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DAVOS — After I switched off my recorder, Koos Bekker suggested there was enough in our half hour chat in Davos for me to edit it down to something usable. He was wrong. Despite strictly applying the old maxim of “when in doubt, leave out” it was impossible for me to edit out parts without short changing the Biznews community. For instance, how can one cut the Naspers chair’s insights on soon to be unbundled MultiChoice? Or when the 15 year veteran shares how Davos really works? Or his thoughts on Facebook and the privacy debate? And, besides, millions of South Africans have a direct interest in what he is thinking. Because a full one fifth of SA equity investments are riding on the astonishingly successful business he transformed from a sleepy newspaper and book publisher into one of the world’s major internet players. Bekker is disarmingly humble. His wisdom is best consumed at the leisurely pace at which he delivers it. So go grab a cuppa (or your glass of red wine) and settle back for a treat. – Alec Hogg
Davos 2019 – this coverage of the global conversation on change is brought to you by BrightRock, the first ever needs matched life insurance that changes as your life changes.
I’m with Koos Bekker, who has been coming to these WEF meetings for many years, Koos, a decade and-a-half. Lots of people in SA still don’t understand what its about. Yet, you keep coming back, not every year, but most years so, how’s it all put together?
You’ve been coming for 16 years so, you’re probably one of the few more experienced people. Alec, it’s fascinating. Davos is a town of eleven-thousand people. It is inaccessible. You have to pass through three sets of tunnels to get here. The mountains have a metre of snow. That is vital to the success of the operation, is to keep protestors away. You’ll remember what happened in Seattle? I was there when the good, the powerful, and the world collected and we had to disperse when the protestors arrived. So, the inaccessibility of Davos is absolutely crucial to get world leaders and business leaders together.
The whole thing started in 1971. So, Klaus Schwab was a 33-year-old professor at the University of Geneva, and he had the idea that you could get business, government and academics together, and then over the years it grew, surprisingly. Later they added a few celebrities, I think mainly so that you could take selfies and show your kids that you’ve been to Davos and then a few, call it achievers to add some intellectual respectability. But today, three-thousand people come and it’s astonishing. It’s usually 20 to 30 heads of State, 100s of ministers, and then what’s interesting is the hierarchy.
So, if you want to be at the top or if you want to have the privilege of staying at the Belvedere Hotel, which is the only 5-star outfit at town, you pay Klaus Schwab something like $600,000, or at least a few hundred thousand Dollars, they give you discount sometimes. For instance, women get a discount, strangely. That doesn’t pay for your food. That just pays for the privilege of applying to stay at the fancy hotel. But if you’re Morgan Stanley, can’t you afford to be seen to be at a lower level than Goldman Sachs? So, you pay up and the hamburgers cost $40, and that’s fine.
I hang around at the Europe Hotel, which is much lower. It’s sort of a middle-class ski resort, 2-star I would say, and then all the way to guest houses so, the three-thousand delegates arrange themselves according, partly to rank, partly according to money, and then partly according to subsidy. So, if someone is very prominent the organisers might actually invite him for free and your excess fee pays for him. So, they invite youth and so on, who is mattering. I think it’s a good institution although, of course, there’s an element that’s fake about it.
This year, interestingly enough, we’ve got a young man I met yesterday, 16-years-old, who won the world wildlife photographer of the year for 2018, from Durban. Out of 45,000 people, he won it and he’s here so, it’s that kind of thing.
Exactly. You know the fascinating thing for me is I tried to attend the less obvious stuff of which there’s a great deal… I mean, there are hundreds of lectures. This minute, as we’re talking, there’s a lecture going on right next door in the main congress hall about how grandmothers can treat depression. Now, I have no idea what will come out or whether it’ll be useful but that’s the sort of junk I go to.
But why do you go off-piste, as it were?
Alec, I think Donald Rumsfeld, that lovely man, said that if you’re a leader it’s not the known unknowns that get you. It’s the unknown unknowns. It’s the stuff that you don’t know, that you ought to know – that’s what gets you. So, I tried to look widely and see what’s coming up next, and the wonderful thing about Davos is… You know, I find powerful people uninteresting because they’re often surrounded by a caravan that screens away the human element. You can’t walk up to a head of State and say, ‘how you’re doing – let’s talk.’ He’s screened off. There’s an agenda for the meeting. If he says anything provocative his guide sort of pumps his ribs so, they tend to be uninteresting as human specimens.
