Mass Media 2000-2004
The media industry in Russia has grown steadily and rapidly in the last four years, primarily through growth of the advertising market. During this time, advertising revenues have nearly tripled from $1.1 billion in 2000 to $3.1 billion (forecast) in 2004. However, the growth was generally not the result of an increase in television audiences or increased circulation but of so-called media inflation – an increase in the cost of placing advertisements caused by the recovery of the market after the 1998 crisis. This is shown, for example, by the fact that the combined circulation of print media hardly increased at all in those four years and just barely exceeded pre-crisis levels, although the number of registered publications increased 1.5 times to 41 000.
During those years, television companies faced stiff competition for viewers. At present, the main TV market players are arranged in pairs in close competition with one another. The main pair of competitors are First Channel and Rossiya (these channels each have about a 20-25% audience share), followed by NTV and STS (10-12% each) and TNT and Ren TV (5-7% each). TVC and Culture (Kultura) have 3-5% each, and the remainder (Muz-TV, DTV, 7TV, and MTV) each have about 1% or less of the viewing audience.
Print media and radio also went through business concentration processes under competitive conditions. Today, the ten leading publishing houses account for nearly 60% of advertising revenues. The situation in radio is even more indicative – one Moscow market leader, Russian Media Group (Russkaya Mediagruppa)), currently controls nearly one-third of all advertising budgets.
History: 2000-2004
The last four years have been notable for growth of the print media market, a search for a new audience for radio stations, and the appearance of new TV channels. However, the main result of Vladimir Putin's first presidential term was the end of the era of oligarch television that had started in 1995.
TV History
During Vladimir Putin's first term, Boris Berezovsky and Vladimir Gusinsky, two of Russia's most prominent oligarchs and owners of two leading television stations – ORT and NTV – ceased to be their owners.
In the case of ORT, where the state owned 51% of the shares and structures owned by Boris Berezovsky controlled 49%, it all started with the Kursk submarine disaster in August 2000. The channel criticized the actions of the authorities and President Putin personally. The Kremlin did not forgive Berezovsky for this, and within a month Konstantin Ernst, the channel's general manager took TV host Sergei Dorenko off the air and cancelled his program without any explanation. Next to be fired were Tatyana Koshkareva and Rustam Narzikulov, the heads of ORT's department of informational programming. All of the people fired were the main conductors of Boris Berezovsky's policy on ORT
There was no official announcement that Boris Berezovsky was no longer the owner of 49% of ORT's shares. But in early January 2001, reports that the oligarch had been forced to sell his shares to structures close to Roman Abramovich appeared in the press. In fact, the shares returned to state control.
Konstantin Ernst subsequently became the channel's absolute ruler. A year later, ORT was renamed First Channel (Pervy kanal). At present, the company's board of directors consists entirely of government officials, and when asked who now owns 49% of First Channel's shares, Ernst replies evasively: “Private shareholders” (the shares are officially listed with two companies registered in offshores).
The problems in Vladimir Gusinsky's media empire began at the end of 1999, when the tax authorities and Vneshekonombank lodged financial claims against Gusinsky's media companies. Vladimir Gusinsky was arrested in June 2000 but was released after spending three days in Butyrskaya Prison, whereupon he left Russia. As in the case of ORT, NTV's coverage of the Kursk disaster angered Vladimir Putin. The authorities' displeasure with NTV's information policy formed the background of a struggle to transfer controlling interests in the TV channel and other Media Most assets to Gazprom (and hence to the state).
In April 2001, after 18 months of litigation, general manager of Gazprom Media (a minority shareholder of NTV and Media Most at the time) Alfred Kokh succeeded in transferring control of Vladimir Gusinsky's entire media empire to Gazprom. In the same month, a split occurred at NTV. Most of the journalists, led by Evgeny Kiselev, accepted Boris Berezovsky's offer and went over to TV-6. The rest stayed at NTV under Boris Jordan, who was simultaneously the channel's new general manager and head of Gazprom Media.
