Post-Soviet Media Law & Policy Newsletter

Issue 37 Benjamin N. Cardozo School of Law June 13, 1997

Big Changes in Store for Russia’s Newspapers
By Yelena Rykovtseva

    Valery Simonov, editor-in-chief of Komsomolskaya Pravda, arrived at work one day and discovered that he had a new boss. This final result (“final” mainly for Simonov’s job at the newspaper) was preceded by a shady series of events. A while back Komsomolskaya Pravda became a closed joint-stock company and set up a managing board, consisting of journalists and administrators. Vladimir Sungorkin was appointed to head the board (which means all of Komsomolskaya Pravda’s financial activities). Fifty-one percent of the newspaper’s shares were divided up between its employees--unevenly, of course, depending on one’s job—and the managing board was authorized to manage the remaining shares. During a shareholders’ meeting last year, a decision was made to allow the council to transfer 20 percent of the shares over to Gazprom; an agreement which they never actually got around to signing. A new decision was brewing in the innermost depths of the managing board (or at least in the corner where Sungorkin was standing): to give the problematic 20 percent to Unexim bank. Only half of the board voted in favor of Unexim, and the deciding vote was up to Sungorkin. The other half of the council members (including editor-in-chief Simonov) were presented with a fait accompli.
    It wasn’t long before Sungorkin and company secured their position by acquiring a controlling interest in the newspaper. The shares were bought (or, to put it elegantly, “taken in trust”) from the employees. Soon Komsomolskaya Pravda plans to hold another shareholders’ meeting to adopt a new set of regulations, dismiss Simonov as editor-in-chief, and appoint Sungorkin in his place. The meeting is a mere formality, since its results are already obvious, considering the amount of shares that Sungorkin holds.
    When Igor Golembiovsky, editor-in-chief of Izvestiya, learned that he had a new boss, he wasn’t surprised at all. Golembiovsky couldn’t help but notice that Lukoil was actively buying the paper’s shares. Moreover, by acquiring the block of shares from the banks, Lukoil signed an investment program with Izvestiya and promised to do a lot of good for the country’s most respectable newspaper.
    Unlike Komsomolskaya Pravda, Izvestiya is an open joint-stock company, meaning that nobody needs permission from its shareholders or board to buy stocks—just as long as one has the money. And Lukoil has the money. Shares worth $ 1 each were bought by Lukoil for $ 7, and in the end the oil concern managed to buy out 41 percent of the newspaper’s stock. But this is another story—the technology of buying, that is, buying back Izvestiya’s shares from its original owners. And the result will also be a shareholders’ meeting with the same predictable outcome. Lukoil will try to use its shares to take over the paper, and will demand that the managing board include four of the concern’s representatives, and only three from Izvestiya. And this arrangement might have worked if Izvestiya hadn’t stepped on Lukoil’s holy of holies—Prime Minister Victor Chernomyrdin. Izvestiya committed a major faux pas when it printed an article that originally appeared in Le Monde (France’s leading newspaper) about the Russian premier’s colossal fortune, and its owner, Lukoil, simply panicked. The company’s president Vagit Alekperov called one of Russia’s top newspapers “yellow,” and thus discredited the company in which he had invested dozens of millions of dollars. He also promised to suspend the investment program, which surprised Izvestiya even more, since the program had never even started. He then threatened to sell off his shares in the paper, but his words did not have the desired impact; after all, what makes oil magnate and co-owner Alekperov any better than some other businessman? Judging by the way things at Lukoil are going, he’s about as capable of running a newspaper as Izvestiya’s people are of operating an oil well. Perhaps it just hasn’t occurred to Alekperov that after Lukoil’s people start censoring the paper (they have many untouchables in the Kremlin, the Russian White House, the Caspian Sea and the Transcaucasus), nobody will even want to read it anymore.
    After observing the horrors that befell his colleagues, Alexander Potapov, editor-in-chief of Trud, decided to protect himself. Trud basically put off defining its status on the market to the very last minute. For a long time the newspaper’s staff was thought to have been its founder. But it turned out that this concept was not even part of the new labor law! And now it must be determined who exactly owns the publication? Who is the legal owner of the building in downtown Moscow that Trud occupied? They decided not to set up a joint-stock company so as not to “rip the newspaper apart.” The publication was given the amusing name of ANO—autonomous non-commercial organization. In April a meeting of the paper’s journalists was held, during which the ANO’s regulations were outlined and Potapov was appointed its editor-in-chief. Soon the paper’s entire staff will be convened at a meeting, where it will vote on appointing the members of the ANO’s managing board, which is expected to be on e-third newspaper people, and two-thirds “outsiders.”
    Trud got angry at the NTV television channel for reporting that Gazprom had purchased the newspaper. “We’re just starting to look for investors!” says the newspaper’s management, cunningly. However, during off-the-record conversation with Trud’s management, you can hear the following phrases: “The newspaper is giving 52 percent of its property to a publishing house that it is setting up, and the remaining 48 percent is going to Gazprom.” One third of the observational council will also be people from Gazprom.