But at Davos the caravan is stripped away, you can only come alone. So, you might sit at the Piano Bar drinking and the guy next door starts talking and you discover he’s the Energy Minister of Indonesia, and you discover a common interest in tennis and he asks, what do you think, was Sampras or Federer the all rounder of all time? Then you start talking, you form a friend and then you write them a letter and you form interesting friendships. For instance, a few years ago I got interested in genetic engineering so, I read a few books, but I’m a complete nincompoop, I never studied any biology.
One evening I went to a lecture by Craig Venter, who was the first man to decode the human-genome. He’s the number-one man in the world on this topic. So, he gives a lecture, which ends at 22h00. There are about 30 people. I engage and we start talking. For instance, I asked him, ‘do you think life on earth originated once?’ Was it one spark and all of us descendants of that or do you think it could have happened multiple times? So, we start talking so, we talk for an hour.
What was his answer to that?
Much too complex to summarise in a minute but we talked for an hour. Now you consider that this is the number-one in the world and he’s a very stern man. He’s not a friendly chap but he’s a hard driver, and he talks to this complete idiot and I come away enriched. Now, that would not occur in a normal setting, but here he’s alone in town. Maybe there’s nothing else to do in the evening and there’s no one better to talk to so, let me talk to this guy. And at Davos, that’s what makes it so interesting is you meet people in fields that you find surprising and sometimes something comes out of it and sometimes nothing.
Yes, when you strip away all of the clothing or the Emperor’s clothes as it were, human beings are fundamentally good, and communications and social beings but you do meet with the powerful, certainly of the media industry, in a group of governors or media governors.
It’s called the Media Entertainment and Information Governors Meeting. It’s quite an interesting thing. So, Chatham Rules apply so you can’t afterwards report what an individual said, but you can report the topic. So, for instance this year there were very interesting people. For instance, John Ridding, who is the CEO of The Financial Times, which is my favourite newspaper. So, you sit there and you meet him and it’s a certain amount of pleasure. Or let’s say, The New York Times head, who used to be the head of the BBC, right. He’s now making a great success of The New York Times and he’s converting it into digital. Or there’s Mathias Dopfner, who’s the CEO of Axel Springer and he’s in a battle with Google. He wants Google to pay for news, like your news – they rip you off, and you want to be paid, so he’s your champion.
So, these things get discussed and there’s a palpable tension between, I would say, Facebook and Google on the one side, and European publishers on the other. It’s not a broad internet versus print story because these European guys are all digitising and all have substantial digital businesses. But it’s specifically that Facebook, through its social network dominance and Google through its search, have such a hold at the moment. That they’re squeezing the life out of some of these publications and that battle, I think, is going to escalate in the next few years.
Do you discuss that kind of thing within the governor’s meetings?
Yes, there’s a certain amount of politeness because the relationship, say with Google, is partly client and partly opponent. So, sometimes you can feel people are holding back but over tea they’ll let blast and then, when you say, okay now is your chance – there’s Google, tell them. There’s sort of a reserve, and you can understand that, right. All of us are careful about our business concerns, but it’s a useful gathering. I think people need to talk about this and the media also realises that, at the moment, there are big issues about society, fake news, and the trust element so, I think it’s excellent to get together sometimes and discuss it.
Now, obviously with your connection as Naspers being the biggest shareholder in Tencent, you’ve got a significant dog in this fight. How are you seeing it all develop?
Alec, I really have no idea because it wasn’t evident that this Trump bust-up would occur. There were tensions but there’s always tensions in the world. It escalated in a bad way and it’s affecting the whole world economy. In the case of Chinese stocks like Tencent they’re off 20-35% probably. Not on fundamentals because the Chinese economy is still growing at above 6%, maybe a notch lower but rapidly by all historical standards. But what has changed is business confidence so, essentially people are saying, and you know it so well, better than I, that when I invest in a stock the PE I’m prepared to pay is a function of my risk factor, right. So, if I think it’s a risky stock, I demand more profits per Dollar spent so, a low PE. If I’m very confident that the world is a good place, I ramp up the PE and I pay more. At the moment, people say, the world looks risky how will this ever end? Consequently, they’re de-risking and that has taken, I would say, at least 20% off Chinese stocks in general. How it will end is not clear at all. Do you have a theory?
