PHASE ONE; MDDA PRINT MEDIA LOAN FUND

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PHASE ONE;


MDDA PRINT MEDIA LOAN FUND



















Christine Glover


+27 83 4482020




Second Draft April 2006






Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

2


1.

EXECUTIVE SUMMARY


A.


MDDA's brief
includes the need

to investigate whether the sector would
benefit from loan finance to enhanc
e viability

A feasibility study was
commissioned on a modular basis.

I
f the viability of such a venture
not
be apparent
early into the investigation

the further modules would not
need to be undertaken
. The first phase
of the study involves

establishin
g a framework for a media operation based on existing
su
ccessful examples which include

those elements considered
most likely to facilitate a financially viable small media business
capable of borrowing and repaying loan funds
.

B.

A
stand
-
alone

loan fund w
hich offers exclusively credit to the small print
media in South Africa is not a viable or feasible proposition for the
following reasons.

a.

The market is very limited.

b.

The market is widely dispersed.

c.

Low average level of creditworthiness

d.

The sector is fa
iling to take note of international movements regarding
the media sector and develop timeous strategies to counter these moves
in order to survive.

e.

The decreasing advertising spend results in greater competitiveness for
that adspend

f.

Competencies of key m
anagement are too limited for the business
proposition as it stands

The fund
is unlikely to ever be financially sustainable either in terms of
recovering costs or
generating a return on equity.


C.

B
est Practice Small Print Operation involves

a.

Clearly identifi
ed
market segment that

strongly corresponds with a
revenue 'niche'.

b.

Critically analyse
s

the characteristics of the target market and pitch
es

editorial and advertising to find favour with its constituents.

c.

The Revenue Proposition must extend beyond the

first twelve months
.

d.

A clear
,

credible
,

practical strategy to realise the revenue

e.

Appropriate capacity and skills

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

3

f.

A product champion
, someone with the belief, passion and commitment
to drive the business into a sustainable operation

D.

Lessons Learnt from I
nternational Loan Fund Examples:



None of the funds are exclusively credit operations



The more international the fund the more the emphasis is on asset
backed lending

(e.g. typically leasing or hire purchase for fixed assets,
like printing equipment)
. The

more difficult working capital type loans

are only available when they will

significantly enhance the scale of the
business. The core must be sound prior to the expansion.



A

loan fund closely aligned to the needs of the small print media in South
Africa i
s the Independent Press Development Loan Fund of the
Independent Press Association in USA.

E.

Business Gap



A s
moothed managed revenue model allowing for the development of a
robust core to the business.



The individual outlets are
,

on average
,

too small to sur
vive for any length
of time. Aggregati
on in some form

would create more viable
businesses
.




A unified provision of services that both support and provide the training
ground for fledgling media.

F.

Constraints



Access to t
he advertising industry



Lack of acce
ss to a centralised Information Technology Bureau that can
facilitate the sharing of
print software,
information and access to
national advertising



Lack of consistent on the job training for fledgling media staff and
managers



No economy of scale benefits
gradually increases the competitive
disadvantage carried by small print media.

G.

Recommendations:
-

Conceptual Loan
Scheme

L
earn from the conglomerates and us
e

the principle of aggregating
aspects of the business that are best achieved via scale and offer t
hem
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

4

by way of a
service

to individual print outlets. As a service such
functions should not threaten the independence of the print media but be
akin to utilising a print shop.


Incorporate these functions together with a loan fund into a national
service

hub.

A recommended

conceptual
Hub

structure would involve in order of
priority:



A mechanism that could
augment the income

earned by small media
outlets and provide a level of
income
certainty for the future three to six
months, in other words
smooth

the e
arning profile

o

The opportunities to do this might
include
negotiating access to
national
brand

adspend
against

a guaranteed circulation in excess of a million in
community magazines/newspaper
s which would offer

a minimum
standard

of publication
.

o

The paymen
ts for the national adspend are collected by the fund. A
commission is deducted and the remainder either passed on to the print
outlet or some of it is used to offset repayment of a loan facility.



An
Information Technology spine

would

o

Through
web based
access
to

Open Source software from MDLF (or
similar)
,

allow independent outlets the facility to design and assemble
their newspaper/magazine on the web
.

o

O
ffer a user friendly finance package.

o

I
mprove the loan funds ability to establish credit worthines
s.



A
facility

that verif
ies

the range of the circulation to assist the Audit
Bureau of Circulations.

These three key functions would
,

from a loan fund point of view
,

decrease the vulnerability of the core business and allow for the offering
of
Working Ca
pital Loans.
Once t
he core
is
stabilised
,

loans to support
the purchase of capital equipment and the expansion of the business
also become more feasible.


Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

5




SMALL MEDIA
LOAN FUND

CIRCULATION
AUDIT SUPPORT

IT
(
Infor
mation
Technology
)

SPINE

CREDIT


FUNCTION

AGGREGATION OF
NATIONAL
ADVERTISING
AND
MANAGEMENT OF
INCOME

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

6


H.

BRIEF


MDDA
was established in 2002 by an act of

parliament
in orde
r
to
stimulate the
development and growth of the
grassroots media sector in
South Africa.

The Preamble to the MDDA Act outlines MDDA's raison

d
´ê
tr
e

:

"
---
create an enabling environment for media development and
diversity that is conducive to public disco
urse and which reflects the
needs and aspirations of all South Africans;
-----
Redress exclusion and
marginalisation of disadvantaged communities and persons from access
to the media and the media industry;
------
Promote media development
and diversity
by providing support primarily

to community and small
commercial media projects
-----
."
MDDA

have supported
74

small media
projects

through the use of grant monies and technical assistance
programs.

A further aspect of MDDA's brief is to investigate wheth
er the sector
would benefit from some form of loan finance to enhance their viability.
A
sustainable
(viable)
loan fund needs to operate on a cost
-
recoverable
basis.

Can the small print

media
outlets

that MDDA supports afford to
borrow money and if
not
are there

income
-
generating
opportunities

for

their business utilizing their existing skill base
?


Should it appear

feasible to offer loans, then MDDA needs to identify
appropriate products and staff/technology to manage such a fund. In all
probability
it will also need to identify additional sources of finance to
capitalize such a fund.

It was envisaged that the feasibility study be undertaken on a modular
basis
.

I
f the viability of such a venture
not be apparent
early into the
investigation

the furth
er modules would not need to be undertaken
.

The
first phase
of the study involves

establishing a framework for a media
operation based on existing su
ccessful examples which include

those elements considered most likely to facilitate a financially
viable s
mall media business capable of borrowing and repaying
loan funds
. The intention was to achieve this through the:

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

7

1.

Perus
al of

existing information of MDDAs on international best practices
with regard to financial sustainability of media stations.

2.

Identif
y
ing of

the key criteria that result in financial sustainability.

3.

Adjust
ing

criteria for South African circumstances if necessary. Establish
a model. Plot the financial development of existing best performers in
SA

4.

Compar
ing

against the Best Practices m
odel.

5.

Undertak
ing

a gap analysis

6.

Identify
ing

constraints to implementing Best Practices model

7.

Identify
ing

proportion of current clients that conform to Best Practices.

8.

Establish
ing

proportion that, with support, could develop to meet Best
Practices norm.
Cost this required support.

9.

Evaluat
ing

whether sector has the potential for commercial
borrowings/equity/mezzanine financing.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

8


I.

INTRODUCTION


Media in
its
vari
ous

forms holds a pre
-
eminent position in
many
people
s
'

life. It constitutes
everything from e
ntertainment

value
, a
mechanism
to report

on civic issues, a window into people
'
s
concerns

and a mechanism that informs the forward planning
of

ones
future
. The
memory of black stripes '
s
crabbling' across swathes of the 'Mail and
Guardian' reignites the
feeling of fury and impotence at not accessing
desired

information.

Nonetheless

media outlets are not as ubiquitous as
one might desire and of great importance that, even in this post '94 era,
there are pockets of information gaps.
The increasing complex
ity of
negotiating ones life and livelihood
has amplified
the dependence on
vari
ous forms of media
.


