M&A boom on Russian media market

2006 has seen a wave of mergers and acquisitions in the Russian media sector. The country's businessmen revealed a strong appetite for newspapers, television stations and internet portals.

The media acquisition race is headed by Vladimir Potanin, whose holding, Prof Media, has so far spent an estimated $US 1 BLN on new assets. These are three entertainment television channels, an internet portal and a media company that owns a search engine and a prominent news site. 

Other oligarchs have also been busy, with metals magnate Alisher Usmanov buying a leading business daily while eyeing a sports channel, and Russian aluminium tycoon Oleg Derispaska buying a magazine as the basis for his own media empire.

So why all this interest? 

Like the economy, commercial television in Russia is booming. Television channels that focus mainly on entertainment are seeing the highest growth. And it's the advertising profits that are drawing investors into the television sector. 

Ad revenues reached $US 5 BLN in 2005. This may seem small for a big country like Russia but the levels of profitability in this market are in no way humble. Markets like TV offered 30-35% net margins and 50-55-60% year on year growth over the last five years. 

“Here in Russia, old media, what we call old media in the West – television, radio is a growth industry. It's no longer a big growth industry in the United States, for example, but it's a big growth industry here,” explains the head of a newly-purchased channel TV-3 Tim McDonald. 

Analysts say investing in media is also a good way for the metal magnates to diversify their business, hedging against possible swings in commodity prices. But others say there's more than business to the deals. 

“There are a number of political reasons as well. In the view of the 2008 elections, we are going to view more M&A activity, to my mind, since the media market is something like an additional force in the election run,” suggests Tatyana Kapustina, Analyst, Aton Capital.

Before 2008, analysts say, other big companies close to the Kremlin – like Severstal or RAO UES – could also decide to set-up media holdings.