20-F 1 naspers20f.htm ANNUAL REPORT Annual Report


As filed with the Securities and Exchange Commission on September 30, 2004.

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F
 
(Mark one)
 o
     REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 x         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended: March 31, 2004
 
OR
 
 o      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to Commission file number 1-14917

NASPERS LIMITED
(Exact name of Registrant as specified in its charter)
 
Republic of South Africa
(Jurisdiction of incorporation or organization)
 
40 Heerengracht
Cape Town, 8001
The Republic of South Africa
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
None
(Title of Class)
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
 
Class N ordinary shares, nominal value Rand 0.02 per share*
 
American Depositary Shares, each representing ten Class N ordinary shares, nominal value Rand 0.02 per share
(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 
None
(Title of Class)
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
 
296,816,639
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes       X        No              
 
Indicate by check mark which financial statement item the Registrant has elected to follow.
Item 17               Item 18       X      

*Not for trading, but only in connection with registration of American Depositary Shares.

 
 

 
     

 

 
TABLE OF CONTENTS
 
     Page No.
     
 Our Use of Terms and Conventions in this Annual Report  

 ii

     
 Accounting Periods and Principles     

 ii

     
 Forward Looking Statements     

 ii


PART I
 
   
ITEM 1.
Identity of Directors, Senior Management and Advisers
3
ITEM 2.
Offer Statistics and Expected Timetable
3
ITEM 3.
Key Information
3
ITEM 4.
Information on the Company
15
ITEM 5.
Operating and Financial Review and Prospects
54
ITEM 6.
Directors, Senior Management and Employees
91
ITEM 7.
Major Shareholders and Related Party Transactions
102
ITEM 8.
Financial Information
105
ITEM 9.
Offer and Listing
108
ITEM 10.
Additional Information
108
ITEM 11.
Quantitative and Qualitative Disclosures About Market Risk
120
ITEM 12.
Description of Securities Other than Equity Securities
122
 
PART II
 
   
ITEM 13.
Defaults, Dividend Arrearages and Delinquencies
122
ITEM 14.
Material Modification to the Rights of Security holders and Use of Proceeds
122
ITEM 15.
Disclosure Controls and Procedures
122
ITEM 16A.
Audit Committee Expert
 
ITEM 16B.
Code of Ethics
 
ITEM 16C.
Principal Accountant Fees and Services
 
 
PART III
 
   
ITEM 17.
Financial Statements
124
ITEM 18.
Financial Statements
125
ITEM 19.
Exhibits
E-1
  Index to Annual Financial Statements

 F-1

 
i
     



OUR USE OF TERMS AND CONVENTIONS IN THIS ANNUAL REPORT
 
Unless otherwise specified or the context requires otherwise in this annual report on Form 20-F:
 
·   references to "Naspers", "Naspers group", "group", "we", "us" and "our" are to Naspers Limited together with its subsidiaries, unless the context suggests otherwise;
 
·   references to "MIH Limited" are to MIH Limited together with its subsidiaries with respect to any period prior to December 20, 2002, and to MIH (BVI) Limited together with its subsidiaries thereafter;
 
·   references to "Rand", "R" and "ZAR" are to South African Rand, the currency of South Africa;
 
·   references to "U.S. dollar(s)", "dollar(s)", "U.S. $" and "$" are to United States dollars and cents, the currency of the United States;
 
·   references to "Euro" and "€" are to the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty establishing the European Economic Community, as amended by the Treaty on the European Union;
 
·   references to "Pound sterling" are to United Kingdom pounds sterling, the currency of the United Kingdom;
 
·   references to "Renminbi" or "Yuan Renminbi" are to Chinese Renminbi, the currency of the People’s Republic of China; and
 
·   references to "Thai Baht" and "Baht" are to Thai Baht, the currency of Thailand.
 
ACCOUNTING PERIODS AND PRINCIPLES
 
Unless otherwise specified, all references in this annual report to a "fiscal year" and "year ended" of Naspers refer to a twelve-month financial period. All references in this annual report to fiscal 2004, fiscal 2003, fiscal 2002, fiscal 2001 or fiscal 2000 refer to Naspers’ twelve-month financial periods ended on March 31, 2004, March 31, 2003, March 31, 2002, March 31, 2001 and March 31, 2000, respectively; references in this annual report to fiscal 2004 refer to the period beginning April 1, 2003 and ending March 31, 2004. Our group consolidated financial statements included elsewhere in this annual report have been prepared in conformity with South African Statements of Generally Accepted Accounting Practice ("South African GAAP"), which differ in certain significant respects from accounting principles generally accepted in the United States ("U.S. GAAP"). See note 42 to Naspers’ audited consolidated financial statements included elsewhere in this annual report.
 
FORWARD LOOKING STATEMENTS
 
The U.S. Securities and Exchange Commission ("SEC"), encourages companies to disclose forward looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This annual report contains historical and forward looking statements concerning the financial condition, results of operations and business of Naspers. All statements other than statements of historical fact are, or may be deemed to be, forward looking statements.
 
Forward looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward looking statements include, among other things, statements concerning the potential exposure of Naspers to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions.
 
These forward looking statements are identified by their use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "objectives", "outlook", "probably", "project", "will", "seek", "target" and similar terms and phrases. These statements are contained in the sections entitled "Key Information", "Risk Factors", "Information on the Company", and "Operating and Financial Review and Prospects", and in other sections of this annual report. The following factors, among others, could affect the future operations of Naspers and could cause those results to differ materially from those expressed in the forward looking statements included in this annual report:
 
·   the political, social and economic risks which exist in all countries in which Naspers and its joint ventures operate;
 
·   adverse regulatory developments;
 
·   restrictions imposed by South Africa’s exchange control regulations;
 
·   market risks related to fluctuations in the exchange rates and interest rates in countries in which Naspers and its joint ventures operate;
 
·   the high level of Naspers’ debt and funding difficulties Naspers may face;
 
·   the possibility that Naspers may not be able to access cash flows from its subsidiaries and joint ventures;
 
·   dependence on suppliers, partners and local governments;
 
·   the possibility that satellites used by Naspers, or its printing equipment or facilities, may fail to perform or be damaged;
 
·   competitive pressures facing Naspers’ businesses which may result in declining subscriber levels;
 
·   unauthorized access to Naspers’ programming signals;
 
·   the macroeconomic conditions in South Africa;
 
·   the strength of trade unions;
 
·   the ability to enforce foreign judgments against Naspers and its directors and officers;
 
·   cyclical fluctuations in the demand for advertising;
 
·   the rapid pace of technological change;
 
·   our reliance on software and hardware systems, which are susceptible to failure;
 
·   our reliance on content developed by third parties and our susceptibility to claims made in connection with such content; and
 
·   the degree to which our intellectual property rights are protected.
 
All subsequent forward looking statements are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. You should not place undue reliance on forward looking statements. Each forward looking statement speaks only as of the date of the particular statement. Naspers undertakes no obligation to publicly update or revise any forward looking statement as a result of new information, future events or other information. In light of these risks, Naspers’ results could differ materially from the forward looking statements contained in this annual report.
 



ii

     

 
PART I
 
ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.   KEY INFORMATION
 
3.A.   Selected Financial Data
 
The following tables show selected consolidated financial data for Naspers as of and for the fiscal years ended March 31, 2000 through 2004. We derived the selected consolidated financial data from our audited consolidated financial statements. You should read this selected consolidated financial data together with "Operating and Financial Review and Prospects" and Naspers’ audited consolidated financial statements and the notes thereto appearing elsewhere in this annual report.
 
Naspers prepares its consolidated financial statements in accordance with South African GAAP. There are significant differences between these principles and U.S. GAAP. Note 42 to Naspers’ audited consolidated financial statements includes a description of these differences and contains a reconciliation from South African GAAP to U.S. GAAP for the determination of net profit/(loss) and shareholders’ equity.
 
Naspers’ audited consolidated financial statements have been prepared in Rand. Amounts shown in U.S. dollars have been translated for convenience from Rand amounts to U.S. dollars at the noon buying rate on March 31, 2004 of Rand 6.31 per U.S. $1.00. You should not view such translations as a representation that such Rand amounts actually represent such U.S. dollar amounts, or could be or could have been converted into or at any other rate.
 
 
 

 
Year ended March 31 
     
     
2000
   
2001
   
2002
   
2003
   
2004
   
2004
 
 
Rand in millions, except share data
 
 
U.S. $ in millions, except per share data
 
                                       
Consolidated Income Statement Data:
                                     
South African GAAP:
                                     
Revenue, net   
   
7,249.1
   
9,020.4
   
10,699.9
   
12,203.9
   
12,804.5
   
2,029.2
 
Operating expenses:   
                                     
Cost of providing services and sale of goods   
   
(4,445.4
)
 
(5,174.1
)
 
(6,055.8
)
 
(6,706.4
)
 
(6,593.5
)
 
(1,044.9
)
Selling, general and administration   
   
(2,378.5
)
 
(3,557.1
)
 
(3,748.6
)
 
(4,013.7
)
 
(3,771.8
)
 
(597.8
)
Depreciation and amortization   
   
(443.1
)
 
(655.1
)
 
(1,099.6
)
 
(1,102.2
)
 
(1,119.6
)
 
(177.4
)
Impairment of program rights   
   
   
   
   
(155.3
)
 
(31.0
)
 
(4.9
)
Financial costs, net(1)   
   
(196.7
)
 
(322.6
)
 
(430.9
)
 
(246.7
)
 
(664.1
)
 
(105.3
)
Income from investments   
   
5.8
   
0.8
   
3.9
   
0.1
   
0.3
   
0.1
 
Share of equity accounted results   
   
6.9
   
(0.3
)
 
17.1
   
1.4
   
3.1
   
0.5
 
Exceptional items   
   
3,790.6
   
812.8
   
4.8
   
61.3
   
47.9
   
7.6
 
Profit / (loss) before tax and minorities   
   
3,588.7
   
124.8
   
(609.2
)
 
42.4
   
675.8
   
107.1
 
Profit / (loss) from continuing operations   
   
3,262.0
   
152.2
   
(389.6
)
 
(276.9
)
 
371.4
   
58.9
 
Profit / (loss) from discontinuing operations   
   
130.7
   
847.7
   
(605.3
)
 
(140.8
)
 
   
 
Profit / (loss) arising on discontinuance of operations     
   
    (952.2 )   750.9          
 
Net profit / (loss)    
   
3,392.7
   
999.9
   
(1,947.1
)
 
333.2
   
371.4
   
58.9
 
                                       
Per share amounts
                                     
Basic
                                     
Profit / (loss) from continuing operations   
   
26.64
   
1.09
   
(2.67
)
 
(1.56
)
 
1.44
   
0.23
 
Profit / (loss) from discontinuing operations   
   
1.07
   
6.06
   
(4.16
)
 
(0.80
)
 
   
 
Profit / (loss) arising on discontinuance of operations     
   
    (6.53 )   4.25    
   
 
 
 
 

 
  3  

 

 
 
Net profit / (loss)   
   
27.71
   
7.15
   
(13.36
)
 
1.89
   
1.44
   
0.23
 
                                       
Diluted
                                     
Profit / (loss) from continuing operations   
   
25.61
   
1.09
   
(2.67
)
 
(1.56
)
 
1.40
   
0.22
 
Profit / (loss) from discontinuing operations   
   
1.02
   
5.71
   
(4.16
)
 
(0.80
)
 
   
 
Profit / (loss) arising on discontinuance of operations       
   
   
(6.53
)  
4.25
   
   
 
Net profit / (loss)   
   
26.63
   
7.04
   
(13.36
)
 
1.89
   
1.40
   
0.22
 
                                       
Weighted average shares outstanding
                                     
Basic   
   
122,457,667
   
139,896,409
   
145,691,868
   
176,527,751
   
257,813,528
   
257,813,528
 
Diluted   
   
128,886,650
   
148,368,287
   
151,297,104
   
182,132,987
   
265,187,939
   
265,187,939
 
                                       
Dividend per A ordinary share (cents)(2)
   
   
   
   
5
   
6
   
1.0
 
Dividend per N ordinary share (cents)(2)
   
22
   
24
   
24
   
25
   
30
   
4.8
 
                                       
                                       
Consolidated Income Statement Data:
                                     
U.S. GAAP:
                                     
Revenue, net   
         
8,168.7
   
9,861.4
   
11,208.6
   
11,526.1
   
1,826.6
 
Operating profit / (loss)   
         
(1,966.4
)
 
(2,355.8
)
 
(63.0
)
 
1,042.6
   
165.2
 
Profit / (loss) from continuing operations   
         
(739.7
)
 
(2,582.0
)
 
(889.6
)
 
495.3
   
78.5
 
Discontinued operations   
         
1,994.2
   
(2,665.0
)
 
528.0
   
   
 
Cumulative effect of change in accounting principle   
         
   
18.4
   
(531.5
)
 
   
 
Net profit / (loss)(3)   
         
1,254.5
   
(5,228.5
)
 
(893.1
)
 
495.3
   
78.5
 
                                       
Per share amounts
                                     
Basic
                                     
Profit / (loss) from continuing operations   
         
(5.29
)
 
(17.73
)
 
(5.04
)
 
1.92
   
0.30
 
Discontinued operations   
         
14.26
   
(18.29
)
 
2.99
   
   
 
Cumulative effect of change in accounting principle(4)   
         
   
0.13
   
(3.01
)
 
   
 
Net profit / (loss)   
         
8.97
   
(35.89
)
 
(5.06
)
 
1.92
   
0.30
 
                                       
Per share amounts
                                     
Diluted
                                     
Profit / (loss) from continuing operations   
         
(4.68
)
 
(17.73
)
 
(5.04
)
 
1.87
   
0.30
 
Discontinued operations   
         
13.44
   
(18.29
)
 
2.99
   
   
 
Cumulative effect of change in accounting principle(4)   
         
   
0.13
   
(3.01
)
 
   
 
Net profit / (loss)    
         
8.76
   
(35.89
)
 
(5.06
)
 
1.87
   
0.30
 
                                       
Consolidated Balance Sheet Data (at period end):
                                     
South African GAAP:
                                     
Total assets   
   
9,690.1
   
18,372.9
   
17,871.0
   
13,373.1
   
13,092.5
   
2,074.9
 
Net assets   
   
2,358.6
   
10,098.6
   
5,687.0
   
3,808.7
   
3,417.5
   
541.6
 
Capital stock(5)    
   
1,626.0
   
1,626.9
   
1,857.1
   
4,513.4
   
4,592.0
   
727.7
 
Total long-term debt(6)   
   
3,258.4
   
3,507.5
   
5,510.4
   
3,060.2
   
2,622.0
   
415.5
 
Minority interests   
   
1,178.1
   
7,546.1
   
4,324.5
   
305.1
   
235.0
   
37.2
 
Total shareholders’ equity   
   
1,180.6
   
2,552.7
   
1,362.5
   
3,503.6
   
3,182.5
   
504.4
 
U.S. GAAP:
                                     
Total assets   
         
30,126.3
   
23,750.5
   
12,896.2
   
11,318.1
   
1,793.7
 
Net assets   
         
21,431.1
   
11,116.8
   
3,306.5
   
3,376.1
   
535.0
 
Total long-term debt(6)   
         
3,779.4
   
5,742.6
   
3,843.9
   
2,815.6
   
446.2
 
Minority interests   
         
14,307.0
   
7,967.6
   
257.4
   
187.3
   
29.7
 
Total shareholders’ equity   
         
7,124.1
   
3,149.2
   
2,779.1
   
3,188.9
   
505.4
 
                                       
Other Data:
                                     
                                       
South African GAAP:
                                     
Cash flow from operating activities   
   
635.0
   
91.1
   
(235.6
)
 
1,271.9
   
1,636.6
   
259.4
 
Cash utilized in discontinued operations   
   
(299.2
)
 
(432.5
)
 
(574.0
)
 
(277.0
)
 
(5.8
)
 
(0.9
)
Cash flow from investing activities   
   
(2,323.4
)
 
(732.4
)
 
(1,162.6
)
 
162.8
   
(555.1
)
 
(88.0
)
Cash flow from financing activities   
   
3,795.7
   
1,375.0
   
797.1
   
(649.6
)
 
(554.7
)
 
(87.9
)
___________
 

 
  4  

 

(1) Includes interest expense, interest income, preference dividend income, foreign exchange gains and losses and fair value adjustments on derivative instruments.
 
(2) Based on the U.S. dollar exchange rate at the respective payment dates of the 2004, 2003, 2002, 2001 and 2000 dividends. The U.S. dollar equivalent of the dividend per Class N ordinary share was U.S. $0.04, U.S. $0.03, U.S. $0.02, U.S. $0.03 and U.S. $0.03, respectively.
 
(3) For U.S. GAAP reporting purposes, effective April 1, 2002, Naspers adopted Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Under SFAS No. 142, goodwill and intangible assets with indefinite useful lives are not amortized but rather are tested at least annually for impairment. If this standard would have been adopted for fiscal years 2002 and 2001 the adjusted net profit/(loss) would have been Rand (3,842,228) and Rand 2,424,922, respectively, and basic and diluted earnings per share for those years would have been Rand (26.37) and Rand (26.37) in fiscal 2002 and Rand 17.34 and Rand 17.13 in fiscal 2001, respectively.
 
(4) The cumulative effect of change in accounting principle for fiscal 2003 relates to the adoption of SFAS 142. Upon completion of the transitional test, Naspers recorded an initial goodwill impairment of Rand 531.5 million. The cumulative effect of change in accounting principle for fiscal 2002 of Rand 18.4 million relates to the fair value of fair value hedges recorded on adoption of SFAS 133 "Accounting for Derivative Instruments and Hedging Activities".
 
(5) Excludes long-term debt and redeemable preferred stock.
 