In late October 2002, NTV's coverage of the hostage-taking incident at the theater on Dubrovka aroused the Kremlin's ire. This was one of the main reasons why the shareholders fired Boris Jordan without explanation at the end of January 2003, despite his successes in expanding NTV and Gazprom Media. In February 2003, Gazprom chairman Aleksei Miller appointed a completely unknown pulmonologist, Nikolai Senkevich, as NTV's general manager and Aleksandr Dybal became head of Gazprom Media. On July 5, 2004, former vice president of the All-Russian State Television and Radio Company (VGTRK) Vladimir Kulistikov was appointed NTV's new general manager and Nikolai Senkevich moved to the position of general manager of Gazprom Media. Gazprom did not make a single statement about the reasons for replacing the leadership of NTV and Gazprom. Nothing is known at present about plans to form a media holding with the participation of Evrofinance Bank and Gazprom Media.
In many respects, the split at NTV in 2001 was the reason for the disappearance of two TV channels where part of the journalistic team from the NTV of Vladimir Gusinsky's time later worked. Former NTV journalists headed by Evgeny Kiselev continued to work at TV-6, another of Boris Berezovsky's channels. Until 2001, TV-6 was mainly an entertainment channel, but the former NTVers radically changed its character and on-air policy and noticeably improved its ratings and economic indicators.
However, in September 2001, the nongovernmental pension fund LUKOIL-Grarant, one of TV-6's minority shareholders (it owned 15% of TV-6's shares; another 10% belonged to the Moscow Science and Technology Committee, and 75% were controlled by structures belonging to Berezovsky) filed a suit to liquidate the company in a court of arbitration. The court allowed the suit on September 27. After numerous legal proceedings, TV-6 was shut down in January 2002 by a decision of Minister of the Press Mikhail Lesin.
After the shutdown of TV-6, Vladimir Putin gave his personal promise that its journalists would take part in a tender for the channel's frequency, although Moscow Independent Broadcasting Company (MNVK) still owned the broadcast license. The tender took place in March 2002. Evgeny Kiselev's team, in alliance with prominent Russian businessmen Anatoly Chubais, Roman Abramovich, Oleg Deripaska, Aleksandr Mamut, Oleg Kiselev, and others, and also with the participation of the Media-Sotsium nonprofit partnership (represented by Evgeny Primakov and Arkady Volsky in particular), set up TVS.
TVS began broadcasting on the TV-6 frequency on June 1, 2002. However, TVS ended its existence a year later owing to numerous disputes among the owners and chronic underfunding. On June 22, 2002, Mikhail Lesin ordered the shutdown of TVS and the company went bankrupt. The situation with the “sixth knob” remains confused. In the summer of 2003, Boris Berezovsky sold 75% of the shares of MNVK. No one knows for certain who actually owns the shares now. The shares were registered to five legal companies, which according to media reports are a front for structures connected in some way or other to quasi-state companies and private individuals. Meanwhile, the national Sport channel is broadcasting on the sixth channel's frequency.
VGTRK is currently the largest player on the television market. Its members include the Rossiya, Culture (Kultura), and Sport TV channels (Sport formally has a complex ownership structure: its shareholders are VGTRK, the Moscow government, and the Rosmediacom nonprofit partnership represented by state banks and VGTRK itself), the Mayak and Radio Russia (Radio Rossii) radio stations, and more than 80 regional television and radio companies. Along with the main federal channels, i.e., First Channel, Rossiya, and NTV, so-called commercial network channels are also present on the market. The most visible of these are STS, Ren TV, TNT (belongs to Gazprom Media), and DTV (formerly Daryal TV).
In April 2002, there was a change of management at STS and Aleksandr Rodnyansky, the founder of 1+1, one of Ukraine's largest TV channels, and a well-known film and TV producer, became head of the channel. Some time later, former head of STS Roman Petrenko received an offer to head TNT. STS and DTV are the only channels in which foreign shareholders own a controlling interest. In the case of STS, this is StoryFirst Communications (SFC), which owns 75% minus one share. Alfa Group owns the remaining STS shares. Despite its minority interest, Alfa determines the channel's policy. Specifically, it was Alfa Group that nominated Rodnyansky for the position of general manager of STS.
