SABC EXTERNAL ENVIRONMENT
TABLE OF CONTENTS
1 INTRODUCTION
2 THE SABC MEDIA MARKET
3 MARKET STRUCTURE
3.1 Concentration in the market
3.2 Product differentiation
3.3 Barriers to entry
3.4 Cost structures
3.5 Vertical Integration
4 TYPES OF MARKET STRUCTURE
4.1 Monopoly
4.2 Oligopoly
4.3 Monopolistic competition
4.4 Perfect competition
5 EXTERNAL FACTORS AFFECTING THE SABC
5.1 Economic conditions
5.2 Technological forces
5.3 Regulatory forces
5.4 Global forces
5.5 Social Forces
5.6 Synergy
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6 CONCLUSION
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THE SABC EXTERNAL ENVIRONMENT
1. INTRODUCTION.
The main aim of this discussion is to describe and analyse the external environment in which the SABC
operates, in order to determine which type of market structure can be found in the market.
The South African Broadcasting Corporation (SABC) is South Africa’s national public broadcaster with a
strategic purpose of broadcasting for the total empowerment of its citizens. As such it is obliged to offer
the public a comprehensive range of distinctive programmes and services. Therefore, it must educate,
inform, entertain and develop culture and education and as far as possible secure fair and equal
treatment for the various cultural groupings in the nation.
That being said, although the SABC is a state owned enterprise, like any other business must it must
maintain efficient, profitable operations to meet the expectations of the stakeholders. It also faces
challenges that many other media firms face, for example competition for audiences, technological
advancement etc.
This discussion will be divided into three parts. Firstly it will define the media market in which the SABC
operates. Then describe the current market structure the SABC finds itself in and lastly the core part of
the essay will evaluate the forces affecting the SABC and its markets and how these impact on the
organisation and function of the SABC.
2. THE SABC MEDIA MARKET
In the media industries, the terms target audience and target market are sometimes used
interchangeably. Though not exactly synonymous both terms refer to reaching a type of audience.
Specifically, media outlets try to attract enough of an audience to obtain a dominant share of the market
(Albarran 2013:24). But what exactly is a market?
Albarran (2013:24) draws the definition from the study of economics that describes market as a “place
where consumers and sellers interact with another to determine the price and quantity of the goods
produced”. According to this definition we see that a market comprises of three elements: buyers,
sellers and products. The sellers are the actual radio and television stations, satellite service providers
that make the products in the form of radio and television programmes for the buyers which are the
consumers of the content produced; as well as advertisers.
It is axiomatic that media companies operate in a dual-product market. This means that while a media
company produces one product, they participate in a second good and service market (Albarran
2013:24). This dual product model works by first creating content for sale to consumers and then selling
that mass audience to prospective advertisers. So media firms create content that attracts a general or
specific audience and then those audiences are then measured, priced and packaged and sold to
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advertisers. With regards to television, the SABC has three free-to-air channels, Sabc 1, 2 and 3. The
stations will produce television programmes to attract a measurable audience and then sells that
audience to interested advertisers, who will purchase time and space during the shows. Sabc 1 for
example targets the “NOW GENERATION”, which is young South Africans who are highly materialistic
and full of aspirations; they are highly fast paced and greatly influenced by advertising, they are often
first to try out new things and love variety and choice. Advertisers both local and national seek access to
these packaged audiences by purchasing space in such media. As the demand for advertising rises,
companies charge higher prices to increase revenues and profits. According to advertising consultant
Gerard Kavonic, Sabc’s 1 television soapie Generations has a weekly viewership of more than six million
and due to its popularity, advertising is prohibitively expensive. A thirty second advertisement can cost
an upward of R130000 excluding VAT (Advertising on SABC, 2012). On the other hand a show that enjoys
less popularity like 50/50 will cause a decline in advertising expenditures. Audiences are measured by
ratings. The higher the audience rating, the higher the advertising cost during the show. It is the same
with radio. Ukhozi Fm, Metro FM enjoy the biggest slice of the audience share and advertising on these
radio stations will be much higher than on Classic FM or Goodhope FM.
