SABC sports rights, non-payment of independent producers, union concerns

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Communications and Digital Technologies

21 August 2018
Chairperson: Mr H Maxegwana (ANC)
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Meeting Summary

On request by the Minister, the SABC turnaround strategy was deferred to a later date.

The South African Broadcasting Corporation (SABC) said it remains committed to fulfilling its mandate on the broadcasting of sport of national importance although this requires significant finances. There are 22 sporting events of national importance stipulated in the regulations passed by ICASA. As part of nation building and social cohesion, the broadcasting of sports specified in the ICASA regulations are of great importance. There is a deep demand from the public for the presence of sport on SABC.

The presentation provided a historical view of the cost of broadcasting sports and the cost to acquire sports rights. It highlighted the magnitude of the mandate to broadcast sport. Sports rights costs have been escalating by exorbitant amounts far beyond inflation which have become unsustainable for the SABC. "It is a seller’s market”. This put an increased burden on the public broadcaster.

The SABC was not asking for money for sports rights but for the regulatory system to be reviewed so the overall cost and the financial obligation on the SABC is reduced. The SABC had in recent years requested ICASA to review the Sports Broadcasting Regulations. Not only does the SABC have a very onerous and unfunded public mandate for broadcasting national sporting events but the SABC has not been protected by the 2010 Sports Rights Regulations. The review was requested more recently in the context of ICASA’s Inquiry on Pay TV and competition. Once the regulator commences a formal review of the Sports Rights Regulations, the SABC will request review of the list of national sporting events, the sub-licensing conditions and the pricing of sports rights, the bidding process and implementation of anti-hoarding provisions.

The SABC’s current financial situation was dismal with only most critical payments made on a monthly basis. There is danger of not being able to continue to deliver on its mandate and legislative charter. As at 15 August 2018, the SABC owed creditors R694 million, with further accruals of R475 million. Staff and freelancer salaries are paid first with content providers being second highest priority. Payment arrangements are made with remaining suppliers, service providers and creditors. At end July the situation worsened and content providers did not get paid. SABC is receiving an increased number of letters of demand and notices of breach of contract. It provided updates on the audit findings and governance policies and union matters.

The Committee deliberated on the presentation and resolved as follows:
• The SABC Board and Minister of Communications should present the turnaround strategy once finalized;
• The Committee would engage with ICASA on the Sports Broadcast Regulations;
• The SABC Board should provide a strategy on how best to deal with TV licence collection fees.
The Committee commended the SABC Board and Executives for their work and it looked forward to the presentation of the turnaround strategy.

Meeting report

Opening remarks

 

The Chairperson gave a special welcome to the new SABC Group Chief Executive Officer (GCEO), Mr Madoda Mxakwe. The Chairperson commended the Board and its Chairperson, Mr Bongumusa Makhathini, for filling critical vacancies at the SABC. However, the Committee needed to conduct exit interviews for SABC Board members leaving the broadcaster.

He informed the Committee that shortlisting for the SABC and MDDA Boards as well as the SABC turnaround strategy had been deferred to a later date. The Committee would deal with the turnaround strategy once the process had been completed by the SABC Board. The Chairperson noted the apologies from the Minister and Deputy Minister.

SABC presentation
SABC Board Chairperson, Mr Bongumusa Makhathini, introduced the SABC delegation, including the new GCEO Mr Mxakwe. He indicated that SABC was in the process of rehabilitation and renewal, a very painful process in some instances. The SABC had made progress in addressing governance matters, however, the financial situation remained dire and SABC was unable to meet some of its monthly obligations.

The SABC needed to be run as a commercial entity to make profits. This would enable the SABC to fund the public mandate that it had. The public broadcaster was looking at new avenues to make money to improve its financial situation. He committed the SABC to coming back to the Committee to provide more details once it had finalised its turnaround strategy.

Mr Madoda Mxakwe, SABC GCEO, said that despite the financial challenges, the SABC was committed to its mandate of providing compelling information that was entertaining, informing and educational on all platforms. The SABC had developed a strategic and robust roadmap for a solid turnaround aimed at ensuring that the SABC is a leading and credible voice of the nation and continent. The SABC was working towards ensuring that it was a high performing and financially stable organisation.

