The Lebashe Investment Group, self-proclaimed financial engineers, will soon be the owners of some of South Africa’s best-known publications including Financial Mail, Business Day, Sunday Times and the Sowetan.

For the bargain price of around R1-billion, the firm will transform into South Africa’s newest, would-be media powerhouse at the end of November. Tiso, whose current market cap is also around R1-billion, will be selling all its South African content and broadcasting operations, and similar services in Ghana, Kenya and Nigeria, but will hang on to the printing business of Hirt & Carter and the music label Gallo.

Lebashe could also face competition from Cape Town-based news wire service the African News Agency (ANA), which claims to be Africa’s first syndicated content distributor service. It rose from the ashes of the now deceased South African Press Association (Sapa), and boasts Sekunjalo’s Iqbal Survé as one of its founding fathers.

In August last year, the African Daily Voice (ADV) was launched, which also reports on African matters. It is Based in Malabo, Equatorial Guinea, but has news desks in 10 other countries, including one in Johannesburg.

Reg Rumney, a former media and journalism lecturer at Rhodes University and now an independent media researcher, says it will be difficult to turn plans into profit. The politicians won’t like it. Media assets of our northern neighbours are kept very close to the hearts of those governments, he says.

“But nobody has made money in Africa anyway,” he says. He refers to the Mail & Guardian and Inet Bridge’s failed cross-border ventures. The latter was Tiso’s (then known as Times Media), financial data provider. It sold it to Naspers a couple of years ago.

“ANA is also very small, with just five people running the show.”

But wait, there’s more. Lebashe wants to develop an entire eco-system around this platform. That is how Amazon, Apple and Facebook do it, and Warren Wheatley, CIO and exec director of Lebashe, says they want to reinvent their value chain in a similar fashion.

“Platforms can bridge entire industries, allowing companies to reach new partners and communities. The platform will create an entire ecosystem around itself,” he says.

The company believes it is perfectly placed to take the business to the next level. It has pan-African expertise and acumen in technology and finance. It strives to be a significant player in informing, educating and entertaining consumers across the continent.

The company plans to establish a technical strategic committee of local and international digital media experts. The proposed working committee will advise the executive on system integration, editorial process and distribution models.

This intention was revealed in Lebashe’s public statement on Thursday 27 June when the deal was announced. The committee was then referred to as a “media advisory council,” which unleashed the proverbial fox into the industry’s henhouse. Market players perceived it as a threat to editorial independence.

But Wheatley says it was a poor choice of words, and the market misunderstood their intention. He told Business Maverick that Lebashe has no intention of getting involved in the editorial process.

However, the minefield Lebashe is walking into back home is more than apparent. With advertising income declining and a digital subscription revenue model still in development, their new media property faces an uncertain future.

The Reuters Institute Digital Report, which indicates global trends and was released last week, reveals that revenue for news media has been plummeting for several years, with a 12% drop in ad-spend last year for television, 5.6% for radio and 7.7% for print.

According to a PwC report: Global Entertainment and Media Outlook 2019 -2023, efforts by local players to switch from print to digital adverts and build digital subscriptions will not bridge the falling print revenue; combined print circulation and advertising revenue is forecast to drop by $77-million while total digital revenue will grow by only $11-million over the forecast period.

The online ad space is just not lucrative enough for South African media companies to make up for the decline in print revenue, as big tech companies like Google and Facebook dominate more than 60% of the world’s digital advertising revenue. Traditional advertising revenue is also under pressure as the economy falters.

“The majority of media houses have no idea how to roll out successful hybrid subscriptions models that have worked elsewhere in the world,” says Rumney.

Local news organisations with subscription paywalls, such as Tiso Blackstar, have declined to release their figures in this regard, suggesting the number of paying subscribers is still low, the Reuters report says.

At the release of Tiso’s interim results to December 2018, in March, CEO Andrew Bonamour admitted that traditional reader and advertising revenue continues to be challenged by the economy. Revenue from the media business declined by 5.9% to R702.1-million.

Tiso’s investments during this time included the launch of Vrye Weekblad, a digital Afrikaans product, in order to secure new digital subscription revenues.

Some analysts have questioned the motivation behind the purchase, even the directors’ sanity. But Wheatley says that now is the right time, close to the bottom of the business cycle, to make new investments.

Jean Pierre Verster, CEO of newly formed Protea Capital agrees. He says the media industry might have reached its nadir, and is headed for a turnaround. He believes income from the online subscription model will do the same

But it is not just about cash. Confidence in the industry has also suffered a blow. The media has been involved in a number of scandals. Two major news outlets that were owned by the Guptas, The New Age newspaper and the 24-hour TV news station Afrotone (formerly ANN7), were forced to close down.

The Independent Media Group has had the integrity of its news products significantly eroded after its owner’s alleged interference in editorial policy.

The Sunday Times was forced to apologise for lapses in journalistic rigour and the publication of several false scoops and had a journalism award withdrawn.

That being said, the Reuters report states that South African media still ranks high on the international press freedom index.

Lebashe itself is also not new to controversy. The UDM’s Bantu Holomisa accused the executives, at the PIC inquiries, of unduly benefiting from financial aid provided by the PIC. Lebashe chairman Tshepo Mahloele formerly worked at the PIC, while fellow director Jabu Moleketi served on the board of the PIC when he was deputy finance minister.

Wheatley confirmed that Lebashe received backing from the PIC in 2015 to finance a R700-million transaction, which, he said, has been paid back in full.

Lebashe’s testimonies at the PIC hearing were concluded in April and a related company statement has been made available. Wheatley says neither has been challenged nor any wrongdoing proved. The directors have filed papers for a case of defamation against Holomisa, and are waiting for a court date, he said:

“Although it is difficult to quantify the losses incurred and we continue to suffer as a result of Holomisa’s unrelenting campaign against us, especially in lost opportunities and damage to our reputation. We have nevertheless decided to pursue the matter.”

That is quite a mouthful. But if Lebashe’s short five-year history is anything to go by, this company does not shy away from a challenge. It was established in 2015 and already manages R12-billion in assets. It has grown into Capitec and EOH’s largest BEE shareholders and owns significant stakes in trading platform 4Africa Exchange and the micro-financier RainFin. BM