New and old moguls in the wild east

By Marius Dragomir

Frankfurt (Oder), 28 Nov 2009

Lawyers and journos (Photo: Marius Dragomir)

Despite the innumerable opportunities created by the internet, independent journalism is declining in eastern Europe, where the media are still dominated by a small number of players who are increasingly connected with political and business interests, and more recently also with criminal groups and outlaws. While the financial crisis has badly hurt the revenues of media companies, fresh business models and innovative solutions are scarce. Media owners use their publications and broadcasters solely as weapons for political and personal gain.

These were the main conclusions from this year’s Frankfurt Days on Media Law, where journalists and lawyers gather. Journalists from the region were bitter and sarcastic: nothing can be done about the gangs of media owners who dominate their countries. Lawyers were puzzled by the blatant legal abuses. Western publishers, with a stake in eastern media markets, inveighed pathetically against their competitors, blaming red tape for their failure to change mentalities, laws and practices. All in all, a sombre atmosphere.

New times, old habits

Concentration of ownership has gathered pace, with emerging groups, often operating in other sectors than the media, gaining control over a significant number of outlets. Ownership structures remain opaque, but more worryingly, the sources of financing behind media are even cloudier today than some years ago. In Bulgaria, for example, the emerging New Bulgarian Media Group has bought a spate of national and local daily newspapers, magazines and TV stations over the past two years. The company has reportedly been in negotiations with the German Westdeutsche Allgemeine Zeitung (WAZ) to buy its operations, including the two largest daily newspapers in the country, 24 casa and Trud, with a combined circulation share of 55 per cent.

Further east, the situation is even worse. Grigory Kunis, vice-president of the Alliance of Independent Russian Publishers in St Petersburg, which gathers 49 regional publishers, said that only a few of Russia’s 14,000 print publications are not connected to or controlled by government and political structures, or by business interests. Government-controlled media receive support from authorities and privileges in distribution, office rent, etc. Moreover, all broadcasters in the country are controlled directly by the government. Private channels are available throughout the country, but are mostly limited to entertainment programming.

Regional authorities are putting heavy pressures on independent media, mostly through repeated inspections to check things ranging from tax payment to advertising budgets and safety measures in cases of fire. The internet is slowly catching up in the country. Readers are moving to the web, but there are only 35 million internet users forecast for 2010, which is less than a third of the country’s population. At the same time, news websites lack modern tools and design.

On top of all these challenges, the region is also seeing the rise of investors who are rapidly buying up internet ventures. One of these companies, a speaker at the conference pointed out, is the Russian-backed Digital Sky Technologies, which has over recent years purchased an impressive number of social networks across the region, both domestic and international. The deals included the purchase of a stake in Facebook, the international social network. “It is extremely important to know where the financing for such purchases is coming from because we need to know who has access to all these personal data,” the speaker noted.

Lawyer Johannes Weberling from Berlin, one of the organizers of the event, said that new legislation is needed. “We need to establish who is going to guarantee pluralism in the digital age,” he said, adding that large media companies cannot provide such guarantees. Arguing for minimal regulation of internet and television, Mr Weberling said that the decisive criterion for a functional media sector is independence. The state should prevent monopolies in the media field and the role of the politicians in the media should be closely monitored.

Stephanie Jungheim, from Germany’s Federal Competition Authority, agreed that the current legislation doesn’t respond to today’s media and new legal provisions that would take into account the developments in the digital media should be adopted. According to Joachim Weidemann, CEO and founder of the news portal EurActiv, formerly with Handelsblatt, four factors will play a central role in the future of the media: access to funding, entrance barriers, the fate of free content, and the freedom of business. The most worrying trend is the purchase of media groups by large business conglomerates. In the digital age, access to funding for financing media will be the most important vector in the market. Weidemann added that a new national institution, namely the media ombudsman, should be established to ensure diversity in the media sector.