(6) Includes long-term liabilities in respect of capitalized finance leases, concession liabilities, interest-bearing loans, program and film rights liabilities and non-interest bearing loans.
 
 
Exchange Rate Information
 
The following tables show, for the periods and dates indicated, certain information regarding the U.S. dollar/Rand exchange rate. The information is based on the noon buying rate in the City of New York for cable transfers in Rand as certified for United States customs purposes by the Federal Reserve Bank of New York. On September 21, 2004, the rate was Rand 6.447 per U.S. $1.00.
 

Year ended March 31,
Average Rate(1)
(Rand per U.S. $1.00)
   
2000
6.191
2001
7.341
2002
9.643
2003
9.572
2004
7.161
___________
 
(1) The average rate is calculated as the average of the noon buying rate on the last day of each month during the period.
 
 
High
Low
 
(Rand per U.S. $1.00)
April 2004
6.940
6.265
May 2004
7.053
6.515
June 2004
6.640
6.165
July 2004
6.341
5.905
August 2004
6.746
6.090
September 2004 (until September 21, 2004)
6.680
6.447
 
For other important information, you should read the discussion of South African exchange controls in Item 10 of this annual report under the heading "Exchange Controls".
 

 
  5  

 

3.D.   Risk Factors
 
Risks relating to countries in which Naspers and its joint ventures operate
 
Naspers’ multinational operations expose it to a variety of economic, social and political risks
 
There is an element of risk in all countries in which Naspers operates. A majority of Naspers’ revenue comes from its operations in South Africa. Naspers may be significantly affected by political, social and economic changes in countries where Naspers has significant operations. The incidence of HIV/AIDS infection in a number of markets in which Naspers operates is high and is forecast to increase over the next decade. Those at risk may include both Naspers’ employees, giving rise to increased sickness and disability costs for Naspers, and its customers, resulting in a reduction in sales and an inability to grow Naspers’ revenue base.
 
There has been a period of significant change in South Africa since the democratic government came to power in 1994. Some government policies designed to alleviate and redress the inequalities suffered by the majority of citizens under the previous government may have an adverse impact on business. In particular, Naspers cannot predict to what extent the government will continue to introduce legislation or other measures designed to empower previously disadvantaged groups nor can it assess the potential impact of these reforms.
 
South Africa and some other African countries have experienced high levels of crime and unemployment in recent years. These problems have impeded fixed inward investment into these countries and have prompted some emigration of skilled workers. As a result, Naspers may have difficulty in attracting and retaining suitably qualified employees. Against the background of past political tensions and the current transition to stable democratic governments, it is not possible to predict the future economic or political direction of these countries. Matters that may affect African countries’ future economic and political direction include whether their governments can successfully address the various political, social and economic challenges and the effect of the continuing integration of these African economies with the economies of the rest of the world.
 
Naspers also operates in other countries, including Thailand and China, through its shareholding in MIH Holdings Limited ("MIH Holdings"). MIH Holdings’ operations in these emerging markets may involve significant economic and operating risks. Many countries in Asia have experienced difficulties resulting from currency fluctuations, high interest rates, increases in corporate bankruptcies, stock market declines and other factors that may materially and adversely affect MIH Holdings’ business. Although governments in many of these countries have taken steps toward addressing these problems, it is not possible to predict whether or to what extent these steps will succeed in achieving their objectives.
 
South Africa’s economy has recently experienced periods of low growth, high inflation and unemployment
 
The South African economy has been growing at a moderate rate, inflation and unemployment have been high by comparison with developed countries and foreign reserves have been relatively low. The growth in South Africa’s GDP was 2.2% for 2001, 3.0% for 2002 and 1.9% for 2003. South Africa’s unemployment rates were 29.4% in September of 2002, 28.2% in September of 2003, and 27.8% in March 2004. The rapid depreciation in value of the Rand against the U.S. dollar during the latter part of 2001 put upward pressure on South Africa’s inflation rate (Consumer Price Index excluding interest rates on mortgage bonds - CPIX) during the 2002 calendar year, peaking at 11.3%. During 2003 and 2004, the inflation rate decreased as the Rand appreciated in value against the U.S. dollar and was 4.2% in July of 2004. The South African Reserve Bank has stated that it intends to maintain South Africa’s inflation rate at between 3% and 6% per year. Despite such intentions, there can be no assurance that these inflation targets will be met. A future increase in inflation would increase financing and other costs in a manner that could adversely affect Naspers’ profitability.
 
South African exchange control restrictions could affect Naspers’ normal corporate functioning
 
South Africa’s exchange control regulations provide for a common monetary area consisting of South Africa, the Kingdom of Lesotho, the Kingdom of Swaziland and the Republic of Namibia. Exchange controls may continue to operate in South Africa for the foreseeable future. As a consequence of these exchange controls, an acquisition of shares or assets of a South African company by a non-resident purchaser will require exchange control approval if the payment for the acquisition is in the form of shares of a non-resident company or if the acquisition is financed by a loan from a South African resident. Denial of any required regulatory approval may result in the acquisition not occurring.
 

 
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South Africa’s interest rates may increase Naspers’ borrowing costs
 
The volatility of the Rand in past years has impacted the prime lending rate in South Africa, as the South African Reserve Bank has attempted to manage inflation by increasing interest rates. Depreciation of the Rand has therefore resulted in higher interest rates in South Africa over the last decade than in most developed countries which had more stable currencies over that period. The prime lending rate in South Africa reached a five-year high of 20.0% in 1999. The prime lending rate of 11% on September 15, 2004 was at its lowest level over the past 20 years mainly due to the significant appreciation in value of the Rand against most major currencies over the past two years. An increase in interest rates in South Africa would increase Naspers’ cost of capital, as some of its borrowings are denominated in Rand.
 
Naspers could suffer losses as a result of fluctuations in foreign currency exchange rates
 
Naspers’ reporting currency is the Rand. Naspers conducts, and will continue to conduct, business transactions in currencies other than its reporting currency. In fiscal 2004, approximately 32.2% of Naspers’ revenue was generated outside South Africa. Naspers is exposed to foreign exchange risk primarily with respect to the U.S. dollar, the Baht, the Renminbi and the Euro against the Rand, which has in the past significantly affected and could in the future significantly affect Naspers’ revenues, financing costs and general business and financial condition. In addition, fluctuations in the exchange rate of these currencies could significantly affect the comparability of Naspers’ performance between financial periods, as a portion of Naspers’ sales are made in currencies other than Rand while Naspers’ financial statements are stated in Rand.
 
A significant portion of Naspers’ cash obligations, including payment obligations under satellite transponder leases and contracts for pay-television programming and channels, are denominated in the currencies of countries in which Naspers has limited operations, such as U.S. dollars. Where Naspers’ revenue is denominated in local currency, a depreciation of the local currency against the U.S. dollar adversely affects Naspers’ earnings and its ability to meet cash obligations. Many of Naspers’ operations are in countries or regions that have experienced substantial depreciation of the local currency against the U.S. dollar in recent years. Naspers cannot assure you that the hedge transactions it enters into to mitigate currency risk will fully protect it against currency fluctuations, or that Naspers will be able to hedge effectively against these risks in the future.
 
The Rand and Baht have at times in the past depreciated against the currencies of their major trading partners by more than the difference in the inflation rate between South Africa and Thailand and their major trading partners. Historically, the performance of the Rand against other currencies has been characterized by periods of rapid depreciation followed by periods of stability. In particular, the Rand rapidly depreciated against the U.S. dollar and other major currencies during the latter part of 2001. The value of the Rand against the U.S. dollar remains difficult to predict and vulnerable to significant depreciation. Since December 2001, the Rand has significantly appreciated against the U.S. dollar, ending fiscal 2004 at Rand 6.31. The Rand depreciated after March 31, 2004 to Rand 6.447 on September 21, 2004. Any strengthening of the Rand will have a negative impact on the U.S. dollar based earnings of the group, but a positive impact on its dollar based expenses. Naspers cannot predict the future relative strength of the Rand or Baht against the U.S. dollar and expects that these currencies will remain volatile against major currencies like the U.S. dollar and the Euro.
 
In addition, fluctuation in the exchange rate between the Rand and the U.S. dollar could adversely affect the market value of Naspers American Depositary Shares ("ADSs") and the real value of dividends paid on the ADSs.
 
The strength trade unions could adversely affect Naspers’ business
 
As of March 31, 2004, trade unions represented some of Naspers’ world-wide employees. A number of trade unions have close links to various political parties. In the past, trade unions have had a significant influence as vehicles for social, economic and political reform and in the collective bargaining process. Naspers cannot assure you that the cost of complying with labor laws will not adversely affect its operations.
 
Because Naspers is a South African company, you may not be able to enforce judgments against Naspers and its directors and officers that are obtained in U.S. courts
 
Naspers is incorporated in South Africa. Most of Naspers’ directors and executive officers reside outside the United States. Substantially all the assets of Naspers’ directors and executive officers and substantially all Naspers’ assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon Naspers or its directors or executive officers, or to enforce against such persons judgments of the United States courts based upon the civil liability provisions of the Federal securities laws or other laws of the United States or any of its states. Although foreign judgments are recognized by South African courts, they are generally not directly enforceable in South Africa
 

 
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and can only be enforced by way of execution of an order to that effect made by a competent South African court, the latter court basing its order upon the judgment of the foreign court.
 
The policy of South African courts is to award compensation only for loss or damage actually sustained by the person claiming the compensation. Punitive damages are generally not recognized by the South African legal system, on the grounds that such awards are contrary to South African public policy. Whether a judgment is contrary to public policy depends on the facts of each case. Exorbitant, unconscionable or excessive awards will generally be contrary to South African public policy. South African courts cannot consider the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. South African courts will usually observe their own procedural laws, and where an action based on a contract governed by the laws of a foreign jurisdiction is brought before a South African court, the capacity of the parties to contract may under certain circumstances be determined in accordance with South African law. A plaintiff who is not resident in South Africa may be required to provide security for costs where proceedings are initiated in South Africa. In addition, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated by way of the apostille procedure in terms of the Hague Convention 1961 before they may be used in South Africa. Also, foreign judgments concerning the ownership, use or sale of any matter or material connected with South African commerce (such as production, import and export) require consent from the South African Minister of Trade and Industry to be enforced in accordance with the South African Protection of Business Act, 1978. Naspers has been advised by Webber Wentzel Bowens, its South African counsel, that there is doubt as to the enforceability against Naspers and its directors and officers in South Africa of liabilities predicated solely upon the Federal securities laws of the United States.
 
Risks relating to Naspers’ business
 
Naspers’ level of debt could adversely affect its business and competitive position
 
Naspers has an amount of debt that may adversely affect its business in numerous ways. As of March 31, 2004, Naspers had total debt (including finance leases and debt in respect of program and film broadcasting rights) of approximately Rand 3.87 billion, or U.S. $613.9 million. On the same basis and as of the same date, Naspers’ ratio of total debt to equity equaled 1.22. Naspers’ debt could, among other things:
 
·   increase its vulnerability to adverse economic conditions or increases in prevailing interest rates, particularly where borrowings are or will be made at variable interest rates;
 
·   limit its ability to obtain additional financing that may be necessary to operate, develop or expand its business;
 
·   require Naspers to dedicate a substantial portion of its cash flow from operations to service its debt, which in turn reduces the funds available for operations, future business opportunities and dividends; and
 
·   potentially place Naspers at a competitive disadvantage relative to competitors with less debt.
 
Naspers’ ability to make payments on its debt will depend upon its future operating performance, which is subject to general economic and competitive conditions, many of which are outside Naspers’ control. If the cash flow from Naspers’ business and its operating subsidiaries is insufficient to make payments on its debt or is otherwise unavailable, Naspers may have to delay or reduce capital expenditures, attempt to restructure or refinance its debt, sell assets or raise additional equity capital. Naspers may not be able to take these actions on satisfactory terms, in a timely manner or at all.
 
Naspers depends on access to cash flow from its subsidiaries and joint ventures, and limitations on accessing the cash flow may adversely affect Naspers’ business operations and financial condition
 
Naspers Limited is structured as a holding company and has no significant business operations or assets other than its interests in its subsidiaries, joint ventures and other investments. Accordingly, Naspers Limited relies upon distributions from its subsidiaries, joint ventures and other investments to generate the funds necessary to meet the obligations and other cash flow requirements of the combined group. Naspers Limited’s subsidiaries and joint ventures are separate and distinct legal entities that have no obligation to make any funds available to Naspers Limited, whether by intercompany loans or by the payment of dividends. The ability of Naspers Limited to utilize the cash flow from some of its subsidiaries, joint ventures and associated companies is subject, in South Africa, Thailand, China and other countries, to foreign investment and exchange control laws and also to the availability of a sufficient quantity of foreign exchange. In particular, substantially all the cash flow generated by Naspers’ South African businesses cannot be currently utilized outside South Africa without exchange control approval. Naspers’ non-South African subsidiaries may be subject to similar restrictions imposed by their respective home countries. In addition,
 

 
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because the consent of some of Naspers Limited’s joint venture partners is required for distributions from Naspers Limited’s joint ventures, Naspers Limited’s ability to receive distributions from the joint ventures is dependent on the co-operation of its joint venture partners. The interests of the minority shareholders of some of Naspers Limited’s subsidiaries and associates must be considered when those subsidiaries and associates make distributions. Accordingly, Naspers Limited cannot assure you that it will be able to obtain cash from its subsidiaries, joint ventures and other investments at the times and in the amounts required by Naspers Limited. Any failure by Naspers Limited to receive distributions from its businesses could restrict its ability to provide adequate funding to the combined group and otherwise meet its obligations. Naspers Limited’s business units may face funding and liquidity difficulties under the terms of the financing arrangements upon which they depend. Each Naspers Limited business relies on its own separate credit facility and financing, to the extent necessary. Naspers Limited has not to date provided any parent company guarantees in respect of bank borrowings. Several of the credit facilities and other financing arrangements contain financial covenants and other similar undertakings and requirements. If these covenants, undertakings or requirements are violated, the financing may not be available and the relevant business unit could face liquidity difficulties. In addition, many of the different group credit facilities must be renewed annually by the relevant lenders.
 
Naspers’ businesses operate in highly competitive and rapidly changing industries, and increased competition could adversely affect Naspers’ results of operations and financial condition
 
Pay-television. Although Naspers is currently the leading provider of pay-television services in most of its markets, Naspers competes directly with both state owned and private national free-to-air broadcast networks and regional and local broadcast stations for audience share, programming and advertising revenue and indirectly with motion picture theatres, video rental stores, mobile telephones, lotteries, gaming and other entertainment and leisure activities for general leisure spending. Naspers cannot determine the nature or extent of future competition it may face in the pay-television market. In South Africa, Naspers’ largest pay-television market, licenses may be granted in the future to other operators. In Greece, the entry of new competitors into the pay-television market remains a continuous threat. In Thailand, UBC faces competition from several provincial cable systems, most of whom do not hold official licenses. Naspers cannot predict if or when competitors will enter the pay-television markets in which it offers pay-television services nor can it predict the likely loss of revenue or increase in costs if competitors enter these markets.
 
In addition, the sale of DVD’s and broadband and wireless Internet companies providing digital pay-television content may over time erode Naspers’ traditional pay-television subscriber base.
 
Internet. The market for Internet access, communication, portal and related services is highly competitive. Naspers anticipates that competition will continue to intensify as the use of the Internet grows. The African and Asian Internet markets are characterized by an increasing number of entrants. Naspers’ competitors may better position themselves to compete in these emerging markets as they mature. Many of these competitors have longer operating histories and substantially greater financial, technical, marketing and personnel resources and better recognized brand names than Naspers. Some of Naspers’ Internet businesses may therefore never reach profitability.
 
Print media. Revenues in the print media industry are dependent primarily upon paid circulation and advertising revenues. Competition for circulation and advertising revenue comes from local, regional and national newspapers, magazines, radio, television, direct mail and other communications and advertising media that operate in the same markets as Naspers. The extent and nature of such competition is, in large part, determined by the location and demographics of the markets and the number of media alternatives available in these markets. Naspers may face increased competition as both local and international publishers introduce new niche titles. Internationally recognized titles also continue to be introduced in South Africa. Many of the print media markets are overpopulated, with too many titles relative to the size of the subscriber base. Competitors that are active in the same markets as Naspers attempt to increase their market share, circulation and advertising revenues by changing the style and layout of their publications to win new customers at the expense of Naspers’ magazines and newspapers. In addition, Naspers’ competitors may reduce the cover prices of their publications to increase their circulation. Naspers may be forced to decrease the prices it charges for magazines and newspapers in response. Naspers’ business and results of operations may be harmed as a result.
 
Other businesses. The markets for the products and services currently offered by Irdeto Access BV ("Irdeto Access") (Naspers’ conditional access technology business) and Naspers’ book publishing and education businesses are highly competitive. All three businesses operate in fragmented markets and some compete with large international players. Irdeto Access competes with numerous entities, including subsidiaries of other pay-television providers, many of which have substantially greater financial resources than Naspers. Via Afrika Limited ("Via Afrika"), Naspers’ book publishing and private education business, faces competition from several South African publishers as well as large international publishing houses, which have substantially greater resources and strong brand names. Educor Holdings Limited ("Educor"), the private education subsidiary of Via Afrika,
 

 
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faces competition from many different South African public universities and private educators, as well as from international educators, many of whom have substantially greater resources and better recognized brand names than Educor.
 
