The easiest way to make a small fortune from newspapers, a wise man once said, is to start with a large fortune. The ANC would do well to keep this advice in mind as it considers a proposal to acquire its own newspaper.
Despite the sensational headline in The Times, the so-called “detailed plans” to set up a newspaper at this stage appear to be no more than a proposal to a sub-committee of the ANC’s National Executive Committee by two individuals: former journalist and Jacob Zuma fan club member Ranjeni Munusamy, and erstwhile SABC strategist and E-tv news director David Niddrie. Although the ANC raised the possibility of starting its own newspaper during the Polokwane conference, the initiative for this proposal seems to have come from Niddrie, who claims to have a mystery investor willing to inject R75 million into the project, which is expected to cost “about R250 million”. Make that “at least”.
In 2003, Nigerian investor Nduka Obaigbena launched the daily Thisday, produced by a highly capable team of journalists under the editorship of Justice Malala. Barely a year and more than R100 million later, Thisday was no more. Its failure was widely ascribed to underfunding. Publishing a newspaper is an expensive business, and investors should be prepared to accept years of losses in return for an uncertain future. Even The Times, with the infrastructure — distribution network, advertising sales team, printing capacity and so on — of one of South Africa’s major newspaper companies behind it, bled R39 million in its first ten months of existence, according to Avusa’s annual results.
The funding model for the proposed ANC newspaper just doesn’t make sense. Munusamy and Niddrie are asking the ANC and its alliance partners to cough up R750 000 for a feasibility study, business plan and prospectus. The ANC will then have to raise “core funding” of about R40 million to R50 million from “friendly investors”, which, in addition to the R70 million from Niddrie’s mystery investor, will give the newspaper a war chest of R120 million, about as much as Thisday blew in a year before sinking below the waves. The rest of the R250 million will be raised through “debt and equity”, according to the proposal. But I can’t see any bank lending the ANC R130 million on a commercial basis for such a dubious venture, and the problem with selling equity is that you also sell ownership and, by implication, control. If the ANC managed to sell R130 million in shares to outside investors, it would be left with a minority stake in the newspaper. To overcome that problem, Munusamy and Niddrie are proposing an ownership structure that would ensure ANC control through a special “voting pool” arrangement. But what investor would accept such a risk, while ceding control to a minority shareholder?
There are some other peculiar things about this proposal too. For example, according to The Times it argues that there is a market for a new daily newspaper that would target “the 80%-plus” of South Africans who do not read daily newspapers. That is a bit like launching a new brand of whisky for teetotallers. There is no doubt that newspaper penetration in South Africa is low by international standards, but the news according to the ANC is hardly likely to change that; not while poverty levels remain high and literacy low. And once in the market, the ANC newspaper will have to compete for people’s money on the same basis as the mainstream press. It would have to entertain them.
There is nothing wrong in principle with the ANC starting its own newspaper. But if it wants to compete on a commercial basis, as this proposal seems to suggest, it will find the going difficult. Plan B, according to the proposal, would be to buy The Sowetan. That is a much more realistic option, though whether Avusa’s shareholders would agree to it is doubtful. Tokyo Sexwale may be an NEC member, but he didn’t spend R1.4 billion of his own money for 25% of Avusa so that he can sell off its profitable assets cheaply.
If the ANC gives the project the go-ahead, my guess is the only people who will make money will be Munusamy and Niddrie, who presumably will pocket most of the R750 000 needed to produce the feasibility study and business plan.