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Madison Avenue It Ain't (Int'l Edition)


Business Week International International Business: RUSSIA

MADISON AVENUE IT AIN'T (int'l edition)

Not long ago, what few commercials appeared on Russian TV were

typically rude and crude. Today, slick ads push everything from Snickers bars to investment funds, and advertisers are paying up to $50,000 for a prime-time spot. Serving a ready market of more than 200 million consumption-crazed viewers, TV advertising has become one of the fastest-growing parts of the Russian economy.

Maybe too fast-growing. The fledgling, $1 billion-a-year industry has been beset by turmoil ranging from brutal discounting to widespread charges of corruption. The crisis came to a head in early March, with the mob-style murder of Vladislav Listyev, an enormously popular TV journalist who had been trying to clean up Ostankino, the nation's most influential network. The resulting tumult could upend the industry, perhaps giving Western companies a chance in a market where a handful of local outfits have managed to dominate media buying.

GOOD CONTACTS. The core of the advertising controversy is at Ostankino, the biggest station in the former Soviet Union. The state-owned channel, representing about 40% of the Russian TV advertising market, is in the midst of a controversial sell-off. While the government will keep 51%, the remaining 49% is being sold to a number of highly influential Russian companies with close ties to the government of President Boris Yeltsin, including Menatep bank, gas monopoly Gazprom, and LogoVAZ, a major car dealer and ad company. The aim is to revamp Ostankino, update its programming, and give it a new name--Russian Public Television.

In the months before his murder, Listyev was in charge of the changeover. He gave priority to cleaning up ad sales, which were handled in cash by the 15 or so individual programming studios at Ostankino. With no financial controls, "all of this money was staying in the pockets of black market dealers and middlemen," says Viatcheslav Bulavin, general manager of international operations for Premier SV, a Moscow media buyer and ad company with close ties to Ostankino. Alexander Yakovlev, who resigned in disgust as Ostankino chairman in mid-March, has made similar charges.

To solve the problem, Listyev banned individual sales by studios and centralized sales in Reklama Holding, a new company made up of six Russian ad agencies and media buyers. That made it much harder for middlemen further down the line to pocket money. The channel's revenues multiplied by seven, to nearly $8 million a month.

What seemed to be a stabilizing situation proved short-lived, however. By the first of this year, a seasonal slowdown in ad sales had led to under-the-table discounting by dozens of frantic advertising companies looking to win business at any price. Some were cutting prices by as much as 80%. To calm things down, Listyev in February announced a temporary ban on advertising until he could devise a new schedule for Ostankino programs. Then, on Mar. 1, he was gunned down as he walked into his Moscow apartment building.

The murder has caused even more chaos. It's unlikely that the network will meet its Apr. 1 deadline to remake its programming. The ad ban is still in force, cutting revenues, while station officials try to decide whether Reklama should continue to run ad buying. "The situation is very complicated economically and politically," says Sergei F. Kuvaldin, general director of Reklama.

In the confusion, Westerners could snap up a bigger chunk of media buying. About a dozen Western companies, including D'Arcy Masius Benton & Bowles Inc. and BBDO Worldwide Inc., have made inroads in ad creation. They could take over media buying, too, if Russian companies cancel each other out in the current dogfight. "What you're seeing now is the Westerners buying out most of the prime time," says Joseph Onderka, general manager of J. Walter Thompson Co.'s Moscow office.

A LONG MESS. Not all Western companies are in a rush to advertise on Ostankino. Young & Rubicam Sovero, which represents Colgate-Palmolive and Philip Morris, relies on other channels, such as state-owned RTR and the independent NTV. Spots on prime-time news shows on those channels cost only $30,000 a minute.

The current mess in the TV market is likely to continue, at least until the Ostankino situation is sorted out. But the long-term outlook is bright. New regional stations are sprouting up throughout Russia, and goods, especially Western ones, find buyers even though most of the population is strapped for cash. At the moment, though, the Russian advertising business has all the makings of a bad soap opera.

THE TV AD BIZ, RUSSIAN STYLE

GREW to a $1 billion market in just five years

WRACKED by controversy and corruption charges

DOMINATED by a handful of Russian media buyers

COSTS $50,000 for a minute on the more popular programs

CREATES most of its prime-time spots in the West

DATA: BUSINESS WEEKBy Peter Galuszka in Moscow


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