SABC on turnaround strategy & implementation of recommendations emanating from reports

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Communications

17 September 2019
Chairperson: Mr B Maneli (ANC)
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Meeting Summary

VIDEO: SABC briefs Parliament on its turnaround strategy​
Ad Hoc Committee on the SABC Board Inquiry into the fitness of the SABC Board
SABC turnaround strategy; with Deputy Minister – 25 September 2018

The South African Broadcasting Corporation (SABC) briefed the Committee on its turnaround strategy, and provided an update on progress with the implementation of recommendations made by the Public Protector in 2014, the Auditor-General (AG), its own internal forensic report and by Parliament's ad hoc committee, which had investigated the broadcaster in 2016. It reported that while there had been implementation of these recommendations, and officials were being called to account for their roles in the wrongdoing, there had been fierce resistance and a fightback.

The ad hoc committee and the Public Protector had found irregularities and a number of questionable deals at the SABC, and the broadcaster's own internal forensic unit had so far produced 180 reports. The head of the forensic unit had been shot at by assailants while leaving work in June because of the work he was doing. However, the Committee was assured that no amount of push-back would stop the board from doing the work to clean up the Corporation. They were also confident that they were doing everything according to their policies and following proper processes in a responsible manner.

The SABC would move ahead with its plans to increase TV licence fees. The national broadcaster could not continue to run on the equivalent of 72 cents a day and provide the public with 19 radio stations, five TV channels, and play such a role in educating, informing and entertaining. One of the key problems with raising TV licence fees was the issue of compliance, with the broadcaster reporting a compliance level of just 27.8% in October last year.

The SABC said it did not make financial sense to inject millions into broadcasting the Rugby World Cup competition when the current yield on commercial sports was negative. Broadcasting the event would have cost $28-million for TV rights, $60 000 for radio and $900 000 for production. The SABC simply did not have R400 million available to broadcast the 2019 Rugby World Cup. In the past three years, the SABC had lost as much as R3.8 billion on money paid for sports broadcasting rights. It also pointed out that broadcasters everywhere were being seriously challenged by the rise of smartphones that allowed other competitors to enter the broadcast industry much more cheaply,

The Committee, as well as Treasury, had yet to determine whether the SABC had successfully met all of the preconditions needed to access the bailout funds. However, besides the fact that the public broadcaster had been able to save R1-billion and reduce its losses by 33%, it needed an urgent cash injection of R2 billion by the end of the month. It was now up to NT, in conjunction with the Ministry of Communications, to consider the public broadcaster’s request.

Meeting report

SABC turnaround strategy

Mr Bongumusa Makhathini, Chairperson, SABC board, in his introductory remarks,  informed the Committee that he was accompanied by a sizable delegation comprising the Group Chief Executive, the Group Executive for Human Resources, three board members, and executive as well as non-executive directors.

He said there was a broad understanding of what the mandate of the SABC should be and what people expected of the new board and executive team that was at the helm of the public broadcaster. A turnaround plan and strategy had been devised as the basis for the SABC's renewal.

However, it would not be opportune to discuss the SABC's turnaround strategy in an open forum, as the SABC's competitors might "steal" the information. In the interest of information sharing, the SABC would give a broad view of what its intentions are.

He further stressed that the current SABC Board could not be held responsible for the corruption and maladministration at the public broadcaster, as the new team had sacrificed a lot and was doing a good job. The Board had developed a comprehensive strategy to prevent the broadcaster from continuously running at a loss.

The public broadcaster has met 10 of the 11 preconditions that had been set out by National Treasury in overseeing the R3.2-billion bailout that the SABC had applied for.

In order to access the capital injection that the public broadcaster so desperately needs, SABC had to:

determine their immediate cash requirements, supported by detailed cash flow projections for the next 12 to 18 months;

submit a list of identified initiatives for revenue enhancement and cost-cutting initiatives that the entity had been implementing in the interim;

conduct a thorough investigation into what caused the financial collapse of the SABC and why previous turnaround plans had failed to be successfully implemented;

provide an update on how the entity was dealing with the people implicated in reports;

produce separate financial reporting for their public and commercial broadcasting services;

identify non-core assets for sale to assist with reducing the recapitalisation required by the government. Submit a comprehensive property strategy and a list of non-core assets identified for disposal, including the timelines for disposal and the estimated values;

commit and start a full review of policies, legislation, and regulations affecting the broadcasting sector and the SABC within a digital environment;

develop a comprehensive private sector participation strategy highlighting initiatives to be implemented and the net values to be derived from these partnerships;

develop a comprehensive capital and content investment plan which includes the forecast return on investment of all capex and content spend, split between commercial and developmental activities;

appoint a restructuring team headed by a restructuring officer and supported by broadcasting industry experts to lead a restructuring and turnaround of the entity; and

appoint a new board.

