#9 - JRL 7236
Russia: TVS insiders see market flaws, internal turmoil as reasons for collapse
Source: NTV Mir, Moscow, in Russian 0810 gmt 22 Jun 03
In a discussion on Russian TV, representatives of TVS shareholders have been looking at the events that led up to the channel's closure, and sought to explain the source of its problems. Konstantin Remchukov, a close ally of businessman Oleg Deripaska, blamed the company's financial crisis on a monopolist - which he said was subject to the influence of Press Minister Mikhail Lesin - on the TV advertising market. He accused the authorities of failure to act "in good faith" as regards TVS's legal status. Oleg Kiselev, who represented the interests of Anatoliy Chubays, admitted that there had been divisions between the company's shareholders, as a result of which Chubays has now pulled out of the project, leaving Deripaska in sole control. In the face of suggestions that irreparable damage has been done to TVS, described as Russia's only truly "liberal" and "non-state" TV company, both remained optimistic about the channel's chances of survival. The following is excerpted from a report on the Russian external TV service NTV Mir's "Vliyaniye" programme broadcast on 22 June, with subheadings inserted editorially:
Importance of "liberal", "non-state" TV channel
[Savik Shuster, presenter] Good morning. Before I introduce our guests on today's edition of Vliyaniye, I would like to say a few words. Our subject is TVS. Why? Because this was the first, real attempt to create a federal, liberal, non-state TV channel in Russia - a channel without any state involvement. This attempt is now on the point of collapse, or has already collapsed. We will find out something about this during the programme.
But I would like to say that this type of channel is very important. It is very important to have this kind of channel so that the country, business, children and everything else develop properly, so that there is a feeling of independence. You might say that it would be great to live in Italy where Prime Minister Silvio Berlusconi owns three national TV stations. Well, in the first place, there are some TV stations which are independent of Silvio Berlusconi, though they are not very powerful. And secondly, Italy is unable to solve the problem of the Mafia, immigration and poverty in the south. Many problems remain unsolved, and maybe this is because Berlusconi is a monopolist and the prime minister at the same time.
Of course, we won't be able to touch on all the details. There are a great many nuances in these events, and the length of this programme will not allow us to do this.
In general, we will be speaking about the slow-burning collapse of this initiative.
Our guests are Oleg Kiselev, the director-general of Media-Sotsium, the non-commercial organization which owns the licence for the channel; and Konstantin Remchukov, a former member of the board [of Shestoy Kanal - sixth channel], who during all this time took part in all the important meetings concerning TVS.
Wrecked by "oligarchs"?
I can put forward a very controversial thesis - that this band [Russ: Kolkhoz - literally collective farm] of oligarchs fell apart, that these oligarchs - who support liberalism, the freedom of the market and freedom in general - wrecked the initiative which set up this channel. Would I be so very wrong, Konstantin?
[Remchukov] It seems to me that if you want to get to the bottom of the causes for the failure of TVS, then you have to analyse the problems. It is not enough to explain the collapse by the mistakes made by oligarchs.
In the first place it is not right to say that all the shareholders are oligarchs. Oleg Kiselev, for one, is not an oligarch.
[Shuster] We don't have any oligarchs here in Russia. After the president's news conference, we understand that we don't have any oligarchs here.
Blame heaped on "monopolist" press minister
[Remchukov] When I heard the president I thought - half-seriously - that our president was maybe completely mistaken. My feeling, based on the definition given by the president - is that we do have one oligarch here in Russia. And maybe it will be a surprise for some to hear his name. In my opinion, this oligarch is Press Minister [Mikhail] Lesin. This is based on the fact that he has a powerful influence, so it is said, on a monopolist on the media advertising market - Video International, and that he is also the man who regulates the processes on this market. And this leads to a number of problems, including the one involving TVS.
[Shuster] You know, when they accuse Berlusconi of this sort of thing, he says - I don't own anything.