In addition to operating in a dual-product market, media companies also function in specific geographic
markets. Some media outlets operate in national markets and others such as local radio stations and
television stations operate and compete within a regional area, however in most digital platforms as
well as the internet, geography is of little consequence as users must simply be connected to the
Internet to be engaged (Abarran 2013:25).
The SABC operates in various geographic markets, from local to national and even in various forms of
digital formats. The SABC provides nineteen radio station, as well as four television stations. The
broadcasts of radio stations owned by the SABC, range from local to national, some offering their service
on the internet.
Ukhozi FM, by far the largest radio station broadcasting in isiZulu is a semi-national radio station with a
public broadcasting mandate. The broadcasting regions include KwaZulu -Natal, Gauteng, the north east
of the Eastern Cape and some parts of the North-West province and Limpopo. SAFM covers news and
canvasses the opinion of the country. It is an English radio station that broacasts nationally and also
offers live Internet radio. Phalaphala FM is a contemporary radio station targeting the upwardly mobile
Tshivenda speaking people in the Gauteng and Limpopo regions. Ikwekwezi FM is also a regional radio
station. It broadcasts in Ndebele in mostly Mpumalanga, Gauteng and Limpopo. MetroFM is the SABC’s
youth station that targets black professionals. It is also operates nationally but offers Internet radio for
those who choose not to be bound by geography.
From the examples provided above, it is clear that the SABC operates in a range of geographic markets.
It is a major player in several markets and encounters competitors in each market as well as different
consumers.
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3 MARKET STRUCTURE
Albarran(2013;26) states that although the structure of a market depends on many factors, several
important criteria help identify the type of market structure. These interconnected characteristics of a
market include concentration of buyers and sellers in the market place, differentiation among products,
barrier to entry, cost structures and vertical integration
3.1 Concentration in the market
When progressively fewer organisations control an increasingly a bigger share of the media market, the
market is considered concentrated. Concentration in the market is considered to an important
dimension of market structure as it is thought to determine both the market power of competitors and
opportunities for consumer choice (Xu J: 2005).
3.2 Product differentiation
Product differentiation is a marketing strategy businesses use to distinguish a product from similar
offerings in the market. SABC news will want to distinguish itself from E news for example in an effort to
strengthen brand loyalty and create a perception that there are no substitutes available on the market.
Radio stations too, would offer different formats to distinguish themselves from the similar programmes
on the airwaves
3.3 Barriers to entry
Barriers to entry are obstacles new sellers must overcome before they can enter a particular market
(Albarran 2013:26). In a media market, capital investment is the biggest obstacle newcomers must
overcome. The high tech equipment needed to produce television and radio programmes run into
millions of rand and for a newcomer with little capital investment, this will be extremely cumbersome.
The broadcasting industry is also heavily regulated and that could also be a barrier to entry for
newcomers
3.4 Cost structures
Albarran(2013:27) explains that cost structures are expenses needed to create products in a market.
Total costs represent a combination of fixed costs and variable costs. Fixed costs are those needed to
produce one unit. For example, the SABC would quantify how much it costs to produce the prime time
new bulletin. Because of their high fixed costs, media industries, especially cable and satellite television
lead to concentration. Variable costs are those such as labour and raw materials which will depend on
the quantity produced.
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3.5 Vertical Integration
This refers to when a firm controls multiple aspects of production, distribution and exhibition of its
products.
4 TYPES OF MARKET STRUCTURE
Market structure refers to the way a market is structured (O’Connor 2004:387). It focusses on those
aspects of a market that have an influence the behaviour of companies and consumers. So, market
structure basically concerned with organisational and other characteristics that affect the nature of
competition and pricing. The most important features to remember about market structure are the
numbers, price and distribution of buyers and sellers as this determines how close a market is to perfect
competition or to monopoly(or maybe somewhere in between).
Albarran(2013:28) asserts the four types of market structure as monopoly, oligopoly, monopolistic
competition and perfect competition.