The property and asset portfolio of the broadcaster was huge, and it would take some time to determine how the broadcaster should proceed. A comprehensive plan was thus needed.

It would also not be in the SABC's best interests, if it sold its commercial television stations or took some off-air, as these provide a specific service to the public. The same was true of radio stations. It would be also unwise to just start selling equipment, so that once the broadcaster's financial position improved, it could focus on improving the commercialisation aspect of the business.

Mr Makhatini explained that the public broadcaster needed more time to evaluate its media assets. With 19 radio stations and a mandate to provide content in 14 different official languages, putting these assets up for sale would be “reckless and irresponsible.” He indicated that part of the SABC’s turnaround strategy was to reinvigorate its assets and use them as a means to bolster revenue.

He touched on the recent spate of negative media coverage of the SABC, its board members and executives, and asserted that this had been part of an orchestrated smear campaign against those within the SABC who were driving the renewal process. He implored the Members not be swayed by these media accounts, as they were driven by those implicated in massive corrupt and maladministration practices at the public broadcaster. He also recalled the recent attempted assassination attempt on the SABC's head of internal forensics.

He proceeded to address the various reports that informed the strategic turnaround at the SABC, and referred to the following:

The 2014 Public Protector’s report and its remedial action;
The ad hoc committee’s investigative report into the SABC;
The Special Investigating Unit (SIU); and
The SABC Internal forensic report.

He called upon the Committee to support the new board and executive as they addressed the challenges at the broadcaster, saying that their efforts were geared towards making the broadcaster sustainable and in the interest of all South Africans.

SABC’s turnaround plan

Mr Madoda Mxakwe, SABC Group Chief Executive Officer, briefed the Committee on the SABC’s turnaround plan.

He said that the Government Technical Advisory Centre (GTAC) had been instrumental in assisting the SABC with its turnaround strategy, and that the revised turnaround plan focused primarily on activities aimed at curtailing costs and enhanced revenue collection.

The turnaround plan was centred on four key pillars -- governance and financial sustainability, human capital, content and platforms, and transmission and digital migration. It considered three activities in three-time frames -- the immediate (0-3 months), short term (18 months) and the medium term (18-36 months).

Governance and financial sustainability was aimed at strengthening decision making and addressing historic wrongdoing, as well as the monetisation initiatives aimed at enhancing revenue generation.

The SABC had sub-divided the governance initiatives into five main categories. These were to enhance supply chain management (SCM) processes, capacitate critical vacant posts, address audit findings, ensure consequence management, and operationalise the turnaround team.

In addition, it had instituted monetisation initiatives and divided them into five main categories -- to pursue policy and regulatory changes to ensure the sustainability of the SABC, increase commercial revenue, enhance television licence fee collection, control cash management and leverage the asset portfolio.

The turnaround objectives of the SABC were geared towards re-establishing effective leadership that could guide the SABC through the turnaround strategy, to re-establish effective processes that support the core operations of the SABC, and to actively pursue its financial sustainability.

Ms Mamodupi Mohlala-Mulaudzi, Deputy Chairperson of the SABC board, said it was important for the SABC to sell advertising space in a different manner, such as selling to smaller clients at lower rates.

Of the 9,6 million television licence holders, only 2.2 million paid their dues, and 500 000 paid in monthly instalments. The SABC was assessing different modalities to make the payment of TV licence fees efficient and that the content addressed what the public wanted.

Mr Madoda added that the new SABC executive had inherited a challenging environment, and that the job at hand called for a solid governance framework.

The second pillar related to the human capital within the SABC, and focused on the development of a holistic operational model, conducting a skills audit, populating the approved organisational structure, a short term reduction in the cost of employment, and the implementation of performance management systems.

The third pillar related to content and platforms and in this regard, it was imperative to know the SABC's audience, in order to obtain compelling content and monetise local content.

