Naspers, the erstwhile Afrikaner newspaper house and apartheid government mouthpiece, has turned itself into Africa's biggest media group, with technology and information interests across the globe.
Nowadays, Naspers operates pay-television, Internet access and electronic media services in markets as far afield as the American west coast, China, India, South Korea, Holland, Greece, Cyprus, Thailand and most of Africa.
Yet, just three years ago the group was in trouble: overcapitalised, highly geared and with a share price 87% lower than earlier highs. That's all behind it now; the stock has gained more than 830%, now trading at record levels of around R114.
Its success has rested largely on stable ownership over many years. But for the first time that stability has been shaken by a hostile bid by a consortium of financial services company PSG Global and Western Cape empowerment group Arch Equity for a controlling stake in one of the key companies in the Naspers ownership structure. It is still too early to say how that bid will pan out or what effect, if any, it will have on the group's strategy and performance. But one can examine how Naspers achieved its status as one of SA's top media companies and what its future strategy might be.
The big factor in its turnaround, of course, has been electronic media - though it nearly sank the company for a while. Huge investments in infrastructure, satellite TV and Internet technology during the late 1990s and early 2000s brought insufficient returns and kept Naspers in the red, despite steady revenue growth. But the investments paid off as the global IT market improved, lifting revenues from pay-TV and e-business.
Naspers's strength is its mix of old and new media assets - newspapers, pay-TV and Internet services, says Imara SP Reid analyst Steve Meintjes. "It allows them to practically print money."
Electronic media now account for more than half of Naspers's R14bn annual revenues, and the group boasts a market capitalisation of more than R34bn - not bad for a company that was once so dogma-bound that National Party leaders used to sit on its board, and D F Malan, editor of its flagship newspaper, Die Burger, went on to become the party's first prime minister.
It would be oversimplifying to attribute Naspers's transformation to one man. But it can be argued that the company would not have been remotely what it is today without Koos Bekker, who joined in 1984 and is now MD. For that matter, one could argue that Bekker (52) would not have been where he is today had he not been supported through the tough times by group chairman Ton Vosloo. The early 2000s were hard on all media companies heavily exposed to the struggling IT industry, and many fired their managers. Naspers gritted its teeth and held on.
"It was a rough patch," admits Bekker. "Troubles like these concentrate the mind admirably." No doubt - especially when one considers that Bekker has chosen not to receive a salary and is dependent on equity earnings alone.
Vosloo says he has trusted Bekker's judgment throughout their 21-year association: "He is a jewel."
"We knew it was going to come right and our faith is now being rewarded," he adds. "One had to fight back after the setback. We had to convince people we were a viable business."
The share price has risen 51% in the past 12 months, though it has not been the top media stock. That honour goes to Johnnic Communications (co-owner of the FM - see share graph comparison on page 18).
Naspers's transition from parochial, inward-looking propaganda machine to daring global adventurer is a tale of awakened vision, shrewd understanding of media trends, creative synergy in top management, deep pockets - and luck.
The transformation began in 1984 when Bekker approached Vosloo, then MD, with the idea of starting a pay-TV channel in SA. Bekker, a lawyer by training, had just returned from the US, where he had done an MBA thesis on pay-TV - then just emerging in the US - at New York's Columbia University. He convinced Vosloo that this was the wave of the future.
"It was my first real job as MD," recalls Vosloo. "I felt we had to do something about it. So I persuaded the board to appoint Koos my special adviser, with the specific function to get pay-TV off the ground."
Naspers, through its strong ties to the National Party government, secured a licence to start what would become M-Net. To mollify the other newspaper houses, which feared the new channel would steal advertising revenues from print, Naspers was required to be part of a consortium of six newspaper groups.
M-Net's beginning, in September 1986, was disastrous. Hotels and apartment blocks, which were supposed to be the mainstay of the service, weren't interested and neither were advertisers. The company lost millions monthly, until it began producing decoders for private homes and the market picked up. Two years later M-Net was making money.
Since then, M-Net has given rise to several companies, notably MultiChoice in 1990. Today, just two media groups own the M-Net/MultiChoice operation - the other being Johnnic Communications. Naspers bought out most of the other groups and owns just over 60% through its MIH division. And MIH now provides pay-TV to 48 African countries.
It's doubtful that any single event turned Naspers into a dynamic, outward-looking company. More likely it has been a natural evolution: the strong Afrikaner drive to adapt to a loss of political and economic power over the past 15 years or more, an enlightened top management and an extraordinary share structure that gives control of the company to a few key individuals.
Bekker himself has said that as a student at Stellenbosch and Wits in the 1970s he was always "slightly left" of government, and that his time with an advertising agency in the early 1980s opened his eyes to the "excitement of business".