4.1 Monopoly
This is where a single seller or producer of a product exists in a market and dominates the market. A
true monopoly offers no clear substitute for the products and buyers must either purchase the goods or
abandon the product. Historically the SABC has had a monopoly over television broadcasting. From the
inception of television broadcasting in 1976, the SABC enjoyed a monopoly over broadcasting as there
was no alternative and media users either had to purchase the service or relinquish it altogether. It was
only in 1986 when the SABC’s monopoly was challenged by a subscription based service known as MNet. This monopoly was further eroded by the lauch of the first free-to-air channel called Etv in 1998.
From this it is clear that the SABC in this current market does not operate in in this market.
4.2 Oligopoly
In contrast to monopoly, oligopoly is a market characterised by a small number of producers/sellers of a
product. A product can be homogenous or differentiated. In this market, a small number of firms follow
the lead of a single major company. For example, American Motors, Ford follow the pricing lead of US
giant general Motors. Since the launch of M-Net in 1986, Multichoice in 1995 and Etv in 1998, the SABC
finds itself operating in this market. Though competition for audiences and advertisers is strong, the
product itself is relatively homogenous, for example, reality shows, movies, sitcoms and talk shows.
Barriers to entry in an oligopoly are significantly high.
4.3 Monopolistic competition
Monopolistic competition exists when many sellers offer similar products that are not perfect
substitutes for one another (Albarran, 2013:29). Barriers to entry are fewer here as compared to an
oligopoly. In this market each firm will attempt to differentiate its product by various methods including
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advertising, promotion, location, service and quality. Magazines as well as television syndicated shows
are a perfect example of this type of structure. The SABC’s model does not allow it to operate in this
type of market structure.
4.4 Perfect competition
Perfect competition is an idealised market in which every market participant is too small to affect the
market price on its own. In this type of market no buyer or seller has market power. Generally, perfect
completion is characterized by the fact that no seller has any influence on the price of product they sell.
When no single firm dominates, barriers to entry do not exist. In the electronic media there are no
examples of a perfect competition (Albarran, 2013:29). The SABC cannot operate in this market as
perfect completion is characterized by many buyers and sellers.
5 EXTERNAL FACTORS AFFECTING THE SABC
The third part of this discussion is extremely important because, it focusses on the external forces that
the SABC and any other company must be aware of as these factors will greatly influence its operations.
In a constantly changing environment it is of paramount importance that organisations regularly analyse
the general environment in which it operates. The SABC is no exception. This section of the essay will
focus on the external environment of the SABC and how these forces have an impact on the internal
operations of corporation. These include economic conditions, technological forces, regulatory forces,
global forces, social forces and synergy
5.1 Economic conditions
Economic conditions refer to the number of economic factors that affect the general business cycle in
both national and local markets (Abarran, 2013:29). The state of the economy pervades all aspects of
organisational life. As key economic conditions fluctuate, it impacts consumers as well as businesses and
the electronic media is no exception to the phenomenon. If the local economic condition begin to
decline, so does the spending trend of consumers as they become more conservative with their money.
Retail sales drop significantly and businesses are then forced to lower their advertising spending, as a
result dropping the potential revenues for the electronic media. Advertising is the key source that
generates income for the SABC. For example, for the 2012/13 financial year, television advertising
revenue for the SABC was about R3.3 billion, a drop from the R3.5 billion reached in 2011/12 financial, a
decrease of 406 million. Other key economic indicators include the rate of inflation, low employment
trends, retail sale, measures of effective buying, housing developments and changes in the interest rates
and tax law. Inflation rate is the increase in prices over a given time period. The current rate of inflation
in South Africa is 3.9%. When inflation is less, this means that consumers spend less on basket goods
and have more money to spend on other things. When consumers have money, companies want them
to spend it on their products, which results in creased advertising. This is where the media comes to
play. The media can sell their audiences to advertisers, thus making money. As stated earlier, if there is
no money to spend, then advertising decreases and the SABC and other media outlets contract their
potential earnings
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5.2 Technological forces
The electronic media industry relies heavily on technology to meet their primary function of production,
distribution and exhibition of their content. Technological forces play an increasingly pivotal role in
creating and changing an organisation’s task environment. This is evident in the industry’s move away
from analogue to digital broadcasting which is causing a total overhaul to the SABC. Digital migration will
open up new frequencies and enable new competitors to launch, resulting in further audience
fragmentation. Technology allows for the lowering of barriers in boundaries and time. Audiences can
listen to the radio or watch television on mobile devices anywhere and at any time. This constitutes in
media houses making content interesting any time of the day. This is in stark contrast of how the SABC
has been operating historically, and to remain relevant, the SABC must overcome these technological
challenges.