Steady or declining subscriber levels may prevent further growth of some of or all of Naspers’ businesses
 
Naspers’ largest businesses are generally in mature markets and face significant difficulties in maintaining or growing the number of subscribers. Naspers’ pay-television business in Greece has in the past experienced high levels of annual subscriber churn and decreasing subscriber numbers. Naspers’ pay-television business in South Africa is mature and total subscriber numbers have been relatively flat recently. High levels of churn and decreasing or flat subscriber numbers may be caused by competition from new entrants to the pay-television market and from other sources competing for discretionary income, economic and other local difficulties, the loss of popular sports and movie programming content and seasonality associated with the markets in which Naspers operates. Increases in prices can also lead to churn and subscriber terminations. Declining subscriber levels also adversely affect Irdeto Access, because Naspers’ pay-television operators constitute some of Irdeto Access’ primary customers. Naspers’ print media business has experienced circulation pressure due to the maturity of some of its magazine titles and newspapers in South Africa and the introduction into the market of a large number of competing magazines and newspapers. Steady or declining subscriber levels make it difficult for Naspers to grow its businesses.
 
A reduction in demand for advertising may adversely affect Naspers’ businesses and revenues
 
A portion of Naspers’ revenue is generated by advertising, which is cyclical and dependent upon general economic conditions. Traditionally, spending by companies on advertising and other marketing activities, and hence Naspers’ advertising revenue, decreases significantly in times of economic slowdown or recession. In particular, Naspers’ advertising revenues are subject to risks arising from adverse changes in domestic and global economic conditions and fluctuations in consumer confidence and spending. Consumer confidence and spending may decline as a result of numerous factors outside of Naspers’ control, such as terrorist attacks or acts of war. Global economic downturns and declining levels of business activity of Naspers’ advertisers have in the past and could in the future adversely affect Naspers’ results of operations. Newspaper and magazine advertising may decline relative to television, radio and outdoor advertising. Such trends would adversely affect Naspers’ results and financial condition.
 
Increases in newsprint and magazine paper costs could adversely affect Naspers’ results
 
Newsprint and magazine paper costs represent the single largest raw material expense for Naspers’ print media businesses and are among Naspers’ most significant operating costs. Newsprint and magazine paper costs fluctuate from time to time due to numerous factors beyond Naspers’ control, especially exchange rate fluctuations between the Rand and other currencies such as the U.S. dollar and the Euro. An increase in newsprint and magazine paper costs could adversely affect Naspers’ earnings and cash flow.
 
Naspers’ business environment is subject to rapid technological change which could render Naspers’ products and services obsolete or less competitive
 
Naspers operates pay-television and technology businesses through its holding in MIH Holdings and Internet businesses through Media24, Via Afrika and MIH Holdings. The rate of technological change affecting the pay-television and Internet industries is rapid compared to other industries. Emerging trends, such as the migration of television from analog to digital transmission and the convergence of television, the Internet and other media, are creating an unpredictable business environment. New technologies or industry standards have the potential to replace or provide lower-cost alternatives to products and services sold by Naspers. Naspers’ print media, publishing and education businesses also operate in markets that change in response to technological innovations and other factors. In particular, the means of delivering Naspers’ products, and the products themselves, may be subject to rapid technological change.
 
Naspers cannot predict whether technological innovations will make some of its products or services wholly or partially obsolete, or adversely affect the competitiveness of its businesses. Naspers may be required to continue to invest significant resources to further adapt to changing technologies, markets and competitive environments.
 
Naspers’ substantial investment in Internet related business may not produce positive returns
 
A part of Naspers’ strategy is to further develop its Internet businesses. Naspers has invested, and will continue to invest, significant amounts to develop and promote its Internet initiatives and electronic platforms. Naspers has made these investments through Media24, Via Afrika and through its shareholding in MIH Holdings, which includes M-Web Holdings (Pty)
 

 
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Limited ("M-Wed Holdings") and Sportscn. The provision of products and services over the Internet and otherwise in electronic form is highly competitive and is in relatively early stages of development.
 
Naspers may experience difficulties developing this aspect of its business due to a variety of factors, many of which are beyond Naspers’ control. These factors may include:
 
·   the acceptance of Naspers' Internet initiatives and related electronic platforms by customers;
 
·   competition from comparable and new technologies;
 
·   government regulation and control of the content and medium;
 
·   customers not accepting or not continuing to use the Internet and electric media; and
 
·   failures or difficulties with the data networks and infrastructures upon which Naspers depends.
 
Moreover, Naspers relies on third parties for the provision of local and international bandwidth.
 
Naspers’ long-term success depends on the continued development of the Internet as a commercial medium, which is uncertain in many of the countries in which Naspers has entered or may enter the Internet business. As is typical in the case of a new industry characterized by rapidly changing technology, developing industry standards and frequent new product and service introductions, demand and market acceptance for recently introduced products and services on the Internet are subject to uncertainty. Critical issues concerning the commercial use of the Internet, including the perceived lack of security of commercial data, such as credit card numbers, and capacity constraints resulting in delays, transmission errors and other difficulties may impact the growth of Internet use. These and other issues affecting the Internet industry may be aggravated in countries with less developed Internet cultures and infrastructures in which Naspers currently conducts or may in the future conduct its Internet business, including South Africa, Thailand and China. If the market for Internet access services fails to develop, develops more slowly than expected or becomes saturated with competitors, or if the Internet access and services offered by Naspers are not broadly accepted, Naspers’ growth strategy could be adversely affected.
 
The instant messaging business in China in which Naspers has an interest is dependent upon its relationship with third parties and mobile telephony operators
 
MIH Holdings’ associated company, Tencent Holdings Limited ("Tencent"), provides Internet, mobile and telecommunications value-added services to subscribers in China through two companies, which are licensed to operate these services, but in which Tencent does not hold any equity interests. Instead, Tencent relies on a series of contracts in order to recognize and receive the economic benefit of the business and operations of the two companies. These contractual arrangements may not be as effective in providing control as direct ownership of the two companies, and there can be no assurance that the contractual arrangements are in compliance with Chinese laws and regulations.
 
The revenue generated by Tencent’s instant messaging services is recognized and received under contracts with Chinese mobile telephony operators. If these operators commit errors in recording revenue or fail to pay fees due to Tencent, or if existing contracts are not renewed or less favorable terms are imposed, Tencent’s financial condition, results of operations and profitability would be materially and adversely affected. Also, if the business conditions of the mobile telephony operators deteriorate or if these mobile telephony operators impose penalties or restraints on Tencent, Tencent’s business operations and financial condition may be materially and adversely affected.
 
The mobile telecommunications markets in which Tencent operates are highly competitive, rapidly developing and subject to significant economic, regulatory and other uncertainties. In addition, the growth of Tencent’s instant messaging business will depend, in large part, on the future level of demand for mobile data telecommunications in the markets in which Tencent operates. The size of the future Tencent customer base will be affected by a number of factors, many of which are outside of Naspers’ control, such as the regulatory regime governing the provision of telecommunication services in China and the general economic conditions in the region.
 
Naspers’ businesses rely on software and hardware systems that are susceptible to failure
 
Interruptions to the availability of Naspers’ Internet services or increases in the response times of Naspers’ services caused by the failure of its software or hardware systems could reduce user satisfaction, the amount of Internet traffic and Naspers’ attractiveness to advertisers and consumers. Naspers’ publishing business also depends upon the timely functioning of software and hardware used to print newspapers and magazines and to publish books. Naspers is also dependent upon web
 

 
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browsers, telecommunication systems and other aspects of the Internet infrastructure that have experienced significant system failures and electrical outages in the past. Naspers’ operations are susceptible to outages due to fire, floods, power loss, telecommunications failures, break-ins, industrial actions and similar events. Despite Naspers implementing network security measures, Naspers’ servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with its computer systems.
 
Naspers’ business may suffer if they cannot obtain attractive programming or if the cost of television receivers increases
 
The continued success of Naspers’ pay-television business depends upon its ability to continue to obtain attractive movie, sports and other programming on commercially reasonable terms. For most of the programming, Naspers contracts with suppliers who in turn purchase programming from content providers. Much of Naspers’ premium programming is sourced through Electronic Media Network Limited ("M-Net") and SuperSport International Holdings Limited ("SuperSport"). Naspers’ film studio and sport programming contracts are up for renewal from time to time. In the event the supply contracts or underlying programming arrangements are not renewed or are cancelled, Naspers will be required to seek alternative programming from other sources. Naspers cannot be sure whether alternative programming would be available on commercially reasonable terms or whether the alternative programming would appeal to Naspers’ subscribers. Naspers’ business strategy also depends on its ability to offer attractive programming on an exclusive basis. Political, regulatory and competitive pressures are making it more difficult to maintain exclusive rights to programming.
 
Naspers’ growth depends in part upon its ability to attract new pay-television customers. Many new customers are required to purchase the equipment necessary to receive Naspers’ broadcasts. The cost of this equipment may discourage potential subscribers, and Naspers’ market penetration and growth may be impeded if the cost of this equipment increases.
 
Satellite failures could adversely affect its business and ability to grow
 
Naspers’ digital programming is transmitted to its customers through different satellites around the world, and in some regions Naspers’ terrestrial analog signal is also transmitted to regional broadcast points through satellites. In addition, Naspers receives a significant amount of its programming through satellites. Satellites are subject to significant risks. These risks include defects, launch failure, incorrect orbital placement and destruction and damage that may prevent or impair proper commercial operations. All satellites have limited useful lives, which vary as a result of their construction, the durability of their components, the capability of their solar arrays and batteries, the amount of fuel remaining once in orbit, the launch vehicle used and the accuracy of the launch. The operation of satellites is beyond Naspers’ control. Future launch failures or disruption of the transmissions of satellites that are already operational could adversely affect Naspers’ operations. Some satellites used by Naspers’ pay-television operations have experienced technical failures in the past. In addition, Naspers’ ability to transmit its programming following the end of the expected useful lives of the satellites Naspers currently uses and to broadcast additional channels in the future will depend upon Naspers’ ability to obtain rights to utilize transponders on other satellites. In the event of a satellite failure, Naspers would need to make alternative arrangements for transponder capacity. Naspers cannot assure you that it could obtain alternative capacity rights on commercially reasonable terms or at all.
 
Naspers’ business may suffer if its printing equipment or facilities are damaged or fail to perform
 
Naspers’ newspapers, magazines and educational textbooks, and a number of third party publications are printed on printing equipment and facilities owned by the group. If one or more of our printing facilities were damaged or if operations were interrupted due to a natural disaster or otherwise, the publication of some titles or textbooks could be interrupted and Naspers’ operating results could be adversely affected. In the event of such damage or destruction, Naspers would need to make alternative arrangements for printing to be outsourced. Naspers cannot assure you that it could obtain alternative printing services on commercially reasonable terms or at all.
 
Unauthorized access to Naspers’ programming signals may adversely affect Naspers’ revenues and programming arrangements
 
Naspers faces the risk that its programming signals will be accessed by unauthorized users. The delivery of subscription programming requires the use of encryption technology to prevent unauthorized access to programming, or "piracy". Naspers currently utilizes encryption technology supplied by Irdeto Access. This encryption technology, to remain effective in preventing unauthorized access, needs to continually be updated or replaced with newer technology. Naspers will continue to incur substantial expenditures to replace or upgrade its encryption technology in the future. No encryption technology is able to completely prevent all piracy, and virtually all pay-television markets are characterized by varying degrees of piracy. In addition, encryption technology cannot prevent the illegal retransmission or sharing of a television signal once it has been decrypted. If
 

 
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Naspers fails to adequately prevent unauthorized access to its transmissions, its ability to contract for programming services could be adversely affected and in any event it will lose subscribers who can then receive pirated signals.
 
Government regulations may adversely affect Naspers’ ability to conduct its businesses and generate operating profits
 
Pay-television, Internet and other media operations are generally subject to governmental regulation in the countries in which Naspers operates. In these industries, governmental regulation can take the form of price controls, service requirements, programming content restrictions, ownership restrictions, licensing requirements and restrictions on the amount of fees paid for advertising. Delays in obtaining or renewing any necessary regulatory approvals could adversely affect Naspers’ ability to offer some of or all its services. In most of the countries in which Naspers conducts its pay-television businesses, it operates under licenses obtained from governmental or quasi governmental agencies. These licenses are subject to periodic renewal, and Naspers cannot assure you that they will be renewed on terms as favorable as the existing licenses or at all. Naspers cannot assure you that adverse changes in the regulatory framework of any country in which Naspers operates will not occur in the short or long term. The media and competition regulatory frameworks in South Africa, Thailand, China and Greece are subject to change, and the relevant regulatory authorities may increase their regulation of Naspers’ businesses in these countries. Naspers cannot predict the likely impact that any such action by applicable competition and regulatory authorities could have on the operation of its businesses. In addition, there are several legislative proposals and other initiatives underway in all markets that could materially impact how Naspers conducts its business.
 
Failure to maintain Naspers’ relationships with its partners, suppliers and local governments could disrupt Naspers’ businesses
 
Many of Naspers’ operations have been developed in cooperation or partnership with key parties. With regard to these operations, Naspers is dependent on its partners to provide knowledge of local market conditions and to facilitate the acquisition of any necessary licenses and permits. Any failure by Naspers to form alliances with such partners, or the disruption of existing alliances, could adversely affect Naspers’ ability to penetrate and compete successfully in many important markets. Naspers’ businesses are dependent on their relationships with international suppliers, including major film studios (as discussed above) and book publishers.
 
Some of Naspers’ businesses may also be vulnerable to local governmental or quasi governmental entities or other third parties who wish to renegotiate the terms and conditions of their agreements or other understandings with Naspers or who wish to terminate these agreements or understandings. Adverse developments with respect to Naspers’ relationships with its partners or with local governmental or quasi governmental entities could adversely affect Naspers’ business strategy and results of operations in important markets.
 
Consolidation in the markets in which Naspers operates could place it at a competitive disadvantage
 
Some of the markets in which Naspers operates have experienced consolidation. In particular, the combinations of traditional media content companies and new media distribution companies have resulted in new valuation methods, business models and strategies. Naspers cannot predict the extent to which these types of business combinations may continue to occur in the future or the success that these combined businesses may achieve. The on-going consolidation could potentially place Naspers at a competitive disadvantage with respect to scale, resources and its ability to develop and exploit new media technologies.
 
Naspers’ intellectual property rights may not be adequately protected under current laws in some jurisdictions, which may adversely affect its results and ability to grow
 
Naspers’ products are largely comprised of intellectual property content delivered through a variety of media, including magazines, newspapers, books, television and the Internet. Naspers relies on trademark, copyright, trade secret and other intellectual property laws and employee and third party non-disclosure agreements to establish and protect its proprietary rights in these products. Naspers conducts business in some countries where the extent of the legal protection for its intellectual property rights is not well-established or is uncertain.
 
Even where the legal protection for Naspers’ intellectual property rights is well-established, Naspers cannot assure you that its intellectual property rights will not be challenged, limited, invalidated or circumvented. Despite patent, trademark and copyright protection, third parties may be able to copy, infringe or otherwise profit from Naspers’ intellectual property rights without its authorization. The lack of Internet specific legislation relating to trademark and copyright protection creates a further challenge for Naspers to protect content delivered through the Internet and electronic platforms. If unauthorized copying or misuse of Naspers’ products were to occur to any substantial degree, Naspers’ business and results of operations could
 

 
  13  

 

be adversely affected. Litigation may be necessary to protect Naspers’ intellectual property rights, which could result in substantial costs and the diversion of Naspers’ efforts away from operating its business.
 
Legal claims in connection with content that Naspers distributes may require Naspers to incur significant costs or to enter into royalty or licensing agreements, which could adversely affect Naspers’ competitive position
 
The content Naspers makes available to customers through its publishing, pay-television and Internet businesses could result in claims against it based on a variety of grounds, including defamation, negligence, copyright or trademark infringement, obscenity or facilitating illegal activities. In particular, Naspers expects that software developers will increasingly be subject to claims asserting the infringement of other parties’ proprietary rights as the number of products and competitors providing software and services increases.
 
Any such claim, with or without merit, could result in costly litigation or might require Naspers to enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be available on terms acceptable to Naspers or they may not be available at all. As a result of infringement claims, a court could also issue an injunction preventing the distribution of certain products. Naspers may incur significant costs defending these claims.
 
Risks relating to the Class N ordinary shares and Naspers ADSs
 
Existing Class A ordinary shares of Naspers have more voting rights than, and a liquidation preference over, the Class N ordinary shares and ADSs of Naspers
 
Naspers’ issued capital at March 31, 2004 consists of 712,131 Class A ordinary shares and 296,816,639 Class N ordinary shares. The Class N ordinary shares are listed on the JSE Securities Exchange South Africa and on a poll carry one vote per share. The Class A ordinary shares are not listed on any stock exchange and on a poll carry 1,000 votes per share. Naspers, through Heemstede Beleggings (Proprietary) Limited, a wholly owned subsidiary of Naspers, holds 49% of Naspers Beleggings Limited which, in turn, holds 49.15% of the Class A ordinary shares, which carry approximately 34.69% of the total voting rights in respect of Naspers’ ordinary shares. Keeromstraat 30 Beleggings Limited holds 30.80% of the Class A ordinary shares. The members of the board of directors of Keeromstraat 30 Beleggings Limited, Naspers Beleggings Limited and Heemstede Beleggings (Proprietary) Limited are also members of the board of directors of Naspers Limited. As a result, the controlling shareholders and these directors significantly influence the outcome of any action requiring approval of shareholders, including amendments to Naspers’ memorandum and articles of association for any purpose, the issuance of additional Class A or Class N ordinary shares, and mergers and other business combinations. If the interests of Naspers’ controlling shareholders and directors diverge from your interests, they may be in a position to cause or require Naspers to act in a way that is inconsistent with the general interests of holders of Class N ordinary shares and ADSs.
 
If Naspers is liquidated, holders of Class A ordinary shares will be paid the nominal value of such shares before any payment is made to holders of Class N ordinary shares or ADSs. Based on the outstanding Class A ordinary shares, this amounted to approximately Rand 14.2 million as of March 31, 2004.
 