Vosloo's strengths - his strong influence on the board and ability to nurture talent - appear to complement those of Bekker.
"We have a very sound and constructive relationship," he says of the association. "The gem of Koos's success is forward preparation. Wherever he goes, he does solid groundwork on the issue at hand."
In 1997, at the age of 60, Vosloo announced his retirement as MD, and told the board he had found a successor in Bekker. The latter returned from heading the group's operations in Europe and Vosloo become nonexecutive chairman.
Perhaps the most glaring blot on Bekker's - indeed, the Naspers group's - performance to date is the near-total lack of black empowerment in group ownership. There are several black editors running Naspers publications for mainly black readers, and MultiChoice SA's CEO, Nolo Letele, is black, but the upper echelons of the group remain white and essentially Afrikaner.
This is because of an intricate, two-tier shareholding structure that was created to protect the historical white, Afrikaner control of Naspers when it listed on the JSE in 1994. The structure enables a relatively small number of "A" shareholders - essentially top management and remnants of the old National Party faithful - to hold about 70% of the group, through such companies as Keeromstraat 30 Beleggings and Naspers Beleggings. Each "A" share carries 1 000 times the weight of an ordinary "N" share, which is the type issued to ordinary investors and "outsider" institutions such as Old Mutual Asset Management and the Public Investment Corp.
The PSG Global/Arch Equity bid for control of Keeromstraat 30 Beleggings, which has 25% of voting rights in Naspers, has accelerated the empowerment debate. The process is expected to take several months to play out.
Bekker acknowledges the lack of empowerment and says the company is giving the matter priority.
"We want to empower at the broadest level," he says, hinting at a share-offering scheme, such as the Phuthuma offering by M-Net several years ago, which was open to previously disadvantaged groups.
One of Bekker's more important achievements has been to restructure and streamline the business into three divisions: electronic media, which houses its pay-TV assets in more than 50 countries; print assets, mainly in Africa; and technology assets dispersed around the world.
The print business, Media24, contains newspapers and magazines - the largest number of such titles owned by a media company in SA - that contributed R3,3bn to group turnover in 2005. Net profits came in at around R425m.
Newspaper titles include Rapport, Beeld, City Press and the phenomenally successful Daily Sun, the partnership with media entrepreneur Deon du Plessis, which has confounded analysts' negative predictions by becoming SA's largest-selling daily by far - 450 000 copies per issue.
The magazines are an eclectic mix, including Huisgenoot, True Love, Kick Off, Landbouweekblad, FinWeek and Men's Health.
Naspers has pumped considerable resources into new printing presses and new titles over the past several years, a risk that has paid off as the economy and the advertising market have picked up locally.
Media24 also makes modest profits from book publishing, through Via Afrika, and from Educor, which runs private educational institutions such as Damelin correspondence college.
Revenue from the entire print media division grew by 164% in the past five years, from around R1,809bn in 2000 to R4,782bn at the end of March 2005.
MIH includes Irdeto Access, one of the top three media-encryption systems in the world. It recently provided conditional access to a Korean IT company that launched the first cellphone TV broadcasts. Irdeto has exported SA-made pay-TV decoders worth about R3bn over the past 10 years or more.
Another MIH subsidiary is Entriq, which provides broadband channels and technology to niche markets , enabling MTV and NBC television companies in the US and Sony Corp in Japan to beam Internet video.
It has not been easy progress, and at times Naspers's efforts abroad have taken a beating. For instance, its European pay-TV ventures failed to take off, prompting it to sell its stake in digital satellite television company Nethold to France's Canal Plus.
In some instances, the technology has been ahead of market needs. For instance, Mindport, which enabled consumers to order pay-TV programmes and pay bills over the Internet, flopped after its launch in the early 2000s.
Timing is everything in a fast-moving technology market - exemplified by OpenTV, a former Naspers subsidiary which is now a leading interactive service provider to TV stations worldwide. OpenTV fell victim to the IT slump in the late 1990s, having listed on the Nasdaq exchange during the IT boom. Naspers would have earned far more if it had disposed of it before the IT bubble burst.
Another example of bad timing was setting up the pay-TV infrastructure, which had to be paid for in dollars, during the rand's worst crisis in 2002.
"In the business of innovation, mistakes have their use," says Bekker. "The benefit of messing up is that you may just, if you keep your eyes open, learn how to do it properly the second time."
He says MIH is frustrated by the suppression of broadband in SA. He describes it as "the communications highway of the next decade".
"If the market isn't opened up fast for the likes of [telecom companies] MTN or AT&T or [service provider] Internet Solutions to provide broadband to the home, our country will fall further and further behind our peers - even those elsewhere in Africa," he says.
