To Russia, With Longing

Murdoch wants part of independent Ren-TV -- and the Kremlin may O.K. it

When media mogul Rupert Murdoch and a small group of American executives met Russian President Vladimir V. Putin in St. Petersburg this June, the News Corp. (NWS ) chief broached a controversial issue: Was the Kremlin ever going to lift its virtual monopoly on Russia's national TV networks? For Murdoch, it was a burning question. The increasingly lucrative Russian TV market is one of the few beyond his global reach. The surprise answer from Putin: There may be room for competition after all.

With that, the mighty Murdoch machine swung into action. On Aug. 1 executives from News Corp. flew into Moscow to explore the possibility of taking a minority stake in Ren-TV, an eight-year-old national network that ranks only No. 6 but has made a name for itself with its independent news coverage. By law, foreign shareholders are limited to a direct participation of less than 50% in Russian TV networks. If Murdoch's people needed any reminder that there were national sensitivities at play, the message came through loud and clear on Aug.2, when Moscow announced it would not renew the accreditations of journalists working for ABC (DIS ), after the U.S. network aired an interview with Shamil Basayev, a Chechen warlord who has claimed responsibility for last year's Beslan school siege.


From the Kremlin's perspective, Murdoch might prove the ideal foreign investor. The Australian-born media mogul is accustomed to dealing with authoritarian regimes. In China, for instance, his satellite network Star TV stopped broadcasting the BBC in 1994 for fear of offending Beijing authorities.

Murdoch is no stranger to Russia. News Corp. already has about a quarter of the $800 million outdoor advertising market and has investments in two Russian radio stations. Nearly two years ago the company sought to acquire a stake in the satellite arm of No. 4 broadcaster NTV, which is owned by state-controlled Gazprom, but was rebuffed. "We've been looking closely at the Russian TV market for a long time," says Marty Pompadur, News Corp.'s chairman for Europe.

Ren-TV could be one of the few remaining chances for Murdoch to get a foothold in Russia's television industry. It's a promising market: TV ad spending rocketed 33%, to $970 million, in the first half of 2005, according to the Association of Russian Communications Agencies. With two national networks -- Channel One and Rossiya -- firmly in state hands, and others not looking to sell, Ren-TV, with estimated revenues of $90 million in 2004, offers the best prospects. News Corp. is interested in taking a 35% stake in the channel, says a source at Severstal Group, a private Russian steel company that in early July paid $100 million for a 70% stake in Ren-TV that had been held by Russian power monopoly Unified Energy System (USERY ) (UES). The remaining 30% was bought by German broadcaster RTL.

On the face of it, Ren-TV might not seem like a prize. Its audience share tops out at 5%. But the network's probing, Western-style news coverage has made it a favorite of local elites. Media insiders say UES was "asked" by the Kremlin to unload Ren-TV after it aired sympathetic coverage of liberal opposition parties in the 2003 parliamentary elections, which the company denies.

Murdoch's bid for Ren-TV is no sure thing. News Corp. faces a rival bid from the channel's founders. Also, the company must find a way to sidestep the restrictions on foreign ownership of TV media, if it is to take a 35% stake with RTL retaining its 30%. While some high-level officials might support a waiver, others remain resolute that Murdoch's TV empire must not enter Russia. "In Russia, there's a saying: 'Keep out of someone else's vegetable garden,"' says Anton Sergeyev, a Gazprom spokesman for Gazprom-Media.

By Catherine Belton in Moscow

    Before it's here, it's on the Bloomberg Terminal.