If I did, I would be a little embarrassed to even express it in front of you. But just on that context, your investment in Tencent has been spectacularly successful but it’s also brought a huge responsibility in Naspers being 20% of the Johannesburg Stock Exchange). So, just about everybody in the country has an interest in how Naspers performs. That responsibility must be weighing pretty heavy on some shoulders.
Yes, and I think it’s especially the pension funds. Typically, people think the JSE would be owned by individuals, right, and you know well but I think most people don’t. Individuals constitute, for instance 6% of our stock – it’s nothing. We’re basically owned by pension funds all over the world and sometimes directly, and sometimes via a pension fund investing in a trust or having a money manager convey the funds but in essence, it’s basically peoples’ savings. So, of course with MultiChoice spun-off, hopefully now we’ll at least have two shares. It’s quite interesting that our stock price’s function is not only of the China issue but of SA, and I thought that the so-called Team SA here in Davos did rather well. What did you think, you were also at the SA party?
Now, that I will express an opinion on. I think it’s fair to say that the performance by Team SA, if you were to rate most of the countries teams that came here, it would certainly be in the top 10%. It was confident, it was humble, it had a sense of humour and it was the right people. People you could engage and listen to so, I felt very proud to be a South African for the first time in quite a long time.
There’re maybe two, just observations. The one is, Cyril went further than before when he talked about nine lost years. That was a more damning indictment of the past that I’ve ever heard him give. It’s the Davos effect, you know. When you hear sometimes people are slightly bolder. The second is, I think we’ve got two-stars in terms of performance. One is the Governor of the Reserve Bank – he is so sharp. At the breakfast, I don’t know whether you were at the breakfast on Thursday morning.
Yes, I was.
Okay, now Adrian Gore from the stage gave a figure. The sort of opportunity cost of GDP lost due to mismanagement over the past nine-years. Now, the only person in the audience that caught him on getting his figures wrong was actually, the Reserve Bank Governor and he said, ‘that’s actually Rands and not Dollars, right.’ He’s mentally very sharp and that imbues a certain confident. He’s also independent of mind, I think. The other one is Tito Mboweni that has a refreshing candour, and people pick it up. When you sit on the stage and just mouth the usual nonsense, people pick it up quickly. But when you have a fresh expression or you grab a problem and shell it down to the core, they sense a certain confidence and I think he exudes confidence. Then of course, it’s interesting in SA there’s also the style elements so, our Minister of Communications, Stella Ndabeni-Abrahams, she was spectacular in red. So, next year we ought to bring some musicians, don’t you think?
Well, they used to, looking back. We’ve had Freshly Ground here, we’ve had Jimmy Dludlu here, but it seems like the social element of Davos is now really being downplayed. It ends on a Friday instead of a Sunday.
That’s true. Do you think it’s an element of guilt that the feeling is you shouldn’t be seen to have too good a time?
That’s a very interesting point because there has definitely been a different approach towards the Davos man, evolving in the past few years. I guess the people that you’re mixing with are wanting to keep more of a low profile.
Indeed, perhaps. You would have noticed, and I’m sure we’ve talked about it in the past, how the confidence levels isolate. So, in 2007, the bankers were very bolshie, all over the show. In 2009, after the bust, you would see Lloyd Blankfein and Goldman Sachs hiding behind a pillar, the diamond would be behind the rubbish bin, they wouldn’t be seen. Now this year it’s fascinating. I’ll show you a picture on my cellphone but here’s the Facebook building in the Main Street called the Promenade. It’s a huge building and then the Facebook branding was scaled down to be barely legible because between booking this building and today a lot of things happened that Facebook has a lot to feel guilty about. Then in the windows there’s no branding. The only message in the window is ‘choose love.’ So, you can see Facebook feels guilty, they’re hiding. They have to be here because they have to engage with the regulators but the wind is blowing against them. But the wind could change again tomorrow.
