified issues would be picked up and responded to as they came up during the presentation.  

Mr N Kwankwa (UDM) wanted to know if the SABC board had consulted the Minister on the turnaround strategy. This was what Ms Van Damme was trying to establish.

The Chairperson asked Members to give the SABC an opportunity to present its turnaround strategy before they raised questions.  

Deputy Minister’s opening remarks

Ms Pinky Kekana, Deputy Minister of Communications, in introducing the SABC contingent, said there was a need for reconstruction and the creation of a new trajectory to enable the broadcaster to discharge its mandate accordingly. The future of SABC ought to be protected, and it was in the country’s best interest to map a sustainable path going forward.

She emphasised the importance of the payment of television licences to turn the SABC around. She wanted to make it plain to South African citizens, that the SABC cannot turnaround without their help. Those with television sets must know that the content they view costs them 72 cents a day. This 72 cents a day helps the SABC create jobs for numerous South Africans. Without our small contribution, the SABC remains poorer and worse off financially. In essence, paying our TV licences does not only save the SABC, it saves many South African families from unemployment. She revealed that only 1.8 million people out of a total nine million account holders are up to date with their licensing fees. This was the main reason for the public broadcaster’s financial woes.

South African Broadcasting Corporation (SABC): Turnaround plan

Mr Bongumusa Makhathini, SABC Board Chairperson, presented the corporation’s strategic roadmap, which was aimed at guiding the corporation’s turnaround to financial sustainability, ensuring that it is able to operate competitively in the evolving digital landscape, whilst delivering on its mandate of providing a range of compelling informative, educational and entertaining programmes via television, radio and digital platforms.

The SABC was facing significant financial challenges and fierce competition on both legacy and digital platforms on a daily basis. The corporation had to be carefully managed and restored in order to fulfil its unique public mandate. To deliver on this public service mandate, it requires long term financial sustainability. Extensive oversight and analysis had been completed to determine where the problems lie and what needs to be done. SABC could be financially viable and sustainable on the basis of a strengthened, mixed funding model. This would require significant organisational changes and, at the same time, the creation of a conducive policy, regulatory and legislative environment.

Mr Makhathini said it was not an accurate reflection that the SABC's turnaround strategy focused only on retrenching staff‚ saying in fact this notion ignored a lot of work that was being done to drive the corporation forward. The board and management had done quite a number of things that had helped to stabilise the SABC. The SABC board and management had engaged with the shareholder as well as unions and staff, and would do what was best for SABC and the country. The board was committeed to deliver on its mandate and to ensure the SABC is viable.

The turnaround plan has three main elements: dealing with the legacy and governance issues; looking at regulatory and policy issues; and commercial and operational issues. In 2009‚ one of the Treasury conditions for a government guarantee to the public broadcaster was that the SABC should reduce employee costs in order to be sustainable. but in 2018‚ employee costs were still the biggest cost driver at the SABC and continued to be out of step as a percentage of revenue. It was sitting at about 42% of the total revenue‚ which was an anomaly.

Section 189 of the Labour Relations Act is a very tightly drafted legislation requirement and process, which the SABC intends to follow to the letter. The SABC had engaged with organised labour and employees to communicate to them that the broadcaster contemplated embarking on the section 189 process. This process must fully comply with the Labour Relations Act and therefore it would have been improper for the employees to first hear about the process in a public meeting with the Committee. This was the reason the SABC management had started engaging with labour so that they could work together in a consultation process which would result in a buy-in and alignment on how to proceed in the cost-cutting drive.