South African company law, resolutions passed by Naspers’ shareholders and the lower voting rights of the Class N ordinary shares relative to Class A ordinary shares could deter a change in control and may adversely affect Naspers’ share price
 
Some of the provisions of the South African Companies Act, 1973 (the "Companies Act") and some of the resolutions passed annually by Naspers’ shareholders in general meeting may discourage attempts by other companies to acquire or merge with Naspers, which could reduce the market value of Class N ordinary shares and ADSs. The Companies Act requires that 75% of the total votes exercisable by all shareholders at a meeting (subject to a quorum of shareholders holding at least 25% of the total number of votes present, in person or by proxy, at the meeting) approve changes to certain provisions of Naspers’ memorandum and articles of association. In addition, Naspers’ shareholders in general meeting may annually pass resolutions that authorize Naspers’ board of directors to issue certain Class N ordinary shares and certain Class A ordinary shares without the specific approval of the holders of Class N ordinary shares.
 
The lower voting rights of the Class N ordinary shares relative to Class A ordinary shares could prevent or hinder a merger, takeover or other business combination involving Naspers or discourage a potential acquirer from otherwise attempting to obtain control of Naspers.
 

 
  14  

 

Your ability to sell a substantial number of Class N ordinary shares or ADSs may be restricted by the liquidity of shares traded on the JSE Securities Exchange South Africa or NASDAQ
 
The only trading market for Class N ordinary shares is the JSE Securities Exchange South Africa. Historically, trading volumes and the liquidity of shares traded on the JSE Securities Exchange South Africa have been low in comparison with some other markets. The only trading market for Naspers ADSs is the NASDAQ National Market ("Nasdaq"). Trading volumes of Naspers ADSs on Nasdaq have been low. As a result, the ability of a holder to sell a substantial number of Class N ordinary shares on the JSE Securities Exchange South Africa or ADSs on Nasdaq in a timely manner may be restricted. From July 1, 2003 through June 30, 2004, 297.9 million Class N ordinary shares (100.4% of the total issued) were traded on the JSE Securities Exchange South Africa and 1.1 million ADSs were traded on Nasdaq.
 
ITEM 4.   INFORMATION ON THE COMPANY
 
4.A.   History and Development
 
Naspers was incorporated in Cape Town on May 12, 1915 under the laws of the then Union of South Africa as a public limited liability company. Naspers conducts its operations primarily through its subsidiaries and other affiliates. Its principal executive offices are located at 40 Heerengracht, Cape Town, 8001, South Africa (telephone: +27 21 406 2121).
 
Naspers started as a printer and publisher of a daily newspaper in 1915. In 1916 it expanded its business by publishing its first magazine and in 1918 its book publishing operations were founded. Naspers’ print media operations developed to such an extent over the years that Naspers is now one of the leading media groups in Africa.
 
With the advent of electronic media in the 1980s, Naspers expanded its activities to incorporate pay-television and later Internet media platforms. In 1985, Naspers and several other South African media companies formed an electronic pay-media business, M-Net. M-Net was listed on the JSE Securities Exchange South Africa in 1990. In October 1993, M-Net was divided into two companies. The subscriber management, signal distribution and cellular telephone businesses, together with a holding in FilmNet (a pay-television operator in Europe) were placed into a new company called MultiChoice Limited (later named MIH Holdings Limited).
 
In 1995, Richemont S.A. and MultiChoice Limited merged their global pay-television operations, including the interest in FilmNet, MultiChoice’s operations in Africa, and Richemont’s interest in Telepiu, into a single venture called NetHold B.V., which MultiChoice held through its subsidiary, MIH Limited. In March 1997, MIH Limited and Richemont merged most of NetHold’s assets with Canal+, the French based pay-television operator. However, MIH Limited retained NetHold’s African, Mediterranean and Middle East pay-television businesses and acquired 49% of Irdeto Access from Canal+. MIH Limited also received a small interest in Canal+. MIH Limited subsequently sold its interest in Canal+ to fund its expansion plans, including the purchase of the remainder of Irdeto Access from Canal+, the purchase of a 31.1% interest in the Thai pay-television operator UBC and the purchase of a 44.5% interest in OpenTV. OpenTV and MIH Limited were listed on Nasdaq in 1999. In August 2002, MIH Limited sold its stake in OpenTV.
 
In 1997, MIH Limited created an Internet service provider and named it M-Web Holdings. In March 1998, M-Web Holdings was spun off as a listed entity on the JSE Securities Exchange South Africa. It was subsequently delisted, and Naspers now holds 100% of the economic interest in the company.
 
In January 2000, Naspers merged its existing private education business with another leading South African private education service provider, thereby forming Educor Holdings Limited, which is one of the leading private education providers in South Africa. During 2000, Naspers also organized and branded its print media businesses under the Media24 umbrella.
 
In December 2002, Naspers conducted a reorganization pursuant to which the minority interests in MIH Holdings and MIH Limited were swapped for shares in Naspers itself. Holders of MIH Limited shares, resident in any country other than South Africa, received their interest in Naspers shares in the form of Naspers ADSs. MIH Holdings shares were delisted from the JSE Securities Exchange South Africa and MIH Limited’s shares were delisted from Nasdaq. At the same time, Naspers’ ADSs were listed on Nasdaq.
 

 
  15  

 

In May 2001, the group acquired a 46.5% interest in Tencent Holdings Limited, the operator of an instant messaging platform in China called QQ. The business developed into the leading instant messaging business in China. Tencent Holdings listed on the Hong Kong Stock Exchange in June 2004.
 
Naspers acquired an additional interest in M-Net and SuperSport and subsequently they were both delisted from the JSE Securities Exchange South Africa and Nigerian Stock Exchange with effect from April 15, 2004.
 
For information on Naspers’ principal investments and capital expenditures and divestitures, see the description of Naspers’ business in "Item 4.B. Business Overview" and "Item 5. Operating and Financial Review and Prospects".
 
4.B.   Business Overview
 
Overview
 
Naspers is a multinational media company with principal operations in pay-television and Internet subscriber platforms, print media, book publishing, private education and related technology markets. Naspers’ most significant operations are located in South Africa, where it generates approximately 67.8% of its revenues, with other significant operations located elsewhere in Sub-Saharan Africa, Greece, Cyprus, the Netherlands, the United States, Thailand and China. Naspers creates media content, builds brand names around it, and manages the platforms distributing the content. Naspers delivers its content in a variety of forms and through a variety of channels, including television platforms, Internet services, newspapers, magazines and books. Many of Naspers’ businesses hold leading market positions, and Naspers capitalizes on these strong positions when expanding into new markets.
 
Naspers’ business comprises three core segments:
 
Subscriber Platforms
 
The subscriber platforms segment comprises pay-television, Internet and related technology activities and is operated principally through MIH Holdings. MIH Holdings owns or operates pay-television and Internet subscriber platforms in Africa, Greece, Cyprus, Thailand and China. This segment contributed approximately 67.6% to Naspers’ total revenue in fiscal 2004.
 
Print Media
 
Media24 encompasses the newspaper and magazine publishing and printing interests of Naspers. It also includes the internet activities of Media24 Digital. Media24 is the largest publisher of magazines, one of the largest publishers of newspapers and the largest printer and distributor of magazines and related products in Africa. This segment contributed approximately 22.0% to Naspers’ total revenue in fiscal 2004.
 
Book Publishing and Private Education
 
Naspers’ book publishing activities are conducted through Via Afrika (formerly Nasboek). Via Afrika is a leading African book publisher, seller and distributor of innovative and quality reading, learning, listening, and viewing products in various formats. Naspers also incorporated its private education business, Educor, into the larger Via Afrika group during fiscal 2004. Educor is a leading provider of private education in South Africa. It offers face-to-face full-time, part-time and block release programs, as well as distance learning education and training programs. This segment contributed approximately 10.4% to Naspers’ total revenue in fiscal 2004.
 
Strategy
 
Naspers focuses on media businesses in growing markets in which it has or hopes to attain strong, sustainable market positions. Naspers uses content, brands and distribution channels from existing businesses to grow businesses in other markets and to develop new businesses. Naspers has integrated the Internet into each of its businesses to better reach and retain customers and increase the value of its content. Naspers’ key objectives are as follows:
 
 

·  

Focus on Investments and Technology. Naspers has made substantial investments in recent years to upgrade and enhance its subscriber platforms. Naspers intends to consolidate the leading positions it
 
 

 
  16  

 

 
holds in many markets and to expand into new ones. Most of Naspers’ pay-television platforms offer digital subscriptions and feature interactive or enhanced services. Naspers has expanded its printing facilities by investing in advanced printing and related facilities. Additional newspaper and magazine titles have been launched or acquired when market opportunities present themselves. Naspers also has launched several Internet related businesses.
 
·   Build Digital Subscriber Base. Naspers seeks to continue to expand MIH Holdings’ digital pay-television subscriber base, both by converting its current analog customers to the digital service and by gaining new digital customers. MIH Holdings offers subscribers movie and sports programming, and is adding interactive services to its bouquets (the term used to describe the channels offered by a pay-television provider on a given platform).
 
·   Grow Internet Businesses. Naspers intends, by offering content and superior service, to grow M-Web Holdings as an Internet service provider and content portal in Africa. Naspers is also focused on e-commerce opportunities and on developing Internet service provider ("ISP") operations in other sub-Saharan nations. Naspers has an interest in the operations of China’s leading instant messaging platform. It will continue to develop such interests in China and elsewhere. Naspers’ print media and book publishing businesses are using their core competencies to create new business opportunities over the Internet.
 
·   Maintain Local Approach. Naspers has a track record of establishing businesses in developing markets such as Africa, the Mediterranean and Asia. Naspers believes that a component of its success in these markets is its emphasis on taking a local approach. This may involve employing local partners and management teams and incorporating linguistically and culturally tailored local content in its service offerings. Naspers’ strategy is to continue to take a local approach to content as it expands its pay-television and Internet businesses.
 
·   Provide Quality Service. Naspers views its subscriber platform business primarily as a service business and, accordingly, places great emphasis on providing quality customer service. Naspers believes that this helps build customer loyalty and reduce "churn" (a term used to describe customer turnover or subscriber loss). Naspers seeks to achieve high-quality customer service by operating service centers and utilizing advanced computer systems, which allow customer service representatives to address customer concerns more quickly.
 
Segments
 
Naspers’ business is comprised of three core segments - Subscriber Platforms, Print Media and Book Publishing and Private Education. The following table shows revenues, revenues expressed as a percentage of total revenues and the percentage change in revenues from the prior period for Naspers’ core business segments for the last three fiscal years:
 
   
Revenue (Rand millions except percentages)
 
   
2004
 
2003
   
2002
 
   
R
millions
   
% of revenues
   
% change
from 2003
   
R
millions
   
% of revenues
   
% change
from 2002
   
R
millions
   
% of revenues
 
                                                   
Subscriber Platforms
                                                 
    — Pay-television
   
7,299
   
57.0
   
1.0
   
7,225
   
59.2
   
14.0
   
6,335
   
59.2
 
    — Technology
   
315
   
2.5
   
(16.7
)
 
378
   
3.1
   
(20.6
)
 
476
   
4.4
 
    — Internet
   
1,047
   
8.2
   
14.7
   
913
   
7.5
   
54.5
   
591
   
5.5
 
Print Media
   
2,820
   
22.0
   
14.2
   
2,469
   
20.2
   
14.4
   
2,159
   
20.2
 
Book Publishing and Private Education   
                                                 
    — Books
   
785
   
6.1
   
18.0
   
665
   
5.5
   
6.1
   
627
   
5.9
 
    — Education   
   
536
   
4.2
   
(3.1
)
 
553
   
4.5
   
8.2
   
511
   
4.8
 
Corporate services
   
2
   
   
100.0
   
1
   
   
   
1
   
 

The following table shows operating profit/(loss) and the percentage change in operating profit/(loss) from the prior period for Naspers’ business segments for the last three fiscal years:
 

 
  17  

 

   
Operating profit/(loss) (Rand millions except percentages)
 
     
2004
       
2003
       
2002
 
   
R millions 
   
% change from 2003
   
R millions
   
% change from 2002
   
R millions
 
Subscriber Platforms
                               
    —Pay-television   
   
1,063
   
144.4
   
435
   
84.3
   
236
 
    —Technology   
   
(63
)
 
   
14
   
(73.6
)
 
53
 
    —Internet   
   
(81
)
 
81.1
   
(428
)
 
39.3
   
(705
)
Print Media   
   
373
   
33.7
   
279
   
15.3
   
242
 
Book Publishing and Private Education   
                               
    —Books    
   
15
   
   
(47
)
 
(422.2
)
 
(9
)
    —Education   
   
12
   
   
(7
)
 
36.4
   
(11
)
Corporate services   
   
(30
)
 
(50.0
)
 
(20
)
 
(100.0
)
 
(10
)


The following table shows revenues, revenues expressed as a percentage of total revenues and the percentage change in revenues from the prior period by geographic market for the last three fiscal years:
 
   
Revenue (Rand millions except percentages)
 
       
2004
         
2003
         
2002
 
   
R
millions
 
% of revenues
 
% change
from 2003
 
R
millions
 
% of revenues
 
% change
from 2002
 
R
millions
 
% of revenues
                                               
South Africa   
   
8,679
   
67.8
   
8.8
   
7,976
   
65.4
   
14.5
   
6,964
 
65.1
Rest of Africa   
   
1,503
   
11.7
   
(5.2
)
 
1,585
   
13.0
   
17.0
   
1,355
 
12.7
Greece and Cyprus   
   
1,390
   
10.9
   
   
1,390
   
11.4
   
7.8
   
1,290
 
12.1
Asia   
   
984
   
7.7
   
13.8
   
865
   
7.1
   
23.6
   
700
 
6.5
United States   
   
27
   
0.2
   
(55.0
)
 
60
   
0.5
   
7.1
   
56
 
0.5
Other
   
221
   
1.7
   
(32.6
)
 
328
   
2.6
   
(2.1
)
 
335
 
3.1
 
Subscriber Platforms
 
Overview
 
The subscriber platforms segment comprises pay-television platforms, Internet operations and instant messaging services and related technologies, and is principally operated through MIH Holdings. These businesses do not all develop at the same rate and are at varying stages of growth. The Internet is already providing much of the content and services that are available through interactive enabled television sets and mobile devices and will effectively become a backbone to the delivery of these services. The subscriber platform activities are conducted through various subsidiaries, joint ventures and associated companies primarily in Africa, Greece, Cyprus, Thailand and China.
 
Pay-television
 
The following table sets out the services offered and subscriber numbers for the group’s pay-television subsidiaries and joint ventures by region and service as at the end of fiscal 2004:
 
 
LAUNCH
DATE
SERVICE
SUBSCRIBERS AS
AT MARCH 31, 2004
 
AFRICA
       
South Africa   
1986
M-Net (analog)
300,821
 
 
1995
DStv (digital)
774,887
 
Sub-Saharan Africa   
1991
M-Net (analog)
8,859
 
 
1996
DStv (digital)
283,093
 
MEDITERRANEAN
       
Greece
1994
FilmNet/SuperSport (analog)
111,999
 
 
1999
NOVA (digital)
178,921
 
Cyprus(1)
1993
LTV (analog)
60,372
 
ASIA
       
Thailand
1995
UBC Cable (analog)
132,351
 
 
1995
UBC Satellite (digital)
299,417
 
 
2003
UBC Cable (digital)
4,425
 
___________
 
(1) A digital pay-television service was launched in Cyprus in July 2004.
 

 
  18  

 

From fiscal 2000 to fiscal 2004, the group increased the total number of subscribers under management from 1,925,511 to 2,155,145. Over the same period, the group’s digital subscribers as a percentage of its total subscribers increased from 37% to 71%. During fiscal 2004, the digital subscriber base increased by 185,133 to 1,540,743 subscribers, representing 14% growth. The group continues to migrate subscribers from the analog service to the higher revenue and higher margin digital service. The South African pay-television market is relatively mature, and the group does not expect the total number of subscribers in that market to increase.
 
The following table shows the growth of subscribers in each of the group’s markets:
 
   
March 31,
 
   
2004
 
2003
 
2002
 
2001
 
2000
 
CAGR(1)
 
SUBSCRIBERS (THOUSANDS)
                         
AFRICA
                         
South Africa   
   
1,076
   
1,045
   
1,057
   
1,060
   
1,088
   
(0.3
%)
Sub-Saharan Africa   
   
292
   
260
   
224
   
180
   
154
   
17.3
%
Total Africa   
   
1,368
   
1,305
   
1,281
   
1,240
   
1,242
   
2.4
%
MEDITERRANEAN
                                     
Greece   
   
291
   
256
   
265
   
334
   
307
   
(1.3
%)
Cyprus   
   
60
   
54
   
53
   
51
   
43
   
8.7
%
Total Mediterranean   
   
351
   
310
   
318
   
385
   
350
   
0.1
%
ASIA   
                                     
Thailand   
   
436
   
438
   
413
   
383
   
334
   
6.9
%
Total Subscribers   
   
2,155
   
2,053
   
2,012
   
2,008
   
1,926
   
2.9
%
___________
 
(1) Compounded annual growth rate calculated from March 31, 2000 until March 31, 2004.
 
