Business

Saturday August 15, 2009

Transformation of a media group

By ANITA GABRIEL


IT’S been a decade (short of a year) since Abdul Rahman Ahmad, together with comrade and Cambridge mate Shahril Ridza Ridzuan, entered the embattled corporate Malaysia post-Asian financial crisis. Scepticism among Malaysians was at its peak as the crisis had unravelled the extent of mismanagement in many government-linked companies.

Critics were waiting to pounce on Rahman, then 30, deemed as a “turnaround specialist” from Danaharta with an unblemished track record and tasked with heading the beleaguered Malaysian Resources Corp Bhd (MRCB) group. He was after all, one of the first in the crop of fresh, young professional managers hand-picked by Tan Sri Nor Mohamed Yakcop (then Second Finance Minister) who was leading the charge on the clamour for change, dubbed as the “GLC Makeover”.

Rahman’s mandate – to clean up MRCB’s debt-laden books, get the cash flowing in and sharpen its business case. This included two other listed entities in the stable – Sistem Televisyen Malaysia Bhd and The New Straits Times Press (Malaysia) Bhd.

With time clearly not a friend, barely two months later, the chief executive officer of MRCB unveiled a complex debt revamp followed by a slice and dice exercise; the group was divvied up into two – media under the Media Prima banner, headed by Rahman and property/construction and engineering under MRCB headed by Shahril.

Come Sept 1, it's a wrap for Rahman's long and no doubt bitter-sweet stint at Media Prima

“I was the CEO at that point and he was the executive director (so I had the choice),” he jokes, and then seriously adds: “I wasn’t particularly good at property and construction and he (Shahril) was well versed in them. I was passionate about media. So, we decided that we go where our strengths lie.”

Stepping aside

Come Sept 1, it’s a wrap for Rahman’s long and no doubt, bitter-sweet stint at Media Prima. He will join the newly-set up national private equity fund – Equiti Nasional Bhd (Equinas) as CEO but not before he takes a much-deserved extended break to “refresh before the new assignment”.

“It’s been educational, exhilarating and challenging,” says Rahman in an interview with StarBizWeek.

Rahman leaves behind a group that is structurally, operationally and financially different, larger and steadier than when he first came in, thanks largely to him. “We had to get our hands dirty and do really basic stuff – motivate and create passion,” he recalls.

Work in the “trenches” obviously paid off. By 2003 and 2004, debts had whittled down and the loss tide was stemmed. In fact, the group was back in money-making business.

“We could have said it was good enough as there was no push to do more. We were very profitable, not hugely profitable but pretty solid. Where do we go from here? We decided to push and challenge ourselves on growing the business,” says Rahman.

From owning a single private television network (TV3), the group has plumped up its media assets through a deliberate and aggressive acquisition plan. Today, it owns a virtual monopoly (90% share) on the country’s free-to-air TV industry networks, having acquired 8TV, ntv7 and TV9.

Further hitching a ride on the acquisition wave was the radio business. Unfazed by its failure to secure a radio licence, the company went hunting and took home three radio stations – Fly FM, One FM and Hot FM.

And to further beef up its cross media interests, it scooped up another asset, this time outdoor advertising firm Big Tree Outdoor. This sealed the deal for the group as an integrated group with multiple media platforms (FTA TV, radio, outdoor and print).

As a result, it has managed to reduce its dependence on a single revenue source. If there is one most noteworthy strategy the management led by Rahman would have to be commended for, then this would be it.

While the FTA TV business remains the group’s chief revenue contributor, its share of the pie has reduced; in the first quarter ended March 2009, it contributed some 68% to group revenue, down from 76% in FY08 and 81% in FY07. In place, contribution from radio and outdoor has risen to 8% and 16% in 1Q09 from 4% and 9% respectively in FY07.

Chinks in the armour

In a July report, RAM Ratings says management of Media Prima lies in the hands of a group of individuals who have extensive experience in the media business.

It notes that there has been some changes to the management and board lately “following changes in the political arena” and expects there will be a smooth transition following the retirement of Rahman, as succession planning is in place.

Still, there remains some chinks in the armour which Rahman’s designated successor Datuk Amrin Awaluddin, currently the chief operating officer, will need to sort out.

For one, its 70%-owned seed asset Primedia (TV 5 Philippines) led Media Prima to register bigger-than-expected losses in 1Q09 of RM23mil from a net profit of RM17mil in 1Q08. If one strips off the exceptional item – RM13.3mil share of loss from Primedia – core net loss would have been narrower at RM10 mil. Thus far, Primedia’s cumulative losses total RM64mil.

The Media Fund is Rahman’s brain child to scour opportunities abroad without diluting the strength of Media Prima’s financial status. The idea was to get investors to come in and take up stakes in the Media Fund. Media Prima would have a minority stake in the fund but have management control of the assets. The first asset on the table was Primedia. But the crisis came and with that liquidity dried up and investors went scurrying for cover.

“It’s my brainchild. I take full responsibility. But the strategy is right and I’ll defend it. It’s just that the financial climate turned over,” says Rahman.

It has set a deadline of September to resolve the issue, by divesting the asset or bringing in a strategic investor. If that does not materialise and if it does not cease the operations of the company to cap the adverse impact on the group, then it’ll be a headache that Amrin, like it or not, will inherit.

Stones left unturned

There are other issues Amrin would have to tackle. Rahman himself admits that if he had stayed on, it would be top on the agenda – to reduce the overdependence on advertising expenditure (adex). Adex currently accounts for 90% of group revenue, not altogether an unfamiliar trait in the general media business given its fixed cost model which makes it vulnerable to the wild swings in ad spend.

“It’s not easy but we need to figure out how to grow the consumer-base revenue from TV, radio and outdoor. That’s the challenge – to diversify our income into consumer-base revenue. Get them to pay for our content via online video-on-demand, mobile content, channel content or so forth. But the issue is distribution.

“Honestly, our organisation is not geared towards that. We are totally focused on getting viewers by giving stuff for free. But this is the next stage. I’m quite sure my successor will be thinking about and executing this,” he says.

Media Prime closely tracks the fortunes of the industry’s adex which in turn is strongly correlated with the country’s GDP performance. As such, the country’s 6.2% GDP contraction in 1Q 2009 was well reflected by Media Prima’s revenue which had diminished 12% year-on-year to RM141mil over the same period, RAM highlights.

Never a good time to leave

By most accounts and if you believe the pundits, it would appear that the worst is over. Still, no one dares to bet on it. Understandably, Rahman is not bursting with optimism either: “The second quarter will continue to see contraction from 2Q08. But in July, for the first time things are looking up. But there is still no clarity. Advertisers’ forward purchases are getting shorter and shorter and we don’t really have a sense of what is going to happen even in October. But we are hopeful.”

Indeed, hope is a word Amrin will be strongly holding on to as he steers the media group forward in these challenging times. Already, as speculated over the week, things are bustling within the group. A plan is being hatched to take its associate NSTP private. That’s an exercise Amrin will have to push through.

Could Rahman have waited to leave when there’s more clarity instead of now, when it still remains challenging? He replies:

“It’s never a good time to leave. I’ve been thinking about it for a year. At that point, the economic slowdown was not (that) visible. But after going through 3 phases of this journey – restructuring, organic growth and expansion – I decided to leave. Otherwise, I have to do another three years and that would make it 11 years!

“It’s an accelerating ride. It has taken a lot also personally especially during the early years, and I have no complaints.

But I want a break. We have developed a very strong team. I need to let go to allow them to believe in themselves to bring the company to the next level. I know they are capable.”

 
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