Media Most’s flamboyant CEO Vladimir Gusinsky is still on Moscow prosecutor general’s ‘most wanted’ list of alleged financial fugitives, according to local Russian reports. This legal threat plus associated financial difficulties have placed into jeopardy Russia’s emerging pay television industry. The company is now actively seeking fresh investment partners and admits its talking to Rupert Murdoch, writes Chris Forrester.

Media Most is Russia’s largest privately-held media group and operates a complex structure of media-based companies including the NTV and NTV+ television and satellite channels as well as newspaper, magazine, radio, film and cinema interests, plus the Bonum 1 satellite and long leases on other satellites serving Russia, in particular Eutelsat.

The arrest warrant on Gusinsky was issued on November 13 when he failed to return to answer fraud charges. He was briefly imprisoned this past summer on alleged fraud charges. Gusinsky carries an Israeli passport and has business interests in Israel, although one of his main holding companies is domiciled in Gibraltar. His NTV station is highly regarded in Russia and its news reports lead the local ratings. NTV has been a long-term critic of President Putin.

Gusinsky joins another enforced Russian expatriate – and would-be media mogul – Boris Berezovsky, who owns 49 per cent of Russian public broadcaster ORT. The two are well known rivals. In August Berezovsky handed over his shares to a committee of ORT station executives and journalists claiming this would form an independent board of trustees.

Berezovsky has since been linked with an investigation into an alleged embezzlement scam that involved missing cash from state airline Aeroflot. As far as terrestrial technical coverage is concerned NTV is near 100 per cent, ORT has 98 per cent coverage, while RTR covers some 90 per cent of the population.

Boris Berezovsky, who through the 1990s exercised de facto control over ORT television, chose on November 21 not to return to Russia after being summoned to appear at the prosecutor general’s office.

On November 17 it emerged that Media Most had agreed a November 11 debt-for-equity swap with Gazprom, the state-owned gas monopoly, and already a major Media Most shareholder. The agreement, valued at between $1.3-$1.4 billion (E1.55-1.67 billion), gives Gazprom and Guzinsky what are described as mutual 25 per cent ‘blocking stakes’ in Media Most’s main Russian assets. Media Most says that it is also looking for a new “internationally recognised outside investor” who “has no direct or indirect” link with Media Most or Gusinsky to take a 25 per cent stake in the venture organised through Deutsche Bank.

Gazprom Media director general Alfred Kohl says the Deutsche Bank contract will be signed by December 20. The bank has already confirmed its willingness to help with the sale, he said. Gazprom is itself 38 per cent owned by the Russian state.

Specifically, Russian news agency Interfax says Gazprom Media will control 65 per cent of the shares of the NTV station and 50 per cent plus one share in all other Media Most companies. Kohl explained that Gazprom Media will get 16 per cent of NTV shares and stakes of 25 per cent plus one share in the rest of Media Most’s holdings in exchange for a $211m debt to Gazprom, which it had paid to clear a Media Most loan from bankers Credit Suisse First Boston.

These stakes will be added to the 30 per cent of NTV that Gazprom already owns (making 46 per cent). Additionally, another stake of 19 per cent in NTV is held as collateral for a second $260m loan that Media Most negotiated with Credit Suisse, guaranteed by Gazprom, which falls due in July 2001.

NTV also owns some 85.5 per cent of THT, a satellite and regional TV network. All in all Media Most says the group has a total valuation of some $1.4 billion, but according to local reports, Gazprom/Media Most are looking for as an outside injection of around $90m for a 25 per cent stake in NTV, which implies a valuation around $360m for the TV assets, and maybe $600-$800m for the group as a whole.

Media Most has accused the Putin government of pursuing a vendetta against the company and Gusinsky. However, Kohl, in a local interview, said that NTV’s independence from government was now protected, adding that he believed Gazprom Media and Media Most had agreed a “normal solution” to the financial problems.

“We needed some time to analyse the situation and understand what further steps to take. We concluded an ordinary agreement with Media Most and a number of offshore companies, not with Vladimir Gusinsky personally. All the passions which flared up over this time should now subside. I hope the agreement will be honoured properly.”

Kohl also confirmed that discussions were taking place with potential investors. “But I want to stress that Mr Murdoch is being considered along with other potential investors. There are no exclusions. The maximisation of the sum we will get as a result of one or another transaction will be the decisive criterion. That is why we are hiring Deutsche Bank, which has a spotless reputation in such deals,” he said recently.

The financial agreement – and rescue – may not have come a moment too soon. On November 14 it was reported that the Moscow Court of Arbitration had ruled that $12.77 million be recovered from the NTV+ subsidiary that controlled the Bonum-1 satellite. The ruling said that in 1997-98 the Bonum-1 “closed joint stock company” borrowed $142.5 million in various Finance Ministry loans. The money was used for Bonum-1, needed for the rebroadcasting of NTV+ programmes across Russia.

In January 2000, Bonum-1 stopped paying off the debt and interest, which prompted the Finance Ministry to take legal action. Bonum-1 was launched from Cape Canaveral, Florida in December 1998.

Gusinsky has expanded his media empire on many fronts. In publishing, his Seven Days publishing house experienced financial problems following the August 1998 financial collapse in Russia. But the situation has since improved. Seven Days publishes the daily Segodnya, the weekly Itogi and TV listing magazine Seven Days and Karavan Stories. Last year Seven Days had typical sales of some 900,000 copies.

NTV also has a 100 per cent control in the Mir Kino cinema group and channel. Its interests include TV and movie production (including TV series) and the building of new cinema/entertainment complexes in Moscow and other Russian cities. Additional to our charted display of Media Most companies there is also NTV Profit, which makes films and series and has a video rental/distribution division.

Amidst all this confusion there was one modest sign that a certain degree of normality exists in at least one of Media Most’s broadcasting divisions. Some 1,500 high school students are taking part in a ‘distance learning’ scheme called ‘Teleschool’ and broadcast through NTV-plus, was unveiled in Moscow last week, when broadcasts began and a related web site was launched.

The broadcasts, transmitted via satellite and requiring decoders for reception, are available by subscription. Participating families will be required to pay for technical equipment, including a satellite dish. The maximum cost of installation with connection to the service is $368, according to NTV representatives.

Meanwhile, NTV+ satellite subscriptions are still reportedly ‘buoyant’, helped no doubt by the continued problems of service from the Moscow TV tower. Russia, over the past 18 months, has seen consumer price inflation plummet from around 125 per cent per year to a more manageable 24 per cent.

Moreover, the latest OECD figures suggest Russia’s current 6 per cent GDP will settle down to a calmer 4 per cent a year for at least the next two years. Media Most and NTV+ should benefit from this stability, especially if its financial troubles are contained. There is another aspect worth remembering. NTV+ also reaches Russia’s diaspora, whether in Europe, in Israel or in North America.