Africa
 
The African business is operated through MultiChoice Africa (Proprietary) Limited and MultiChoice Subscriber Management Services (Proprietary) Limited (collectively "MultiChoice South Africa"), and MultiChoice Africa Limited ("MultiChoice Africa"), each an indirect wholly owned subsidiary of Naspers Limited. The African business provides pay-television and subscriber management services in 48 countries throughout Africa and the adjacent Indian Ocean islands. The group has ownership interests through MultiChoice South Africa and MultiChoice Africa in subsidiaries and joint ventures operating in Kenya, Ghana, Uganda, Nigeria, Tanzania, Zambia, Namibia and Botswana. In many other African nations, MultiChoice Africa operates through agents or franchisees. The agents and franchisees conduct marketing and advertising activities to build MultiChoice Africa’s subscriber base and collect subscription revenues on behalf of MultiChoice Africa. They retain a minor portion of the subscription revenues they collect as compensation for their services and remit the balance to MultiChoice Africa.
 
The pay-television service consists of terrestrial analog networks as well as direct-to-home digital satellite television ("DStv") bouquets on three separate satellites: Eutelsat W4 KU-band, PAS 10 C-band and PAS 7 KU-band.
 
South Africa
 
MultiChoice South Africa offers a customized M-Net premium analog terrestrial channel consisting of sport and movies as well as a digital bouquet consisting of 58 video channels, 8 data channels, 40 audio music channels and 20 radio channels. Among the most popular with viewers are M-Net (Africa’s premier pay-television channel), SuperSport, Movie Magic, KykNET, Discovery Channel and National Geographic Channel. During fiscal 2004, enhancements to the DStv bouquet in South Africa included the addition of 3 video channels - History, Animal Planet and GO channel, a youth orientated channel, as well as enhanced television applications on BBC Food and Discovery channels. Enhanced television is an interactive application which allows viewers to use their remote controls and access information related to the content they are viewing.
 
 

 
  19  

 

MultiChoice South Africa’s aggregate subscriber base in South Africa as of March 31, 2004 was 1,075,708 subscribers, an increase from 1,044,791 subscribers at March 31, 2003. The digital subscriber base in South Africa grew by 95,921 subscribers during fiscal 2004 (from 678,966 to 774,887 subscribers) and as of March 31, 2004 accounted for 72% of the total number of pay-television subscribers in South Africa. The analog subscriber base declined to 300,821 subscribers during the same period, primarily due to subscribers upgrading from the analog to the digital platform. As of March 31, 2004, MultiChoice South Africa’s subscriber base represented approximately 16% of South Africa’s television households.
 
South Africa is Africa’s largest economy, with a population of approximately 44 million people, and is Africa’s third largest television market, with approximately 6.5 million television households. The South African market is relatively mature. Although the overall subscriber base is not expected to increase, MultiChoice South Africa does expect to continue to migrate subscribers from the analog service to the higher margin digital service.
 
The joint venture companies M-Net and SuperSport continue to play a role in growing the subscriber base through the delivery of premium thematic channels and exclusive content. M-Net provides premium entertainment channels and SuperSport provides sports channels carried by MultiChoice South Africa and MultiChoice Africa on their pay-television platforms in Africa.
 
Following a request by minority shareholders, M-Net and SuperSport were delisted from the JSE Securities Exchange in April 2004. Subsequent to the delisting, Naspers owns 60.1% of each of M-Net and SuperSport.
 
M-Net has output deals with film and television studios, enabling it to screen the best of quality movies, series and miniseries. M-Net compiles 14 channels for broadcast across the African continent. These channels are carried on various satellite platforms all of which are operated by MultiChoice Africa under the DSTV brand.
 
SuperSport produces nine sports channels for distribution across Sub-Saharan Africa. These comprise three primarily live 24-hour channels, a highlights channel, a dedicated interactive sports channel and four ad hoc sports channels, covering more than 100 different genres of sport. Recently, SuperSport created a new pan-African sports channel, focusing mainly on football. The channel screens South African Premier Football League and various Confederation of African Football games, English Premier League, Italian Series A and Bundesliga football. Extensive coverage of South African and international cricket, rugby, golf and tennis was also offered on other SuperSport channels. The SuperSport Zone channel provides information, live scores and statistics on specific sporting events.
 
MultiChoice South Africa services its South African subscriber base through its customer care and billing center in Johannesburg and branches in Durban and Cape Town. The center in Johannesburg provides customers with walk-in and phone-in service, while the branches provide customers with a walk-in service.
 
The analog service is sent to transmission towers either terrestrially over fiber optic cables or microwave links, or via satellite. The towers transmit the signal to MultiChoice South Africa’s customers’ homes, where it is received by an antenna and decrypted by a set-top box. A satellite transmits the digital satellite signal. MultiChoice South Africa leases 8 KU-band transponders on this satellite, and its uplink facilities are provided by Orbicom (Pty) Limited and British Telecom (KU-band refers to a frequency range used for satellite downlink transmissions that falls within the 12 to 14 GHz range of the electromagnetic spectrum, allowing use of 27-inch (or 90 cm), or smaller, ground dishes). Digital customers receive the signal from this satellite using a 90 cm satellite dish located on or near their homes. MultiChoice Africa and MultiChoice South Africa utilize set-top box technology and the Irdeto Access encryption for their analog and digital platforms.
 
During the year ended March 31, 2004, MultiChoice South Africa experienced an average monthly net churn (net churn is the percentage of customers who terminate their subscription in a given period minus the number of former customers who reconnect in that period) of approximately 1.26% on its analog subscriber base and 0.79% on its digital subscriber base. This compares to an average monthly net churn of approximately 1.36% on its analog subscriber base and 0.76% on its digital subscriber base during fiscal 2003. The net churn for the analog subscriber base excludes customers who upgraded to the digital service.
 

 
  20  

 

MultiChoice South Africa bills its subscribers monthly, in advance, in Rand. The following table sets forth certain pricing information for the South African businesses:
 

 
Subscribers
March 31,
Monthly
Subscription Price
Equipment Price(1)
Purchase
   
     
2004
   
2003
   
2002
   
Rand
   
U.S. $(3
)
 
Rand
   
U.S. $(3
)
 
(thousands) 
                       
                                             
Analog   
   
301
   
366
   
466
   
209.902
)
 
33.26
   
600
   
95
 
Digital   
   
775
   
679
   
591
   
379.00(2
)
 
60.06
   
1,250
   
198
 
___________
 
(1) Excludes price of satellite dish in the case of digital service.
 
(2) Includes price increase that occurred in April 2004.
 
(3) Converted at spot exchange rate at March 31, 2004 (U.S. $1 = Rand 6.31)
 
Sub-Saharan Africa
 
The group offers terrestrial analog and digital satellite pay-television services to Sub-Saharan Africa through MultiChoice Africa and various subsidiaries, joint ventures and agents. MultiChoice Africa offers many of the same premium channels in Sub-Saharan Africa as MultiChoice South Africa offers in South Africa, including those broadcasting exclusive premium films and popular sports. MultiChoice Africa’s digital service features various bouquets with some 54 video channels (including the customized M-Net channel and many major international network channels), 12 data channels and up to 56 audio channels, which are transmitted to 48 countries in Sub-Saharan Africa, and adjacent islands. MultiChoice Africa’s analog service transmits a customized M-Net and SuperSport channel, which features exclusive movies and sports and other programming, to three African countries. As of March 31, 2004, MultiChoice Africa and its subsidiaries and joint ventures had 283,093 Sub-Saharan African subscribers to its DStv digital satellite service and 8,859 Sub-Saharan African subscribers to its terrestrial analog service, compared to 244,994 digital and 15,409 analog subscribers as of March 31, 2003.
 
The marketing efforts of MultiChoice Africa’s Sub-Saharan pay-television business are focused on the major cities in each of the countries served on the basis that households in these major metropolitan areas are more likely to be able to afford its services than rural households. As in South Africa, targeting digital and analog services to market sectors with different economic demographics is likely to increase MultiChoice Africa’s overall subscriber base and encourage analog subscribers to upgrade to the digital service in the future.
 
In each Sub-Saharan African market, MultiChoice Africa generally bills its customers in U.S. dollars or U.S. dollar equivalents. During fiscal 2004, its Sub-Saharan African operations experienced an average monthly net churn of approximately 5.1% on the analog subscriber base and approximately 1.52% on the digital subscriber base, as compared to average monthly net churn of approximately 2.8% on the analog subscriber base and approximately 1.41% on the digital subscriber base for fiscal 2003. The higher than normal analog churn is due to the closure of most of the remaining analog transmission networks and upgrades to the digital services.
 
 

 
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The following table sets out certain pricing information for MultiChoice Africa’s Sub-Saharan African businesses:
 
 

 
Subscribers
March 31,
Monthly
Subscription Price(1)
Equipment
Price(2)
 
 
2004
2003
2002
 
(thousands)
   
           
Analog   
9
15
21
U.S.$ 34-00
N/A
Digital   
283
245
202
U.S.$ 54-00
U.S. $ 177
___________
 
(1) Represents the average price across all of MultiChoice Africa’s Sub-Saharan African businesses.
 
(2) Includes the price of the satellite receiver.
 
MultiChoice Africa’s digital service is transmitted direct-to-home, on PAS10 C-band satellite transponders (C-band refers to the frequency range of the electromagnetic spectrum used for satellite transmission, having an uplink frequency at 6 GHz and a downlink frequency at 4 GHz) and the Eutelsat W4 KU-band and PAS7 KU-band transponders. Customers receive these signals on a satellite dish mounted on or near their homes. The signal is then descrambled and decompressed for viewing using a conditional access system, set-top box and smart card. MultiChoice Africa utilizes the Irdeto Access encryption and set-top box technology for both its analog and digital platforms. Smart cards are credit card-sized devices that have embedded processors that provide entitlement functions and store decryption keys and digital signatures. The smart cards are inserted in a set-top box to gain access to encrypted programming.
 
MultiChoice Africa delivers analog services terrestrially to Sub-Saharan Africa by transmitting its programming signal by satellite to local receiving stations in three countries. These stations relay the signal to a broadcast tower that transmits it as a standard encrypted television signal. When received by a customer, a decoder in a set-top box decrypts the signal and provides it to the customer’s television. MultiChoice Africa is systematically shutting down its analog terrestrial networks on a country by country basis as more and more analog subscribers migrate to digital, making the terrestrial analog networks uneconomic on a selective basis. During fiscal 2004 the service was terminated in Kenya and Tanzania.
 
Mediterranean
 
Naspers offers terrestrial analog and digital pay-television services in Greece and Cyprus through its subsidiary NetMed NV ("NetMed"). The digital service in Cyprus was launched in July 2004. An agreement was reached on June 19, 2003, pursuant to which Teletypos SA and its subsidiaries ("Teletypos") exchanged their equity interest in MultiChoice Hellas SA ("MultiChoice Hellas"), a subsidiary of NetMed, in return for approximately €6.6 million in cash and a 12.8% equity interest in NetMed ("the Teletypos transaction"). The Teletypos transaction was subject to certain regulatory approvals that were obtained on September 22, 2004. After the completion of the Teletypos transaction, the group will own 74.6% of NetMed. Global Capital Investors II LP, an investment fund managed by Global Finance SA, will own 8.4% of NetMed, Antenna Pay-TV Limited, a subsidiary of Antenna SA, will own 4.2% of NetMed, and Teletypos will own 12.8% of NetMed.
 
On July 26, 2002, NetMed, Myriad International Holdings BV ("Myriad") and Fidelity Management S.A. ("Fidelity"), among others, entered into a share subscription agreement and a share sale agreement under which Fidelity would have acquired a 22% interest in NetMed, for a cash purchase price of U.S. $5,000,001 plus a cash payment equal to an amount calculated with reference to the value of the subscriber base to be acquired by NetMed. The completion of this transaction was subject to the unconditional approval of the Greek Competition Committee before a stipulated date. The required approval was not received within the contractually agreed period and accordingly NetMed and Myriad believe that the agreements ceased to have any force or effect. As Fidelity disputed this, NetMed and Myriad initiated arbitration proceedings under the auspices of the London Court of International Arbitration seeking confirmation from the tribunal that the agreements had lapsed. For more information on this and related proceedings, please see "Item 8.A. Financial Information—Legal Proceedings".
 
NetMed manages its Mediterranean pay-television business through the following operating subsidiaries:
 

·  

 MultiChoice Hellas and MultiChoice Cyprus Limited manage the subscriber base and market and sell pay-television services in Greece and Cyprus, respectively. After the completion of the Teletypos transaction, NetMed, through Myriad Development B.V., will control 95% of MultiChoice Hellas. The remaining shares of MultiChoice Hellas are held as to 5% by Lumiere Television Limited. NetMed
 

 
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·   owns 69.04% of MultiChoice Cyprus Holdings Limited and the remaining 30.96% is held by Lumiere Television. MultiChoice Cyprus Holdings owns 50.9% of MultiChoice Cyprus, a company listed on the Cypriot Stock Exchange, and the remaining shares are publicly held.
 
·   NetMed, directly and indirectly through its subsidiary, Myriad Development BV, owns 100% of NetMed Hellas SA ("NetMed Hellas"). NetMed Hellas operates the FilmNet and SuperSport premium pay-television channels in Greece and provides programming to Lumiere Television and Alfa TV in Cyprus.
 
·   Synergistic Network Development S.A. is 100% owned by NetMed and is responsible for signal transmission and distribution.
 
NetMed’s Greek digital satellite service, Nova, offers 25 channels in Greek and more than 250 other European channels. The Greek language channels that are included in the Nova service (such as FilmNet, SuperSport and those of the Greek commercial and state broadcasters) are either produced in Greece or are foreign thematic channels customized for this market. These include Discovery, MGM, TCM, National Geographic and Animal Planet. SuperSport features exclusive sporting events for the Greek market.
 
FilmNet provides a combination of exclusive, first run movies, along with some original and imported series. NetMed’s analog service consists of three channels; FilmNet, SuperSport and Fox Kids transmitted on two analog frequencies.
 
Greece has a population of approximately 10.9 million people and approximately 3.5 million television households, giving NetMed’s pay-television services a market penetration of approximately 9% of television households.
 
The total number of pay-television subscribers for the Mediterranean region was 351,292 households at the end of fiscal 2004, up from 310,169 at the end of fiscal 2003. During fiscal 2004, the analog subscriber base in Greece declined by 3,986 to 111,999 households, while Nova (the digital television service) maintained its leading position in the region by adding 39,173 digital subscribers to end the fiscal year with 178,921 subscribers. As of March 31, 2004, NetMed had 60,372 subscribers in Cyprus.
 
The decline in Greek subscribers from 2001 to 2003 was caused by market confusion as a result of the launch and subsequent liquidation of a new competing pay-television service in Greece. In October 2001, Alpha Digital Synthesis S.A. ("Alpha Digital") entered the pay-television market in Greece and launched a 20-channel pay-television service. In September 2002, Alpha Digital entered liquidation. However, NetMed’s subscriber numbers did not recover when the commercial television company, Alpha Satellite TV S.A. ("AST"), took over and contracted with the majority of A Division Greek football teams. NetMed has gradually improved its position and currently has 10 of the 16 A Division football clubs contracted for the next two to three years. However, Alpha Digital's free-to-air television has contracted with six teams, including the most popular team for a period of two to three years. AST remains a strong competitor which could undermine NetMed’s subscriber growth in the next few years. Rights to the Greek Cup competition, the only other local football competition of value, are currently out to tender. The tender outcome is uncertain and NetMed may not secure these rights. See "—Competitors and Competitive Position" for more information.
 
During fiscal 2004, NetMed experienced an average monthly net churn of approximately 0.45% on its total subscriber base in Greece, an improvement from 1.47% during fiscal 2003. This improvement was due to an improved football line-up. In the year head, the line-up is not likely to improve further and churn could increase. The equivalent churn rate for Cyprus was 0.30% due to the acquisition of the European Champions League football rights. As no equivalent new sporting event will be signed up this coming year, churn could increase in Cyprus. Another factor that could lead to additional churn in Cyprus is competition from broadband services (See "-Competitors and Competitive Position").
 
NetMed markets the Nova service as an upscale alternative to the premium analog package, and it expects the majority of the growth in its digital platform to come from subscribers that upgrade from the analog service. Through March 31, 2004, approximately 23% of the growth in the digital subscriber base comprised analog subscribers who have converted to the digital service. Overall, 40% of the total current digital subscriber base was analog subscribers in the past.
 
NetMed has concluded a number of long-term agreements for sports and film rights. Currently, NetMed holds the rights to 10 of the 16 A Division teams for the 2004/05 season, including three of the top teams. The status of football in Greece, however, remains uncertain, with several clubs, including two of the four most popular, facing financial difficulties. Clubs are dependent on the government coming up with a tax relief package which has been long awaited, but this may not be enough to
 

 
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secure the financial future of some teams. NetMed has resigned from all court cases pertaining to the rights of football teams but continues to pursue teams for damages although there is no certainty as to the outcome.
 
Thailand
 
The group has a joint venture interest in United Broadcasting Corporation Public Company Limited ("UBC"), the leading pay-television provider in Thailand. Through a series of transactions beginning in 1997, the group now owns 30.8% of UBC. UBC is quoted on the Stock Exchange of Thailand under the symbol "UBC". The remaining shares in UBC are beneficially owned by Telecom Holding Limited ("TH") (22.7%), a subsidiary of Telecom Asia Public Company Limited ("TA"), Asia Multimedia Limited (17.7%), a subsidiary of TH, the Mass Communications Organization of Thailand (0.4%), which is one of the two primary media regulators in Thailand, and other private investors and the public (28.4%).
 
The joint venture arrangement under which UBC operates is governed by a shareholders agreement dated February 16, 1998, between the group and TH, together with two amendments to the agreement. The agreement establishes corporate governance procedures, provides for the financing of UBC, grants the group certain management rights, including the right to appoint the chief operating officer, and sets forth the other terms of the UBC joint venture. The agreement also imposes certain restrictions on the group’s ability to transfer its interest in UBC to a third party.
 
