OREANDA-NEWS. December 16, 2009. RBC-Daily and Kommersant ran a story this morning stating that the United Russia deputies, Irina Yarovaya and Sergey Neverov, yesterday had submitted draft changes to the Russian Advertising Law, in which Russian Federal Broadcasters (i.e. broadcasting in more than 5 subjects of Russia) would not be able to conclude TV ad sale contracts with ad selling houses that enjoy preemptive market positions (which market share exceed 35%). According to Irina Yarovaya quoted by Kommersant, the bill targets TV ad selling market demonopolisation.

We believe that reducing concentration in the TV ad selling market is unlikely to trigger pressure on TV ad pricing which remain cheap in Russia (less than USD 3 CPT vs USD 6-9 in the developed markets). Furthermore, the TV ad market participants had already seen TV ad prices drop by 10-30% in 2009 resulting in TV ad market falling by 20%. As a result, they might be reluctant to carry out an aggressive pricing policy further on the back of stabilising economy and first signs of recovery to be more pronounced already in 1H10.

If the amendments are approved, it could primarily challenge the position of Video International (VI), Russia’s largest TV ad selling house, which sells TV ads of 11 Russian channels with a combined YTD audience share of over 55%. Also, remember that Mikhail Lesin, the co-founder of Video International (back in 1991) was dismissed as a Presidential Advisor a month ago.

CTC Media’s networks and TV stations have agreements with VI to sell their entire inventory which sells over 95% of group’s top-line. Currently, CTC Media has concluded TV ad sale contracts with only part of its advertisers for 2010. Should the new guidelines tighten the screws on VI, CTC Media (Buy, TP USD 28) would i) keep the contracts concluded in force for at least one year ii) might start seeking a new selling agent, iii) consider selling the ad air time itself as CTC Media has had this type of experience (it had been selling advertising inventory at its regional TV stations’ until 2006).