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WIKI ANALYSIS
CTC Media (Nasdaq: CTCM) is the largest publicly traded Russian television company, offering entertainment broadcasting.
CTC Media generates nearly all (97.37% in 2008) of its operating revenue from the sale of advertising. [1] In 2008, the company's share of the total Russian television advertising market was approximately 17.5%. [2] Over the past 5 years the Russian TV advertising market has grown from 20th in Europe to 6th.[3] Because Russian legislation limits the supply of television advertising time to no more than 15% of any broadcasting hour, CTC Media can increase revenues by raising the price on advertising and by capturing a higher share of the viewing audience.[4] The company is also looking to expanding its operations outside of the Russian Federation to other members of the Commonwealth of Independent States (CIS).[5]
Company Overview
The television advertising market in Russia grew from $3.2 billion in 2006 to $4.4 billion in 2007, and then to $5.5 billion in 2008, which resulted in a general increase in the Company's advertising rates. CTC Media is Russia's fourth largest television broadcaster behind three state-owned and operated ventures in 2008 average audience share. The increase in advertising rates was partially offset, however, by the Firm's decrease in average annual audience share in 2007 and 2008 from 2006. [6]
For the past five years, the Company's flagship station, CTC, which offers entertainment broadcasting targeting 6-54 year-old's, has ranked as the fourth most watched station by audience share in the Russian free-to-air television market behind three government owned and operated enterprises.[7] In addition to CTC, the firm also operates Domashny which targets 25-60 year-old women, and DTV, which the company bought in April 2008 and which targets viewers aged 18+. As of May 2009, CTC Media also operates Channel 31 in Kazakhstan, a station in Uzbekistan and broadcasting group in Moldova as well as two in-house production companies. [8]
Business and Financial Metrics
In 2008, revenues increased 37.7% from 2007 to $623 million. Net Operating Income in 2008 decreased 82.3% from the year before to $34.2 million while net income fell by 83.5% from 2007 to $22.5 million.[9] Revenues and profits were determined by the availability and price of advertising, the cost of programs, and the value of the Russian ruble compared to the US dollar. [10]
Business Segments
CTC Media owns and operates three television stations in Russia which collectively account for 80.6% of the Firm's operating revenues.[13]
CTC Network CTC Network is CTC Media's flagship station. It specializes in entertainment programming targeted toward 6-54 year old viewers. Half of the programming offered on the network is Russian; the other half is foreign content.[14] Over the past five years, CTC has maintained an average annual audience share between 10.4% (2006) and 9.0% (2007,2008). Within its target demographic, the network has held an average annual audience share of 11.8%, 11.3%,12.9% from 2008 to 2006, respectively.[15] The decline in audience share was partially offset by the increase in advertising prices due to a decrease in advertising time mandated by Russian law. These factors, when combined with fluctuations in the value of the ruble compared to the dollar combined to result in an increase in advertising revenue earned by CTC Network of 20.1% and 30.9%, respectively, when comparing 2006 to 2007 and 2007 to 2008.[16] In 2008, with revenues of $417 million, CTC Network represented 65% of CTC Media's total operating revenues.[17]]
Domashny Network
Domashny Network broadcasts 60% Russian content and 40% international content targeted at women, aged 25-60. Among all stations, Domashny Network claimed a 2.2% share in the general audience in 2008, up from 2.0% in 2007 and 1.4% in 2006. The average target audience share of the Domashny Network was 2.8%in 2008, up from 2.4% in 2006 and 1.7% in 2006. This increase in audience share, when combined with the increase in advertising prices and the appreciation of the Russian ruble relative to the US dollar through August 2008 resulted in an increase of 89.2% and 64.0%, respectively, when comparing 2006 to 2007 and 2007 to 2008.[18] In 2008, with revenues of $64 million, Domashny Network represented 10% of CTC Media's total operating revenues.[19]]
DTV Network
On April 16, 2008, CTC Media acquired the DTV group from Modern Times Group MTG AB ("MTG") in exchange for $332 million. MTG, through a subsidiary, MTG AB is the beneficial holder of 39.5% of CTC Medi'as outstanding shares.[20]] In 2008, DTV captured 1.8% of both the general and target audiences in 2008. In 2008, with revenues of $39 million, CTC Network represented 5.6% of CTC Media's total operating revenues.[21]]
| Average Audience Share | 2006 | 2007 | 2008 |
| CTC | 10.4% | 9.0% | 9.0% |
| Domashny | 1.4% | 2.0% | 2.2% |
| DTV | N/A | N/A | 1.8% |
Key Trends and Forces
Firm profits are exposed to currency exchange risk.