Mr Mxakwe noted that despite all the good plans it had in place, the SABC is faced with serious liquidity challenges. The SABC is currently not able to fully settle its liabilities and ensure sufficient use of operations. A financially broken public broadcaster had negative effects not only on employees but was also detrimental to the local production industry, SMMEs, and to fulfilling its mandate. The liquidity challenges were affecting the whole value chain. As part of strengthening and developing democracy the SABC has a role to educate South Africans of their right to vote which demands sufficient finances and currently the SABC is not able to do so.

The SABC was confident that if the roadmap and turnaround strategy was implemented, it would save the SABC from its current state. This would need, amongst others, accelerating revenue generation and robust cost cutting measures. The public broadcaster was in a position to generate income but due to historical debts, it was difficult to make profits.

Mr Chris Maroleng, SABC COO, presented on sports rights. SABC remains committed to fulfilling its mandate on broadcasting sport. The fulfillment of this mandate requires a significant amount of finances. He contextualized the size of the mandate. There are 22 sporting events of national importance stipulated in the ICASA regulations. As part of nation building and social cohesion, the broadcasting of sports specified in the ICASA regulations are of great importance. There is a deep demand from the public for the presence of sport on SABC. When the SABC had failed to broadcast these sports, it faced public pressure and condemnation that had a reputational impact on the SABC.

The presentation provided a historical view of the cost of broadcasting sports and the cost to acquire sports rights. It highlighted the magnitude of the cost of the mandate to broadcast sport. Sports rights costs have been escalating by exorbitant amounts far beyond inflation which have become unsustainable for the SABC. The cost of sports rights is set by the rights holder and ‘it is a seller’s market” due to an increased demand by new entrants in this landscape which impacted on the costs.

This is a huge unfunded mandate as all sports related costs are funded by the SABC and operating losses from broadcasting sports events and the production costs had to be absorbed.

Mr Maroleng presented a case study: the Premier Soccer League (PSL), in South Africa, is one of the sports of national interest the SABC is required to cover. SABC entered a five-year agreement with PSL for radio rights and in return for acquiring this right SABC would provide the PSL with equivalent value in promotional airtime. This was done to ensure there would be no burden on SABC cash flow by ensuring the exchange was not for cash but for airtime. During the past five years, the SABC had to incur significant production costs of broadcasting the PSL on radio to assign journalists to cover all the teams and fixtures, to produce magazine shows for over 10 radio stations as well as provide promotional airtime to the PSL and its sponsors.

When the contract was reviewed, SABC had significant discomfort on a few provisions. The manner in which the contract was concluded did not allow the SABC to quantify what the exchange value was in airtime. The business case for the renewal of the contract did not reflect the accumulative values over the five years including the airtime exposure granted to the PSL.

The SABC was uncomfortable about renewing the contract on exactly the same terms as the expired contract. On intervention by the Ministers of Sports and Recreation and of Communications, the SABC was requested to reach a settlement with PSL by 5 September 2018. In the interim the SABC will broadcast all matches on radio. The SABC does not want to negotiate in a public forum with the PSL and would prefer to address the commercial proposals directly with the PSL in further negotiations.

Mr Maroleng presented the significant funding gaps that exist to broadcast sporting events for the next three years which are mandatory and contractual commitments. The implications of the lack of funding is the outcry from the public if SABC did not fulfil such an important mandate; SABC might experience a significant decline in its advertising revenue; decline in TV licence revenue as backlash; and SABC could be liable for a fine of R500 000 for failing to comply with the regulations on sports broadcasting.

The SABC had over recent years requested ICASA to review the Sports Broadcasting Regulations. Not only does the SABC have a very onerous and unfunded public mandate for broadcasting national sporting events but the SABC has not been protected by the 2010 Sports Rights Regulations. The review was requested more recently in the context of ICASA’s Inquiry on Pay TV and competition. Once the regulator commences a formal review of the Sports Rights Regulations, the SABC will request:
• Review of the list of national sporting events, including the sub-licensing conditions and the pricing of sports rights to address anti-competitive concerns.
• Review of the bidding process for subsidiary rights to specify that the process of determining the subsidiary rights be fair and sets criteria on which fairness would be judged.
• Implementation of anti-hoarding provisions.

