Russian Media at a Crossroads:

The Battle for NTV





Global Initiatives in Management - Russia 2001

April 18, 2001





















Audrey Clarke

Nicole Gilmore

Eileen Hart

Dan O’Leary

Table of Contents







Development of Russian Television Industry and MediaMost



The Financial Landscape



Competitive Strategy Analysis



What Happens Next?
















Most political revolutions start with – or quickly devolve into – a grab for the television station.  Television provides those seeking to change a government or remove a leader a way to communicate directly with the people.  Television enables a person or group to promote ideas and influence public perception.  Television can even provide legitimacy.  It is no surprise, then, that during the unsuccessful coup attempt against Mikhail Gorbachev, it was state television that was one of the primary targets of the coup plotters.

During the mid-1990s, another kind of revolution swept through Russia: an economic revolution.  Freed from seventy years of communism, government reformers and entrepreneurs sought to privatize and profit from state companies with vast economic potential but little market experience.  Up for grabs were the state oil, mineral, transport, and manufacturing enterprises with the potential to create great wealth for those who would control them.  It was one man, however, who understood the importance of television in this economic revolution as not only a medium for influencing the public but also as a resource for creating even greater wealth.

This man was Vladimir Gusinsky.  In 1994, Gusinsky translated his political connections and business foresight into the creation of NTV, the first independent television network in the post-Soviet era.  During the following four years, Gusinsky built NTV into a respected media organization and created a profitable corporation, known as MediaMost, which was expected to generate an estimated billion dollars in a 1998 initial public offering (IPO).  The IPO, however, never materialized and the survival of NTV as an independent media organization has been brought into question, as Gusinsky and his media holdings have been at the center of a political and business storm unprecedented in Russia’s transition to a market economy.

The following paper examines Vladimir Gusinsky’s media holdings, focusing on its flagship NTV asset, and seeks to demonstrate how a profitable organization was built and then imperiled by a series of management decisions and the 1998 financial crisis.  While this story has been bathed in scandal and portrayed in the press as a battle of personalities rather than competing corporate interests, we have chosen to focus on the business forces at play and emphasize the strategic decisions made by the organizations involved.  We do so by charting the development of the Russia television industry, examining the structure and financial strength of MediaMost and NTV, discussing the competitive landscape that NTV currently faces and concluding with several scenarios of future prospects for the company.


Development of the Russian Television Industry

Television, like all other industries in the Soviet Union, was owned and operated by the state.  From the time of Lenin, the Soviet leadership understood well the power of media to communicate with a diffuse population and influence the public with regard to the regime’s goals.  To ensure control by the Communist Party over information flows, all media organizations were consolidated and centralized into the State Committee for Television and Radio Broadcasting1.  This structure of media oversight provided direct control by the Kremlin of the country’s media institutions, and continued largely unchanged until the reforms of the Gorbachev era.

During the Soviet reign, there were two primary national television networks based in Moscow: Channel One and Channel Two.  Both networks broadcasted a series of entertainment, cultural and news programming that was aired throughout the republics.  News was the only programming that was aired live, with all copy and reports cleared in advance through the centralized organization.  As it originated from the capital, all news and information had a distinctive Moscow orientation.

With the 1991 demise of the Soviet Union, the traditional controls on media organizations began to disappear and an increasing number of independent newspapers were formed2.  At this time, Vladimir Gusinsky, a former theatre director, was starting to build his financial empire through the creation of a banking-consortium and other smaller businesses.  Gusinsky entered the media business after being approached by Mikhail Leonitiv, a friend and former-Soviet journalist, who needed financial support for the launch of a new daily newspaper to be published in Moscow3.  While Gusinsky did not have a media background, he quickly recognized the potential of the newspaper for furthering his other business interests.  According to privatization expert Chrystia Freeland, “Gusinsky was the first of the future oligarchs to grasp how central a role the media would play in the advancement of business interests4.”

Launched on February 23, 1993, “Segodnya” (Today) became a quick success and a trusted source of news.  While Gusinsky did not have experience in the media business, he did recognize the importance of media independence and therefore left most editorial decisions to the journalistic staff.  This decision was made largely for business and not altruistic reasons, as a newspaper perceived as editorially independent would be more of a financial success than one overtly pushing business/political interests.  One exception to this policy was that journalists were “discouraged” from writing negatively about Gusinsky’s other business concerns – a decision Gusinsky acknowledged and defended publicly5.  While not initially profitable, Segodnya provided an air of credibility to Gusinsky’s growing holdings and positioned him for future media expansion.

This expansion came later in 1993 when Gusinsky was approached by Yevgeny Kisiliev and Oleg Dobrodeev, two leaders of ORT, a renamed state television network, who wanted support for the launch of a new television production company.  Gusinsky, immediately taken by the idea of moving into television, decided to aim higher than a simple production company and immediately began work on launching his own television channel.  With an initial investment of $30 million, primarily from Gusinsky, the new channel called NTV (an abbreviation for “Independent Television”) was launched in October 1993 and began airing several hours of nightly news programs in the St. Petersburg market.  Because the journalists had been recruited from ORT, the news programming had instant credibility with the public and gained an immediate audience6.

