Old Saint Basil's Cathedral in MoscowJohnson's Russia List title and scenes of Saint Petersburg
Excerpts from the JRL E-Mail Community :: Founded and Edited by David Johnson

Vol. 1, No. 31, 10 November 2001
By Laura Belin

Earlier this year, the partly state-owned gas monopoly Gazprom claimed to be acting purely out of economic interests when it gained a controlling stake in NTV and several other assets belonging to Vladimir Gusinsky's Media-MOST holding company. Few Russian journalists or media analysts took that claim seriously: Gazprom's shifting stance toward Media-MOST appeared to be politically motivated, and its insistence on changing NTV's management drove away many of the network's best staffers, undermining future prospects for profitability. But the gas monopoly had guaranteed hundreds of millions of dollars in loans to Media-MOST over the years, and Media- MOST could not repay those debts. Gazprom therefore could plausibly claim some economic justification for its actions toward Gusinsky's media empire.

The same cannot be said for partly state-owned LUKoil's approach to the private network TV-6, in which the pension fund LUKoil-Garant owns a 15 percent stake. In apparent disregard of its own economic interests, LUKoil-Garant has pursued the dissolution of TV-6, Russia's fourth-largest television network in terms of broadcast reach. The Moscow Arbitration Court on 26 November upheld its earlier decision ordering that TV-6 be liquidated within six months. The court's justification was the rarely-invoked article 35 of the Russian law on joint-stock companies, which states that a company can be liquidated if, two years running, its debts exceed its assets.

Attorneys for TV-6 argued that the network turned its financial situation around in 2001, thanks to a ratings and advertising boost after the arrival of journalists from NTV in the spring. However, the Moscow Arbitration Court discounted those arguments, since the law allowed it to consider only year-end balance sheets, not the quarterly or semi-annual documents showing that TV-6's assets now exceed its liabilities. The court appeared to be drawing on political considerations in its decision to liquidate a company that was gaining market share and increasing revenues. "Moskovskie novosti" pointed out on 27 November that judges could have postponed hearings on TV-6's appeal until January, enabling it to consider the network's 2001 balance sheet. (Lengthy court delays are common in Russia.)

Meanwhile, LUKoil's strategy toward TV-6 defied all business logic. A joint statement issued by the Union of Journalists and the Glasnost Defense Foundation on 28 November noted that "for several years, the channel's loss-making didn't bother anyone, but as soon as the new team of professionals arrived, as soon as the channel's ratings began to rise, and its profitability along with them, a shareholder goes to court for the express purpose of depriving himself of any opportunity of recovering the money he has invested."

If anything, that assessment understates the absurdity of LUKoil's approach. After TV-6 hired many former NTV employees, LUKoil-Garant tried unsuccessfully to nullify the shareholders' meeting at which those hires were approved, suggesting that the oil company was above all interested in gaining control over the network's management decisions.

Normally, a minority shareholder who is dissatisfied with a company's management will try to sell his or her shares in that company. But LUKoil never seriously pursued the option of selling its shares in TV-6. Boris Berezovsky, who has controlled 75 percent of the network's shares since the summer of 1999, publicly offered to pay $10 million for LUKoil-Garant's 15 percent stake (see his open letter published in "Kommersant," 17 October 2001). LUKoil did not take Berezovsky up on that deal, even though neither LUKoil nor its pension fund stands to gain financially from the liquidation of TV-6. Whereas Media-MOST's largest creditor was Gazprom, TV-6's main creditor (from which it received a loan of $8 million) is Obedinennyi Bank, controlled by Berezovsky.

On 23 October, LUKoil President Vagit Alekperov announced that his company was interested in buying Berezovsky's 75 percent stake in TV-6. If LUKoil-Garant's efforts to liquidate TV-6 were based on the network's poor economic fundamentals, why would LUKoil executives entertain the prospect of buying a controlling stake? Alekperov's statement made sense only as a message to Berezovsky: he could either sell TV-6 or watch his network be forced out of business.

In November, Alekperov changed course again, suggesting that he would like to trade LUKoil-Garant's stake in TV-6 for some of Berezovsky's assets in the Russian oil sector (see Alekperov's interview in "Nezavisimaya gazeta," 15 November 2001). If LUKoil was interested in exchanging its TV-6 shares for oil company assets of any value, forcing TV-6 into bankruptcy could only torpedo that goal.