MDDA's client

files
present

pictures of courage,
sporadically
opportunism,
and occasionally

hard working dedicated
people in
particular
sync
hronisation

w
ith a defined
community

while

recognising
the need for a service
,

and ever so often a businessman
recognising

a
commercial gap for a newspaper.

The files with few exceptions, do not
represent potentially bankable prospects in their current form.

V
arious l
evels of business and financial vulnerability

similar

to many
micro
-
businesses

are evident throughout
.
However
,

they differ in that
the
financial
figures are larger
and
the sources of income more variable
and short
-
term
.

F
urthermore
print

is not

an essen
tial product in the way
a staple foodstuff is.

Faced with
differing

degrees of elasticity of income
both businesses and individuals would forego either advertising or print
purchases during an income contraction phase.
In addition the
newspaper/magazine,

once printed, rapidly loses value over the course
of a few days. There is no inherent 'asset' value or security value in the
finished object.

The value could be extended if the content focuses not
only on local news but covers areas like personality prof
iles and activity
profiles that have more than a momentary interest.

The concept of a loan

carries with it several implications
,

the most
cogent of which is the desire for repayment
. Lenders look, inter alia, for
convincing forward cashflows before they p
ut their or their investors'
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

9

money at risk. Lenders who specialise in high risk clients

or the so
-
called sub
-
prime market

are no
exception;

the mechanism used may
differ but not the preoccupation with

establishing viable forward
cashflows. In the case of

businesses one requires three other criteria to
be met,



firstly a pre
-
existing track record (unless
it is an investment from a
venture
-
capital type fund)



secondly confidence in the skills/management (either on their own or
supported) of the business and




thirdly that both the track record and the forward projections show an
acceptable and believable level of growth.



In these 'vulnerable
volatile short
-
term
type' businesses one would look
for a fourth quality, namely a

leader
with

'product champion' qua
lities
; a
charismatic hard
-
working visionary who through sheer drive,
determination, increasing
positive
reputation and community respect can
push the business beyond the ever
-
recurring problems.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

10


J.

METHODOLOGY


Phase One of the Loan Feasibility Study was t
o be a desk study
based on in
-
house resources in MDDA's offices and information from
web searches.

There was unfortunately less information available than desired in
particular
with regard to

anything financial.

Two key research projects
undertaken by Jus
tin Arenstein and Graeme Addison have yet to be
concluded and the data is not yet available.

It would be advantageous if
the final draft for this study only
be
concluded after the above two
studies have been delivered and the information in those reports
crosschecked against the recommendations in this study.

There is adequate data for the purposes intended but it certainly does
not stand up to any
statistical

rigour in terms of either the quality or
quantity available.

Telephonic interviews revealed much

anecdotal
evidence of issues but little data.

This report is therefore based primarily on
:



Original research undertaken by the HSRC for MDDA



Mentoring reports on several clients



The information contained in
MDDA client files



A readership survey based on a

particular client



An in depth interview with a client



Conference papers, academic papers and press articles on community
media by journalism practitioners and academics



Telephonic interviews



Meetings/ presentations with SAMDEF and US AID.



Considerable web

based investigation for the international experience.

By far the most important, however, in informing the conclusions that I
have reached are the client files and client contact which enabled me to
form a financial opinion on what might constitute a bank
able proposition.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

11


K.

TRENDS: Is there a market
?


South Africa follows many of the economic trends of developed
countries which
,

regardless of industry
,

are

driving for maximum
productivity levels and
the building of
solid share
-
holder value. In order
to a
chieve such efficiencies
(and to take advantage of new technologies)
there is a tendency for
the rationalisation

of businesses to occur through
increasing mergers and concentrations.
T
he post '94 opening

up of the
South African economy to both global comp
etition and the comparison of
its economic enterprises to those at the forefront of such sectors resulted
in the rapid increase of concentrations in South Africa. (Berger,G;
2002).

This trend has substantially polarised, in a scale
and income
sense,
South A
frican media operations
. It has clustered

enterprises at both
ends of what should be a continuum. The small have a poor business
model and are heart
-
breakingly fragile in a financial sense, while the
large are robust delivering acceptable if not above av
erage returns.


Community or neighbourhood media that
reach

sustainability with
adequate financial returns are quickly absorbed into one or other of the
juggernauts that focus on that market segment.
The need for improved
efficiencies escalate
s

as critica
l costs (newsprint and fuel) spiral up at a
considerably faster rate than inflation. (Berger,G 2002). Economies of
scale
and the need to offset increased costs
continue to
drive the
concentration
momentum
.

In such a polarised economic situation is there
room for more media
outlets or different media outlets
?

The expanding middle classes in
South Africa will fuel a demand for media that
meet

specific
targeted

needs but this is likely to be met by large commercial

outlets

or profitable
niche players
.

Notw
ithstanding this growing middle
-
class market it is not
an easy market. There have been failures as evidenced by 'This Day'
and 'Nova'.
Specific alternative niches will also develop
in the gaps left
by the big players offering small windows of opportuniti
es for the more
professional of the small print outlets.


Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

12

The so
-
called 'second eco
nomy' namely the poorer section

of the
South African economy is likely to
be

less well serviced by

commercial

media outlets. Berger citing Duncan comments as follows:

"
---
-
South Africa has the second lowest number of titles in the world
relative to population size, and a circulation that is the fifth
lowest."(2002)
.


It would be interesting to compare such circulation
figures against per capita GDP figures
. But

one can su
rmise that the
combination of factors that has resulted in a large under
-
developed
sub
-
set of the
population

means costs increase exponentially to tailor and
deliver print to this sector.


In order to establish a loan scheme one needs
assured

financial
viability in the core business
. The small print media are largely servicing
either the fringe of the 'viable sector' or attempting to meet the gap in the
large un
-
serviced sector. Are there financial opportunities to improve the
core business so that it
is at least viable to the point that it can recover
all its costs including the salaries of the
management?


There appear to be trends internationally that
offer opportunities which
confirm a market gap.





The first of these is that as the large media out
lets scale and generalise
dailies
across large areas and topics
,

gaps for localised information
increases. Hence the rise of 'community' or neighbourhood media. The
gap is real but does not necessarily require a

commercially

independent
operation to fill

it.



The second
,

is
that
there appears to be an increasing trend for 'knock and
drop type' newspapers that earn revenue entirely from advertising.
(World Association of Newspapers)

Though this implies a potential loss
of certain editorial freedoms it does
mean that such newspapers can
reach poor communities provided advertisers can be found who wish to
reach
similar

communities and distribution
is assured
.

If such a
newspaper is to be reliant on a community for both a subscription base
as well as advertisi
ng base, it will falter in the first economic downturn.




The increasing popularity of 'citizen journalism' also suits the
current
socio
-
political space
in

South Africa
,

as

man
y groups and individuals
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

13

wish

to express themselves or participate in local and n
ational debates.

Citizen journalism in this sense must be particularly suited to
neighbourhood newspapers which provide an ideal medium for civic
participation.

It matters little whether the participation is of the best
journalistic standard. What matte
rs is that there is expression in debates
that are important to peoples' lives
---

and these are frequently of a local
nature.

A print 'blog' as it were.
(Nieman Reports Vol 59, No 4 Winter
2005)

Opportunities can only be exploited if a financially viable

model can be
developed. Considering the pressures that have forced consolidation in
the large
r commercial sector it is important to critically look at the
business case for a small independent commercial operation.

Guy
Berger sounds a cautionary note r
egarding the ability for small
independent operators to survive in a tight margin high cost environment
and states:

"
In conclusion, it can be stated that the short
-
term future of southern
African media is probably one premised on increasing coming
-
together
.
Whether this portends the formation of media monopolies in the negative
economic and political sense is not at all given. On the contrary, it may
well

be that a form of oligopolisation of media in the region is a
precondition for current

survival

and f
or future growth. Issues of
pluralism, diversity, access, and control are not unimportant, but the
current priority is to emphasise ways to overcome media scarcity per
se." (Berger,

G. 2002
)
.


The critical question is how similar efficiencies
can
be gaine
d for the
small independent operator as to those driving the consolidation of the
rest of the sector. If they cannot be found then it is likely that Guy
Berger's prediction will come true and the sector will be populated with
easy entry and rapid exit ope
rators in the majority.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

14


L.