"In the year 2000 we had 50% of all Internet connections on this continent; now it's down to 25% and declining. One can't employ engineers to work on broadband solutions for export when this country has no such infrastructure."
But Naspers's revenue backbone remains pay-TV. Digital satellite TV and other innovations have generated hundreds of millions. Pay services contribute R8,1bn/year to group turnover and net profits of around R1,9bn. Operating profit rose 38% in the last six months.
"Naspers's pay-TV position has become monopolistic," says Coronation Fund Managers portfolio manager Gavin Joubert. "A new player would need deep pockets to eat into its market. DStv [digital satellite TV] already has a brand and significant content, which are expensive and provide barriers to entry."
That dominance is largely due to government's having allowed M-Net a daily two-hour "open window" to broadcast unencrypted programmes. This marketing tool has lasted 20 years and broadcast regulator Icasa says it will have to close in April 2007.
MIH's total pay-TV subscriber base grew by 81 000 in the six months to September 2005, giving the group a subscriber base of 2,3m households, of which 1,5m are on the African continent. In SA alone, 45 000 new subscribers brought the total number to just under 1,2m.
Joubert dismisses suggestions that DStv has reached saturation point in SA. "I do not think it has matured," he says. "The SA market will still grow with the emerging black middle class and new products like the PVR [personal video recorder] offering."
The PVR, launched recently, allows viewers to pause live programmes for a limited time, if they have to leave the room or are interrupted. MIH also recently introduced a DStv "starter pack", which provides just 13 channels, at a reduced rate.
To attract more subscribers in potentially large markets, such as Nigeria, MIH has begun to introduce more programmes with local content. Despite its population of 150m, Nigeria still has fewer than 100 000 DStv subscribers.
Joubert says Angola has been MIH's fastest-growing market since the company introduced a niche bouquet with Portuguese-language channels.
"Naspers should be able to double or treble the current subscriber base of 350 000 in Africa in the next few years because of the sheer size of the populations, the low pay-TV penetration rates and more local content in countries like Nigeria and Angola.
"As new African subscribers are added, the operating margin should continue to expand as a result of the fixed-cost nature of the business."
MIH also offers terrestrial analogue and digital pay-TV in Greece and Cyprus through subsidiary NetMed NV.
But Bekker's biggest expectations lie with the Chinese and other Far Eastern markets. "Koos always believed the place to be was China," says Vosloo. "He said it didn't help to go to mature markets like Europe."
MIH is focusing on print and Internet products in the Far East, and its 36% interest in a company called Tencent QQ in China is paying off.
Tencent is a leading provider of Internet services and instant-messaging services in the world's most populous country. The brand QQ allows users to communicate in real-time across the Internet and on mobile and fixed-line telecommunication networks.
The investment in Tencent cost the group US$34m four years ago and Naspers now values it at about $600m. The management is a team of Chinese entrepreneurs based in the southern city of Shenzhen.
Naspers also owns 9,9% of the Beijing Media Corp, which runs Beijing's second-highest-selling newspaper, the Beijing Youth Daily.
Joubert agrees that China is a base for good investment in the long term. "If you get an exposure in China today, you are in a better position to benefit for the next 10 years," he says.
Bekker says China and India share the same shortcomings as many African countries - such as a lack of infrastructure outside the cities - so Naspers is able to apply what it has learnt in one country to another.
MIH has sold its 30% in pay-TV provider UBC in Thailand, but retains a stake in its Internet operation, KSC.
The group, meanwhile, is looking for print and Internet opportunities in India. "This country is growing fast, and has many of the same characteristics as SA. Also, it is strong in management," says Bekker. The problem is that Indian media stocks are expensive.
Naspers executive director Steve Pacak says a key to the group's successful foreign operations is retention of local management. This ensures continuity and understanding of local business dynamics.
One challenge facing Bekker is to make the group's Internet businesses spark like pay-TV. In the year to March 2005, Internet activities brought revenues of R763m, but an operating loss of R31m.
Bekker says the local Internet business, M-Web, has been hamstrung by broadband limitations. The service has about 350 000 residential and business subscribers.
Analysts see strong future growth for Naspers in the Chinese and Indian markets. "Taking account of the longer-term potential as well as possible corporate action, we recommend a buy as regards the Naspers N' shares," says Imara SP Reid's Meintjes.
However Naspers's future unfolds - whether the Keeromstraat bid succeeds or how its ownership profile changes with eventual empowerment - the basic factors that transformed the business from parochial newspaper house to global technology player look set to continue fuelling Naspers's growth.