Mr Madoda Mxakwe, Group Chief Executive, SABC, said for the past financial year‚ total revenue was R6.6 billion and expenditure was R7.3 billion. The net loss was R622 million, and its debt currently stood at R1.3 billion. In 2013/14, total employee costs were just under R2.5 billion, and in 2017/18 that cost was just under R3.1 billion, or 42% of expenditure. Programming‚ film and sports rights came second at R1.7 billion‚ followed by signal distribution and linkage costs (R718.1 million) and broadcast costs (R486.6 million). The SABC's major revenue streams were advertising‚ which brought in R4.78 billion (71%), TV licence fees R941 million (14%), and sponsorships R393 million

The broadcaster was looking at new ways to collect TV licence fees as there were only 1.8 million households and businesses that paid TV licences out of a total of nine million accounts on the SABC database. Challenges in relation to revenue generation optimisation included advertising cuts by clients on a global scale (shrinking budgets); economic pressures; competition for advertising revenue (increase in Pay-TV subscriptions); SABC television audience share declines; unplanned or sporting events disrupting schedules; SABC’s inability to leverage digital platforms; and negative SABC publicity.

Mr Mxakwe pointed out the high expectations on the SABC to deliver on all mandate obligations. Criteria were needed to prioritise mandates that contributed the most value, and the extent to which any particular mandate should be pursued (as it was not possible to do all fully). Therefore, consideration was being given to achieving the best mix of mandate and licence condition deliverables. The SABC recognises that in an increasingly competitive media environment, the public service role played by its content activities is likely to grow in importance. To maintain and strengthen this role, SABC content must stand out from competitors, and do even more to provide the national audience with a distinctive mix of quality programming that offers greater value than satisfying only individual tastes. Its distinctive public service remit and institutional structure allowed SABC the creative and programming freedom to put its mandate ahead of commercial objectives. This, however, required financial discipline to maintain its sources of income and sustainability. The mandate places unprecedented commercial and financial pressure on the SABC.  Additional funding sources and an enabling regulatory regime will be essential to mitigate the risk of undermining South African public service broadcasting in the future.

As part of the turnaround roadmap, cost discipline has become a way of life, with ownership, responsibility and accountability being embedded and embraced. Initiatives to optimise and minimise costs included the following:

• Content acquisition audits and constant scrutiny for return on investment;
• Production facilities (in-house & external) assessments for optimal and efficient utilisation and financial viability;
• Financial performance parameters that support the return to financial sustainability of the corporation to be applied to acquisition decisions; and
• Sports rights, and particularly those of national interest, to be concluded on terms that support the return to financial sustainability.

Actions to drive efficiencies were already under way in the form of embedding a shared service mind-set between the radio stations broadcasting from the same location. In addition, resources will be pooled more aggressively for shared events of national importance, thus resulting in minimising the broadcasting costs. The broadcast network will be optimised to ensure that it focuses on areas where it is viable to increase audience share that will have a positive impact on revenue, without compromising the SABC’s public service mandate and delivery.

Ms Nomsa Philiso, Group Executive: Television, SABC, said television licence fees still remain the second largest source of revenue for the SABC, but the fee needs to be increased and the collection methods strengthened. The television licence fee of R265 has remained unchanged since 2013. Currently, the SABC TV licence fee costs an average of 72c a day. For this fee, the public broadcaster presents the South African public with 18 radio stations featuring all official languages and hundreds of hours of South African and international music; three TV channels (plus two on DStv) that include billions of rands on commissioned South African television content, sports programming and television news production. An overhauled TV licence fee system could go some way to funding the public broadcasting mandate. Currently, only approximately 1.8 million paying television households and businesses out of a total of 9 million accounts on the SABC database. Compliance should be tightened up at the point of sale, and with other transactions relating to television sets. A new, broadened definition of “television set” should be included in the Broadcasting Act. To enforce greater compliance on the payment of licence fees, the reporting obligations should be broadened to include insurance companies and Pay TV operators, as well as stricter enforcement and penalties for non-payment of licence fees.

Television’s turnaround was based on the execution of the three-year strategy that would:

• Address declining audiences by building the platforms on which they can access SABC content;
• Provide content that drives audiences to those platforms, while meeting the public service mandate; and
• Ensure sustainability by providing an environment whereby the advertising inventory could be successfully sold while developing other revenue streams.

