EUROPEAN MEDIA: Russia - Looking East

The Kremlin may have taken over Russia's last independent TV station earlier this year, but the Red Army Choral Singers' hopes of being top billing on Russia's airways look set to be dashed as the country's media business develops at a lightning pace.

my is showing its first growth in three decades, so TV stations are competing for increasingly valuable audiences. Yet the politics remain confusing and ugly.

The crackdown on independent broadcasters began almost immediately after Putin took office in May 2000. The state-owned gas monopolist Gazprom put the leading commercial broadcaster NTV into bankruptcy by calling in some $230 million in loans. NTV was the Russian media mogul Vladimir Gusinsky's flagship in the Media-MOST empire, which he had built up since the early 90s. Gazprom's grab of the most critical station of the Kremlin raised hackles and brought accusations that the Government was squashing Russia's nascent free press.

Gazprom promised to sell Media-MOST last year, but the 15 January deadline for announcing the structure of a tender came and went without a peep out of Russia's largest company. At the start of August, the company announced that it was postponing the sale of NTV until after parliamentary and presidential elections slated for the end of 2003 and start of 2004 respectively. The media has been blatantly abused to put Kremlin candidates into office in all three of Russia's elections so far.

"Gazprom has delayed and delayed," Laurence McDonnel, NTV's spokesman, says. "The Kremlin's lack of action in moving on with the sale is bad for us and the whole industry."

The Kremlin followed this up by closing down TV6, NTV's sister station and the last independently owned broadcaster, in January. This time using a bankruptcy suit brought by LUKoil, Russia's largest oil company. While not particularly democratic, Putin's attacks on the media were part of his battle to break the political power of the businessmen who rose to prominence under the former president Boris Yeltsin.

The so-called oligarchs had repeatedly used their media power to play king maker in Russia's political rough and tumble and Putin has insisted that he is not squashing press freedoms as the press was never free. Boris Berezovsky, who owned 75 per cent of ORT, Russia's only nationwide broadcaster, used ORT to ensure both Yeltsin's re-election in 1996 and to put Putin into power in 2000. Gusinsky's NTV also backed Yeltsin in 1996, but supported Putin's rivals in 2000.

However, the temptation of controlling the leading TV stations has proved too much for Putin. With elections looming, Gazprom announced at the start of August that it has delayed the sale of NTV until after the election season.

The formal excuse is that NTV is valued at only $364 million, while Gazprom's credit exposure is $700 million. Gazprom's management say they want to hang on to the media holding until its value has at least doubled. But political analysts unanimously believe that the Kremlin is loath to give up the station until after Putin has been re-elected.

As a business, broadcasters are booming. Despite the fact that the Government controls most of Russia's broadcast media, there has been little interference with programming. All the stations are becoming increasingly commercial and focused on boosting advertising sales, targeting the emerging middle class with particular emphasis on young people.

The 1998 financial crisis and devaluation of the ruble unleashed a torrent of local production as domestic producers scrambled to fill a $30 billion hole left in the retail market by the overnight disappearance of imported goods. At the same time, one of the ironies of communism is that, while the average middle class Russian takes home the equivalent of one quarter of a western paypacket, some 85 per cent of a Russian's income is disposable. Companies such as Ikea, which opened its first superstore in 2000, were shocked to discover that Russians were spending as much in their store as in any of their western European outlets. It is currently building four more shops around Moscow.

The boom in retail sales has meant a rapid recovery in advertising. Following the recent crisis, advertisers slashed their budgets to the bone and media outlets were offering up to 90 per cent discounts on rate cards to try to keep their heads above water. But by the beginning of this year the market had returned to full health and is now growing fast. Sales topped $1.7 billion in the spring, passing the pre-crisis high-water mark, and are expected to end this year at $2 billion, with TV doubling to $800 million, putting the size of the Russian market on a par with Scandinavian countries.

TV dominates as the only media that can reach Russia's 11 time zones, and multinationals such as Procter & Gamble dominate the spending. Foreign companies make up all but one of the top ten biggest spenders. Russians love their own oil, milk and ketchup, but when it comes to pretty much everything else, they choose foreign brands.

Despite Russia's geographic enormity and population of 150 million, the bulk of advertising is concentrated in 13 cities with more than one million residents - home to the new middle class - with the rest of the country making up only one-fifth of the total spend.

"Advertising has become more sophisticated and we are more focused on demographics," McDonnel says. "We are looking at smaller but more attractive audiences - the emerging young middle classes. Historically there was simply a monopoly on advertising aimed at covering the whole country."

The economic prosperity is, however, limited, as only one in ten can be counted in Russia's emerging middle class, and the concentration of the most lucrative target audience is starting to affect programming. This autumn, Russia's leading broadcasters plan to move away from politics toward entertainment. Political stability has changed people's tastes; they are less worried about what tomorrow might hold and more concerned with how to spend their growing pay packet.

A spate of reality and talk shows are taking the place of political news programmes on all the leading broadcasters. Current affairs programmes such as Itogi (Result) have been replaced with Kriminal (Criminal), which titillates with real life stories of mobsters and shootouts. The state-owned Rossiya (previously RTR) has just introduced the Good Morning Russia!

breakfast programme, NTV has just bought its first package of foreign-made movies in three years and CTC, a smaller but aggressive station, has launched Harem, a reality show filmed in Kenya where eight men try to win the hearts of four women.

So reality TV is final proof: Russia's not so different to the rest of Europe anymore.

TOP ADVERTISERS IN RUSSIA

Rank Advertiser Total adspend TV (%)

(dollars '000s)

1 Procter & Gamble 429,167 99.3

2 Wrigley 222,265 99.8

3 Mars 211,145 98.8

4 Nestle 204,914 99.0

5 Unilever 158,860 99.4

Source: Gallup, Adfact.

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