TV channels good for PR, not for profits

When one Ukrainian tycoon bought a television channel in 2010, rumor has it that after he looked at the costs and revenues, he suggested not bothering with advertising as it brought in so little money.

Even if this story is apocryphal, it highlights the fundamental principle behind the work of Ukrainian television channels. Unprofitable, they rely on the largesse of their owners and carry out their will without complaining about censorship. The owners, meanwhile, hand over money without complaining about losses.

Media experts say this vicious circle is unlikely to change until the number of national television channels falls and the advertising market grows.

“There are no profitable TV channels in Ukraine today, big or small,” said Maksym Lazebnyk, head of the All-Ukrainian Advertising Coalition, an advertising industry association.

“The costs of content production, of maintaining the channels and paying for a license exceeds all the income from TV commercials,” he added.

The country’s leading TV channels are all in the hands of oligarchs, most of whom stand firmly behind the current authorities.

Inter is owned by Valeriy Khoroshkovsky, head of the state security service; Rinat Akhmetov, a longtime backer of President Viktor Yanukovych, owns TRK Ukraina; ICTV, Novy Kanal and STB belong to Viktor Pinchuk, son-in-law of former President Leonid Kuchma; and Ihor Kolomoisky owns 1+1 and TET.

Waldemar Dziki, a Pole who until February 2011 was chief executive of Akhmetov’s Media Group Ukraine, said that television is quite a profitable business in most countries, but not in Ukraine.

One owner of several channels, speaking on condition of anonymity, confirmed to the Kyiv Post that TV is a loss-making business in Ukraine.

Inter and STB declined to comment on the profitability of the channels.

Despite the fact that advertisements cram television schedules, experts say the price of commercials is very low compared with other countries, such as Russia or Poland.

Lazebnyk said that battles between Ukrainian TV sales companies were often accompanied by “dumping” of adverts at cheap prices.

The turnover of the Ukrainian TV advertising market is less than half of the Polish one, according to Dziki. The large number of national channels means each gets only a small slice of the pie.

Lazebnyk said the advertising market is growing by 25 percent every year, but will still not have recovered from the pre-crisis level of 2008 by the end of this year. According to the All-Ukrainian Advertising Coalition, total direct television advertising revenue in 2010 was Hr 2.56 billion ($320 million).

This relatively modest sum, however, doesn’t stop those working at the channels, especially top media managers, from taking home a substantial salary package, experts said, as owners are happy to subsidize the channels as long as the editorial line remains under their strict control,

According to numerous media insiders, salaries are also boosted by backhanders, known as zakazukha, paid to managers and journalists to produce favorable reports about specific companies or people.

Yevhenia Prodayeva, deputy chief editor of Telekritika media watchdog, said TV is not so much a business for channel owners but rather a public relations project.

“All the big TV channels are owned by billionaires,” Prodayeva said. “They treat television as a pet project that they are able to subsidize with revenues from their other businesses, like pipes or metals.”

This status quo perfectly suits the authorities, experts and human rights watchdogs said. “It’s much easier to influence four or five owners than a couple dozen of them,” said a recent report on the state of the media by the Ukrainian Helsinki Human Rights Union.

Critics have claimed that the tycoons were favored by the National Council for Television and Radio Broadcasting when it allocated the digital frequencies on Aug. 18. TVi, a channel known for its often critical coverage of the authorities, didn’t receive any frequencies ahead of the switchover from analog to digital, planned for this autumn, meaning its coverage will reach less than half of the country’s households.

Media experts said the best hope to turn PR projects into more profitable media businesses is economic improvement across the country. Only then, they said, will the channels gain more independence from censorship by becoming financially sustainable.

Owners of the main Ukrainian TV channels
Source: Konrad Adenauer Foundation