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. Last Updated: 07/27/2016

Media Tycoons Cut Deal to Save ORT

Russian tycoon and politician Boris Berezovsky and Australian-born media magnate Rupert Murdoch have formed an alliance to take virtual commercial control of ORT, Russia's troubled leading television station.

Two Russian television channels in which Berezovsky has significant interests, ORT and TV 6, together with his LogoVAZ car dealership, and Murdoch's News Corp. on Friday announced the creation of a joint advertising agency. It will go into operation in January and have exclusive rights to sell advertising on ORT.

Just days after the decision was announced, President Boris Yeltsin saved ORT from imminent bankruptcy by signing a decree Monday that would provide ORT with a $100 million line of credit using ORT's shares as collateral.

The two measures may revolutionize the Russian television market: Yeltsin's decree can eventually change the composition of ORT's ownership, while the creation of a new advertising agency breaks the monopoly on television sales by two Russian advertising giants, Video International and Premier SV.

At a meeting last week with the top executives of Russia's leading television channels - semi-government ORT, government-owned RTR and private NTV - Yeltsin likened television bosses to ***siloviki***, or "power ministers," in a reference to their political influence.

In a further sign that the president is trying to extend his control over television, Yeltsin assigned his chief of staff, Nikolai Bordyuzha, to handle television affairs, television stations reported Monday. Bordyuzha plans to have a series of meetings with TV executives.

Few details of the new decisions were available Monday due to the winter holidays and secrecy surrounding the deals.The Vremya MN daily newspaper quoted ORT General Director Igor Shabdurasulov as saying that the new advertising agency will be a Russian company controlled by its Russian shareholders. But ORT would like to make use of the management methods that its Western partner can provide.

"We are very interested in News Corporation's techniques," Shabdurasulov said. He emphasized that the "transparency" of these techniques was particularly important for ORT.

"I hope that as soon as this company starts to work, it will be a chance for us to improve the business," Shabdurasulov was quoted as saying.

In recent months, ORT - by far the largest television company in Russia - has ran into grave economic problems, which Shabdurasulov contends are connected with political pressures from the Communist Party and Moscow Mayor Yury Luzhkov in anticipation of next year's parliamentary elections and presidential elections in 2000.

With a drop in advertising revenues of 70 percent to 80 percent, ORT's advertising dealer Premier SV, which is controlled by controversial businessman Sergei Lisovsky, was unable to fulfill its fixed contract with ORT and thus owes the channel tens of millions of dollars. ORT, in turn, could not pay the state-owned transmitters it uses around Russia, as well as program producers. In November, court marshals moved to seize ORT's property in lieu of debt, and in December, the company had to defend itself in the Moscow Arbitration Court in a bankruptcy case filed by the Moscow city bankruptcy committee. In both cases, the federal government stepped in to save the channel.

The ORT head appealed to Yeltsin for help. Monday, the president signed a decree extending the credit.

Under Yeltsin's decree, the state is to provide a $100 million loan over two years in exchange for 12 percent to 16 percent of ORT's shares, which are to be transferred to the government as collateral, Vremya MN quoted Shabdurasulov as saying before the decree was signed.

He said Monday on Echo Moskvy radio that the stocks are to be provided by the state and private shareholders equally. If ORT is unable to repay the loan, the state would repossess the shares.

Before the deal, the government owned 51 percent of ORT shares, while Berezovsky's LogoVAZ owned 11 percent and the remaining 38 percent belonged to a consortium of private banks whose role in ORT is also largely coordinated by Berezovsky.

Shabdurasulov said in the newspaper interview that the loan is unlikely to solve the company's problem because ORT currently owes about $100 million to its creditors, and it will cost a minimum of $11 million a month to operate the station in 1999. He said the credit line is only a "tactical" solution to ORT's problems, while a "strategic" solution, which he favors, would involve the sale of an additional 25 percent of government stocks to private investors. According to Shabdurasulov, Yeltsin has ordered his staff to consider the proposal.

The new advertising company is expected to raise at best $60 million to $80 million next year, the ORT general director said.

In recent months there has been much talk in Moscow media circles about the relationship between ORT and Premier SV going sour. On many occasions, officials have said that Premier SV was likely to lose either its exclusive rights to ORT advertising or its independence in a proposed debt-for-equity swap that would give Berezovsky an upper hand in the group.

The plan to set up the new joint venture with Murdoch's News Corporation creates a radically new situation in the Russian advertising business, which has been controlled by a group of insiders.

The new media-sales company is not the first business deal bringing together Murdoch and Berezovsky, who is generally seen as the central figure in ORT. Earlier this year, Murdoch announced a planned partnership with Berezovsky in the Russian telecommunications market, when News Corporation said it planned to purchase a 38 percent share in PLD, a Russia-based telecommunications provider, from London-based company Cable & Wireless and immediately sell half of the portfolio to Berezovsky's Logovaz.

No one was available Monday in News Corporation's New York office for comment regarding the new venture.