Next, Gusinsky set about to increase his television coverage from one market to a national network.  The challenge was that the available VHF frequencies had already been assigned to state-controlled outlets, which meant that he would have to work with the government of Russian President Boris Yeltsin to gain the right to broadcast on one of the occupied frequencies.  Little-watched Channel Four was selected as a takeover target, primarily because of the weakness of its programming and its “shared control” by the two primary national networks.  To support this cause, MediaMost started a public relations campaign to generate support from the public for the creation of a nation-wide independent outlet.  More critical, however, was Gusinsky’s support – both through NTV’s nightly programming in St. Petersburg and pieces in Segodnya – for President Yeltsin’s standoff with the Russian parliament in late 19937.  By strongly supporting the Kremlin during the tense conflict, Gusinsky not only demonstrated the value he could bring the Yeltsin government as an “independent arbitrator” of the news, but also established the personal precedent of mixing political calculations into his business dealings.

The final step to secure the broadcasting license was the issuance of a presidential decree.  The process of getting the decree finalized required obtaining the sign-off of a series of aides and ministers to President Yeltsin before the decree ultimately reached his desk.  With the support of Moscow Mayor Yuri Lushkov, and after overcoming several obstacles, including the fierce objection of President Yeltsin’s tennis coach and advisor who wanted to create a sports-channel, the decree was ultimately issued in January 1994.  As a result, NTV began broadcasting nationwide on Channel 4 from 6:00 pm to midnight.  The network offered a mix of news and original programming.  The revenue gained by the government for the transference of the licensees was virtually nothing.  According to an advisor of Gusinsky, “The license, in practice, never cost us anything at all.  The cost was just a few kopecks…it was a purely political decision8.”

With the birth of NTV, Vladimir Gusinsky created the first private media company with print and broadcast outlets reaching nearly every Russian home.  He was able to develop such an organization by securing the talents of respected Russian journalists to create legitimacy and with his astute ability to play politics at the right moments to gain crucial government support.  The company he created, MediaMost, was on the verge of significant growth.


MediaMost:  Russia’s First Media Conglomerate

During the next five years, Gusinsky built MediaMost into a Western-style media conglomerate with television, radio, print, Internet and satellite holdings.  While other Russian business leaders, known as oligarchs, attempted to build similar media companies, none had the reach or depth of MediaMost in terms of communicating with the average Russian consumer or maintaining a reputation of media independence.

While the scope of MediaMost was great, NTV was the only part of the portfolio with significant “value” and a national reach.  With few exceptions, all other individual ventures could be classified as start-ups, with considerable potential but little actual market value.  Exhibit I provides a breakdown of the MediaMost holdings.


The Financial Landscape

MediaMost, like other Russian conglomerates, has not traditionally followed U.S. Generally Accepted Accounting Principles (GAAP) in recording its financial transactions.  It is therefore difficult to provide a complete breakdown of the financial status of the company or the valuations of its individual parts.  The relative values of the individual holdings, however, were ascertained through an interview with Chris Hannye, Director of Financial Analysis and Reporting, MediaMost.  Beyond this information, and a sealed prospectus, there is no publicly available financial information for MediaMost or its operating units.

Although its holdings are extensive, the television division of MediaMost, most notably NTV, is by far the most developed and largest component of the conglomerate, contributing approximately $60 million in revenue.  Following television, the company earns its second largest revenue component from its print/publishing businesses.  These units earn approximately one-fourth the amount as the TV operations.  This information is consistent with the dates of inception for many of these holdings as well as the economic conditions of Russia during that period.  Because of its revenue centrality in the company, we are focusing our analysis on NTV.  Exhibit II provides a summary of available financial information.


Pre-Crisis Financial Activities

In 1996, MediaMost recognized the potential of NTV in terms of a public asset.  As a result, the company began preparing financial statements for NTV according to U.S. GAAP standards in anticipation of an initial public offering for the NTV portion of MediaMost’s holdings.

The decision to only spin-off the NTV portion of the company was in recognition of the fact that the television assets were the sole operating unit producing significant profit suitable for public investment.  During this time, NTV’s primary revenue stream was from advertising, with 70% of ads purchased by global companies seeking entry into the Russian market and 30% purchased by emerging Russian corporations.  According to Chris Hannye, once NTV was made public, other units of the conglomerate that achieved profitability would be spun-off.

In anticipation of the public offering, MediaMost acquired approximately $650-800 million of financing through Credit Suisse First Boston (“CSFB”) and Gazprombank (Note:  There are conflicting reports on the exact amount of debt secured by MediaMost through Gazprombank.  The $650-800 million figure appears to be the most consistently reported range).  The debt was taken out to maintain cash flow until the IPO was complete.  This step is consistent with the business practices of many Western corporations that have filed for initial public offerings.  MediaMost executives expected to generate upwards of $1 billion for NTV from the offering.  According to Chris Hannye, for undisclosed reasons, the government was willing to guarantee the CSFB loans, with Gazprom designated as the state-owned entity to carry these guarantees.


Post-Crisis Financial Activities

            In 1998, the Russian government defaulted on its federal obligations and imposed a ninety-day moratorium on foreign debt repayments.  As a result, the Russian economy sunk into a commonly called “financial crisis” with the collapse of numerous private banks, a dramatic loss in the value of personal savings and rapid inflation.  Another side effect of the crisis was the complete loss of investor and consumer confidence in the Russian economy and government – resulting in an exodus of foreign and domestic capital that had once flowed freely into the economy.

The impact of the financial crisis on MediaMost was a dramatic decline in advertising revenues from foreign companies, as many scaled back investments in branding and questioned their commitment to the Russian market.  MediaMost took aggressive operational actions to stem the loss in revenue, including:

-         Offering advertising at lower rates to Russian corporations, resulting in a still-maintained 50%-50% split of revenues between foreign and domestic companies;

-         Reducing programming costs by limiting its dependence on content from outside production houses and foreign television outlets.  Instead, the company chose to self-produce Russian serials and other entertainment programming; and

-         Further reducing programming costs by re-running “classic programs” such as older Soviet and Russian entertainment and cultural programming.

