SABC on its financial stability and HR matters; with Deputy Minister

NCOP Public Enterprises and Communication

28 August 2019
Chairperson: Mr T Matibe (Limpopo)
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Meeting Summary

The South African Broadcasting Corporation (SABC) presented on the challenges facing the entity, and the need for government funding. Its funding model promoted over-reliance on advertising revenue. The regulatory and legislative framework could not keep pace with the growth of digital technology. Multinational advertisers had reduced spending over the preceding 24 months. The cost of the SABC mandate was high, and amounted to R6.5 billion for the following three years.

Over the preceding years, the corporation had experienced a decline in audiences and revenue, coupled with leadership instability. The financial situation had worsened during 2018/19, with a cash balance of only R72 million at end March this year. It could not honour payments to service providers and had ended the 2018/19 financial year with an unaudited loss of R483 million. The SABC had applied for government funding since November 2017, but feedback was still awaited on the funding request. The SABC was technically insolvent, and its inability to invest in content compromised the generation of advertising revenue. Offers for sports rights by the SABC were being rejected.

The Companies and Intellectual Property Commission (CIPC) had issued a notice to the SABC in December 2018 in terms of the Companies Act, to show cause concerning trading under insolvent circumstances, which could lead to liability for the Directors. Due to cash flow challenges, the SABC was unable to produce a programme inventory with a lead time of at least 18 months, which negatively affected the production industry. The relationship with organised labour was not adverserial. There was a reduced staff headcount because of a moratorium on appointments, which hampered operations. The SABC had been unable to pay salaries, which had caused disengagement. There was a very large number of acting positions.

In discussion, Members asked about under-spending on content; revenue growth; “black-on-air;” labour relations; digital migration; political interference; a review of regulations and policy; the impact of the Companies Act; relations between SABC Board members; over-reliance on advertising; airtime not sold; irregular appointments; investigations and consequence management; and review of the licence fee mechanism.

Meeting report

SABC on financial stability, funding and HR challenges

The briefing was presented by Mr Madoda Mxakwe, Chief Executive Officer (CEO) SABC; Mr Bonamisa Makhatini, SABC Board Chairperson, Ms Bernedette Muthien, SABC Board member, and Mr Jonathan Thekiso, SABC Group Executive: HR, with an introduction by the Deputy Minister, Ms Pinky Kekana.

The SABC had to deliver on its public service mandate while operating in a rapidly changing business environment. The funding model promoted over-reliance on advertising revenue. The regulatory and legislative framework could not keep pace with the growth of digital technology. Multinational advertisers had reduced their spending over the preceding 24 months. The cost of the mandate was high, and would amount to R6.5 billion over the following three years. Over the preceding years, the SABC had experienced a decline in audiences and revenue, and leadership instability.

The financial situation had worsened during 2018/19, with a cash balance of only R72 million at the end of March 2019. The SABC could not honour its payments to service providers. It had ended the 2018/19 financial year with an unaudited loss of R483 million. It had applied for government funding since November 2017, but feedback was still being awaited on the funding request. The SABC was technically insolvent, and its inability to invest in content compromised the generation of advertising revenue. Offers for sports rights by the SABC were being rejected.

The Companies and Intellectual Property Commission (CIPC) had issued a notice to the SABC in December 2018 in terms of the Companies Act, to show cause regarding trading under insolvent circumstances, which could lead to liability for the directors. A review of the regulatory framework could add R500 million to R1 billion per year to the SABC bottom line, but the benefits would not be realised soon. Due to cash-flow challenges, the SABC was not able to produce a programme inventory with a lead time of at least 18 months, which negatively affected the production industry.

The relationship with organised labour was not adverserial. There was a reduced staff headcount because of a moratorium on appointments, which hampered operations. The SABC had been unable to pay salaries, which had caused disengagement. There was a very large number of acting positions.
 
Discussion

Ms L Bebee (ANC, KZN) asked how long it would take for the new SABC strategy to yield positive results. She referred to the Special Investigating Unit (SIU) investigations. Had the Board made estimates of money to be recovered, and what steps were being taken towards the recovery of monies?

Ms T Modise (ANC, North-West) applauded the transparency of the presentation. Were there plans to review the licence fee mechanism? What had caused the delay in finalising digital migration? How could irregular appointments like those of the station manager be brought to an end? Could the SABC work hand in hand with the labour movement to resolve challenges? She appreciated the honesty. If the truth was told, Parliament could help.