DTV, in which the Swedish media company Modern Times Group (MTG) owns the controlling interest, has much more modest ratings and economic indicators. According to various reports, another 25% of DTV's shares belong to the founder of Daryal TV, writer Arkady Vainer, and his daughter Natalya Daryalova. At the present time, MTG representative Mart Luik heads the channel. DTV's frequency was put up for tender in 2003 after several warnings from the Ministry of the Press. MTG's concept of an entertainment channel won, and DTV received a new five-year license.
Ren TV stands alone among the network channels. Unlike the others, which are oriented exclusively towards entertainment, Ren TV has a fairly large amount of informational and public affairs programming. The company has been on the market for ten years; its founders are Irena Lesnevskaya (president) and her son Dmitry Lesnensky (general manager), who together own 30% of the channel's shares. LUKOIL owned 70% of the shares from 1997 to October 2000, when RAO UES of Russia (RAO EES Rossii) bought this package. According to media reports, the package was later registered to RAO UES subsidiaries and a number of private individuals, including Anatoly Chubais.
Over the past year, there have been repeated reports in the press that the Lesnenskys are negotiating to buy out the 70% share package from RAO UES. Possible buyers of this package include Evrofinance Bank and a certain foreign investor. Ren TV's management has not commented on whether such negotiations are actually taking place.
Print History
Strange as it may seem, the 1998 crisis benefited the publishing industry in many ways. After it was over, most of the subsidized publications hastily launched to solve current political problems, satisfy ambitions, or simply because there was plenty of spare cash folded, especially in the regions. Market-oriented publishing houses and independent publications (with some exceptions, of course) survived. Today, the printed periodical market has grown to a respectable size of nearly $2.5 billion. In 2003, Russian printed media earned nearly $1.5 billion from retail and subscription sales and slightly more than $1 billion from advertising.
The process of business concentration has started and foreign publishing capital has appeared on the young, but already formed market, although this mainly concerns the magazine segment. Foreign publishers and investors still consider Russian newspapers too politicized and therefore risky, and are not hurrying to invest money in them.
These fears are not groundless. A typical, as well as the most striking, example of concentration of the publishing business in the past four years is the deal between Prof-Media Publishing House (ID Prof-Media) owned by Interros and Independent Media concluded in February 2003. At that time, Prof-Media bought 35% of Independent Media's shares (for $35-40 million according to various reports). Both the parties to the deal and experts regarded this purchase as the first step in the merger of two leading publishers; but there have been no further steps towards a merger since then. According to unofficial information, the merger was blocked by a political decision on the undesirability of having representatives of the nominally Dutch Independent Media in the management of the national newspapers Izvestiya and Komsomolskaya Pravda published by Prof-Media.
However, there have been successful examples of consolidation of the publishing business. In June 2004, the publishing house Hachette Filipacchi Shkulev and Intermedia Group completed a merger, with Hachette receiving ownership of 85% of Intermedia Group's shares. The united company has become one of the largest market participants, occupying second place in advertising revenues (nearly $80 million last year) and third place in readership.
Promsvyazbank expanded its publishing assets in summer 2003. The bank, which already owned a controlling interest in Arguments and Facts Publishing House (ID Argumenty i Fakty), bought a large block of shares in Trud Publishers (izdatelstvo Trud). The Video International (VI) group of companies, a major Russian advertiser, also got into the publishing business. In August 2003, VI bought a controlling block of shares in Rospechat, Russia's largest subscription operator and a major retail periodical distributor, from Base Element (Bazovy element); and in September, it announced the purchase (through the Russian Media Ventures investment fund) of OVA Press Publishing House (ID Ova-Press), which included the magazine Ogonyek purchased slightly earlier. After concentrating the business, large publishing houses are now turning to related sectors. In 2003, Burda and Independent Media formed a joint venture for retail distribution of periodicals; and the Prof-Media and Extra M publishing houses are participating in the construction of printing plants.
