Post-Soviet Media Law & Policy Newsletter

Issue 32     Benjamin N. Cardozo School of Law     September 5, 1996 

Corporate Transformation of The Russian Media

    Since 1991, when the Russian Mass Media Law introduced private ownership and freedom of entrepreneurship in the media, the print and audiovisual industries have undergone many changes.  Therefore, it within the Russian media as “the primitive development of a market economy”1 and the very media as not capable “[of being] profitable” and for this reason totally dependent on outside financing.2

    The Russian media economy has reached a kind of stability it previously lacked.  There are still many media companies which struggle to survive, namely regional, local and specialized publications, some regional broadcasting companies, etc.  However, there is also a trend of emerging powerful media enterprises, able to secure their activities.  The latter represents a new, private sector of the Russian media system and demonstrate the potentials market forces.

    This paper has three major goals: 1.  The Shift to the Market

    Publishing newspapers, magazines and books yielded enormous profits for the Communist Party and the Soviet state in the USSR, but the media was never listed among major the Soviet profit-making industries.  On the contrary, the press, TV and radio were used by the party and state as the means by which to educate the public on the basics of Marxist-Leninist ideology.  Some scholars argue that, in the Soviet model, the media were fulfilling the function of the public relation agent, not the mediator among different groups and forces within society.3 The missing element in this scheme is the economic one with its various implementations at the media market (profit-seeking, advertising, different market strategies, etc.)

    No studies of the media economies of scale were actually conducted during the Soviet period.

    On the other hand, a classical Marxist approach describing the media of the market society as a servant of its proprietor was widely accepted among Soviet scholars.  This approach might be useful to understand the ownership-control relations within the Soviet media system.  The Soviet media was owned by the Communist Party (newspapers, periodicals), the Soviet state (newspaper, periodicals, broadcast companies, news agencies), some public organizations (print media) and numerous specialized professional organizations (specialized publications).  It goes without saying that the Party’s control over media content and operations was an inherent element in non-Party ownership modes as well.  For instance, despite the fact that the state operated all broadcast companies and provided the stable financing of news agencies, it was the Communist Party that determined the programming policy and planned investments.

    Taken in a broader historical context, the notions of freedom of the press and free market went together.  In the Russian case, however, the promotion of the media freedom was never associated with the development of new market conditions in the media economy.  Therefore, in post-Soviet Russia, the emergence of a shift to the profit-oriented and market-driven media.

   On the contrary, for some journalists, the increasing media dependence on advertising, sponsors and market ideology meant the loss of their democratic dreams.  For others, however, it was the beginning of their “gilded age.” They stood as a new generation of the Russian journalists that managed to combine professional skills with entrepreneurship and managerial abilities.  The first media proprietors had their background in practical journalism.

    Recent statistics show the dominance of journalists among the owners (or, more precisely, among shareholders) of the Russian press.  The number of ‘pure’ private owners remains relatively small, about 8.6%.  Of them, the number of businessmen and bankers is particularly limited; only 2.3% of all Russian newspapers proprietors belong to the Russian financial and economic elite.  However, this number is not small in terms of newspapers’ titles, their circulation and political influence.

    Still, the most widely presented form of ownership in the Russian newspaper market is a journalistic corporation.  During the privatization of Russian newspapers (after the 1991 coup) many newspapers were transferred into the hands of their journalists.
 On the other hand, these statistics also reflect the existing difference among the ‘owners’ and ‘founders,’ who are described by the Russian Mass Media Law as persons applying for the registration of the mass medium.  Currently, the founders of the Russian local/regional media are mainly represented by journalistic staffs or by local/regional administrations.