The overall objective was to strengthen the SABC TV network with a scheduling and marketing strategy to keep the diverse SABC audience on the three channels at any given time. The SABC would further pursue investments in strong relevant local content, focusing on key markets in tent-pole slots; and the implementation of transversal strategies, working closely with radio, digital, commercials sales and business development to build and extend the platform and content brands beyond linear broadcasts. Further, the SABC has developed plans to increase the number of channels for direct to home (DTH)/ digital terrestrial television (DTT) platforms to a total of nine channels, these being: SABC1; SABC2; SABC3; SABC News; SABC Parliamentary Channel; SABC Education; SABC Health; SABC Sport; and SABC History Channel. These were currently unfunded, and the SABC would need to utilise partnerships and downstream content exploitation initiatives to ensure viability. The costing of the channels will therefore be reviewed.

Mr Chris Maroleng, Chief Operating Officer (COO): SABC, said that for the next three years SABC Radio will focus on initiatives that are aimed at growing audiences, driving down costs, and growing revenue without compromising the delivery of mandate. The turnaround plans for the portfolio will have a special focus on:

• The five brands that have significantly and consistently lost audiences in the past two years -- SAfm, R2000, 5FM, Lotus FM and Good Hope FM.
• High flying brands, such as Ukhozi FM, Metro FM, Umhlobo Wenene FM and Lesedi FM, will be defended against competitors through programming and marketing initiatives that will ensure that they remain top of mind with both advertisers and listeners.
• Various digital media opportunities to continuously engage audiences and grow revenue opportunities.

The success of radio’s turnaround plan hinged on the provision of a significant investment in marketing and qualitative research – a few of the troubled radio stations were in dire need of fresh corporate identities and brand campaigns. SABC Radio remains a critical source of information, news and entertainment for millions of South Africans that have limited access to information technology and other advanced forms of media. This includes South Africans with little or no literacy, people living with disabilities (visually impaired), and the rural poor who have no other choices at their disposal. SABC Radio commands 71.8% share of all adult radio listening in South Africa, which translates to 28.1 million adults who choose SABC radio stations that broadcast in all 11 official languages, as their source of news and information on a weekly basis. Key activities to accelerate revenue performance would include increases in the sell-out rate across all the stations; dedicated sales teams for smaller and rural brands to boost sales, as these stations do not benefit much from advertising agency sales; and keeping costs down to below, or close to, revenue targets by smaller and struggling brands until they break even.

Consistent with global trends, television news viewing in South Africa is levelling out towards a steady decline as consumers opt for platforms that are compatible with their lifestyles. SABC, like other news broadcasters, needs to confront the challenge of appealing to a younger population to secure a future captive audience. Integration of digital media in radio and television broadcasting will become even more important in the race for audiences.  In spite of this, television news is expected to remain a dominant source of news for some time. Content demands by audiences are constantly changing, meaning SABC News must invest in dynamic market intelligence and maintain agility to remain relevant. The next three years will see further liberalisation of the news and information arena, with new players entering the 24-hour television news space and an increase in digital news platforms which will provide choice to the consumer. While the SABC is driving these initiatives, it should be noted that sustained growth and operational efficiency improvement require a significant degree of investment, particularly in broadcast technical facilities. News and current affairs are currently supported by out-dated infrastructure that requires constant maintenance, and infrastructure that lacks flexibility to enhance the visual appeal of programmes.

On SABC‘s public mandate, regulations list 22 sporting events as “national sporting events.” Sports of national interest focus on culture, nation building, the African agenda and the restoration of human dignity. Public demand for major sporting events has enforced late schedule changes on all three SABC channels. The SABC has consistently faced public pressure and condemnation when it has failed to broadcast these events. Sports rights costs have been escalating by exorbitant amounts, far beyond inflation, and have become unsustainable for the SABC.

