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Russia: Financial Interests Continue To Control Media Outlets

By Floriana Fossato and Anna Kachkaeva

Moscow, 13 March 1998 (RFE/RL) -- Last September, a few weeks after the controversial privatization of a stake in Russia's state telecommunications giant "Svyazinvest," President Boris Yeltsin invited to the Kremlin six men widely considered some of the country's biggest financial and media magnates. Yeltsin told them to stop "slinging mud" at each other and at cabinet members, through the media. With his words, Yeltsin indirectly acknowledged that financial interests control the editorial line of Russia's media outlets, at least of the central ones, based in Moscow.

Following the meeting, Yeltsin said he had obtained the pledge that, what has been dubbed by observers as Russia's "bank-and-media war" would stop. But, despite the Kremlin meeting, Russia's business tycoons have failed to fulfill their pledge.

The ongoing "media war" has galvanized the process of consolidation of several media empires, which now seem poised to dominate the national media market. As media is not among the most profitable industries in Russia, with printed press operating at a loss, except for tabloids, why do the moguls bother?

The rift among powerful financial industrial groups reflects the constant struggle as new, lucrative privatization sales are scheduled for 1998. "Alliances including on opposite sides all the members of Russia's financial elites have been set up for the privatization of different assets," said a financial analyst, wishing to remain anonymous, "and they will remain at war until the battle is over."

The struggle is gaining tempo as Russia's next presidential election, scheduled for the year 2000, approaches. The daily "Nezavisimaya Gazeta" said, in a front page article last month, that "Russia's next president will be elected during the privatization of Rosneft" (the major, state-owned oil company, Rosneft, is scheduled for partial privatization this year, and competition is heated).

Russia's most powerful bankers and industrialists had joined forces to ensure Yeltsin's successful re-election in 1996. That alliance broke up a year later, when the potentially lucrative sales of Russia's state assets ignited highly public disputes. At the auction of a 24 percent stake in Svyazinvest, Russian biggest telecommunication company, the composition of the opposing camps became clear. The auction's winner, Oneximbank chairman Vladimir Potanin, became the arch-enemy of the losers, Boris Berezovsky and Vladimir Gusinsky.

Now, the struggle has escalated in preparation for further privatization tenders. Among them, a stake in oil company Rosneft and a second Svyazinvest stake are considered the most attractive bits. Gusinsky's "Most Group," including the "Media Most" holding and Most Bank appears to have joined forces with Berezovsky, whose empire includes stakes in car-dealer LogoVAZ, airline Aeroflot, oil company Sibneft and Russian Public Television ORT. In January, Sibneft merged with oil company Yukos, part of the Rosprom industrial-financial group controlled by Mikhail Khodorkovsky's Menatep Bank, to form Yuksi, Russia's biggest oil company.

The split among the financial elite is mirrored by the rift existing among cabinet members. President Yeltsin's traditional tactic of "divide and rule" now appears to have backfired. Analysts say that Yeltsin, trying to assert himself as the only unrivaled boss in the Kremlin, is now gradually losing his grip on power. As a result, two competing groups appear to be increasingly at odds within the government: the so-called "young reformers," led by First Deputy Prime Ministers Anatoly Chubais and Boris Nemtsov, who push for de-monopolization and fast privatization of state assets - and, the more conservative camp, led by Prime Minister Viktor Chernomyrdin.

As the next presidential race looms and the Kremlin is striving to establish who will be the candidate for the "party of power," the competing camps in the cabinet appear to be backed by rival business groups. Meanwhile, a third group strongly emerged, led by populist Moscow Mayor Yuri Luzhkov.

Analyst Lilia Shevtsova, a top associate of the Carnegie Endowment for Democracy and Peace, said recently that "Yeltsin is convinced that society is waiting for him to name a successor. Meanwhile, each of the political and financial clans is maneuvering to place its own candidate in the Kremlin."