    Theoretically speaking, the true state of affairs at Trud will soon become clear: All we need is just one look at the list of candidates for the ANO Trud managing board, which will be submitted to the newspaper’s staff conference for approval.
    Only a month ago, Rabochaya Tribuna, headed by Timofei Kuznetsov, became a closed joint-stock company. This newspaper, which calls itself “national industrial,” has been maintaining close ties with major Russian concerns since 1990. At its first meeting, the new joint stock company elected its owner, in a manner of speaking. The block of the company’s stocks (which, according to deputy editor Rafael Guseinov, is “substantial,” but which other sources say amounts to 51 percent) was handed over to Gazprom, with the shareholders’ blessing.
Little Guys
    If a journalist is fighting, with all his might, against some local housing and utilities department in an effort to defend the rights of his readers, this doesn’t mean that the roof in his own building isn’t caving in on him, or his own tap isn’t leaking. If some publications have reputable and competent business inserts, this does not necessarily mean that their employees know anything about business. Not every Komsomolskaya Pravda employee who parted with his shares realized that from that moment onward he was no longer an active participant in the company’s management procedures. Really, does anybody really bother to think about the consequences of such a move, when people like Sungorkin are prepared to pay up to $ 1,000 for a share that was originally bought for 25,000 rubles?! Just imagine the temptation for, say, a member of the editorial board who holds 1 percent (or 80 shares) of the newspaper’s stock. And those uncompromising board members who refused to sell their shares for any price were given an ultimatum: either the shares or your job. If he agrees to sell, the employee is promised to be kept on as a board member, albeit in a lower position (the first deputy editor-in-chief and section editors will be demoted to political columnists). However, under no circumstances does the new head of “Komsomolskaya Pravda” plan to keep Pavel Voshchanov or Valery Simonov.
    Izvestiya’s employees were also urged to sell off their shares in the paper. And over there you can bet that no one will tell you how many shareholders (apart from corporations like Lukoil) will take part in the upcoming fateful meeting. According to some vague sources, the newspaper’s shares are currently in the hands of 500 private individuals, although it’s hard to say exactly who these individuals are. “This is a common problem with scattered shares!” sigh the newspaper employees.
    Not every Trud employee is aware of the privileges that come with being a member of the ANO “collective.” Some (i.e. the management) were shocked by what happened to Komsomolskaya Pravda, while others (i.e. ordinary employees) realized that a share—a piece of newspaper property—is not an abstract concept, but that it can sometimes mean real money. Those who were still wavering were assured that the ANO means more lucrative earnings.
The Bigger Big Guys
    In terms of civilized market practice, there’s nothing wrong with the fact that financial magnates are buying out the media. After all, they’re just exercising their right to do what they like with their own money. In one case (Komsomolskaya Pravda) you have the bank buying shares secretly, but through a legal deal with the company management. In another case (Izvestiya), the concern conducts a hostile takeover, which may not be the best option for the newspaper, but is an absolutely legal method of purchasing its shares. In the third case (Trud), the concern is only preparing to become the owner of its publication by acquiring a controlling interest of its shares, like it did with Rabochaya Tribuna. This process even has some advantages, since the periodical’s true owners are now open to public eye. This makes it possible to institute anti-monopoly laws for the press, like in other countries, where one company can have, say, only one newspaper, one television studio and a radio station.
    On the other hand, it’s obvious that the current purchasing of the printed media isn’t about making things easier for the lawmakers; it has more to do with a large-scale plan devised by people who realized how instrumental the media was during the last presidential elections, when it raised a certain candidate’s rating from six percent to a winning result. After Komsomolskaya Pravda offended Anatoly Chubais, he took it in hand with help from Unexim/bank. “We crossed the line with Chernomyrdin, and we were immediately swept away by Lukoil,” said a member of Izvestiya’s editorial board. And I received direct proof of this only yesterday, when I asked a high-ranking official from the Russian White House if Lukoil, being a semi-state company, had coordinated its plans about Izvestiya with the government. The answer was “Yes.”
    Incidentally, Lukoil, which some say dished out approximately $ 35 million for 41 percent of the newspaper’s stock (7.5 million shares), has no immediate plans to resell its shareholdings to a buyer, who has already appeared on the scene. And it doesn’t look like anyone will let Gazprom’s dreams about taking over Trud become a reality either. Moreover, some say that the concern could even lose the Rabochaya Tribuna shares it was promised, especially since the deal has not yet been made official: Gazprom isn’t on the Kremlin’s list of potential owners.
    Nikolai Dolgopolov, the first deputy editor-in-chief of Komsomolskaya Pravda, made the following appeal, from the bottom of his heart: “Colleagues! Beware! We have been taken over in only 48 hours. Other publications are next in line.” Too late. The newspapers are already conducting shareholders’ meetings. Recall the exultant voice of the radio announcer: “Work collectives are assembling all over the country.”