[Remchukov] Well, to answer this question you have to produce the figures, or discuss the figures or the trends. First, the press minister held a tender for the sixth channel, and major businessmen got together and took part in the tender for the licence to broadcast on the sixth channel. As a result of this, we obtained a temporary permit to broadcast. That's the first thing. Second, a material circumstance devised by Mr Lesin was that the licence was obtained not by a band of oligarchs, as you described it, but a non-commercial partnership - Media Sotsium in order to -
Kiselev's association with Chubays
[Shuster, interrupts] Oleg Kiselev represents and heads this, but he has always been associated with the interests of Anatoliy Chubays [CEO of Unified Energy System of Russia - UES].
[Kiselev] Despite the fact that I and Anatoliy Chubays don't share a common business, and that I am not even a member of the party to which Anatoliy Chubays belongs [Union of Right Forces - SPS], nevertheless I have sympathy for this party and I am a consistent liberal.
I would like to say the following. You've addressed this issue as a hot potato, an emotional issue. What's more, Savik, when you opened the programme you said the project had foundered or could founder. It could survive. It could survive for a number of reasons.
I will not attempt to assemble these little mosaics. It will be clear to people today why the project has found itself on the brink of collapse. I don't view the situation in such a pessimistic light. The project can still pull through. And I'm grateful that you have raised this issue now, at a time when the project is still in a position to try to ensure its survival.
I would like to use this opportunity to send a message. You say why we need at least one liberal channel in Russia. You say that the absence of a liberal, free, absolutely independent channel has a dire effect on the health of society.
I would like to add the following. Why should a band of oligarchs or businessmen be interested in the existence of this channel? There is a direct link between the capitalization of each individual company and the atmosphere in which we live. I maintain that today well-run companies have practically exhausted the possibilities of internal capitalization, and should be concerned about the general state of the country. And I maintain that a country's ratings to a large extent depend on whether there is a free press or not, and whether the media is free or not. And these give us much more than the money spent on supporting the freedom and independence of the press and the media. That was my main motive a year ago when I joined the project, and it remains so today when I'm trying to hold the project together.
Remchukov's association with Deripaska
[Shuster] I would like to underline, or rather return to what I said about a single liberal channel. In principle, I think that NTV is a completely liberal channel. However, in formal and paper terms there is a state shareholding in NTV, and this is no secret. So when we talk about TVS we mean the only non-state channel, which is absolutely independent of the state budget.
Now, Konstantin Remchukov represented the interests of Oleg Deripaska [head of Rusal] and Roman Abramovich [governor of Chukotka and head of oil major Sibneft], that is another group. Is that right?
[Remchukov] The interests of Oleg Deripaska.
[Shuster] OK, those of Oleg Deripaska, in essence. So we have two groups allied to big businessmen and public figures - and Chubays is also a state figure, and there is a conflict here. But let's try to establish why the project foundered, why it couldn't be saved, and or if it could be saved, then how.
No division "during the first months"
[Remchukov] In the first place, I would like to say - and I think Oleg Kiselev will bear me out - during the first months when we worked on this project there was no division between groups. When we sat down over tea and wrote out the company's articles or the agreement between the non-commercial partnership and TVS, there was not the slightest hint of any divisiveness. So, it seems to me that the divisions between the shareholders of the channel have been exaggerated. This is based on the fact that it does not accord with my experience, and that my impressions are different. The other point is that at the beginning the motive was to keep intact the team of journalists, and to hang on to an independent channel. Then when we began to look at the business model, we said that we were interested in the capitalization of the channel, that is the market value of the channel, in a number of years from now. So at the first meeting with the journalistic team, I said that the operating revenue in the next few years was not the aim of our development - that is we were interested in using operating revenue as a source of growth for the business, so that in three years we would be viable and could look for revenue growth in the subsequent period.
