Media Consolidation, Russian Style

Michael Hedges February 22, 2008

Shareholders of two big Russian broadcasting companies merged their interests into a bigger broadcasting company. Consolidation can have a negative effect on media companies, not to forget media markets. But in Russia, it’s the only way to go.

The Abros Capital subsidiary of Bank Rossiya announced last Friday (February 15) with other major Russian shareholders of the Petersburg Television and Radio Company (TRK) and REN-TV the creation of a new holding company – National Media Group. Those other shareholders include Severstal (steel), Surgutneftegaz (oil) and Sogaz (insurance). The merger has been widely anticipated since Bank Rossiya chairman Yury Kovalchuk increased his holding in REN-TV late in 2006.  Sogaz is a Bank Rossiya subsidiary.

TRK owns and operates Channel 5, possibly the least ‘dumbed-down’ of all Russian television. The municipal St. Petersburg government operated the channel from time immemorial until 2003 when Eurofinance Bank, a Russian federal agency, bought 23%. TRK received authorization to broadcast across Russia in 2005, which was not realized for a year when - coincidentally – Bank Rossiya, Surgutneftegaz and Severstal invested about $US 200 million. Within six months Channel 5 made a major technical investment in its newsroom operation.

REN-TV, on the other hand, has had a far different trajectory. Founded in 1997 as a TV production house, it became the first privately owned TV channel in Russia. The owner/founders took on RTL Group as a partner in 2005 but were eventually forced to cede ownership to Severstal and Surgutneftegaz. Abros Capital bought the shares of Surgutneftegaz in 2007.

Both Channel 5 and REN-TV are avid program producers. Channel 5 appears to concentrate on long-form drama and arts programming while REN-TV produces dramatic serials. REN-TV buys a fair amount of foreign shows, owing to the RTL connection, including The Simpsons.

The new company – National Media Group – immediately becomes a major television broadcaster in Russia and, perhaps, more. Bank Rossiya, through Sogaz, bought controlling interest in daily newspaper Izvestia from GazProm-Media (December 2007). GazProm-Media is Russia’s largest media company, owned by that energy company with the similar name. It operates television channels NTV and NTVPlus as well as several radio stations, including Ekho Moskvy. Prof-Media, also billing itself at the largest ‘diversified’ media holding company in Russia, owns TV3, 2+2 (Moscow), Rambler Media, movie theaters and several radio stations, including AvtoRadio. State controlled ORT (Channel One) is the highest rated television channel in Russia.

Of course, no article about Russian media is complete without mentioning the FOP’s – Friends of (Russian President Vladmir) Putin. Bank Rossiya Chairman Yury Kovalchuk, arguably, tops that list. Kovalchuk reportedly manages Mr. Putin’s personal assets. Lyubov Sovershayeva has been board chairperson of both REN TV and TRK as well as General Director of Abros Capital. She becomes chairperson of the new company. In the early 1990’s she worked in the St. Petersburg municipal administration with Mr. Putin.

Channel Five Director Marina Fokina might be taking on a new task. Rumblings in Russia suggest she will leave television to direct the 2014 Sochi Winter Olympic Games.