Despite these efforts, the NTV operation of MediaMost operated at a loss from the time of the crisis until the second quarter of 2000, at which time it became EBITDA positive (Earnings Before Interest, Taxes, Depreciation and Amortization).  Because of the loss of revenue and investor confidence, the IPO for NTV was put on indefinite hold as the company sought a way to survive the growing financial storm that swirled around it.


Restructuring of Debt and Involvement of Russian Authorities

Without the funds expected to be generated from the IPO, MediaMost had no direct way to payback the significant debt it had secured to maintain operations in 1998.  Therefore, in November 2000, MediaMost restructured its outstanding obligations by converting a portion of the Gazprom debt into equity, thus increasing the Gazprom ownership of MediaMost from 14% to 25%, including a 46% ownership of NTV.  Please see Exhibit III.

While temporarily minimizing its debt repayment obligations, MediaMost still faces an upcoming payment due in July, 2001.  Gazprom, as the guarantor of the loans and in the position of being required to pay the debt if NTV could not, contends that Gusinsky overstated the assets of NTV to the government in order to win the loan guarantees in 1998.  As a result, Gazprom filed a claim with Russian authorities, resulting in an investigation into Gusinsky’s finances to determine if he overstated the value of NTV.  According to much of the popular press, the subsequent investigation became more of a personal soap opera than a financial disagreement, as Gusinsky and his allies charged that the government, through Gazprom, was working to eliminate the independence of NTV while the government claimed that Gusinsky had made illegal financial transactions concerning NTV and other of his personal holdings.

In regards to the financial aspects of the dispute, it is important to consider if the claims are being made on pre-crisis or post-crisis valuations of NTV’s assets.  Of course, the asset values from these time periods vary considerably.  Until a final determination is made regarding the timing of the asset valuations, this particular dispute will be difficult to resolve.

With one investigation underway, Gazprom sought to leverage another possible legal action relating to MediaMost’s finances.  An outdated, and seldom applied, tax law states that a company can be forced into liquidation if it has “negative net assets,” i.e. a company’s liabilities exceed its assets.  However, as many Russian companies currently fail to meet this standard, it was widely believed the tax authorities would not resort to this mechanism; and if they did, it would blatantly illustrate the political and personal motivations swirling around Gazprom’s claim on MediaMost.


Debt Relief Developments

In February, 2001, fellow Oligarch Boris Berezovsky offered to lend MediaMost $50 million and buy its $262 million debt owed to CSFB.  At the time, Berezovsky explained that his motivation was to help maintain NTV’s independence by avoiding a government takeover.  However, little materialized after the announcement was made in February, leaving many analysts to believe that the announcement was nothing more than a ploy to gain media coverage for Berezovsky in the West9.

Also in February, a group of western investors expressed interest in investing $300 million in various MediaMost outlets.  The investment consortium was led by CNN-founder Ted Turner and included George Soros, Capital Research and Management Co, Modern Times Group (a Swedish media concern) and Gregory Berezkin (a Russian businessman based in Switzerland).  Initially, the investment was earmarked to pay the outside debt and thus release NTV from any Gazprom, or state, claim/hold.  The group also required government assurances of non-involvement in the company’s affairs and a release from prior liabilities.  Finally, the consortium was believed to have an unstated condition that Gusinsky remove himself from any involvement in NTV and MediaMost10.

In March, Alfred Kokh, the leader of Gazprom Media, began to warm to the idea of western investment in MediaMost.  Kokh’s motivation for encouraging western investment under this condition was more financial than political.  With over $1 billion invested in MediaMost, Gazprom ran the risk of writing off its entire investment, given the current financial state of NTV and its questionable ability to continue as a going concern11.  Due to significant media pressure in Europe and the U.S. insinuating political vendettas and governmental control of the media, Gazprom began to take a more conciliatory role by hiring Deutsche Bank AG as an advisor and accepting the idea of western investment on the condition that Gusinsky retire any ownership of NTV12.


Currently in “Survival Mode”

The struggle between Gusinsky and Gazprom, the government and potential western investors has caused the fundamental business of MediaMost to suffer.  The goal of MediaMost in the mid-1990’s was to form a media holding company capable of exploiting synergies between outlets and producing sustainable profits at each operating unit.  However, due to the uncertainty surrounding the future of the company, the individual units are working more independently and are pursuing strategies that do not necessarily benefit the company as a whole13.  The resulting intra-company competition for advertising revenue has negatively impacted cash flow and further imperiled the long-term operations of MediaMost.

Another casualty of MediaMost’s financial difficulties and the political wrangling is the ability to maintain a standard business planning process.  According to Chris Hannye, management is unable to form a coherent long-term strategy for the operations because of the constant physical interruptions of police raids and the general uncertainty regarding the ownership and structure of the company.  Therefore, management “runs the business ‘one day at a time’ and has been in a constant ‘crisis management mode’ for the better part of a year14.” 

            Currently, Gazprom values NTV at $300 million, a marked decrease from the potential $1 billion expected to be generated from the planned initial public offering in 1998.  What “true value” NTV actually has is impossible to calculate, as the organization that ultimately gains control could change the perceptions of Russian consumers, impact ratings and thus change potential ad revenues15.


