Summary of main points

Statutory nature of MDDA

 The MDDA should be seen primarily as a watchdog of the constitutional rights of freedom of expression and access to information. Part of its watchdog function is to fund targeted media to give effect to these rights. The MDDA should not be understood as a funding body only, as providing funding in the absence of a comprehensive approach towards media diversity will be self-defeating.

 In addition to its funding activities, the MDDA should have a policy-making function. The implementation of these policies will then be negotiated with the relevant bodies, eg. ICASA and the government.

 The MDDA should be established as a statutory body.

 The South African constitution should be amended to write the MDDA into Chapter 9. It will therefore be recognised as a constitutional institution.

 The MDDA should conform to the proposals presently before Parliament around oversight and accountability of the Chapter 9 institutions (once they are adopted). Parliament should fast track the process of discussing the report, and implementing recommendations once they are approved.

 The MDDA should be made to conform with the requirements of the Public Finance Management Act, provided that the MDDA is listed within Schedule 1 of the PFMA (the schedule dealing with constitutional institutions). This would require an amendment to Schedule 1 to factor the MDDA into the list (presently the list is a closed list).

Accessibility of MDDA

 Every attempt should be made to ensure that the MDDA is accessible in the provinces. At the very least, the MDDA should have offices in all nine provinces, but these should be established in ways that save money. The MDDA’s recognition as a Chapter 9 institution should clear the way for it being twinned with existing Chapter 9 institutions in all provinces where they have a presence. The GCIS should explore the MDDA sharing offices with institutions such as the Commission on Gender Equality and the Human Rights Commission.

 The MDDA should install a toll-free number and should also make application forms available from municipal offices.

MDDA and training

 With respect to training, the role of the MDDA in relation to training needs more attention, as there is a potential for overlap with existing institutions. The MDDA should not provide training, but should make funding available for training. Also, the National Electronic Media Institute of South Africa should not be defined as the principle stakeholder with respect to media training provision, as is the case in the Position Paper. Individuals who qualify for bursaries in media-related studies should include people already in community media, regardless of prerequisites like age and others; in this respect, long-term bursaries should be provided. However, there should also be measures to ensure that whoever qualifies for a bursary imparts skills back into the sector, through signing contracts or an obligation agreement.

MDDA and Annual Review Forum

 With respect to the proposed annual review forum, media bodies and civil society organisations should form part of this forum. The name of the forum should be changed to the annual advisory forum, and should be included in the MDDA’s organogram.

MDDA and 5 year review

 It is important that the MDDA be established as a permanent body, and not as a body that is subject to review after 5 years. It will simply be impossible for the MDDA to achieve significant objectives in a space of 5 years. If the MDDA is to be set up as a Chapter 9 institution, then it should enjoy a permanent status, as anything less would defeat the purpose of seeking the above mentioned constitutional amendment, and constitute a threat to the Agency’s independence.

MDDA’s Board

 With respect to the criteria for selection of Board members, a key criteria should be relevant experience in community media and community development work. Priority should not be given to academic qualifications only. The GCIS’s role with respect to the remuneration of Board members should be reconsidered, as the current proposal contained in the Position Paper may compromise the independence of the Agency.

 Funding for the MDDA should come from the three sources recommended in the Position Paper, namely government, commercial media and international donors.

 The proposal to use the Marketing Industry Trust as the funding conduit for the commercial media contributions is inappropriate, and should be reviewed

 A statutory, prescribed levy should be imposed on commercial media. The levy should apply to single-medium and multi-media organisations: hence the levy being referred to as a ‘convergence levy’. The levy should be based on a percentage of gross annual revenue.

 The MDDA should be given the powers prescribe this levy on an annual basis through regulations, and should also be able to create penalties in respect of non-payment of this levy.

 The MDDA statute should make provision for a prescribed threshold for payment of the levy. Any group falling below this threshold will not be required to pay the levy.

 The South African Broadcasting Corporation should be exempt from the levy, subject to two qualifications. Firstly, that the SABC develops a dividend policy which commits the Corporation to substantial reinvestment of its profits in the public service mandate, especially the public service radio stations and the establishment of regional splits for the development of programming in all eleven official languages. Secondly, the SABC should implement the natural partnership agreements with community media (Addendum 1), to foster co-operation between itself and the sector.

 The existing spread of levies and taxes on the media industry need to be investigate, including the possibility of synergising a number of these levies. This is especially so with respect to the Universal Service levies imposed on the telecommunications industry and the proposed media levy.

 The possibility of merging the Universal Service Agency and the MDDA should be explored, especially given the fact that the USA is undergoing a 5-year review at the moment. This merger would enable the two bodies to co-ordinate the roll out of media and information technologies in ways that take the convergence of these sectors into account. However, if the USA and the MDDA are to be merged, the independence status of the USA would need to be ‘upgraded’ to that of the MDDA’s, rather than the MDDA’s status being ‘downgraded’ to that of the USA’s

 The MIT and SAARF should be engaged by stakeholders, and once it is established the MDDA, to ensure that the levy is increased to fund research on community radio. Hence, even though the MIT will not act as the funding conduit for commercial media contributions, the marketers will still be under pressure to effect transformation in this sector.

 Attempts to secure international donor funding should be fast-tracked, as the efficacy of this funding stream looks decidedly shaky. However, funders should not be pressurised into channelling their funding through the MDDA, as this will send out negative signals to funders. A media funders’ forum should be set up to ensure that there is at least some co-ordination with respect to funding, or dialogue with respect to priorities at the very least.

 The MDDA should prioritise community media at every stage of its work.

 Low interest loans should be made available to small commercial media, while grants should be made available to community media.

 The MDDA should develop a clear definition of ‘community media’, which takes into account the non-profit making, community-owned and controlled nature of the sector. This should prevent commercial media groups like Caxton and Independent Newspapers from approaching the MDDA for grant funding on the basis that their local titles constitute ‘community’ media.

 Provision should be made for grants to cover start-up costs, in instances when it is clear that a community media project will add significant value to a community. However, the project may face significant hurdles in establishing itself even at an early stage. Particular provision should be made to cover ICASA’s application costs, which could be between R6 000 and R10 000.

 The MDDA should be prepared to fund community media projects that are unsustainable, if it can be proved that they would add significant social value to communities. However, clear criteria should be worked out to determine these instances.

 Once the MDDA is established, it should embark on an extensive awareness campaign to ensure that communities are aware of its existence, and to popularise its services.

 The 50% needs threshold identified for community radio is problematic, and provision should be made for this threshold to be increased to 80%. This will create the space for the funding of unsustainable community radio projects that pass the funding criteria as laid out by the MDDA. There may well be unsustainable community radio projects that are not even able to cover 50% of their own costs.

 The MDDA has underbudgeted for community radio. According to start up cost projections made by the NCRF, there is an R136 152 620 shortfall for the funding of 135 stations (Addendum 2). The amount budgeted for community radio should therefore be increased by this amount.

Submission on the Media Development and Diversity Agency Draft Position Paper

National Community Radio Forum and Freedom of Expression Institute

The following is a submission by the National Community Radio Forum and the Freedom of Expression Institute on the Draft Position Paper on the Media Development and Diversity Agency.

1. Introduction and background

In 1995 the community media networks in the form of the National Community Radio Forum (NCRF), Open Window Network (OWN), South African Student Press Union (SASPU) and Community Print of South Africa (COPSA) came together at a conference termed "Community Media 2000" in Cape Town, at which a resolution was taken to establish the National Community Media Forum (NCMF) which will lobby government and international donor agencies on behalf of community media for the establishment of an Enabling Support Mechanism "ESM" for community media.

At the time community media activists realised that the sector will not survive in the absence of a viable "ESM" to supplement other revenue streams for community media. After the establishment of the NCMF, the government was lobbied strongly for an "ESM". The lobby for this "ESM" was further consolidated by the recommendations of the 1996 Comtask report, which supported the establishment of a government supported "ESM" in the form of the Media Development Agency (MDA). The NCMF continued its lobby for the MDA throughout the development of the Broadcasting Act of 1999. The Department of Communications (DoC), which is responsible for all the broadcasting affairs in the country, rejected the MDA in the form that we presented it to them. Their reasoning was that the MDA was broad in its scope, catering for different forms of media whilst the DoC has jurisdiction only over broadcasting. In the meantime, support was provided through the DoC through an arrangement involving themselves, the Kgaso Fund and the Danish government. Nonewithstanding this support, the sector took a decision to continue lobbying for the establishment of a statutory MDA, with existing support being channelled through the Agency once it was established.

To this end, the NCRF and the FXI have collaborated on activities around the MDDA since 1999. We held a national workshop on the need for, and the role of a Media Development Agency (as it was then called). This workshop was informed by research conducted by Tracey Naughton and Ferial Haffajee, as well as by a number of invited speakers, including Joel Netshitenzhe, CEO of the Government Communication and Information System, Paul Murschetz of Public Voice Lab in Austria, Clive Emdon of the Independent Media Diversity Trust, and Mark Weinberg of the Print Development Agency Forum. The workshop resolutions are attached (Addendum 3).

