The deal was hardly rigged; Surgutneftegas simply offered more for the property. While the price it paid remains undisclosed, the seller, the private Russian steel company Severstal Group, had paid $100 million for a 70 percent stake only weeks before. This was an extraordinary price for a television station that market analysts valued at only $85 million earlier in the year, before the summer bidding wars ignited by Severstal’s acquisition inflated its market value.

Murdoch’s efforts to establish a foothold in the potentially lucrative Russian television market have also run up against a law that bars foreigners, including Russian entities with foreign shareholders, from owning more than 50 percent of a television broadcaster. The German broadcaster RTL, which is owned by Bertelsmann, had acquired 30 percent of Ren-TV prior to its sale by Severstal, blocking Murdoch’s ambitions. Despite encouraging meetings with President Vladimir Putin, Murdoch was unable to obtain a waiver to the law.

Murdoch and the other suitors were wrangling over a channel that captures a mere 5 percent of the Russian television audience. But similar boardroom reality shows are on view throughout the former Soviet Union and in neighboring Eastern and Central Europe, where industry titans are scrambling to establish a presence.

Televisions of Plenty
Investors eyeing these properties clearly think they will be extremely lucrative, despite decidedly mixed messages from governments concerning foreign ownership of the media. The forecasting firm ZenithOptimedia predicts that while television’s share of the global media market may be headed for what it calls "a long, newspaper-like decline," it estimates that overall ad spending in Russia grew by 31.7 percent in 2005, to approximately $5.78 billion, with $2.26 billion of that spent on television advertising. While that figure is low by Western European standards, the former Soviet sphere holds the promise of double-digit growth in the size of its audience, as well as a rapid increase in the value of television advertising. In the past three years, the amount spent on TV advertising has increased by more than 60 percent in the Czech Republic, as well as in the smaller markets of Croatia, Romania, Slovakia, Slovenia and Ukraine.

TOP VIEW: With traditional television markets in the West seeing audiences and advertising dollars wane, media companies are willing to pay exorbitantly for footholds in the emerging broadcast media markets of Eastern Europe and Russia. Properties are becoming overpriced, market transparency and regulatory norms fall short of those in the West, and local tycoons are entering the fray. Even so, a host of smart-money foreign investors are betting that their investments in television in the former Soviet bloc states will prove lucrative.

Television programming and distribution in the region has changed beyond all recognition since the days when Soviet puppet regimes used it as a way to disseminate their propaganda, and the transformations have been largely financed by foreign capital. None of the myriad commercial national, regional and local terrestrial stations, direct-to-home satellite platforms and cable networks that exist today would have been possible without Western investment over the past decade.

The race for stakes in the region’s television industry has sped up considerably since eight Central and East European countries joined the EU in May 2004, but it began with the mostly bloodless revolutions of 1989. It is a little-known fact that when HBO decided to expand its presence beyond the Americas, the first country it chose to enter was Hungary in 1991. The region was not exactly wide open to foreign investors, but parent company Time Warner found the Hungarian regulatory environment relatively hospitable. The programming was a blend of dubbed and subtitled films from Warner Brothers and Twentieth Century Fox, along with Hungarian films, shown through an exclusive agreement with a local distributor. Now HBO offers programming in Poland, the Czech Republic, Slovakia, Slovenia, Croatia, Romania, Bulgaria and Moldova. Much of the fare consists of local movies.

The cost of creating local language programming for markets as small as Moldova’s 4.4 million people and Slovenia’s 2 million has not discouraged foreign investors. Acquisitions in the region, after all, can net the contacts and name recognition that open the door to bigger prizes, the largest of which is a presence in the Russian market. That is why News Corp., for one, has been making small acquisitions, including an outdoor advertising business in Russia and a similar business in Ukraine, which it bought three weeks before Murdoch met with President Viktor Yushchenko to discuss television deals. As Worth went to press, these talks had yet to produce a deal. But News Corp. persists. Last November it announced a plan to establish itself in Bulgaria, spending approximately $85 million on radio and outdoor advertising businesses through its subsidiary Balkan News Corp.

Investors are not easily deterred by escalating, and, quite probably, inflated prices, which are especially high in Russia. In 2001 and 2002, the Swedish company Modern Times Group (MTG), which had a strong presence in Estonia, Latvia and Lithuania with TV stations that aired hit Russian reality TV series such as The House 2 and My Big Fat Obnoxious Fiancée, acquired several stakes in Russian television stations for $80 million. MTG is now part-owner of two free-to-air stations and operates several proprietary channels in Russia. CTC Media, now 43.1 percent owned by the Swedish company, has been particularly successful, operating a popular national network and a thematic channel, aimed at female viewers, that had a combined audience share of 15.2 percent in the first half of 2005. MTG had the great advantage of being an early investor in Russia, however. RTL Group is rumored to have spent up to 10 times as much for its 30 percent stake in Ren-TV.

Investors are betting that television broadcasters in the former Soviet Union, such as 1+1 in Ukraine, will flourish.