BEST PRACTICE SMALL PRINT OPERATION

It is unfortunate that passion to produce information
alone

is no
guarantee of either an audience or income
, but passion and belief are
nonetheless important attributes
.
The
remaining

character
istics for a
best practice operation
can be reduced to a few key rules which
,

when
they
coalesce,

might

result in a success. The problem is in the
implementation of such guidelines
.

The following pulls together
information from both Guy Berger
, informati
on from the various sites
linked to WAN

(World Association of Newspapers)
,

the Canadian
publications

of Bell
Fund
which offer very useful articles even though they
are primarily focussed on 'New Media' i.e electronic. My ow
n experience
of small business

ha
s also contributed.




Clearly identified
target market

which
strongly
corresponds with a
revenue 'niche' or model
. The less these two mesh the greater the
potential
vulnerability
.

Bell
Fund

refer
to building a niched community
of interest that can be "mone
tized"
.
There are three local examples
that exemplify getting this
right
.

A business is both about building
relationships and wedging
successfully
into existing relationships. The
relationships required and existing need to be
clear and acknowledged
.

a.

Mu
slim Views. The correspondence of a
n

identifiable group of people
who share a religion, certain cultural practices
,

tend to cluster together in
particular physical areas plus incorporate a high preponderance of
successful businesses in the cluster whose m
arket is at least partly
the
same identifiable set of people
,

is a strong predictor for success. The
competitive challenge here would need to come from within because of
the strength of the group identity

in the current international environment
.

b.

Kruger N
ews.
Aimed mainly at tourists at
the

premier
international
tourist
site with people who would be inclined to be interested in information
about the site and have tourist dollars to
spend
. A non
-
regular market
but constantly replenished. It is open to com
petition
particularly from a
company like a large tour operator who
might see

it as a vehicle for
gaining a competitive edge.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

15

c.

Noseweek.
Many corporate companies
, in order to
manage their risk,
need

knowledge of what is happening in the market.
Expectatio
ns/rumours play a very strong role in the financial markets.

The identification of an opportunity for investigative
corporate
journalism
that is not dependent on advertising
(
therefore
cannot be compromised
in their

investigation of particular
companies
)

is again a very particular
and focussed niche with a clear revenue stream

from a sector of the
market with disposable income.




Critically analyse

the characteristics of the target market and pitch
editorial
and advertising
to

find favour with

its consti
tuents
.
The
target market might (but is not necessarily) made up of two very different
audiences. The editorial reader and the purchaser of advertising space.
A newspaper must provide content that people are at least prepared to
read if not
purchase
, i
f a newspaper
cannot hold a readership no
advertiser will advertise.

Guy Berger refers to the art of
nicheing a
paper amongst its readers by providing desired information
.

He
talks of generating a 'value as a
use
-
paper
'
(1997)
.

Bell
Fund

refer to
monetizi
ng your audience.
One way is to recognise the appropriate
advertisers for the particular output e.g to try and
encourage

Investec to
advertise in the Letse
ding

News is a miss
-
match while ABSA and the
Mzansi account are not.
One must identify the appropri
ate advertisers
by looking through the eyes of the reader

and the advertisers
.

Those enterprises who can sustain losses for longer than others can
titillate the market with information it had hitherto no
t

desired but for
which it
might gradually develop

an

appetite. But
the print media
outlet

is
, whether inspired by a political, civic, educational or commercial vision,

an
enterprise



a business
;

it builds costs and seeks to cover those
costs by some means or other.





The Revenue Proposition must extend b
eyond the short
-
term view
.
Financial viability is gauged over the medium term


normally a three
year view. An aspect of financial viability

is the quality and stability of
the recurrent income. In other words the percentage of income that is
made up o
f annual or bi
-
annual subscriptions or advertising
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

16

commitments over a quarter or
half year

period.

The better the income
is 'smoothed' the lower the vulnerability
, and

the
more

the business can
focus on growing quality and readership
-
match
,

which in turn
generates
more stable income
.
It becomes a cycle.

An additional aspect of the
revenue proposition
must be
the

ability to generate

a consistent steady
growth
path
.





A clear credible
practical

strategy to realise

the revenue


Editorial and revenue are tw
o sides of the same coin and have to be
tackled in similar ways


with passion and commitment.




Appropriate capacity and skills

As a general rule, the smaller the organisation the more generalist the
skills required, the larger the organisation the more
specialist. In a small
media outlet
there needs to be

one or more people who:



Can recognise a story to which
their

market will respond
, and can purs
ue
the story




Have the technical skills of writing, photographing, editing, an
d

design



Recognise new incom
e opportunities and h
ave marketing skills

to
actualise

a revenue package



Have distribution skills



Have business negotiation skills



Have sufficient financial skills to be able to plan forward and construct a
basic Income Statement and Cash
-
Flow projection.


There must be the
appropriate systems in place to deliver required information timeously.



Understand the

limits to 'freedom of expression'



Have
Human relationship skills
. These

are essential both from the ability
to acquire stories as well as advertising

and ultimately the human
resource skills to manage staff.



Can plan, manage, control and implement administration

systems and
manage an increasingly complex logistics system



Can do the appropriate business planning

o

Decide t
he

proportion of advertising to e
ditorial to keep the paper solvent
and establish the accompanying number of

pages

o

Can

price the advertising

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

17

o

Can
assess if
the market
can
carry it and how to achieve it

o

Can assess the

percentage of subscription to daily sales

to cover fixed
costs

o

Formulate
a strategy to

achieve those figures

o

Maximise efficiencies time and time again

o

Increase productivity time and time again

o

Manage debtors (advertising)

o

Plan for the cash
-
flow implications of debtors

o

Understand the basics of t
ime management concerning core and

peripheral activities

o

Plan distribution

and ensure that an accurate and timely distribution
mechanism builds up a track
-
record for absolute reliability.

o

Track circulation to be able to confidently

assure advertisers of the reach.

o

Manage costs aggressively



Has the leadership skill

to drive

the organisation and

imbue the
activities with passion
. C
onsistently goes the extra mile


is the
product champion
!

The range of skills
, planning, market intuition

and even knowledge that is
required
for even a tiny news
paper to succeed is quite daunting. The
potential for all new entrepreneurs into the media market meeting these
'best practice' norms must be slight
.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

18


7.

INTERNATIONAL EXPERIENCE
-
Media Loan Funds


Internationally t
here are a plethora of small media operatio
ns ranging
from new internet based community
expressions
,

the more traditional
small radio and television stations to the print media
quite

possibly th
e
smallest most basic business

of
them all.


Media is a business sector as
is agri
-
business or constructi
on.
The smaller media outlets might be
among the most vulnerable of sectors
due to

business design and
market reasons. But the larger
news
-
based
businesses carry different
risks
,

often political risk
,

in the developing world.

Nonetheless financial
speci
alists who understand the media business
should

target the sector.
An internet based search shows precious few of such funds. That does
not necessarily
mean

that they do not exist but simply that they do not
manage a web
-
site.


The t
iniest of media busin
esses
could

turn to the traditional Micro
-
F
inance sector for
loans
. However the micro
-
finance loan is
not ideally
suited

to this type of enterprise. The loan size available is too small to
pay for

print costs

and

holding costs before advertising payments

are
received
. These are the two key 'working capital'

areas requiring
support
.

T
he repayment cycle
of a micro
-
loan
could

be at odds with the
cash
-
flows
generated
in a

small print

business.
M
icro
-
F
inance loans are
of necessity costly

and are most suited
to

small businesses that
have
wide margins

and who operate a predominantly cash business
.
T
he
small

media businesses
often

can
no
t
afford salaries

let alone interest
payments.
There is no elasticity of income.



The
financial
vulnerability of the margina
lly larger
small media
operations combined with the irregular, volatile and sometimes
unpredictable cash
-
flows

still

result in

a barely solvent
business

and
do

not
,

at face value
,

provide lenders with a business opportunity. It is only
once the businesses

have achieved a level of stability with loyal
advertisers
with
in a distinct niche that one finds the more development
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

19

oriented lenders such as
Casidra (Cape Agency for Sustainable
Integrated Development in
Rural Areas) and Business Partners entering
the m
arket

but not with a sectoral focus
.