Mr A Cloete (FF+, Free State) referred to net losses and profits. What had been done right in 2012/13 and 2013/14 in respect of management and the procurement of content? Content established trust and income. If things stayed as they were, when would black-on-air become a reality? How much airtime had not been sold according to the inventory in the last financial year? What was meant by over-reliance on advertising revenue? Fit for purpose had to be explained. What was needed to change the SABC?

Mr A Arnolds (EFF, Western Cape) said that citizens were not happy, especially taxpayers. Former board members had committed to a turnaround, but the SABC had been taken backwards. The chief financial officer (CFO) had stated that the finance situation had moved in a circle. Urgent intervention was needed. Did the SABC believe in its own plan, and that it could work? How did the SABC, as a public broadcaster, deal with political interference? It was a public broadcaster, not a State broadcaster. The SABC had to be an effective, efficient and corruption-free entity. Mr Thekiso had mentioned that there were more than 180 investigations. How many were there? There had to be more detail about other revenue sources, and the total amount estimated.

Ms C Labuschagne (DA, Western Cape) commented that the year had ended with a R72 million cash balance. What was in the SABC’s coffers? Would regulatory and policy issues be addressed in the review? The question of 90% local content needed attention. Reviewing had to attend to regulations, as it had an effect on the rest of the industry. Which acts and regulations and legislation would the SABC like to see amended, and which new legislation would it like to see brought into being? What were the timeframes for that? In which areas could there be revenue growth? Solvency and reckless spending had to be monitored. If the Companies Act was contravened, there should be consequences. How many people paid for TV licences, and how big was the audience? What changes would it bring if the SABC received a rescue package? State-owned entities (SOEs) were telling the same stories year after year. R524 million had been preserved -- on what would it be spent?

The Chairperson asked what the reasons for advertisers reducing spending were. What was the amount owed to Sentech? The impact of the Companies Act had to be considered. The SABC could be charged for reckless spending. Was that linked to the resignation of Board members? The CFO had referred to cost containment, but under-spending on investment in content could have a future impact. He asked about progress with consequence management processes. It had been stated that charges were being brought by the Public Protector and the SIU. At what level of management had infringements occurred -- at the senior or lower levels?

SABC’s response

Mr Makhatini responded that a capital injection was needed. The strategy had commenced in July of the previous year. To drive revenue, 18 to 24 months were needed. There had to be monthly budgeting for salaries. It had to be ensured that staff and suppliers were paid. The SABC was working hard to ensure that black-on-air did not happen. There had been a lack of investment in maintenance. Airtime not sold amounted to R3.5 billion. The total inventory was R11 billion.

He answered about over-reliance on advertising, saying that the public mandate costs were high. The mandate had to be reviewed. The SABC believed in its plan. It had floated the SABC past the preceding 12 months. It was working aggressively to implement plans for an efficient and corruption-free broadcaster. Legacy issues had to be dealt with. Details of revenue sources would be made known.

He answered about the payment of TV licences, saying that there were 9.6 million accounts, according to Stats SA, with 2.2 million paying, and 455 000 on instalment. The government could help to reduce signal distribution costs. The SABC paid R1 billion for that. Work was being done with the Department and the Government Technical Advisory Centre (GTAC). There was a reduction in advertising spending by multinationals, due to the economic downturn, and a reduction in the budget.

Ms Van Biljon referred to a licence fee review. There had been eight increases in 24 years. If the fee were to be increased, it had to be considered what was affordable. Content had to be attractive and compelling. Over-reliance on advertising could be averted by resorting to funding resources from the many platforms created by digital. The SABC could currently not sufficiently invest in content, which locked it in a circle. It had R200 million in its account, which would go down to R70 million on 30 August. The consequences of that were dire. Sentech could be engaged with on lowering the cost of signal distribution.

To benefit from the rescue package, trade and other payables had to be addressed. Content had to be built up and scheduled two years into the future. However, the SABC could currently not invest in putting future programmes on air. There was not enough investment in capital expenditure. Of the 39 lifts at Auckland Park, only three worked. Lifts had to be replaced. Of the R400 to R600 million earned each month, R260 million went to salaries. The SABC needed R180 million to invest in content, but it could spare only R60 million. The lack of investment caused future problems. The SABC also could not invest adequately in marketing.