The request to review Sports Broadcasting Regulations comes at a time when the Department of Communications is conducting a public process to review Public Broadcasting with a major focus on ensuring the sustainability of the SABC in a digitised multichannel environment. How sports rights are regulated will also be discussed in that policy context. The SABC does not have a dedicated sports channel which further hampers financial sustainability.

Mr Michael Markovitz, SABC Board member, clarified that it should not be construed that the SABC was asking to fill the funding gap but it was showing the funding shortfall given the current regulations and how sports rights have been regulated and applied over the years that led to escalation in costs and unsustainability. The SABC was not asking for money for sports rights but for the regulatory system to be reviewed so the overall cost and the financial obligation on the SABC is reduced.

Ms Yolande van Biljon, SABC CFO, presented on SABC the cash flow and the payment of creditors. No detailed financial statements were shown because of the upcoming Annual General Meeting on 27 August 2018. SABC’s current financial situation was dismal with only the most critical payments made on a monthly basis. There is danger of not being able to continue to deliver on its mandate and legislative charter. As at 15 August 2018, the SABC owed creditors R694 million, with further accruals of R475 million. Various taxes, royalties, commitments and other contingent liabilities are due. Staff and freelancer salaries are paid first with content providers being second highest priority. Between April and August 2018 (to date) a total amount of R1.535 billion had already been paid to creditors. Cash at the end of July was R102 million and there will only be R26m in its bank account at the end of August. Ms van Biljon presented a structured table on how the independent producers would be paid in August 2018. Payment arrangements had been made with remaining suppliers, service providers and creditors. At end July the situation worsened and content providers did not get paid. SABC is receiving an increased number of letters of demand and notices of breach of contract on a daily basis.

Ms Nomsa Philiso, SABC Group Executive, presented progress on governance. A total of 146 audit findings were issued by the AGSA. As at end June 2018, 72 findings have already been resolved, 69 are still in progress and 5 findings have not been started. The biggest concerns were around assets, procurement and contract management. There are outstanding items that were still of concern. The Internal Audit has issued 236 findings. As at end June 2018, 135 findings have already been resolved, 69 are still in progress and 32 findings have not been started. Some of the 236 audit items have a two year history and not all happened in one year. There is now a Chief Auditor Executive to assist so further progress can be expected soon. Most of the IT findings were for a non-existent framework and insufficient policies. During the first quarter of 2018/19 the Board approved the following reviewed policies:
• Supply Chain Management Policy
• IT Change Management Policy
• Conflicts of Interest Policy
• Delegation of Authority Framework
• Enterprise Risk Management Framework
• Enterprise Risk Management Policy
• Code of Business Conduct and Ethics for Directors
• Code of Business Conduct and Ethics.

In order to give the review of policies the importance that it requires, it has been included as a strategic objective under the governance pillar of the SABC Corporate Plan. To ensure that the target is achieved, it is also being cascaded downwards through the performance contract process.

Ms Philiso provided an update on matters raised by the Portfolio Committee about the medical aid fraud cases; the dismissal of the TV licence staff; the Uselwa production (see document).

Mr Maroleng spoke to the last issue on wage negotiations. The SABC is currently in negotiations with unions about the annual salary increases. The SABC’s initial offer was a 3% basic salary increase which, after numerous negotiation sessions, has been revised to 5% as the final offer. The SABC is awaiting feedback from the unions on the acceptance of the offer.

Discussion
Ms P van Damme (DA) arrived late to the meeting and was not aware that the turnaround strategy had been postponed. So, her first concern was the lack of innovative solutions for how the SABC was going to turn around its financial challenges. She came to the meeting expecting the SABC to present a turnaround plan and instead it presented the problems. In short, she said the presentation said, “We are in deep “dwang”, we cannot afford our public mandate, and therefore we are in big trouble”. The SABC needs to sit around the table with experts from the broadcasting sector and talk about how it can fix the problems it can. She gave an example of the building in Sea Point. If the SABC owns the building it is prime beach property which could be sold for hundreds of millions and would make the broadcaster a lot of money. At the end of the month, the SABC has R26 million, how will it pay its staff?