The SABC cannot compete or sustain the status quo of incurring excessive expenditure for sports rights and production with little or no return on investment. All sports-related costs are funded by the SABC, and operating losses from broadcasting these events have to be absorbed by the corporation. Without any changes to sports rights regulations, the SABC would require additional funds to deliver on a number of events of national interest and special events -- mandatory sport events, as well as events that are deemed as public interest. Funding required is to assist in the broadcast of special events that have been planned for the current fiscal year,as well as the next two financial years, which are mandatory and contractual commitments.

The lack of funding for sports broadcasting on the SABC will have the following implications:

• Sports events that have been historically broadcast will not be broadcast;
• Once sports rights are lost, it is difficult to acquire them in future from federations directly;
• There will be an outcry from the public and stakeholders for not broadcasting sports;
• A decline in sponsorship and classical advertising revenue;
• A decline in TV licence revenue – public could refuse to pay licence fees in the absence of sports broadcasting;
• The SABC would be liable for a fine of R500 000 for contravening or failing to comply with the provisions of the Sports Broadcasting Services Regulations.

Regarding a review of sports regulations, not only does the SABC have a very onerous and unfunded public mandate regarding broadcasting national sporting events, but it has not been protected by the 2010 Sports Rights Regulations. In recent years, it has requested the Independent Communications Authority of South Africa (ICASA) to review the sports broadcasting regulations. The review was requested more recently in the context of ICASA’s inquiry on Pay TV and competition. Once the regulator commences a formal review of the Sports Rights Regulations, the SABC will request a review of the list of national sporting events, including the sub-licensing conditions and the pricing of sports rights to address anti-competitive concerns; and a review of the bidding process for subsidiary rights, to specify that the process of determining the subsidiary rights be fair and sets criteria on which fairness would be judged. The request to review the sports broadcasting regulations came at a time when the Department of Communications was conducting a public process to review public broadcasting with a major focus on ensuring the sustainability of the SABC in a digitised multi-channel environment. The issue of how sports rights are regulated will also be discussed in that policy context.

Mr Michael Markovitz, SABC Board Member, said Media Technology Infrastructure (MTI) aims to better position the public broadcaster to meet the vital shifts that are transforming the media universe and consequently how it connects with South Africans. The world of broadcasting was changing on an almost daily basis – new players were entering the market, offerings were constantly evolving and new technology was changing the way in which content is consumed. The broadcasting industry is in the midst of the most dramatic change in history as the move from analogue to digital broadcasting accelerates. While the impact of this change is felt throughout the business, its effect is most profoundly felt on the technology and infrastructure of the organisation. With a reliable technology infrastructure suited to the digital age, the SABC will lead and compete with new digital broadcasting entrants. The SABC is exposed to many cost drivers, one being capital expenditure. It currently has a R2 billion work in progress commitment with a large foreign exposure. It had further identified key projects, including the reworking of its digital content, as key future costs. 

On the broadcaster’s property strategy, the SABC was in the process of procuring the services of a property advisor service provider. The scope of service will include assessing the current condition of the portfolio and facilities; providing a property management strategy; and performing the retaining, leasing, disposing and acquisition of properties. Once the service provider has been appointed and the above assessments have been concluded, the SABC will be in a better position to execute a comprehensive property strategy. 

Mr Jonathan Thekiso, Group Executive: Human Resources (HR), SABC, detailed how the wage bill had ballooned over past 15 years, when permanent staff cost had accounted for 26% of expenditure, but was now at 35.5%. However, with the implementation of the turnaround strategy, the SABC will become a preferred employer with employees who are the broadcaster’s brand ambassadors. From a people perspective, employees will excel in an authentic and transparent environment, driven by a high performance culture. Talent attraction and retention, learning and development were high priorities and so was having the right people in the right job - highly skilled, motivated, engaged and passionate people. The SABC workplace will become a safe, fun, positive environment to work in, where success is rewarded and non-performance is managed. Poor performers will be provided with the necessary enablement tools, coaching, training and development.