After this workshop, the FXI and the NCRF ran workshops in different provinces on the same subject. Input from the national conference was fed into these workshops, and formed the basis for discussion. Members of the policy unit of the GCIS also gave inputs at these workshops, and provided clarity on government’s plans around the MDA where needed. The full workshop report is attached (Addendum 4). A summary of the main outcomes of the workshops is provided below.

The MDDA should be established as a statutory structure, in terms of Chapter 9 of the constitution. Care should be taken to ensure that the MDDA is independent not only from government, but from commercial media and other possible sources of influence.

The MDDA should have provincial representation to ensure that prospective applicants are able to access the Agency with ease.

The MDDA should prioritise community media, but should also make funding available to small commercial media as well. However, grants, or a combination of loans and grants, should be made available to community media only, while only loans should be made available to commercial media. This is because commercial media are set up with the intention of making a profit from their activities, whereas community media are not. For example, the Northern Province seminar suggested that community media should receive 60% grant funding, coupled with a 40% loan repayable at a determined period of time. It was also recommended that traditional forms of media should be supported, such as those to be found in community meetings and makgotla.

The MDDA should not make decisions about whether to fund community media projects based on their potential for viability. The Agency should fund projects even if they have no capacity for viability in the medium or even long term, if a clear need is demonstrated.

Provinces generally agreed that there should be several sources of funding, including government, commercial media and funders

The Eastern Cape, KwaZulu/ Natal and North West Provinces supported the idea of a statutory levy being imposed on commercial media to fund the MDDA.

There was considerable disagreement about whether the MDDA should pursue investments to subsidise its activities, with a number of projects calling for a fuller consideration of this matter.

The MDDA should link in with multi-purpose community centres in some way to ensure co-ordination of access to information projects in Gauteng.

The NCRF is working with the FXI to set up a policy and research unit focussing on the community media sector. Work is proceeding on setting up this unit, at the same time, research is being conducted under the auspices of this unit, including on the MDDA. The intention of setting up the unit is to develop a policy and research ‘think tank’ for the community media sector.

As part of the work around the policy unit, the FXI has fed research into a consultative process around the MDDA Draft Position Paper. The consultative process involved a workshop held in Johannesburg, involving facilitators from all nine provincial structures of the NCRF. The Paper and the Local Content Discussion Paper were discussed, and preliminary positions were arrived at. The intention of this workshop was to engage provincial facilitators in a discussion about both papers, so that they would facilitate workshops in their respective provinces. The workshop report is attached (Addendum 5).

Workshops were facilitated in all provinces over a three week period: all provincial workshop reports are attached (Addendum 6).

the main points are divided into the following categories:

 Structure, powers and functions of MDDA

 Funding of MDDA

 Funding priorities of MDDA

The following points were agreed to:

Statutory nature of MDDA

 The MDDA should be seen primarily as a watchdog of the constitutional rights of freedom of expression and access to information. Part of its watchdog function is to fund targeted media to give effect to these rights. The MDDA should not be understood as a funding body only, as providing funding in the absence of a comprehensive approach towards media diversity will be self-defeating.

 In addition to its funding activities, the MDDA should have a policy-making function. The implementation of these policies will then be negotiated with the relevant bodies, eg. ICASA and the government.

 The MDDA should be established as a statutory body.

 The South African constitution should be amended to write the MDDA into Chapter 9. It will therefore be recognised as a constitutional institution.

 The MDDA should conform to the proposals presently before Parliament around oversight and accountability of the Chapter 9 institutions (once they are adopted). Parliament should fast track the process of discussing the report, and implementing recommendations once they are approved.

 The MDDA should be made to conform with the requirements of the Public Finance Management Act, provided that the MDDA is listed within Schedule 1 of the PFMA (the schedule dealing with constitutional institutions). This would require an amendment to Schedule 1 to factor the MDDA into the list (presently the list is a closed list).

Accessibility of MDDA

 Every attempt should be made to ensure that the MDDA is accessible in the provinces. At the very least, the MDDA should have offices in all nine provinces, but these should be established in ways that save money. The MDDA’s recognition as a Chapter 9 institution should clear the way for it being twinned with existing Chapter 9 institutions in all provinces where they have a presence. The GCIS should explore the MDDA sharing offices with institutions such as the Commission on Gender Equality and the Human Rights Commission.

 The MDDA should install a toll-free number and should also make application forms available from municipal offices.

MDDA and training

 With respect to training, the role of the MDDA in relation to training needs more attention, as there is a potential for overlap with existing institutions. The MDDA should not provide training, but should make funding available for training. Also, the National Electronic Media Institute of South Africa should not be defined as the principle stakeholder with respect to media training provision, as is the case in the Position Paper. Individuals who qualify for bursaries in media-related studies should include people already in community media, regardless of prerequisites like age and others; in this respect, long-term bursaries should be provided. However, there should also be measures to ensure that whoever qualifies for a bursary imparts skills back into the sector, through signing contracts or an obligation agreement.

MDDA and Annual Review Forum

 With respect to the proposed annual review forum, media bodies and civil society organisations should form part of this forum. The name of the forum should be changed to the annual advisory forum, and should be included in the MDDA’s organogram.

MDDA and 5 year review

 It is important that the MDDA be established as a permanent body, and not as a body that is subject to review after 5 years. It will simply be impossible for the MDDA to achieve significant objectives in a space of 5 years. If the MDDA is to be set up as a Chapter 9 institution, then it should enjoy a permanent status, as anything less would defeat the purpose of seeking the above mentioned constitutional amendment, and constitute a threat to the Agency’s independence.

MDDA’s Board

 With respect to the criteria for selection of Board members, a key criteria should be relevant experience in community media and community development work. Priority should not be given to academic qualifications only. The GCIS’s role with respect to the remuneration of Board members should be reconsidered, as the current proposal contained in the Position Paper may compromise the independence of the Agency.

This section of the submission is confined to motivating for the above mentioned points around the statutory, independent nature of the MDDA.

The ultimate legal nature of the MDDA will have to be determined by what the Agency aims to achieve, coupled with the need for particular guarantees around media independence.

According to the draft position paper, one of the role of the MDDA is to ‘...act as a champion and watchdog of media development and diversity’. This aim has certain implications for how the MDDA is set up, given that a number of the institutions that should fund the Agency, and are even setting it up, are the very institutions that will come under scrutiny. This applies especially to the executive arm of government, the commercial media, ICASA and the Competition Commission.

According to the founding provisions of the constitution (s.1), the Republic of South Africa is founded on, amongst others, the following values: ..the achievement of equality and the advancement of human rights and freedoms’. Also the system of universal adult suffrage is implemented to ensure accountability, responsiveness and openness’.

The right to equality is also entrenched in the Bill of Rights, which notes in 9(2) that ‘equality includes the full and equal enjoyment of all rights and freedoms’. This clause, read against the above clauses, provides for a dispensation where all people must enjoy all rights equally, subject to the limitations clause (s.36) which allows for reasonable and justifiable limitations. This means that unless a limitation is motivated, every effort must be made to ensure full and equal enjoyment of rights and freedoms’.

The freedom of expression clause has a section which notes the following: Everyone has the right to freedom of expression, which includes...16(1)(b) freedom to receive or impart information or ideas. Also s. 32 makes provision for everyone having the right of access to information, etc etc. These rights are especially important to achieve the founding provisions of the constitution, especially those around accountability and openness, as they would be impossible without information and free expression. So any initiative that ensures the extension of these rights to everyone, as required by the constitution, is fulfilling a constitutional mandate; in turn, such an institution deserves constitutional protection as it is in effect a guardian of the values of the constitution. This means that it should stand in a position of equality in relation to the executive, and not be subject to it in any way.

Structural imbalances in the media ensure that inequalities with respect to access run deep in the country. We are very far from achieving the right to receive information and ideas, much less the right to impart it: S. 16(1)(b) is a tough injunction that requires a dedicated body to ensure it is achieved. The right to impart information is an especially difficult injunction to fulfil, as it implies that everyone should have equal access, not only to media (and the main conduits for exercising this right), but the means of production of media. Very little attention has been paid to giving effect to this clause in the freedom of expression right: most of the attention has ben on the right to receive information. This imbalance, and its implications, must be pointed out in motivating for the MDA. The Human Rights Commission cannot be this body, as it does not have the structural capacity to ensure the implementation of this specific clause in this specific right. It needs a specialist body which tackles the mechanics of media ownership and control. This body would not only protect constitutional democracy in terms of these clauses, it would implement these clauses, which elevates it from being a mere guardian as per the HRC. Hence the need for an MDA to intervene to correct these structural imbalances to achieve this right, which is buttressed by the right to equality, and the need for openness and accountability (make arguments about why media diversity will enhance accountability - more scrutiny of public affairs from diverse points of view, ensures media access in outlying areas where delivery of all social services are needed, hence it allows a spotlight to be turned on the state of delivery, etc etc.)