A particular business
applies

for a loan
,
appeals

to a particular credit committee after

a business
assessment

and
consequently
acquires funding.

Scale commercial ventures such as the new niche market business
magazine

'Maverick'

find funding from ID
C
's

(
Industrial Development
Corporation
)

specialist media section,

while the conglomerates such as
Caxton have access to the commercial financial institutions.


The make
-
up of the
small print
sector does not offer sufficient

volume

to invite a specialised focus on the
small
independent media

as a
commercial venture
.

In South Africa, according to the latest census by
the Association of Independent Publishers (Census 2006), there are
approximately 500 small
print
media outlets
. Of these 260 are either
part of
conglomerate business ventures
,

and therefore would be able to
avail themselves of parent negotiated funding

opportunities
,

or are
government owned outlets
. The remaining 238
small print businesses
offer opportunities fo
r a sectoral approach
.

B
ut assuming a

generous

average loan size of R150
, 000

per institution
,

and an exceptionally
healthy penetration of 50%

at a national level, it only results in a fund of
R17.8m. Assuming a margin of 10% the resultant R1.7m spread
n
ationally will not provide for the specialist skills required duplicated in
the major centres
let alone

a sufficiently enticing risk return.


Under the circumstances of business proposition vulnerability of
much

of the sector

compounded by the limited numb
ers in the
segment
,

t
he
dearth of specialised funders is
not surprising. Indeed the funds that do
exist
internationally
are not of a significant scale. The Media Loan
D
evelopment Fund

(MDLF)
an international fund, highly regarded
,

offering a complete bus
iness package

had an outstanding international
portfolio

as at June 2005 of $28.5 million (roughly R170m). Over their
10 years in operation they have earn
ed an average of $350,000 (R1.8m)
per year from interest.

It could be argued that if
MDLF

broadened

their
target market
with

a less specific agenda

they might be able to build a
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

20

commercially sustainable fund. Interest payments are not the only
income they earn from their clients.


a.

MDLF

The Media Development Loan Fund

was set up by two journalists
over
ten years ago. They are not primarily aimed at independent
community media but are focussed on supporting critical media in
maintaining their editorial independence. In South Africa they have
supported both Noseweek and the Mail and Guardian. MDLF desc
ribe
their focus as follows:

"In many transitional countries, independent news organizations are
starved of affordable
finance;

credit usually comes at the price of
compromising editorial independence. MDLF financing is often the only
way a media company
can access capital while preserving its autonomy.
MDLF provides resources that empower its clients to make the most of
their dedication to objectivity and accuracy, building solid businesses
around the core values of independent journalism."

(MDLF 2005
br
ochure, pg 1)

The above quote does imply that MDLF is not necessarily a funder of
last resort (has been turned down by commercial banks) but might be a
funder of choice because of their support for a specific editorial policy

and the interest rate might be

cheaper than that available locally.
.

The critical focus for MDLF is that

they wish to support the building of
institutions that:

1.

Provide essential information about the democratic process

2.

Challenge those in power

3.

Promote transparency and disclose corrupt
ion

4.

Offer a voice to the otherwise unheard

5.

Shine a light on issues critical to countries in transition

6.

Are exceptional independent media companies with the potential of
becoming enduring agents for change in their societies.


Almost by definition they have

not reached the small neighbourhood
print media unless the outlet has had both the access and the ability to
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

21

negotiate an overseas loan. One should add that
the MDLF borrower

must of necessity be of a
certain
scale
,

or be forecasting
such a

scale
,

and
is

able to pay monitoring fees, take exchange rate risk and produce
a professional
ly acceptable

business plan

and product
. The average
size loan that MDLF have advanced to the 80 projects of 47 independent
media companies in 17 countries is R3.3 million.

T
hey have written off
about R550
, 000

in the process.

It is most probably
correct

to say that MDLF do not see themselves as
primarily a credit operation

but as essentially an agency that builds
viable enduring
,

sustainable
and best practice
institutions. O
nce they
accept a client the MDLF provide sustained support for between 5 to 10
years. Ironically what they are not doing in the process is building a
sustainable loan fund. MDLF remains dependant on donors for both the

establishment of their investment
pool (donors such as SIDA, Calvert
foundation, Open Society Foundation) as well as their operating costs
(donors such as UNDP, Council of Europe).

MDLF are attempting to
broaden their funding base for the Revolving Loan Fund and have
recently issued
Free

Press Investment Notes
which can be purchased
over the web

for anyone in the United States (not beyond as yet)
.
Anyone
in the States
can invest from a minimum of $1,000 for any
period between 1 to 10 years at an interest rate of up to 3%.
There is,
howe
ver, a plea for them to be interest free. These are 'belief'
investments, not commercial. The United States have a fairly vigorous
community investment sector that extends from both the big to the small.
Many
investments
are

at lower than commercial int
erest rates

and do not
expect an appropriate risk return
. The
community investment
funds in
South Africa such as Future Growth look for larger investments and very
good risk returns.


Loan finance is seen as an ideal vehicle through which MDLF can
achieve

certain objectives:



I
ts required fiscal discipline from clients results in
clients gaining a
more
precise understanding of their target market



The required due diligence allows detailed assessment of

a.

Journalistic quality

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

22

b.

True ownership

c.

Strategic vision sy
nergies

d.

Management capacity

e.

Will to succeed

f.

Reputation and reliability of management and owners



The medium to long
-
term nature of the loan requires regular in depth
monitoring
which serves as the mechanism through which MDLF strives

to achieve the mutual g
oals.

The nature of their vision combined with their average loan size leaves
MDLF in a position to tailor
the structure of a

particular loan for a client
but nonetheless there does appear to be a greater tendency to do asset
lending. MDLF state that they

fund the following items:



Printing Presses and pre
-
press equipment



Transmitters



Audio/video production equipment



Construction of broadcast facilities and printing houses



Working capital
only where there is significant potential for growth in
audience or a
dvertising revenues
.


Asset backed lending provides security and an opportunity to
liquidate

at least a portion of the money advanced

should the client default
.
On
some occasions the MDLF purchase the equipment and lease it to the
client in order to maint
ain ownership.
Working capital loans are the
highest risk and tend mostly to be available from an institution's normal
banker who can watch cash
-
flows on a daily basis and flag prob
lems as
they develop
.


Interestingly MDLF also own and manage a
digital me
dia lab

which
"develops and implements software and other new technology solutions,
customized for the unique operating environments faced by independent
media in emerging economies." (MDLF 2005 brochure, pg6). This
software is developed as open source so
ftware which can be
downloaded

from www.campware.org.

MDLF's
eligibility criteria

highlight their mission while still focussing on
the important financial aspects of a business. The requirements are

that
the media outlet must
:

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

23



Have operated legally in its

home country for at least a year



Have an established reputation for promoting democratic institutions and
practices exercising the principles of a free, independent and
responsible press



Devote a significant part of editorial content to fact
-
based news
in
dependent of government influence



Offer coverage of different political opinions and promote human rights,
the rights of minorities

and inter
-
ethnic co
-
existence



Not be owned by the government, a state agency, a foreign legal entity or
an oligarchic entity



Present a detailed project
plan
aimed at broadening and strengthening
the outlet



Have strong financial prospects



Ensure that the funds will be used as stipulated and allow MDLF
unrestricted access to accounting records.

The process of applying for funding

support from MDLF once having met
the eligibility criteria is still fairly lengthy which is appropriate considering
the size loans involved. The process is as follows
:

1.

The organisation first fills out a
specific enquiry form

and sends that to
MDLF

2.

MDLF t
he
n investigate the organisation

and put together

a background
documentation pack
. The
Board of Directors of MDLF then evaluate

the
proposal assessing:



Country risk



Journalistic content



Collected opinions from media support organisations



Other civil socie
ty opinions



Ownership structure and editorial leadership



The existing geographic spread of loans within the existing MDLF loan
fund.

3.

