The print media: Plunge in advertising decimates newspapers
As newspapers around the US and Europe, hard hit by the internet, put the finishing touches to their own obituaries, a different fate has struck those in Russia.
Across the board, they are suffering. Medialogia, a research group that tracks the press, says that 86 newspapers and 52 magazines have closed since September, when the financial crisis struck, hard on the heels of the war in Georgia and messy shareholder disputes that sapped investors’ desire to do business in the country.
While print media in the west face the double crisis of dealing with falling advertising revenue and the challenge of learning to monetise internet content, analysts and newspaper executives in Moscow say that web use remains so small in Russia that the industry crisis is driven purely by a severe drop in advertising as a result of the global recession.
“The advertising market for every media in Russia, with the exception of the internet, is very difficult at the moment,” says David Ferguson, a media and IT analyst with Renaissance Capital, the Russian investment bank. “Newspapers are not a national medium for the most part, and those companies that are advertising want national exposure.”
National exposure means turning to one of three state television channels. With poor infrastructure spanning Russia’s 11 time zones, national dailies do not exist. In many cities outside Moscow and St Petersburg, newspapers often arrive days late, leaving the market to weeklies and, overwhelmingly, television.
“The crisis will be ruinous for Russian newspapers, as only a small number of printing houses are really business-effective,” says Alexander Strakhov, general director of Argumenty i Fakty, Russia’s largest circulation newspaper, a weekly.
In January, as the financial crisis spread to the real economy and hit the rouble, Argumenty i Fakty registered its worst month in terms of advertising sales in two years, Mr Strakhov says, with an 8 per cent dip from January 2008.
Multinational companies account for about 75 per cent of advertising in Russia, a higher share than most emerging markets, Mr Ferguson says. As they cut costs, advertising budgets are among the first to be slashed.
Ilya Mikin, media director at Unilever, the country’s fourth largest advertiser, says the company has joined the trend of cutting investment in advertising, and shifting ads from newspaper to television.
That, in part, has led to acute cost-cutting. Independent Media, one of Russia’s largest publishing houses, has cut salaries by up to 20 per cent at most of its titles. One of those is Vedomosti, Russia’s leading business newspaper, published in partnership with The Financial Times. Tatyana Sazhina, head of advertising at Vedomosti, says that, because of the newspaper’s niche readers and clientele, a marked shift towards the internet is already emerging.
Readership trends are also changing. Whereas Vedomosti has a daily circulation of 100,000, it registers about 200,000 visits on its website each day, which brings in 10 per cent of its advertising revenue. Yet overall internet usage in Russia remains small, mainly due to poor infrastructure and high cost of computers in a country where about a quarter of the population lives near the poverty line. There were about 30m internet users in Russia last year, a number that is expected to double by 2010. Yet, just 2 to 5 per cent of advertising revenue falls to the sector.
Some put the blame for print media’s troubles on the businesses themselves. “Though we made big progress in the past five years, it was 99 per cent the result of the general market curve rather than anything we were doing,” says Vassily Gatov, deputy head of the Russian Guild of Publishers. “Until 1993, no one really knew what the print media business was.”
Russia’s state-run media giant RIA-Novosti, which owns the newswire of the same name and Russia Today, an English-language television channel, appeared on a list released last year of companies eligible for a government bail-out.
For others, there are fewer options. RBC, a financial news provider that defaulted on a Rbs1.5bn (£30.7m, $45m) bond in late March, is deciding between declaring bankruptcy and accepting a $35m offer from Mikhail Prokhorov, Russia’s richest man, for a 65 per cent share. As in other sectors, the government has blocked certain sales, on grounds that analysts say are politically motivated.
In February, anti-monopoly regulators blocked Walt Disney’s joint-venture with Russia’s Media-One Holdings to launch a Disney channel – a deal that would have seen the company putting up $223m for a 49 per cent stake.
That came just four months after the regulators blocked Google’s $140m acquisition of Begun, an internet advertising service owned by Russia’s Rambler Media.
“There’s not a lot of logic from a competition perspective,” says Mr Ferguson, of Renaissance Capital. “It’s just because they don’t want US media companies acquiring Russian media companies.”
Yet Mr Ferguson manages to see the bright side.
The US companies, he says, “are looking to buy these assets because they are good quality assets – not because they think they will recover in five years, but that they’ll recover in five months.”
“Just as advertising fell off a cliff, so it will rebound sharply,” he says. “The outlook can change in a short time.”