Clearly, the growing Russian periodical market could not help but interest foreign publishers, especially Europeans, who have seen hard times on their home markets in recent years: circulation is dropping, and advertising revenues are decreasing. The first wave of foreign companies (including Burda, Gruner+Jahr, and Hachette Filipacchi) arrived in Russia even before 1998. However, for a long time, the crisis scared off those who were planning to follow the pioneers. The first issue of Russian Vogue published by Condenast (a major American publisher) appeared in September 1998. The next big international publisher did not arrive in Russia until 2002. This was Heinrich Bauer Verlagsgruppe, one of Germany's largest publishing houses, which formed a joint venture with the Russian Logos Publishing House (ID Logos). The next to arrive were the Swiss Edipresse (the company bought 52% of the shares of the Russian publishing house KON-Liga Press) and the German Axel Springer.
The launching of popular foreign magazines under license by Russian companies was a separate line of concentration in the publishing business. National Geographic (published by AST Group) was one of the most famous international magazines to arrive in Russia during those years. In the spring of 2004, OVA Press added to its list of publications when it began issuing the celebrity magazine Hello. The St. Petersburg publishing houses SPN Publishing and Sobaka signed a contract to issue Rolling Stone and Time Out.
The first examples of portfolio investments in the industry show that the market has developed. In spring 2004, the international investment fund Mint Capital acquired 20% of the shares of the Russian publishing house Gameland for $2 million. This was the first example of investments in the publishing business by a non-industry company in the history of the domestic printed media market.
The newspaper market segment was fairly passive all these years. Newspaper readership, especially of dailies, is slowly but steadily declining. Newspaper advertising revenues are increasing more slowly than for magazines. The only exceptions are specialized advertising and informational newspapers. But considering their advertising earnings, by next year magazines will earn more, or at least no less, from advertising than newspapers. Therefore, foreign publishers are not hurrying to come to Russia with international newspaper projects or to participate in publishing existing ones (with the exception of Vedomosti and Delovoi Peterburg). Publishers themselves are hoping that modernization of printing, which will allow most newspapers to move to high-quality color editions and thus attract major advertisers, will help improve the situation.
Consolidation of the publishing business will clearly continue in the next few years. The formation of diversified media holdings that include the television and radio broadcasting and movie businesses along with publishing will be the development route for the majority of transnational media companies. There are already examples of this in Russia, e.g., Gazprom Media and Prof-Media. In addition to these companies, which are associated in one way or another with the state, with the development of the advertising market and stiffer competition, private publishing holdings that are able to strengthen their positions by taking over weaker players will become increasingly influential. The entry of Western publications will slow down, since most internationally published magazines have already reached Russia.
Radio History
Radio in Russia proved to be the least politicized of all media. Entertainment stations that determined the market situation by controlling the main advertising flows have dominated the FM band since the early 1990s. An important event took place in the fall of 2003 – the rating of the leading FM entertainment station, Russian Radio (Russkoe Radio) topped the rating of wire-network Radio of Russia (Radio Rossii), which is part of the VGTRK holding. This clearly shows that the Russian radio market is developing according to the international principle. Music stations designed for wide audiences are the most successful ones on it.
However, there are differences. On developed radio markets there are always a number of talk and news concepts along with musical formats. History has shown that these formats are not taking root in Russia. In the four years of Vladimir Putin's first term, Echo of Moscow (Ekho Moskvy) operated successfully and even made a small but stable profit. Other radio stations that tried to operate in news or discussion format were unsuccessful. The state-owned Mayak-24 continues to operate but has low ratings; and Radio Online, which is part of the Prof-Media holding, was terminated and this spring was transformed into the Disco station. For less firmly established Russian radio holdings, expensive news radio stations are still too much of a burden.
Nevertheless, market diversification and the search for narrow niche formats in radio fit well into worldwide trends. Love Radio, which is geared to a female audience, Radio Jazz, and Radio Chanson have appeared on the air in the last four years and feel quite confident. The struggle for separate niches has not been without losses. It has been particularly tough in the rock format, where today's winners are Maximum, Our Radio (Nashe radio), and Ultra. Niche radio stations as a rule are inexpensive to maintain, have a relatively small but loyal audience, and operate at rates of return unattainable for other media (up to 100%).