If approved by the Board a
detailed Business Plan
has to be developed
in two parts:



A narrative description of the investme
nt project including its purpose,
process of implementation and expected results

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

24



A detailed financial analysis of the company's current financial state
following through to a
detailed
financial forecast.

4.

The
MDLF Investment Committee

then evaluates the ful
l plan. The
potential client is required to defend the plan to the committee. The plan
might go through several reiterations. If the Investment Committee
approves the application it then decides the amount it will lend, the
interest rate and the conditi
ons of the loan or other financial instrument.

5.

The interest rate on first time loans does vary dependent on country and
project but is around 7.5%. Second time loans tend to be more
expensive. Any loan rescheduling also invites a higher interest rate.
MDLF often insist on warrants allowing MDLF the right to purchase
equity at a future date should they choose. In addition to the interest
rate there is an annual monitoring fee
.

b.

WAN Joint Venture with MDLF


The World Association of Newspapers (WAN) annou
nced a joint
venture with MDLF to invest in newspaper projects in developing
countries in 2005. (editorsweblog.org, April 18, 2005)

This joint venture
does not to all intents and purposes modify the modus operandi of
MDLF. It constitutes a natural coali
tion of two parties who can leverage
off each others
'

connections in the media world to achieve aims that they
both subscribe to.

WAN will help raise capital
for a joint venture fund
by promoting the

MDLF Investment Notes I quote:

"
WAN and MDLF will ask fu
nders to lend, not give, money. MDLF's
revolving pool model calls for funders to lend money at a low rate
(optimally zero percent). This is a novel approach to media assistance
which ties in well with the desire of many funding sources to support
projects
that carry a long
-
term, self
-
sustainability goal. Funders will also
be able to add grants to their loans, if they wish, to give an additional
boost

to worthy press projects"


while MDLF will expand its client base
through WAN referrals.

The branding might

differ for specific loans and
equity investments but all else will remain as described above.



Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

25

MDLF forms coalitions with many like minded newspaper support groups
internationally. It has one in Latin America another in Botswana, such
coalitions might b
e regarded as its standard operating methodology.

c.

INDEPENDENT PRESS DEVELOPMENT LOAN FUND


The Independent Press Development Loan Fund
(IPDF)
which operates
in the United States is a fund which is aimed at small media operations
.
The fund is attached to t
he IPA which according to their website
'
www.
indypress.org' was:

"Founded at the 1996 Media & Democracy Congress in San Francisco,
the Independent Press Association (IPA) promotes and supports
independent publications committed to social justice and a free

press.

Today, IPA's technical assistance and leadership programs have
something for everyone. Our membership includes large
-
circulation
national and regional magazines, desktop
-
published 'zines, alternative
newsweeklies, monthlies, quarterlies, annuals, a
nd publications serving
African
-
American, Asian, Latino and working
-
class communities"

Unlike the MDLF whose primary aim is essentially a freedom of
expression issue balanced by fair reporting on all sides of political and
human rights issues the IPA's mai
n focus is survival of the small in a
media world dominated by giants. To quote:

"
The Independent Press Association believes that a diverse range of
news, commentary
, and cultural expression is essential to democracy.
Non
-
profit and small independent peri
odicals are changing the world, yet
the size of their audiences are often limited by a lack of access to
capital
-

a problem not shared by media giants such as Time Warner,
-----
-------------
In an age of media consolidation, independent publishers
struggle
against the odds to make their voices heard. The IPA exists to
help them in that struggle. Lending is an essential component

of the
IPA's technical assistance programs
---
"


The IPA provides significant support to small media operations including
Technic
al Assistance Manuals, the list of which follows for interest:

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

26

Advertising
Sales 101

This manual will help you
determine your chances of
increasing your income from
advertising, offer suggestions for
hiring and compensating ad
sales staff, outline the basi
c tools
needed to manage and track
sales efficiently, and give you
some pointers on effective
selling techniques. 36 pps.

Art of Renewal:
Building a Loyal
Subscriber Base

You spend money acquiring new
subscribers, but you make
money when you renew them.
This manual explains how to
implement a good renewal
program. 16 pps.

Beyond Blasts:
Using Email to
Raise Money
and Build
Community

This manual will help you use
email to cut costs, increase
revenues, expand your
audience, and
fulfil

a mission
that goes b
e
yond the bottom
line. 20 pps

Building a
Business Plan:
A Kit for Starting
and Growing
Independent
Publications

This guide will help you research
your market, project income and
expenses, and write a business
p
lan to attract investment, appeal
to donors,
and guide the
development of your publication.
28 pps.

Cheaper, Faster,
Better: How to
Get Periodicals
Rate Mailing
Status for Your
Magazine

This manual covers getting the
best of the US Postal System. 44
pps

Feeling Fulfilled:

List
Management
and
Subsc
ription
Fulfilment

Practices

Fulfilment

is the art and science
of getting your publication to your
subscribers and keeping those
subscribers coming back for
more. 24 pps

Hitting the
Sweet Spot: The
Art and Science
of Direct Mail

Direct mail may be the bes
t way
to reach new readers, but
doesn't it cost a lot of money?
This manual will help you to hit
the "sweet spot"
-

high quantity
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

27

subscribers who renew. 28 pps.

No More
Excuses:
Building
Diversity at Your
Publication

Diversity remains the skeleton in
the

closet of the indy press. This
manual offers concrete tools to
help you analyze and address
the challenge of achieving staff
diversity. 32 pps.

Off Our Racks: A
Guide to
Newsstand
Distribution for
Small
Circulation
Magazines

This guide can give you valu
able
tips and information on getting
your publication out to as many
people as possible. 20 pps

Subscribers into
Donors: Turning
Your Subscriber
List into a
Source of Funds

Non
-
commercial magazines are
always short of cash. This
manual will show you how t
o
raise money for your magazine
by using the techniques of
grassroots fundraising. 16 pps.

Working With
Libraries:
Subscriptions,
Displays, Events

Libraries are high
-
paying
subscribers, experienced event
planners, and important
community spaces for promot
ing
independent periodicals. This
manual will give you creative
ways to work with libraries to
promote your publication and
fulfill your mission. 24 pps.



The IPA runs a news
-
stand service for members
'

publications thereby
guaranteeing an outlet for the
sale of print media items.

This common
sense 'hands on' approach to the needs of the small media is followed
through to the loan fund.


Loan product offerings
are only available to IPA members that have
published at least one issue or have operated for a
t least one year
depending on the product.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

28


Four different loans are offered, the descriptions of which follow
:

1.

Direct Mail Assistance Loans

Eligibility

All due paying IPA members
who have published at least
one issue

Amount available

Up to $75,000 (
R4
50,000)

Terms

Up to 24 months

Interest rate

A fixed rate of 7 percent

Application Fee

$100 (R600)

Financial documents required
with application



Most current audit



Most recent tax return



Most recent budget and
performance against budget



Profit and Loss
reports for 1
-
5
years

Turnaround time of
application

Within six weeks

Reporting requirements

Quarterly financial and project
reports during loan term and
final report when loan is
repaid.


2.

Enterprise Loans

A limited number of these loans are available
f
or ancillary income such
as book publishing, teaching classes, mugs and T
-
shirts etc, as well as
fundraising activities involving donor solicitations in their various forms.

Eligibility

All due paying IPA members
who have published at least
one issue

Amou
nt available

Up to $75,000 (R450,000)

Terms

Up to 24 months

Interest rate

A fixed rate of 7 percent

Application Fee

$100 (R600)

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

29

Financial documents required
with application



Most current audit



Most recent tax return



Most recent budget and
performance a
gainst budget



Profit and Loss reports for 1
-
5
years



Forecast profit and Loss
reports for term of loan.

Turnaround time of
application

Within six weeks

Reporting requirements

Quarterly financial and project
reports during loan term and
final report when l
oan is
repaid.


3.

Bridging and Emergency loans

These loans are intended to cover short
-
term expenses during the
periods of low or no cash flow for items like printer's costs and payroll
costs.

Eligibility

All due paying IPA members
that are represented by
B
igTop News
-
stand Services
for at least

a year and
managed their last three print
cycles on time

Amount available

10% of BigTop's annual
liability to the print media
outlet up to a maximum of
$10,000 (R60,000).