Chernomyrdin, who previously led the powerful natural gas giant "Gazprom," and has long stayed in Yeltsin's shadow, in the last few months has emerged as a powerful political figure, becoming more and more independent. "Gazprom," Berezovsky, Khodorkovsky and the powerful chairman of Bank SBS-Agro, Aleksandr Smolensky, seem to be consolidating around his candidacy. Oil giant LUKoil's chairman, Vagit Alekperov, is also seen as a possible Chernomyrdin's supporter.

Chernomyrdin has strongly denied presidential ambitions, but his supporters are building his public image. "Gazprom" Media Holding is seen as his "natural" platform. Gusinsky's "Media Most" also appears to be taking a favorable approach toward Chernomyrdin, although Gusinsky has said in recent interviews that he supports the leader of the pro-reform "Yabloko" movement, Grigory Yavlinsky, a previous presidential candidate, who is expected to run again.

Influential media outlets supporting Chernomyrdin at the moment are Russia's Public Television ORT, Russia's main commercial television channel NTV, the dailies "Negavisimaya Gazeta," "Kommersant," "Trud," "Rabochaya Tribuna" and "Segodnya." (for a full listing of media assets, controlled by Chernomyrdin supporters see related materials on: Government, Media Most, Gazprom, Berezovsky/Khodorkovsky/Smolensky). See table and chart

Luzhkov, who holds a powerful grip on the Russian capital has also denied presidential aspirations. But observers say he can count on the might of Moscow to expand his popularity throughout Russia's regions. The television concern "Center TV," founded in 1997 and rapidly growing, with the aim of becoming a nationwide network, is seen as Luzhkov's main tool to promote the Luzhkov image. "Center TV" has the financial backing of the Moscow city government (for a full listing of media assets supporting Luzhkov, see related materials). See table and chart.

The more likely candidate for the "reformer's" camp is still believed to be First Deputy Prime Minister Nemtsov. Oneximbank is seen as the financial concern closest to the reformers. Oneximbank has considerable assets in the print media in Moscow. However, it doesn't seem to be working to consolidate its media interests in the regions, where local political and financial elites still dominate. By contrast, "Media Most" and "Gazprom Media" are both fast expanding at regional level (see related feature stories).

Also, Oneximbank does not control a nationwide television network. Analysts, noting how important favorable television coverage proved for Yeltsin in 1996, see this as a negative factor. Oneximbank is expected to bid for a another 25 percent stake of "Svyazinvest," after winning the first tender (for a full listing of media assets controlled by Oneximbank, see related material on Potanin). See table and chart.

Meanwhile, Berezovsky scored a decisive victory over Chubais and Nemtsov in the long-running struggle over the control of Russia Public Television ORT in January, with the confirmation of a new board of directors seen as loyal to his interests. ORT, the first channel of Russian television, is the country's most popular television network. Andrei Piontkovsky, the Director of the Moscow Center for Strategic Studies, said that not a single person on the eleven-member new Board is aligned with the reformers. He said that everyone is seen either as a Berezovsky supporter, or, as neutral.

Berezovsky reportedly also maintains control over some top ORT managers, who formerly were top LogoVAZ managers. Obedinyonny bank, a LogoVAZ affiliated, is part of the consortium of four banks that owns 38 percent of ORT. The bank consortium also includes SBS-Agro, Menatep and Alfa Bank. The state owns 51 percent of ORT's stakes. See table and chart.

The fate of the second channel of Russia's television, RTR, is highly controversial. RTR is the only fully state-controlled channel. However, the state has proven unable to maintain control over finances and management issues. "Video International," one of Russia's major advertising companies, is reported to be RTR's exclusive advertising agent. One of the agency's founders, Mikhail Lesin, last year was appointed RTR's deputy chairman, and has taken a tough management line, eliminating jobs and reducing costs. Oleg Poptsov, who chaired RTR from 1990 until his dismissal in 1996, has predicted RTR will soon be partially privatized, as was ORT in 1995.

Since a cabinet redistribution of powers in January that stripped the reformers of key responsibilities, Chernomyrdin is now officially overseeing Russian media.

And, Chernomyrdin has begun weekly, live appearances on RTR, answering viewer calls. Until now, only Yeltsin had delivered weekly (taped, radio) broadcasts to Russia's citizens.