Mr Thekiso responded about bringing an end to irregular appointments. There had to be policy compliance. This included adhering to a recruitment and selection policy. A position had to advertised so that people could compete for it. A suitable candidate had to be appointed after a panel interview. Challenges from organised labour had to be decided by an impartial labour court to determine if an appointment was fair. The fit for purpose person had to be not only suitably qualified, but also able to fit into the SABC’s organisational culture. If the person could not conform to working hours, (s)he would be a misfit. The fit for purpose person needed to have a high work ethic. Insolvency was related to the high number of acting positions. The SABC advertised and held interviews, but people were scared to join because of the known state of its finances.

91 disciplinary cases had been concluded since June 2018. There had been some external litigation. In June 2019, 12 cases were outstanding. By June of the previous year, there had been 50 suspensions, and in the current year there were only 12 by July. Suspensions were concentrated at the group executive level. Individuals would leave in the midst of a disciplinary enquiry. Detailed information would be given at the next meeting with the Committee.

He answered about infringement outcomes, saying that there was a commission on sexual harassment, with a report released in October 2018. Six predators had been identified, of whom four were dismissed. One had been found not guilty, and the other case was still being processed. The number of disciplinary cases was 180 by the end of June, and that number would increase.

Mr Mxakwe answered about the recovery of money through SIU investigations, and said that R500 million was involved. The problem was that when irregular contracts were awarded, there was still value delivered. If the SABC wanted to recover money, it became litigation. Special courts were needed to speed up the process.

There was a political need to change. Government had to recapitalise the SABC so that its public mandate could be fulfilled. A policy issue was that the three channels could be used to make money by other people, but the SABC got nothing. The question was whether 70 cents per day to use TV was still fair. The SABC had to compete. Policy reform and regulation was needed. All players had to support the SABC mandate. He referred to political interference, and said that there was also commercial interference. The SABC’s past had to be confronted. A lot of work had already been done.

Deputy Minister Kekana said that the CEO would supply the additional information needed by the Committee. The SABC and Parliament had to constantly stay in touch with each other about the review of policy and regulations. The Minister had stated that there had to be legislation to enable the fourth industrial revolution. The SABC had to be clear on how it interacted with Sentech about signal distribution. There had to be strategic planning sessions between the entities. One missing link affected the entire chain. A blind eye could not be turned to the matter of insolvency. The SABC had to become viable through capital injection. The 90% local content stipulation was part of the legacy that the current board had inherited. The SABC had to grapple with legacy issues, and the results would be brought to Parliament.

Further discussion

Ms Labuschagne asked about the relationships between the Board members at the moment.

Mr Arnolds referred to the oversight mandate of the Committee, in terms of which the SABC had to bring information to the Committee. He asked if the SABC was confident that it could bring about change within 18 to 24 months, dating from the previous year in July.

Ms Modise asked if arrests had been made in criminal cases. R22 million had gone to the SIU, but the question was what had been received, and how the SABC had benefited. How many people had gone to jail?

The Chairperson asked the Deputy Minister how the Committee could assist with dealing with challenges.

SABC’s response

Mr Makhatini said that the SABC had already managed to fully implement a turnaround without a financial injection, but the turnaround required investment. If money was granted to the SABC, clear timelines would be given. The SABC had been unable to invest sufficiently in content. The SIU investigations had led to litigation with a former SABC executive.

Mr Arnolds commented that it would be unacceptable if the SABC was still facing the same challenges in two to three years’ time. A period of 18 to 24 months to achieve positive results had to be recorded. Oversight would hold the SABC accountable.

Mr Makhatini replied about the relationships between Board members, and said that when people from diverse backgrounds were thrown together, it took time to gel. When facing challenges, the Board would act in the SABC’s best interests, based on the pertinent facts. It would do what was right and responsible.

The Deputy Minister remarked that it was in the best interest of the SABC that Board members find each other. The question was how the Committee could assist to stabilise the entity. She advised the Committee to call on the Finance Standing Committee, and arrange a meeting to be attended by the National Treasury. It had to be established how Sentech could assist the broadcasting regime. The Executive had to be held accountable, and oversight had to be in accordance with the Zondo Commission.


Adoption of Committee minutes

The minutes of 24 July were adopted without amendment.

The meeting was adjourned.

 

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