Another Big Media Company Sours On Eastern Europe

Michael Hedges June 30, 2010 Follow on Twitter

For media companies, foreign development carries risk and reward. Expansion opportunities beyond home borders advance on business models well-honed by experience. The best plans, though, can be laid to waste by changing local politics.

Under Serbian law, foreign investors are limited to 50% stakes in media companies. Similar limits – often much lower – are in place throughout Europe and North America for investments in broadcasting and publishing. There are exceptions but that makes media investment an interesting challenge.

German media house WAZ Group entered the Serbian publishing market in 2001 with minority stakes in a couple of newspapers. Foreign investment rules required local shareholders. Big, experienced media companies become big, experienced media companies by imposing a high degree of control. Local partners understand this and, generally, opt for letting the professionals do what they do best. Local politicians, generally, appreciate the benefits of professionally run media outlets.

WAZ Group’s recent acquisition of a stake in daily newspaper Vecernje Novosti – 23% in some reports, 24.9% in others - with intentions to buy out other shareholders seeded confusion as the company made noises about leaving Serbia altogether.  WAZ Group Managing Director Bodo Hombach informed Serbian President Boris Tadic by letter (June 15) that the company’s experience in Serbia hadn’t been pleasant and he intended selling off “gradually” its holdings there. WAZ Group holds 50% of Belgrade daily Politika and 55% of Novi Sad daily Dnevnik.

“Bodo Hombach expressed hope that the company shall leave the country without conflict in spite of huge difficulties and public damnations,” said a WAZ Group spokesperson quoted by Blic (June 16). “All claims that the WAZ wants to make pressure on somebody are absolute nonsense.”

Angered – or something – was Deputy Prime Minister and Economy Minister Mladan Dinkic who called for banning WAZ Group from Serbia. “If we were to analyze what happened with the WAZ investments in the last few years,” he said (June 24) quoted by B92, “we would realize that there was nothing good about it. For the WAZ there is no place in Serbia.”

Serb media then quoted Mr. Hombach saying he’d “gladly fulfill the wish of Mr. Dinkic.” and leave Serbia. “It would go much faster if he ordered the Serbian tycoon, whose name in accordance with the contract I can’t state, to return our money for the purchase of the Novosti shares. We have decided to leave but we won’t be robbed.”

By appearances WAZ Group was contractually obligated to go forward with the Vecernje Novosti stake acquisition even as a new local partner, necessary under media ownership rules, backed out. The Serbian government holds a 29% stake in Vecernje Novosti, left-over from the years as mouthpiece for the late former dictator Slobodan Milosevic. The newspaper has only marginally softened its nationalistic editorial stance, suggesting discomfort among Serbia’s far-right politicians for an editorial change under an independent foreign owner.

Media companies typically look at foreign expansion when local opportunities are either too expensive or too difficult under anti-concentration laws. In Central and Eastern Europe it was a veritable land rush for newly privatized broadcast outlets and newspapers once the Berlin Wall fell. New governments welcomed the foreign investment and knowledge transfer. Even media watchers prone to dismiss private sector media recognized the professionalizing effect of foreign investment.

Much of that has soured as the next generation governments look at media outlets as either mouthpieces or money fonts. Independent minded foreign-owned investors in broadcast stations and newspapers couldn’t be trusted to read the press releases or make the appropriate payments. Partners closer to home understood the rules.

News Corporation chairman Rupert Murdoch invested early and significantly in Central and Eastern Europe. Lightening struck when local partners, required by law, became unreliable or, in some cases, unnerving. Two months ago News Corporation completed its withdrawal from radio and television broadcasting in the region.

Late last year the Hungarian media regulator rejected renewal applications for two national radio channels owned by foreign investors despite concluding – affirmed by a court ruling in January – these were the only two qualified applicants. The licenses were awarded to local investors with ties to political parties.

While Bodo Homback’s decision to vacate Serbia under duress arms foreign expansion skeptics with another argument, other big media companies are staying the course. Communicorp (Irish) has significant radio holdings in Eastern Europe, as does Lagardère (French). RTL Group (German) is invested in the region. Modern Times Group (Swedish) is expanding. And some – CME, notably – have fought to stay.

See also in ftm Knowledge

Western Balkans - The Struggle For Order And Independence

ftm reporting explores media development and investment in Serbia, Montenegro, Bosnia / Herzegovina, Croatia, Macedonia and Albania. Emerging from conflict broadcasters, publishers and governments face ghosts of the past to forge a new future. Includes Resources, 65 pages PDF (May 2011)

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