Berezovsky and TV-6 General Director Yevgenii Kiselev have accused the Kremlin of using LUKoil to achieve political aims. LUKoil's business prospects, as well as the careers of its senior executives, depend on favorable decisions by government and Kremlin bureaucrats.

According to Anna Kachkaeva, a media expert for RFE/RL's Russian Service and professor at Moscow State University, LUKoil bosses may also harbor personal enmity toward Berezovsky. He acquired a controlling stake in TV-6 against the wishes of LUKoil, and one of his first management decisions was to end the network's contract with the Television News Service (TSN). Owned by LUKoil-Garant, TSN had supplied news programs to TV-6, but Berezovsky wanted the network to form its own news department. While Berezovsky was in favor at the Kremlin, LUKoil did not publicly challenge his decisions at TV-6, even though the oil company had invested millions of dollars in building TSN, which was reportedly owed some $3 million by TV-6. (In October 2001, TSN sued TV-6 for $5 million.)

What fate awaits TV-6? Kachkaeva argues that many groups have an interest in eliminating TV-6 as a competitor for television ratings and advertising dollars. Some Russian commentators have speculated that Media Minister Mikhail Lesin could withdraw TV-6's license to broadcast at any time. Technically, the ministry is obliged to delay that step until TV-6 has exhausted the appeals process, and Lesin has promised to make decisions regarding the network "exclusively on a legal basis," "Gazeta" reported on 28 November. But Lesin is not known as a stickler for the letter of the law. He drew fire in late 1999 for not applying rules on election commentary even-handedly toward Russian television networks. In July 2000, Lesin signed a secret document promising that criminal charges against Media-MOST bosses would be dropped if they sold a controlling stake in the company to Gazprom. As founder of the Video- International advertising agency, Lesin could also benefit financially from TV-6's disappearance, which would likely prompt advertisers to buy more air time on nationwide networks that have exclusive contracts with Video-International.

On the other hand, Kachkaeva is among those who think that Berezovsky and Kremlin officials may reach a compromise allowing TV-6 to survive in exchange for assurances that it will not pursue an oppositionist editorial policy. The Kremlin could then authorize a higher court to uphold TV-6's appeal, especially if the most recent balance sheets show the network's financial condition to be healthy.

A precedent for such a compromise exists. In May and June 2000, the Media Ministry postponed an auction for the broadcast frequency used by TV-Tsentr, controlled by the Moscow city authorities. Following back-room negotiations between Lesin and Moscow Mayor Yurii Luzhkov, TV-Tsentr's license to broadcast was extended. The network's news and analysis programs have since avoided the kind of hostile coverage that irritated the Kremlin during the summer and autumn of 1999.

Although TV-6 executives and attorneys denounced the Moscow Arbitration Court's ruling, the network has eschewed the path of confrontation taken by NTV in the late stages of its battle with Gazprom. Unlike NTV staffers, TV-6 journalists have not encouraged street demonstrations or staged on-air protests against attempts to "smother free speech." That may be in part because a poll by the All- Russian Center for the Study of Public Opinion (VTsIOM) in early November showed that more than half of the 1,600 respondents nationwide said they would not consider it a loss if TV-6 disappeared, "Izvestiya" (part-owned by LUKoil) reported on 26 November. TV-6's editorial policy has been more cautious and less oppositionist than was NTV's, according to Kachkaeva. Some Kremlin critics who enjoyed ample air time on NTV, such as Yabloko leader Grigorii Yavlinskii, rarely appear on TV-6.

Berezovsky has not publicly spoken of possible compromise with the Kremlin, but a deal might suit his interests. He is a wanted man in the Russian Federation, and TV-6 is by far his most influential media holding. However, the Kremlin's interest in a compromise is less clear. In this era of friendly relations between Russia and the West, shutting down TV-6 is unlikely to provoke an international scandal. Letting the network continue to operate with the current management, in contrast, would carry political risks. If economic troubles dent President Vladimir Putin's popularity, and a profitable TV-6 sharpens its criticism of the authorities, another economic pretext for shutting down the network may not present itself.

Whether TV-6 goes out with a bang, having its broadcast license withdrawn and liquidation forced upon it, or with a whimper, hanging on by virtue of a back-room political deal, its fate will inevitably shrink pluralism in the Russian television market.

Laura Belin, a doctoral student at Oxford, has written about Russian politics and media issues since 1995.

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