"Pressure by a monopolistic market" blamed
This did not happen. The reason is banal. However strange this may sound, the shareholders carried out their commitments to finance the channel. In the press an impression is being created that the shareholders failed to finance the channel. Now, let's say for the sake of argument that the channel's budget was 80m dollars - I don't remember the exact details - and that this was to be made up of 40m from the shareholders and 40m from the channel through advertising. We have the 40m that were to come from the shareholders. In fact, there is more than 40m. However, only a quarter of the money that was to come from the market was in fact obtained. Why? Because there was a monopolist on the market, Video International, with whom we could not cooperate. We formed our own company which promised to earn this money, but the money was not brought in. If we had been able to get the 40m which we had planned to earn from advertising, then undoubtedly there would not have been any problems with wages or anything else.
What was even stranger for us was that the rating of our channel on the advertising market was a third of the rate - that is we got only a third of the adverts for one rating point - for the other channels. So the pressure by a monopolistic market had its effect. And, for me, if you look at the heart of the matter, then one sees that the licence was not held by the shareholders, but by a non-commercial partnership, and did not allow for capitalization, or for it to be used as surety for attracting resources. The other reason was that we came up against an unprecedented monopolization of the market, which did not allow an independent company to earn money.
Shareholders' "inability to come to an agreement"
[Shuster] Oleg Kiselev, the licence and the monopolization of the advertising market are the two main reasons.
[Kiselev] I would say there are a number of other problems. I would not hide the fact that there were attempts by the shareholders - attempts which were not always well thought out, argued, I would even say instinctive attempts - to control the process without coming to an agreement between themselves and arriving at a common policy or a common methodology. This is the kind of rather naive situation, which we understand only too well in Russia - the inability to come to an agreement and a lack of tolerance. This seriously held back the whole process. There is lack of real knowledge, experience, skill and even instinct to reach agreements within the management group. These things are only developing now in Russian business, partly under the aegis of the Russian Union of Industrialists and Entrepreneurs, something in which myself and Konstantin are actively involved. This kind of know-how does not exist in everyday life, and I should say that we wasted a lot of time and energy and resources until we were able to alight on a point of convergence. And even after we arrived at this point, which occurred at the beginning of May this year, then we had a move on the part of one party of shareholders to pull out of the project and leave it for a very monolithic, clearly defined party.
The message was that we have a different attitude to business and the concept of business, and the concept of the situation, so let's call it quits.
So I would not hide the fact that the lack of an ability to reach agreements in Russian business is a serious problem. And this also had an effect on the situation in which we find ourselves today.
TVS project also "political" for Chubays
[Shuster] Still, I would like to try to get a more precise picture of the situation. It is undoubtedly in the interests of influential, wealthy people to have an independent channel. We are all agreed on this. Operating revenues were not their motive, they were interested in the capitalization of the company. Over a fairly long term, they wanted to invest money and have some assurance that they would at least get the original investment back, and even better, get some income from this. In this case, everyone is a winner.
I understand Oleg Deripaska, I understand Anatoliy Chubays. But in Chubays's case there is this not inconsiderable contradiction. How can you be a figure in the state and one of the founders of a political party, and also be a backer of a private, non-state, liberal channel? Is there a contradiction here?
[Kiselev] Well, Savik, let's remember that Anatoliy Borisovich [Chubays] was involved in this project as a private investor, and not on behalf of UES, a fact which underlined the independence of the project. However, I should say that Anatoliy Borisovich never hid the fact that the project was not for him a purely business venture. In every interview, he said consistently and honestly that for him the project was a political one. It is in his interests and important for him that Russia has an independent, that is your terminology - I think we already have a liberal channel - a private channel, which is independent of the state. This was the mission which Anatoliy Borisovich was consistently pursuing. I don't see a contradiction here. I can serve in some capacity, but surely I can also be involved in a project which interests me, if Russian law does not hinder me. So, hypothetically, surely I can be an official or the manager of a state company, or the manager of a large joint-stock company, but at the same time I can sympathize with a political party.
So, I see no contradiction in the conduct of Anatoliy Borisovich. In fact, I can only see positive things in the actions he took to bring this channel into existence. So, that was probably the very reason why I formed an alliance with the Chubays group. Because I saw consistent, clear, comprehensible steps - steps which were utterly acceptable as far as I was concerned - being taken to create a free, liberal channel.