In order for the character of the MDDA to be established, it is necessary outline what it is not. Several choices are possible with respect to its character, including the following:

 A watchdog/ lobbying body

 A body that is tasked with the development of a particular industry

 An implementing agency

 A funder

As argued above, in terms of its character, the MDA would be a watchdog body primarily, ensuring the realisation of the above mentioned rights/ values. Its secondary character would be that of an implementing body (including a funding body), as it would implement projects promoting media diversity in terms of the information it has gathered in the pursuit of its watchdog function: so it would have to know what the problem is in order to address it!

State institutions supporting constitutional democracy have a vision that relates to the principles of the constitution. In order to implement that vision, they need to act as watchdogs of all state institutions, including the executive. This necessity would set it aside from the following bodies

 A body that is tasked with the development of a particular industry

Like the proposed MDDA, the National Film and Video Foundation is established by statute. The National Film and Video Foundation Act was passed in 1997, and created the Foundation to develop and promote the film and video industry. It was also charged with the task of encouraging opportunities for persons from disadvantaged communities, and to address historical imbalances in the sector.

The NFVF cannot be understood as an independent body, as it assigns numerous powers and functions to the Minister of Arts, Culture Science and Technology. According to s.(2)(c) the Foundation must ‘...perform such duties in respect of its objects as the Minister may assign to it’. Also, the Council is appointed by the Minister, and the Minister has powers in terms of the distribution of the NFVF’s finances. Also, in terms of s.21(1), the Council may make regulations on certain matters, only subject to the approval of the Minister.

One of the problems with the NFVFs strong ties to the executive arm of government is that it will probably have to develop the industry in a direction that fulfils the Minister’s strategies: the scope for critical engagement with executive plans is virtually no-existent.

 Implementing agency

The Universal Service Agency is established in terms of the Telecommunications Act, and also cannot be understood to be independent from the executive arm of government. In terms of s.59 of the Act, the Agency enables the Minister to make recommendations on what shall constitute universal service, which places the USA in a subordinate position to the Minister. Also, the USA report to the Department of Communications, and not to Parliament. The problem with being assigned the status of an implementing agency is that the Agency ultimately has to implement strategies and policies developed by the Department, which - like the NFVF - leaves it with precious little scope to critique the very strategies and policies developed by the executive arm of government.

 A funding body

In addition to their functions as described above, both the NFVF and the USA could be understood as funders as well. The problem with defining the MDDA as a funder is that it cannot decide on funding priorities in the absence of a policy framework, which in turn will be premised on an understanding of the needs of the media industry. In respect of both the NFVF and the USA, the overall priorities are set largely by the respective Ministries/ Departments, which is clearly inappropriate with respect to the MDDA. The Agency needs both the freedom and the powers to determine priorities for funding, and also needs to ensure that is own funding efforts are not being disabled by other industry or government activities: therefore it needs a wider mandate.

Given the nature of work the MDDA will engage in, it is necessary that it be afforded the highest guarantee of independence possible in terms of the law. Also, as will be argued later, it will be necessary for the MDDA to have some regulatory powers, which underscores the need for independence even more.

It is noteworthy that the Position Paper does not make reference to the MDDA being considered a de-facto ‘constitutional institution’. The association is evident given that a number of these institutions also have a watchdog function, such as the Commission on Gender Equality and the Human Rights Commission. These institutions are understood to have two roles: firstly, together with Parliament they act as watchdog bodies over the executive and other organs of state, and secondly, they support and aid Parliament in its oversight function ‘...by providing it with information that is not derived from the executive’. The rationale behind these institutions is that while Parliament is supposed to exercise an oversight role to check on the arbitrary use of power by the executive, it cannot fulfil this function effectively on its own. Therefore it needs additional assistance in the form of the constitutional institutions to help it to fulfil this role. Not all of these institutions are contained in Chapter 9 of the constitution; the Public Service Commission is found in Chapter 10 (on Public Administration) and the Financial and Fiscal Commission is found in Chapter 13 (on Finance): however, guarantees of independence are enshrined in these respective sections in the constitution, and together with the institutions in Chapter 9, they are all generally referred to as the ‘constitutional institutions’.

Their status as constitutional institutions affords them the highest levels of protection possible in terms of the law. In terms of s. 181(2), ‘...these institutions are independent, and subject only to the Constitution and the law....’; also there is a responsibility on all organs of state to ‘...assist and protect these institutions to ensure that the independence, impartiality, dignity and effectiveness of these institutions’ (s.181(3)). These clauses mean that the state must not only protect their independence in passive sort of way, but most proactively find ways of entrenching that independence. These constitutional injunctions have led to a great deal of debate in the past two years about what the meaning of ‘independence’ is, and the obligation that it places on the legislature to free these bodies from any possible forms of interference, notably by the executive arm of government. However, this independence has had to be balanced by appropriate levels of accountability: a difficult balance to strike. Several measures have been put in place recently to improve both the independence and accountability of these institutions: two are dealt with below.

 Public Finance Management Act

One of the measures that was put in place as a result of numerous scandals around financial mismanagement in public institutions - especially in the Independent Broadcasting Authority - was the promulgation of the Public Finance Management Act No.1 of 1999. The aim of the Act is to regulate and encourage good financial management in state institutions, including the constitutional institutions: these institutions are listed in Schedule 1 of the Act. These institutions are regulated in terms of Chapter 5 of the Act, which deals mainly with the fiduciary duties of the accounting officer (which in the case of the constitutional institutions is the CEO). The reason why these institutions are listed in a separate schedule, and fall within the ambit of Chapter 5, is that they are subject to less intrusive financial accountability obligations than other public entities: an important consideration from an independence point of view.

Other public entities that do not require the same levels of independence fall within schedule 3 of the PFMA. Presently this list is not exhaustive, and is being treated as an open list, apparently, an audit is being conducted of all public entities to ensure that they are all listed. S.4(a) expressly states that the Minister of Finance may not list a constitutional institution within either schedule 2 (major public entities) or schedule 3. Institutions listed in these schedules fall within Chapter 6 of the PFMA, which contains a different set of fiduciary obligations to Chapter 5. For example, the accounting authority of an institution is obliged to submit a budget for the next financial year, as well as a corporate plan, ‘...to the accounting officer for a department designated by the executive authority responsible for that public entity or government business enterprise (s.52)’. The accounting officer, or the Director-General, has the powers in terms of the Act to ‘...make recommendations to the executive authority with regard to the approval or amendment of the budget’ (s.53(2). With respect to reporting, the institution is required to submit an annual report to the relevant treasury, the executive authority responsible for that institution and in some cases to the Auditor General. The executive authority then tables the report in Parliament. This contrasts with the provision around reporting in Chapter 5, where constitutional institutions submit their reports directly to Parliament (s.40(1)(e)). Also, in terms of the Act, the Treasury is able to exercise a greater degree of control over public entities, whereas space is created for constitutional institutions such as the IBA to be able to issue their own financial regulations. This is an important consideration for an institution which receives income and administers money, as the MDDA will be.

In short, the provisions of Chapter 6 are entirely inappropriate for an independent watchdog institution, given the evaluative role the executive will be expected to play in relation to that institution, not only in relation to its plans, but also in relation to the extent of the delivery on its mandate. Therefore, if the provisions of the PFMA are to apply to the MDDA - which is correct and in the interests of financial best practice - then the Agency would have to be listed in Schedule 1. However, listing in this Schedule is premised on inclusion in the constitution.

 Report on Parliamentary Oversight and Accountability.

It could be argued that the offending provisions in Chapter 6 of the PFMA exist at the moment in relation to a number of constitutional institutions. However, presently there is a process in motion to revise the methods of administering the funding of the constitutional institutions as it has been recognised that the current arrangements are inappropriate. The current accounting and administration system - which involves the appropriation of their budgets through government departments - blurs the distinction between accounting to Parliament and accounting to the Department. This is because the institution is required to account to the relevant department before the next tranche of funding is released.

Pressure for reform in these arrangements began to mount after a number of Constitutional Court decisions implied that the existing institutional arrangements violated the constitutional requirement of independence. Two of these decisions related to the certification of the permanent constitution by the Constitutional Court, which was an exercise conducted to determine whether the constitution complied with the thirty-three constitutional principles drafted during multi-party negotiations. In Ex Parte Chairperson of the Constitutional Assembly: In re Certification of the Constitution of the Republic of South Africa, 1996 and Ex parte Chairperson of the Constitutional Assembly: in re Certification of the Amended text of the Constitution of the Republic of South Africa, 1996, the Constitutional Court gave legal meaning to the term ‘independent’ by stating that regard had to be paid to a number of factors, such as the appointment of officers in the institution, as well as their tenure and removal, and provisions concerning institutional independence. In 1999, the Constitutional Court made another judgement which gave content to the meaning of ‘independence’ specifically with respect to the ‘Chapter 9' institutions. In New National Party of South Africa v Government of the Republic of South Africa and Others, 1999, Justice Langa noted two factors impacting on independence: ‘financial independence’ and ‘administrative independence’:

‘[The first] implies the ability to have access to funds reasonably required to enable the Commission to discharge the functions it is obliged to perform under the Constitution and the Electoral Commission Act. What it does mean, however, is that Parliament must consider what is reasonably required by the Commission and deal with requests for funding rationally, in the light of other national interests. It is for Parliament, and not the Executive arm of Government, to provide for funding reasonably sufficient to enable the Commission to carry out its constitutional mandate....

