The World: Outdoor is riding the wave of Russian success

The fate of Russia's biggest outdoor ad company, News Outdoor Russia, has grabbed the headlines, Benjamin Seeder writes.

Russia's economic expansion is taking place at a breakneck pace. The country's consumer boom is unprecedented. So it is little wonder then that the fate of the country's biggest outdoor contractor should be generating quite so much interest.

News Corp has hinted that it may sell a minority share in News Outdoor Russia ahead of both a law that would restrict its market share in Russia and its Dow Jones bid.

The company, which News Corp consolidated over a three-year period from 2000 by acquiring a number of smaller operators, is now Eastern Europe's largest outdoor company, with revenues of more than $300 million.

Now Maxim Tkachev, the News Outdoor Russia general director, and effectively Rupert Murdoch's point man in Russia, says News Corp is "exploring strategic options for the subsidiary, and has appointed the investment bank Goldman Sachs to handle the process".

The announcement has already put JCDecaux, as well as a number of private equity companies, on alert. Jean-Francois Decaux, the co-executive director of the Paris Euronext-listed company that bears his name, confirms he is interested in buying News Outdoor "if they do sell, and if we can find the right local partner to go in with us".

The expected ownership structure at News Outdoor comes amid what is being seen as the Russian ad market's huge potential.

According to data from Zenith- Optimedia, total adspend in Russia is expected to grow from its present $6.5 billion to $13.5 billion by 2009, ranking it seventh in the world. Spending is growing at around 30 per cent a year, making it one of the fastest-growing ad markets.

In Russia, outdoor advertising receives around 18 per cent of total adspend - the highest such rate in the world. "It's because of the wide streets. It makes it easier to put in street furniture and billboards," Sergei Zheleznyak, the News Outdoor managing director, explains. He also attributes the high spend on outdoor to the fragmented nature of TV, where only three national stations operate, and where a law was passed last year that reduced the number of ad minutes per hour of TV from 12 to nine.

Zheleznyak claims private equity companies, some of which have reportedly expressed interest in buying News Outdoor Group, are becoming increasingly interested in the business. That's because outdoor advertising is the only media, besides the internet, that is not leaking audiences and readerships.

Decaux points to the upcoming sale of Clear Channel's outdoor advertising assets by private equity funds, led by Bain Capital, as an important opportunity to consolidate the sector in Eastern Europe, where Clear Channel has a big presence, further. The private equity funds have proposed to buy out most of Clear Channel's radio stations and its outdoor business, in a deal valued at around $28 billion.

"There has already been consolidation, but there needs to be more. We will look at Clear Channel if it does go on sale," he confirms.

Clear Channel is a major player in Eastern Europe. It is the third-largest outdoor group in Poland, behind the local company AMS, and the German billboard operator Stroer GmbH. According to figures from Espar Analytics, it is also the sixth-largest outdoor company in Russia, which is the biggest and fastest-growing market in the region.

Decaux makes no secret of his intention to bid for Clear Channel's outdoor assets if they are put on the block. His company is keen to acquire Clear Channel's large share of the US market, where JCDecaux largely lacks a presence. He also wants a bigger slice of the market in countries such as Ukraine and Russia, where the company ranks as the third-largest operator. Its share comes to around 3.5 per cent when its ownership of Big Board, the largest outdoor operator in Ukraine, is taken into account.

Meanwhile, News Outdoor is continuing to grow in the region. Earlier this month, it bought out Assorti, a regional Ukrainian outdoor advertising company.

In neighbouring Russia, Gallery, the country's second-largest outdoor advertising company after News Outdoor, spent almost $100 million on acquisitions last year. "There are more than 400 outdoor operators in Russia, so there is a lot of room for consolidation," Yana Richterova, Gallery's communications director, says.

This year alone, the company has already acquired three smaller rivals in Russia, and plans more.

Richterova and Zheleznyak dismiss concerns that a bill on outdoor advertising that recently passed its third reading in Russia's State Duma would diminish growth in outdoor advertising in Russia.

The bill, which must be signed by President Putin to become law, would impose the 35 per cent market share cap in each market. "I don't think there will be a problem with market share. We estimate our market share at 19 per cent, so there is a lot of upside from that," Zheleznyak contends.

This all comes in spite of rivals' claims that the company has high market shares in some cities.

The new bill would also introduce the requirement for local governments to hold transparent auctions, which experts say would play into the hands of larger companies with the financial clout to outbid smaller local companies.

The big players will want the status quo to prevail. As Zheleznyak puts it: "Newspaper circulations are in decline, TV is losing viewers to the internet. But cities are getting bigger and the traffic jams longer. Outdoor advertising has a captive market."