The RJR/Gleaner Merger Part 2: A Wider Context

MergerTakeover

This is part 2 of a two-part guest post by media maven Marcia Forbes who used to be General Manager of TVJ (Television Jamaica) many years ago. Jamaica was shaken last week by news of a merger between its two largest media entities, RJR and the Gleaner. TVJ is the the crown jewel of RJR (Radio Jamaica), the broadcast media conglomerate which has just merged with print media giant The Gleaner. The merger has had the effect of a small earthquake with journalists worrying about layoffs and others concerned about the birth of a media monopoly. Mergers, acquisitions and buyouts are changes which have been happening all over the world, the fallout of the digital revolution, and should have been anticipated, but it seems to have caught everyone here by surprise. Watching the pre-emptive moves that Google is making with the creation of Alphabet, the temporary subsidiary set to flip into the primary entity, one can’t help note the opposite scenario at play here…that is, two local media giants who waited till their stocks had declined before taking action. But hey, c’est la vie in the Tropics.

For all those wondering what’s in store for us, Marcia Forbes’s analysis should help. Read on.

Local/Global Trends

Marcia Forbes

As promised, here is another look at the proposed RJR/Gleaner merger. This announcement comes against the backdrop of a media landscape that is constantly evolving globally, regionally and locally. Media changes are being driven not only by technologies such as high speed broadband, the Internet in general and smartphones, but also via mergers and acquisitions accompanied by media convergence and consolidation. Let me focus on Jamaica and start with radio. The merged RJR/Gleaner entity will have five FM radio stations.

Radio Stations’ Revenues

From as far back as 2002 the then General Manager of TVJ, the decline of local radio was evident. It has continued a steady fall-off. In terms of radio’s potential market, while this stood at 719,000 in 2000, in 2014 it had declined by about 25 percent (Source: All Media Survey published 2015 with data collected in 2014). Over this period radio sets have been reduced in number by about 35 percent. The number of radio stations has, however, increased, with Jamaica now in a very crowded radio market of about 30 commercial stations for its less than three million people.

The status of radio revenues is not easy to come by. Market leader for the past several years, Irie FM, has always been reluctant to reveal its revenues. Coupled with its sister station Zip103FM which started mid-2003, these privately owned stations control almost 30 percent of the radio market. Although publicly traded, RJR and Gleaner do not disaggregate their revenues. This makes it difficult to determine the financial performance of their radio stations. Arriving at the advertising revenues of radio in Jamaica is therefore a game of guesstimate.

Having five radio stations in the merged RJR/Gleaner Group may not redound to greater revenues. The demise of FAME from the RJR Group and Music 99 from Gleaner’s Group would not therefore be unexpected, given their meagre market share and likely paltry revenues. Then too, with Hotel Mogul Butch Stewart’s FYAH 105 FM performing creditably, he may want to acquire one of the smaller stations and niche market specifically to the tourist industry. This could complement his Jamaica Observer and FYAH FM media holding.

Then there is Cliff Hughes and his Nationwide Radio which for many reasons has never been able to sustain itself financially. Hughes, as outstanding journalist with a ‘Rottweiler’ type station, arguably Jamaica’s leading investigative news station, recently made a business arrangement with Gleaner’s Power106 FM where he anchors a critical day-part.  That arrangement, along with the housing of Nationwide at the former Power106 premises, may now be under review. Mergers/acquisitions, or at the very least some shakeup in the radio market therefore look highly likely as one outcome of the RJR/Gleaner merger.

Radio in the USA v/s Jamaica

The radio scenario in Jamaica does not appear to mirror that of the USA where only days ago Nielsen, that country’s leading media monitor, reported upward trends in radio listenership with record highs over the past two years, driven by Hispanics and Blacks. One acknowledges that perhaps Jamaica’s media monitor may be missing out by failing to count listeners who tune in to radio via cell phones.

The Promise to Advertisers & Shareholders

In a previous article, the strong market positions of The Gleaner (77.3% share of readership on Sundays) and Television Jamaica (72.5% market share for free-to-air TV) were outlined. The much less impressive, but still noteworthy, performance of the RJR radio brands, with almost 20 percent share of listenership, was also highlighted.

The merged RJR/Gleaner is therefore a great promise to advertisers. Whether it actually delivers, assuming the merger is approved, will remain to be seen. Can The Gleaner’s online platform and its print paper be sufficiently leveraged to justify additional revenues to the merger group? Both Gleaner’s and RJR’s financial performance may give us a clue.

