EMM in the News

Russia media: wild or west?

by Stephen White and Charlie Dawson

RUSSIA ’S MEDIA MARKET , like everything else in this unimaginably vast country, is governed by geographical realities. Russian territory covers ten time zones. This means that if the whole of Russia were moved so that its western end lined up with Britain and Portugal, its eastern end would still be on the far side of Japan. At the very moment that Muscovites are stirring the cherry jam into their inkyblack breakfast tea, there are other Russians nine thousand miles to the east watching the sun go down, stamping the snow off their boots, and getting ready for their evening meal.

Wild east

Russia ’s vastness saddles its media industry with a set of problems faced by no other nation on earth. A typical Mexican soap opera is being enjoyed in Moscow and St Petersburg at 9pm. (Russians love tempestuous Latin TV romances, and watch them avidly.) The show is beamed nationwide by satellite. If it were not for flexi-scheduling, however, viewers in faraway Khabarovsk would be getting their bodice-ripper at four o’clock in the morning, not exactly anyone’s idea of prime viewing time. This fact changes the rules for those in charge of national TV programme scheduling. Russia’s geo-realities necessitate an elaborate system of time-shifting, re-broadcasting and advertising block substitution. How do you manage distribution for a national newspaper or magazine in a country this big? Answer: to a large extent, you don’t. Electronic media’s comparative ease of distribution gives them an easy dominance. Television (46%) and radio take half the national ad budget. Outdoor takes another 20%.

Message control

Russian media used to be about propaganda. Communist era media like Pravda (literally ‘Truth’ – Lenin was one of its three founding journalists) and Izvestiya (‘News’) were legendary for their unwavering intonation of the party line. (‘Pity there is no news in Pravda , and no truth in Izvestiya ’, ran the old joke.) Both papers still toe the Kremlin line. The state is Russia’s biggest media-owner, through direct holdings or through industrial giants like energy conglomerate Gazprom. Oligarchs like Boris Berezovsky and Vladimir Gusinsky used to wield huge media influence through their ownership of TV networks like Pervy/ORT and NTV, and they used this power to ringfence their prodigiously large financial holdings from government interference. President Putin soon had both stations taken over, and chased their owners into exile. They managed to retain sizeable fortunes, and Berezovsky still owns a clutch of Russian newspapers that periodically snipe at Putin’s policies. Other oligarchs like Mikhail Khodorkovsky, boss of the vast Yukos oil company, fared worse. He was jailed late in 2003. At the time of writing he was awaiting trial on tax and fraud charges, perhaps consoling himself that he still owns at least one independent media voice, television station TV2 in Tomsk. Even now, it has been alleged, Russia’s 36 billionaires between them control assets worth $110 billion, equivalent to a quarter of the country’s gross domestic product. That breathtaking concentration of wealth bears witness to the continuing influence of a tiny côterie of opportunistic asset-grabbers from the chaotic post-Gorbachev era, who agreed to help Boris Yeltsin prevent a national slide back to communism. As reward for their ‘loyalty’, they found themselves prodigiously enriched. For a while, this gave rise to a surprisingly (for Russians) multi-voiced media scene. Now the state’s controlling hand has re-established itself as arbiter on media content.

Media bonanza

Notwithstanding the Kremlin’s renewed influence in keeping Russian media ‘onmessage’, things are clearly different from the previous era. Today’s commercial media market has only really existed since the early 1990s. The market’s size and growth rate are all the more remarkable given the fact that much of it was in danger of disappearing in the near-meltdown of August 1998’s cataclysmic currency crash. Back then, weeping Moscow yuppies were seen hurling their mobile phones against office-building walls. Now the cellphones are back, in a market growing by leaps and bounds, reports Alexey Kiselev, executive director of MindShare Russia. Russia’s 142 million citizens are separated by geography, race and social stratum. 80% of national disposable income is in the wallets of a third of the population. General consumer buying power is rising fast, however, partly due to the low relative cost of housing and fuel, and the fact that the falling birth rate means fewer infant mouths to feed. Yet Russia has a significantly lower advertising investment rate than Western or Eastern Europe in terms of gross domestic product. The sheer size of the place still produces an estimated national advertising budget of over 25 billion US dollars. The ad market rebounded in dollar terms by around +50% per year in 2000, 2001 and 2002. Growth can only slow down thereafter. Who has been dominating this spending? The running has been made by big international advertisers like Procter & Gamble, whose gross investment of $US457 million beats its nearest Russian challenger – and everyone else – by a factor of more than two-to-one. (See Table 1).So great has been the dominance of the internationals that only four domestic advertisers make it on to the top 20 list. Steady at number two is the giant Wimm- Bill-Dann dairy conglomerate. Mobile Telesystems (MTS) and Bee Line, up-and coming domestic mobile phone companies, both make the top ten.

Running to stand still

Russian advertisers are rising towards the top of the list, while internationals like Unilever, Wrigley, Beiersdorf, Coca-Cola and PepsiCo are slipping downhill in the rankings. Only Danone and Colgate-Palmolive materially improved their overall rank, and to do it they had to increase gross TV spending by 60–70%. The same thing is happening next door in China: an early inrush of foreign advertisers has now been elbowed sideways by muscleflexing local brands. All advertisers had to increase their media spending to hold their place in the pecking order. As Philip Larmett, media director at Optimum Media OMD’s Moscow office, says: ‘Demand (on TV) is outpacing supply. Media inflation means that big multinationals are losing share of voice. The price of entry is getting higher, but it doesn’t seem to faze the newcomer domestic advertisers.’ Media inflation is both a cause and an effect of this re-balancing towards domestic advertising. Internationals up the ante to keep ahead: local advertisers vow to challenge their dominance. Consumer spending continues to rise, attracting bigger and bigger advertising budgets. Advertising inventory stays static, at least on television, with government-imposed limits on commercial minutage being zealously applied by clutter-averse TV stations. The only safety- valve is price increases.