The SABC had conducted a “culture and climate survey” amongst employees at the end of 2017. The implementation of identified interventions commenced early 2018. A new strategic roadmap was introduced mid-2018. This roadmap contains new values that need to be embedded within the SABC. The outcomes of the survey will be linked to the new values and embedded through identified interventions and initiatives. This will also be translated into behaviours and linked to performance management.

Discussion

Ms Van Damme commended the SABC for presenting what appeared to be a well thought-out turnaround strategy. She praised the board for insisting on its independence and resisting political interference from the Minister. What was the optimal staff complement the national broadcaster needed in order to operate efficiently? She expressed concern about the inflated number of managers at the SABC, which she believed to be an effect of former COO Hlaudi Motsoeneng's flouting of the recruitment and salary policy. A salary review should be done throughout the SABC. How many of the 3 478 employees might be retrenched? Why could loss-making radio stations not be dispensed with? She suggested that the SABC should focus on their commercial mandate, because that is where the money is. She believed the public mandate should be funded by government. The Committee should engage with Treasury on covering state funerals and so on. The SABC's policy should include a clear definition of what the public mandate was so that there was no room for political interference. How does the YouTube channel work? Does the SABC make money off its YouTube channel?

The Chairperson noted the conversations on retrenchments in the public discourse. He appealed to Members not to get into that fray, and rather leave the relevant processes involving stakeholders -- the unions and workers -- to unfold. Consultations with unions should not be pre-empted. He indicated that Minister Mokonyane was in hospital, and apologised for incorrectly saying she was busy with the late Minister Molewa's funeral arrangements.

Mr N Kwankwa (UDM) appreciated the comprehensive turnaround, as presented. What was crucial would be its effective implementation going forward. The challenge was having a bloated management team, with a number of personnel floating in the system without adding much value. Top management salaries would also need serious consideration and should be attended to. The TV licensing arm should come up with strategies to ease the funding challenge. This could be done partly through the simplification of the SABC’s payment systems. He pointed out that if the public mandate remains unfunded, the SABC was always going to have a cash flow problem. Getting the SABC out of the quagmire would require concerted efforts.

Mr W Madisha (COPE) said the SABC had done well thus far, but the Committee would expect more. The actualisation of the turnaround strategy as presented was crucial, as this had not been the case previously. The rise in operating costs was problematic. Was this as a result of stiffer competition? How was the SABC going to provide coverage of the 2019 elections effectively, given the proposal to revise the budget down to R30 million? Would it be able to cover all political parties, from the largest down to the smallest? The Committee would have to meet with the board at a later stage to evaluate the progress made in implementation of the turnaround strategy.

Mr B Bongo (ANC) commended the presentation by the SABC. Retrenchments should be a measure of last resort, as the country could not afford to take such a route. The entire structure needed to be looked at up to the top echelons when embarking on the rationalisation exercise. Having a self-sufficient national broadcaster was in the interest of the country as a whole. How was the SABC breaking even and subverting a situation whereby a bulk of its monies recovered through debt collection, goes to the lawyers? There had to be stricter penalties for the non-payment of TV licences. He also pointed out that government and Parliament has got to take responsibility for the funding of the SABC’s public mandate.

Mr M Kalako (ANC) said there was no way the SABC could recover and get out of this crisis if it continued to spend the bulk of its money on its wage bill. The turnaround strategy, if effectively implemented, could change things for the better. He agreed that the Committee should let the processes, in terms of Section 189 of the Labour Relations Act, unfold before making pronouncements about staff rationalisation. However, there had to be a clear and streamlined human resource plan, and labour unions should be fully engaged throughout the processes.

SABC’s response

Mr Jack Phalane, Board Member: SABC, said section 189 talks with unions and staff were about trying to avoid dismissals and retrenchments in the process of rationalising the unsustainable wage bill. It would only be after this process that the SABC would be clear about the way forward in this respect. The exercise had to be dealt with internally through existing structures. The focus on staff rationalisation was across the board -- from the top management down to the lowest levels. Consultative processes were of great importance, so the SABC was meeting organised labour on a regular basis. If section 189 had to be invoked, it had to be done effectively. There would have to be a clear distinction between affected and impacted employees. These were some of the issues being articulated with the unions.

