Building Ad Supported Media In Russia

by Ken Liebeskind, Aug 22, 2002, 12:00 AM

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Can a developed country with a thriving advertising market transport it to an underdeveloped country without one?

The Russian-American Media Entrepreneurship Dialogue has support from President Bush and American media groups who are seeking to build a stronger ad supported media in Russia. American groups have traveled to Russia to meet with Russian media executives and Russian President Vladimir Putin, filed a 70-page report on their progress and early this month met with Pres. Bush and National Security Adviser Condoleezza Rice to inform them of their progress.

The goal of the project is to develop a free media in Russia, because "independent media is the backbone of democracy," according to the report. But there's much more to it than that. Among the project's stated goals are three pertaining to advertising:

* The elimination or reduction of the Value Added Tax on advertising to remove a major obstacle to developing the Russian advertising market

* Placing limits on the amount of advertising that can be sold in state controlled media to increase the share available to commercial media

* Changing restrictions on the percentage of advertising that media can accept to increase the growth of competition in the open market.

"We're not trying to open the ad market in Russia for U.S. advertisers," says John Sturm, president/CEO of the Newspaper Association of America, which supports the dialogue along with the National Association of Broadcasters.

"There's a lot of steps that have to be taken before anything can flourish there. The problem is there are government subsidies to the media and value added tax and the government dominates it. It's not the Communists, but the government influence. And there's no measurement of media in Russia. All those things contribute to a lack of incentive to create a vibrant advertising market. If you can sit there and have them hand you a check, why would you go out and sell advertising. That's why we start by removing the subsidy. We have to do a bunch of things for an advertising market to flourish on its own."

Sturm traveled to Russia with RAMED in May and visited a newspaper, which had 150 reporters and two ad salesmen. One goal of the program is to boost the number of ad sellers, because ad supported media is the American model the Russians will try and copy.

Sturm doesn't know what will happen next. "The government doesn't tell us, we work it out with the Russians on the sidelines," he says. "It's largely done on the private side."

Much of the Russian media is privately owned, but it is "infantile," Sturm says, and largely undeveloped. American newspaper companies have pledged $50 million to develop an investment fund for Russian media when a model for a solid Russian media is in place.

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