[Passage omitted: Shuster announces commercial break and reintroduces guests.]
Deripaska's "business priorities"; management "mistakes"
[Shuster] Up until the May holidays, the situation was under control and everything was prospering. A lot of problems had been solved, the two finance groups had reached an agreement, and, as far as I can understand, a management company was to be set up. There was also a consensus about this. And then suddenly, one of the groups said: No, we can't go on together. Either one group buys the other's shares or vice versa. But we can't go on together. Why did this happen?
[Remchukov] Well, it seems to me that the main reason was that the number of negotiating problems boiled down to a fundamental concept that a successful business is only a realistic possibility for the channel under the guidance of a management with a unified approach to business. Because the different concepts of which Oleg Kiselev spoke - where political priorities come into play - [changes tack] Oleg Deripaska is much less interested in the political aspect of the business.
[Passage omitted: Shuster starts to say something about Chubays on the eve of elections then stops.]
He just did not understand how when a business model starts to work political priorities should dominate over business priorities. So, an offer was made: if you want to insist on your own concept of the channel, then buy our shares, and broadcast what you can. If you can't do this, then let us do it.
So then we come to the procedure for taking decisions, which Oleg [Kiselev] was referring to, and here there were certainly mistakes made on the part of the management of the company. I admit this. I identified the key areas, which it is necessary to draw lessons from.
[Passage omitted: gives examples of failure to buy serial.]
An "offer" to solve shareholders' "conflict"
However, by May of this year it became clear that if we wanted to broadcast on this channel - by we I mean a private business - then we needed a more transparent model which is clear to the shareholders, which would correlate expenditure and revenue. It is not possible to spend one dollar to earn 11 cents. Because you have to know who will finance the other 89 cents - for the sake of what and at the expense of what. What kind of production would this be?
So, in order to avoid a lot of internal debates, an offer was made. At the same time, it is worth noting that the Deripaska group did not insist on taking over the channel. And I don't see anything in this offer which went beyond the bounds of normal business practice, when dealing with difficulties.
[Shuster] Oleg, do you also see things this way?
[Kiselev] I don't see anything strange here either. I understand that one of the ways of solving a conflict between shareholders, where the shareholders are equal partners, is the so-called shotgun method, or a Dutch auction [where the price is gradually lowered until a buyer is found]. The rules of a Dutch auction are that if one side detects a lack of resolution or understands that it cannot continue operating under the current configuration, then it comes up with an initiative, and at the same time it is ready to respond to a similar, reciprocal initiative.
We did an analysis of our own possibility of managing and taking control of this channel. And I should say that or analysis showed that it would be more effective and better for the development of the project, if the channel were in the hands of a strong, well-established group, in both financial and political terms. I mean here the Deripaska-Abramovich group. So we withdrew from further involvement in the channel in favour of this group.
Chubays's team "no longer shareholders", Deripaska in control
Now the situation is that de facto we are no longer shareholders, under the terms of the Dutch auction, and it just remains to formalize this position. However, in my view, there is a kind of strange - maybe Konstantin can tell you better than me - a strange confusion in the ranks of Mr Deripaska's group, an unwillingness to take the next steps, and a failure to discharge commitments with regard to the channel.
The thing is that de facto since December 2002, the whole management of the sixth channel has been made up of people chosen by Oleg Vladimirovich Deripaska - that is, the director-general, the finance director and even the directorship, in general. All these people and managers are under the control of Oleg Vladimirovich [Deripaska]. We voted for this, and we supported this situation. The situation is completely clear, transparent and comprehensible to them. There were no secrets kept from him, nothing requires additional study. He knows exactly how much needs to be invested in order to make the channel efficient and viable. However, he is still not taking these steps.
