CTC Network Challenges Russian TV Giants

In Russia's cutthroat and usually loss-making television industry, one small, foreign-owned company is taking on the domestic giants.


The Commonwealth of Television Companies, a small commercial television network with a programming budget of just $7 million a year, believes it can challenge state networks ORT and RTR, and Vladimir Gusinsky's privately owned NTV.


"We are looking to build a billion-dollar company, operating in multiple countries in the CIS and Eastern Europe," says Peter Gerwe, the American founder of CTC and the head of its parent company, StoryFirst Management.


In addition to controlling CTC, StoryFirst owns 50 percent or more of television stations in nine Russian cities. The network says it has relays in another 138 markets of over 30,000 people each, and reaches about 30 percent of the Russian population.


With a total investment of some $30 million to date, CTC represents the biggest U.S. investment in Russian broadcast television.


Compared to Russia's television heavyweights, CTC's share of the market is small. The network maintains it is Russia's fifth-largest broadcaster, behind ORT, RTR, NTV and TV6 Moscow. Figures released by the Russian Research polling group put CTC's share at about 1 percent of the daily viewing audience in European Russia, on the same level as St. Petersburg's Channel 5, Moscow's 2x2, AST and RenTV/NVS.


They may have a long way to go before they catch up with the big boys of Russian TV, but Gerwe and CTC have covered a lot of ground.


"Gerwe has done successfully what a lot of people have not even attempted to do. He's the epitome of the cowboy investor," said Eric Johnson, grants administrator at Internews, a non-profit organization that helps regional stations develop their news operations.


But the cowboy could be steering his company toward a big-time corral: Gerwe confirmed recent reports that negotiations are continuing for the U.S.-based CBS network to take a major stake in CTC, and said StoryFirst intends to do a deal with a Western broadcaster this year. CBS in New York had no comment.


For CTC, a deal with CBS could bring in more Western TV shows. Currently, CTC is unique in its American-style approach to programming -- heavy on U.S. soap operas and entertainment series.


The growth of CTC is one of the more remarkable stories of Western investment in modern Russia. Gerwe started small at a time when a single entrepreneur could think big in Russia without dreaming.


His insider track goes back to the early 1980s, when he was involved in the pioneering pre-perestroika "space bridge" programs, which linked Russian and U.S. audiences via satellite.


After one of the first such programs, in 1982, the soft-spoken Gerwe recalls getting off a plane at Moscow's Sheremetyevo international airport and being greeted by an official delegation from Gosteleradio, the Soviet state broadcasting committee.


"They thought I was an assistant or something. They did not believe that someone of 22 was meeting with the chairman of Soviet television," he said.


In 1989, Gerwe began setting up Channel Six in St. Petersburg and a radio station in Moscow, both of which went on the air in 1991. That year also saw the rapid development of StoryFirst's Ukraine-wide television network, called ICTV, which today has 44 transmitters.


In Russia, a network has evolved more slowly. It was only at the beginning of this year that the network was consolidated and relaunched, with a substantial programming budget, as CTC.


CTC distributes its signal by satellite to local stations, which then relay the signal -- an average of 14.5 hours of programming a day -- free across their broadcast zones. Like NTV and TV6, CTC's revenues come from advertising.


StoryFirst was originally funded by individuals, says Gerwe, many of them wealthy private investors from the San Francisco area. Here Gerwe had another useful entre: His first and only employer before he started StoryFirst was Steve Wozniak, co-founder of Apple Computer.


When Gerwe started StoryFirst, Russia's TV industry wasn't such a big-money game. Gerwe recalls going to a local mayor to negotiate for broadcast rights, but ending up chatting with him about fishing over bread and vodka. The next day the license was signed, although its terms had never been discussed.


That wouldn't happen today. To get a license now, "you need money and influence," says Vladimir Sinelnikov, the head of Channel 31, a smaller Moscow UHF station.


Indeed, the Russian broadcasting business usually takes more money than it yields. Television in Russia is like the newspaper industry: Business and political interests seek out mass media branches to serve as conduits for political influence, and profits are of secondary importance.


"Television here is overall not profitable," said Pavel Korchagin, CTC's deputy general director.


