Business report 2009: Russia
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An interview with Vasily Gatov, advisor to the board, Media 3* (Russia)
WAN-IFRA: How was the situation for the advertising market in Russia this year?
Vasily Gatov: To better understand the situation, you have to compare with the 2008 situation. The overall advertising sales for all media carriers achieved US $ 10.8 billion in 2008, making the Russian ad market the sixth-largest in the world. The growth for 2008 was just under 30 percent! Due to some specifics of the economy the sales were still growing until October 2008. The dominating mood in the industry was that nothing bad would happen, all the problems affected the western world and we were like China and India…we were protected by the growth of our economy. That turned to a very bitter disappointment in the last quarter of 2008. Even so, it still made that year the best in our history. In 2009, the Russian media industry, and print in particular, got a very, very bad landing. Especially for advertising, the decline year-on-year is just about 42 percent for the first nine months, for the press only it’s 49 percent. Classifieds around 60 percent... that decline was on top of the ruble devaluation against the dollar, so in reality the loss is even harder.
WAN-IFRA: Do you also face a circulation decline like in most developed markets?
Vasily Gatov: No, we are actually doing better in copy sales. There is a much lesser impact on copy sales than on advertising, even with price increases, particularly in the magazine segment. We still have a very similar readership basis.
We are lucky as an industry that most of our core titles, especially our newspapers and weeklies, are less dependent on advertising for a portion of their revenues. Our leading publication in terms of ad revenue would be the women’s magazine Cosmopolitan, they only get 30 percent of their revenues from copy sales as opposed to 70 percent for advertising. This is the highest ratio; but their circulation is one million copies! Copy sales are still good and it makes the landing for the industry difficult but not deadly. Few titles ceased publication in Russia this year, 200 titles out of approximately 10,000 titles. Some said they suspended publication until advertising comes back.
WAN-IFRA: How do you explain that the readers don’t seem to be affected by the cover price increases for their publication?
Vasily Gatov: Several local newspapers benefit from financial support from municipal authorities so they are less dependant on advertising and this financial help compensates production and distribution costs and allows to maintain an affordable cover price for the population. There are some political implications but it keeps the industry running…
WAN-IFRA: Do you expect a better situation in 2010?
Vasily Gatov: I would be very careful in predicting any growth in advertising for next year. There is certainly a limit in the decline; and I don’t expect the market to decline further for the titles with a large audience. There will be a weak growth but not a healthy growth…In the last ten years, the Russian press has lost shares in the ad market, going from a 50-percent share to 20 percent. Most of the loss benefited television and to a much lesser extent the Internet. But size-wise, this happened in an ad market recording 60-percent growth. The ad market is twice as big as it was in 1999. That allows a very dynamic media market and there is no tragedy for the press in losing ad shares. Nevertheless, the rate of growth will not be the same next year, not more than 2 to 5 percent. It will also depend on the ad agencies’ recovery. Look at some of the biggest players, WPP as an example; they lost almost 40 percent of their billing budget …so how will they come out of the crisis? The ad industry scaled down this year and we have to look at the recovery of the ad agencies first after we see growth.
WAN-IFRA: Is there a lot of discussion in Russia about monetizing online content?
Vasily Gatov: Including search advertising, the Internet advertising is less than 300 millions euros in Russia. So there is still a good potential for growth in this area. For Russia, paywalls will not work at all. Just consider that in order to make a paywall work you need either e-banking or credit card, but the concept of online payment is too low in Russia. It’s senseless.
WAN-IFRA: Do you expect major events in the media landscape next year?
Vasily Gatov: The major event for next year is the arrival of 3G. We will have it in most part of the country; it will roll out fast. The second event is the fact that the government is actively expanding broadband everywhere in the country. More broadband will attract more interest and online audience. We already have a joke in Russia that says we have now a television that is not officially registered in the country but is number 3 in audience and that’s Youtube. 3G and broadband mean a big change in the media landscape, now the question is if there is a real understanding of that in the media management. We work with the same international brands, and one of the biggest lessons that we have learned these last years is that Russian customers behave like other customers in the rest of the world …
WAN-IFRA: What about production costs, have they decreased this year like in most part of the world?
Vasily Gatov: Newsprint producers gave a gift to the industry this year by not upgrading their prices; that was a big help. They somehow shared with us their financial margins. One of the big challenges in Russia next year, and in many parts of the world, is that we will have to pay that back. In Russia, I expect a 20-percent increase in newsprint prices next year.
*Media3 closed joint-stock company was established in 2007 to manage the media resources of “PromSvyazCapital” Group. Assets under Media3 management are currently concentrated in four segments of Russian media market – print media, printing business, press distribution and Internet. The following assets are under the company’s management: “Argumenty I Fakty”, “Extra M Media” and “Trud” publishing houses, “Media-Pressa” and “Extra M” printing complexes, distribution network under “ARIA-AiF” brand (“Soyuzpechat”, “Metropress” “Rospechat-Chelyabinsk”, etc.) 2007 Media3 company assets turnover exceeded 500 million US dollars. Aggregated assets’ turnover makes Media3 the major private media holding of the country and aggregated print circulation demonstrates its print media market leadership