The concentration of business typical of other media is also seen in radio broadcasting. Whereas by early 2000, only the pairs Europa Plus/Retro and Russian Radio/Radio Monte Carlo could be called holdings (at a stretch), today there are already six holding companies on the market: Russian Media Group (Russian Radio, Monte Carlo, Hit FM, Maximum), Prof-Media broadcasting corporation (Avtoradio, Energiya FM, Disco), the Gazprom Media group of radio stations [First Popular Radio (Pervoe populyarnoe radio), Troika, Sport FM, Do-Radio], Europa Plus (including Radio Retro), the News Corp group of stations (Our Radio, Ultra), and the radio stations of the Arnold Prize holding [Our Time on the Police Wavelength (Nashe vremya na militseiskoi volne), Jazz, Classic].
There are only a few loners left on the market, and there will probably be even fewer in the near future. The main market players are dividing up the few remaining vacant frequencies among themselves. For example, two applications from ARS (Love Radio), one from Prof-Media, and one from VGTRK were the winners in the last tender.
During this time, it also became obvious that radio broadcasters wanted to increase their audience, primarily by attracting older listeners. Stations like Our Time on the Police Wavelength, Russian Radio-2, and Retro FM aimed at listeners over 35 appeared on the air. This is understandable: international experience shows that this audience is very attractive to advertisers (and advertising accounts for 90% of radio revenues), and stations oriented to it are very successful.
Radio broadcasters clearly have too little advertising; with only a 5% share of the advertising market ($115-120 million in 2003), growth rates of advertising revenues are below the market average. In 2002-2003, Moscow radio stations, which usually compete fiercely for advertisers, were even able to agree on a common action under the slogan “Advertising on the radio is very effective and very profitable”. However, the action did not have any notable successes, although it is not inconceivable that the situation could change in the very near future. With the formation of large holdings (Russia Media Group, for example, now controls nearly a third of the market), radio stations will be able to dictate their terms to many advertisers.
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People Who Have Left the Scene
Boris Berezovsky
It is not quite correct to say that Boris Berezovsky left the Russian media scene during Vladimir Putin's first presidential term, since the oligarch still owns Kommersant Publishing House (ID Kommersant). However, Kommersant is the last of Berezovsky's Russian media assets. Starting in late 1999, the Russian authorities successively took away everything in the country belonging to the London emigre. This included a block of shares in Russian Public Television (ORT), the newspaper Nezavisimaya Gazeta, and TV-6. The confiscation was of no apparent benefit to the Russian state or its allies. However, money was obviously not the point. The sole motivation for confiscating Berezovsky's property in Russia, as opposed to Vladimir Gusinsky, was his political views and not his business activities in the media sphere.
Aleksandr Vainshtein
Aleksandr Vainshtein abandoned the entire media business literally in the space of six months without giving any reasons. After selling his 50% stake in Radio Maximum to Russian Media Group and the rights to the name Moskovskie Novosti to the Open Russia (Otkrytaya Rossiya) fund, Aleksandr Vainshtein remained the owner of the MN building on Pushkin Square, which according to unofficial reports he is planning to convert to a hotel.
Vadim Goryainov
Vadim Goryainov, general manager of one of the largest media holdings on the market, Prof-Media, since 1997, quit his job at the beginning of 2004. During his time as general manager, he built a printing plant for Prof-Media, set up a radio holding, and bought several regional television stations. He apparently left because the holding's shareholders (Prof-Media belongs to Interros) were dissatisfied with the stalled merger deal with Independent Media. After leaving, he decided to take up film producing, which, considering the latest information on box-office returns for Night Watch (Nochnoi dozor), was a very farsighted decision.