The second factor, ‘administrative independence’, implies that there will be control over those matters directly connected with the functions which the Commission has to perform under the Constitution and the Act. The Executive must provide the assistance that the Commission requires "to ensure its independence, impartiality, dignity and effectiveness". The Department cannot tell the Commission how to conduct registration, who to employ, and so on’.

Having outlined these features of independence, Justice Langa noted that the Chapter 9 institutions were a relatively new invention, and had been established in a context where older legislative and policy arrangements, public administration practices and budgetary conventions still applied. As a result, these practices were applied to these institutions without regard to their appropriateness. A number of these practices violated the constitutional requirement of independence, such as the ones outlined in Treasury Instruction K5. This instruction governs the transfer payments to public bodies by the Director-General of a government Department, who acts as the Department’s accounting officer. The Director-General is entitled to stipulate conditions which s/he regards as desirable in respect of any payment to be mad, and has the power to withhold payment if s/he is not satisfied that the conditions on respect of the previous payment have been met, the necessity for continued assistance still continues, the financial aid is still meritorious and the set objectives were attained. According to Justice Langa, Treasury Instruction K5 empowers the Director-General to ‘..do two things which are by their very nature invasive of the independence of the public entity. Firstly, the accounting officer can stipulate further conditions considered desirable and which must be fulfilled before any further money is paid to the public entity. Secondly, he or she is obliged to perform an evaluative role in relation to the public entity’. As a result of this legal conundrum, Justice Langa stated that these practices, rules and conventions would have to be brought into line with the constitutional requirement of independence for the Chapter 9 institutions.

For example, in 1996, a monthly drawdown system was instituted with respect to the IBA by the Department of Communications, where every month a twelfth of the budget was payed over to the IBA. The next year, the Department tightened the financial accountability requirements, and moved to a system whereby the drawdown was released on the basis of monthly expense reports. The IBA was required to account to the Department on a monthly basis through a report which included copies of bank statements, and an expenditure estimate for the coming month, as well as an estimate for expenditure on specific projects. If there was a variation in terms of the amount the IBA spends in that month (in other words, if it was either above or below a twelfth of the annual amount), then the Department adjusted the drawdown accordingly.

This activity of accounting in terms of the drawdown became possibly even more important for the survival of the institution than the annual formality of accounting to Parliament. In fact, it began to look like the IBA was nominally accountable to Parliament, but substantially accountable to the Department, which raised a constitutional conundrum. If the IBA was to be considered a Chapter 9 institution, then it would need to operate in a position of equality with the executive structures of government (including the Department of Communications) as they had the same status in terms of the constitution. The other so-called ‘Chapter 9' institutions also experienced a similar problem, as their budgets were also administered by Departments. Increasingly, it became apparent that this arrangement was inappropriate, even if the Departments concerned are ultimately accountable to Parliament.

Armed with the above mentioned constitutional court judgements, the Chapter 9 institutions themselves began a lobby to change these administrative arrangements, to afford them more independence. In response, the speaker of Parliament commissioned the Law School at the University of Cape Town to produce an opinion on how best Parliament should achieve its oversight role, including in relation to the Chapter 9 institutions. The report - which was released in July 1999 - recommended that the accountability and independence of these institutions be outlined under separate legislation. This legislation would provide for the full financial independence of Chapter 9 institutions, which would involve them receiving their money directly from Parliament; so, the institutions’ budgets would no longer be represented in budgets as line items of specific departments. With respect to budgets, the report recommended two options: as a separate vote for each institution, or a separate vote for all institutions as a group. These institutions would defend their wish-list budgets in Parliament (rather than to the executive). In order to handle these matters, the report recommended the establishment of a standing committee on constitutional institutions, which would act both as an accountability and an oversight structure. These provisions the authors considered to be ‘...a minimum to fulfil the requirements of the constitution’. This report was tabled for further discussion in Parliament, and at the time of writing is still being discussed by a Joint Subcommittee on Oversight and Accountability. In a meeting of the Committee on 4 October 2000, it was decided that members of the Committee would go back to their parties with a proposal to re-appoint the consultants to attend to areas that had been omitted in the report.

It is extremely important that the oversight activities are fast-tracked so that matters are clarified before the MDDA is set up; otherwise, the sorts of independence questions that have plagued the constitutional institutions will plague the MDDA as well. However, the MDDA will not necessarily fall within the ambit of the oversight report if it is not included in the constitution.

We are fully aware of the import of calling for a constitutional amendment, and do not do so lightly. However, we also note that since the adoption of the current constitution in 1996, the constitution has been amended five times, which are as follows:

1. 29 August 1997: Amendment to make further provision in relation to the oath sworn or affirmation made by an Acting President; to extend the cut-off date in respect of the granting of amnesty; and to provide matters which are incidental therewith. Sections amended: s.90, Schedule 2 and Schedule 6.

2. 20 October 1998: Amendment to provide that, where a municipal boundary is determined across a provincial boundary, national legislation must make provision for establishing a municipality of a type agreed to by the provincial governments concerned and for the exercising of executive authority over that municipality; and to provide for matters connected therewith. Sections amended: s.155 and s.157

3. 17 March 1999: Amendment to allow a proclamation calling and setting dates for an election of the National Assembly; and to dispense with the requirement that the chairperson and deputy chairperson of the Financial and Fiscal Commission must be full-time members of the Commission; and to provide for matters connected therewith. Sections amended: s.49 and s.221.

4. 17 March 1999: Amendment to enable a proclamation calling and setting dates for an election of a provincial legislature to be issued either before or after the expiry of the term of that legislature; and to provide for the allocation of undistributed delegates in a provincial delegation to the National Council of Provinces in a case where competing surpluses are equal; and to provide for matters connected therewith. Sections amended: s.108 and Schedule 3, Part B.

5. 29 September 1998: Amendment to extend the terms of Municipal Councils; to provide for the designation of alternates in respect of certain members of the Judicial Services Commission; to amend the name of the Human Rights Commission; and to extend and modify the application of transitional arrangements in respect of local governments; and to provide for matters connected therewith. Sections amended: s.159, s.178, s.196., Schedule 6 and the term ‘South African Human Rights Commission’.

Therefore, there are precedents for amendments to the constitution, even those provisions that relate to the constitutional institutions.

The following points were agreed to:

 Funding for the MDDA should come from the three sources recommended in the Position Paper, namely government, commercial media and international donors.

 The proposal to use the Marketing Industry Trust as the funding conduit for the commercial media contributions is inappropriate, and should be reviewed

 A statutory, prescribed levy should be imposed on commercial media. The levy should apply to single-medium and multi-media organisations: hence the levy being referred to as a ‘convergence levy’. The levy should be based on a percentage of gross annual revenue.

 The MDDA should be given the powers prescribe this levy on an annual basis through regulations, and should also be able to create penalties in respect of non-payment of this levy.

 The MDDA statute should make provision for a prescribed threshold for payment of the levy. Any group falling below this threshold will not be required to pay the levy.

 The South African Broadcasting Corporation should be exempt from the levy, subject to two qualifications. Firstly, that the SABC develops a dividend policy which commits the Corporation to substantial reinvestment of its profits in the public service mandate, especially the public service radio stations and the establishment of regional splits for the development of programming in all eleven official languages. Secondly, the SABC should implement the natural partnership agreements with community media (Addendum 1), to foster co-operation between itself and the sector.

 The existing spread of levies and taxes on the media industry need to be investigate, including the possibility of synergising a number of these levies. This is especially so with respect to the Universal Service levies imposed on the telecommunications industry and the proposed media levy.

 The possibility of merging the Universal Service Agency and the MDDA should be explored, especially given the fact that the USA is undergoing a 5-year review at the moment. This merger would enable the two bodies to co-ordinate the roll out of media and information technologies in ways that take the convergence of these sectors into account. However, if the USA and the MDDA are to be merged, the independence status of the USA would need to be ‘upgraded’ to that of the MDDA’s, rather than the MDDA’s status being ‘downgraded’ to that of the USA’s

 The MIT and SAARF should be engaged by stakeholders, and once it is established the MDDA, to ensure that the levy is increased to fund research on community radio. Hence, even though the MIT will not act as the funding conduit for commercial media contributions, the marketers will still be under pressure to effect transformation in this sector.

 Attempts to secure international donor funding should be fast-tracked, as the efficacy of this funding stream looks decidedly shaky. However, funders should not be pressurised into channelling their funding through the MDDA, as this will send out negative signals to funders. A media funders’ forum should be set up to ensure that there is at least some co-ordination with respect to funding, or dialogue with respect to priorities at the very least.