She advised the SABC to have a clearer separation between its commercial and public mandate. The commercial side needs to be able to fund itself through advertising etc. She understood the difficulties in the public mandate and the requirements to broadcast funerals, congresses, and sports, and that it might not have enough money for its public mandate. Perhaps, the Committee needs to talk about making sure the SABC fulfills its public mandate which is its core responsibility to educate and inform the public. There needs to be clear discussion on how the public mandate is funded. She understood the complexity of sports rights and that they are very expensive and agreed with the proposal to approach ICASA to review the sports regulations, bidding rights and anti-hoarding provision. “That is a good step forward, she said, but we obviously do not want to over regulate because these are businesses and they operate in the free market.”

On the PSL radio sports rights, Ms van Damme sought more clarity on what the discussion was and why the SABC allowed ministerial involvement? She expressed the view that it was a matter between the PSL and SABC there was no need for any ministerial involvement. That was overreach by the Ministers. The SABC should not have allowed any ministerial involvement that was an overstep of their mandate. What was agreed on between the Minister and the PSL? Where did SABC suddenly get the money to pay the PSL?

Ms van Damme also asked about the matter between the Democratic Alliance and the SABC. The matter was before the Broadcasting Complaints Commission of South Africa (BCCSA) and the hearing set for 5 September 2018. “Please can you not sub judice rule with me as this is not a court of law”, she requested. The BCCSA is not a court of law so the sub judice rule did not apply. From whom was the video received? Was GCIS involved in distributing the video? She wanted names of the persons who viewed the video and after viewing it decided to air it as a broadcast by the President? Despite viewing it and seeing it was a party political message, SABC still decided to air it as a message from the President. Who then made the decision, later, to change it to a broadcast by the ANC made by its party president? She also wanted an update on the R21 million Hlaudi Motsoeneng owed the SABC.

The Chairperson clarified to Ms van Damme that there were apologies from the Minister and Deputy Minister. The SABC Chairperson presented. There was communication between Mr Makhathini and the Minister that arrived last Friday afternoon but it had been difficult to change the meeting agenda due to the parliamentary process to do so. Upon request by the Minister it had been agreed the turnaround strategy was still finalised. The Committee will be fully briefed on it in the next meeting.

Mr N Xaba (ANC) welcomed the presentation and the work the Board was doing was evident and in line with bringing the SABC Board to its full confidence particularly to the nation and people. He asked what the strategic roadmap talks to and what was the time span for its implementation? Were the comments made condemning the SABC when it failed to broadcast sports captured somewhere to ensure it will not happen again? The problem should not happen again and there must a way to ensure that.

Mr R Tseli (ANC) welcomed the presentation. He agreed about the sports rights challenges confronting the SABC. The presentation highlighted the escalation over the past five years. It was shocking. He expects this to be considered in the turnaround strategy. He sought clarity on the TV licence collection strategy given the proposals made in the past? The presentation reported, ‘little or no return on sports rights ‘investment’, what exactly did it mean by investment? The cash flow and payment of creditors are worrying factors. How did it intend on dealing with the situation going forward? He appreciated the efforts the SABC was making to deal with all the challenges.

Mr B Bongo (ANC) welcomed the presentation. What is meant by “public national interest”? What does the public broadcaster agree this to be? On cash flow, there were complaints from small business about failure to pay on time which then destroys their businesses. What were the SABC comments on this? There was the intellectual property (IP) of SABC, how does it want to use IP to assist its financial situation? How will the proposed review of sports regulations assist in gaining funds? What is the preparedness for the fourth industrial revolution and how is it going to affect the challenges already there? What innovations are in place to push people to pay their TV licence? What is their plan of action? Innovation was lacking from the SABC on how to change the situation around. It seemed business was being run as usual. Gender must not be brushed under the carpet, it is a serious matter and the SABC Board must take deliberate action to ensure the inclusion of woman. He disagreed with Ms van Damme on the sub-judice rule, and warned against curtailing the SABC on principles of general law.