UBC’s digital satellite and analog cable services each provide the same 50 channels, including proprietary channels showing movies and sports, major international channels and six major free-to-air networks, in addition to 14 educational channels on the satellite service and digital cable service and seven educational channels on the analog cable service. Channels produced and shown on UBC’s pay-television systems include UBC Film Asia, UBC InsidE, UBC Spark, UBC Series, UBC News, UBC X-Zyte, SuperSport and SuperSport Gold, (which shows programming tailored for Thai audiences, including favorite local sports such as Mua Thai boxing and Thai football), along with exclusive major international events. Some of the other major channels offered by UBC are movie channels such as HBO, Cinemax, Star Movies and Hallmark; news channels such as CNN, BBC and CNBC; children’s programs such as the Cartoon Network; infotainment channels such as Discovery, Animal Planet, National Geographic and History Channel; and sports channels including ESPN and Star Sports. UBC secures the rights to channels such as HBO, Cinemax and Star Movies, which channels tie up movie rights for the Thai market. A significant number of these "turn around" channel arrangements are done on an exclusive basis. In Naspers’ other markets, exclusive rights to first-run movies are secured by the operating companies through their locally created movie channels. UBC also broadcasts major local free-to-air channels. Most programming on UBC’s pay-television systems carry the original soundtrack along with a dubbed Thai soundtrack or Thai subtitling generated by UBC.
 
For the year ended March 31, 2004, UBC’s average monthly net churn was approximately 1.5%, as compared to 1.1% for fiscal 2003. Churn increased as UBC announced a Thai Baht 160 price increase across all packages while increased competition from cable operators who pirate their content and sell a competitive package at a fraction of the price also contributed to increased churn. UBC both sells and rents set-top boxes to subscribers. Where the set-top boxes are rented, the cost is built into the connection fee and monthly charge. The group believes that this strategy has a positive effect upon subscriber growth by minimizing the entry cost of subscription to UBC’s services.
 
As of March 31, 2004, UBC had 436,193 total subscribers, consisting of 132,351 analog cable subscribers, 4,425 digital cable subscribers and 299,417 digital satellite subscribers, as compared to 437,589 total subscribers at March 31, 2003 (145,687 analog cable and 291,902 digital satellite). The subscriber base has remained relatively flat year on year because of increased competition from small cable operators, many of whom operate illegally and in violation of copyright laws. UBC is working with the Royal Thai government to address this issue.
 
Thailand has a population of approximately 61.1 million people, with approximately 15.4 million television households. There are many small, provincial cable systems, now estimated at over 400, of which only 76 are officially licensed on annual licenses. A substantial number of these operators are currently violating Thai law, including licensing requirements and copyright law, and increased pressure is being brought against these illegal operators. Content providers have filed complaints against these operators resulting in raids and confiscation of equipment by the Royal Thai Police. Taking into account the crackdown on illegal operators in Thailand and assuming the Thai government continues to take action against unlicensed operators and operators who violate Thai copyright law, the group believes that the co-coordinated marketing of UBC’s analog and digital cable and digital satellite services should result in increased subscriber growth. UBC is engaged in extensive lobbying efforts as are international rights owners. This issue is also being raised in current free trade discussions between Thailand and the United States.
 

 
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UBC launched a digital cable service in October 2003 on the network it leases from Asia Multimedia. Asia Multimedia has offered additional bandwidth to carry digital services for a five year period at no additional charge. At the end of the five years UBC hopes to have fully migrated its analog cable base to digital cable thereby freeing bandwidth previously used for transmitting analog services to launch additional digital services.
 
The following table sets out certain pricing information for the Thai business:
 
 
Subscribers March 31,  
Mini Package
Silver Package
Gold Package(1)
Rental Fee(2)
Up Front(3)
     
2004
   
2003
   
2002
   
Baht
   
U.S. $(4)
 
Baht
U.S. $(4)
 
Baht
   
U.S. $(4)
 
Baht
   
U.S. $(4)
 
Baht
 
U.S. $(4)
 
(thousands) 
                                                       
                                                                             
Analog Cable
   
132
   
146
   
150
   
549.48
   
14.00
   
928.26
   
23.66
   
1,412.97
   
36.01
   
90
   
2.29
   
11,000
 
280.33
Digital Cable
   
5
   
-
   
-
   
N/A
   
N/A
   
928.26
   
23.66
   
1,412.97
   
36.01
   
160
   
4.08
   
11,000
 
280.33
Digital Satellite
   
299
   
292
   
263
   
N/A
   
N/A
   
928.26
   
23.66
   
1,412.97
   
36.01
   
160
   
4.08
   
11,000
 
280.33
___________
 
(1) The price was increased by Thai Baht 160 Value Added Tax inclusive effective May 1, 2003 on all packages.
 
(2) Cable subscribers only pay a monthly rental fee if they joined after May 1, 1998. Digital satellite subscriber rental fees vary depending upon the date on which the subscriber joined the service. Digital cable subscriber rental fees are the same for all subscribers who rent their equipment.
 
(3) Includes installation fee, connection fee and refundable set-top box deposit.
 
(4) Inclusive of value-added tax ("VAT") and converted at closing exchange rate for the year ended March 31, 2004 (U.S. $1=Thai Baht 39.24).
 
UBC’s digital satellite service is transmitted on a KU-band signal through the Thaicom 3 satellite. Subscribers receive their signal on a 60-90 cm satellite dish and unscramble and decompress the signal with a set-top box utilizing Irdeto Access’s conditional access system and smart card technology.
 
UBC cable’s transmission is delivered on hybrid coaxial fiber-optic cable lines over a dropwire into homes that utilize a set-top box to access the signal. Digital cable set top boxes are utilizing Irdeto Access’s conditional access system and are sourced from the same supplier as the digital satellite boxes.
 
Competitors and Competitive Position
 
MultiChoice South Africa’s digital and analog platforms in South Africa compete directly with the four free-to-air television channels in South Africa (which are carried on MultiChoice South Africa’s digital bouquet) and indirectly with all live sporting events, motion picture theatres, video rental stores, mobile telephones, lotteries, gaming, the Internet and other forms of entertainment.
 
MultiChoice Africa is the leading provider of pay-television services in Sub-Saharan Africa. In the countries in which MultiChoice Africa broadcasts, however, there are numerous public and private free-to-air television stations, as well as small, localized pay-television operations. Digital direct-to-home competition is expected in West Africa, and Nigeria in particular, in the foreseeable future. MultiChoice Africa believes that its wide selection of high-quality, exclusive programming, distributed both terrestrially and on DStv, appeals to the broader African market and differentiates its offering from other broadcasters.
 
In Greece and Cyprus, NetMed competes directly with free-to-air broadcast channels, including national Greek networks (such as Mega, Antenna, Alpha and Star) and four national Cypriot networks (Cyprus Broadcasting Corp., Sigma, Mega and Antenna).
 
Greek media law allows multiple licenses to be granted for satellite pay-television platforms, and two other entities, Intersat SA and Alpha Digital, had been granted licenses. Both had their licenses revoked, as Intersat failed to launch a digital television platform and Alpha Digital entered liquidation. Recently the Greek Post, Telecommunication & Telegraph ("PTT") OTE launched a national satellite called Hellas Sat, serving Greece, the Balkans and greater Europe.
 
New technologies are being adopted in Cyprus where a broadband network has been laid down by the Cyprus telecommunications monopoly, Cyta. The network currently reaches 65% of Greek-speaking Cypriot households. Cyta is planning to supply a package of basic pay-television channels as well as high speed internet and bundled telephony services to consumers. Cyta also plans to launch Video-on-demand ("VOD") services via broadband and will compete directly with NetMed in the
 
 

 
  25  

 

territory. Increased competition in Cyprus has prompted regulators to review the duration and exclusivity of programming deals, especially football, held by MultiChoice Cyprus’ two program suppliers LTV and Alfa. The Cypriot regulator has limited the term of football rights from five years to three years and obliged the Cyprus Football Federation to offer additional packages of football rights in the increasingly competitive market. Further regulatory review is possible and remains a risk.
 
The Thai television industry consists primarily of six free-to-air television stations and UBC’s pay-television operations. There are also several small, provincial cable systems, now estimated at over 400. In 1999, Thai Television, formerly World Star Television, launched an unencrypted pay-television service in Bangkok which charges subscription fees and relies upon advertising revenue. Thai Television has faced a number of operational challenges and difficulties in securing advertising revenues due to low penetration and viewership. The group believes that UBC’s programming, including first-run movies and sporting events, gives it an advantage over its free-to-air television competitors. The national free television stations are uplinked to the same satellite used by UBC’s service and consequently form part of the bouquet available to UBC’s subscribers. The group believes that this arrangement enhances its appeal to current subscribers and assists in growing UBC’s subscriber base.
 
Seasonality
 
The group’s pay-television business experiences an increase in the level of subscriber churn during the summer holiday season, particularly in Greece where the conclusion of the football and basketball seasons coincide with summer, when many subscribers travel away from their primary residence and engage in other forms of leisure. In Thailand, UBC experiences higher sales in the second half of the calendar year, as consumers appear to defer some discretionary spending. In Africa, the start of the European Football season is normally characterized by subscriber growth.
 
Technology
 
Irdeto Access
 
The group’s subsidiary, Irdeto Access, provides content protection solutions to subscriber platform operators and other providers of valuable digital content. Irdeto Access’ products enable pay-media operators and corporate users to encrypt and decrypt their broadcast or multicast signals. The products control subscriber access to content, services and events across all media platforms, including digital television and Internet protocol (IP) streaming media. Irdeto Access offers customers over 30 years of experience in the pay-media industry and a range of skilled resources and properties.
 
Irdeto Access has 117 clients (including the affiliated companies MultiChoice South Africa, MultiChoice Africa, NetMed and UBC) in more than 40 countries. During the year ended March 31, 2004, Irdeto Access sold approximately 2.5 million personalized digital smart cards with a total of approximately 12 million shipped to date since 1995 when digital smart cards were first launched. Smart cards are credit card-size devices with embedded processors that provide entitlement functions and store decryption keys and digital signatures that are inserted in set-top boxes for access to subscription television services. During the year, Irdeto Access acquired 27 new customers in all regions of the world.
 
Irdeto Access continues to innovate in the security-related aspects of its products. While continuing to produce robust security technology, on-going action against pirate networks continued to deter pirates from attempting to compromise Irdeto Access’ technology.
 
Entriq
Entriq Inc. is a solutions provider of media commerce technologies for pay-television and the Internet. The convergence between the Internet, pay media networks (satellite, cable, digital terrestrial) and Broadband networks, has created a business area in which Entriq plays an active role.
 
Entriq provides a comprehensive management and protection solution for pay media worldwide. Recently, the company consolidated several other technology businesses within the group to bring together systems to monitor, manage, protect and sell pay media offerings, all under the Entriq banner. The services these technologies deliver include:
 
Billing - Entriq provides comprehensive billing and customer care functionality. The system can also be used for database marketing and logistics management, and includes a Telesales and Client Loyalty system. Entriq currently supports over 7 million subscribers worldwide, 65% of which are subscribers of digital pay-television services.
 
Security - Entriq provides content providers with a trusted third party service to protect, authorize, manage and track online media content across multiple distribution platforms in a simple, flexible and efficient manner.
 

 
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Customer Care - Entriq offers a hosted technology and service platform that provides a quick start-up for new clients and can be migrated into their mainstream operations over time. The service includes project management; customer care; dedicated and trained representatives equipped to manage sales, registration, product support, technical support, billing and refunds; training facility for Entriq customers; multiple language capability; flexible pricing for dedicated or shared support infrastructure; and a defined service level agreement and quality assurance program.
 
Competitors and Competitive Position
 
The extent and nature of competition is in large part determined by the ability to provide secure products that effectively combat piracy at competitive prices, the ability to offer superior customer service and the ability to acquire new clients, as the cost of switching for existing customers can be high. Irdeto Access’ main competitors are NDS Group plc and Nagravision S.A., which provide conditional access systems to digital satellite pay-television broadcasters and digital cable television operators.
 
Competition to Entriq’s products and services are determined by the ability to provide superior security, billing, and customer care to enable customers to be successful with their online distribution, cable and satellite operations and e-commerce initiatives. Entriq’s ability to acquire new clients is dependent on success with existing clients and continual development of current products to meet market trends and customer requests. It is expected that new competition could enter the market as forecasts continue to grow especially for e-commerce and Internet distribution. Entriq's main competitors consist primarily of separate Digital Rights Management providers and separate billing and customer care providers.
 
Internet
 
Naspers’ approach to the Internet is to establish Internet businesses and, in conducting such businesses, to draw on its existing strengths and areas of expertise. Despite the recent harsh revaluation across much of the Internet sector, Naspers continues to regard Internet technology as important. It has impacted traditional ways of doing business, including the relationship between clients and suppliers, and has transformed the competitive landscape in many industries. In particular, Naspers utilizes its existing assets to build strong subscriber platforms. Naspers believes in an "anytime, anywhere" philosophy, which enables its subscribers to access its content platforms via television, Internet and wireless technologies. In the future, the group expects to deploy its expertise in order to manage interactive services.
 
South Africa
 
Naspers conducts most of its Internet business in South Africa through its indirect wholly owned subsidiary, M-Web Holdings. M-Web Holdings provides the infrastructure for MultiChoice South Africa’s interactive platform.
 
The South African internet market has consolidated rapidly since 1999. Currently there are approximately 2.4 million internet users and between 800,000 and 1,000,000 dial-up subscriber homes. Growth in the dial-up internet market has slowed dramatically. Broadband access is in its infancy with only approximately 30,000 broadband users in South Africa.
 
M-Web Holdings had approximately 242,000 dial-up subscribers at March 31, 2004, which translates to an approximate 10% market share, when considering the market size in relation to total Internet users in South Africa.
 
On August 20, 2004 it was announced that M-Web Holdings reached an agreement with Tiscali International BV to acquire its South African internet service provider business for approximately Rand 320.0 million. This transaction is subject to various regulatory approvals, including Competition Commission approval.
 
 

 
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The following table summarizes subscriber numbers and subscription fees for M-Web Holdings’ dial-up, ADSL broadband and web hosting services.
 
 

 
Subscribers
March 31,
Monthly
Subscription Price
 
 
2004
2003
2002
Rand
U.S. $(1)
 
(thousands)
   
           
Dial-up   
242.0
247.8
248.9
145
23
ADSL Broadband
4.6
-
-
329
52
Web and server hosting   
2.1
2.9
2.6
249
40
___________
 
(1) Converted at spot exchange rate at March 31, 2004 (U.S. $1=Rand 6.31).
 
M-Web Holdings is also active in the business-to-business ("B2B") and business-to-consumer ("B2C") e-commerce markets. The business division of M-Web Holdings offers integrated commerce solutions to retailers and is a leader in the B2C e-commerce market. It offers various on-line services to large corporations and to the small and medium enterprise ("SME") and small-office-home-office ("Soho") markets. These services include web and server hosting, business mail solutions, domain name registrations, leased line access, application service provision, web development and e-commerce solution development.
 
Commercezone, a division of M-Web Holdings, is active in the B2B e-commerce market with products ranging from strategic sourcing to e- procurement platforms for the group and external customers. The on-line advertising and e-commerce markets are at an early stage of development in South Africa. M-Web Holdings estimates that neither is likely to start emerging as a significant generator of revenue in the near future. On-line consumer retail and true retail e-commerce will only develop once the necessary financial infrastructure and consumer markets mature. The business division of M-Web Holdings offers support to the increasing number of e-commerce web sites by making its portal and its dial-up subscriber base available to corporate customers.
 
Thailand
 
The group’s Internet investments in Thailand comprise M-Web (Thailand) Limited ("M-Web (Thailand)") and, through a wholly owned subsidiary, a 62.5% interest in Internet Knowledge Service Center Company, a Thai company that holds a majority stake in an ISP, KSC Commercial Internet Company Limited ("KSC Comnet"). As of March 31, 2004, the group held an effective economic interest of 40.63% in KSC Comnet and 100% in M-Web (Thailand).
 
The group believes that there are approximately one million consumer Internet subscribers in Thailand and that advertising and on-line consumer retail e-commerce will only develop once the necessary financial infrastructure and consumer markets mature. Revenue from these sources in Thailand will not be significant for some years.
 
M-Web (Thailand) offers a full suite of on-line services and solutions to businesses and consumers in Thailand. M-Web (Thailand) provides a comprehensive Internet experience in the Thai language, which is tailored to the Thai culture via the portal Sanook! (www.sanook.com).
 
M-Web (Thailand) has extended operations through the development of mobile telephone related services. These services comprise entertainment and information downloads via the short-message-service ("SMS") and multimedia-message-service ("MMS") offering of the three GSM operators in Thailand. M-Web (Thailand) is licensed to provide premium rated voice related services, which are at an early stage of development. M-Web (Thailand) has started operating the Tencent brand QQ instant messaging service. However, the business is still in its infancy and significant revenues are not expected in the medium term.
 
KSC Comnet provides Internet access and affiliated services to both the consumer and corporate segments. In the consumer market, Internet access has historically been purchased mainly on a pre-paid basis. It is expected that the consumer market will increasingly shift from narrow band to broadband services, favoring the fixed line telecommunications companies. In the corporate market, fixed line Internet access is the dominant service provided. Approximately half of the revenues are derived from corporate services and the other half from consumer services.
 

 
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China
 
Tencent
 
The group has an interest in Tencent Holdings Limited ("Tencent") a provider of services based on the "QQ" instant messaging platform to Tencent Computer and Shiji Kaixuan, the licensed instant messaging operators in China. Tencent’s core market is mainland China, with QQ services also deployed in Taiwan, Japan, Thailand and South Africa.
 
On August 11, 2003, Tencent bought back some of its own shares, resulting in the group owning, through its subsidiary MIH QQ (BVI) Limited, 50% of the share capital of Tencent, with the founding members owning the remaining 50%.
 
