Anton Kudryashov CEO, CTC Media

CTC Media is one of Russia’s largest broadcasters and a key player in the country’s evolving broadcast landscape. As Russian satellite operators, Russian Satellite Communications Company (RSCC) and Gazprom Satellite Systems (GSS), put up more capacity and more DTH players emerge, the Russian broadcast landscape is likely to be a hotbed of innovation during the next few years. Anton Kudryashov, CEO, CTC Media, talks about how broadcasting in Russia is entering a new era.

VIA SATELLITE: Has the global economic recession had an impact on advertising revenues in Russia?

Kudryashov: In 2010 we were already above our 2008 peak revenue levels by 14 percent, while the Russian television advertising market was still lagging behind its pre-crisis volume. Even in the crisis in 2009, when our total operating revenue was down 21 percent, we delivered high margins. That illustrates how effectively we can manage our costs. Currently, the Russian television advertising market is rapidly growing, and we expect that it will restore above pre-crisis levels of 2008 this year.

VIA SATELLITE: What are the major challenges for CTC Media during the next 12 months?

Kudryashov: We are going to maintain focus on our core business of pure entertainment programming and development of all three FTA CTC Media’s Russian channels — CTC, Domasny and DTV — which have been renewed and have operated under the new logo “Peretz” since October 2011.

We are planning to develop our business in the CIS segment and to expand our international pay-TV presence through CTC-international via cable and satellite platforms in the countries with considerable Russian-speaking populations.

As the Internet is growing at lightning speed, we are also focusing on expanding our online and new media presence. In December 2010, we launched an online social television network Videomore (www.videomore.ru), which is rapidly growing its user base, and we are actively working on developing CTC applications and widgets for different platforms. New media — including online, mobile and Connected TV — is a fast-growth market that needs exciting content to gain viewers, subscribers and advertising clients. In the on-demand world, providers with the strongest content benefit the most — meaning that major TV companies like CTC Media are well positioned to lead this market.

VIA SATELLITE: What do you see as the main growth drivers for CTC Media?

Kudryashov: Growth drivers of our business are closely connected with the high growth potential of the Russian TV ad market as a whole. First of all, the Russian TV advertising market is already quite sizeable: No. 9 in the world and No. 5 in Europe. It is expected to become No. 5 globally within just three years. Remarkably, this will also make us the biggest European market in 2013. In our view, in the long-run, ad market growth will be driven by growing GDP, household consumption and increasing consumer leverage. One of the metrics we look at when estimating the ad market growth potential is ad spends as a percentage of GDP. Private sector loans penetration in Russia is also lower than in other European countries and has significant room for expansion. An important feature of the Russian advertising market is that television plays a dominant role. TV accounts for more than 50 percent in the total ad spend, and according to market experts, the share of TV will not fall below 50 percent by 2015 (thus Internet will be growing at the expense of radio and print).

VIA SATELLITE: What would you say are the major technical challenges facing CTC Media right now?

Kudryashov: The technology challenge that the Russian FTA broadcasters might face in the next five to seven years is transition from analog to digital. CTC Media is already technologically prepared for the switch to digital broadcasting. For the past two years, we have been investing in the modernization of our broadcasting equipment and digitalizing our content library. In 2010, we invested $16 million into building our digital play-out facility in Moscow.

VIA SATELLITE: How are you looking to service the tablet market and other emerging digital platforms?

Kudryashov: There are some major trends that distinguish our life. Nowadays people tend to do several things at once. For instance, while working on the computer, they are watching TV and at the same time using different applications on a cell phone. Russia is the second largest market in Europe by the number of Internet users and its number has been significantly increasing. CTC Media is focusing on being where viewers are looking for our content and to monetize the company’s content and brands in new media.

This summer we launched an application of the CTC channel for the iPhone. According to the statistics, there are more than 1.5 million iPhone users in Russia and they spend much more money on mobile Internet than all the other smartphone users. Besides the opportunity to watch popular shows and series on the iPhone, the application provides a lot of additional options. The launch of the first version of the application was very successful — a large number of people have already registered and actively share the information on what they watch on the CTC channel. The second release of the application with merchandising options will be launched soon. We have also launched a CTC widget for the LG Smart TV and an interactive subscription service to CTC Media content on VimpelCom’s IPTV platform Beeline TV.

VIA SATELLITE: What major initiatives is CTC Media working on in terms of the delivery of content in Russia?

Kudryashov: We are paying great attention to strengthening our online presence. Our social television network, Videomore, is an interactive video platform that provides free access to content from the company’s three Russian channels.

The launch of this network had a lot of objectives and one of them was to attract attention from the Internet audience to our content. In time, this audience will become loyal and convert into permanent viewers. Another target is to cooperate closely with our viewers in the Internet space. Videomore uses the latest high-end technology, which facilitates the provision of unique additional features, combining the functionality of a classic video streaming portal with the interactivity of a social network. Besides providing standard options, such as watching and commenting on video clips, users are able to chat and create ‘video quotes’ from Videomore videos, which can then be exported to external social networks, blogs and other websites. Videomore also offers additional options like personal playlists and the setting-up of communal viewings of thematic channels with simultaneous online discussions, initially using text chat, with video chat being launched in the near future.

Currently, CTC Media’s social television network library consists of more than 9,000 hours of content produced for the company’s Russian channels at launch and the online library is expected to expand in the near future.

VIA SATELLITE: What is the international play for CTC Media?

Kudryashov: In 2008, CTC Media acquired a majority economic interest in Channel 31, a group of companies in Kazakhstan and a control stake in the TeleDixi broadcasting company in Moldova. Thus, CTC Media received access to a potential audience of about 20 million people.

Beyond the CIS, we have already expanded into the United States, Germany and Israel by launching our CTC-international pay-TV channel for Russian speaking audiences. We are planning to further expand our presence in Europe and North America. This year, we have already launched CTC-international on two new platforms in the United States — Time Warner Cable and Russian Media Group. In October 2011, CTC-International became available to Cablevision’s iO TV digital cable television customers as a part of the iO Russian package.

We understand that the CTC-International business segment is an important part of our business, but we are not planning for it to be a significant revenue driver. However, this is a very cost-effective way to leverage our content. Overall, our operations outside of Russia account for about 2 percent to 3 percent of our consolidated revenues.

VIA SATELLITE: How do you see the Russian digital TV market developing during the next two years?

Kudryashov: The analog switch-off was initially planned for 2015, but it is pretty clear that it is unlikely to happen. There are currently 19 national terrestrial channels in the country, all of which should be made available for free to viewers after the digital transition is completed. This makes up three multiplexes, each with eight to nine channels. As of today, only the channels which will form the first multiplex have been identified. They consist of eight federal channels (mainly state-owned) and one local (which will vary region by region). We expect the first multiplex to be launched in 2015 or 2016. CTC Media is looking to enter the second multiplex, which we expect to be launched after 2017. The third multiplex should launch after 2020. Analog channels in each multiplex will be switched off after at least 95 percent of the population is able to receive them in digital format.