Kenya: New Broadcast Regulations a Blow to Media Investors

Tuesday, 09 February 2010

If the broadcasting regulations gazetted at the end of 2009 are fully implemented, media companies stand to lose a good part of their business - bad news for investors in one of Kenya’s thriving industries. By Andrea Bohnstedt. Regulatory Transition When President Mwai Kibaki signed the Kenya Communications (Amendment) Bill 2008 into law in early 2009, it had only been after a heated engagement with the media owners. The omnibus bill was a mixed bag: Sections that provided a legal framework for e-commerce and online transactions were welcomed, but the document also included clauses that gave the government e.g. the right to raid and take over broadcasting houses – unsurprisingly, media companies were vociferously opposed to this. Eventually, the president ordered Attorney General Amos Wako to revise the law. But the bill was merely the first round: In November 2009, in Gazette notice no. 1207, the government published the subsidiary legislation to the act, the regulations on broadcasting and radio frequencies. The regulations are the second step in the transition process of Kenya’s regulatory framework for the broadcasting industry: The new Communications Act had consolidated the functions of licensing and frequencies allocation under the CCK, and gave the minister the power to issue policy guidelines and impose public interest obligations. It also provided a broadcasting services framework and set out obligations to the CCK with respect to content, including local programming. The regulations now specify the licensing regime and other issues for the broadcast industry. And media owners have, again, protested, arguing that the modifications to the existing licensing regime have far-reaching implications that effectively threaten the survival of their business: Cutting Media Owners Down to Size? The regulations require all current broadcasters to reapply for their licenses, but do not clarify under which conditions the license will be given: This remains at CCK’s discretion. And, crucially, new licenses are no longer open-ended. This might have been less of a concern if licensing processes in Kenya were clear and transparent. But with the country’s history of administrative and regulatory bottlenecks that always created avenues for rentseeking, this certainly becomes a concern to media owners. License terms matter as many have made investments with a time horizon of 10 years and beyond on the assumption that they have an open-ended license. Potentially even more damaging, broadcasters will be restricted to one frequency in either TV or radio: Anyone who has more than one broadcast license, whether TV or radio, will be required to surrender all but one frequency within the period of one license term, to be defined by the CCK – and without any compensation. For several media houses, this effectively means that they will have to give up the better part of their business. In keeping with this, applications for new licenses are restricted: nobody but the public broadcaster, KBC, will be entitled to more than one frequency. At the same time, the public broadcaster may apply for commercial license and compete with private broadcasters. In addition, government will regulate foreign ownership and also cross ownership, i.e. can prevent a company from owning both a newspaper and a broadcast license. Kenya has one of the most vibrant media sectors on the continent, with currently four major media groups. All of them have more than one broadcast license: The Nation Media Group has the daily newspaper with the largest circulation and, in the broadcasting sector, runs a TV station and two radio station. The Standard Group has the second-largest newspaper, a TV station and is preparing to launch a radio station. Royal Media have the widest broadcasting outreach through Citizen, the biggest TV station, and 13 radio stations. Radio Africa owns five radio stations, a now national newspaper and two newly launched TV stations (Kenya: Kiss TV and Classic TV: Specialisation and Local Content ). If there is any change in shareholding of any radio or TV station, it has to be approved by CCK to determine whether transfer of shares is ‘in conformity with sector policies and other criteria’. Broadcasters cannot lease or transfer frequencies without CCK permission. Regulating Revenues and Creating Liabilities   The regulations also aim to regulate revenues and expose broadcasters to a host of onerous liabilities: The broadcasting regulations no longer allow advertisers to sponsor a news broadcast or weather forecast, currently the biggest source of revenue for most broadcasters. Infomercials can no longer be broadcast during prime time. Since regulations for content already exist, media owners feel it is unreasonable that the government should seek to regulate revenues as well. Section 33.3 contains new regulations requiring broadcasters to ensure, before broadcasting an advertisement, that the claims in the ad have been adequately substantiated by the advertiser. Media owners argue that this is typically the responsibility of the advertising standards board. Again, this creates uncertainty and potentially significant liabilities. Section 36.1 obliges broadcaster to take specific steps to ‘promote the understanding and enjoyment of programmes transmitted through its stations by people who are physically challenged or deaf‘ – the latter being patently impossible for radio stations. Play Money? The regulations stipulate the introduction of a Universal Service Fee of up to 1% of annual revenues, ostensibly to be used for the nationwide extension of broadcast services. Some media owners, however, already have a national broadcast license and have indicated their willingness to cover the entire country, so they question why they should an additional charge for something they have already agreed to do. A similar fund had been proposed for the telecoms industry, and mobile operators have also protested against it, arguing that their financial obligations to the state were already heavy, and that they had little confidence that such a fund would be managed sensibly by and on behalf of government. Media owners do not have more confidence in government than the mobile network operators: How the fund will be managed is another huge question mark, they argue, and so the fund only creates yet another opportunity for corruption and influence peddling at the Ministry of Information and the CCK. It also acts as major disincentive to media investors. Implications Media owners feel that the publication of the regulations was done in bad faith: rushed and without any consultation with the industry. Regulations do not have to go through parliament, so there was no public scrutiny when they were written, and the government appears to have deliberately avoided a dialogue with the industry. When media owners voiced their objections to several sections and sought an official meeting with the Ministry of Information and the CCK, the meeting was terminated halfway through by Permanent Secretary Dr Bitange Ndemo. Several days later, another notice was published soliciting comments from the public, and at the end of December 2009, the Kenya Communications (Broadcasting) Regulations 2009 were gazetted. The impact of the new regulations, if maintained unchanged, is far-reaching. They undermine revenues in the industry by disallowing one of the broadcast industry’s main revenue earners. For corporates seeking to advertise, a fragmented media landscape becomes inefficient and therefore costlier. Higher marketing costs will be passed on to the consumer. In the media industry, they reduce economies of scale and impose artificial limits on growth, which also places local media organisations at a disadvantage to foreign media. The regulations create new and unjustified liabilities for media companies and open them up to court cases, with damaging financial implications. Government stands to lose tax revenues, and There are estimates that the media groups will have to terminate the contracts of 89 to 90% of their staff, creating more unemployment. From an investor’s perspective, the regulations create a licensing framework that forces them to give up a large part of their business without compensation, and introduces significant uncertainty for the broadcast industry. They restrict the timeframe of that investment and impose an entirely arbitrary time limit to be defined by the CCK. Worryingly, there is no clause requiring all broadcasters to be treated equally, which, alongside the lack of definite criteria on licensing, opens the door to corruption and influence peddling. Media owners have made significant investments based on a long-term time frame afforded by open-ended licenses. Ultimately, government sends a signal that investments will not be protected. Perspectives Government claims that the new regulations, especially on foreign ownership and cross ownership, are intended to create a conducive environment for competition in the media. There is some public sympathy for stricter regulations in the media sector as many people feel that radio stations in particular place too much emphasis on frivolous and overtly sexual content, but undermining the economic viability of media houses and fragmenting the sector is hardly going to lead to quality improvements in content. Kenya’s media sector is vibrant and relatively independent: the economy is strong enough to sustain several media groups, and so the state-owned broadcaster finds lively competition from the private sector. The media’s shortcomings notwithstanding – and there are many, from lack of skills to journalists’ willingness to take bribes to either publish or not publish certain items -, they have kept politicians on their toes, and have a huge sway over their audiences. This, media owners suspect, is the real reason for the restrictive regulations. There are suspicions that the regulations have little to do with competition or content concerns, but were made to render the broadcast industry more pliable ahead of the next elections in 2012, and grant more leeway to supportive media houses. The disputed elections in December 2007 had harboured some indications of things to come: Not only did journalists receive death threats from both sides in the weeks following the contentious elections, but Dr. Ndemo also forbid live broadcasts. The state-owned broadcaster KBC had been used for the rushed announcement of President Mwai Kibaki’s disputed election win. And that government does not necessarily need a legal basis for interference with media houses became clear in the arson attack on the Standard, which then Internal Security Minister John Michuki defended with the ominous statement "If you rattle a snake, you must be prepared to be bitten." Recently, Dr. Ndemo had claimed a ‘drafting error’ in the regulations – not an explanation that convinced anyone, but possibly a sign that government is willing to negotiate on some points. However, it is not clear whether government is willing to consider the most restrictive provisions. If there is no momentum at all, media owners will challenge the regulations in court, triggering a myriad of law suits. And it is likely that the dispute will not only be fought out in the courts: Many radio stations have tribal and political alliances, so opposition to the regulations will lead to political agitation across the board – a risk factor that could ignite the persistent tensions since the last elections. In adopting such a heavy-handed approach to one of its most vibrant industries, Kenya’s government sends a signal that political expediency will override the protection of existing investment. It also contradicts the stated intention to diversify the economy and create more jobs in the knowledge and services economy. And, finally, it is shortsighted in that it overlooks less controllable information channels: When John Githongo gave his dossier about the AngloLeasing corruption case to the media, much of the information, including taped conversations with ministers, were available online. It may be possible to bully print and other domestic media into submission, but controlling information in the digital age is practically no longer possible. The number of people who have access to the internet is still relatively lower in Kenya than those who listen to radio, but this is changing, and changing rapidly with the dynamic rollout of internet services, increasingly through data-enabled mobile handsets. 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