Independence day

Although digital media offer tools for better reporting than ever before, pressure from owners makes many journalists’ work almost impossible. This is ironic, as quality journalism is increasingly important in the digital media world, Ansgar Burghof from Deutsche Welle said. In this expanding ocean of information, often confusing, often manipulative, there is a need for reliability and solid reporting, Burghof added. This is why sustainable financing for the media is so important. If this can only be provided by domineering media moguls and local interest groups, independent reporting will totally vanish.

Christopher Taubman, working with the European Bank for Reconstruction and Development (EBRD), said that the EBRD, with a capital base of €44.4 billion, is working to attain objectives such as the rule of law and respect for human rights. The bank, which has supported privatisations in eastern Europe, is also looking at deals in the region’s media. It granted, for example, €150m to Central European Media Enterprises (CME) in debt financing some years ago. Taubman stressed that the EBRD also works with mid-sized and small companies.

Jacek Wojtas of the Association of Polish Newspaper Publishers questioned the system of ad revenue-share on the internet, saying that Polish copyright legislation has some loopholes in this respect. Concentrated efforts to save independent media are desperately needed. Besides direct subsidies, which some cultural publications already receive in Poland, indirect measures should be taken, including tax breaks for media companies.

Roland Gerschermann, executive director of the Frankfurter Allgemeine Zeitung, said that financing of quality journalism is indeed threatened by developments in the media market, including the drop in print circulation and dwindling ad spend. Some 22 million copies of newspapers are bought every day in Germany. The number of those who read both print and web versions is still very low. In the case of FAZ, only some 10 per cent of its readers access both versions. The pains which the print media have gone through in Germany prompted the main publishers to lobby against broadcasters’ rights on the internet. Last year, newspaper associations fought to prevent broadcasters from publishing news on their websites. “Broadcasters should limit themselves to summaries of the news on the website,” Gerschermann said. As a result, many newspapers today are similar. They cover easy news, which you can read in every German newspaper, said Gemma Pörzgen of the Freelancers Association in Berlin, a grouping of some 300 self-employed journalists. “Exclusivity in journalism is receding,” Ms Pörzgen said. Editors in traditional media work less and less on content, spending more time on conferencing or following news streams. Only freelance journalists are today doing solid reporting.

Advice: escape

If foreign media groups were really the answer to the need for modernisation of media in eastern Europe a decade or so ago, they are not the solution today. Struggling with declining markets at home and enmeshed in dubious partnerships with domestic politicians and businessmen in eastern Europe, foreign media groups are increasingly leaving the ship.

Michal Klíma, former head of the Czech media group Economia, now vice-president of the World Association of Newspapers (WAN), said that foreign media played a crucial role in transforming the very backward Czech media in the early 1990s. “Experienced professionals brought know-how to a country where newspapers were printed on pre-war presses.” Unrestricted foreign ownership in the Czech market, which was part of the ultraliberal strategy of Václav Klaus’s party, has been positive in the sense that government has never interfered with print media. However, the broadcasters, both private and public, have been always under the control of governments, Klíma added. While inward investment by western companies usually come from media groups, investments from Russia are made by firms linked with political structures. Therefore, Klíma called for strict EU regulation of media financing throughout the continent.

Foreign investors have argued that they face unfair practices in eastern Europe. Stefan Pelny, a legal advisor to WAZ, said that the countries where WAZ has invested, namely Serbia, Macedonia, Romania and Bulgaria, were all plagued by practices that distorted competition. WAZ’s competitors are allowed by government to get away with tax evasion, which allowed these publications to sell their copy at prices sometimes 50 per cent lower than WAZ’s publications. He added that local publishers are owned by groups invested in non-media activities including gas distribution, airlines, etc. Often, their managers are part of political parties and other organizations. Mr Pelny’s remarks were slammed by a series of media observers, lawyers and journalists who expressed concern at WAZ’s numerous political and business connections in the region. Preferential treatment in acquiring large newspaper groups and connections with criminal groups involved in the cigarette-smuggling trade in the Balkans were only a few of the allegations from the audience.

But, with or without WAZ, the story of the media in eastern Europe is the same: a handful of moguls with no respect for quality journalism or independent and fair reporting. What has changed over the past two decades of freedom here is only the degree of control and censorship. Today, it is worse than ever.