Moscow News, April 17, 1997

Russian Public TV's dispute with Mir
    ORT has concluded its arragngement with the Mir Company, ending an interesting.chapter.of Post-Soviet braodcasting history. Here is an account of that history:
    The heads of the Commonwealth of Independent States [CIS] governments will held a routine conference in Moscow on Friday January 17th. Among the items on the agenda was the question of the Mir Interstate TV and Radio Company, which ceased broadcasting on Russian Public Television [ORT] channel one on January1, 1997.
History of Mir
    The Mir Interstate TV and Radio Company was formed on October 9, 1992. It was founded by Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, the Russian Federation, Tajikistan and Uzbekistan. Subsequently they were joined by Georgia and Azerbaijan. The regular broadcasting of Mir’s programmes on Channel One paid for by the founder states began in August, 1993.
    In August, 1995 Mir and the ORT Closed Joint-Stock Company concluded an agreement whereby ORT undertook to carry Mir programmes on channel one (three hours and 20 minutes broadcasting time per week). The agreement was set to run until January 1, 1997. Unless one of the sides gave the partners written notice of its intention to cancel the agreement at least two months before its expiration date, it would be deemed to be extended for a further two years.
    On December 7, 1996 a general meeting of the ORT company’s shareholders decided that it would be inadvisable to extend the agreement. ORT General Director Sergey Blagovolin asked Viktor Chernomyrdin to support the general shareholders meeting’s decision. In a memorandum addressed to the prime minister, Blagovolin explained the reasons for this decision: “The main aim of the introduction of the Mir Interstate TV and Radio Company’s programmes into the channel one broadcasting structure was to ensure fuller, comprehensive and objective television coverage of the processes of the integrated development of the CIS member countries, the development of economic ties, cultural interchange and the strengthening of friendship and good-neighbourliness among the peoples of the CIS member states.’ Unfortunately, the lofty aims of the Mir TV company’s work were no more than a declaration. According to the statistics from all the well-known sociological services, the Mir company’s TV program ratings ranged from 0.5 per cent to 2 per cent... It is particularly disagreeable that the Mir TV company’s archaic, dull and utterly commercialized programmes give the viewers a negative impression of ORT’s daily broadcasting and not only deprive ORT of 40 minutes of airtime [a day] but also alienate the audience, wreck the programming logic and damage the popularity and reputation of the country’s first channel.”
Mir’s relations with ORT
    The ORT general director is trying to convince the prime minister of the need to change the principles and character of the cooperation between ORT and Mir and switch from “enforced cohabitation” to a normal, creative partnership, in other words, if Mir begins producing interesting, high-quality programmes, ORT will buy them as it buys the output of other companies that cooperate with it.
    In a letter to Mr Lazutkin, leader of the Federal Service for TV and Radio Broadcasting [FSTR], Mr Blagovolin cites another reason which compelled ORT to abandon the cooperation with Mir—Mir, he said, is extremely unpunctual and is many months late in compensating ORT for the costs incurred in distributing its program via the Communications Ministry.