5.3 Regulatory forces
Governments, political parties and legal forces directly affect the structure of the media markets and
their activities through legislation and other actions (Albarran, 2013:30). State owned broadcasters are
especially susceptible to this phenomenon. When the first democratic elections took place in 1994, the
SABC found itself no longer under the control of the National Party but now having to face a
restructuring under the newly elected ANC government. The SABC is controlled by a board of members
who are selected through public hearings and appointed by the State President. These board members
are responsible for matters of policy. The South African legislation, in particular, the Broadcasting
Amendment Bill, allows for parliament to dismiss the entire board. This means that whichever political
party enjoys a majority in parliament can dismiss the board of the SABC. Criticisms have been levelled
against the SABC to be leaning in favour of the ruling ANC. This was evident in events leading to the
2014 general elections when the SABC refused to air advertisements of various opposing political
parties. As a parastatal, the SABC has a political mandate that directly impacts on the strategy and
scheduling programmes.
5.4 Global forces
According to the Abarran(2013:32) global forces can be best understood by recognising that the media
industries produce products that that are marketed around the world. The growth of trade blocks has
opened such as the European Union, African Union, and North American Trade Agreement has opened
up new markets for trade and commerce, including the electronic media (Albarran, 2013:32). Although
South Africa is considered a developing nation, it is a media savvy nation. Statistics from the South
African Advertising Research Foundation shows that 48% of South Africa’s adult population read
newspapers, 22 million watch television and 25 million listen to the radio. This means that soon the
media market in South Africa will become satiated and media outlets must look outside the Republic for
expansion. The SABC has the need to expand into the African regional media markets with the launch of
television channels SABC Africa and Africa2Africa.
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5.5 Social Forces
Society is forever evolving, and not only in terms of demographics but also because of the converging,
economic, technological, regulatory and global forces described above. In South Africa, urbanization is
increasing the South African market. With the increase in salary South Africa is beginning to see a new
black middle class, moving up the social and Living Standard Measure (LSM) ladder, and the SABC must
cater for this. SABC 1 and Metro FM are perfect examples of how the SABC is catering for this new social
class. On the obverse side of the coin, however, due to this increase in urbanisation, a lot of vernacular
radio stations and community radio stations will lose listeners to commercial stations. The impact that
HIV/AIDS has, as well as unemployment will also have a negative impact on the SABC
5.6 Synergy
These external forces have such an impact on the communication industry that from a management
perspective it makes sense for media firms to create alliances and partnerships with other media
companies. Globally this is an accepted practice of doing business. These partnerships are designed to
create the synergy possible between two companies. (Abarran, 2013:34). The SABC has cooperated
with pay channel Multichoice to co-host sporting events, in the interest of synergy.
6 CONCLUSION
In conclusion, it is absolutely clear from the above discussion that dealing with external forces
proactively leads to organisational success. The SABC can become more flexible, innovative, and
cost effective. Political interference is also a great stumbling block that leads to mistakes in the
execution and implementation of strategy because a number of incompetent managers who
are politically connected were employed. However despite the best laid plans, external forces
do happening locally and nationally will impact on the running of the organisation. Managers
must always be alert of these forces if they are to navigate such challenges.
SOURCES CONSULTED
Albaran AB 2013. Management of Electronic and Digital Media, Fifth Edition
O’Connor DE 2004. The Basics of Economics, fourth Edition
The South African Broadcasting Corporation. 2011. Annual Report
http://www.sabc.co.za
Independent Communications Authority of South Africa. Annual Report
http://www.icasa.org.za
Xu J 2005. Market Research Handbook: Measurement Approach and Practices
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