    Only 12.5% of local newspapers are established by political parties or public organizations.  On the national level, the degree of party or public organizations among the founders is somewhat higher (20%).  In large industrial cities, such as St.  Petersburg, public organizations have founded more than one third of all newspapers (38.7%).4

2.  A New Diversity

    As a result of the intensive corporate transformations, a broad range of ownership modes have been developed within the Russian media industry.  The Moscow media market is one of the most diversified in Russia and provides various samples of ownership forms.  Among media companies, one could identify:     The positions of state and local authorities in the economy of broadcasting are guaranteed in a very comprehensive way through the licensing system and the ownership of the transmitting system.  The state also safeguards its controlling positions in the broadcast sphere by postponing the complete adoption of the print media and especially newspapers is characterized by greater variety and complexity of ownership combinations.

    The emergence of diversified newspaper companies might be described as the most general trend within the process of the corporate transformation in the newspaper market.  The first type of such companies is represented by media companies which secure their position through multi-sectoral integration.  For many of them, political benefits from publishing newspapers outweigh the economic disadvantages, and the market activity of diversified companies is ensured by re-channeling of revenues from profitable non-media divisions (insurance companies, banks, travel companies, trade activities, etc) into the media, and particularly newspaper divisions.  This model is applied in many companies which have their origins in the newspaper business (‘Moskovsky Komsomolets’ and ‘Moskovskaya Pravda’), but this is also true of many financial and industrial enterprises that have entered the media market.

    The second type of multi-sectorally integrated media companies is illustrated by the “Moskovskiye novosty” newspaper company.  After facing economic problems in the market of weekly publications, it looked for other profitable media sectors and made investments in radio by establishing a profitable FM station.  ‘Kommersant’ Publishing House is an example of the third type of horizontally integrated media companies which produces related products.  ‘Kommersant publishes several financial elite, owns news, advertising and photo agencies, and other new diversified media companies, the backgrounds of the initial investments into ‘Kommersant’ are still unclear.5

3.  A Legislative Framework for Media and the Economy

    Regulation of economic issues in post-Soviet Russia has been primarily concerned with financial support for the print media and the privatization of the broadcast media.  However, both problems resulted from the previous law-making process of the media field.  The Russian Constitution and the Mass Media Law laid the grounds for the ‘hybrid ownership system and policy’6 with the legal co-existence of the state and private ownership in the media.  Freedom of economic activity and the right of private ownership are guaranteed by the Constitution (Part 4, Articles 8, 34, 35), while the Mass Media Law stresses the rights of every Russian citizen to establish the mass media enterprise and defines the rights and duties of various component parts of these enterprises.  The Law gives the media independence from state and Government intervention, and the media economy is not an exceptional case.

    In many post-Socialist countries, the period of new legislation for the media was characterized by idealistic attempts to bring new freedoms to new realities, to remove political, legal and administrative constraints on media operations, and to guarantee free access to the market.7  Many problems which first lacked serious attention, lately have caused heated discussion.  Regarding the media economy the same contradiction exists between the “founder” concept invented for the Mass Media Law and the position of the owner who is currently becoming key figure of market operations and management in all media companies.  The concept of the “founder” provided by the Law is not similar to the general view and practice of “owner” position.  Thus, some crucial points are left unregulated.  For instance, according to the Mass Media Law, a foreigner cannot found a mass medium in Russia.  This idea, of course, coincides with the rules of many Western countries which restrict the presence of foreign capital in national media ownership.  But in practical terms, the Russian Mass Media Law puts no limits on foreign capital regarding ownership of Russian media enterprises.

    On the other hand, the Law states that the “founder” cannot interfere with the editor-in-chief and journalists that together are described by the Law as the editorship.  A status agreement between the founder and editorship is required to cover a number of important points in their relations.  Only in cases foreseen by the Agreement may the founder interface with editorial policy.  However, it is an ideal case when the three parts are separated.  In many Russian newspaper companies, the editor-in-chief, the founder/one of the founders and the major share-holder is the same person, a single entity who envisaged certain guarantees to safeguard his position in the Agreement with the journalists’ collective.  This may explain the attitudes of some editor-in-chief of popular Moscow newspapers who believe themselves to be the only persons able to make decisions within their newspapers who believe themselves to be the only persons able to make decisions within their newspapers regarding market strategy, editorial policy, management of their companies.8

