The recession has made its mark on the Ukrainian media market, sharply wiping out a large share of advertising. Yet in the 10 years before the crisis, the Ukrainian media market developed dynamically. It wasn’t so long ago that only a handful of television and radio stations were available. All were tightly controlled by the Communist Party.
Now, dozens of new television channels and print media have surfaced. Many of them initially served as costly propaganda channels for Ukraine’s elite.
The reporting has gradually become more professional, talk shows more sensational and ownership more transparent. A more interesting mix of programming has made its way onto both television and radio airwaves. As a result, the sector has taken on a more concrete classical shape as seen in developed economies.
This shape will re-emerge after advertising revenues return from the recession-induced slump. The business has become more attractive for investors, both domestic and foreign.
Here is a snapshot of where Ukraine’s media market stands.
The audience of Ukraine’s media market is divided by age, not territory or gender. Ukrainians 40 years of age and older tend to read newspapers and watch television more. Younger people generally prefer glossy magazines and get more of their news from the Internet. According to figures provided by the State Statistics Committee, the split is even, about 50/50.
Yet one major way that Ukraine’s media market differs from those in developed markets is that the elderly in Ukraine, including cash-strapped pensioners, are not typically comprised of big spenders. And so, they are not an attractive audience for most advertisers.
Despite the aging and poorer viewership, television advertising dominates in Ukraine in terms of advertising spending, though its share is slowly declining, by about 1.2 percent each year. Television in Ukraine still has the largest coverage of its audience, giving advertisers the lowest cost per contact.
Some studies suggest that Ukrainian television gives advertisers the lowest cost per contact in all of Eastern Europe. It’s no surprise, therefore, that cumulative budgets for direct television advertising in Ukraine will stand at Hr 1.8 billion this year, while sponsorships will reach some Hr 260 million (Source: Ukrainian Ad Coalition).
Yet these amounts are small compared to the television advertising budgets in developed countries. The main challenge for the Ukrainian television market in the near term will be competition for scarce advertising dollars among a growing number of channels.
Competition is fierce. Today, we have six large national television channels backed by private investors, one state channel, five smaller channels, dozens of regional channels and hundreds of niche television stations.
And how do all these channels make their way into Ukrainian homes? About 54 percent of Ukrainian households get their television signal via cable or satellite. In Kyiv, 31 percent of households have digital television, mostly thanks to the capital’s dominating cable operator, Volia Cable.
Terrestrial digital TV, or DTT, exists only in the planning phase. Ukraine’s politicians have yet to adopt a clear program regulating and supporting the development of digital information technology. The complicated political rivalries could further delay such progress. Thus it remains a big question whether Ukraine will introduce DTT technologies, replacing analog television, by 2015, as agreed upon during the 2006 Regional Radio-Communication Conference held in Geneva.
Still, the prospect for growth in Ukraine, a country with an audience of 46 million, is huge. In what was considered a good year, total TV advertising budgets amounted to about $500 million in 2008. Yet this sum is twice as small as the total advertising budgets in neighboring Poland, and 40 times less than in Germany.
To make their pitch to Ukrainians, advertisers spend about $25 per capita compared to $78 in Russia, $61 in Poland, $100 in the Czech Republic and $532 in the U.S. (Source is IMF, Economist Intelligence Unit).
In 2009, the Ukrainian advertising market was battered, contracting by at least 40 percent. Part of the contraction can be traced to a genuine shrinkage of advertising budgets, while the sharp devaluation of Ukraine’s currency also played its part, albeit affecting internet advertising less.
Future market recovery depends on the country’s ability to pull out of recession.
Ukraine has in the past showed it can pull back from the abyss, shifting abruptly into positive territory. This is what happened after the Orange Revolution. It slapped Ukraine onto the radar screen of investors, raising fresh hopes, investment and economic growth. And looking back 18 years at the big picture, we see a steady line of sharp growth, with advertising budgets increasing on average by 30 percent each year. Naturally, such markets are attractive for investors.
And so, they slowly, but surely, make their way in.
Central European Media Enterprises, a media holding with a strong presence in Eastern Europe, was founded in 1994 by Ronald Lauder, heir to the Estee Lauder fortune. The company has invested heavily into 1+1, one of Ukraine’s leading television channels.
Founded by American Jed Sunden, KP Media has been publishing print and internet media in Ukraine since 1995. Big international publishing houses such as Burda, Edipresse, Independent Media Sanoma Magazines, Hachette Filipacchi Shkulev, have all made their way into Ukraine in one form or another.
In the last several years, so have groups including Germany’s Handelsblatt, Swiss Ringier, Czech Economia, Dutch-based Telegraaf Media Group and Poland’s Agora. Some have left the Ukrainian market in the downturn. Others say they will step back from print to focus on Internet media.
Russian groups have also established a presence. But for now, Ukraine’s richest businessmen dominate the scene.
It’s interesting to note that foreign capital seems to prevail on the Ukrainian internet media market. The Russians are present, for example, with the RBC news portal. Americans have built up leading web portals such as BigMir.net and Korrespondent.net. Israeli investors stand behind the leading Ukr.net portal. Poland’s Agora is developing sites.
While small in relative terms, Ukraine’s internet media market is growing fast and exhibits some of the largest growth opportunities ahead. According to one estimate, only about 2.2 million Ukrainians, or 5 percent of the population, use the Internet each day. And most of the traffic is concentrated in the capital, Kyiv. The upside potential for the internet is big.
Meanwhile, the radio market remains less developed, financed and caught up between destructive rivalries. The only international player on the market is Communicorp, with its Nashe radio and Radio NRJ stations. With the radio audience dwindling, it is questionable if any new investors will enter in the near term.
Television will remain the central ‘home-fire’ for Ukrainian households and the main source of entertainment for families. The growing Internet will supplement, not substitute television.
The transition to digital television will further de-segment Ukraine’s audience, pulling more viewers to niche channels such as Discovery or Jetix. But this switchover will be neither fast nor centralized. Some noticeable changes will come just ahead of the Euro 2012 soccer tournament, which Ukraine and Poland will host. But overall, the transition will be slow, disorganized and dependent upon a non-coordinated effort by private investors and digital services providers.
Svetlana Kalinina is a managing partner at Kwendi, a Kyiv- and Moscow-based media consultancy. She can be reached at [email protected].