Terms



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6

months

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Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

30

stand sales

Interest rate

A fixed rate of
8 % for a loan
of three months or less and
10% for loans of between four
and six months.

Application Fee

$
50

(R
3
00)

Consequences of default

Payments from BigTop News
-
stands are immediately
diverted to pay loan

Turnaround time of
application

Within
48 hours

Reporting requirements

Quarterly financial and project
reports during loan term and
final report when loa
n is
repaid.


4.

Audit Assistance Loan

A small loan to pay for audits by audit circulation services.

Eligibility

All due paying IPA members
that are either in New York or
Chicago

Amount available

Up to $4,000 (R20,000)

Terms

Up to
6

months

Interest rate

A

fixed rate of 7 percent

if
paid within 3 months and 8
percent for those paid
between 4 to 6 months

Application Fee

$
25

(R
125
)

Financial documents required
with application



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Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

31



Current bank statement



Two most recent printer's
accounts
.

Turnaround time of
application

Within
three

weeks


The IPA's lending philosophy is
,

according to their website
,

firmly based
on four principle
s:

a.

Do No Harm.
If in IPA's assessment the loan is not in the best interests
of the applicant it is refused but IPA will work with the outlet to explore
alternatives.

b.

Support Independent Publishing.

The needs of the small print media
are different to th
ose of large corporate media. It often encourages more
adventurous editorial work
, innovative layouts and formats and a reader
driven business model.

c.

Change the World.

The mission of the IPA is to amplify the power of
independent publications. To quote


"
from non
-
profits to small entrepreneurs, the IPDF helps independent
publishers


especially those serving dissident or disenfranchised
communities
---

to make their voices heard in public debate and cultural
life
."

d.

Build Better Businesses.

Independent

print media are located in the
market place and must meet the standards of the market place in
respect of financial management. IPA looks for solid procedures and
controls in conjunction with realistic business goals.

Within these principles

and product
outlines IPA remained concerned
about:



The overall financial health of the outlet



The organizational capacity of the applicant



The project feasibility



The ability and commitment to repay

d.

SAMDEF


The establishment of SAMDEF

(Southern African Media Developm
ent
Fund)

in Gaberone, Botswana followed hard on the he
e
ls of the MDLF
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

32

and
has

indeed
a
relationship

with the MDLF

and

staff
have been
trained
by the MDLF.


In 199
5

a group of journalists

in discussion
at a MISA
workshop
confirmed the need in Southern Afri
ca for support
,

in

vari
ous

ways
,

of
the
media
.

In 1998
SAMDEF
grew out of MISA,
(
the Media
Institute of Southern Africa
)

and initially incorporated SAIMED as the
training support arm to the fund
. SAIMED is now an independent
organisation though with an a
greement with SAMDEF in respect of
SAMDEF

clients.

The fund is a relatively small one. Balance Sheet size at their 2005
year
-
end (March) was R30m. Their gross outstanding advances to
debtors were
in the region of

R25m against which

approximately half
had

a general or specific provision made against it. According to
SAMDEF some of this provision will be reversed in March 2006.
Nonetheless it does reflect the potentially volatile and high level of risk
under

which SAMDEF operates.

The SAMDEF exposure to
the print media
specifically
is by way of

four loans
all of which fund printing presses in different Southern African
countries. They are sizeable loans. All
are
in excess of R
2
m.


To a great extent SAMDEF appear to be
following

a
comparable

pattern to M
DLF with a preferred focus on asset backed lending. Similar
to MDLF they also choose to take an equity position
parcelled
together
with loan facilities though
the share
-
holding is

never
to exceed

25% of
total equity.
The interest rate charged does not re
flect the level of risk or
risk mitigating work required. If the loans are either in Rand or Pula the
interest rate is only 1
-
2% above prime and if the loans are dollar
denominated then the interest rate is between 5

10%.

The client carries
the exchange
rate risk as they do with MDLF.

e.

CONCLUSION
S THAT CAN BE DRAWN FROM THE ABOVE
:


There are several points worth noting
with regard to the

above funds



None of the funds are exclusively credit operations



The more international the fund the more the emphasis is

on asset
backed lending as opposed to
the more difficult working capital type
loans.

MDLF do working capital type loans

but only when it will
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

33

significantly enhance the scale of the business
. The core must be
sound prior to the expansion.



The loan fund m
ost closely aligned to the needs of the small print media
in South Africa is the
Independent Press Development Loan Fund
of the
Independent Press A
ssociation in USA.

o

It is focussed on supporting the independence of the small print media

o

It provides technic
al assistance programs

o

It provides a commercial outlet for the print output

o

It has an in house mechanism to link the repayment of loans to a source
of income thereby reducing the risk and the required interest charged.

o

The four loans offered are also of pa
rticular interest in that:



they are quite tightly focussed on certain aspects of the business

e.g
circulation audit
,

direct mail etc



only one is directed at the 'core business' namely the bridging and
emergency loan all the others are in many ways enhance
ments on the
core proposition.


This implies correctly from a loan fund
'
s point of view
that the core business
must be

sound

to invite a loan
.



none are asset backed loans, though this could reflect the structure of
the American print industry in particular
.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

34


8.

SOUTHERN AFRICAN EXPERIENCE

i.

SMALL PRINT MEDIA MARKET

It is useful to try to segment the market from a lenders perspective
. It
is important to remember that not everyone can be a borrower. In order
to borrow requires track record combined with the cle
ar indication that
the core fundament of a business is sound.


Rank
1
2
3
4
5
6
Non-speculative
commercial loans
Speculative
commercial loans
Speculative
Development
Sector
High Risk
Managed
Potential
Too Risky under
current Business
Proposition
Predominantly
Grant sector
Funding
Source
Banks, JSE,
Commercial paper,
Corporate Bonds
IDT, Banks, MDLF,
possibly IFC
MDLF, Samdef,
Business Partners
et al, Bank
facilities
Casidra, and at
upper end Samdef,
possible limited
bank overdraft
facilities
MDDA and any of
the servicing NGOs
and overseas
development
funders.
MDDA and any of the
servicing NGOs and
overseas development
funders. Could access
tiny micro-finance
loans
Balance
Sheet size
>R25 million (Caxton
who concentrate on
neighbourhood media
outlets have market
cap of R7,600 million)
>R5m
>R1m
>R50,000
Approximate range
R10,000 to R1m
Approximate range
R5,000 to R50,000
includes start-ups
Profitability
Assured (Caxton's
current price earnings
ratio is 15.4 while
ABSA is for example
12.8 but Discovery is
23.7)
Likely. Returns should
be higher but the risk
of loss is higher
Potential for
returns but risk of
loss considerably
higher than first
categories.
Cover costs but
possibly not
sufficient for senior
staff to earn a
commensurate
salary to what they
earned in formal
industry for first
couple of years.
Financial
vulnerability should
lessen between the
2nd to 5th year of
operation
Might only cover
costs excluding
salaries by end of
1st year. Highly
vulnerable but
potential to become
sustainable with
modified business
proposition.
On average not
sustainable.




The most recent AIP survey (2006) identify 238 publications which are
likely to fall predominantly into categories 4,

5 and 6.



The current lending gap is i
n 4 and 5. These two categories c
an
possibly be segmented further
. In the scenario below and utilising the
figures as a crude form of credit risk
score

an outlet that scored 200 and
above would almost definitely get a loan whereas those below 150 will
not and those in between would be ev
aluated more critically.
(
The
matrix is crude and in a real credit
scoring scenario the categories would
be substantially

m
ore nuanced
.

The lack of detailed information makes
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

35

it very difficult to assess how many of the 238 would earn a credit score
of 20
0 and above but of the
limited
detail made available to me I would
tentatively put the figure in the range of 10 to 20% with an additional
10% slotting into the range 150 to 200.