    The state has also secured its economic positions in the media.  It remains the major owner of the supply, production, and distribution sectors of the newspaper industry and maintains control over all newsprint production plants, technologically modern publishing houses and all Russian distribution networks in its hands.  From this point, the attempts of the government and the Parliament, the State Duma, to maintain control over the market operations of the media are very similar.  The Duma continues to stress the need for a special legal system of financial support for non-profitable media enterprises.  At an earlier stage, support was given in through a form of press subsides, followed by discussion of an approach providing grants.  Good initiatives are partly discredited, however, by uncertain principles of selection among publications to support and possibilities of political influence.  Moreover, attitudes of the state and Duma help to explain the lack of competition laws which would help to prevent the state monopoly or, at least, state dominance in key sectors of media economy.  On the other hand, state officials and the Duma made several attempts to produce a state policy of media concentration as an instrument for the survival of the whole industry.  The idea to establish a few powerful and rich media monopolies, with some variations, was declared both by representatives of the State Committee for Publishing and of the Duma Committee on Information Policy.  Not yet clearly formulated, the state policy for the media economy includes some contradictory points.

    Market operations of the Russian media enterprises are regulated not only by media laws, but by general economic regulation as well.  At present, the most important are Value Added Tax Law (1991), Revenue-Tax Law (1992) and Customs-Tax Law (1993).  In autumn, 1995, the State Duma adopted several laws exempting some media enterprises (with educational, cultural and specific output) and some media operations (subscription and retail revenues) from VAT.  New laws also provide media enterprises with some benefits (the tax exemption for capital investments, advantages in the privatization of the production sector, etc.).  Six months later, at the Parliamentary hearings on the implementation of these laws, journalists and media executives stressed that many media companies are not able to use new benefits because of the unwillingness of the executive power.  Without special provisions for executive bodies, laws would fail to fulfill their goals.

    Thus, the ambivalent policy of the Russian state still prevents the normal market operations of the newspaper industry.

4.  The Financial Elite, the Media and Political Power

    For many scholars, the question of ownership and more precisely of the owners’ influence over the medium contents is regarded as the core one.  In Russia, the problem is complicated by the uncertainty of the legal status of media owners, which increases their ability to influence media contents and operations.

    The inefficiency of the modern Russian newspaper economy has strengthened its dependence on proprietors.  The every-day operations of many newspaper companies conflict with the economy of scale.  For instance, production of a million copies does not diminish, but rather increases marginal costs and simultaneously does not produce marginal revenues which is contrary to the very nature of newspaper production.  It is also more profitable to publish one thousand copies of an expensive magazine for untargeted audience than one million copies of a popular daily due to the extremely high cost of postal distribution.  This may also explain why the periodicals in big cities rely primarily on retail and other forms of inner-city distribution instead of home delivery.

    Distortions of the economy of scale explain why advertising and normal marketing do not produce enough revenues for the newspaper in industry, while sponsorship and investments from financial elite do.  The owner seen as the investor has become the key figure in the economic survival of certain media forums.

    Vitaly Tretyakov, the founder and the editor-in-chief of the firth Soviet independent daily ‘Nezavisimaya gazeta,’ which was temporarily closed because of debt in the summer of 1995, declared frankly: “To survive today the Russian newspaper needs to find a sponsor.”9  And it was his choice when in autumn, 1995, his newspaper was added to the growing media empire of Boris Beresovsky, the owner of the LogoVAZ corporation.  Currently, LogoVAZ is one of the largest private shareholders of Public Russian Television ORT (8% shares+8% of ObiedinenniyBank owned by LogoVAZ).  Except ‘Nezavisimaya gazeta’ and ORT, LogoVaz had also invested in ‘Ogonyok’ news magazine improving its printing and totally changing its contents.