Can a RJR/Gleaner Merger Drive Greater Profits?

The Gleaner’s revenues have been pretty flat for a number of years. A review of Group turnover reveals decline over the five years of 2009 to 2013, falling from $3,274,179 Billion to $3,188,709 Billion. The Gleaner Company, that part of the Gleaner that is proposed to be merged, has also delivered pretty flat revenues over the past four years, $2.7 Billion in 2011 and $2.8 Billion in 2014. So despite its strong market position, The Gleaner has not been able to use this to drive real revenue growth.

The state of RJR Group’s revenues has been similarly tepid in growth, $1.9 Billion in 2011 and $2.0 Billion at close of its most recent financial year, March 2015. Without the benefit of disaggregated data, one can only assume that it is TVJ that is keeping RJR afloat. So perhaps, RJR is doing a good job at leveraging that brand and using the radio brands simply to ‘sweeten the pot’ to advertisers.

In tandem with its promise to advertisers, the merger entity must deliver dividends to shareholders. Over 2009 to 2013, The Gleaner Group’s profit attributable to shareholders took a nosedive, from $224,000,000 in 2009 down to only $85,842,000 in 2013. Net profits for The Gleaner Company (the portion to be merger) have declined from $70 million in 2011 to only $37.7 million in 2014.

Like The Gleaner’s, RJR’s profits have made massive swings over the past five years. However, its 2014 and 2015 net profits outstrip those of The Gleaner Company for 2013 and 2014. Note that these entities have different financial years. The Gleaner’s runs with the calendar year and ends in December.

In this tight economic climate, even with it commanding a lion-share of the print market, The Gleaner has been unable to leverage this into revenues. RJR too, despite its combo packages of radio and TVJ to advertisers, has also been unable to grow revenues. Admittedly, they have both been able to continue to generate net profits every year and this counts for a great deal. Additionally, both have cash or other assets stashed away for rainy days like Digital Switchover that is now facing RJR.

Herein lies a part of the rub of this merger, however – To effect efficiencies, cost-savings and shareholder value, there will have to be job cuts across the merged RJR/Gleaner media entity. Job losses never go down well with Governments, staff, unions and other stakeholders. While this merger is being pondered, I repeat my advice to all journalists – get trained in digital media and explore new ways to boost your marketability and earning power.

The RJR/Gleaner Merger – Part 1

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This is a two-part guest post by media maven Marcia Forbes who used to be General Manager of TVJ (Television Jamaica) many years ago. Jamaica was shaken last week by news of a merger between its two largest media entities, RJR and the Gleaner. TVJ is the the crown jewel of RJR (Radio Jamaica), the broadcast media conglomerate which has just merged with print media giant The Gleaner. The merger has had the effect of a small earthquake with journalists worrying about layoffs and others concerned about the birth of a media monopoly. Mergers, acquisitions and buyouts are changes which have been happening all over the world, the fallout of the digital revolution, and should have been anticipated, but it seems to have caught everyone here by surprise. Watching the pre-emptive moves that Google is making with the creation of Alphabet, the temporary subsidiary set to flip into the primary entity, one can’t help note the opposite scenario at play here…that is, two local media giants who waited till their stocks had declined before taking action. But hey, c’est la vie in the Tropics.

For all those wondering what’s in store for us, Marcia Forbes’s analysis should help. Read on.

#RJRGleaner Media Merger

Marcia Forbes

Here we were on the day before Jamaica’s August 6th celebration of it 53rd Independence Day, learning about the proposed merger of two of Jamaica’s oldest and most highly respected media entities – The 180 year old Gleaner Newspaper and the 65 year old RJR.

Between them, the merged RJR and Gleaner will own an arsenal of electronic media comprised of five (5) F.M. radio stations, a free-to-air TV station and three (3) cable channels – RETV (originally branded as Reggae Entertainment TV), TVJSN (TVJ Sports Network) and JNN (Jamaica News Network). They will also own a print newspaper that boasts several distribution outlets overseas. Then too there are online platforms and services. At one time Go Jamaica, Gleaner’s online portal, was reported to be attracting 55 million hits per month.

Youth Views

Some of the howls were predictable. I didn’t expect them from young people though, seeing that they have largely disconnected from traditional media. This tweet captured the general sentiment of those on Twitter at the time the announcement broke – “2 men now control over 80% of the Jamaican media market #RJRGleaner”.

