No Longer Blinded By The Light

Michael Hedges August 17, 2009 Follow on Twitter

Few now believe business conditions for media in Russia and other former Soviet States will ‘normalize’ in any acceptable time frame. Media investors who arrived over the last two decades expecting surges in consumer industries to overpower entrenched divisions are fleeing.

After operating little more than a year MySpace Russia was closed down last week (August 13), reported BFM.ru. Local CEO Alexander Turkot said on his LiveJournal blog the decision was part of “Murdoch’s strategy” to withdraw from Russia. MySpace is the social networking portal owned by News Corporation struggling with competition from Facebook and Twitter. Earlier this year Mr. Murdoch grunted about the problems doing business in Russia. Over the last year News Corporation has disentangled itself from investments in several former Soviet States and announced intention to withdraw from Latvia and Bulgaria.  

Russia’s media environment is uniquely Russian. It has not devolved into the simple State control of Soviet times. The billionaire owners are franchised by the government to maintain the flow of radio, television, print and web content without overt challenges. There are bright spots – Echo of Moscow radio, Novaya Gazeta newspaper and others – from the ‘enlightened oligarchs,’ but the remaining few Western media investors keep very low profiles.

Among countries along Russia’s borders, the same pattern has emerged, with the potential to extend into the newest European Union Member States. Powerful and well-connected billionaires view media as instruments of influence much more than financial gain. The money from raw materials extraction – not to forget black-market cigarette sales – is infinitely greater than selling ads. As power blocks within these rowdy, nascent democracies grope for influence after the abrupt end to credit-driven expansion – largely foreign – outsiders are in the way.  

At the center of Russia’s border with Europe is Ukraine. Since the 2005 Orange Revolution the country’s billionaires and politicians have been at odds over everything, exacerbated by the recent economic downturn.  The tug-of-war between Europe and Russia over influence moves back and forth though signs are clear that some in Europe are giving up.

Poland and Ukraine are set to share hosting the 2012 European football championships. UEFA’s decision was a clear signal that, as a marketplace, Eastern Europe was ready for the big league. Last week UEFA assigned to Warsaw the Euro 2012 broadcasting center, said World Football Insider (August 10). Traditionally, the broadcasting center is situated where the finals are played. In May UEFA strongly criticized Ukraine’s progress on structural developments required for the football championships and issued a November deadline for results. Like everything else football has become a political football for presidential candidates.

While the Orange Revolution with the subsequent and short economic upturn may have encouraged Western media developers, the forbidding prospect of an Eastern drift in Ukraine has sent even the brave scampering. “Ukraine is the future,” said CME (Central European Media Enterprises) CEO Michael Garin in August 2007. Looking to keep options open, CME took US$110 million from Ukrainian banker, industrialist and billionaire Igor Kolomoisky in exchange for 3% of company stock. After a protracted squabble over its Studio 1+1 license CME took control buying out minority shareholders in July 2008, all part of Garin’s plan. After Time Warner became a 31% shareholder in CME and Michael Garin retired new CEO Adrian Sarbu, perhaps with Time Warner’s encouragement, began to untangle the company from Ukraine, creating a spin-off and selling half of it to Mr. Kolomoisky.

“Almost all media are politically loaded,” said Expert Group Kwendi managing partner Svetlana Kalinina to Korrespondent (July 10). “If Mr. Kolomoisky bought the channel to increase his power in information realm, now he has such possibility and will use it.”

Dutch publisher Telegraaf Media Groep (TMG) and Swiss publisher Ringier exited their Ukraine investments in 2008. TGM arrived in 2005 with the purchase of five magazines, followed by a newspaper in 2006 and developed a news website in 2007.  The popular free paper Obzor was closed in December 2008 when no buyer came forward.

Others are looking to flee. Broker FM, subsidiary of Bauer Media Group, is reportedly shopping its mini radio network  in Ukraine, according to Gazeta Wyborcza (August 5). The company was unable to enlarge its Radio 4U network with a Kyiv outlet.

Some Western media companies have been resolute in staying with investments in Russia and on its borders. Lagardère maintains both broadcast and publication activities in Russia, Ukraine and Belarus. Modern Times Group, through its 39% stake in CTC Media, shows no interest in bowing out of highly profitable regions. But CTC Media is a highly connected Russian company and Lagardère benefits as a major aviation supplier through EADS. For those less well attached, it’s decision time for Russian and former Soviet States investments.