It's not yet clear what shape the advertisement market will take once new anti-monopoly laws come into effect next year, but market players are scrambling to prepare for the shakeup.
In December, the State Duma passed a bill that will prohibit nationwide television channels from signing contracts with sales houses whose market share exceeds 35 percent.
In an industry heavily dominated by a single sales house, that means that a big shuffle is ahead.
According to the bill, current agreements between advertisers and sales houses will remain in force for one year, after which channels will have to choose a contractor based on the results of auctions or competitive tenders.
The new rules, which go into effect on Jan. 1, 2011, will change the current structure of ad sales, resulting in increased competition for television channels and the creation of new advertising firms, said Alexander Mitroshenkov, president of Transkontinentalnaya MediaKompania, a media group operating Klass!, Poka Vse Doma and other TV companies.
"Since one sales house can't control more than 35 percent of the market, it's clear that there will likely be four of them," he said.
Video International is currently far and away the dominant advertising firm in Russia, controlling 60 percent of the market. It sells advertisements for Channel One, VGTRK, CTC Media, Prof-Media and AF Media.
The other two contenders on the market are Gazprom-Media and Alkasar, which together control more than 30 percent of the market. The companies sell advertisements for NTV and TNT, both owned by Gazprom-Media Holding, as well as for TV-Center, which is owned by City Hall.
In October, Gazprom-Media lost contracts with two major channels owned by National Media Group, Ren-TV and St. Petersburg's Channel 5, which were snapped up by Video International earlier this year.
The industry's inevitable changes will likely follow one of two scenarios, said Mitroshenkov, who is also vice president of the industry association AKAR.
In the first scenario, one advertising firm would sell advertising to Channel One and Prof-Media, which owns TV3, 2x2 and MTV-Russia, while another firm would advertise for VGTRK, which owns Rossia One and its affiliates, and AF Media Holding, which owns 7TV and Muz TV. A third firm would then sell for CTC Media's channels, which include CTC, Domashnii and DTV.
Mitroshenkov wouldn't give specifics, but because Video International has a contract with Channel One until December 2012, the first scenario may see the advertising firm drop its contracts with National Media Group, VGTRK, AF Media Holding and CTC Media.
Mitroshnkov said Gazprom Media might be eager to regain its lost contract with National Media Group.
In the second scenario, he said, one firm could work with Channel One and National Media Group and another would deal with VGTRK and AF Media Holding, while the third would consolidate business with Gazprom-Media's channels, TV-Center and Third Channel. Under this scenario, a fourth firm would pop up that would manage CTC Media and Prof-Media.
With this scenario, Video International could continue selling ads for Channel One and National Media Group, while dropping VGTRK, AF Media Holding, CTC Media and Prof Media. Gazprom Media, on the other hand, would retain contracts with NTV, TNT and TV-Center.
Kommersant reported Friday that Yury Kovalchuk's Bank Rossia is considering acquiring a controlling stake in Video International. Market players said that if such a deal went through, the second scenario would be the most likely.
Given Channel One's leading position on the market, the new alignment will largely depend on the strategy that it chooses, Mitroshenkov said.
Channel One's market share exceeded 18 percent in 2008, while that of Rossia One, part of VGTRK holding, stood at 14.5 percent, Kommersant reported.
Channel One is considering all possible scenarios for ad sales but is pessimistic about the future of the advertising market, said Pyotr Shepin, Channel One's commercial director.
"There are not so many options, but we're really discussing all possible variants. We even had a ridiculous idea of selling ads together with Rossia One," Shepin told The Moscow Times.
But such a partnership would become illegal under the new law, because Channel One and VGTRK, Rossia One's owner, would make up more than 35 percent of the market.
The State Duma's new regulations only add uncertainty to the industry, Shepin said, and the situation is complicated even further because the industry is still recovering from the steep fall in ad sales that it suffered as part of the recession.
The market for television ads fell 18 percent in 2009 to 113.7 billion rubles ($3.9 billion), said Sergei Veselov, a marketing research director with Video International Analytical Center.
Market players are hoping for year-on-year growth of 5 percent to 10 percent this year, he said, with growth in the segment reaching 15 percent in 2011, at which point it will attain 2008 levels.
Increased competition on the market will drive down ad prices, benefiting advertisers to varying degrees but leaving television channels with the short end of the stick.
"The main danger, which may appear as a result of the changes, is an uncontrolled price competition. According to the worst scenario, it may ultimately kill civilized relationships in the television segment," Veselov said.
While industry players have some justified concerns, it's hard to say how the new bill will be implemented in practice, said Tatyana Nikitina, deputy head of the advertising and unfair competition department at the Federal Anti-Monopoly Service.
She added that healthy competition would probably benefit the market.
But while advertisers are likely to benefit from the shakeup, advertising agencies, which develop the ad campaigns and mediate with the ad sellers, say they have needed to lower their fees too much and that the market no longer provides a fair price.
Last year, agencies had to cut their fees from 2 percent to 0.5 to 0.1 percent of their advertising budgets, said Mitroshenkov, of Transkontinentalnaya MediaKompania.
As a result, advertising agencies are proposing rules that would set a floor on the fees they are able to charge.
"Last year's situation has shown that agencies themselves can't reach a reasonable agreement on fees," Mitroshenkov said. "The only way to solve the problem that I can see — it's very painful but impending — is to fix the agencies' fees at 10 percent to 15 percent."