The SABC was challenged by radio stations like XK-FM that catered to the !Xhu and Khwe communities in the Northern Cape, for instance. The station operated on a budget of R35 million a year. However, it received only R3 million in advertising revenue, yet the SABC could not take the station off the air as it would be contrary to the broadcaster's public mandate.

The final pillar related to transmission and digital migration, where the key activities included the verification of digital migration, the validation of digital migration, a return on investment analysis and an options analysis.

Mr Jonathan Thekiso, Group Executive: Human Resources at the SABC, said that the SABC had to actualise its turnaround strategy and focus on the human capital agenda. There were currently three issues at play, such as the organisational structure, the conclusion of a skills audit and the successful implementation of the various reports and systems

There was a need to develop a value stake policy and in this instance, every business unit had to conclude and assess their own business models and methods.

In respect of organisational optimisation, the SABC had gone some distance to identify challenges, and was in the process of instituting a skills audit as well as assessing the job profiles of employees. It was important for the SABC to employ modern solutions to the challenges it faced, and it had to be mindful of the ‘4th Industrial Revolution’ as well.

He referred to the matter of gaining organised labour's approval for the skills audit and related labour relations issues, and said that two labour unions had declared a dispute. The dispute had been referred to the Commission for Conciliation, Mediation and Arbitration (CCMA). He added that organised labour took issue with performance-based bonuses and increases, and that the SABC held the view that the organisation must first make money before it could disburse bonuses.

Issues related to editorial interference and updates on various reports related to the Public Protector's remedial action, the Auditor General's findings, the SABC's internal audit and forensic outcomes, as well as the ad-hoc committee, were also broached.

Discussion

Mr T Gumbu (ANC) asked how the meeting between National Treasury (NT) and the SABC had gone, and when the funds would be released to the SABC. He commented that he had heard a radio broadcast that mentioned that the SABC was not going to cover the Rugby World Cup, and wanted to ascertain whether there was any truth in this.

Ms P Faku (ANC) welcomed the presentation by the SABC, and said that after many years of the SABC being in the public's bad books, there was some light and hope for the ailing public broadcaster. She understood why the SABC wanted to keep its turnaround strategy secret, and the broadcaster had to be given the space to pursue the strategy, but it was important that timeframes be provided.

Regarding the requested funds from NT, she wanted to know whether the Treasury had any issue with the fact that the SABC had not met the pre-conditions to identify and dispose of non-core assets for sale. She asked if the SABC intended to increase TV licence fees, and added that before it increased the fees, it first had to win over a sceptical audience.

Ms Z Majozi (IFP) appreciated the frankness of the SABC's presentation. She referred to the skills audit and related labour relations issues, and stressed that it was important to engage with organised labour and develop their full trust. On the mandate of the SABC, she said that the broadcaster had to be practical about its revenue streams, and in this regard she referred to the loss-making XK-FM. She commented that the SABC could not be bailed out repeatedly by the fiscus.

Mr L Mokoena (EFF) referred to the work the SABC board and executives have done thus far and commended them on a job well done in bringing the broadcaster back to its mandate. The issue at play was the relationship between the SABC, the Department of Communications (DoC) and the NT, and he saw this as a real challenge. He lamented the red tape of Treasury, and cautioned the SABC against the sale of its assets, as these were central to its mandate. It was very important to keep the loss-making XK-FM radio station on the air, as its mission was to preserve the !Xun and Khwe cultures.

He reflected on the SABC's challenges, and referred to a recent study he had read about the giant leap in technological advancement between 1858 and 2001. In 2001, technological advancement had spiked as a result of satellite technology, and the rise of companies such as Google and others had created a new medium for entertainment. In this regard, the SABC was lagging in technology, and he saw this as being at the heart of the SABC's failures.

He recalled that digital migration was a huge problem for the SABC and that the SABC was not dominant in this market, as it was still making use of terrestrial technology, while the rest of the world had gone satellite. If the SABC ever decided to migrate, it would be in the unfortunate position of having to utilise platforms created by its opponents. He added that the SABC had to be pro-active in its approach to win back the South African public and prevent it from continuously posting losses.

Mr C Mackenzie (DA) said that he was pleased with the work done by the SABC thus far under very difficult circumstances, especially since the findings of the Auditor General (AG) were generally favourable. He recalled that when Mr Setumo Mohapi, the former Sentech and State Information Technology Agency (SITA) CEO had taken over the latter organisation, he had also been subjected to threats as he sought to turn that agency around. He wanted to know what steps the SABC had taken to protect its officials investigating the massive graft at the SABC, and what the status of possible retrenchments at the SABC was.  When could Parliament expect the SABC to reduce its staff complement?