Tencent completed its global offering and listing of its shares on the Main Board of The Stock Exchange of Hong Kong Limited on June 16, 2004 (the "Tencent IPO"). Tencent issued shares totaling approximately 27.71% of its overall share capital and raised approximately U.S. dollar 211.0 million (after expenses) in the Tencent IPO, including an over-allotment option exercised by the underwriters on July 5, 2004. Neither the group nor Tencent’s other existing shareholders sold any shares in Tencent in the Tencent IPO. The group and each of Tencent’s other existing shareholders entered into an underwriting agreement pursuant to which each agreed to not sell or otherwise dispose of its shares in Tencent for a period ending 180 days after the Tencent IPO. As a result of the Tencent IPO, the group’s ownership percentage in Tencent decreased from 50% to approximately 36.14%.
 
Tencent is a leading provider of Internet services and mobile value-added services in China, with the largest instant messaging ("IM") community in China. Tencent’s IM platform, branded QQ, allows users to communicate in real-time across the Internet, and mobile and fixed line telecommunications networks using various terminal devices. Tencent has been able to leverage its large user community and recognition of the QQ brand to attract Internet and mobile users to pay for its consumer-oriented Internet and mobile value-added services and products. As of March 31, 2004, Tencent had 97.1 million active IM user accounts. In addition, Tencent has been able to leverage the traffic in its online community to market online advertising services to its corporate clients.
 
Tencent was one of the first providers of IM and mobile value-added services in China. Since the introduction of its basic IM service, Tencent’s services and products have evolved into a variety of value-added services for the QQ community, including various fee-based IM service packages, entertainment and information content services, e-mail, chat rooms, dating services, casual games and massive multiple-player online games. Similarly, since the introduction of Tencent’s mobile IM services, its mobile and telecommunications value-added services have expanded to include mobile chat, Interactive Voice Response services, ringback tones, mobile music and pictures, mobile news and information content services, mobile games and other telecommunications value-added services.
 
The growth in China’s Internet market is expected to be further fueled by the growth in broadband access. The large number of telecommunications and Internet users has accelerated the growing demand for value-added services in China.
 
The mobile value-added service market has also experienced rapid growth. Both China Mobile and China Unicom have launched mobile value-added service platforms that are the drivers behind the growth in the market.
 
The operation of telecommunications businesses in China, including Tencent’s Internet related IM, Internet content provision, online entertainment, online advertising businesses and other telecommunications value-added services, are subject to extensive regulation by the Chinese government. Due to such regulation, the Internet services and mobile and telecommunications value-added services are provided by Tencent’s wholly-owned subsidiaries in China, pursuant to contractual arrangements with Tencent and two domestic Chinese companies wholly-owned by Tencent’s founding shareholders. In compliance with both South African GAAP and U.S. GAAP, Tencent consolidates the financial statements of these two domestic companies because, in substance, the contractual arrangements give Tencent control over the voting rights of these domestic companies.
 
Tencent currently has three principal lines of business: Internet value-added services, mobile and telecommunications value-added services and online advertising.
 
Internet value-added services provide the main platform on which Tencent’s user community is built. IM is at the core of Tencent’s Internet value-added service platform. QQ is a comprehensive service platform that utilizes IM and other value-added services to create an online community. QQ is now widely recognized as the most popular IM community in China. Internet value-added services also include community services such as the QQ.com portal and entertainment services such as
 
 

 
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casual games, "avatars" (or virtual characters) and massive multiple-player online games. During the quarter ended March 31, 2004, the peak number of simultaneous online user accounts was 6.1 million and during the 16-day period ended March 31, 2004, the average number of daily user hours was 64.7 million and the average number of messages sent daily was 848.8 million. In addition, Tencent is making long-term investments building on its technical expertise to develop IM solutions targeted for enterprises in China.
 
Mobile and telecommunications value-added services are also an important segment of Tencent’s business. Mobile QQ is a mobile based extension of Tencent’s QQ service, which allows its users to access the QQ network via their mobile phones and communicate in real-time with other QQ users. Tencent has been introducing and promoting additional value-added services by leveraging its strategic relationships with telecommunications operators in China such as subsidiaries and branch companies of China Mobile and China Unicom. These value-added services include Mobile chat, ringback tones, mobile music, image and picture download services, mobile news and mobile games. As of March 31, 2004, there were approximately 12.8 million registered subscriptions for fee-based mobile and telecommunication value-added services provided directly by Tencent or through mobile operators.
 
Tencent sells advertising space on its QQ software client and websites that generate significant impressions daily. The QQ software client enables targeted advertisements such as "log-in flashes" and "system messages" to deliver high resolution images to the end user’s PC screen.
 
On April 20, 2004 the group entered into an amended and restated shareholders agreement with the other then existing shareholders of Tencent (the "Tencent Shareholders Agreement"), pursuant to which they agreed to exercise their rights as shareholders with regard to certain matters of Tencent. Under the Tencent Shareholders Agreement, the parties will vote their shares in Tencent so that the board of directors of Tencent and each subsidiary controlled by Tencent through holding more than half of the equity interests will have an equal number of directors nominated by the group and the other parties to the Tencent Shareholders’ Agreement, respectively. In addition, the group has the right to nominate the chief financial officer of Tencent. The Tencent Shareholders Agreement will expire on its third anniversary date, and can be terminated earlier by the other parties to the Tencent Shareholders’ Agreement if the group ceases to hold 15% of Tencent’s share capital, or by the group if the other parties to the Tencent Shareholders’ Agreement cease to hold in the aggregate at least 15% of Tencent’s share capital.
 
Sportscn
 
The group holds an 87% interest in Sportscn.com, which is one of the leading sports portals in China. Sportscn supplies sports results, statistics, betting odds and news via its Internet, mobile phone and fixed-line phone platforms which target sports fans. It generates most of its current revenues from sports consumers who subscribe to various sports result/information services on Sportscn’s mobile phone platform. The other significant revenue stream is advertising revenue from Chinese football prediction websites and international (i.e. non Chinese) sports bookmakers who advertise on Sportscn’s websites.
 
The regulation of on-line sports information/prediction/gaming services in China may adversely affect the current revenue model for Sportscn. In addition, the prohibition of international bookmaker online advertising by the Chinese authorities may adversely impact advertising revenues. Sportscn’s mobile phone information services revenue stream is also dependent on a continuing relationship with the main Chinese mobile operators. In particular, Sportscn is vulnerable to changes in the Chinese mobile telephone operators' billing policies such as the recently announced China Mobile policy of capping fees payable by subscribers, or to fines and restraints that may be imposed by mobile operators.
 
Sportscn has recently undertaken various business development projects which are aimed at expanding the Sportscn business by generating more subscription products to sell to the Sportscn user base. These projects are speculative and carry risks as they involve development of untested products and are subject to possible regulatory and licensing hurdles which Sportscn may not be able to clear.
 
Competitors and Competitive Position
 
In South Africa, M-Web Holdings’ main competitors in the Internet access business are Telkom SA, ABSA and various other ISPs that operate in this market. Telkom SA is pursuing customers before a second network operator is licensed. Once licensed, the second network operator may enter the residential and corporate access Internet market with competitive pricing. A number of companies offer e-commerce solutions to retailers. In the hosting and web development market, the competition is strong with some well-known companies, including UUNet and Internet Solutions, a subsidiary of Dimension Data.
 

 
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Regulatory developments, including the grant of licenses to new operators, may affect the competitive position of Naspers’ pay-television operators and must be taken into consideration when evaluating competitive positions. You should read "—Regulation" for more information about the regulatory environment in Naspers’ key markets.
 
The ISP market in Thailand has for the past year been through turmoil from both a regulatory and competitive perspective. From a regulatory perspective the formation of a National Telecommunications Commission continues to be delayed. In October 2002, a new Government ministry, the Ministry of Information, Communications and Technology was formed. This Ministry assumed final regulatory control for the Internet industry in Thailand - in the absence of the National Telecommunications Commission. The Ministry has implemented policies which have led to the privatization of the two state telecommunications entities and to the entrance of both of these entities as competitors in the ISP market. Within the consumer segment, the fixed line telecommunications companies are exploiting their infrastructure to establish a leadership position within the residential broadband market. In the corporate segment, strong price competition remains a major factor in the industry.
 
Within the Internet media segment, Microsoft has entered the Thai market with the launch of a Thai language version of the Microsoft portal msn. Other international portal operators have also expressed a growing interest in this market, including eBay and Yahoo! Singapore. From a local competitive position, competitors in the portal market are typically entrepreneurial in nature, although the major music companies have initiated business operations in the mobile download market.
 
The market for Internet and telecommunications value-added services in China is highly competitive and competition is expected to increase continuously. As the industry is relatively new and is rapidly evolving, the basis of competition is expected to frequently shift, offering opportunities for new competitors to enter our markets. In addition, as China continues to open its telecommunications value-added services market to foreign investors, Tencent may face increased competition from international competitors that may establish joint venture companies with local companies to provide services based on the foreign investors' technology and experience developed in overseas markets. Several of Tencent's existing competitors, as well as a number of new potential competitors, may have significantly greater financial, technical and marketing resources than Tencent.
 
Tencent's main competitors in the overall Internet and telecommunications value-added services market in China are local Internet portals such as Sina.com, Sohu.com, Netease.com and Tom.com. Tencent competes directly with these portals to provide comprehensive Internet and telecommunications value-added services to Chinese consumers. Other competitors in the China IM market include Microsoft, Yahoo and AOL. These IM competitors have substantial brand recognition and large user bases outside China, and may leverage such strengths to increase their market position in the China market. Some of the telecommunications operators may also bundle their own IM services with the basic telecommunications services they offer, further increasing the level of competition in the market. In the area of mobile and telecommunications value-added services, Tencent also faces competition from a large number of competitors that provide an expanding range of value-added services. Tencent believes that the key areas of competition in mobile value-added services and products are currently mobile content and mobile games, and that their primary competitors in these areas will continue to be the local service providers. In the online entertainment market, Tencent also has a number of specialized competitors. In casual games, Tencent competes with Ourgames.net, Chinagames.net and Bian Feng, among others. Tencent also competes with Shanda, The9 and Guangtong, among others, in the massively multiplayer online game ("MMOG") market.
 
The enterprise IM market in China is in an early stage of development. Microsoft, AOL and Yahoo may enter the enterprise market in China, as they have launched enterprise IM products in the United States. Alibaba.com has recently begun to market a public IM service to its business customers via its portal. Enterprise software companies in China may also provide IM functionality in their products in the future.
 
Sportscn has vertical competitors in China, such as Espnstar.com.cn, and several horizontal competitors such as Sina.com.cn, Sohu.com and Tom.com. Naspers expects the market to remain competitive in the future.
 
Print Media
 
Overview
 
Media24 is a leading print media concern in Africa. The Media24 group is one of the largest publishers of magazines and newspapers and printers and distributors of magazines, newspapers and related products in Africa. In addition, Media24 is establishing Internet businesses that compliment and draw from existing strengths and areas of expertise and are rapidly evolving as leaders in their specific segments.
 
 

 
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Media24’s current newspaper portfolio consists of approximately 50 titles and contributed 46% to the print media segment revenue in fiscal 2004. The magazine publishing division publishes approximately 40 titles and its contribution to the group’s print media revenue was 31%. Naspers owns an 84.2% interest in the Paarl Media group which operates all the non-newspaper printing activities and contributed 20% of the segment’s revenue. The NND24 division does most of the distribution of the magazines for the group, as well as for external customers, and contributed 2% to revenue. Approximately 17% of total newspaper circulation revenue and 6% of total magazine circulation is generated from subscribers; the balance is achieved via delivery to a wide network of retail and smaller merchandisers. Media24 Digital, the consumer related Internet businesses, contributed approximately 1% to this segment’s revenue.
 
The print media industry in South Africa is mature. Media24 has expanded its business over the past few years by adding a series of new titles to its stable and through a series of small acquisitions.
 
In addition, Media24 has streamlined its printing operations by merging with the Paarl Post Web group to establish Paarl Media Holdings in 2000. Media24 has established new infrastructure and production resources and buildings as part of a comprehensive replacement and refurbishment program. A new gravure printing press is being installed at Paarl Gravure at a cost of approximately Rand 100 million, and further capital investments of approximately Rand 65 million and Rand 88 million will be incurred over the next eighteen months at the newspaper printing presses in Johannesburg and Cape Town, respectively, to provide additional capacity for the circulation of the recently launched tabloids, Daily Sun and Son. Paarl Media Holdings is planning to expand its operations by establishing a printing plant in Johannesburg at an estimated cost of Rand 140 million. This plant will concentrate on commercial printing and some magazine printing.
 
Newspapers
 
Media24 conducts its newspaper publishing and printing business through its newspaper division. The current newspaper portfolio consists of approximately 50 titles. A number of new titles were added to the portfolio in recent years.
 
The five Media24 daily newspapers, Die Burger, Beeld, Volksblad, The Natal Witness (50% shareholding) and the Daily Sun, provide regional news coverage. The Daily Sun, based in Gauteng and now the largest selling daily in South Africa, rolled out into the Free State, KwaZulu Natal and the Eastern Cape in the latter half of 2003. The Sunday papers, Rapport, City Press and Sunday Sun, are printed in four cities and distributed nationally. Media24 also has a strong group of regional and community newspapers.
 
The significant newspaper titles and related information published by Media24 are summarized below:
 
 
 
 
 Newspapers  Circulation(1)  Established (Year) Region  Language
Dailies
       
Daily Sun
301,865
2002
Gauteng
Eastern Cape
KwaZulu Natal
Free State
English
Beeld   
105,681
1974
Gauteng
Mpumalanga
Limpopo
Afrikaans
Die Burger Western Cape   
86,852
1915
Western Cape
Afrikaans
Volksblad   
28,707
1904
Free State
North West
Afrikaans
Natal Witness   
23,804
1846
KwaZulu Natal
English
Die Burger Eastern Cape   
22,661
1993
Eastern Cape
Afrikaans
Weeklies
       
Soccer Laduuma   
209,547
1997
National
English
Son
179,287
2003
Western Cape
Eastern Cape
Gauteng
Afrikaans
Sunday
       
Rapport   
325,807
1970
National
Afrikaans
City Press   
177,615
1982
National
English
Sunday Sun   
172,050
2001
National
English
 
 

 
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Community Newspapers
       
Paarl Post   
16,639
1905
Paarl
Afr/Eng
District Mail   
14,311
1926
Somerset West
Afr/Eng
Worcester Standard
9,938
1880
Worcester
Afr/Eng
Vaal Weekly   
9,750
1998
Vanderbijlpark
English
Weslander   
9,644
1972
Vredenburg
Afr/Eng
Eikestadnuus    
9,224
1950
Stellenbosch
Afr/Eng
Vaalweekblad   
8,620
1964
Vanderbijlpark
Afrikaans
Hermanus Times   
7,019
1949
Hermanus
Afr/Eng
Potchefstroom Herald
6,404
1908
Potchefstroom
Afr/Eng
Carltonville Herald   
5,161
1966
Carltonville
Afr/Eng
Vrystaat   
4,002
1975
Bethlehem
Afr/Eng
Caledon Kontrei Nuus   
1,422
1991
Caledon
Afr/Eng
Freesheets
       
TygerBurger   
139,455
1972
Cape Town
Afr/Eng
MetroBurger   
138,500
1980
Cape Town
Afr/Eng
City Vision (Johannesburg)   
99,862
1992
Johannesburg
English
PE Express   
89,831
1983
Port Elizabeth
Afr/Eng
City Vision (Cape Town)   
70,000
1992
Khayalitsha
English
Vaal Vision   
65,133
1989
Vanderbijlpark
Afr/Eng
Vaal Ster   
62,727
1980
Vanderbijlpark
Afr/Eng
Express   
55,483
1991
Bloemfontein
English
Bloemnuus   
42,338
1982
Bloemfontein
Afr/Eng
Vista   
37,723
1971
Welkom
Afr/Eng
Ons Stad   
37,252
1983
Bloemfontein
Afr/Eng
Noordwes Gazette   
34,430
1997
Potchefstroom
Afr/Eng
Goudveld Forum   
30,245
1983
Welkom
Afr/Eng
Helderpos   
29,900
1996
Somerset West
Afr/Eng
UD Nuus   
27,126
1971
Uitenhage
Afr/Eng
Noordkaap   
21,515
1982
Kimberley
Afr/Eng
Weskus Nuus   
15,000
1981
Atlantis
Afr/Eng
Stellenbosch Gazette    
14,600
1998
Stellenbosch
Afr/Eng
Sasolburg Bulletin
9,951
1996
Sasolburg
Afr/Eng
Kroonnuus   
8,470
1986
Kroonstad
Afr/Eng
Maluti   
8,055
1991
Bethlehem
Afr/Eng
Noord Vrystaat Gazette   
6,429
2000
Parys
Afr/Eng
Meyerton Pos   
5,945
1997
Meyerton
Afr/Eng
 
__________

(1) Audited Bureau for Circulation ("ABC") figures: average per issue, last six months (above: January - June 2004).

The newspaper division is equipped with a modern network of newsprint facilities. All five of the major print facilities have been significantly upgraded or completely replaced since 1997. These projects, which required significant capital expenditures, are expected to yield advantages over the average 20-year lifetime of the printing presses due to expected lower future operating costs, improved quality and an increase in third party commercial work. Further capital investments are planned for the City Deep and Paarden Eiland plants to provide additional capacity.
 
 

 
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Magazine Publishing
 
Media24 is a leading publisher of consumer magazines in Africa.
 
