Naspers invests in broadband, mobile TV

Johannesburg, 07 Dec 2006

JSE-listed publishing giant Naspers has increased its investment in mobile television and broadband, says a report by Merrill Lynch.

The analysis firm, which this morning released the report dated 28 November, says Naspers "substantially" increased its spend on research and development, although this was expected.

"Spending on development costs more than doubled to R449 million." Of this, about 28% went into the printing side of the business in emerging markets.

Merrill Lynch estimates the balance was split equally between broadband and mobile TV. "These expenses, aimed at growing operations organically, were not unexpected and were broadly in line with management guidance."

Naspers recently confirmed market rumours that it was the mystery buyer behind Johnnic Communications' decision to sell its stake in M-Net.

On 15 November, the company said it was buying the 38.56% stake in M-Net and SuperSport for around R3.145 billion, as it seeks to consolidate its holdings as television enters a new era.

Naspers commented at the time that it made sense to consolidate M-Net and SuperSport's interests as television migrates from analogue to digital, high-definition television enters the marketplace and competition heats up.

In a statement to shareholders, Naspers said these factors "will increase costs and capital expenditure", resulting in the decision to consolidate the assets.

"Looking forward, the introduction of several competitors, coupled with the recent weakening of the rand relative to the US dollar, is expected to drive up M-Net/SuperSport's programming costs. This will cause turbulence and affect profitability over the next few years."

Pay TV drives revenue

Pay TV, notes Merrill Lynch, has been a significant driver of Naspers' bottom line. The company delivered "strong results in line with expectations" for the first half of 2007, and reported revenue up 22% to R9.1 billion.

Headline earnings per share outperformed expectations and increased by 22% year-on-year to R4.39, beating Merrill Lynch's estimate by 2.5%.

This, said the firm in its report, was "predominantly driven by the pay-TV operations, boosted by the impact of the Soccer World Cup on advertising revenue and subscriber growth".

Subscribers increased by 8.4% year-on-year, to 2.072 million, just shy of the 2.1 million anticipated figure. However, revenue was up 24% and its margin expanded almost 2%, to 36.5%, which Merrill Lynch mostly attributed to a 17% increase in higher margin digital subscribers.