That’s so interesting. I remember going to a Facebook event perhaps three-years ago, where their arrogance was just oozing out of their pores, and this year they cancelled their event.
Yes, quite true.
So, it’s like the bankers, as you say, in 2008 or 2009, nowhere to be seen but they’re back here. Although, it does seem to be scaled down a little. There’s a pet shop on my walk, which was always taken by somebody. Barclays Bank had it for many years. This year, it’s still a pet shop.
Alec, so when you look at Davos there’s an element of pretension of fads. If the refugees are a hot topic, they’ll be here. As you’ve seen, there’s a place where you could experience life in a refugee camp and see life through the eyes of a refugee. When that topic blows over, they forget about it so, there’s a certain faddish element about it. But I think it’s undeniable that engaging with each other and talking, it’s still better than fighting right, so there is no place really, where business, and government, and academics can discuss anything. Although there would be a certain amount of camp and pretension on the stage the topics are placed squarely, and someone engages and some of the people are honest, and some of the points of view are new, at least to me. So, I think it serves an overall purpose. At a cost, but a good purpose.
I’ve noticed that the environmental and sustainability issues have been coming to the fore. Is that something as well that registered with you?
Absolutely, and clearly. You can pick up the issues. For instance, in the media world they would say, the big issue is an element of trust. So, the consumer used to trust media more than they trusted politicians, or the church for that matter. But that has been eroding and could that be turned around or is it a permanent phenomenon of the internet world that trust has eroded? The issue of privacy is huge and if you just contrast the sub-categories, young people used to feel less sensitive about privacy than older people. It might now be changing, there’s some indications. Europeans are fanatical about privacy and the reason is, for me, fascinating. If you’re a German. You have the Stasi in your mind, the German Secret Police. If you’re a Russian, you have the KGB. So, that’s vivid and they hate the idea of intrusion.
Americans don’t have that history so, they say well, the world is more or less benign, the government won’t do anything so, you can sense that an issue like that pops onto the stage. To a certain extent the world is flat that all of us share the same concern. But to some extent, the cultural factors do intrude. There’s a way that Muslim countries would spin this and there’s a way that an American would see this. An Indian would have a different perspective so, you have this interesting tension. In all of us, we have an element of the world citizen, which is growing. But also, an element of cultural anchoring and on an issue like this you can feel the tension between the two.
That’s fascinating. The other area where it’s marked is on inflation. The Germans have had hyperinflation, the Americans haven’t really experienced that before. So, in their whole monetary policy they would have a different approach towards it – I’ve heard that being said. But it’s a very good point that you’ve picked up there, on the privacy issue and that’s big. It’s a big thing for your company too.
Indeed, so if you look at data. It’s this interesting dichotomy. I think the real problems in life that you need to talk about are those where you can make out the plausible case on both sides. If something is evidently evil it’s not even interesting. It doesn’t challenge anything. Okay, it’s evil, so what. But take data privacy – if Amazon knows your exact tastes it can actually prescribe books that suits your taste, and they do it with me as I read a lot, biographies and all sorts of nonsense. So, they predict my taste fairly accurately. But now let’s say, I contract cancer. Amazon knows it immediately. Now, how do they know it? Simply by the books I read but now I start filing a prescription so they know the type of the cancer, the stage of my treatment and all of that. Now, the tension arises – you can make a plausible argument that the fact that Amazon knows my precise state of cancer it means that if something new gets published in this field or a new medicine gets trialled, they can actually call me and say, we know you have this type of exotic cancer. We have this new medicine – we picked it up in one of our technical publications, a new medicine. There’s a trial of 20 people and would you want to consider that? It’s very useful to me, it might save my life.
On the other hand, just consider the amount of intrusion so, Google knows everything you read. They know how long you pause over which page. They know which people you follow and where you look for information, and to see that published on a lamppost in the middle of town is not particularly pleasant. So, there’s that immense tension. You can make a plausible argument both ways and how society will decide, that’s still a bit unclear, and that’s exactly when these cultural factors include. So, the Germans look at the same set of facts and they say, the evil of the State intruding is too big – let’s push this direction, and Americans look at it in a different way.