Why am I still trying to take an optimistic view of the situation? It seems to me that Oleg Vladimirovich [Deripaska] is a very responsible and serious businessman. And I think he is a businessman of such standing that he has become a very responsible and serious member of our society. He is a man who commands such influence, who creates employment for such a large number of people, and manages such entities, that he is a serious member of our society. And I think that he needs to take a serious, well-founded step as a citizen.
Attempt to explain Chubays-Deripaska "confusion"
[Shuster] What Oleg Kiselev has just said is what in politics is known as a clear message. But, Konstantin, I stressed that you are an absolutely independent person at the moment. Nevertheless, from the analytical point of view, what would you say was the reason for the confusion which Oleg Kiselev described?
[Remchukov] I have my own interpretation of this so-called confusion. First, the letter which was received by Oleg Kiselev and his friends envisaged that this group of shareholders should make a response by 23 May. So the conditions which were formulated in the letter gave a clear date. Not by the 23 May, nor in the course of the next five days, did we receive any sort of response. And, you will remember that according to the media the reason for this was that Anatoliy Borisovich [Chubays] wanted to get permission from the president. And because of the jam-packed programme for the 300th anniversary of St Petersburg and the Chinese leader's visit he was unable to get this permission.
When Chubays spoke about this, he did not tell us, but let it be known through the media that he was giving his shares to Oleg Kiselev and Igor Linshits. So he started to change the configuration. The configuration changed with regard to the dates and during this time problems mounted, including the loss of the signal in Moscow. So the first reason for the confusion was the failure to strictly adhere to the date for giving a response. The second was that the rumours started to circulate around the media and staff that TVS would be disconnected. The nature of these rumours is not wholly clear, the basis for them is not completely clear, but the threat of disconnection was also a source of pressure on the participants in these negotiations. I mean, I buy shares and at the same time I take on the channel's debts, which run into tens of millions of dollars. At that moment they switch off the signal on me. Then I find I am the owner of God knows what.
"Temporary broadcasting permit" not licence
I would remind you that as a result of the tender we did not receive a licence, we received a strange document - a temporary broadcasting permit.
[Shuster] This was something I also only found out about recently.
[Remchukov] And in these conditions, then this would certainly be a responsible decision [laughs] to sign for a paper without a guaranteed right to broadcast and start collecting advertising revenue, when I also have debts.
So in my view this situation is not linear, or clean-cut or wholly comprehensible, because Oleg is right when he says that Deripaska is a major businessman, and, it seems to me, that he is ready to invest money. But he wants to know what he is investing in, and what the result will be, and under what conditions, because it is hard to earn money, but it can be spent very quickly and sometimes irresponsibly.
In any case, my assessment is that as a result of this awkward organization that was devised, all the channel's shareholders lost money, and this is reason enough on its own for concern. Can a market be so organized that when people have come to invest money, they then lost money? Who should bear responsibility for this?
[Passage omitted: Shuster announces commercial break and reintroduces guests.]
[Shuster] Let's now talk about the licence, the first factor about which you Konstantin spoke. What you said last - about businessmen who invest money but in the end lose out, and about who bears responsibility for this - could it be that the businessmen themselves bear responsibility?
[Remchukov] Consider the way the market is organized. Why? I can imagine that if it had been announced that offers were to be tendered not for a five-year licence but for a piece of paper called a temporary permit to broadcast, I can assure you that if such an announcement had been made by the organizers of the tender in good faith, many responsible and experienced businessmen would have been forced to think twice about whether it would be worth their while to take part in the tender.
[Shuster] About investing in a temporary permit?
[Remchukov] Yes. A temporary permit cannot be capitalized, cannot appreciate, cannot be mortgaged and cannot be used as collateral to attract capital to finance it. It is a critical limitation in practical business terms. Have you ever seen, anywhere in the world, a TV company which would be organized according to the principle of a not-for-profit partnership rather than on the basis of a commercial company? They don't exist. Why then offer an unviable model? What is more, even in such a model it turns out that what the not-for-profit partnership obtained is not a licence. Who should bear responsibility for this? Those who invented this model. I have a strong suspicion that this scheme was thought up by a very smart individual who knows every nuance of the way this market functions and ways to affect it, in particular the shareholder.
