TV Africa's application for liquidation signalled the end of a US$57 million vision for a pan-African television network. Although funded in part by the World Bank's IFC, the business model was fatally flawed. Kevin Bloom reports.

A few short years ago it seems TV Africa was close to pulling off the incredible and long-cherished dream of a pan-African television network. In an advertising feature placed in the 2001 edition of Financial Mail's Adfocus, the company's management were confident enough to declare they had "proved that doing business in Africa [could] be lucrative". They proudly announced a 264% jump in sales for the year to December 2000, and forecast a 2001 sales growth of 248%.

Then, in October 2003, TV Africa went into liquidation. There had been no mention in that advertising feature of how much was being spent, nor of the major flaws in the business model. Launched in 1998 by former advertising executive Dave Kelly and sports broadcaster Barry Lambert, TVAfrica's official model was based on the network television system common in the United States.

The company would supply broadcast affilliates across Africa with up to 80% of their content, in return for which they would take commercial air-time minutes and sponsorphip rights for revenge generation. "Advertisers can target audiences regionally or continentally, getting global brands to viewers through a single purchase or placement of a single ad", said Kelly of the 200 million viewers he felt TV Africa could eventually deliver to multinational clients.

Of course, funding that kind of footprint was never going to be easy. Costs, which in 1998 sat at US$1, 9

million for programming and US$1, 3 million for operations, had shot up exponentially four years later. The US$10,4 million spent on programming in 2002 was attributed to "the continued acquisition of more popular programmes and the broadcast rights to major [sporting] events". Operating costs the same year of US$8, 5 million were explained in terms of the company's expansion and its "related requirement for more affiliates and additional people".

Against these costs, 2002's revenue came in at US$7 million, resulting in a net loss for the period of just under US$13 million. This was seen as a relative success against 2001's US$15,3 million loss (the abovementioned 248% sales jump for the year had not come off), which was accounted for by "management distractions arising from a prolonged fund raising process combined with a global recession in ad-spending".

But something more endemic than management diversions and spend slumps was hurting cash flow. For a while a number of affiliates had been blocking adverts sold by TV Africa, replacing them with slots they had sold themselves. TV Africa could not deliver on its flighting guarantees, and thus could not bill clients. Sponsorship posed a similar problem. "The affiliates would resell sponsorship packages and earn local revenue in their own countries," says Kemp, chief executive of African Extension, an African market media independent that tracked flightings for TV Africa. "[During one sporting event] there were eight logos on the screen. There are serious control issues on how you stop that".

And while the on-selling issue certainly was damaging, according to Kemp and others it was still not the major defect in TV Africa's business model. There was less publicised aspect to the model, a design that drew heavily on merchant banking. In an "investment case" document released to attract more funding when the company began to flounder last year, it was stated that African Media Group (AMG), TV Africa's principal Mauritius -based shareholder, "also considers partnerships with start -up companies that have appropriate licenses to broadcast".

The document shows that TV Africa held 30% equity in STV of Kenya and 49% in CTVAUL of Uganda, and held an option to acquire up to 26% in GBC TV of Botswana "as consideration for previously supplied programming content. "TV Africa was funded [as a model] that would provide broadcasters content in return for equity, "says Kemp. "But government broadcasters cannot give up equity [and] the private broadcasters were not interested as they would rather pay for the content".

Business Day journalist Charlotte Matthews touched on this "fundamental mistake" in an interview with BBC News: "One of the problems was that [TV Africa] tied up with smaller TV broadcasters in various countries. They weren't linked up with the major stations which are generally government -owned. So who were the funders, and why did they not see the flay? At the time of liquidation, AMG had committed US$57 million to TV Africa, a significant percentage of which came from the International Finance Corporation (IFC), the private sector investment arm of the World Bank.

The IFC declined to answer specific questions relating to TV Africa's failure, but did inform The Media they were "saddened by the necessity to file an application for liquidation" and that AMG's continued inability to meet its sales forecasts convinced the shareholders that the business, as structured, was not viable in the long-term".

As for the injury to the dream of pan-African television, a vision now certain to become even more plagued by investor nervousness, the IFC's response was suitably diplomatic. "Despite the situation, IFC and the World Bank Group continue to recognise that broadcasting can play an important role in economic development and poverty reduction by serving as a potential tool for information transfer and education; a method to improve governance; and a potential access point to new information and communication technologies".

Yet the reality is that these ideals will not be achieved without sound business models and a genuine potential for investment returns. When TV Africa went under there were 39 affiliates in 23 countries and the firm's debts had risen to R23 million, far exceeding the asset base of R16 million. Some affiliates, such as the Namibian operation, plan to continue broadcasting but many will close or return to what the Zambezi Times calls "the era of programme piracy".

The positive spin on this is that Africa is still a massive and largely under-serviced broadcast market with authentic opportunities for those that understand the environment.

There's also a particular view on TV Africa's collapse that is strangely optimistic: It was a result of bad management, a lack of appreciation for the subtleties of operating on the continent, and minimal experience in the broadcast space. "We were keen to go with TV Africa into the continent, "says e.tv director Quraysh Patel, " but we found that they didn't understand the market the same way we did. I was also concerned about their debt structures". Add Kemp: "The management team hadn't traded or operated in Africa before. They assumed their affiliation with multinational advertisers would carry them through, but those mulnationals had already paid their school fees".

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