Benjamin Seeder in Moscow -

As the first of the winter weather drifted into Moscow in late October, a crowd of umbrella-wielding media planners and buyers shuffled into the city's opulent Hyatt Hotel on Tverskaya street. They had come to hear from Sergei Vasiliev, general director of Video International, the media agency that is partly controlled by the Kremlin, which holds up to 70% of the television advertising market in the country.

Video International is the agency you must deal with if you want to advertise on any of the major channels - First, Rossiya, CTC. It has few competitors, and clients pay the price demanded.

The crowd of Russia's top media executives shuffled into hotel's Petrogradsky conference room and had to wait for a few minutes. The room fell silent as a bearded, grey-suited man moved to the podium. Sergei Vasiliev, the most powerful man in Russian television advertising, had arrived.

Already stung by TV ad rate increases that saw prices double between 2005 and 2007, the assembled media buyers listened intently, hoping that rumours of further rises were exaggerated. A few minutes into his presentation, Vasiliev went to a PowerPoint slide that showed expected prices for 2008, and the room's silence turned to gasps of surprise, then whispered chatter that slowly rose in volume.

According to Video International, average TV ad prices will rise by around 55% next year - the biggest increase yet - and by up to 155% in some regions. Grumbles of discontent rolled through the crowd, and for a minute a revolt appeared certain. "How can Russian companies compete at those prices?" interjected one buyer.

Standing up amid the disappointed crowd, Karina Ter-Grigoryan, the general manager of AFIS, said the price increases would force smaller advertisers off the air. "Russian brands will not be able to compete - television will be the domain of the big foreign brands," she complained to loud and enthusiastic applause from the audience. Vasiliev smiled wryly, his fists gripping the podium.

Changing channels

The event, which broke up after similar interruptions from other agents, shows how fast the Russian media scene is changing. Video International's latest price increases mean that rates for TV time in Russia will have risen by 237% between mid-2005 and 2008.

"Advertising on television since the start has been dirt cheap and highly effective, so it was the main medium used by advertisers," says Mark Huntley, general director of Tarantula Russia, a subsidiary of International Marketing & Sales Group. IMSG focuses on the emerging markets of Russia, CIS countries, Turkey, Hungary and India.

He says it is the only medium with the means to reach across the steppes and tundra and 11 time zones; it takes about the same time to fly from Moscow to New York as it does from Moscow to Vladivostok. Now, with prices skyrocketing and inventory limited by new legislation, advertisers are worried, and the fallout will touch every aspect of Russia's ad industry.

The new prices are partly the result of a new "Law On Advertising" that came into effect in July 2006. Under the new rules, the number of minutes of ads per hour on television was reduced from 15 to 12. The second stage of the law takes effect in January 2008, when a limit of nine minutes per hour will be imposed - low by international standards. For example, Germany allows 15 minutes of ads per hour and many other European countries set the limit at about 12.

"That is a big drop in the amount of supply available, and you can see that demand for television advertising is already outstripping supply," said Vasiliev. "The rise in rates reflects this."

He added that this second stage will force an 80% drop in the amount of prime-time minutes available on national TV. "That's because all the ads are already crammed into prime time, so that is the time segment that will be most affected by the limit reduction," he said.

From next year, the cost per contact via Russian national TV should average around $3, which is still much cheaper than Western Europe, where the cost averages $8-10, Vasiliev said.

Most ad agencies say they have been preparing clients for the bad news for months. "Our clients know that prices are on the way up," and are re-examining ad budgets in that light, says Anastasia Nikiforova, media director of Mediaedge:cia. "We are trying to fight inflation by being more targeted, by optimising the channel mix - using the networks and niche channels like MTV, more multimedia and the internet... and more emphasis on getting the creative right."

The Kremlin may be dishing up a diet of increasingly stodgy propaganda as Russia goes into election season, but at least the ads will be better.

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