The Chairperson agreed SABC must come up with a strategy to ensure that TV licences are paid.

Mr M Kalako (ANC) asked for clarity on the review of the sports regulations. What have been the engagements with ICASA thus far? Does ICASA takes this as a serious mandate matter and not just a funding matter? The Committee needs to address ICASA as well on the sports regulations. He expressed the view that there was nothing wrong with the Minister intervening on funding issues at SABC. As political office bearer of the SABC she must intervene and she had the right to try to get to the bottom of the problem and assist the SABC. “If you are given a responsibility as a political office bearer you must do the work, that is not interference. Interference is when she tells the SABC how to run it affairs. He differed with Ms van Damme also on the selling of SABC property to generate revenue because it was not a long-term solution. It will be sold and the money would be used up. A sustainable plan for revenue is necessary. Selling property will not solve the funding problem but it could be considered. The representation of woman on the SABC Board was the task of the Portfolio Committee and it was up to the Committee to fill those gaps. The representation of woman to fill staff vacancies at the SABC was the task of the Board.

The Chairperson agreed with Mr Kalako that the SABC can collect revenue without selling its property. This government was still dealing with land that was sold to non-South Africans or grabbed from us, he substantiated. He sought more clarity on the CCMA matters particularly on the dismissed TV licence staff.

SABC Response
Ms Philiso clarified slide 24. The matter went to the CCMA and received a non-resolution certificate. The next step is for the matter to go for arbitration. No date had been given for arbitration. The SABC recognises the potential revenue in IP and the turnaround strategy focuses on content expectation and they are in the process of repurposing its programmes to export for revenue. In addition, the SABC was considering partnership arrangements with producers to equally share in the IP of content development.

The SABC welcomed the issue raised by the Committee on the separation of commercial broadcasting services and public broadcasting services. The commercial arm of the SABC is still settled with all other SOE regulations such as the PFMA. The regulatory framework had to be changed because currently it inhibits the SABC from entering strategic partnerships because of the long processes which make potential partners lose interest. She explained the difference between national interest and public interest. National interest is attached to the SABC mandate and public interest is that which raises an interest on what people want to hear but not necessarily stipulated in the ICASA regulations. She made the example of broadcasting a musician’s funeral which was not a national interest but a public interest. Sometimes the terms are used interchangeably.

Mr Makhathini thanked Members for the input and questions. He was happy to report that nine out of the 17 group executives at the SABC are women. It was making good progress on employment equity. The R21 million relating to former COO, Hlaudi Motsoeneng, was a subject of external investigation working with Werksmans, the lawyers processing the report, it was being contested in court. The SABC was chasing and following up on the R21 million. He commented that a lot of the challenges the SABC faced had to do with the regulatory framework and policy issues. The SABC needs a government guarantee. The Minister of Communications has a shareholder role and had to assist in that capacity in resolving the PSL sports rights. It did not interfere with SABC’s independence. It needed all role players to intervene and understand the challenges.

Mr Mxakwe assured the Committee it had developed a strategy road map that included the strategy, plans and more importantly includes the turnaround for each division such as TV and Radio. The turnaround strategy went through the governance process and was approved by the Board and was awaiting shareholder approval before presenting it to the Committee. The turnaround strategy also includes financial modeling which was why it could not be presented ahead of the AGM. The strategy is anchored on financial sustainability and will be able to deal with all the issues of the SABC.

On the BCCA case, he confirmed that he is the Editor-in-Chief upon referral but not on operational matters. When the DA filed the complaint against the SABC to the BCCA, it immediately responded. What confused the process is that while the SABC was dealing with the matter simultaneously pressure was put upon them to broadcast the video that was sent to them. The decision the editorial team took was rather than going into a dual process, it will wait for the BCCA case to unfold, then it can take it from there.