Competitive Strategy Analysis

While MediaMost has been engaged in the financial struggle with Gazprom concerning debt repayment, it has also been in the position of trying to resurrect a once successful business and working to re-ignite growth.  As described, this has been a challenge from a management perspective given the outside pressure that has been applied and the emphasis placed by the company on daily survival rather than long-term strategy.  To analyze MediaMost’s long-term prospects of salvaging its core business and moving towards profitability, the following provides a competitive strategic analysis of the company and the challenges/opportunities it faces by applying Michael Porter’s “Five Forces” framework.  Please see Exhibit IV for a description of the Five Forces. 


Rivalry/Industry Competition

MediaMost, upon inception, was recognized as an independent news outlet with a unique voice, positioning itself as the primary source of news free from government controls.  To this end, its journalists publicized controversial issues, such as the war in Chechnya, and often opposed government dealings, demonstrating to the growing class of free-market minded citizens that there was now a news source they could trust.  As a result, MediaMost claimed a quick leadership role in the early 1990’s among Russian media and became the standard against which other organizations were judged.

The one significant rival that emerged in 1994 was a re-launched ORT, under the ownership of fellow oligarch Boris Berezovsky.  By this time, Berezovsky had recognized the importance of television in shaping his business empire and convinced the Yeltsin government that an alternate media power should be created to balance Gusinsky’s influence.  Berezovsky therefore gained control of ORT, in much the same way Gusinsky had claimed NTV, and started to compete head-to-head with MediaMost for advertising dollars and political influence16.  As a result, the rivalry between the two oligarchs became intense, as each organization staked out different political agendas and sought an advantage in terms of maintaining a leadership position in the eyes of the public.  Only with the 1996 presidential election – in which each oligarch recognized the benefits of a Yeltsin victory and agreed to join forces against the Communists – did the rivalry subside for a short period of time.

In the past year, the rivalry between NTV and ORT was reduced as each organization became embroiled in battles with the government.  The source of the government friction was each network’s opposition to the election of Vladimir Putin and strong support of Yuri Lushkov and Yevgeny Primakov in the 2000 presidential election17.  Once Putin ultimately won the election, pressure was applied on both organizations, which resulted in less competition between the two and more focus placed on basic survival.  In early 2001, Berezovsky succumbed to the pressure, which included an investigation of his holdings and associates, selling his share of ORT and essentially passing control of the network into the hands of the government18.  When ORT came under this government influence, it became less a rival to MediaMost, as the network lost any credibility it had built up and was perceived by the public as a mouthpiece for the state.  As such, Berezovsky accused the Kremlin of “concentrating all mass media so that it can carry out any policy it wants with impunity19.”

While ORT has receded as a competitive threat, the state-owned network of RTR has recently emerged as a potential competitor to MediaMost’s leadership position by providing new, innovative programming.  According to ratings/market share data from 2000, RTR has secured a 16.5% share of television viewers during the day, and 15.7% of the prime time market on a national basis (Exhibit V).  Although RTR lags behind both NTV and ORT, it has a considerable percentage of the prime time market in Moscow – the most highly coveted segment for advertisers.  According to MediaMost executive Mark Hannye, “RTR has been in the process of upgrading the quality of its programming and building its brand image among the Russian people.  These moves have made RTR the ‘sleeping giant’ of the industry and a competitor we will have to watch.”  


Barriers To Entry

The brightest spot for MediaMost in the competitive landscape is that there are a series of barriers that may help prevent entry into the market.  The government’s limiting of the number of media firms competing for advertising revenue and the viewer-ship of the Russian people will help MediaMost regain market share and move towards profitability.  The five key barriers to entry include:

-         Network Frequency/ Satellite Resource:  One of the key barriers preventing entry into the market is that there are a limited number of television frequencies and satellite positions on which networks can broadcast.  Currently, the UHF frequencies are either owned by the government or held by NTV.  While possible, securing a government-owned frequency would be much more difficult and expensive than in the early days of privatization when state assets were sold for virtually nothing.  In addition, MediaMost holds the only satellite position that reaches the entire Russian Republic and members of the CIS.  This key inimitable resource compounds the difficulty in entering the market, as competitors are not able to secure a position with the reach of NTV.

-         Sources of Information:  An additional barrier to entry is that political relationships/ties are essential for accessing information from within the government – a key need of news organizations looking to grab the public’s attention with daily news.  Kirill Haratyan, Deputy Editor-In-Chief of Kommersant, a daily business and political newspaper published in Moscow, commented that the new Putin administration has a more coordinated approach to the dissemination of information, which has sharply limited access but often improved the quality, credibility and consistency of information released.  While this centralization has made it easier for journalists to access the basic news of the day, it has also meant that they have become increasingly dependent on building confidential sources over time that can provide additional background information beyond what the government is willing to release.  According to Haratyan, “without connections, information flow is limited which in-turn delays the news reported.” Therefore, Haratyan argues that sources inside the Kremlin are critical to the success of a media organization, thus making limited or no access to such officials a significant barrier to entry in the Russian market.

-         Labor Pool:  A further challenge that may prevent new entrants into the market is that the labor pool for journalists is very small, which makes building a credible team a challenge in this industry.  As Haratyan noted, there are few journalism schools in Russia who train students on the basics of news reporting, fact checking and media standards.  As a result, many organizations like Kommersant believe the only way to build a strong staff is to build a team from the ground up.  While new entrants could develop such internal training, it would mean that their initial entry into the market would be accompanied by journalists who do not have name recognition or a built-in reputation for quality with the public.  Not having a strong staff, therefore, would make it difficult for new competitors to enter the market and compete against an experienced team like that of MediaMost.