He asked whether the SABC had sent a request to the Minister of Communications to increase TV licence fees, and how an increase in the fees would affect an already poor collection rate.
He lamented the threat that internet radio posed to the SABC, and wanted to ascertain what steps the SABC were taking to correct this. He wanted to ascertain which sporting codes the SABC had the broadcast rights to, as South Africa was a sports-loving nation. He also cautioned the SABC against distressed sales of its properties.

Mr L Molala (ANC) commended the board and executives on a job well done and urged them to be strong. Regarding the human resource matters, he said that the SABC still had a mountain to climb, and referred to the three matters raised by Mr Thekiso. He also said he did not think it was wise to increase TV licence fees.

The Chairperson said that the Committee needed assurances that the digital migration project would still be implemented, and questioned why the SABC wanted to fill vacancies while it was busy conducting a skills audit. He also broached the licence fee increase matter in relation to the SABC's debt management issue. He called on the entity to conduct a comparative study in relation to its competitors in order to strengthen its position.

The SABC had to give assurances to the public that it was turning the page on the inherited challenges, and all disciplinary matters had to be attended to.

SABC’s response

Mr Makhathini replied that the SABC would move ahead with its plans to increase TV licence fees. The national broadcaster could not continue to run on the equivalent of 72 cents a day.
South Africans paid car guards to look after their cars at parking malls, so they could surely afford to pay R1 a day. If the general public baulked at paying someone who looked after their cars for 72 cents, what about the SABC which gave them 19 radio stations, five TV channels, and which plays such a critical mandate in educating, informing and entertaining the general public?

He added that it may be possible to ask Parliament to change legislation at a later date to protect the country’s indigent people from fee increases. This change could not be made unilaterally by the SABC and would require an amendment to the National Broadcasting Act, as well as permission from the Minister of Communications.

One of the key problems with raising TV licence fees was the issue of compliance with the broadcaster reporting a compliance level of just 27.8% in October last year.

Regarding the threats against SABC officials, he said that a security assessment conducted by the police's crime intelligence unit had found that the lives of almost all key executives at the forefront of the clean-up and renewal at the Corporation were at risk. The police had found that almost all of them should have close protection everywhere they go.

He said that the SABC had met all but one of the preconditions set by the National Treasury for its request for funding to be considered. The outstanding precondition required the SABC to identify core and non-core assets for sale, including their estimated values and timelines for their disposal. This precondition had been partially met, by identifying non-core assets like property and submitting a comprehensive strategy for how they would deal with the property portfolio.
There were those that needed to be developed and those that needed to be sold. The board had to take an informed position and be guided by experts to assist them on how to deal with the property portfolio. In this regard, the board had requested more time to deal with core assets such as TV channels and radio stations, as these were at the heart of the SABC's mandate.

He said it was not possible, and would be reckless and irresponsible, for the board to wake up tomorrow and say they were going to sell radio stations X, Y, and Z, without doing an analysis to understand that if one got rid of radio X, how it was going to affect the SABC's ability to meet its mandate. It may not be performing well financially, but it helped the SABC to achieve and fulfil its mandate.

Mr Makhathini said the SABC had previously entered into deals without people understanding the value of their assets, and that it would be wrong to expect it to just irresponsibly and recklessly provide a list, or start engaging and selling things, without understanding how it was going to impact on the mandate of the SABC, so it would not do that.

He described the broadcaster as the custodian of SA's cultural heritage, with more than 30-million South Africans depending on it for information, education and entertainment. It may not be an easy exercise just to get rid of certain things, because the SABC had to make sure that all official languages were covered. The variety of news was core to what the SABC was about, and what it was expected to do.

Regarding digital migration, it was true that the SABC was playing catch-up and that it could leapfrog its competitors if it made use of internet radio and satellite technology. The delay in digital migration had seriously hampered the SABC's position. He commented that previously it had also been in control of signaling and transmission, and this had impacted on the core business of the SABC.

The Committee, as well as Treasury, had yet to determine whether the SABC had successfully met all of the preconditions needed to access the bailout funds. However, besides the fact that the public broadcaster had been able to save R1-billion and reduce its losses by 33%, it needed an urgent cash injection of R2-billion by the end of the month. It was now up to NT, in conjunction with the Ministry of Communications, to consider the public broadcaster’s request.

