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The Star take-over: A threat to Philippine media

“The ownership and management of mass media shall be limited to citizens of the Philippines…”
 — Article 16, Section 11, Philippine Constitution.

8th of a series on the Salim Empire in the Philippines
I wrote on March 4 that the Indonesian tycoon Anthoni Salim was set to take control, through his corporate intermediaries, The Philippine Star, one of the country’s three biggest broadsheets. (March 4, 2014, “The newest media mogul to take control of Star.”)

Nearly a month later, on March 28, Manuel Pangilinan. Salim’s executive running his First Pacific conglomerate in the country, confirmed Philippine Long Distance’s PLDT Beneficial Trust Fund had signed an agreement to acquire the holdings of Speaker Feliciano Belmonte’s family to become the controlling 60 percent stockholder. A disclosure to the Philippine Stock Exchange however put the figure at only 51 percent, which still makes the benefits and pension fund the controlling owner of Philippine Star. I suspect the additional 9 percent could be through Salim’s other vehicles other than PLDT.)

Journalists underplayed or even didn’t report this development that would have far-reaching consequences for their industry. It is a development that could mean not just the capture of the Philippines Fourth Estate by an Indonesian tycoon, but the end of an independent media.

The Philippine Star’s nearest rival in circulation, the Philippine Daily Inquirer reported it as a bland business-news article:

“PLDT said in a stock exchange filing that MediaQuest Holdings Inc., through wholly owned Hastings Holdings Inc., would increase its ownership in The Philippine Star to 51 percent . . . MediaQuest, which owns other media assets in the country including controlling stakes in TV5 and Businessworld and a minority stake in The Philippine Daily Inquirer, is wholly owned by the PLDT Beneficial Trust Fund.”
The real news is that Indonesian tycoon Salim, through the boldness— or brazenness—of his top executive Pangilinan, has skirted, using legal technicalities, the Philippine Constitution’s Article 16, Section 11 of the Philippine Constitution: “The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.”

No foreign company before had dared to skirt this constitutional total ban on foreigners in media outfits.

There is no question that at the end of the layers of corporate venues (see my column March 3, 20-14 “How Salim group skirted foreign equity limits”), Salim controls PLDT.

Despite Mr. Pangilinan’s very successful media spin that Salim’s group in the Philippines is the “MVP group,” the executive owns less than 0.1% shares in the telecoms company and not more than 1 percent in any of the Indonesia’s First Pacific companies in this country.

PLDT on the other hand controls and directs its Beneficial Trust Fund, with management appointing all five of its board of trustees, two of whom are board directors and one a top company executive. Now Foreign Affairs Secretary Albert del Rosario—who had helped Salim and Pangilinan when their First Pacific started to enter our country—was the Fund’s chairman when it set up MediaQuest, the holding company for its media investments. (See my column March 9, “PLDT pension fund used to build Salim PH media empire.”)

The reason the Beneficial Trust Fund was used as PLDT—and Salim’s—corporate vehicle in going into media, is that it exploits a ruling by the Securities and Exchange Commission. This ruling stipulates that an employees’ pension and trust fund is a Filipino entity if the majority of its benefits are for Filipinos, which the PLDT trust fund is, considering that PLDT’s employees are mostly Filipinos.

It’s a flimsy justification: It means any foreign firm would simply set up an employee trust fund, so this fund could set up a firm that would engage in industries where foreigners are prevented form entering or are restricted.

This is the first time though that a pension and trust fund has been used by the firm’s owners to undertake a business of its own, and into a low-return even risky field which the Philippine media industry is. One of Salim’s first media outfits, the television network Channel 5, is a case in point, having reportedly lost billions since it was set up in 2008.

Most trust funds, in order not to risk at all its employees’ benefits and retirement kitty, are put in low-risk blue chips or bonds. In the case of PLDT’s Beneficial Trust Fund, 80 percent of the money has been used to capitalize MediaQuest so it could set up two television networks including its radio stations, control BusinessWorld newspaper and acquire a 12 percent stake in Philippine Daily Inquirer.

But the Beneficial Trust Fund was running out of money. ABC-5 was reportedly losing billions, and Salim-MVP needed more funds to expand their media empire, and at the same that they needed to go around the constitutional provision that not a single share in a media firm can be foreign-owned.

The solution: PLDT subsidiary ePLDT invested P2.5 billion in Hastings Holdings (MediaQuest’s subsidiary for its print holdings)—and P10 billion to fund satellite-to-home TV operations. But these investments were made through Philippine Depository Receipts, a clever financial instrument that in effect made the investor merely the beneficial owner, but without the rights of an owners of common, voting shares.