If the MDDA is to be established as a watchdog of the constitutional rights to freedom of expression and access to information, then it needs to enjoy the necessary levels of independence. One component of independence that has received increasing attention is financial independence.

For example, according to the Paris Principles relating to the status of national institutions, a national institution ‘....shall have the infrastructure which is suited to the smooth conduct of its activities, in particular adequate funding. The purpose of this funding should be to enable it to have its own staff and premises, in order for its to be independent of the Government and not subject to financial control which might affect its independence’. In addition, the United Nations has sought to give content to the term ‘independence’, by identifying four elements:

 Independence through legal and operational autonomy,

 Independence through financial autonomy,

 Independence through appointment and dismissal procedures,

 Independence through composition.

The provision around financial independence is echoed by Langa, J. above in his constitutional court judgement: clearly it is self-defeating for the legislature to establish a body to assist it with its oversight functions, and then disable it by failing to provide the necessary funds to ensure that it functions smoothly and effectively. In effect, if underfunding takes place, the institution’s independence stands to be violated in possibly even more insidious ways than if more direct violations were effected. Therefore the question of how the MDDA is to be funded is not merely a technical question: it strikes at the heart of the MDDA’s independence, in that it will either enable or constrain the Agency’s ability to discharge its mandate. In fact, the question of financial sustainability is possibly even more important than the other constitutional institutions, given that one of the main tasks of the Agency is to dispense funding.

The question of how the MDDA is to be funded received a great deal of attention in the research and in the workshops. According to the Position Paper, the MDDA would receive funding from three sources: government, international donors and commercial media. What is of serious concern is the fact that two of these three sources will essentially be voluntary in nature. We take as a given the fact that the government contribution is secured. It is therefore of the upmost importance for the feasibility of the MDDA to evaluate the extent to which the other two funding streams are likely.

 International donor funding

It is extremely difficult to assess to what extent this source of funding is sustainable, especially given the ongoing withdrawal of foreign donors from South Africa. It should be noted, however, that the principle funder of community radio, the Open Society Foundation, intends to withdraw its funding from the sector over a five to ten year period, according to the principle of ‘responsible withdrawal’: that is, the withdrawal will be premised on the ability of stations to sustain themselves, and current funding is being targeted to ensure that such sustainability is reached. It should also be noted that the Foundation implements a general policy of the Soros Foundation, namely that it does not fund through intermediary bodies: this policy should effectively prevent the Foundation from channelling funding into the MDDA. The uncertainties surrounding this funding stream means that securing the funding stream from the commercial media is especially important.

The Marketing Industry Trust

The GCIS has proposed that the contribution from commercial media could be channelled through the MIT. In order to evaluate this proposal, it is necessary to review briefly the history and mandate of the MIT.

The MIT was set up by a number of organisations in order to channel money to activities of mutual interest: traditionally these have been the South African Advertising Research Foundation (SAARF), the Adverting Standards Authority (ASA) and the Freedom of Commercial Speech Trust. The majority of funding goes to SAARF. The MIT was set up as a voluntary body according to a Trust Deed, with a mandate to collect funds for these purposes. Funding is collected from the constituent organisations, including the South African Broadcasting Corporation (SABC - the major contributor), the National Association of Broadcasters (NAB), the Association of Marketers (ASSOM), the Association of Advertising Agencies, the Outdoor Association, the Print Media Association of SA (PMSA) and Cinemark. The MIT is funded from a 1% advertising levy. In the past, the levy was reflected on the invoice that the advertising agency sent to marketers, but apparently this is not reflected any longer as some marketers began to refuse to pay this amount. As a result, the 1% levy is now absorbed into the agency’s overall charges. The costs are then transferred onto the media houses when the advertisements are placed, with the amount then being paid over to the MIT. This process has led to debates around whose money is actually being paid over: the media houses or the marketers.

One of the consequences of the levy amount disappearing off the marketers’ invoices is that there is less transparency with respect to the collection process. This muddy situation has led to the perception that there is an under collection of the levy: for example, in the last financial year, the MIT collected R38 million, and expects to collect R41 million this year. The actual amount that should be collected is in the region of R60 million. The GCIS has attributed this shortfall to under collection, which may not be the case as many media groups offer significant discounts to marketers as special offers, and for bulk advertising.

Currently the declaration of the 1% is left up to the goodwill of the media, as there is no legal obligation in terms of the Trust Deed to enforce the collection of the levy. In reality, it is not in the interests of the media houses not to pay the levy as this would mean that SAARF would not survey their media, which has a knock-on effect on their advertising levels. However, the fact that the levy is voluntary leaves this possibility open.

In the last financial year, a debate was initiated within the MIT about increasing the levy from 1% to 1.3% to fund additional activities, such as the National Association of Broadcasters, the Broadcasting Complaints Commission of SA and the Press Ombudsman. The suggestion was not carried as constituent organisations argued that the function of the MIT is to provide funding to assist marketers, not to delve into matters of editorial content. Also, the MIT groups were not willing to entertain an increase in the levy for financial reasons.

This debate also fuelled a further debate in the MIT about whose money the Trust held: the marketers or the media houses. The debate has arisen because even though the media houses pay over the money to the MIT, it could be argued that they do so on behalf of the marketers as the 1% levy was factored into their billing by the advertising agencies: this arrangement certainly can give rise to the perception that the media houses are paying. This debate is important in the light of the GCIS’s proposal, given the fact that if the marketers lay claim to the MIT proceeds, the MDDA levy will effectively be paid by the marketers, not the media houses. As a result, it would be inaccurate to speak of the commercial media paying the levy. Irrespective of whose money it is, though, the GCIS option - especially the proposal around the increase in the levy from 1% to 1.5% - will probably fuel media and consumer inflation, as media houses will no doubt be unwilling to bear the cost, and may well increase their rate cards. In response, the marketers may then transfer these increases onto consumers by increasing the price of goods and services. So the GCIS option, while well-intended, may result in price hikes that consumers will have to bear: a burden that will be felt disproportionately by the very constituencies that are targeted as the beneficiaries of the MDDA.

Another unintended, but likely, effect of the MIT option, is the shift in adspend from above the line to below the line. Presently, above the line advertising accounts for approximately 53% of total adspend. This contrasts with a country like the United States, which has experienced a rapid shift in the distribution of adspend as a result of the development of information technologies: inventions such as the Internet have allowed marketers to address targeted audiences far more easily. As a result, mass-based media have experienced a decline in adspend, as their effectiveness as marketing tools is more difficult to measure than more targeted media. The distribution of adspend has changed so much that it has inverted: whereas a few years ago, above the line advertising accounted for 70% of total adspend, it now accounts for 30%. South Africa is following this trend, with a significant decline in the growth of above the line advertising, leading to media inflation as traditional forms of media compete more fiercely for a shrinking advertising cake. Given the fact that the MIT is premised on income from above the line advertising, it is likely that any increase in the levy to fund the MDDA will push more adspend below the line, as marketers attempt to escape paying the levy. This shift will no doubt exacerbate an already steep inflationary spiral in the commercial media, which may roll-back attempts to increase their outreach and may even threaten the existence of weaker titles. So rather than assisting in the creation of greater media diversity and access, the GCIS proposal may well weaken the industry in ways that could threaten these ideals. Rather a funding model needs to be sought that circumvents these problems, without absolving commercial media of their obligation to contribute.

The position of the SABC should be treated as a special case, however. Presently, the SABC contributes the bulk of funds to the MIT. Yet in terms of the Broadcasting Act, the public commercial services of the SABC are required to cross-subsidise the public services. If the GCIS’s proposal is carried - namely to use the MIT as a funding conduit - it could be said that the SABC will bear a double form of ‘taxation’ for public/ community service obligations: a situation which will not be the case with respect to the Corporation’s strictly commercial counterparts on the MIT. This is unfair, and will place the SABC at a further disadvantage vis a vis its commercial competitors.

An alternative funding approach would need to be based on an understanding of the general financial state of health of the media industry, which is inextricably linked to the health of the economy generally. This is especially so with respect to adspend, given the fact that advertising growth is linked directly to economic growth. Levels of growth also affect the distribution of adspend among different media. Therefore some time will be spent on these matters before alternative funding approaches for commercial media are discussed.

 Unemployment

The precise level of unemployment is the subject of a great deal of controversy in the country. According to the expanded definition of unemployment used by Statistics South Africa at the time of the census, the unemployment rate stood at 34% for the country as a whole. Unemployment levels are worst in the Eastern Cape (49%) and Northern Province (46%). From this time (1996) to 1998, the unemployment rate climbed to 37.5%.

