OREANDA-NEWS. July 12, 2010. CTC Media reportedly notified advertising agencies that it is raising the price of product placement on its channels and implementing new restrictions on the number and type of placements. It will now limit product placements to 2/program, and will add captions indicating that the advertiser is a sponsor of the program. It will not accept placements for beer or pharmaceuticals, reported the press-centre of OTKRITIE Financial Corporation.

View: The changes in CTC's product placement policy are based on regulatory guidance in line with the increased regulatory scrutiny of product placement after a controversial placement on a competitor's channel this spring. Ad agencies estimate that market prices for product placement have risen 1.5x. The price hikes will help offset the reduction in quantity, but the addition of captions may make product placement less attractive to advertisers. While CTC does not disclose its revenue from product placement; we estimate that it accounts for 1-2% of total revenue.

Valuation: CTC trades on a 2010 EV/EBITDA of 11.8x. 

Action: The change is likely to have a negative, though minor, impact on CTC’s sales, hence we expect neutral reaction on the stock. We reaffirm our BUY rating and a target price of USD26/share on CTC.