    Mr Shalakhmetov, chairman of the Mir Interstate TV and Radio Company, views ORT’s actions not just as a violation of civil law (the company received no prior notice of the cancellation of the agreement), but also as disregard of the international legal norms on whose basis Mir operates. The agreement “ On the International Legal Guarantees of the Unhindered and Independent Operation of the Mir Interstate TV and Radio Company” was signed by the heads of the founder states (including the Russian president) and ratified by the State Duma and the Federation Council. The agreement states: “The participating states on their territory shall provide the company with... such privileges and immunities as are necessary for ensuring the company’s activity in accordance with its statutory duties.” Consequently, the granting not just of the right but of the priority right to broadcasting, according to Mr Shalakhmetov,” is a direct, legally enshrined obligation of the state and of all state representatives in the management organs of any joint-stock companies. ORT’s actions violate the imperative norms contained in a document signed by the Russian Federation president and thereby repudiate his signature on this international agreement. ORT is thereby demonstrating its contempt for the executive and the legislature and casting doubt on Russia’s ability to participate in the implementation of international treaties concluded by it.”
    In a letter to Viktor Chernomyrdin, Mr Korotchenya, executive secretary of the CIS, also asserts that ORT’s unilateral move “runs counter to the interstate document signed by Russia and the policy pursued by its leadership. In practice, the implementation of this decision will prompt an adverse reaction in the states that founded the Mir Interstate TV and Radio Company and will cause significant harm to the processes of integration in the CIS.”
    As for ratings, while assessing the quality of Mir’s broadcasting extremely self-critically, Mr Shalakhmetov nevertheless does not consider its ratings disastrous. According to the electronic data collected by the New Institute of Sociopsychological Research, in the past year the Mir company’s audience share in Moscow did not fall below 2.2 per cent, which is quite good for slack daytime viewing. In mid-December Mir’s ratings rose to 8 per cent. An even more important sociological indicator is a program’s share of the total number of viewers who switched on at a given time. For example, one-third of Muscovites who watch television at noon prefer Mir’s programmes.
    ORT’s final argument is Mir’s chronic debts to the Communications Ministry. According to Mr Shalakhmetov, Mir transferred money to ORT’ s account quite regularly, but unfortunately this money did not reach the communications workers. In future, if the dispute with ORT is resolved, the company intends to settle up with the communications enterprises directly, thus bypassing an intermediary who uses other people’s money as he sees fit.
    Let us sum up. The Mir Interstate TV and Radio Company is not a conventional television producer whose programmes the broadcaster is free to accept or reject, but an independent international broadcasting organization. Mir’s “enforced cohabitation” with channel one is enshrined in law and international legal acts. Their violation is fraught with serious political consequences. In making the decision to dissolve the “marriage,” ORT’s shareholders do not even seem to have suspected this. As a result, the state finds itself in an absurd situation—among other things, it is the formal holder of the controlling stake in ORT’s incorporation capital. The whole point is that this is “formal.” The commercial benefit that the private shareholders were seeking increased the political benefit for which both the CIS and Mir were formed in the past. After all, political dividends are dividends too. The only difference is that they cannot be measured in greenbacks.