 Economic growth

Since 1996, the country’s economy has shrunk. In fact, in 1996, it achieved a growth rate of 3.2%, in 1997 1.7%, and in 1998 0.1%. In the first quarter of 1999, the GDP grew by 0.6%, and improved slightly in the second quarter to 1.7%. In effect, the economy has grown by only 1.8% since 1996, well below the rate of population growth, and well below the rate which is needed to create significant numbers of jobs (which is estimated to be 6% by the government, in terms of the Growth, Employment and Redistribution Plan). The economic growth rate for 2000 was cut from 3.6% to 2.6%. Expectations for growth are envisaged at 3.5% for this year, 3.4% for next year and 3% for 2003.

 Employment trends

According to the CSS’s newly-released report entitled Measuring Poverty in South Africa, African women were the least likely to be employed compared with more than three times the proportion of white men who were employed. Also, women were concentrated in elementary jobs such as domestic work (41% of all employed women). Between the years 1970 and 1995, employment for people with tertiary education rose by 2 028%, while the demand for labour without matric fell by 24%.

 Wealth gaps

The ratio of the highest to lowest paid in South Africa is 25:1 compared to 13:1 in the United States, Germany, Canada and India. In fact, South Africa has the second highest inequality of income in the world, next to Brazil.

These indicators are reflected in adspend trends.

 Shrinking advertising cake

Increasing unemployment, coupled with high interest rates, ultimately affects consumer spending patterns. Contracting consumer spending in turn has a knock-on effect on growth in adspend. In 1999, national adspend grew by just over 10%, which was the worst performance by the industry since 1985 (the year that unemployment peaked). Nine of the top 30 advertising agencies experienced negative growth. Stagnant and even shrinking advertising markets has a particularly acute impact on television and newspapers, given their extreme reliance on advertising revenue as a source of income. Advertising income is skewed in favour of stations that target predominantly white listenerships, even though their listenerships are lower. In November 1999, the ‘value’ of each Highveld Stereo listener was R17.20, whereas the ‘value’ of each Radio Ukhozi listener is R1.70 per listener. A similar picture exists with respect to the print media.

For the purposes of this submission, the following definitions are used:

Above the line - Advertising term denoting the traditional five areas where commission is paid to advertising agents -Press, TV, Radio, Cinema and Outdoors. Below the line - Advertising term denoting uses outside the five traditional areas. Examples are direct mail, trade press, small ads, exhibitions.

As mentioned earlier, and in line with overseas advertising trends, adspend is shifting increasingly below the line. The new technologies offer unprecedented opportunities for more targeted marketing. Also, shrinking levels of economic growth and rising unemployment are leading to marketers demanding greater accountability from the mass media. These media offer platforms for marketers to address mass audiences, but the very nature of these media as mass media means that it is difficult to measure their effectiveness in attracting consumers to buy particular goods and services. However, marketers are also turning increasingly towards the new media such as the Internet, as well as direct and database marketing, to address targeted audiences. This trend reinforces a broader media trend involving the fragmentation of media audiences into ‘niche’ audiences: a trend that is complemented by the shift from above the line to below the line advertising.

The media that rely the most on above the line advertising as a source of income - namely radio, television, outdoor and television - are the most heavily affected by the this shift. This is especially so with respect to newspapers, which are the most heavily affected of all media if GDP growth is not as expected. Given the above mentioned GDP projections, and their implications for the country’s unemployment crisis, it is to be expected that these trends will intensify as even greater pressure is placed on media to deliver measurable results to marketers.

 Subscriptions or cover-price as sources of revenue

South African media are moving away from an overwhelming reliance on adspend as a source of income, with groups like Naspers/ MIHH leading the trend. In fact, advertising is not the fastest growing source of revenue in broadcasting - subscription television is. According to Multichoice, subscription television in South Africa accounts for just over half the contribution to GDP by broadcasting. This trend looks set to continue as subscription-based media generally tend to do better than advertiser-driven mass media in a climate of economic uncertainty. Other media groups also rely heavily on cover prices as a source of revenue.

The number of platforms for the delivery of content is increasing, with telecommunications networks being used as well. While this trend is quite new, it looks set to continue, resulting in a further marginalisation of adspend as a source of revenue. For example, content can now be delivered over cellphone networks. A company like Johnnic is exploring synergies with the Citizen - which it owns through CTP/ Caxton to the tune of 43% - whereby content from the newspaper will be delivered over cellphones.

Implications for media in South Africa

One of the consequences of shrinking consumer markets is that advertisers demand greater accountability from media. Such accountability is difficult to achieve with traditionally ‘indoor’ media such as newspapers and television, as changes in the market structure are leading to greater audience fragmentation, and hence greater uncertainty about where to ‘find’ audiences. Advertisers are shifting to outdoor media such as radio and outdoor advertising as they are able to offer more targeted audiences: hence the remarkable growth in these areas in the past few years.

The footprint of newspapers is shrinking year on year. Access to, and consumption of, radio and television has grown, while - reflecting international trends - newspaper circulation shrunk from 19% to 17% between 1990 and 1996, although it picked up somewhat in 1996/1997. Sales figures shrunk yet again between 1999 and 2000, by 3% for daily titles and 0.7% for weeklies. Overall, the footprint of magazines is also shrinking, as this medium is possibly even more sensitive to contractions in consumer spending than newspapers, given their relatively high cover prices. However, there has been a rise in the prevalence of niche publications.

This shrinking footprint exacerbates financial problems the print media industry is already facing, given rising global costs for basic inputs such as paper and printing technology. The newspaper industry especially is facing huge price increases, especially with respect to paper, as the global focus shifts from print media to ‘paperless’ technologies such as the Internet. This shift to new media is also apparently affecting the production of newsprint, with manufacturing plants being closed down in Russia and Europe.

In response to market uncertainties, media groups are operating increasing on a multi-media basis, assembling a mix of mass and targeted media. This mix of media allows them to spread their bets by affording them the opportunity to attract both above the line and below the line advertising. As a result, traditional media are offering on-line services, including PC-based and interactive-TV based services: it is in these areas that analysists expect the bulk of growth to be focussed. The ‘ideal’ multi-media company is seen as having a mix of content-creation and distribution platforms, so that the costs of content produced on an in-house basis could be ameliorated by re-packaging it for a variety of delivery platforms. The print media are shifting increasingly to offering on-line versions.

Another spinoff of the tightening commercial media market is an increasing consolidation of the media industry. This is a global trend: in fact it is estimated that the top twenty media companies command over 50% of global advertising revenue. Consolidation is becoming more and more evident in South Africa: a trend which is exacerbated by tight monetary policy and a high interest rate on commercial credit. Minority shareholders are coming under increasing pressure, especially those whose debts are financed largely through debt, rather than equity. For example, in January 1999, Naspers announced that it had repurchased the stake in City Press that it had sold to empowerment groups Dynamo and New Seasons in mid-1997. According to The Star, this move ‘...marked the first major black empowerment deal to be unwound following the sharp deterioration in trading conditions over the past few years’, conditions which had led businesses which rely on borrowed funds to struggle as the cost of these funds increased sharply at a time when profits in the newspaper industry had been squeezed. Minority black empowerment shareholders are especially vulnerable to collapse, which can result in bigger empowerment groups bidding for their stakes; in the process, shakeups in the shareholding structures of media lead to a narrowing ‘beneficiary base’. A concrete expression of this sort of division is to be found in recent ownership changes to eTV, where the IBA allowed the influence of minority shareholders to be reduced as they had failed to bring sufficient funds to the table. Although black empowerment groups are still represented in the new ownership structure, the IBA expressed regret that the beneficiary base would be narrowed as previous shareholders representing the disabled, civic groups and youth would be the ones marginalised. There are possibilities of an every greater shakeup in eTV’s ownership structure, with Primedia and Rembrandt having expressed interest should a stake become available.

The bigger groups, however, are able to finance their expansion through equity sell-offs, which makes them less vulnerable to high interest rates. For example, recently Primedia decided to sell off its British interests in Primecom, Dunnhumby and Alpha Sales, and its interests in Ster Kinekor Europe, stating that it had decided to re-focus itself on investing in the domestic market. One of the main reasons cited for this move was to free up capital to finance the pending merger with Kagiso Media: a move which would allow Primedia to consolidate its radio interests.

According to Price Waterhouse Coopers, an analysis of the world’s largest entertainment and media groups shows that their return in invested capital has declined by nearly a fifth in recent years, in spite of the fact that these companies enjoyed exceptional growth. Also, capital productivity has declined. PWC attributed this trend to the fact that media groups were spending vast amounts of money investing in their own growth, organically and through acquisitions, and these investments had not yet matured. This trend is also to be found in South Africa, with returns on invested capital having declined by 34% between 1995 and 1999: this was in spite of the fact that the total invested capital in the industry grew by an astonishing 35% per annum. Increasing liberalisation (resulting in greater competition for adspend), coupled with declining consumer spending, has been blamed for the fact that profit margins are decreasing, and this trend looks set to continue.