Niched in sector with
strong income
possibilities (with
growth) and
information gaps
Niched in sector
with growing
information gaps but
limited income
opportunities
Niched in low-
density
development
sector
Credit
likelihood
Fully
50
30
30
60
Medium
40
20
20
Limited
30
10
10
50
Fully
60
50
30
40
Medium
50
20
20
Limited
40
10
10
30
Full
60
50
30
20
Medium
40
20
20
Limited
20
10
10
10
Fully
60
50
30
Medium
50
20
20
Limited
20
10
10
3 years
60
40
30
2 years
50
30
20
1 year
40
20
10
Attractiveness for
lending in high risk
credit-only operation
Track Record with core
business financially sound
Revenue plan in place and
operational
Smoothed' income strategy in
place
Appropriate skills and capacity
throughout
Distribution regular, reliable and
on time




A market size of between 23 and 60 is insufficient for a stand alone smal
l
loan fund to be a feasible proposition



The question therefore becomes 'What activities a loan fund can
undertake to broaden the base and capture as many of the available
small media operations into the market
-
catchment without increasing the
risk beyond
what is feasible
?'


Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

36


ii.

CURRENT SMALL MEDIA PROPOSITION

FOR
INDEPENDENT OUTLET

a.

Motivation to begin

T
he
person who starts a
small

print media
appear
s

to
fall

in
one of
the
following categories:



Unemployed, worked in some capacity on a newspaper or know
s

someo
ne who does,



A community worker of some form who is constantly
approached

for
certain information or



A group of people concerned with neighbourhood issues and wish to rally
support



A few opportunists who believe they can access money for personal gain
by

starting a newspaper



Someone who cannot identify with the information in daily newspapers
and feels there are kin in the broader community.



Journalists who do not want to work under editorial controls and see a
possible niche



An entrepreneur who has an as
sociated business and wishes to expand
the options

but has no knowledge of the business



Perceived
market segment

with an information gap



Young newly skilled journalists who wish to launch themselves on the
market



A very small number who see both a revenue
and information gap

b.

Skills in relation to Business Proposition

The following table is based on anecdotal information as I have not had
access to any detailed survey information

which I believe might be
forthcoming in Justin Arenstein's survey report
.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

37

Niche
Information and
Revenue
correspondence
<10%
Information need but
Revenue gap
<50%
Development Sector
< 25%
Journalism
Skills
< 25%
Experience
<10%
Technical
Story Identification and
development
<75%
Writing
<50%
Editing
< 25%
Layout
< 25%
Photography
<10%
Print Prep
<10%
Marketing
Sale of Advertising
< 25%
Sale of Newsprint
<50%
Distribution
Understand circulation
issues
< 25%
Have developed
capacity
<50%
Financial
Recording skills
<10%
Planning skills
<10%
Information Technology
Have appropriate
software
<10%
Have skills
<10%
Funding
Initial Own resources
<75%
External donors
<50%
Borrowings
<10%
Adequacy of Business Proposition


c.

Ca
sh
-
flow cycles

If

few print media businesses at this scale
start

the business with both
an integrated plan and understanding of the information
and revenue
proposition
it is understandable
that the bulk of the small media remain
extremely fragile. Those t
hat show success are
purchased

by Caxton,
Independent or Johnnic.

Graeme Addison
posits that the small print media outlets pass
through an S curve in terms of their cash
-
flow cycle. The argument is
that typically the founders start the enterprise out of s
avings and are
therefore at a cash
-
flow high. The cash is soon used up predominantly
through the costs of printing and distribution. The enterprise will not
have a consistent income stream

in place before their savings run out
and reach the bottom of the

curve. The
y

either start getting advertisers
or payments for
newsprint and/

or negotiate a grant through an
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

38

organisation like the MDDA which returns them to a positive cash
-
flow.
If the outlet fully utilises this on printing before it has its revenue st
ream
in place it will decline yet again. It is entirely feasible that a vulnerable
outlet will repeat these cycles several times.

Justin Arenstein on the
basis of his survey data maintains that at month 8 the outlets hit a
particular low. It is entirely

probable that a long
-
run study would reveal
many more such points which, after three or four years, might occur
around a general upward trend.

It requires a consistent track record before

advertisers

(and
subscribers)

are prepared to buy space. The quest
ion is how long does
the track record need to be and how much advertising is needed for the
adequate recovery of costs? Using West X'press as an example they
need approximately 50% editorial to 50% advertising to both cover costs
and earn an income

(ignor
ing the need for a risk based return on
shareholder capital)
. At 24 months they have achieved an average ratio
of about 40% advertising to 60% editorial while the mid
-
month edition
can be as low as 30/70.

After 24 months they are starting to smooth
incom
e with the odd advertiser

purchasing three months of space at a
time.

The following Income Statement is based on those of two outlets, both
of which are in their second year of operation. It should be emphasised
that both were regarded as potentially best

of breed. The Income
Statement emphasises the marginality of such operations and the
disincentive to owner journalists who establish such newspapers or
magazines.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

39

Year
Income
2
Sales
0
Advertising
580,000
Commission
52,000
Other
10,000
Sub-total
642,000
Expenses
Travel
Fuel
71,000
Accommodation
1,200
Salaries and Wages
Freelancers
23,000
Bookeeping service
10,000
Owners
0
Finance costs
Bankcharges
5,500
Loan repayments
0
Insurances
6,000
Office Costs
Communication
47,000
Depreciation
32,000
Maintenance
22,500
Refreshments
2,500
Rent
37,000
Services
2,000
Printing
323,000
Sub-total
582,700
Profit for owner's annual salary
59,300


Accessing the files gave rise to the work done by Mr 'Ticks' Chetty
who undertook a ment
oring programme for a start
-
up called the
Maputaland Mirror. He did the most detailed financial planning of all the
available information. In his plans he allows for an advert load of 55% (
but the newspaper is sold in addition to advertising) which seem
s to
correspond with the experience of West X'press who might be able to
charge a little more for their advertising. Mr Chetty has, however,
allowed for that load from inception while in all likelihood it would take
much longer to build and consequently w
ould take between 18 and
36
months for a small newspaper to become cost
-
recoverable.
The
following table indicates the impact of ad
-
loading. Assuming a new
newspaper starts off from a low base and is reliant on building up its own
advertising portfolio
and is located in areas with limited local economic
development it might never get beyond a limited loading base.


Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

40

Assumptions
No of pages
8
8
8
8
8
Ad Loading
20
30
40
50
60
Annual Income
Retained Income
0
0
0
0
0
Advertising
86,400
129,600
172,800
224640
259200
Newspaper sales
0
0
0
0
0
Other Income
0
0
0
0
0
Sub-Total
86,400
129,600
172,800
224,640
259,200
Annual Expenses
Printing costs
67200
67200
67200
67200
67200
Salaries
0
0
0
0
0
Purchase stories
14400
14400
14400
14400
14400
Travel
9600
9600
9600
9600
9600
Communication
12000
12000
12000
12000
12000
Office expenses
15600
15600
15600
15600
15600
Maintenance
16800
16800
16800
16800
16800
Depreciation
16800
16800
16800
16800
16800
Sub-Total
152400
152400
152400
152400
152400
Gross Profit
-66000
-22800
20400
72240
106800
Owner salary
90000
90000
90000
90000
90000
Net Profit/Loss
-156000
-112800
-69600
-17760
16800



iii.

SWOT ANALYSIS OF EXISTING BUSINESS MODEL

STRENGTHS

WEAKNESSES



Can address a niche
information gap



Can facilitate an affective two
way co
mmunication with
target market



Can provide information which
is below the radar of national
or regional newsprint



Overhead costs can be kept
comparatively low if
efficiencies maintained



The absence of a workable
business proposition for the
sector as a who
le materially
weakens the individual
operation's financial
sustainability



Inadequate revenue planning



Income stream too volatile



Too small to access scale
regular advertising revenue



Too many disparate skills
required



Too many functions for limited
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

41

numbe
r of personnel



Finance available too little to
cover building market,
learning trade and
establishing
credibility

OPPORTUNITIES

THREATS



Aggregating non
-
editorial

functions and facilitating
smoothed
revenue stream

will
substantially stabilise small
opera
tions giving them
opportunities to learn the craft
and build a sustainable
business



Barriers to entry are low



Success will attract the
conglomerates



Staff will leave for larger
newspapers on regular basis



iv.

BUSINESS GAP



Smoothed
managed
revenue model allo
wing for the development of a
robust core to the business.



