Bright Future of Russia's Press Threatened by Corruption

(World Security Institute, Johnson's Russia List, March 25, 2009)

By William Dunkerley

At a time when many believe global publishing markets have nowhere to go but down, Russia stands out as a beacon of hope. From 2004 to 2007, the print market grew 113.7 percent. Projections have that growth reaching 547.7 percent by 2013.

However, a fundamentally-corrupt media business culture casts an ominous shadow on the prospects of Russia's press ever realizing its potential. Those are conclusions from an extensive study of Russia's publishing and print markets recently conducted by my firm, William Dunkerley Publishing Consultants. The study was commissioned by Pira International, Surrey, UK.

There are a number of key drivers that suggest great potential for growth:

--overall economic growth of the country

--prosperity extending into additional segments of society (i.e., emergence of a middle class)

--accelerated growth of regional economic centers

--continued growth in advertising expenditures

What's more, Russia's publishing and printing market is still a relatively small segment of its economy, when compared to other countries. "Print Market Factor" is a relative measure of the size of a country's print market compared to its GDP. Russia has a Print Market Factor of just 57. By comparison, for the U.S. it's 158, Germany is 129, India is 144, Poland is 115. Russia's relatively low Print Market Factor is probably a combination of two influences: (1) the underdevelopment of the sector, and (2) the conduct of a significant amount of business in the shadow.

Since mid-2002, advertising growth has been a particularly potent driver. Before then, advertising expenditures were largely not tax-deductible, thus putting a lid on growth. However, the years 2001 to 2008 saw meteoric ad growth of 511.4 percent as the void was filled. Growth of only 81.8 percent is projected from 2008 to 2013.

Something seems askew, however, as to how Russia's advertising money has been distributed. Worldwide, 37.7 percent of ad money goes to TV. In Russia it's 50 percent. Worldwide, only 5.4 percent of ad spend goes to outdoor advertising. In Russia, it's 17 percent. Magazine ad spend in Russia is roughly on par with worldwide practice. But newspapers worldwide enjoy a whopping 28.8 percent share of ad money. In Russia, they get a paltry 5.4 percent.

So, what's the problem with the newspapers? Why are they so underperforming? Why is a disproportionate share of ad money going to TV and outdoor?

The principal problem is that newspaper firms prefer to sell influence instead of serving the needs and interests of their consumers. Corrupt hidden advertising and sponsorship money serve as major revenue streams for the newspaper publishers. That results in content that is hardly reader-responsive, and that engenders a lack of interest on the part of consumers. Circulation is built by targeting voters (with their disproportionate share of low-income pensioners), instead of the true consumer base that the advertisers want to reach.

All this leads to a diminution of legitimate advertiser interest. While Russia's press stands on the threshold of a bright future, its sector-wide corrupt business culture maintains a stranglehold on the prospects for progress.

Without a change in this situation, there'll be no bright future ahead. Our study found that perhaps as much as 70 percent of Russia's printing machinery has exceeded its normal service life and needs to be replaced. Given the poor financial performance of newspapers, where will sufficient investment capital come from?

Russian President Dmitry Medvedev has virtually given up on solving the existing press problems. In his first state of the nation address he identified Russia's bureaucracy as the country's "most active publisher." "The bureaucracy from time to time casts fear over the business world, ... takes control of this or that media outlet, trying to stop it from saying what they consider the wrong thing. ..." Medvedev concludes, "This is a completely ineffective system and leads only to corruption."

What's the solution? Medvedev apparently believes there is none. He advises Russians to "leave the media in peace" and instead turn to the Internet. That's a mighty limited alternative, however. Russia's Internet penetration is lagging. We found it's likely to take 5 years before it catches up to even the level France is at today.

Much of the findings of my study have been published by Pira International as part of a report for which I am the principal author. It is entitled, "The Future of Printing in Russia and the CIS." In addition to the publishing market, it also covers all other forms of printing.

Beyond that report, however, the Russian press predicament has serious implications for the country's economic and democratic development. Experience shows that a healthy media sector is a strong concomitant to sustained economic growth. On the democratic side, the ready availability of reliable, consumer-centric news is an essential ingredient.

Throughout the `90s and beginning years of this century, Western countries have spent perhaps hundreds of millions of dollars ostensibly to help press freedom develop by assisting media professionals to improve their skills. Unfortunately, for most of that time, Russian laws precluded the financial independence of the press, and thrust the publishers into the clutches of those willing to pay to distort the news in their own favor. While those assistance programs no doubt had many meritorious achievements, no amount of assistance focused at the enterprise level could ever have changed the underlying problems.

A private sector initiative, the Russian Media Fund, did however successfully advocate for the repeal of those laws that interfered with profitability. That eliminated one roadblock. The remaining one is the entrenched, corrupt business culture of the media sector.

Since "reset" buttons seem to be in vogue these days, perhaps its time to push the button on how to interact with Russia's process of media development. "Collaboration" seems a better suited paradigm than "assistance" at this time. And a focus on promoting a healthy media sector would be more apropos than going back to interventions at the enterprise level.

Accordingly, it seems to me that it would be better if the Obama administration would transfer the relevant responsibility (and funding) from the Department of State to the Commerce Department. Its role should not be one of attempting direct intervention, however. The true American stakeholders in the normalization of Russia's media sector are the many American companies that are active advertisers in the Russian media market. With private sector coordination by the Russian Media Fund or some such organization, it should be possible to make a real difference, with benefits accruing to the American companies, and to the Russian people, their economic progress and their democratic development.