Mr Markovitz responded to Ms van Damme that it would use editorial independence, instead of the sub judice rule, as a defence. The SABC Board should not be involved in any shape or form in interfering with the editorial independence of its news division. The editorial news team took those decisions and the Board cannot answer for them. The DA has made a complaint to the BCCA and the SABC editorial team will answer and respond to all questions at the hearing. If the BCCA decides the SABC behaved wrongly, we will all learn from it. In terms of fourth industrial revolution, the SABC formed a digital technology committee to focus on digital migration and develop an online mobile app strategy. There is a huge opportunity for SABC to reach out to its audience on mobile phone and to get all its television channels and radio stations programming on the mobile app. It hoped to launch a news mobile app before the elections. Digital is a big focus for the SABC Board and is critical for its business.

SABC had raised it issues with ICASA on the sports regulations which were eight years old, passed in 2010. The original intention of the regulations were to give access to South Africans who could not afford pay TV to ensure sports of national interest were accessible to all. The principle of access was key. The unintended consequences of the regulations were the sports rights association knowing the SABC had to broadcast, without any checks and balances, then escalated pricing of the rights. The SABC wants the unbundling of rights and a re-consideration of the list of sports in the national interest, it is too long. For an example the PSL is regarded as a national sports event but it is a club competition and not a national team. The SABC would also like the inclusion of more criteria on bidding, sub-licencing, anti-hoarding, and pricing of sports rights. Pricing is not just a SABC problem even Multichoice and eTV are affected by the pricing.

Ms van Biljon responded that all SABC property had been recently valued and it was working with experts to support the SABC on the way forward for all the properties on whether to purchase, lease or sell etc. The SABC was making more use of social media and electronic platforms to enhance the collection of TV licence fees. It will re-introduce printing of invoices and using a bulk mailing system for those who still do not have access to online mediums. There were a number of initiatives to encourage people to pay TV licences such as competitions and vouchers. The collection for the year to date is already better than the comparative period for last year. There was a problem with repeat licencees and they are figuring out what was stopping them from taking out a TV licence and to encourage them to do so again. After receiving a letter of demand, the SABC engages with the service provider to find an in-between road where the SABC can honour the commitments it makes but also allowing them to be able to continue business. It tries to pay out all amounts owed below R100 000 and was sympathetic to SMMEs and paid them the little it had over time. She clarified the anticipated R26 million bank balance is after it has paid SABC employees and freelancers.

Mr Maroleng responded to the questions on the public mandate. In terms of its regulations the SABC is required to provide coverage of events of national importance which are well stipulated and defined. The SABC is also required, by the regulations, to cover sports of national interest and there are 22 of them. The Electronic Communications Act talks to the need to protect the viability of the public broadcaster and this was at odds with the requirement to cover a number of mandated issues without regard to the funding. The SABC acknowledged and agreed with what had been stipulated at the meeting that there was a need to separate and differentiate between the public commercial mandate and public service mandate. There is no due regard to where the funding of the public service mandate comes from.

Mr Markovitz provided more context to the public commercial service and the public broadcasting service. Although this is separated in the Broadcasting Act it does not work. There are services that are regarded as public that are very profitable such as SABC 1 and Ukhozi FM. There are services that are supposed to be commercial that are not doing so well. In the process of reviewing the funding for SABC it will ask for this to be removed because ultimately the viability of the SABC should be considered as a whole.

Mr Tseli commented that issues raised by the Portfolio Committee required answers and needed to be responded to at the next meeting with the Committee so they would not be raised repeatedly. This applied to all departments and entities that appear before the Portfolio Committee and not only the SABC.

Mr van Damme mentioned she had other questions which are better suited in written form and she will submit accordingly. “The presentation today has left me cautiously optimistic, I look forward to seeing the turnaround plan. Please do not disappoint us when you present the turnaround plan…please ensure it will impress us and it will work”.

The Chairperson felt justice had been done to the presentation. The Committee needed to engage ICASA on the sports regulations. A lot of improvement had been made since 2016. A very clear report must be handed over on how far the Fifth Parliament has taken the SABC.

The minutes of 6, 13 and 20 March 2018 were adopted with no amendments.

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