More buys less

This is not the TV stations’ fault. First, price rises were inevitable after the rouble collapse of 1998. It has taken over two years for tariffs to return to pre-crisis levels. Further, Russia pays cheaper TV costs-per-thousand than other Eastern European countries, says Chris Dickens, a

former global agency media supremo who now advises Russian clients including Video International (‘VI’), the country’s biggest media sales house. Naturally, Russian media owners want their prices to catch up with their puny neighbours. In any case, TV cost inflation is now throttling back. Agencies predict annual rises of only 4-5% in the next four years.

Selling power

TV ad selling is overshadowed by a monolith. Video International, the dominant broadcast sales house, bestrides the media market like a colossus, and sells TV airtime for a clutch of stations that collectively represent nearly two-thirds of the market. VI’s biggest channel used to be Rossiya, a state-owned national network with 22% of the market. Other VI stations like CTC (9% of market) and Ren-TV (5%) are privately owned. Putin’s government expropriated Pervy (Channel 1), the dominant national station, and transferred ownership from Boris Berezovsky to a consortium of government and Kremlin-friendly private interests. VI was awarded the sales contract, taking its share of national TV sales to 63%. Non-VI stations used to sell advertising individually. This changed recently when ailing private channel NTV, (another station expropriated by Putin, this time from Vladimir Gusinsky) set up NTV Media, and signed up channels TNT, TVC and DTV. The quartet is struggling to hold on to its 22% market share. TV buying and selling is a sophisticated business in Russia. It is the agencies that do the planning, buying, wheeling and dealing on their clients’ behalf. Few advertisers negotiate directly. TV schedules are typically bought campaign by campaign, and ever earlier, given escalating demand. Buying can be done online. Guaranteed GRP deliveries are the favoured negotiating convention, and the results are monitored using people meter ratings from TNS Gallup, who are widely tipped for contract renewal after a round of tenders.

Too many pockets?  

Advertisers have an instinctive distrust of media monopolies, and look askance at countries where media selling is dominated by one big company. New arrivals in Moscow ask nervously about Video International’s huge market share. Their nerves tend not to be calmed much when they learn that VI also owns advertising and media agencies. Outsiders have muttered darkly about conflicts of interest, but Russia seems to take it all in its stride. VI is widely seen as a benign influence on the market, and is credited with helping to bring a vast, unwieldy country within advertisers’ reach. Their professional standards are widely acknowledged, says Chris Dickens, and a high value is placed on the planning and buying tools they make available. As to agency ownership, a strict principle of separation of powers is observed. MindShare’s Alexey Kiselev describes VI as ‘keeping their businesses in different pockets of their overalls’, so that VI agencies do not get special information or market-bending buying privileges. Otherwise, say observers, canny advertisers would rush to assign their budgets to VI ‘insider’ agencies, in order to get better rates or allocations. In reality, recent new business assignments show no systematic favouring of any agency. The conspiracy theories seem to have been off the mark.

Change here  

Nothing in Russia’s volatile media market stays the same for long, and in June another major upheaval was announced, this time affecting TV airtime sales. The market was abuzz for months with rumours that Video International was to be stripped of its sales contract for Pervy (Channel 1). The whispers were amplified when VI’s founder, the Yeltsin appointee Mikhail Lesin, was fired from his job as press minister in a Putin government re-shuffle. The rumours turned out to be right in general, but wrong on the specifics. VI has in fact seen its Pervy/Channel 1 sales contract renewed for another five years from 2005, but is now to give up – voluntarily, it says – sales for its second-string channel, Rossiya. The Russian state TV and radio company, VGTRK, announced in June that, after ‘friendly and cordial’ consultations with VI, it will set up its own sales organization in about a year to 18 months, and transfer all Rossiya sales to the new outfit alongside Video International continues in a caretaker role for Rossiya until the new shop is up and running. VI has taken the change gracefully, says Dmitry Dmitriev, Optimum Media OMD’s chief executive. ‘This event will not bring about significant pricing changes next year … VI will try to compensate lost revenue (by stimulating) overall TV market growth.’ For Dmitriev,this implies that VI, far from fighting off its new rival, will actively help to set it up.VGTRK has undertaken to uphold advertising contracts and terms signed by VI, so as not to undermine VI’s viability or credibility. (Pervy/Channel 1 director Konstantin Ernst believes that this gentlemanly pact is really to discourage VI from playing the two main channels off against each other in the transitional period.)

Western-style stability?

In the longer run, OMD’s Dmitriev predicts market and price stabilisation based on three comparably-sized TV sales outlets whose interests are better served by co-ordinating sales policies than by provoking price wars. Advertisers will still be the gainers, he insists, thanks to healthy competition, increasingly varied programming policies, and flexible access to the right channel mix for their brands. This could mean Russia becoming less ‘wild’ and more ‘west’, taking its place alongside Europe’s media big five. Advertisers seem to want this, particularly the multi-nationals, who are nursing sore backsides after three years of the inflation driven bucking bronco ride. Internationals have grouped together into a trade association called RusBrand, pushing for stable prices, accountability and transparency. Domestic advertisers will want things done Russian-style. Big multi-nationals are not going away any time soon, of course, and they too will want their say on handling growth and change. Clients will continue to encourage Europe-based media consultancies like Glyn Harper’s Virtual Marketing and our own EMM to conduct periodic checks, audits and training sessions with their media people.

Wild? West? It could go either way. Watch this very large space.