Prof Saths Cooper, SABC board member, added that the issues faced by the SABC were complex. When television was first introduced in South Africa, the SABC had used the Phase Alternating Line (PAL) system, whereas the rest of the world used the National Television System Committee (NTSC) system. The board had a plan in place that was forward-looking to correct the digital migration challenge.

Broadcasters everywhere were being seriously challenged by the rise of smartphones that allowed other competitors to enter the broadcast industry much more cheaply, and that it may be an issue for SENTECH to look at.

While the media space in South Africa looked big, it was in actual fact small, and as a public broadcaster the SABC had to maximise revenue in order to meet its mandate.

With regard to the commercial viability of the X-K FM radio station, Prof Cooper said that the Khomani San occupied a unique place, not only in South Africa, but internationally. 95% of the world's population could trace their DNA to this group of South Africans. It would be a tremendous loss if the language of the San became extinct.

Mr Dinkwanyane Mohuba, SABC board member, said that the board was trying to contain media leaks, and that the rot within the organisation would be arrested once consequence management was implemented. He urged the public to not be deterred -- the SABC was going to be okay. In this regard, the support of the Committee and the nation was paramount. There was an urgent need to address the bloated staff issue at the SABC, and it would also be prudent to look at re-skilling.

Ms Mary Papayya, SABC board member, said the corporation was committed to its mandate, as well as highlighting the current spate of violence against women and Lesbian, Gay, Bisexual, Transgender and Intersex (LGBTI) people. The SABC should continue with its critical contribution towards healing the nation.

Mr Mxakwe, referring to the sports rights issue, said it did not make financial sense to inject millions into broadcasting the Rugby World Cup competition when the current yield on commercial sports was negative. He said that about six years ago, a contract had been signed to acquire sports rights for football. That contract had been R280-million per year, over five years. The revenue generated by the SABC had been less than R40-million. Broadcasting the Rugby World Cup 2019 would have cost $28-million for TV rights, $60 000 for radio and $900 000 for production. The SABC simply did not have R400 million available to broadcast the 2019 Rugby World Cup.

This was extremely expensive and affected the SABC's profit and loss statement. In the past three years, the SABC had lost as much as R3.8 billion on money paid for sports broadcasting rights. If the SABC continued on this trajectory, it would need another R6.8bn, which was not sustainable. As much as the SABC was committed to broadcasting sports of national interest, it could not allow a situation where it entered into a deal that was not commercially viable.

Regarding the labour relations issues, he meets with organised labour once a month, and these engagements were always robust. The SABC management and organised labour always tried to find common ground as it was about the best interests of the SABC at the end of the day.

He said the SABC had a 73% market share in the radio sector, and it was important to translate this dominance into revenue for the broadcaster. The SABC was also considering other options to diversify its revenue streams, and this included brand merchandising as well as an events strategy.

Ms Mohlala-Mulaudzi commented that the non-compliance rate for paying TV licence fees was very high, despite South Africa's licence tariff being one of the lowest in the world. The non-compliance had a serious effect on the SABC's ability to provide compelling content. At the moment, the SABC sent people sms’s and emails, as well as phoning people to remind them of their responsibility. She admitted that a request had been made to the Minister of Communications for a TV licence fee increase, but no decision had yet been taken. She added that the SABC had to improve on its technology for fee collections, and it was considering the implementation of new collection approaches.

Mr Thekiso addressed the issue of the SIU investigations and said the Unit believed it had amassed sufficient evidence for the referral of 11 criminal matters to the National Prosecuting Authority (NPA) related to alleged commercial crimes at the SABC, amounting to R267m. The 11 criminal cases implicated 10 private companies that had been trading with the SABC, eight former SABC executives, as well as former and current members of the public broadcaster's board. The potential charges ranged from theft, fraud, and violations of the Companies Act and the Public Finance Management Act. He mentioned that many employees fingered for illegal activities had opted to resign, instead of undergoing a disciplinary process. However, this had not deterred the SABC from contacting the Pension Fund Administrator to interdict the retirement funds of those implicated.

Regarding the skills audit, the SABC had begun a process of looking at its operating model and organisational structure, and was still reviewing its core competences. Organised labour had a problem with the skills audit, and before the national elections some pronouncements had been made about this issue. He said that the SABC advertised all vacancies internally before embarking on external recruitment.

The meeting was adjourned.

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