One youth said she was “terrified” because “it’s harder to spot media biases if the media is (sic) all owned by the same people.” In response to my probe as to why “terrified”, she said, “we (young ppl) value independent sources a lot more so seeing two powerful old heads knock together isn’t good news.” Concerns regarding media ownership are not new and are usually also tied to issues regarding number and variety of media ‘voices’ and threats to democracy if plurality of participation is perceived to be under threat. I will return to the matter of media ‘voices’.

RJR & Gleaner’s Dominant Market Positions

Going by the 2014 All Media Survey (published in 2015), Television Jamaica (TVJ) commands a whopping 72.5 percent (almost three quarters) of the free-to air TV market, with substantial leads on every day of the week as well as in every day-part.  Looking at the local/regional cable TV share of viewership (this excludes international cable), the RJR-controlled channels (TVJSN, RETV, JNN) account for approximately 28 percent of that market. Sportsmax, a local/regional cable system recently acquired by Digicel, commands 62 percent.

While the total potential audience of local/regional cable TV is reportedly a miniscule 61,000, that for free-to-air TV stands at over one and a half million viewers (1,530,000). And even when one takes into account the 667,000 potential audience for international cable TV, Television Jamaica still packs a powerful punch and pulls advertisers. Although RJR’s radio brands have managed to lose their shine over the years, with Irie FM commanding a greater share of listenership (19.3%), compared to the combined share of 19.1% for all three of RJR’s brands, with ‘combo’ selling to advertisers, the RJR Group is able to offer fantastic deals.

Overall, Sunday to Saturday, the average readership and reach of the Gleaner substantially outstrip the Jamaica Observer. The Sunday Gleaner attracts 77.3% of readers, compared to the Sunday Observer’s 22.7%. Then too, The Star, Gleaner’s Monday to Saturday tabloid, also outstrips the Observer on most days. Gleaner is the dominant player in the print medium.

Based on their market shares, a combined RJR/Gleaner media entity dwarfs all other traditional media entities in the Jamaican landscape and would be able to offer a near unbeatable option for advertisers; At least in the short term. This is one area of concern that no doubt the regulators will want to consider closely. Money drives the mare and smaller player will be hard-pressed to attract ad revenues.

The Issue of Media ‘Voices’ & Democracy

The proposed RJR/Gleaner consolidation also raises real issues pertaining to media voices not only because these two entities stand at the forefront of the Jamaican landscape for traditional media but also based on the number of persons they employ as well as the revenues they pull in. Reported at $3.2 Billion for the Gleaner and $2.0 Billion for RJR, this is in excess of the combined earnings of several smaller media entities. Who pays the piper calls the tune.

Audiences, such as those who voiced concerns via Twitter, are justified in raising the alert to issues of potential threats to democracy by way of media control, with the possible shutting out of some/certain voices. I say media ‘control’ more so than ownership since both RJR and the Gleaner are traded on the stock market in Jamaica. Additionally, RJR, the reported leader in this merger, has a ceiling of about 12 percent on share ownership by any single individual/organization.

Although RJR’s ownership rule may be strictly adhered to, tracking ‘connected parties’ is not always easy. It is conceivable that someone or a group of persons, through share purchase by others on their behalf, could arrive at ownership dominance. Clearly though, once revealed, corrective steps would be instituted. But yes, one can understand concerns re media ownership being consolidated in the hands of a few persons and how this can stifle plurality of positions on national issues such as elections.

More Nuanced Reading of RJR/Gleaner Merger Needed

On the face of it regulators and others may be quickly inclined to baulk at the proposed RJR/Gleaner merger, however, a more nuanced analysis is essential to place the merger in proper perspective. This must take into consideration global and local trends such as the migration of media to online platforms, growth of online advertising, entry of telecos into cable TV, the mobile, social lifestyles of millennials (now the largest population cohort), and other trends that toll the near-death knell for traditional media such as print newspapers and local free-to-air TV unless they innovate and change.

Additionally, there is much more to arguments about media ‘voices’ and democracy than obtained during the era when traditional media reigned unchallenged. The All Media Survey reported potential Internet users in Jamaica as 1,676,000. This is the largest potential market of any media and shows an 82 percent growth over the past seven years. It compares to declines by other media, with newspapers showing about 27% falloff in potential market over the past 10 years and radio 25%.

The coming together of RJR and the Gleaner is a smart survival strategy when one examines international and local trends. Regarding the protection of democracy and media ‘voices’, regulators and the Court need to be fully informed and objective in their analysis of this merger. There is no place for knee-jerk reactions. Clearly though, if it goes through, job will be lost. Workers who equip themselves for a more nimble and digitally-driven media entity will win.