Why not? The answer is, above all, the advertising middlemen. Two brokers, Video International and Premier SV, take what advertising agencies believe to be a 30 to 40 percent cut of all television advertising revenues. Between them, they have a virtual lock on the business.


CTC, which sells advertising time through Video International and charges $2,500 a minute during peak programming hours, has yet to make money.


But next year, Gerwe maintains, the network should break into profit. Sergei Skvortsov, the general director of CTC and a former deputy head of state network RTR, points out that CTC enjoys a cost edge because it has neither the bloated staffs of the state networks nor their news and social programming obligations.


ORT and RTR are also saddled with obsolete and hugely expensive distribution networks to get their picture to regional broadcast relay stations. CTC is in the process of bringing into operation a state-of-the-art digital satellite relay system. The first satellite relay, launched in March, feeds CTC's signal to stations as far away as Western Siberia; a second, due to start in July, will extend coverage out to Yuzhno-Sakhalinsk in the Far East, making it truly a national network.


NTV's Gusinsky said he does not see the expanding CTC as a serious rival. "TV6 is our competitor. We do not experience competition from any other channels," he said in an interview.


"Television is a very expensive business," he continued, noting that NTV turns a profit, albeit a small one. "We have invested a lot to be successful. I wish all the best to the new channels, but I do not think that they will be successful."


Several Western television companies would agree. The only big-league Western television company to set up a serious operation here has been Metromedia, part of the investment empire of John Kluge in the United States.


"Two or three years ago, we saw Russia as a major opportunity," said Mike Krafft, the company's vice president in Moscow.


Metromedia aimed to repeat what it had achieved in the United States, where it built up an important group of stations, and then sold at top dollar to Rupert Murdoch's News Corporation. Metromedia runs Kosmos here in Moscow, a cable-based network with some 20,000 subscribers. But Metromedia has scaled back its television plans elsewhere in Russia, and is concentrating on paging, cable television and radio. "Broadcast television here is too risky," said Krafft.


Another U.S.-based company, Turner Broadcasting System, has gone as far as to pull out. News network pioneer Ted Turner helped launch Moscow-based TV6, but in 1994, faced with a need to increase investment, Turner withdrew. Stuart Loory, who represents Turner's broadcasting interests in Russia, said Time Warner, with which TBS has merged, does not intend to come back into Russian television.


But at CTC, they have not been deterred. "Working in Russia is like playing basketball," Gerwe said. "It's a new play every time you come on court."


"A period of stability will come," Skvortsov said of Russian television. "There will be five or six networks. Some will die, swallowed by others."


Skvortsov has big ambitions for CTC's place among Russian networks. "We plan to become comparable to ORT or RTR."


But CTC has considerable ground to cover before it can offer the major Russian stations stiff competition.


Statistics from Russian Research suggest that CTC's daily share of viewers in European Russia, at 1 percent, is far behind NTV's 9 percent and TV6's 4 percent.


However, viewing statistics from the second major Russian audience research agency, Comcon 2, indicate that CT's audience has been increasing steadily this year, whereas figures for the other two networks have not.


Russian Research does not believe CTC has yet made it in Russia's television industry. The network "had not been the success story that was once promised," it commented in a report.


To keep growing, CTC will need considerable investment.


It has cost StoryFirst $5.5 million, Gerwe said, just to have the Moscow authorities improve the reception on communal housing blocks for CTC's little-watched UHF channel. Over half the capital's homes should be able to receive the channel by this summer.


In late 1994, Morgan Stanley Asset Management took a stake of over 25 percent, Gerwe said. A Morgan Stanley spokesman in London would only comment that the company has a major stake and that it avidly supports StoryFirst's development.


CBS is not the first media suitor for CTC: Gerwe said there had been negotiations with other Western broadcasters, and said his company has "been to the altar before with Newscorp and other large media corporations."


For CTC, a deal with CBS would carry the network further toward American-style programming. CTC's approach of "stripping," a common Western practice of showing the same series in the same time slot night after night, has not been heavily adopted here.


But Gerwe said the company will also need to place emphasis on Russian production. Home-made soap operas and sitcoms will eventually top the ratings, just as they do in many countries, he believes. But producing in Russia will only increase CTC's costs and the need for further investment.