The Philippine Star has had one of the best editorial teams with a fiercely independent stance, the legacy of its founders, hard-hitting columnists Max Soliven, Louie Beltran and Art Borjal with Fookien-Times Yearbook publisher Betty Go-Belmonte.

Following the three columnists’ examples, the Star’s stable of columnists is one of the best in the country, such as my ideological fellow-traveler Alex Magno, Carmen Pedrosa, Jarius Bondoc, Bobit Avila (the only columnist in a national broadsheet that informs us regularly of the worldview in the Visayas), former Philippine Daily Inquirer Dick Pascual, Ka Louie’s son Cito Beltran, and PCGG chair Andy Bautista. The Star’s columnists include its editor Amy Pamintuan (the only newspaper editor I know to have written a novel) and managing editor Marichu Villanueva, a very knowledgeable veteran reporter who has covered so many different beats.

Will these leading lights of Philippine journalism be forced to write within the Indonesian tycoon’s parameters? I hope not, but the market for senior editors and columnists isn’t that big in our country.

Salim controls the largest public-utility firms: PLDT, Meralco, Maynilad Water, and toll-road operations. These companies are monopolies, or near monopolies: these operated not in a free market that would ensure their efficiency, and contain their corporate greed

It is government that regulates their greed, and strives that these firms offer the most reasonable prices for consumers, who don’t have a choice but to buy these products. But what happens if, as it has been happening, there is the so-called phenomenon of “regulatory capture”: Political elites or underpaid bureaucrats falling under the control of monopolies?

It is the Fourth Estate that comes to the people’s rescue, as has been the tradition in the US and Europe.

But would Philippine Star— or BusinessWorld which Salim indirectly has 70 percent holdings —now publish articles critical of Meralco, PLDT, Maynilad, Salim toll-operations, or his seven hospitals? Would its editors encourage investigative articles on how the Indonesian Salim has come to control the Philippines’ strategic industries?

Or will Star be now championing charter-change, the urgency of which could explain why Salim has been so keen in entering the crowded, even risky media industry, even if he’ s walking on a constitutional razor’s edge by doing so?

The Supreme Court’s decision questioning foreigners’ control of PLDT is a Damocles Sword over the Salim empire, which even if it has managed to skirt even that High Court’s ruling in late 2011, saw the ruling reaffirmed in 2012 (See my column March 26 , “Supreme Court: PLDT mocks the Constitution.”) Changing the Constitution to allow full foreign ownership in all industries, without exception, would legitimize Salim’s holdings in public utilities and media.

A Star columnist told me: “But management and editorial control will remain under the Belmontes.”

That is hogwash to anybody who’s worked in the corporate world or in media, even in the US and Europe where entire editorial staffs had been fired when their articles displeased their bosses, the owners. It’s a belief contrary to the realities of capitalism. An editor is an editor because he or she shares the worldview of the owner, and it is an amateurish, clumsy owner who has to tell an editor what to publish or not, or an amateurish editor to tell a reporter what to write about.

Salim’s media empire has a crucial edge its competitors don’t have: Huge advertising funds, on which media’s survival depends. The funds are in the Salim-owned media’s sister companies, mainly PLDT, especially its cell phone subsidiary Smart, one of the biggest print and broadcast advertisers, and Meralco.

Salim’s control of Star would be a boon to the newspaper: It probably could survive even survive solely on Smart and Meralco advertising. But the Salim Empire would have a cannon the other newspapers would clearly see: “Hit us, and we’ll starve you of ads.”

Already, TV-5’s lifeline—which explains its endurance despite its losses allegedly of P5 billion since MediaQuest bought it in 2009—has been getting about P900 million annually of PLDT’s advertising funds of since 2010, under a formal contract it entered into with the telecom firm. PLDT disclosed this in its March 26, 2013 report to the SEC. Yes, if you’re a Smart subscriber, you’re in effect subsidizing ABC-5.

The Star takeover represents a conglomerate’s invasion of media. The era of a conglomerate—the economic-political elite Lopez clan’s ownership of Manila Chronicle and ABS-CBN before martial law—using tri-media as a weapon was ended by martial law, although the Lopezes’ ABS-CBN had continued to wield it after 1986, but with a much reduced power with the rise of competitor GMA-7.

The Star’s takeover by the Salim conglomerate marks the revival of that era, and media could more and more be a tool of conglomerates.

It could already be the twilight of an independent Philippine media. A foreign conglomerate mocks our Constitution and takes over one of the three biggest newspapers. And media either didn’t’ understand its implications or just looked the other way.