Vladimir Gusinsky
As principal owner of the Most Group, Vladimir Gusinsky was the most outstanding representative of the media business in the mid-1990s, but he lost all of his Russian media assets of any importance during Vladimir Putin's first presidential term. It would be unfair to say that Gusinsky's Media Most holding was consigned to oblivion only because of a political dispute with the Russian president, although this conflict undoubtedly played a major role. This was all but directly stated in the “Sixth Protocol” that Gusinsky signed in prison. In it, Gusinsky received freedom in exchange for the sale of most of his Russian media assets, including the NTV and TNT television channels, to Gazprom structures. However, along with Gusinsky, who is now in political exile, an entire business of media and financial holdings disappeared from Russian reality. These holdings had made their money on aggressive political media activities; but after the Gusinsky affair, no one dared to build any more.
Boris Jordan
Boris Jordan became head of NTV in April 2001 at a very difficult time for the company – the channel was burdened with large debts, there was virtually no program production, and most of the journalists who were usually identified with NTV had quit the company. Jordan himself was caught in the tail end of suppression of freedom of speech at first. But in less than two years, his team managed to achieve impressive results: restructuring of NTV's debts and all of Gazprom Media; an increase in the channel's audience share; and the creation of new programming ideas, especially The Other Day (Namedni) (Nikolai Senkevich shut down the program two months ago). In September 2002, Gazprom chairman Aleksei Miller publicly announced that Boris Jordan's contract would be extended for another three years, thus expressing his approval of the management policy of NTV and Gazprom Media. At that time there was also an announcement of the formation of a new media holding with Evrofinance, which was supposed to include all of Gazprom's media assets. However, the situation at NTV changed drastically a few months later. At the end of October 2002, NTV aroused the Kremlin's displeasure with its coverage of the hostage-taking incident at the theater on Dubrovka. Gazprom abruptly changed its position, and political loyalty took precedence over economic efficiency. Jordan was fired.
Vyacheslav Leibman
The co-owner of the power company Phoenix Holding bought the newspaper Obshchaya Gazeta for $1.5 million in 2002, immediately closed it, and bought the newspaper Konservator in its place. In Leibman's words, Konservator was a “calm, reserved, conservative, and intelligent newspaper”. However, Leibman was unable to turn himself into a media magnate – after less than a year, the newspaper's financing ended, and Konservator was closed down. In the upshot, Leibman became more famous as Ksenia Sobchak's [daughter of the former mayor of St. Petersburg Anatoly Sobchak and well-known socialite] boyfriend than as the publisher of a weekly.
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People Who Have Arrived on the Scene
Rafael Akopov
Chairman of the board of directors and then general manager of Prof-Media, Rafael Akopov came to the publishing business from NTV. Prof-Media's shareholders wanted him to replace the holding's strategic management with operational management in order to speed up merger negotiations with Independent Media. However, there is still no merger and evidently none is expected – for political reasons, Akopov was “advised not to” merge Komsomolskaya Pravda and Izvestiya with the Dutch publishing house. After the merger, Akovpov was supposed to start moving Prof-Media onto the stock market. However, the initial share placement has been postponed for the same reasons as the deal with Independent Media.
Sergey Arkhinov
To all appearances, the president of Russian Media Group (RMG) has come to the business for a good long while. In the last four years, the group has grown from two small radio stations to Russia's largest radio holding controlling a third of the Moscow radio market. RMG's revenues are estimated at $20-30 million per year. Along with radio stations, the holding also includes a magazine, an advertising agency, a news service, and a sound recording studio. The group remains active on the market and is constantly searching for new assets to buy.
Arnold Uvarov
Arnold Uvarov set up Arnold Prize, a media holding in the “premium” segment, entirely independently. Arnold Prize includes the fashion magazines Apriori and Arnold Style Magazine (and also Ona, Parad, and XXL), the successful niche radio stations Jazz and Classic, and the equally fashionable Style TV station. Another of the holding's radio stations, Our Time on the Police Wavelength, does not quite fit into the picture, but it is not Arnold Prize's own station – the holding operates it on a frequency belonging to the Ministry of the Interior (MVD).
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by
Arina Borodina, Konstantin Vorontsov
All the Article in Russian as of Aug. 09, 2004
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