This division publishes a portfolio of consumer magazines in South Africa which include Huisgenoot, You, Drum and tvplus, the women’s magazines Sarie, Fairlady, True Love, Woman’s Value and dit, as well as reputable financial magazines such as Finance Week and Finansies & Tegniek. The Touchline-subsidiary with its magazines, such as Men’s Health, Shape, Sports Illustrated, Golf Digest, Kick Off, Bicycling SA and Runner’s World also forms part of this sector. This division has entered into partnerships with international publishers such as Emap plc to publish additional international titles, such as FHM and the newly launched heat. A number of exciting new titles, such as Bicycling SA, Wegbreek, Tuis, Seventeen and National Geographic Kids were launched in the past year.
 
Media24 has expanded into West Africa by launching a monthly football magazine, Kick Off Nigeria, 18 months ago. It will be launching Drum East Africa and True Love East Africa during fiscal 2005 with more titles to follow in West Africa.
 
The following is a summary of the significant titles published by Media24’s magazine division:
 
 
 
Magazines Circulation(2) Established (Year) Frequency Language
Business
       
Landbouweekblad   
43,564
1919
Weekly
Afrikaans
Finance Week   
13,692
1979
Weekly
English
Finansies & Tegniek   
10,386
1984
Weekly
Afrikaans
         
General interest
       
Huisgenoot   
353,853
1916
Weekly
Afrikaans
You   
232,744
1987
Weekly
English
tvplus    
126,116
1999
Fortnightly
English/
Afrikaans
Drum   
80,409
1951
Weekly
English/Zulu
heat
44,933
2004
Weekly
English
Insig   
15,763
1987
Monthly
Afrikaans
         
Men’s
       
FHM
114,640
1999
Monthly
English
Men’s Health   
89,045
1997
Monthly
English
         
Parenting
       
Your Pregnancy   
24,790
1998
Alternate-monthly
English
Baba & Kleuter   
23,759
2000
Monthly
Afrikaans
Your Baby   
22,327
1995
Monthly
English
         
Sport
       
Kick Off SA
60,744
1994
Fortnightly
English
South African Sports Illustrated   
40,079
1986
Monthly
English
Golf Digest   
20,852
1995
Monthly
English
Runner’s World   
18,727
1993
Monthly
English
Bicycling SA
17,485
2002
Alternate-monthly
English
Zigzag Surfing Magazine    
16,621
1976
Monthly
English
         
Teen /Youth
       
Saltwater Girl
28,163
2001
Monthly
English
Seventeen
28,097
2003
Monthly
English
Blunt   
17,042
1997
Monthly
English
         
Woman
       
Sarie
136,953
1949
Monthly
Afrikaans
True Love
128,827
1972
Monthly
English
 
 

 
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Cosmopolitan
114,727
1984
Monthly
English
Fair Lady   
94,361
1965
Monthly
English
dit
79,298
2001
Monthly
Afrikaans
Woman’s Value   
72,574
1980
Monthly
English
Shape   
52,022
2000
Monthly
English
         
Other niche
       
Wegbreek
36,827
2004
Alternate-monthly
Afrikaans
__________

 
(2) ABC figures: average per issue, last six months (above: January - June 2004).
 
Printing and Distribution
 
Media24 has an 84.2% interest in Paarl Media Holdings (Pty) Ltd ("Paarl Media Holdings"). Media24’s printing interests are divided into its newspaper print facilities (which are included in and managed as part of the newspaper business) and Paarl Media Holdings (Pty) Ltd (which encompasses all print interests other than newspapers).
 
Paarl Media (Pty) Ltd, a wholly-owned subsidiary of Paarl Media Holdings, specializes in publication gravure and litho-web magazines, brochures and advertising material printing at its facilities in Montague Gardens, Cape Town (called Paarl Gravure) and Paarl (called Paarl Web and Paarl Print). Gravure is a printing process mainly used for high-speed production of high pagination large print runs at constant and high-quality. It closely resembles the photographic process. Litho-web presses use a photo chemical process based on the principle that water and oil do not mix. In respect of all publication gravure and heatset web printing work performed by the facilities, including pamphlets, inserts and advertising material, Paarl Media Holdings processes an estimated 40% of such printing work. All three plants (Paarl Gravure, Paarl Web and Paarl Print) are able to process digital material. Paarl Print offers, in addition to the printing of books, diaries and magazines, heatset web print of commercial work, books and bibles, labels (UV flexo, self-adhesive and litho), and specialized bindery services. This includes luxury binding for bibles, hard and soft cover/sewing/PUR binding/perfect binding/saddle stitching.
 
With respect to books, Paarl Print holds an estimated 25% share of the South African book printing market.
 
Media24’s business also incorporates distribution networks, which complement the editorial and printing functions. NND24, a division of Media24, distributes Media24 and third party magazines and newspapers.
 
Media24 Digital
 
Media24 is continuing to establish consumer related Internet businesses which draw from its existing areas of expertise. These businesses are managed as part of a unit named Media24 Digital. Media24 Digital has approximately 1.1 million unique visitors monthly. Some of these initiatives are still in a start-up phase.
 
In the electronic media field, News24 is a comprehensive Internet news service. Other activities include a women’s interest portal (Women24), a health portal (Health24), a motoring portal (Wheels24), a finance portal (Finance24) and a food service (Food24). These services are the market innovators in their field in South Africa. Media24 also holds a 50% share in Property24, the property portal of the group (the remaining 50% share is held by ABSA Bank).
 
Seasonality
 
Media24’s business performance is stronger during the Christmas season. Advertising revenues accelerate from October to December and then decrease in January and February, before recovering in March. Similarly, in the rush to prepare for the Christmas season, printing and distribution activities build up from October to November, before slowing down in January. As Naspers’ fiscal year ends on March 31, the financial results for the second six months are typically stronger than those for the first six months, barring contrary general economic trends.
 
Raw Materials
 
Paper and ink (and related chemicals) are the principal raw materials required for publishing activities. Media24 has not experienced and does not anticipate difficulties in obtaining adequate supplies of paper or ink and chemicals for its
 
 

 
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operations, with sourcing available from numerous suppliers, local and international. Prices, however, do fluctuate as is the case with most commodities. For Media24, pricing can be significantly affected by the volatility of the Rand since the key ingredients for manufacturing the ink (or, if the ink is imported as a finished product, the ink itself) are sourced from outside of South Africa. Media24 therefore expects newsprint costs to remain volatile as the volatility of the Rand impacts prices. Media24 has renegotiated its major newsprint contracts with its two main suppliers during 2004 for further periods of two and three years respectively. One of Media24’s current paper suppliers, Mondi, is considering discontinuing the production of its Rotogloss paper over the next two years. Media24 will then have to find an alternative supplier for that paper, which could mean that it can not source the paper on the same commercial terms as currently.
 
Competitors and Competitive Position
 
Media24’s main competitors in South Africa include:
 
·   Caxton Printing and Publishing Limited (Caxton), a JSE Securities Exchange South Africa listed company, with significant interests in newspaper, magazine and book printing facilities, magazine publishing and some newspapers.
 
·   Independent Group—part of Independent plc (Ireland), the largest newspaper publisher and printer in South Africa with multiple titles, including The Star, Business Report, The Argus and Cape Times. Independent plc (Ireland) also publishes two Conde Nast titles in South Africa under license (GQ and Conde Nast House & Garden).
 
·   Johnnic Communications Limited (Johncom), a JSE Securities Exchange South Africa listed company, with newspaper and magazine publishing interests, owns the Sunday Times and 50% of the Financial Mail and Business Day. They have recently acquired the Sowetan and the Sunday World from New Africa Investments Limited.
 
The two key indicators of competitive strength are circulation and advertising revenue. Competition for circulation and advertising revenue comes from local, regional and national newspapers, magazines, radio, television, direct mail and other communications and advertising media that operate in the same markets as Media24. The extent and nature of such competition is, in large part, determined by the location and demographics of the markets and the number of media alternatives available in these markets. Media24 competes for advertising revenue with other forms of media based on the ability to offer an effective means for advertisers to reach their target audience.
 
In the printing market, competitive factors include the quality and location of printing presses, distribution capabilities and technological advancements. In printing, Caxton, Interpak and Intrepid Printers (Pty) Ltd are the main competitors.
 
Book Publishing and Private Education
 
Overview
 
Via Afrika (formerly Nasboek) is a leading African book publisher, seller and distributor of innovative and quality reading, learning, listening and viewing products in various formats. During the financial year ended March 31, 2004 Nasboek Limited was combined with Educor, the group’s private education business, under the name Via Afrika Limited. Via Afrika controls a number of different businesses operating as independent business units in three segments as follows:
 
·   Publishers and agents: including general, religious, educational and academic publishers as well as digital content providers.
 
·   Retail and distribution: traditional niche academic and religious as well as Internet bookstores, book and music clubs, ticketing and warehousing and distribution services.
 
·   Private education: Educor Group - adult basic education and training, higher education and corporate training.
 
Books
 

 
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The following provides a brief summary of Via Afrika’s various book related business units:
 
Business Unit
Nature of business
Brand Names and Imprints
     
Publishing and Agencies
   
NB Publishers
General publishing in Afrikaans & English
Tafelberg, Human & Rousseau, Quellerie, Pharos, JLvS, Kwela, Best Books
Jonathan Ball Publishers
(including Book Promotions and Horizon Library Services)
Publishing and distribution of general English books
Jonathan Ball, AD Donker, Sunbird
Agent and distributor for Harper Collins, Hodder Headline, Simon & Schuster, Orion, Bloomsbury, Scholastic and others
Lux Verbi.BM
Publisher of Christian books and products
Lux Verbi.BM, NG Kerk Uitgewers, Protea, Hugenote and Waterkant
Nasou Via Afrika
Publishing of educational school text books
Nasou, Via Afrika, Action and Afro
Collegium Botswana
Publishing of educational school text books in Botswana
Collegium
Van Schaik Publishers
Publishing of academic text books
Van Schaik Publishers
Learning Online
Electronic and on-line publisher
VSE, Learning online
     
Retail and Distribution
   
Afribooks
Retail distributor of school text books and stationery
Afribooks
Van Schaik Bookstores
Academic book retail and content manager
Van Schaik Bookstores
Lux Verbi Bookstores
Religious book retail
Lux Verbi
Leisure Books, Leserskring, Kalahari,
Direct marketing clubs for books, music, videos, DVD’s and related products
Leisure Books, Leserskring, Kalahari.net
On the Dot Distribution
Distribution of books, music, stationery and certain electronic products
On the Dot Distribution

 
Private Education
 
The Educor Group is the leading provider of private education in South Africa. It offers programs ranging from adult basic education and training to higher education and corporate training. Educor is primarily involved in the delivery of further education and training and higher education in South Africa. The further education and training programs lay the foundation for higher education and focus on the returning adult and not just the school leaver. Educor operates its private education business through a number of subsidiaries and divisions, the large majority of which are wholly owned, and is structured in two divisions as follows:
 
·   Educor (face to face education)
 
Educor’s key brands such as Damelin and Allenby are represented in all major South African business centers and Educor has over 45 campuses throughout South Africa. Educor’s programs are delivered in three principal ways: face-to-face in the classroom and on campus, via supplementary distance learning and through corporate on-site executive education.
 
Damelin focuses on higher education and further education and training, full and part time learners. Allenby also focuses on higher education and further education and training, providing "exotic" programs such as sound engineering, game ranging and sports club management. The Graduate Institute of Management and Technology ("GIMT") offers customized education for corporate executives and runs public programs for management.
 
Midrand Graduate Institute ("MGI") provides higher education covering the arts, commerce and technology fields as well as the Cambridge A and O level programs to prepare learners for higher education programs. Milpark Business
 

 
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School is a division of MGI, which provides both undergraduate and post-graduate education such as masters in business administration ("MBAs").
 
·   International Colleges Group ("ICG") (distance education)
 
ICG provides vocational education to over 50,000 students. ICG specializes in distance education, sometimes enhanced by contact sessions. ICG operates traditional colleges Intec and Damelin, as well as Academy for Mathematics and National Private Colleges under the brands Lyceum and Success.
 
Damelin, GIMT, Allenby, ICG, and MGI are the main subsidiaries of Educor, comprising approximately 90% of Educor’s revenue for fiscal 2004. The current economic conditions are difficult for private education companies, with less disposable income available, but there are key opportunities in the corporate and further education and training markets.
 
The private education sector in South Africa is increasingly subject to government regulation. Some of the changes will negatively affect Educor’s business. The Department of Education, for instance, is imposing stricter controls on the accreditation and registration of private education programs and courses. The Department has, in particular, expressed concerns regarding the number of MBAs offered in South Africa and has recently revoked accreditation of a number of institutions. Both Educor MBA’s, namely that offered by Milpark Business School and Damelin, have been provisionally accredited. Educor and the other institutions that have been provisionally accredited have been given two years to introduce some specified changes to the programs to ensure that the accreditation becomes unconditional. Moreover, there is mounting government pressure to demonstrate black investment participation in the corporate training market. Nozala Investments (Proprietary) Limited, a black empowerment group, holds a 21.5% voting interest in Educor.
 
Seasonality
 
Via Afrika’s book businesses are seasonal businesses. The production and sale of learning support materials for primary, secondary and tertiary education occurs mostly from January to March, the beginning of the South African academic year. Accordingly, most revenues are generated at the beginning of the calendar year, which is Naspers’ fiscal fourth quarter. The fiscal third and fourth quarters also are favorably affected by the usual increase in general book publishing driven by the Christmas and Easter holidays.
 
Educor’s business is seasonal as approximately 60% of its students sign up in the first three calendar months of the year (the beginning of the South African academic year). Marketing plans and sales initiatives need to be prepared by April of the prior year, meaning that operating costs leading up to that period are typically higher than during the remainder of the year.
 
Raw Materials
 
Like most businesses classified in the media sector, Via Afrika is indirectly exposed to rising paper and ink costs. In addition, the Van Schaik Bookstore and Jonathan Ball businesses import most of their products, making it further susceptible to the volatility of the Rand versus Pound sterling and U.S. dollar exchange rates.
 
Competitors and Competitive Position
 
Publishers compete by developing a portfolio of books that are in demand by continually seeking out and promoting talented writers and by offering their works at competitive prices. Via Afrika mainly competes with other publishers of fiction and non-fiction books, including international publishers with a presence in South Africa such as Random House, Penguin and MacMillan as well as with South African publishers, most notably Maskew Miller Longman, jointly owned by Pearsons and Johnnic Communications, the leading school textbook publishers in South Africa.
 
Educor competes with international and local universities and creators of educational materials. Competition is based on the ability to deliver quality products at competitive prices that appeal to the school boards, educators and government officials making purchasing decisions. Public universities are Educor’s main competitors in South Africa. International competitors include Bond University and the University of Southern Queensland. Some of the international competitors’ MBA programs have recently been de-accredited and the indicators are that some of them will exit the South African market. Local competitors include Adcorp Holdings Limited, Advtech Limited and Privest Group Limited.
 

 
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Intellectual Property
 
Naspers relies on a combination of patents, licensing arrangements, trade names, trademarks, copyrights and proprietary technology to protect its intellectual property rights. Naspers or its subsidiaries own, or have been assigned or licensed, the rights to several patents and have several patent applications in various jurisdictions relating to their proprietary technology. In addition, Naspers or its subsidiaries currently have numerous trademarks (pending and registered) in countries where they conduct business or could potentially conduct business in the future. Some of Naspers’ major trademarks include the names and logos of DStv, M-Net, SuperSport, MultiChoice, M-Web, QQ and Irdeto Access. In respect of the Internet, a number of domain registrations have been secured, also as a mechanism to protect print brands. The publishing activities of Media24, Via Afrika and Educor are protected by copyrights to the various contents made available. Naspers believes it has taken appropriate available legal steps to protect its intellectual property in the relevant jurisdictions.
 
Naspers may file additional patent and trademark applications in the future, although there can be no assurance that Naspers will be successful in obtaining patents or trademark registrations based upon these applications. Naspers intends to vigorously protect its intellectual property rights. It may be possible, however, for a third party to copy or otherwise obtain and use its technology without authorization or to develop similar technology independently. Furthermore, the laws of certain countries in which Naspers sells its products and services do not protect Naspers’ intellectual property rights to the same extent as do the laws of the United States.
 
Regulation
 
Naspers is subject to laws which regulate its business practices in the different jurisdictions in which it operates. The following discussion focuses on South Africa, Greece, Thailand and China, the principal countries in which Naspers conducts its operations. For a discussion of the regulation of education in South Africa and its impact on Educor, you should review " —Private Education (Educor)" above. Broadcasting is also regulated in some countries in Sub-Saharan Africa in which the group conducts pay-television activities. For more information please see "- Sub-Saharan Africa" below.
 
South Africa
 
Regulation of Anti-Competitive Practices in South Africa
 
The Competition Act 1998 regulates anti-competitive practices in South Africa. The Competition Act also places emphasis on ensuring that opportunity exists for historically disadvantaged persons to participate in the South African economy.
 
The Competition Act created a Competition Commission, a Competition Tribunal (which has the status of a High Court) and a Competition Appeal Court. The prohibitions against restrictive horizontal practices, restrictive vertical practices, the prohibitions against abuse of positions of dominance and the provisions regulating mergers are the main prohibitions in the Competition Act which may affect Naspers.
 
The Competition Act provisions may be enforced by:
 
·   injunctions in respect of contraventions of the Competition Act;
 
·   orders against third parties to remedy anti-competitive activity;
 
·   the imposition of significant administrative fines;
 
·   orders for divestment of assets or businesses; and
 
·   claims for damages by persons injured by a contravention of the Competition Act.
 
The impact of the Competition Act on Naspers is difficult to predict, although it may make completing acquisitions in South Africa significantly more difficult, and in many cases not feasible, for Naspers. Any action taken by the Competition Commission against Naspers could have a material impact on Naspers’ operations in South Africa.