Companies have been advised to address these problems by optimising their newly-acquired multi-media platforms, and to exploit synergies more aggressively. After all, synergies will not just happen once a company has assembled diverse media assets: these opportunities have to be created. One of the problems that has been identified with the acquisition frenzy is that media groups have not paid sufficient attention to creating co-operation between the different components within their groups; this would need to be done as soon as possible to demonstrate to shareholders that convergence can create value even in the short-term. Given the fluid nature of the media industry, companies are also being advised to treat all markets as primary markets, and not to invest to heavily on one medium at the expense of another. Another strategy is to investigate areas of co-operation with other groups on strategic areas on the media ‘value chain’, leading to a situation where groups may compete on one level while cooperating on another (giving rise to the remarkable term ‘co-opetition’).

It is evident that the most successful media groups at the moment are those that spread their bets early, and invested in a spread of platforms (especially those platforms which are most attractive to advertisers). For example, Kagiso Media has experienced substantial year-on-year growth owing to its strategic mix of out of house media. Its ownership of a range of consumer and niched trade exhibitions, coupled with its highly successful radio portfolio (East Coast Radio and Jacaranda 94.7 and a stake in Radio Oranje) and its niche publications, means that it is able to target both above and below the line advertising.

Outlines of the most important media groups are provided (Addendum 57). We have also provided a list and diagram of the profit margins of these media groups (Addendum 8), as well as their market capitalisation (Addendum 9). What is evident from these figures is that already-integrated multi-media groups are proving to be the most profitable, especially those which have achieved a mix of ‘old economy’ and ‘new economy’ platforms. Even a focussed group like outdoor advertising group Corpcom is taking advantage of the new technologies such as billboards which display daylight visible electronic images linked by satellite to web-based technology.

An example of one of the most successful multi-media groups is dealt with below:

 Johnnic

Johnnic Investment has proved to be the most successful media group by far in South Africa. In order to understand why this is so, it is necessary to look at its investment strategies in recent years. As noted earlier, investment strategists are arguing increasingly that neither new nor old media can afford to go it alone. The trend of merging new and old media concerns was set through the merger of US entertainment group Time Warner and Internet pioneer America Online. The merger had a marked impact on investor sentiment, leading to tremendous interest in companies exploiting convergence of technologies to create synergies. By this stage, Johnnic was already well on its way to securing assets in media, telecommunications and entertainment.

Johnnic started out as an investment company, with a diverse portfolio of brewing, property and retail, as well as media and telecommunications. In the late 1990's, it decided to focus its activities more, re-defining itself as a focussed media and telecommunications company. This redefinition of its core business led to it shedding many of its ‘non-core’ assets. In fact, as a result of this shift in focus, Johnnic disposed of R7 billion of non-core assets, reduced its debt by R5.3 billion, and began to increase its stake in its core assets. Having recognised that the backbone of the company’s profits would probably be in telecommunications, it decided to increase its stake in MTN. Johnnic Holdings owns 14.4% of M-Cell, and Johnnic Communications 35.93%.

The intention behind this restructuring was to position Johnnic to take advantage of the convergence of technologies. According to the group’s executive director, Paul Jenkins, key to the media and entertainment division’s success is about ‘leveraging that content across various delivery platforms’, and getting it to the consumer. A great deal of attention was devoted to identifying opportunities for co-operation and cross-promotion in the division. These opportunities led to Johnnic embarking on a series of acquisitions in the ‘new media’ arena; for example, Johnnic e-ventures bought 50% of South African digital publisher comPress, set up with the apparent aim of ‘bringing publishing to the masses’.

Certainly Johnnic has built up its portfolio of business in ways that should allow it to distribute media produced by itself in ways that other companies will not: in fact, Johnnic has a strategic advantage over many other dot.com companies, in that it owns several media distribution agencies, such as Gallo Music, Nu Metro (Theatre and Video) and Exclusive Books. These synergies should allow customers to order a book, have it printed by comPress and then pick it up from the nearest branch of Exclusive Books. In the near future, it may be possible to read content produced by a Johnnic business such as comPress on a cellphone or other wireless-based platforms. Consumer resources like Ananzi and CareerJunction should allow Johnnic to source a wealth of consumer marketing information, opening the way for numerous direct marketing opportunities. The same also applies to TradeWorld and I-Net Bridge - also owned by Johnnic - which are rich sources of information for business-to-business marketing. CareerJunction is being teamed with the Sunday Times in relation to recruitment; in fact, the company has announced the intention of diverting all its on-line recruitment focus into the partnership between CareerJunction’s owners, Adcorp, and Johnnic.

The stated intention of Johnnic is to create synergies within the group to ensure it corners the market in mobile commerce. This intention is based on the assumption that cellular phones will become the main method of accessing the Internet in the future, in view of the fact that cellular phones are much cheaper than personal computers. However, both MTN and Johnnic have indicated that they do not want to be tied into exclusive deals with each other around wireless Internet. While the latter can provide content to the former, MTN should also be free to source content from other companies; likewise, Johnnic should be able to establish partnerships with Vodacom or any other operator if they prove to be adventitious. However, in spite of this relative freedom, MTN and Johnnic are exploring synergies around consulting services, applications and other e-commerce capabilities. Johnnic has also expanded its telecommunications arm with the acquisition of Orbicom in September 1999. It acquired the company with the intention of using it to expand into a full-service telecommunications group on an Africa-wide basis; Orbicom’s existing platforms provided a sound basis for this project, given that it distributes digital signals and managed value-added networks in a number of African countries. In November 2000, Orbicom South Africa and Lockheed Global Telecommunications announced the conclusion of an agreement that would allow them to bring satellite-delivered Internet and telecommunications services into African markets (the latter being provided through MTN). Their main focus would be on servicing the needs of corporate clients and Internet Service Providers.

In order to ensure that these acquisitions are financed, Johnnic has adopted a dividend policy which warns shareholders to expect scant dividends. Shareholders have been told that the bulk of the group’s profits are to be reinvested in the company to recapitalise its activities given the rapid changes in the industry. However, Johnnic has been luckier than other groups. Naspers has been investing in information technology to the point where it has recorded substantial losses in the past financial year. The reason why Johnnic is in a relatively stronger financial position is that it assembled an array of multi-media platforms and content early; in fact it did so before the hugely influential Times Warner/ AOL merger, which tilted investor sentiment in favour of the multi-media approach. Media groups that have attempted to catch up after this merger have been experiencing difficulties, as multi-media mergers and acquisitions have become that much more expensive.

Early in 2001, Johnnic announced restructuring plans, in an attempt to flatten the pyramid structure that characterises the company. The main plan turns on the unbundling of Johncom to Johnnic shareholders by the end of March 2001. This move was supposed to increase the liquidity of Johncom, with attendant benefits for shareholders, and to preserve the group’s black empowerment focus. The restructuring will leave Johnnic Holdings with only its stock in M-Cell and other non-core assets such as property, MIH shares and stocks in SA Breweries. In the meantime, talks around co-operation on operational issues are taking place between Johnnic and Caxton. Johnnic holds a 43% stake in Caxton. Both groups are reportedly exploring possible ‘back house’ synergies between the Sunday Times and the Citizen. Such an arrangement could involve the Citizen having access to the Sunday Times’s circulation base. In return, TML would share the distribution networks established by Caxton magazines. According to Johnnic, the readership profiles of both newspapers overlap considerably, to the point where both groups may even consider turning the Citizen into the daily edition of the Sunday Times. The main reason given for exploring these synergies is that key costs in the industry are rising.

Reportedly, Johnnic is also intending to bid for the second fixed-line licence, once is it made available; it claims that it intends to use low-cost satellite equipment to provide 100% of the population with telecommunication services.

It should be evident from the above that the most commercially successful groups are those that have built themselves on a multi-media basis: it is in this sector that the current and future value of the commercial media sector lies. The increasing synergies being struck up within these groups help to ameliorate costs, especially in relation to content: in fact, the costs of content are rising far more sharply than the costs of distribution. Synergies are also being negotiated with traditional competitors in those areas where costs are rising as a result of the shift in emphasis from ‘old’ to ‘new’ media, such as paper and printing.

These trends have particular implications for the MDDA, especially its proposal around levying commercial media. Some of these implications are as follows:

As adspend and content migrates from ‘old’ to ‘new’ media, all the existing problems around what is generally referred to as the ‘digital divide’ will be transposed onto the media: given the already-existing access problems the ‘mass media’ face, convergence can be expected to deepen access to information problems. For example, newspapers are placing increasing emphasis on on-line editions to attract below the line advertising to supplement diminishing above the line advertising in their hard copy editions. Given the country’s current Internet access profile, newspapers with predominantly white audiences will find it easier to reposition themselves to offer both hard-copy and on-line versions, leading to the migration of even more adspend to these titles. Conversely, newspapers with a predominantly black readership will struggle even more to attract adspend, as the bulk of their readership will not be able to access on-line versions of the newspapers.

Effectively, the migration of content to the Internet transfers the cost of distribution to the recipient of that information; given the current realities of Internet access in the country, the recipients of on-line information will inevitably be mainly white, male and middle class. Given the readership profiles of newspapers like the Sowetan and City Press, these options will not really be open to them, leading to even greater difficulties in attracting adspend.