Koos, how do you compete with that though? You know Amazon and Google have all this information, surely their ability to reach the market through, or what they’re offering to advertise it, is incredibly powerful. How do you, as a media company, offset that?
Alec, that is exactly why the State is starting to take an interest, and it’s not unexpected. Consider the steel industry. When they started in the mid-19th Century to become a sizeable industry, on the back of the railroads and so on, they were completely left alone. By 1900, in the US, they were huge companies run by people like Andrew Carnegie. That owned railway companies took the coal to the furnace and melted the iron, and controlled the whole process – sort of vertical integration. Then society stepped in and said, ‘you could reach a point where this is too powerful – how do we now arbitrate?’ Do we break you up or do we limit in some way?
The same is happening to the internet quite validly. So, the societies look at that and say, when Facebook was very small, we didn’t need to bother. Young students making dates, on some electronic network – who cares? But now when every single housewife has Facebook the issues arise, and people say, what are the issues? We talked about the issue of privacy, right? But there’s also the issue of smaller players. So, if Facebook for instance, checks your site and they detect who’s subscribing to you at the moment, and they were to target each one individually, with a personalised letter to say, we’ve got a superior news business website. Just your sense is that there’s something unfair about it right, and that’s what needs to be arbitrated.
Now, the power, at the moment, lays to the US so, Europe is a consumer of the internet but is not a producer. So, you have an added tension. So, European governments are saying, look, Europe’s consumption of the internet is about 80% of the US consumption so, it’s a big consumer but it has almost no internet companies of size so, there’s this tension. The government says, look, if Amazon let’s say, closes down the little bookseller on the corner. I lose his two employees and the rates he pays his municipality, and Amazon sucks the money out and takes it to California. Is that good? So, there’s a further nationalistic element that’s imposed.
On the other side, I think one can validly argue that the internet enriched our lives immensely. So, I was thinking recently, if you could have a choice. You could be an unemployed guy in France today, or King Louis XIV, who will you be? Well, he didn’t have one tooth in his mouth over the last 40 years because there were no toothbrushes. But he also didn’t have a Facebook Group, he never watched TV, he couldn’t order the books that were published in London like we can so, the internet has enriched, and still will enrich our lives a lot more. I just think we’ll, overtime, formulate rules to contain the beast, much like every other industry developed.
When cars started, they were first feared and then a man with a red flag needed to run in front of the car and that sort of nonsense, but there were also no rules. Then we made rules, the traffic lights, drive on the left or right side of the road, you have to be licensed and so on, and gradually we contained the car industry so, although it still kills lots of people a year the benefit exceeds the negative, right, and I think the same will happen with the internet. It’s immensely useful, it can enrich our lives. We just have to make sensible rules that doesn’t kill it but just contains it in a proper manner.
I’m getting that sense of what you’ve just articulated, coming out of Davos this year. There’s a feeling that markets don’t know everything. Sometimes markets make mistakes and when they do, they need to be shown the right direction. That’s when regulators and that’s when governments have to come in.
That’s true. The second element is a life-phase issue. I think the internet developed in the only way it possibly could, which is that you experiment and most of the experiments get killed. There’s no point in first deciding whether we need Twitter. I would have said, ‘so be it.’ So, at that time, in 2005, we already had pictures on the internet and lengthy emails. Who wants 140 characters? I would have said, it can’t ever work, but it did. So, the natural selection takes place actually before you need to edit and then a small percentage will survive. Some of them will stay small forever. So, there’s in New York, Etsy that sells homemade crafts. Do you really need to regulate that? It’s small. It will stay small. There’s no real danger, just leave it in peace. But then certain things grow unexpectedly so, let’s say Twitter.
Against all odds it grew to something significant, which starts to influence elections. Then we need to start making rules and say, okay, if some foreign power buys ads, should that be disclosed and/or how should it be disclosed? What information can I sell on, if I am Twitter, to a third party, without infringing privacy? So, I think in terms of the lifestyle of each technology at its start, it tends to be fairly unregulated. If it fails, it never gets regulated, but if it succeeds greatly, and society takes an interest and regulates it, that’s a natural process. I think the industry should accept it and society should be responsible in the process and say, let’s not kill the baby – let’s massage it in the proper direction.
