10:34 GMT +326 September 2018
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    Foreigners move into Russian media business

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    MOSCOW. (RIA Novosti political commentator Alexander Yurov.)

    Europe's largest commercial broadcasting holding, RTL, is to buy a 30% stake in the Russian television company REN-TV from its founders and co-owners, Irena and Dmitry Lesnevsky. This will give RTL and its parent company, the German media giant Bertelsmann, a blocking stake in the Russian channel. If the Russian regulators approve the deal, which would go ahead by the end of the year, this would be the first time a foreign investor has owned a significant share in a Russian television company.

    It is kept secret how much RTL is paying the Lesnevskys. However, when Anatoly Chubais, the prominent Russian politician and head of Russia's largest energy company RAO UES, bought 70% in REN-TV in 2000, it cost him $30 million. And now, under pressure from the state, which wants RAO UES to streamline its non-core assets, the new deal has been initiated. The company is being forced to give up its share in the media business, but this will clearly be a very profitable move. RAO UES's press service has announced that the company is selling its stake to the Severstal steel producer for $100 million. It would be reasonable to assume that RTL will have to pay a proportionate sum for the Lesnevskys' stake, which would be about $50 million.

    The 30% share is likely to prove very valuable. "Five private Russian broadcasters, including REN-TV, share 36.2% of the national audience today," Patricia Cloherty, chairman of the U.S.-Russia Investment Fund, announced at a recent U.S. Senate hearing. Moreover, in the last four years, the television advertising market has been growing by almost 50% and now accounts for 47% of the entire Russian advertising market.

    REN-TV began broadcasting in 1997 and is now one of the largest private channels with national coverage. It unites 354 independent broadcasting companies in Russia and the CIS. Its programs are broadcast to more than 700 communities from Kaliningrad in the west to Yuzhno Sakhalinsk in the east. These include all major cities with a population of over one million, such as Moscow, St. Petersburg, Nizhni Novgorod, Samara, Yekaterinburg, Kazan and Novosibirsk. REN-TV says its potential audience is 95 million. However, while in Moscow and the Moscow region alone, REN-TV can in theory reach over 12 million viewers, it cannot guarantee an acceptable quality of transmission to all of this potential audience. This means that sooner or later the company will have to invest in new equipment.

    With the appearance of a new majority shareholder that is keen to develop the business, the channel will probably continue to expand. Financial Director of RTL Group Thomas Rabe said that the acquisition was aimed at strengthening RTL's position as the only television company that is broadcasting throughout all of Europe. At the same time, the future of REN-TV will to a large extent depend on Severstal, who will soon hold the controlling stake in the company. A source from Severstal told Nezavisimaya Gazeta that the steel group is not planning any radical changes. The source said that as the Russian media business had a lot of potential, Severstal was hoping for good dividends.

    Despite these statements, many Russian analysts are certain that the deal is politically motivated. Nezavisimaya Gazeta reports that the owner of Severstal Group, Alexei Mordashov, was President Putin's election agent and is known to be one of his most active supporters in the business community. The newspaper reasons that the Kremlin must therefore have endorsed the acquisition and that its aim must be to centralize information flows in Russia.

    Yet this thinking clearly contradicts the processes that are underway in the Russian media market. What some would call the "cleansing" of the Russian mass media has not prevented increased foreign investment in the Russian publishing industry. Last year, the publishing house Axel Springer launched Forbes, Newsweek Russia and Wallpaper in Russia. And since the Finnish company Sanoma Magazines bought over the Independent Media publishing house, Russia has seen collaborative publications by Izvestia and the New York Times and by The Moscow Times and the International Herald Tribune.

    By the autumn, Russian versions of the Economist (in collaboration with Independent Media) and Business Week (a Rodionov publishing house project) will be on the shelves. Meanwhile, the Russian media is expanding its presence in Europe: the Ekho Moskvy radio station has announced it wants to open a branch in Ukraine, and the business daily Kommersant is launching a local publication there. Vedomosti, another business daily, also has its sights set on Ukraine. So it seems that the main trend in the Russian media business is globalization.

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