    It has become almost a cliche that Russian banks are steadily increasing their investments into the media business.  By building financial-media empires, Russian financial elite enter politics, thus suggesting a Russian model for the concept of media moguls.10 Of Moscow banks, several are seriously involved in the media business.  MOST group, owned by Vladimir Gusinsky, has main activities in banking and real estate, but also controls NTV private channel (Gusinsky has 77% shares while journalists own 23% share) and ‘7 dney’ publishing company which publishes daily ‘Segodnya,’ news magazine ‘Itogy’ (jointly with Newsweek) and TV-weekly ‘7 dnei,’ MOST group also has interests in radio business sponsoring popular Moscow FM station ‘Echo of Moscow.’ MENATEP group, which includes MENATEP bank and a wide range of holdings in Russian industrial companies, bought a minority stake of Independent Media Publishing company.  The latter publishes a number of popular English language publications and Russian editions of Playboy, Cosmopolitan, Good Housekeeping.  ONEXSIMBANK bought the majority shares of ‘Expert’ news magazine on condition that the publication would not be transferred to any other bank.11

    Some Russian scholars argue that while the long-term goal of such concentration might be the creation of the effective and profitable enterprises, short-term goals are determined by the political situation and quests for political power.  The process of media concentration has in Russia obvious political roots12.  The most vivid illustration of the trend may be found in operations of the powerful state-private corporation GAZPROM, whose links with the government are well-known due to its former head and present Prime Minister Victor Chernomyrdin.  Recently, GAZPROM announced its plans to buy a 30% stake in NTV.  In addition, there are rumors that GAZPROM owns significant share in ‘Komsomolskaya Pravda’ and supports ‘Trud’ newspapers, the two dailies with largest circulation in Russia.13
 Developments in the regional and local press also prove the emergence of this political concentration.  It brings numerous advantages to newspapers that stand close to the local administrations (indirect subsidies in forms of better and cheaper access to news agencies’ information, support of print, etc).  The convergence of old political and new financial elite, which became the well-known phenomena in many regions outside Moscow, might help to predict the further direction of concentration in local newspaper markets.

Elena Vartanova
Associate Professor
Faculty of Journalism
Moscow State University

Notes:

1.  Obshaya gazeta.  1996.  April, 18-24, p.10
2.  Grachev A., From Glasnost to Transparency.  Current Trends and Perspectives of the Media Situation in the CIS.  Media Concentration: Trancparency, Access and Pluralism.  Report of the Danish Media Committee’s International Hearing.  Copenhagen.1995.  Appendix I, p.75.
3.  Murray, John.  The Russian Press From Brezhnev to Yeltsin.  Behind the Paper Curtain.  Edward Elgar.  1994, p.64.
4.  Transition.  1995, vol.  1, N 18, p.88.
5.  Zurnalist.  1991.  N 5, p.41.
6.  Krug, P., Price, M.  Russia.  In: Media Ownership and Controlling the Age of Convergence.  IIC.  1996, p.172.
7.  Jakubowicz, K.  Access to the Market for New MediaIniciatives in Central and Eastern Europe: The Case of Broadcasting.  In: Media Concentration: Trancparency, Access and Pluralism.  Report of the Danish Media Committee’s International Hearing.  Copenhagen.1995.  Appendix I, p.  75.  P.  81; Krug, P., Price, M.  Russia.  In: Media Ownership and Control in the Age of Convergence.  IIC.  1996, p.175; Baturin Yu., Fedotov M., EntinV.  Chernovik serieznogo teksta (A Draft of a Serious Text) Moscow.  Faculty of Journalism.  1995, p.3.
8.  Unpublished proceedings of the Round Table “The Development of New Ownership Forms in the Russian mass Media.” The Faculty of Journalism, Moscow State University, 11.011996.
9.  The Moscow Times, 1995, September, 9.
10.  Compare with definitions of Jeremy Tunstall and Michael Palmer in: Tunstall, J., Palmer, M.  Media Moguls.  London-New York.  1991, pp.105-107.
11.  Kapital.  1996.  May, 15-21, The Moscow Times, 1996, July, 30.
12.  Zassoursky I.  The Development of the Russian Media within the Global Information Processes.  MA Degree Thesis.  Moscow State University.  1996, pp.  67-74.
13.  Sreda.  1995.  N 3, pp.17-19.