‘Izvestiya,’ Moscow, January 17, 1997

Changes in Store for TV
By Yuri Bogomolov

    As one could easily guess, neither of the two events has political grounds—at least not obviously. The fact that both events occurred simultaneously is a coincidence, though it may be a symptomatic one.
Trends
    Before, many television stars went into politics. During early perestroika, they were to representative organs with ease. Then they went into business—”creative business”, as Konstantin Ernst put it in a recent interview (examples: Listyev, Lyubimov, Sagalayev, Legat, and Dibrov). Now they are becoming government functionaries (Ernst, Svanidze, Legat, Parfenov and, finally, Lyubimov).
    We believe that the mobility of these people and the volatility of their professional interests can be explained by the instability of the overall situation—the boundaries between creative activity, commerce, and politics are still too vague. The level of professionalism in each of these areas is too hard to be defined.
    The boundaries between government service and big business are also very vague today. The transparency of those boundaries is a perfect basis for unexpected and unpredictable mutations.
Personal Ambition
    This factor does not seem absolutely secondary in the personnel reshuffle in ORT. The confrontation between Sergei Blagovolin and Kseniya Ponomareva was thrown out of the press some time ago. The tense relations between Konstantin Ernst and Kseniya Ponomareva, as well as the differences between Ernst and Sergei Lisovsky (who not only heads ORT advertising but is trying to take over control of music broadcasting), have long been kept as the company’s internal affairs; conflicts were skillfully extinguished and Ostankino’s dirty linen was never washed in public.
    The situation was still more complex because the company’s administrative structure was never like a strict hierarchy. Not one among ORT’s top people knew who was who’s boss. Therefore, everyone thought (not without reason) that if they were not at the top of the chain of command, they were just next to it.
    Boris Berezovsky was and still is at the top. He presses all the buttons. The fact that Ponomareva, according to our information, is not leaving her position just to go anywhere, but to the Security Council to head a group of analysts, may be indirect evidence of Berezovsky’s influence.
    Berezovsky may have thought that this move would eliminate the main source of tension in his TV company. How will the resignation of TV-amateur Ponomareva and the arrival of TV-professional Lyubimov affect television? Only “Vremya” will tell.
    A stereotype already exists that NTV shows well-produced news programs while ORT broadcasts creative entertainment. There was more than one attempt to create an ideal; oh, if we only could add NTV’s analytical news programs to ORT’s entertainment programs. . . .
    ORT has been trying to overcome its inferiority complex about news programs for some time. They have tried just about everything. Kseniya Ponomareva, a professional in news programs, was invited to work. The company paid dearly to create the expensive “19.55” program. First Alexander Nevzorov, then Sergei Dorenko were invited to be analytical television hosts. Then there was the renovation of the “Vremya” program, with permanent hosts Arina Sharapova and Igor Gmyza.
    For its part, NTV declared information its top priority at the very beginning. All other programs on the channel served as a background for the news and analytical programs. Sometimes, the background came out ahead, as was the case with “Kukly” and “Namedny.” For a time, this coexistence of creative and documentary programs was acceptable—when NTV was on air only in evening hours on Channel 4. When NTV started broadcasting during the day, a certain inconsistency in the channel’s strategy became evident. In particular, the “swing” effect became too obvious: from highly-respected programs “Itogi” and “Segodnya,” to wild entertainment programs like “Imperiya Strasti.” Even now, the channel may look like a gentleman donning a tuxedo and bow tie with tennis shoes on bare feet.
    It is clear that under intense competition from ORT, NTV bosses will have to solve the problem of forming a more harmonious image.
    Possibly, Leonid Parfenov has been called upon to repeat the feat of Konstantin Ernst on Channel 1—to build a consistent broadcasting plan and fill it with the relevant content.
    Up until now, Ernst and Parfenov, the two friends now working for different companies, have cooperated closely and productively. They pulled off the “Pesni o Glavnom” program together. Now they find themselves in a situation of creative competition without any compromises.
    At the same time, Alexander Lyubimov still has to achieve the heights in the news field that Oleg Dobrodeyev, the architect of NTV’s news broadcasting, once conquered.
    The permanent host of “Vzglyad” never had anything to do with news programs. However, the level of mutual understanding in the ORT administration will surely rise significantly. Ernst and Lyubimov are from the same team—a team of television professionals.
The Other Perspective
    The situation still should be assessed from another perspective. It should be looked at through the eyes of large television companies fighting for a place in the sun (on the air, that is).
    One of the reasons why ORT emerged was that growing private television companies were having problems broadcasting to the public. The three most significant television companies that helped launch ORT were ViD, ATV, and REN-TV. Later, they cooperated with ORT. In 1996, all three companies went in different directions. ATV took a big risk and proposed its material to two different channels—Channel 2 and NTV. REN-TV made plans to create its own channel, and ViD remained loyal to ORT.
    Each of these three options had its pluses and minuses. ViD has the least opportunity of expanding production, since it is mostly oriented toward ORT, where the competition is especially intense.
    Now, with Lyubimov taking the helm at ORT’s administration, ViD will get a strong, stubborn lobbyist, and a real chance to get air time on ORT for its new projects.
The Domino Effect
    Reshuffling on the highest levels of the television pyramid can only result in migrations on the lower floors. New bosses entice some to go with them, while some are forced out of their long-occupied positions. Aside from that, there is another factor that causes commotion in creative and administrative minds: Another powerful federal channel, TV-Tsentr, is being created by Anatoly Lysenko.
    At the same time, REN-TV has not lost hope of expanding, and it is rumored that the company has recently found a wealthy investor. Because of this, many television professionals are being enticed to switch companies. We now know that journalist Yelena Sarkisyan is leaving ViD for TV-Tsentr. Politkovsky is going there as well.
    Overall, the situation is similar to the one soccer players face in the middle of the season, when there is an energetic and intensive reformation of teams on the eve of a new round of intense competition.
    Television channels are looking to catch two rabbits—commercial profit and political influence.

Moscow News, May 15, 1997