-         Financial Viability/Capital Investments:  Building a new media organization will require a significant capital investment from any organization looking to enter the market.  It cost more than $30 million for Gusinsky to launch NTV in 1994, even thought he secured the broadcast rights for essentially nothing, with considerable investments from other sources in recent years needed to bolster operations.  Any new entrant in the market would have to make a considerable capital investment to purchase the broadcast rights, build a strong team and establish a brand.  According to Mark Hannye, “Startup costs are significant. Equipment for publishing and operating the newspaper press alone makes it unattractive to potential entrants.”  Besides startup costs, financial viability is not guaranteed.  On a basic level, foreign advertising revenue – a necessary source of income – has decreased significantly since the crisis, making the overall market unattractive for entry by a new competitor.

-         Brand Image:  Since 1994, MediaMost has been able to build a strong brand for NTV and established a fairly solid reputation within the market.  While this brand and reputation have been tarnished during the recent struggles with the government, the network is still recognized for independence and quality programming within Russia.  Building an equally strong brand would take time and be expensive; and would require a sustained focus by a new competitor.



            Substitutes to NTV do not appear to serve as a direct threat to MediaMost’s ability to grow and move towards profitability.  The two main alternatives in the television market to NTV are ORT and RTR – both government controlled entities.  While many consumers may be willing to watch these channels for entertainment programming, they may be skeptical of the news reported on them because of the influence of the government.  As a result, one could argue that the threat of network television substitutes overtaking NTV is rather low, as NTV has built a clear niche for itself in the news arena.  However, as stated above, it is important to consider the emerging threat of RTR in terms of the innovative programming it airs. 

Aside from other broadcast networks, the Internet, newspapers, radio and Western cable programming comprise the other main substitutes that consumers could access instead of NTV.  Of these, the Internet has the greatest potential to serve as a substitute to television, like in Western countries, as consumers could access a limitless supply of global news, entertainment and other programming.  However, according to Petr Skobelev, Internet penetration in Russia is limited to 2.5 million Russians20, which means that television will continue to be the main source of news and entertainment for the time to come21.


Buyer Power

            There is one main group of “buyers” of MediaMost’s product: advertisers who purchase air time/print space to promote their products and services.  Prior to 1999, one company, Video International, controlled all advertisement production and placement for all networks.  The company was owned by Mikhail Lesin, the current Minister of the Press and served as the only broker for advertising22.  As such, companies interested in advertising space could not leverage their individual buyer power to force ad placement prices downward – but instead worked through this single organization.  Because of the politics involved, MediaMost recently opted to create its own advertising firm, Smart Media.  By consolidating all purchasing through this advertising house, MediaMost has been able to minimize buyer power in terms of rate negotiations and work to preserve the highest possible fee structure – minimizing the loss of revenue to the highest degree possible during the turbulence of the past two years.

NTV is a ratings success and considered a true market leader.  However, as the switching costs of advertisers are low, companies could choose to advertise on a competing network or in a competing newspaper with little or no tradeoff.  Moreover, as previously stated, after the crisis, foreign companies decreased their ad placement on all outlets, causing a decline in revenue for the industry as a whole.  Therefore, we must consider buyer power to be an intermediate threat to the long-term success of NTV, especially if it is not able to hold its position as a market leader.


Supplier Power

There are two key suppliers that influence how MediaMost is able to successfully carry out operations:  the government which “supplies” the right to function and journalists who provide their talent.  As witnessed by recent political developments, the government is a powerful supplier not obligated to do business with MediaMost.  In fact, MediaMost alleges that the government has impeded its ability to carry out operations by imposing legal restraints on its activities and supporting its competitors with little or no consequence – except for recent public opposition23.

            In addition, journalists are a major supplier of talent and credibility to the network.  As discussed previously, the available supply of recognized journalists is very tight at the present, which means that it is difficult to attract qualified talent that will be respected by the public.  Over the past seven years, NTV has recruited and developed popular on-air personalities that viewers like and respect.  If, at any time, these journalists chose to leave the organization en-mass, the company would instantly lose one of its most valuable resources and be significantly damaged in the market.  This supplier power means that MediaMost will have to be cognizant of the reactions of its journalists to any new management structure and work to maintain positive employee relations.

            Both of its primary suppliers could make it difficult for MediaMost to operate successfully in the coming year.  Repairing and maintaining positive relations with each will be essential for the company to return to profitability in the near term.


Political Forces

            In addition to the main five forces, other outside pressures exist that have dramatically affected the media industry.  In the case of media organizations in Russia, one of these outside forces has the strongest impact: the volatile political environment.  According to each source interviewed in Russia, MediaMost would not be in the current predicament if it had supported President Putin in the last election.  The fact that Gusinsky aligned himself, and the views of NTV and other MediaMost publications, so strongly with Yuri Lushkov in the last election has caused retribution on the part of the Putin government.  As such, it appears that if Lushkov were in office, the financial obligations that are the strongest weapons in the current fight would have been essentially forgiven and the entire crisis averted24.  In the words of an American embassy official, Gusinsky bet wrong.

            Despite these political forces, the analysis of MediaMost’s competitive positioning indicates that the company is well suited for growth and will be able to achieve profitability.  It is fairly immune to new entrants in the market, experiences little threat from substitutes and has not been impacted by the relative power of the buyers of its product.  The only points of concern are the threat of increased rivalry from RTR and the power of its suppliers – but neither of these forces provide serious reason for long-term concern if NTV is permitted to once again function as a traditional media company without the baggage of the political situation.

What Happens Next?