 Barriers to entry for new media rise even more

One of the main consequences of increasing inter- and intra-firm integration is that it makes it even more difficult for new media groups to establish themselves. The sorts of back-house arrangements that the main media groups are able to arrange with one another, coupled with the cost-saving synergies described above, are options that are largely not available to new and independent media. The disproportionate amount of adspend the main groups attract by virtue of their mix of media investments also disables attempts by new media initiatives to break into the industry.

Given that community media projects tend to be ‘stand-alone’ projects in the sense that they are not integrated into larger multi-media groups, their ability to attract adspend will come under even greater pressure. In 1999, community radio attracted R8 259 491 in adspend. Total adspend for the radio sector was R922 300 000. In 2000, community radio attracted only R6 717 269, while adspend for the whole radio sector increased by 32.7% to R1 223 800 000. For a list of radio stations by adspend, see Addendum 10. In contrast, listenership figures for community radio have been growing year on year. In March 1999, listenership accounted for 8.8% of total radio listenership. By December 2000, this figure had grown to 10.8%. Yet these increases are not matched by increases in adspend for the sector.

In short, the very strategies that are used to create value on commercial media groups risk marginalising community and independent media even further: a fact that makes a compelling case for the imposition of a levy on commercial media.

 Levy should not be premised solely on above the line advertising.

As noted above, even though advertising accounts for the bulk of revenues for media groups, the country’s economic conditions are pushing them in the direction of relying increasingly on other sources of revenue (such as subscriptions). Therefore, to premise a commercial levy on advertising alone is bound to become an increasingly anachronistic approach. Also, the MIT option as proposed by the GCIS is premised on ‘taxing’ above the line advertising only. A crude number-crunching exercise reveals the problem with this approach: if above the line advertising accounts for 53% of total advertising revenues, and only 50% of total revenues for the broadcasting industry is derived from advertising, then it could be said that the MDDA will be levying only one-quarter of total broadcasting revenues: the rest will escape the net.

Given the investment strategies of media groups, there is a need to re-think how the levy on commercial media is conceptualised. If it is to capture the totality of ‘value’ being created in the industry, the levy would need to be imposed on the media groups themselves, and not on the marketers. Also, the levy would need to take into account the increasing convergence of the media and telecommunications industries, as this convergence is also creating significant value in the sector. Already, there are attempts in the industry to move away from speaking about media and telecommunications as discrete industries, and rather to speak about content and distribution channels as discrete areas of business: with respect to the latter, a converged regulator may well be licencing distribution channels irrespective of their identity as ‘broadcasting’ or ‘telecommunications’ services. So at some stage in the future, it may be necessary to realign levies around the broad areas of content and distribution, rather than around discrete industries. In view of these developments, it therefore makes sense to plan for the imposition of a ‘convergence levy’.

The MDDA Act makes provision for a levy on commercial media, to be calculated as a percentage of gross annual revenue. This formula should be included in the Act, and the percentage should be prescribed on an annual basis by the MDDA. This means that the MDDA would have to be given strictly defined regulatory powers, as it would need to prescribe this amount, and create offences and penalties with respect to the non-payment or under-payment of this amount. Before setting the annual amount, the MDDA should call for written and oral representations to ensure that the process of setting this amount is consultative. With respect to broadcasters, this prescribed amount should be over and above licence fees, as appropriating a portion of licence fees for the purposes of the MDDA would effectively amount to the government paying twice for the Agency (given the fact that licence fees are paid into the National Revenue Fund).

All media groups should be eligible for payment of the levy: a working definition of ‘media groups’ is possible by perusing a list of JSE-listed companies. Companies such as Corpcom, Johncom, MIHH and Kagiso Media are listed.

Provision should also be made in the MDDA Act for a threshold, to ensure that media groups with a level of turnover below the threshold will not be subject to the levy. This provision is important given the very real financial problems that a number of media groups are facing. Community media should be entirely exempt from payment of the levy.

At the same time, the implications of the increasing merger of media and telecommunications needs to be explored further and the implications considered for a levy system. An audit should be conducted of existing levies to explore possibilities of synergising them. To this end, it is suggested that possible synergies between the MDDA and the Universal Service Agency are explored, including the idea of merging the two bodies. Such a merger would allow for comprehensive planning around the roll-out of media and information technologies. This idea should be explored now, given the fact that the USA’s future is being reviewed in terms of the telecommunications policy process. However, certain legal hurdles would need to be cleared with respect to such a merger, including the fact that the MDDA would enjoy higher levels of independence than the USA: provision would need to be made for the latter to be upgraded to the status of the former.

 Marketers and market researchers should still be engaged on transformation

One of the arguments advanced about why the MIT is an inappropriate conduit for the levy is that provision is not made for this function in the Trust Deed. However, this does not stop the MIT constituent organisations from showing a commitment to transformation within the terms of their own mandate.

There is a pressing need to engage marketers and market researchers on the assumptions at play in their own industries, as the work of the MDDA will be disabled if these industries are not transformed. Therefore it is proposed that stakeholders should engage with the MIT to increase the levy to make more money available for SAARF research into community radio. This could then be understood as the marketers contribution to the transformation of the media industry, as they interface with the industry through advertising. The MDDA, once established, should follow up with the MIT and SAARF to continue that this transformation process is carried forward.

The following points were agreed to:

 The MDDA should prioritise community media at every stage of its work.

 Low interest loans should be made available to small commercial media, while grants should be made available to community media.

 The MDDA should develop a clear definition of ‘community media’, which takes into account the non-profit making, community-owned and controlled nature of the sector. This should prevent commercial media groups like Caxton and Independent Newspapers from approaching the MDDA for grant funding on the basis that their local titles constitute ‘community’ media.

 Provision should be made for grants to cover start-up costs, in instances when it is clear that a community media project will add significant value to a community. However, the project may face significant hurdles in establishing itself even at an early stage. Particular provision should be made to cover ICASA’s application costs, which could be between R6 000 and R10 000. Otherwise, ICASA could consider lowering stations’ application costs.

 The MDDA should be prepared to fund community media projects that are unsustainable, if it can be proved that they would add significant social value to communities. However, clear criteria should be worked out to determine these instances.

 Once the MDDA is established, it should embark on an extensive awareness campaign to ensure that communities are aware of its existence, and to popularise its services.

 The 50% needs threshold identified for community radio is problematic, and provision should be made for this threshold to be increased to 80%. This will create the space for the funding of unsustainable community radio projects that pass the funding criteria as laid out by the MDDA. There may well be unsustainable community radio projects that are not even able to cover 50% of their own costs.

 The MDDA has underbudgeted for community radio. According to start up cost projections made by the NCRF, there is an R136 152 620 shortfall for the funding of 135 stations (Addendum 2). The amount budgeted for community radio should therefore be increased by this amount.

Definition of community media

According to the IBA Act, community broadcasting is defined as a broadcasting service which

‘ (a) is fully controlled by a non-profit entity and carried on for non-profitable purposes;

(b) serves a particular community;

(c) encourages members of the community served by it or persons associated with or promoting the interests of such community to participate in the selection and provision of programmes to be broadcast in the course of such broadcasting service; and

(d) may be funded by donations, grants, sponsorships or advertising or membership fees, or by any combination of the aforementioned.’

The IBA evaluates the claims of each applicant about the extent of community representation and support. According to its Position Paper on four year licences, the IBA will take numerous factors into account when considering an application for a licence. Several of these relate to the extent to which the station encourages community participation and services community needs. The IBA does not place restrictions on the amount of advertising a community radio station is able to carry, but it merely insists that the revenue is ploughed back into the stations for the benefit of communities and not management. The IBA has also maintained that the level of community participation will put in place the necessary checks and balances to ensure that the station serves community interests before the interests of advertisers.

Confusion has arisen around when a community station becomes a commercial station: a confusion which was highlighted during the debate around whether the Voice of Soweto’s licence should be revoked. This confusion has also arisen in relation to the print media, where commercial groups such as Independent Newspapers and Caxton/ CTP have produced local newspapers that they call ‘community newspapers’. In an attempt to reach conceptual clarity, Natasha Stretton from the Print Development Unit has suggested that a distinction be drawn between community newspapers and community-based newspapers. According to Stretton, ‘...both publications focus on a geographical community but unlike a community-based newspaper, a community newspaper is not owned and controlled by that particular community’.

It is important to have a clear working definition with respect to community media, as in the absence of such a definition, the door may be opened for commercial media masquerading as commercial media to become eligible for funding. Also, with respect to community radio, it would be unfair for the regulator to apply a strict definition of community media, while the MDDA applies a more relaxed definition. Every attempt should be made to synergise these definitions to prevent confusion. Also, there should be a mechanism to ensure that community media projects themselves adhere to this definition: while ICASA would provide the necessary oversight in relation to community broadcasters, provision would need to be made in the constitutions or articles of association of community print projects.

Endnotes