The individual outlets are on average too small to survive for any length
of time. Aggregating several would create more viable businesses but
could lose the ability

to closely niche the editorial
.

Territoriality has
made any attempts to form a hub difficult.



A unified provision of services that
both
support

and provide the training
ground for fledgling media.

v.

CONSTRAINTS



Access to t
he advertising industry



Lack of access to a centralised Informati
on Technology Bureau that can
facilitate the sharing of information

and in particular

access to national
advertising



Lack of consistent on the job training for fledgling media staff and
managers



No economy of scale benefits, gradually increases the competi
tive
disadvantage carried by small print media.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

42


9.

RECOMMENDATIONS

ii.

PROBLEM STATEMENT

A
stand alone

loan fund which offers
exclusively
credit to the small print
media in South Africa is not a viable or feasible proposition for the
following reasons.

1.

The mark
et is very limited. At present there are only 238 'independent'
small print

media in South Africa. Penetration into the 238 will be limited
by:

i.

Expectations of ongoing grant funding

ii.

Lack of creditworthiness

2.

The market is widely dispersed with particular
concentrations in Kwazulu
-
Natal and Gauteng, nonetheless there are not sufficient concentrations
in any one area for a viable fund.
The definition of v
iable
for these
purposes is that the fund must

recover
its

costs of
operation

excluding a
return on equi
ty.

3.

Low average level of creditworthiness due to:

i.

Core business vulnerability

1.

Few have found a
sustainable
competitive edge

2.

Problems of synergy between income and readership

3.

Volatile short
-
term income

4.

Limited regular income flows

5.

Limited elasticity of inco
me

6.

Low level of cost recovery (including salaries)

7.

Limited track record of regular performance

8.

Size of average project

4.

The sector is failing to take note of international movements regarding
the small media sector and develop timeous strategies to counter
these
moves in order to survive. These include:

i.

The strong movements of mergers and acquisitions due in part:

1.

To changes in technology

2.

Consequent changes in productivity of staff

3.

Increasing concentrations occurring at key client level


advertisers who
de
mand ever greater reach at lowest possible cost.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

43

4.

Changes in costs of printing and distribution which results in additional
economy of scale needs while reducing costs of input


reporting.

ii.

The decreasing advertising spend results in greater competitiveness

for
that adspend

5.

Competencies of key management

are too limited

for the business
proposition as it stands

6.

A stand
-
alone fund would be loss
-
making venture
. It can therefore not
be recommended. T
he

following
broad assumptions

excluding any bad
debt costs
give an indication of the problem.


Client Number
238
Penetration
25%
Spread
10%
Per annum Cost
(assumption)
R 1,500,000
Minimum loan
size
R 25,000
Maximum loan
size
R 1,000,000
Average loan size
R 100,000
Possible
Outstanding Book
R 5,950,000
Possible Income
R 595,000
Annual Loss
-R 905,000



iii.

CONCEPTS TO IMPROVE CURRENT POSITION

1.

A solution to the current lack of medium term viability for the small print
media must lie in:

a.

First and foremost creating a viable core business proposition
.

b.

Once a viable core h
as been achieved the businesses can be
grown and diversified

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

44

c.

If a business proposition can be introduced which can transform
more of the outlets into bankable propositions then a fund will
have a larger potential client base which improves its viability.

d.

A

loan fund can, in line with the international examples, offer
funding support to extend the core business.

2.

A loan fund which has control over and therefore direct access to the
cash
-
flow of the core business proposition can play a role in stabilising
the
core business.


3.

Support services need to be offered at various levels (or through various
product offerings dependent on the particular competencies in an outlet)
to improve efficiencies and professionalism in such a way that medium
term training is prov
ided and the outlets can reduce their usage of the
services should they so choose.

iv.

CONCEPT
UAL

LOAN SCHEME

None of the international loan schemes outlined in this document exist
as stand alone loan schemes.
A loan fund in South Africa aimed at the
small pr
int sector could play a role in stabilising the core business
proposition while offering a range of support services which
provide

on
the job training

/ mentoring

for those wh
o lack

certain skills
. The
potential exists that such a fund might be structured

to become viable.


This would require learning from the conglomerates and using the
principle of aggregating aspects of the business that are best achieved
via scale and offering them by way of a
service

to individual print outlets.
As a service such fun
ctions should not threaten the independence of the
print media

but be akin to utilising a print shop.


From a Loan Fund perspective
a

conceptual

structure
would involve

in
order of priority
:

1)

A mechanism that could
augment the income

earned by small media
o
utlets and provide a level of certainty regarding potential income for the
future three to six months
, in other words
smooth

the earning profile

o

The oppor
tunities to do this might include identifying certain
product
brands that have national applicability
for the majority of the market

such
Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

45

as cell
-
phones, Coca Cola, Washing powders, basic foodstuffs,
government notices and educational/health type material, negotiating
access to their adspend for a guaranteed circulation in excess of a
million in community
magazines/newspaper guarantee
ing

a minimum
standard.

o

Provided a community newspaper agrees to certain standards and
crosschecks they get a percentage of the ads which they are required to
match with local advertisers.

The presence of large brands advertis
ing
products which are stocked by small local suppliers facilitates the
acquisition of local

advertisers.

o

The payments for the national adspend are collected by the fund. A
commission is deducted and the remainder either passed on to the print
outlet or
it is used to offset repayment of a loan facility. It is imperative
that the fund manages these cash
-
flows in order to keep the costs of the
loans as low as possible.
Should the cash
-
flows be managed via a third
party
, it introduces another layer whose c
redit worthiness has to be
established and increases the counter
-
party risk on the flows.

The
margin extracted has to reflect both the additional costs of dealing with a
third
-
party but also the additional risk.

2)

An
Information Technology spine

would

o

Throu
gh

utilising Open Source software from MDLF

(or similar)

and web

based access
,

allow independent outlets
the facility
to
design and
assemble

their newspaper
/
magazine on the web leaving sufficient space
available for the national adverts. An editorial serv
ice
adds in the
adverts and if requested, as part of a negotiated service, provides some
editorial support. The completed magazine can then be taken off the
web and handed to a printer.

o

The spine could be used to offer a user friendly finance package
. Th
is
ideally would support

the capturing of existing financial figures and
delivering simple reports to
develop the

understanding
of
the operation
as a business

as well as a facility to forecast based on the captured
historic trends.

o

The availability of this

information on the spine would improve the loan
funds ability to establish credit worthiness.

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

46

3)

A
facility

that can verify the range of the
circulation to
assist

the Audit
Bureau of Circulations
. Advertisers understandably want confirmation of
the reach of

their adverts. Small print media constitute a nightmare to
verify but systems can be worked out to do this to the satisfaction of
everyone.


These three key functions would from a loan fund point of view
decrease the vulnerability of the core business an
d allow the offering of
Working Capital Loans.
The core stabilised loans to support the
purchase of capital equipment and the expansion of the business also
become more feasible.


However
,

the core concept would be enhanced according to Graeme
Addison and

Justin Arenstein by distribution support in particular. At
face value this does not have appeal

as transport costs should offset any
benefits centrally derived. However Kate Senye of Samdef has recently
run a project trying to improve the costs and effi
ciencies of print and
distribution in the region and has found that she can substantially
achieve such benefits. Once Graeme Addison has finalised his research
an assessment can be made as to whether such a function could be
added to the core concept.




SMALL MEDIA
LOAN FUND

CIRCULATION
AUDIT SUPPORT

IT
(
Information
Technology
)

SPINE

CREDIT

FUNCTION

AGGREGATION OF
NATIONAL
ADVERTISING

AND
MANAGEMENT OF
INCOME

?
? DISTRIBUTION

SUPPORT

Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

47

As a small media outlet grows and becomes more confident
and
professional
in its craft
it should be in a position to graduate (should it so
wish) from availing itself of these facilities.


Loan Feasibility
Assessment for Small Pint Media
, MDDA

Christine Glover

glosches@iafrica.com

48


10.

REFERENCES



Association
of Independent

Publishers:
'
Census 2006 Preliminary
Findings
'

2006,



Bell Broadcast and New media Fund publications on the

Bell
Fund

website



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