Moscow audience lost with TVS cable signal's disconnection
[Shuster] When your channel was switched off, Oleg, which was also later to play a significant part, was all that also to do with the licence?
[Kiselev] Yes of course. There was a connection with the licence, though indirect. You mean when it was switched off by Mostelekom -
[Kiselev] - which affects Moscow. We were not taken off the air then. It was another story, an anecdote so characteristic of our life in Moscow and the potential a market monopolist has in Moscow. The reason for this - let me tell you my side of the story as opposed to the version of, say, Mr Muzykantskiy, minister in the Moscow city government - was this: Without any efforts on our part, after the Sport channel was switched off - which in turn had replaced TV6 on I don't know what grounds - and as soon as we obtained a licence, a permit to broadcast, we started to broadcast on the Mostelekom channels. Without any efforts on our part, let me repeat. In a while, to be precise in three, four or five months, we wrote a letter to Mostelekom to the effect that we want to formalize our relations. We realized that we had to pay for our being there, for our use of their network, for the transmission of our signal, or to formalize our relations otherwise.
As a result, we had two agreements come through. One agreement, absolutely appropriately, was on the distribution of our signal. The other agreement was rather strange. The first and, in our view, main agreement was very inexpensive. It did not even stipulate the amount. The other agreement was very strange. It was to cost us eight million dollars. Its wording was this: to study the technical possibility of distributing the TVS signal, after the signal had been there for six months.
[Passage omitted: Kiselev ridicules the proposal through an apt analogy, calls for an investigation on antimonopoly grounds.]
The fact is that we are ready to pay. We are ready to pay any amount if it is demonstrated to us that this is what it costs to distribute our signal in Moscow. But we shall not pay for any questionable sidelines which make not inconsiderable amounts of money disappear into a black hole.
[Shuster] All in all, what percentage of Moscow's audience has now been lost?
[Kiselev] All in all, we've lost 90 per cent of Moscow's audience.
Is the channel on its way out?
[Shuster] So, in fact, the bottom line is that the channel, I feel, is on its way out. Yet you still insist that it can be saved and that something can be done to achieve that.
[Remchukov] My view is that nothing in what Oleg said is insurmountable. The fact is that as soon as the channel acquires a clearly defined owner, one in a position to engage in talks with all concerned, he will be able to settle all these issues. These issues, which in principle are not impossible to settle, in particular arise when it is seen that there is disunity or that there is no-one with whom to negotiate or that there is an interregnum or that there is some disagreement which can be taken advantage of. This is normal business practice. This industry is full of very experienced businessmen who are very aware of every nuance. So, a real opportunity to settle these issues, it seems to me, will arise once a single owner emerges, with a unified understanding of what kind of company he wants to build. So my view - and this is also a point of fundamental importance since recently this has been interpreted differently and different views have been offered, in particular one by Video International Director-General Vasilyev who told Kommersant-Dengi in a wide-ranging interview that conceptually a profitable channel would be based on the screening of films and not on its news service, to which cuts must be made -
[Shuster] As unprofitable.
[Remchukov] - Yes. So my view is that this is a fundamental error. To think that is to misunderstand the nature of our market. A channel could be unviable for some other reasons, such as because there is a monopolist on the advertising market, since the whole of the TV market is in effect an advertising market. So my view is that there is demand for political programmes in Russia, particularly given the quality of the asset which we acquired in the form of the journalistic team, given the pre-election period and given the need to rethink Russia's role in the world and the nature of transformations, and that as a business model it is quite an acceptable one.
[Shuster] Do you agree, Oleg?
[Kiselev] I agree to the extent that as soon as the channel acquires a clearly defined and comprehensible owner, problems, which will not go away, will nevertheless be settled, for the channel once again to become fully fledged and normal, to be able to broadcast and to discharge its obligations. At present - you were right in that this was my message - it is Oleg Vladimirovich Deripaska's group that has all the basics for this to be done.