CEO of Ukraina Media Group Talks about the Company's Strategy

A year and a half ago Rinat Akhmetov's SCM started consolidating its media assets into Ukraina Media Group. The company CEO Fyodor Ogarkov talked about the first resctructuring results to our correspondents Maria Popova and Anton Onufrienko.

- Why did you set up Ukraina Media Group? 

- Ukraina Media Group embraces projects with different business modelsthat are synergetic at the same time. Profit of the national channel Ukraina and regional channel Donbass comes from the advertising market, while pay channels Futbol and Futbol+ charge asubscription fee. Digital Ventures, the owner of tochka.net, operates in the Internet market.  We've devised strategies and financial plans for each asset and strengthened the management team. I can't disclose all indicators, I'll just say that in five years we are going to be a leader or one of the leaders in each of our businesses. 

- TV is your main business, but almost all TV channels in Ukraine are unprofitable and are rather used as a policy tool. 

- Yes, there are a few market players that can gain profits, but the market itself is extremely small. However, I believe that all financial and industrial groups standing behind the channels are more focused on profits than on political clout. We are not in Russia where TV is controlled by the government. Today Ukrainian TV business needs long-term investments.

- Ukraina Media Group companies started allying with players that are bigger than them: UMH on the Internet, and 1+1 on TV. Why is it so? 

- Alliances are a natural stage of market development. If the market is too competitive, then the right consolidation of efforts will lead to its growth and development. That's our focus when we consolidate with other market players. If we ally with a stronger or bigger partner as UMH, for example, we see a lot of advantages because for us it's a fundamentally different level. One of the things hindering market development in Ukraine is competition, which turns into a destructive force. 

- Yes, but your alliance with 1+1 destroyed the market monopoly, led to a zero media inflation and stopped the growth of the TV advertising market. 

- An alliance should always rest on a win-win strategy for all participants. If someone's interests are infringed, it becomes unstable. When the situation in the market changes each party can interpret it differently. We can state with confidence that we don't support dumping pricing policy as a competitive tool (especially in such a small market) and we will not advocate this policy given that TV content is getting more and more expensive. Besides, I don't think that we'll have a zero inflation as we're just beginning the year. 

- However, Ukraina channel has been accused more than once that it contributes to higher content prices.

- This is not true. There are lots of different players with different strategic interests in the content market. We want to increase the audience and revenue but we are not ready to do it at any price. The cost of production is important. For this reason we are developing in-house production and our TelePro adapts foreign shows. In addition we are cooperating with independent production studios in Russia.

- Pay TV channels are your second biggest asset. Have you calculated when they can become profitable and the amount of profit they will generate?

- We expect to increase the revenue several times this year and have the investment back in five years. Our coverage is good and we have a unique product, football, which is the key sport in the country. According to our estimates the matches account for 20% of the niche channels' audience. Our channels are still subsidised because of high cost of the content. At the same time with the revenue from advertising the market can be estimated at $200m per year.

- What makes you think that in five years people will be less reluctant to pay for the content?

- I think it is more of a psychological nature. Today I can watch and download materials from Internet for free but tomorrow I might have to pay $2 to do it. The price is not high, it is a price of a cup of coffee but people are not psychologically ready to pay. There are many different payment instruments in the market but people still use their payment cards only once a month to get their salary from automated teller machines. This is not about the peculiar nature of Ukrainians. This is just a matter of time. When Microsoft entered the market and called on business to pay for licenced software it caused a laugh. Today the situation has changed.

- The general impression is that last year Digital Ventures switched from investment strategy to cost optimisation. Did you realise that you'd been driving in the wrong direction?

- We changed the strategy for Tochka.net. At first the portal was not well positioned, it was a horizontal portal with many themes and subresources. Today it is an entertainment resource for young people with a proactive approach to life. We changed the structure, management system and managers. We have a portal, which is a big generator of traffic and audience and we need to monetise it.