One challenge in researching MediaMost and investigating its current financial struggle is that it has been a moving target.  Every week there has been a new development or another theory of what will ultimately take place.  After exploring the current landscape in which MediaMost finds itself, we have arrived at three different scenarios that illustrate possible next steps in this evolving story.  The one common element to the scenarios is that each has Gazprom ultimately gaining some kind of control of the network, as all of the research and a majority of the interviews conducted make clear that this was near certainty.  The scenarios are: Gazprom passes control of NTV to the government, Gazprom maintains independence of NTV, and international consortium enters.


Scenario One:  Gazprom Passes Control of NTV to the Government

A common public perception of Gazprom’s role in the struggle for NTV is that its ultimate victory could lead to a government take-over of Russia’s only independent news organization.  This could occur as Gazprom would be free to appoint its own management and restructure the organization as it sees fit, acting on behalf of the Kremlin.  However, as many have argued, such a take-over would destroy any credibility for NTV as a media institution and lead to a reduction in the overall value of the network. 

A Gazprom takeover of NTV on behalf of the government would more than likely lead to:

-         A mass exodus of or strike by NTV’s employees if they perceive that the government is trying to manipulate the network for political purposes or shape the content of the news reported.

-         A reduction in the brand-image of NTV, as it would no longer stand for “independence,” as symbolized by its name, but rather would be seen as a puppet for the government.  The loss of brand equity would have the following potential impacts:  a loss in viewer-ship as the public would doubt the independent nature of the coverage and a resulting reduction in the amount advertisers would be willing to spend to promote their products on the network.

-         A loss in value for the network as a financial entity.  What has set NTV apart from the competition is its reputation for independence and strong brand in the eyes of the Russian people.  The loss of the brand would dilute significant financial value from the company, and would not enable Gazprom to reclaim the investment it made in the network.

-         Gazprom and the Putin government would face intense criticism in the West for the takeover of the only nationwide independent media in Russia. While the Russian government is not beholden to public and governmental opinions in the West, it certainly will not want this single issue to continue to cloud future economic, security and trade discussions.

The factors listed above have been widely reported in the Russian and Western press.  As a result, if Gazprom was operating from a financial perspective and looking to protect its investment in NTV, this scenario would not be the best approach to take.  If Gazprom ultimately allows the Kremlin to control NTV, it will clearly demonstrate that the true motivations throughout this struggle have been political.  Gusinsky himself described what would happen if the government attempted a takeover of the network in saying, “You can't kill NTV in secret.  Its death will be public because if NTV becomes loyal and dishonest, that means it will no longer be NTV. And then everyone will understand that the television company was killed25.”


Scenario Two:  Gazprom Maintains Independence of NTV

From a financial standpoint, once it gains control, Gazprom will have an incentive to maintain the independence of NTV in order to maximize the investment it has made in the company.  As discussed, keeping NTV independent is essential for continuing the network’s brand image, credibility and standing with the Russian people.  By doing so, Gazprom has a better chance of ensuring a solid network with the potential for creating strong revenue growth for the future.

The two most critical ways of maintaining the independence of NTV is to establish a “hands off” approach to editorial content and to retain the employees who helped create the reputation of independence in the first place.  While Gazprom may wish to replace the business management of the network, it should keep the on-air personalities who are recognized by the Russian people and trusted for providing an independent perspective.  If the employees choose not to stay with the network, Gazprom could rebuild by hiring new anchors and reporters (either those with national “personalities” or those who could be groomed for prominence) and strengthening the journalistic standards that would help ensure the continued independent nature of NTV’s coverage.  In sum, while the talent may turnover, Gazprom will only be able to maintain NTV’s independence by not changing the content, quality and critical-nature of the reporting on NTV.  If any aspect of the programming changes, in a pro-government manner, the public will suspect that a takeover by the Kremlin has occurred, harming the brand equity of the network.

Maintaining the independence of NTV will appease many of the constituencies involved, including:

-         Gazprom has the potential to earn back the investment in NTV over time. 

-         Gusinsky will be assured knowing that the independence of NTV as a media organization will be continued. 

-         President Putin will not be accused of orchestrating a complete government takeover of the media.

-         The on-air personalities and reporters will continue in their current positions and work to report the news in an independent fashion. 

This has the greatest potential for Gazprom’s long term financial gain so long as Gazprom is able to clearly illustrate to the public that independence has been maintained.


Scenario Three:  International Consortium Enters


Throughout the course of the in-country research, the most often-mentioned scenario of what would happen was that Gazprom would ultimately gain control of NTV, Gusinsky would sell his shares to the international consortium led by Ted Turner and Gazprom would relinquish some of its shares to keep an even distribution of control.  The role of the consortium would held ensure media freedom.

During the research and interviews, the following factors made it appear that this was the most likely scenario to unfold:

-         Power of Gazprom:  The entire struggle for NTV has been a “David and Goliath”-like battle, in which Gazprom has had vastly more resources and power to use against the much smaller MediaMost organization.  Gazprom has been able to wage this battle on multiple fronts:  emphasizing the large amount of debt owed to it and leveraging relationships inside the government to apply additional political and legal pressure.  Therefore, from observing the situation and speaking with a number of sources, it seemed like only a matter of time until Gazprom would be able to gain control of the network and force Gusinsky out of a management role. 

-         Maximize Investment:  The prior discussion clearly illustrates how Gazprom’s investment could be maximized.  By selling a significant portion of his interest in NTV, Gusinsky would be attempting to gain the most possible from his original investment in the network.  Gusinsky, no doubt, is a rational enough businessman to realize that the battles are sure to further drain MediaMost’s resources, and that in order to ultimately prevail, he would have to find a way to pay off its debt to Gazprom due in July, 2001.  Since MediaMost does not have access to sufficient capital to meet its obligation, the only way for the company to pay its debt is to arrange for a deal with a group like the consortium. 

