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. Last Updated: 07/27/2016

CTC Dodges Politics on Way to Profit

If you are looking for profits and not political benefits in the television business, do the opposite of the leading channels: Avoid news, find an audience niche, keep costs low and get a Hollywood studio as a shareholder.

Such is the lesson of CTC, a dynamic youth-oriented second-tier channel that proudly claims to be the first profitable national network in Russia.

CTC general director Roman Petrenko said that a 78 percent growth in advertising combined with a careful strategy have brought the channel several millions of dollars in earnings before tax, depreciation and amortization and a six-digit operational profit for 2001.

"By cash flow, we are the first in the market to show profits," Petrenko said in an interview.

Russian television channels are extremely secretive about their balance sheets, and some claims of profitability have proved unsubstantiated.

But while observers say that CTC has the largest profit, it may not have been the only channel to make money last year.

NTV spokesman Oleg Sapozhnikov said that the channel's new management -- which took over the debt-ridden station in a highly politicized battle last year -- has "broken even operationally, not counting long-term debts."

While state-owned ORT, RTR, TV Center and private NTV and TV6 have high costs, Alexander Kostyuk, managing director of TNS/Gallup Media research company, said that music channels MTV and MuzTV, as well as M-1, an entertainment channel distributed in Moscow, are likely to have made a profit.

CTC, Russia's fifth-largest channel by audience size, is unique among national television networks. It was built from scratch by U.S. media investor StoryFirst Communications and later sold a 25 percent stake to Alfa Group in 1998.

StoryFirst's shareholders include Universal Pictures, Morgan Stanley, The Capital Group, Delta Capital and LGNC -- a joint venture between tycoon Boris Berezovsky and Rupert Murdoch's News Corp. -- as well as StoryFirst's founder, Peter Gerwe.

As of November, CTC had 156 affiliates in 341 towns and cities.

The company's sales grew last year by 128 percent, which is 50 percent above total market growth, Petrenko said.

Gallup Media predicted last month that television advertising grew by 55 percent in 2001, while Petrenko estimates that the television advertising market grew 78 percent.

Alhough he refused to give absolute figures for sales, Petrenko said CTC's sales make up a proportionally larger share than its total audience.

According to TNS/Gallup Media, CTC claimed 6.37 percent of all television viewers older than three. With estimates of national advertising revenue hovering around $400 million, CTC would have made at least $25 million.

As a company aspiring to "normal" profitability, CTC has a hard time competing against channels that are subsidized by governments or big businesses and drive up the price of programming on the television market, Petrenko said.

Such inability to generate profit is, in turn, an insurmountable obstacle to editorial independence, he said.

"We are fighting against windmills with bottomless pockets," Petrenko said.

He estimates that while advertising budgets for the eight national television networks in 2001 were a combined $410 million -- a record since the 1998 financial crisis -- the channels have spent about $530 million on programming and signal distribution.

Such spending is possible only with direct or indirect government subsidies -- such as RTR's funding from the federal budget, ORT's prolonged $100 million debt or the hundreds of millions of dollars that Gazprom sunk into Vladimir Gusinsky's NTV when it was in the Kremlin's favor.

Petrenko estimates that despite its increased advertising revenues, TV6 finished the year with a loss of between $30 million and $35 million.

"We have a government oligopoly in the television business," he said. "The state already has half of the television audience and 70 percent of all advertising money in national television. If the situation remains as it is, there will be no development in the television industry."

CTC's answer to tough competition is its business slogan: "Outperform without outspending."

The company buys cheaper, targeted programming that appeals to its young audience -- a market niche that is more attractive to advertisers.

Unlike other channels, CTC sells its airtime both on its own and through media sellers such as Video International.

The channel stays away from expensive and politically sensitive news programming and commissions original programming from small production companies that used to produce commercials and are thus "better organized and know how to count money," Petrenko said.

Petrenko previously worked at the Unilever consumer products giant -- one of the biggest international advertisers on television -- and runs CTC's small staff according to hard-nosed Western corporate rules.

During the past two years, the channel's programming was helped by the film library at Universal Pictures, one of its indirect shareholders. But today it buys films on the market.

"We are trying to avoid head-on competition practically everywhere," Petrenko said.

"Our costs are incomparable to that of our competition. The only field where we are unable to do it -- and where it costs us a pretty penny -- is movies."