Koos, I’ve got two last questions. MultiChoice is the last one but the second last one is, who are the most interesting people that you managed to engage with here, in Davos? You said, you’re not mad about people who have armour around them in the form of bodyguards and so on. Without, and if you don’t want to name names, just tell us broadly then.
The interesting people are not confined to professions. So, in the media world, for example, you find fascinating people. You find lawyers who are great conversationalists because they work with words. It’s an individual matter. I think there’s some professions where you find, or at least I’ve found in my life, less interesting material, like actors. An actor’s appeal is glamorous and you’ve seen him in two movies so, you have a false sense that we are friends. But you know him, to some extent, but he doesn’t know you and often, there’s nothing there. You explore the façade but he plays roles. So, if you say, ‘play yourself.’ He says but there’s no one there, there’s no one behind the façade because I’ve played roles all my life – what is there to say? It’s very much an individual thing but the key thing, which Davos, for me, has a benefit is it strips away the defences and says, okay, you may or may not be interesting but talk to me.
Yes, and you keep learning, as you’ve shared with examples a moment ago?
Yes, so what do you want to know about MultiChoice?
Is it a good investment? Now, I’m sure you’d say it is and I’m sure your life is a lot easier now that it’s spun off. It must have been taking inordinate amount of management time, if you think about the percentage that MultiChoice is of the whole Naspers Group.
Alec, I can’t say whether it’s a good investment. It’s simply the market that needs to decide. Plus, the future is always uncertain. But I think it’s quite a well poised company so they have operations in just short of 50 countries, some bigger, some smaller. The industry is about, let’s say 30-years-old so, it still has some legs to go, especially since our fixed internet is not great in Africa and it needs to move itself into the internet, like all newspapers. So, I think there’s a lot of vitality in it. But Naspers itself, is now almost exclusively an internet company so, the investors we get are typically saying… So, let’s say, we get an American fund that specialises in the internet stuff and he says, ‘I’m interested in e-Food and classifieds,’ and so, this TV? What is that and why do you have it in the portfolio?
On the other hand, on the internet side we still like to incur or have the capacity to incur losses. The problem is if you lose that capacity, you’re in trouble because you need to try new things, some will fail – a lot will fail. Even the successful ones might need reinvestment so, like eBay or something like that, you run down your income statement to breakeven or less, in order to spur growth. But TVs are at a completely different life phase so, it’s basically profitable and steady. So, the investor wanting to take a wild swing at the internet is not going to go there, but the investor who wants a regular dividend flow will.
So, we found over time, that the profile we need for the two companies are quite different. That our internet investors underestimate TV and actually don’t like it. They say, I’m not interested in dividends or steady income. Give me growth. Well, it’s not going to grow fast but it’s steady. On the other hand, a whole class of people would be interested in that sort of investment, steady with big dividends, but they say, all this internet stuff I can’t buy a company where the minority stake is of the profile I like, but I get all this other risky junk. So, it’s actually best to split it and I think a good many of our shareholders will keep both shares. There’s no reason not to. You can say, they fulfil different functions. They have different profiles, but why not keep both?
It’s so far back, when you were a young man that you really were the father of satellite TV in SA. So, you can tip them. You picked that one early on. You picked the internet early on. What are you looking at as the next big thing to fill out the trifecta?
Alec, I don’t know, is the honest answer. Then the surprising thing in life is how the big changes in my life were unpredictable. So, commercially, internet started in, let’s say 1995. Not only did I not realise the significance beforehand. But if you asked me at the end, 31st December 1995, what is the most important that would happen today or this year? I don’t think I would have said the internet. Even Bill Gates realised only the next year, in a famous memo to staff that this is fundamental. I think the next change will be equally surprising. If you look at big-waves the manipulation of electromagnetic waves – it started in the Second World War, with the big computers, and eventually the PC, and eventually the internet, and now eCommerce and all the spinoffs. Now that whole generation of technology must run out of steam at some point. It will continue to exist but the growth rate will flatten. I have a notion that the biological sciences will be prominent in the next few years, but that might be completely wrong – it’s a guess.
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