-         Swift Resolution:  The final reason that this scenario appeared most plausible is that it provides benefits for all the parties involved.  President Putin would win the personal war against Gusinsky and at the same time not appear to curb freedom of the press.  Gusinsky could come across as a “martyr” for relinquishing control of the network he founded in order to maintain its independence while at the same time see his shares of NTV gain in value.  Moreover, the revenue garnered from the transaction would enable him to reinvest in his other MediaMost holdings – most notably the satellite and newspaper.  Finally, Gazprom would be able to realize the investment it originally made in NTV and remove the complication of Gusinsky’s involvement in the network. 

The obvious complication of this scenario ultimately coming to fruition is the personality factor, in that many believe Vladimir Gusinsky will fight to the finish to maintain some sort of control over NTV.  While no one doubts his interest in remaining involved in the network, several of the experts we consulted responded that he ultimately will have no choice and that relinquishing ownership will be the only option available.



Undeniably, the struggle for NTV is an extremely complex story that is unfolding before our eyes.  Those who claim that the battle is solely about business concerns or just about freedom of the press are ignoring the complexity of the ongoing situation.  However, exploration of the struggle from a business perspective has enabled us to reach several conclusions about operating in the modern Russian economy.

-         Politics Matter:  One of the key takeaways of the struggle for NTV is that politics matter in the modern Russian economy.  Vladimir Gusinsky was able to use his political connections effectively to obtain exclusive ownership of NTV in the first place, used subtle political support from his media organizations to curry favor with politicians as he grew the network, and then ultimately was harmed when he overtly and aggressively supported the opposition candidate to now President Putin.  Any business leader looking to operate in Russia should be cognizant of these forces and know how work within them.

-         Importance of Fundamentals:  At the same time, the heart of the battle for NTV is a dispute over debt.  As explained by Professor Peter Ekman in an interview in Moscow, aside from the political issues involved, an added complication of the story was a disagreement concerning the valuation of NTV’s assets and the terms by which the debt had to be re-paid.  These points demonstrate that despite the tumultuous conditions of the Russian economy, the fundamentals of business and the terms of obligations are still critically important.

-         Freedom of the Press Will Survive:  Many have charged that the battle for NTV is about destroying the only independent news outlet in Russia.  However, as described in the strategic analysis of MediaMost’s business and the potential scenarios that will take place, it is becoming increasingly clear that there is a place in the Russian media landscape for an independent news outlet that holds the trust of the Russian people.  If not Gazprom, then some other organization will seize this opportunity.

With these business conclusions in mind, it is important not to minimize the struggle for NTV in terms of the opinions of the Russian people and the emotions the conflict has brought to the surface.  The fight for the television station – a constant of all revolutions – appears to be over.  The next step, regardless of its ownership, is to rebuild NTV into a profitable media organization which serves the interests of the Russian people.



Mickiewicz, Ellen Propper, Split Signals: Television and Politics in the Soviet Union, Oxford University Press, 1988, pages 224-225.


Mickiewicz, Ellen Propper, Changing Channels: Television and the Struggle for Power in Russia, Duke University Press, 1999, page 223.


Freeland, Chrystia, Sale of the Century:  Russia’s Wild Ride from Communism to Capitalism, Crown Publishers, 2000, page 148.


Freeland, Chrystia, Sale of the Century:  Russia’s Wild Ride from Communism to Capitalism, Crown Publishers, 2000, page 150.


Freeland, Chrystia, Sale of the Century:  Russia’s Wild Ride from Communism to Capitalism, Crown Publishers, 2000, page 150.


Freeland, Chrystia, Sale of the Century:  Russia’s Wild Ride from Communism to Capitalism, Crown Publishers, 2000, page 152-3.


Freeland, Chrystia, Sale of the Century:  Russia’s Wild Ride from Communism to Capitalism, Crown Publishers, 2000, page 155-7.


Freeland, Chrystia, Sale of the Century:  Russia’s Wild Ride from Communism to Capitalism, Crown Publishers, 2000, page 156.


Higgins, Andrew, “Russian Tycoon Enters NTV Fray By Offering Loan, Help with Debt” The Wall Street Journal, 2/8/2001


Higgins, Andrew, “Turner-led Investors Make Strides in Plan to Buy Stake in Russia’s NTV” The Wall Street Journal, 2/16/2001


Campion, Walsh, “Gazprom, US Discuss Western Role for Russian TV Firm” Dow Jones Newswires, 3/7/01


Higgins, Andrew, “Russia’s Gazprom to Sell Part of Its Stake in NTV” The Wall Street Journal, 3/5/2001


Discussion with Chris Hannye


Discussion with Chris Hannye


Higgins, Andrew, “Russia’s Gazprom to Sell Part of Its Stake in NTV” The Wall Street Journal, 3/5/2001


Freeland, Chrystia, Sale of the Century:  Russia’s Wild Ride from Communism to Capitalism, Crown Publishers, 2000, page 144.


