INTERVIEW: Entertainment Russia

By bne IntelliNews April 28, 2011

Ben Aris in Moscow -

The offices of CTC Media are every inch those of the media company. Spread over three floors in a modern office complex in central Moscow, the walls are splashed with sherbet-orange descriptions of their functions. Cosy cubby holes line a passage where executives can sit and brain storm. There is a table football table in the coffee room with larger glass walled conference rooms for bigger meetings. A bunch of jean-clad executives lounge in squishy armchairs watching the rushes from next season's soap operas.

CTC Media (pronounced "STS" - the company uses the Cyrillic version of its name in print) is the most successful commercial TV company in Russia and the most profitable media company in the world, claims CEO Anton Kudryashov.

Television is by far the most important media channel in Russia. In a country that spans half the globe, sets in the front room remain the main source of news and entertainment for millions of Russians living in the far-flung regions and the only way that multinationals can cost-effectively sell their fast-moving-consumer-goods (FMCGs) to the entire 142m strong population. The upshot is that while TV advertising typically accounts for a third of the total ad spending in the West (in the UK online ad spending recently overtook that for TV), in Russia half of every ruble spent on advertising goes on TV ads - and that spending is growing fast.

"In terms of ad spend, Russia is already the ninth biggest market in the world, the fifth largest in Europe and if current growth continues, it will be the largest in Europe as soon as 2013," says Kudryashov, who cuts a sharp figure and exudes crisp efficiency as the statistics of his business trip off his tongue.

Russia's total ad spending in 2010 was $4.2bn - more than 10 times that of Ukraine's, the second largest in the region with a third of the population - and has been growing by 25-30% a year.

The crisis took the edge off his ballistic expansion when the total ad spending in Russia fell 18% in ruble terms in 2008 and by more than 40% in dollar terms, but it will have recovered all the ground lost by the end of this year, says Kudryashov. CTC did much better, maintaining flat sales in 2008 and by 2010 the channel had managed to exceed the pre-crisis sales peak by 15% to report a record year.

Foreign partners

The company began life as a small broadcaster in St Petersburg in 1994 and only went nationwide in 1996. It focuses solely on entertainment, broadcasting a mix of domestically produced content - which makes up two-thirds of its programming - and international shows, targeting viewers aged 6-54, especially younger audiences.

But things started to move fast for the company when the Swedish company Modern Times Group bought out the founders in 1999 and then brought in leading Russian financial-industrial conglomerate Alfa Group in 2003. This investment cycle culminated in an IPO on America's Nasdaq in 2006 that raised $200m, which provided the funds for a rapid expansion and a string of acquisitions including two more broadcasters - Domashny, the only channel in Russia to specifically target women, and DTV, which specialises in reality televsion - as well as some production companies to produce content in-house.

Competition in Russia's TV business is already extremely stiff. There are 20 free-to-air channels, but the top five account for 68% of the audience share and 80% of the advertising revenues, says Kudryashov. By 2003, the broadcaster had built up an 11% audience share and taking into account its small channels CTC is the third or fourth largest channel in the country, reaching over 100m people and nine out of every 10 households in the country.

The main challenge has been to keep up with the changing tastes of Russia's viewing audience. A year after the Soviet Union collapsed, a wave of Brazilian and Mexican soap operas appeared on Russia's airwaves and were a smash hit; shows like Mexico's telenovelas "Simply Maria" and "The Rich Also Cry" could clear the streets of Moscow for a particularly dramatic instalment.

These days, tastes have become more sophisticated, says Kudryashov, and CTC either makes or buys two-thirds of its content domestically, with the rest being mostly Hollywood blockbusters.

Many of the home-grown shows are adaptations of successful formulae developed overseas and transcribed into a Russian cultural setting. For example, CTC bought a license to produce the sitcom "Born not pretty" based on the popular Colombian telenovela that is better known as "Ugly Betty" in the West. "Nowadays, there is more and more demand for original Russian produced content, but the problem is where to get it from. Production is not mature and there are not enough writers to create the content needed to meet the demand," says Kudryashov.

Kudryashov says the station made a conscious choice to carry no news or socially orientated programming. "News is not dangerous, but it does require a lot of coordination with the supervising authorities," says Kudryashov. "News is expensive, as you need a big staff and the state can lose money on news production. We can't."

While it is hard to compete as a news broadcaster, it is easier to cater to the demand for pure entertainment. With its in-house production and extensive market research, this is where CTC has a market advantage, which allows it to capture the advertising spending.

The total ad spending in Western Europe and the US is on the order of 1-1.5% of GDP, but in Russia it was 0.7% at its peak in 2008 and fell to 0.5% in the crisis. With annual growth expected to be 15-18% a year as the FMCGs begin cranking up their marketing campaigns again, Russian ad spending should easily double in the next five years. "The Russian market is large in size, but still immature in nature," says Kudryashov. "In the West, cars and financial services are amongst the top-five biggest spenders, but in Russia these products only account for 2% of the total spend, but of course this will be a major source of growth as these areas develop."

INTERVIEW: Entertainment Russia

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