Mr Maroleng spoke about the SABC’s commercial mandate as it relates to the national broadcaster’s viability. The focus was sharply on the commercial mandate to ensure adequate revenue generation. The YouTube channel gave the SABC a new platform to demonstrate products on offer as it moves into the digital terrestrial television (DTT) space as part of the commercial strategy. This was something that needed dedicated focus to maximise revenue.

The SABC’s financial viability should not be affected by the discharge of its compulsory and designated mandates. SABC has a mandate to fulfil, but does not have the funding to meet it. The reduced R30 million spend on Elections 2019 would not result in diluted coverage. An efficient personnel deployment and signal distribution plan would ensure the exercise is carried out in a cost effective way. Rural coverage would also be spruced up in order to give a voice to the voiceless. A digital migration channel proposition that would come at the least cost to the SABC, through cost-cutting and cross-subsidisation, was also on the cards. The bloated staff complement was a result of irregular salary increases; employees promoted from admin to management in a short time; blatant disrespect of recruitment processes; and payment of so-called critical skills allowances. These irregularities were being reversed. The SABC was reversing some of these appointments and promotions because these are articulated in the public protector’s report in terms of remedial actions.

Ms Philiso said debt collectors were engaged as a last resort after all internal processes were exhausted. They were given specific revenue budgets and were performance managed. Their payment structure was contingency fee-based and dependent on their success rates. The three debt collectors currently engaged were being paid R7 million on average. 

Mr Markowitz said Pay-TV operators should also be required to check whether a subscriber has a TV licence. SABC would want the law changed so that purchases of personal video recorders (PVRs), dishes and set-top-boxes also require proof that a TV licence has been paid for. The SABC was looking at ways of tightening up compliance and stricter enforcement, with penalties for non-payment. The proposal to increase TV licence fees was yet to be submitted to the Minister as per the existing regulations. This had not been done as yet, but was currently under consideration.

Mr Makhathini gave an assurance that all identified challenges were being looked into holistically. Employee engagements on how these challenges could possibly be surmounted were continual. The staff rationalisation exercise was being looked into, and would be done across the board. The corporation must be carefully managed and restored in order to fulfil its unique public mandate. To deliver on this public service mandate, the SABC requires long-term financial sustainability. Extensive oversight and analysis have been completed to determine where the problems lie and what needs to be done. The SABC can be financially viable and sustainable on the basis of a strengthened, mixed funding model. This will require significant organisational changes and, at the same time, the creation of a conducive policy, regulatory and legislative environment.

Deputy Minister Kekana appreciated the observations made and the guidance being afforded to the SABC by the Committee. She identified the need to engage other Parliamentary committees with mutual interests so that the national broadcaster is brought back to its past glory. The shareholder’s compact would be used to deal with the challenges, and the Department was highly focused on the various aspects which needed attention. The Committee would be given feedback, as the turnaround strategy was being implemented. She gave assurances that the Department would assist the SABC board and management and make sure a comprehensive implementation plan that does not put the nation in limbo is in place.

The Chairperson said the Committee would monitor progress on the implementation of the turnaround roadmap. The majority was clear that retrenchment should be the last resort. A follow-up meeting with the board should be arranged to get a progress report with regard to the implementation of the roadmap. The strategic roadmap had highlighted some critical aspects which could bring about positive results. However, the issue of Section 189 should be approached with due diligence and be concluded expeditiously in order to restore certainty among the workers. He also commended the SABC for coming up with turnaround plans to improve collection of the television licence fees.

Shortlisting of candidates postponed

The Committee agreed to postpone the shortlisting of candidates for the boards of the Media Development and Diversity Agency (MDDA) and the SABC to the next meeting after the Parliamentary recess.

The meeting was adjourned.