Discussion with Peter Ekman


Discussion with Peter Ekman


Higgins, Andrew, “Russian Tycoon Enters NTV Fray By Offering Loan, Help with Debt” The Wall Street Journal, 2/8/01


Lakaeva, Irina “Internet Security in Russia” U.S. Commercial Service Moscow, 3/12/01


Discussion with Petr Skobolev 


Discussion with Peter Ekman


Baker, Peter and Glasser, Susan “State Controlled Company Takes Control of Independent TV Network”, The Washington Post, 4/3/01


Discussions with Peter Ekman


Dixon, Robyn,  Besieged Tycoon a Symbol of Russia’s Suppressed Media” Los Angeles Times, 2/10/01


Exhibit I     The Evolution of MediaMost Holdings







NTV (1994)

Television Broadcasting

-         70% of Russia's territory, as well as Byelorussia, Ukraine, Azerbaijan, Kazakhstan and the Baltic states

-         Broadcasts 18 to 20 hours a day

-         Audience: 102 million

NTV Plus (1996)

Pay Satellite Television Services A

-         Approximately 40 channels, 110,000 subscribers

NTV International (1997)

Broadcasting for the Russian-speaking population in Israel, Western and Central Europe, the Middle East, Northern Africa and the U.S.

TNT Networks

Regional focused broadcasting

  • 200 local TV stations covering 75 regions: 4.5M people in Moscow.


New Russian Series (2000)

Production of serials for NTV holding's companies.

Bonum 1 (1994)

Engineering and technological support to broadcasters within Media-Most holding

NTV- Telemost (1998)

Production TV entity that maintains its own technical and production facilities including a computer graphics studio.

NTV- Design (1999)

Helps develop "the look" of NTV, NTV-Plus, the THT companies, the design of the programs, the aesthetics of the TV air picture, the interiors of the studios, and various printed materials

Smart-Media (1999)

Established in response to the Trade International’s monopoly on media buying.  Smart Media exclusively sells media time for NTV and NTV Plus as well as other Media-Most holdings.   





7 Days Publishing House (1995)

Publishing of the following magazines and newspapers

SEGONDYA newspaper (1993)

Circ 67,000

ITOGI magazine

Circ 85,000

7 Days Weekly

Circ 950,000 – 1,020,000

Caravan of Stories

Circ 298,000

Internet Magazine

Circ 40,000

Echo of Moscow (1990)

  • 51 cities of Russia
  • 1M audience in Moscow
  • 70% talk: 30% music
  • offers over 70 regular programs to its audience.

Sport FM (1999)

24 hours of non-stop sports information.

RDV (2000)

Young listeners





Memonet (1999)

Provision of communication and information Internet-based services, as well as Internet resources construction and support.

NTV- Internet (2000)

Internet service provider

NTV- Portal (1999)

On-Line publishing





NTV-Profit (1995)

Movie production

NTV- Series (1998)

Production of television features, documentaries and animation series

KinoMost (1998)

Production of movies, TV and video films and cartoons; their distribution, duplication, sale, exhibition; and the restoration and renovation of old Russian films.

Most-Video (2000)

Production, copying, distribution and sales of MediaMost's own and foreign-made VHS home videos and DVDs.

Most-Cinematograph (1998)

Distribution of movies and videos and TV products made by the Media Most companies and other national and international producers.

Gold Screen

Acquisition of rights to use Russian and foreign movies, video, TV and other audiovisual products; their marketing, advertising, promotion; participation in hosting film festivals and film fairs; establishment of organizations to protect copyrights and related rights in and to audiovisual products

KinoMost- Studio

Construction of the new facilities for KinoMost at Skolkovskoye Shosse in Moscow.

NTV-Movie World

Construction and renovation of cinemas

Mir Kino October

Renovation of the October cinema in Moscow





Source: Media Most web site



Conclusion   Although expansive, the MediaMost Empire is truly in the beginning stages of development as evident in the establishment dates of the various segments. 


Exhibit II     Financial information



2000 Results


NTV revenues






Source:  Discussion with Peter Ekman, Professor: American Institute of Business and Economics




Liabilities of NTV







Summer 2000


Post restructuring

November 2000

Short term obligations of CFSB and Gazprombank due July 2001



$650M - $850M




City of Moscow





Not available

Unpaid Federal taxes


Not available


Not available

















Note: Peter Ekman estimates $1.3billion all inclusive liabilities for Summer 2000



"Russian Roulette: Putin Shoots The Messenger" Chris Renaud: Wall Street Journal Europe 2/23/01

Discussion with Peter Ekman, Professor: American Institute of Business and Economics




Conclusion   MediaMost’s financial prospects are grim.  Financial intervention will be necessary to meet debt obligation deadlines. 



Exhibit III    Ownership structure




Ownership structure Media-Most






Summer 2000


Post restructuring

November 2000




















Note:      Gusinsky ownership is assumed.  Information is not publicly available.

                Gazprom is 38% state owned 





Ownership structure of  NTV





Post restructuring

November 2000





49.5% *







American Fund Capital Research





*  of which 19% is held as collateral by Gazprom for the remaining loan.





Conclusion   State ownership of MediaMost has increased to 9.5% since 1996.  With the pending default of loans, state ownership could increase dramatically. 






Exhibit IV  Five Forces Analysis

Exhibit V   Market Share of NTV and Competitors




Prime Time







Prime Time



Source: Media Most web site (Gallup polls)





Conclusion   Although NTV serves a significant amount of the population, the increasing scope and quality of RTR poses a threat to NTV.

Exhibit VI     Interviews and Sources of Information






Contact information


Director and Owner

Knowledge Genesis (based in Sumara)


Mark Hannye

Director of Financial Analysis and Reporting



+7(095)  969-2350

Peter Ekman


American Institute of Business & Economics


Kirill Haratyan


Deputy Editor-In-Chief



Interviews cancelled while in country:

Chris Renaud

Director of Finance




Andrew Higgins


The Wall Street Journal


Other interviews considered:

Sabrina  Tavernise



The New York Times


Peter Baker and Susan Glasser


The Washington Post