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. Last Updated: 07/27/2016

What Makes Forbes a Tough Sell

Establishing a foothold in Russia's booming magazines market may be difficult enough for foreign publishers, but planning a suitable exit strategy can be even tougher.

That looks to be the situation facing German media giant Axel Springer, which has experienced a tumultuous three years since the rollout of its flagship publications, the Russian editions of Forbes and Newsweek, in 2004.

Although Forbes has quickly established itself as one of the country's most prestigious business journals, with healthy ad figures to match, it has also faced the worst any media can -- the murder of its editor in a contract-style hit and the loss of a high-profile lawsuit against the country's richest businesswoman.

In the face of these difficulties, Springer has even considered quitting its operations in Russia completely. But because of the conditions of its licensing agreements with the U.S. owners of Forbes and Newsweek, it has been forced to carry on as it looks around for acceptable partners to increase its market share.

At the heart of the difficulty is that one of the companies looking to buy into Axel Springer Russia, Kommersant publishing house, is owned by Kremlin-friendly magnate Alisher Usmanov, who recently expanded his business empire to include a stake in London football club Arsenal.

Selling to Usmanov, who also heads Gazprominvestholding, a subsidiary of Gazprom, could present problems for Springer and the U.S. owner of Newsweek, The Washington Post Company, over concerns that the magazine's political independence could be jeopardized, especially in an election season.

Demyan Kudryavtsev, general director of the Kommersant publishing house, confirmed that he was interested in Springer -- "be it a merger, a buyout or any other form of collaboration." He added that Springer knew about this but

that so far, there was "no agreement whatsoever."

Three years after Springer began publishing Forbes and Newsweek, its portfolio includes just two other titles: British celebrity magazine OK and Springer's own title Computer Bild. A fifth publication, style magazine Wallpaper, closed in December, less than two years after launch.

Springer, which in 2006 reported revenues of $3.37 billion and profits of $413 million, does not break out separate figures for its operations in Russia.

Industry sources said Springer's motivation in seeking a partner in Russia was a mix of financial and political reasons.

Analysts agreed that while Forbes was returning stable profits, the market for Newsweek was very difficult.

"There are too many political magazines in the market," said Andrei Richter, a journalism professor at Moscow State University. But with a business magazine such as Forbes it is "very hard not to make money," thanks to a stronger advertising market, he said.

Yet Forbes has also highlighted the serious risks associated with investigative journalism in the country.

Forbes Russia's first editor, Paul Klebnikov, was shot dead outside the magazine's office in July 2004 -- three months after the magazine launched -- in what was widely seen as a contract hit connected with his investigative reporting. Three years later, a trial of murder suspects has collapsed and the case remains unsolved.

Then, Springer became embroiled in a legal battle over the December 2006 cover of Forbes, which featured a headline that implied that the company of billionaire Yelena Baturina had benefited from her marriage to Mayor Yury Luzhkov. After a lawsuit was slapped on the magazine, the issue was published after a delay with changes to the text.

Amid the resulting furor, Forbes editor Maxim Kashulinsky offered to resign but was left in his post, and last month a Moscow arbitration court awarded Baturina's firm, Inteko, 106,500 rubles ($4,260) in damages and ordered Forbes to publish an apology.

Kashulinsky said that while the ruling was probably binding, no decision had been made on whether to appeal.

Earlier this year, Inteko also won similar compensation from Kashulinsky for comments he made on Ekho Moskvy radio that the firm pressured him to withdraw the Baturina article. His appeal against that decision might take months or years, Kashulinsky said in a recent interview.

The Baturina affair could have been the final straw for the Berlin-based parent company, an industry source familiar with the matter said. "[Axel Springer CEO] Mathias D?pfner originally wanted to exit Russia," the source said, speaking on condition of anonymity because of the sensitivity of the issue.

Since February, speculation that Springer was seeking to sell its Russia operations has periodically surfaced in national media.

Among the possible buyers mentioned was Independent Media Sanoma Magazines, the parent company of The Moscow Times.

Independent Media CEO Derk Sauer said Wednesday that his company had preliminary contacts with Springer earlier this year but that negotiations never got going. "Springer at the time was probably not prepared to sell," he said. Sauer would not comment on the chances of a fresh attempt at a partnership with Springer.

Springer's chief spokeswoman, Edda Fels, said she did not rule out a strategic cooperation deal that would increase Springer Russia's market share. But she stressed that the unit would not be sold outright. "A sale is not planned," she said by telephone from Berlin.

Usmanov refused to comment. Asked about a deal with Springer at a recent news conference, he said he knew nothing of any negotiations. "I do not know what the management is doing," he said, Interfax reported.

A source within Springer said any cooperation with Kommersant would focus on revamping the Forbes Russia web site.

"There were two meetings with Kudryavtsev on this," the source said. "Kommersant has a lot of know-how and advertising in the online sector."

But RBK Daily reported Tuesday that any deal with Kommersant would exclude Newsweek, because of stiff opposition from The Washington Post Company. In the event of a deal with Kommersant, Newsweek would go to another licensee, the paper said, citing media sources.

Forbes Inc. did not respond to e-mails and telephone calls seeking comment. Rima Calderon, spokeswoman for The Washington Post Company, declined to comment Wednesday and said that any statement had to come from Springer.

Springer's position is greatly complicated because the international licensing contracts for Forbes and Newsweek, which are typical of the industry, contain change of control clauses that stipulate that the license can be given to somebody else if an ownership change occurs, the Springer source said.

"Every contract must give the holder the final word over any license transfer," as the licensor wants to reduce his risk if the licensee fails, said John Cabell, a New Mexico-based media consultant.

Objections to an Usmanov sale would not be "insurmountable, but both Forbes and Newsweek are very disciplined about maintaining their distance from media groups [that] are too cozy with politicians," Cabell said in e-mailed comments.

William Dunkerley, a Connecticut-based publishing consultant, said Forbes and Newsweek would have definitely scrutinized Usmanov's motives. But any decision, he added, would be tested against the "explosive growth of the country's advertising market."