Although the reporting currency of the Firm is US dollars, the principle operating currency of the Firm and its principle subsidiaries is the Russian ruble. In the final five months of 2008, the value of the Russian ruble fell approximately 20.3% against the US dollar, resulting in a year-end depreciation of 16.5% by December 2008. Furthermore, the Company currently has one loan outstanding in US dollars valued at $90.4 million.[22] In 2009, the ruble has stabilized, and has now appreciated by over 8% relative to the U.S. dollar as of 1 June.[23] In order to mitigate the financial risks associated with the exchange rate between rubles and US dollars, the Firm has entered into a forward contract to buy dollars at a fixed rate of rubles.[24] In addition to the ruble, the firm is exposed to exchange rate risk with the value of the Kazakh tenge relative to the US dollar.[25] On 2 February 2009, the Kazakh Central Bank devalued its currency by 18% relative to the US dollar because it could not continue to prop up the value of the tenge with the sale of foreign currencies and gold.[26]
CTC Media profits are strongly tied to price of oil and state of Russian economy in general
Since CTC Media generates nearly all (97.37% in 2008) of its operating revenue from the sale of advertising, it depends on the ability of Russian businesses to pay for such advertising. According to the Company, "Any prolonged downturn in the economy of Russia and/or a continuation of the downturn in Kazakhstan could substantially reduce Russian and Kazakh television advertising expenditures. Any decrease in the size of the Russian television advertising market or further decreases in the size of the Kazakh advertising market will likely result in a decrease in Company's advertising revenues, which would materially adversely affect its results of operations."[27] The Firm's 2009 1Q Net Profits fell 44% from the same period in 2008 as advertisers spent less in as a result of the Russian and global recessions.[28] Economists forecast that the Russian economy will continue to contract in 2009, at a rate of 5%, followed by a recovery in 2010 at a growth rate of 2%.[29]
Government intervention threatens the Firm's ability to expand operations
In May, 2008, the law "On foreign investments in economic entities that have strategic importance for defense and security of the state" (the "Ownership Law") went into effect in Russia. This law strictly regulates the telecom industry and requires government approval for the acquisition of an entity which broadcasts to more than 50% of the population in a constituent area in the Russian Federation. CTC Media believes this law poses a threat to the Company's ability to expand operations in Russia.[30]
Competition
CTC Media faces its principle competition from networks owned by the Russian government, especially Channel One, Rossiya, NTV, TNT, and REN-TV.[31] Over the past five years, CTC Network has maintained its rank as the fourth most popular network in Russia by total audience share. This, in addition to the Comany's expansion with the acquisition of DTV in April, 2008 and the growth of Domashny Network, allowed CTC Media to capture a 17.5% overall share in the Russian TV advertising market in 2008.[32]
| Average Audience Share | 2004 | 2005 | 2006 | 2007 | 2008 |
| Channel One | 25.8% | 23.0% | 21.3% | 21.2% | 20.9% |
| Rossiya | 19.9% | 22.7% | 19.5% | 17.1% | 17.3% |
| NTV | 11.9% | 11.1% | 12.8% | 13.9% | 13.3% |
| CTV | 9.8% | 10.3% | 10.4% | 9.0% | 9.0% |
| TNT | 6.7% | 6.7% | 6.0% | 6.7% | 7.3% |
| REN-TV | 5.2% | 5.0% | 4.2% | 4.3% | 4.5% |
References
- ↑ CTC Media, Inc. 2008 10-K, page 36
- ↑ CTC Media, Inc. 2008 10-K, page 1
- ↑ [Morningstar Research: CTC Media, 5/26/09]
- ↑ CTC Media, Inc. 2008 10-K, page 39
- ↑ CTC Media Website: CIS
- ↑ CTC Media, Inc. 2008 10-K, page 53
- ↑ CTC Media, Inc. 2008 10-K, page 3
- ↑ CTC Media, Inc. 2009 Q1 10-Q, pages 20-21
- ↑ CTC Media, Inc. 2008 10-K, page 36
- ↑ CTC Media, Inc. 2008 10-K, page 38-40
- ↑ CTC Media, Inc. 2008 10-K, page 36
- ↑ CTC Media, Inc. 2008 10-K, page 52-53
- ↑ CTC Media, Inc. 2008 10-K, page 51
- ↑ ctcmedia.ru: CTC Media - CTC
- ↑ CTC Media, Inc. 2008 10-K pages 3-4
- ↑ CTC Media, Inc. 2008 10-K pages 53
- ↑ CTC Media, Inc. 2008 10-K, page 51
- ↑ CTC Media, Inc. 2008 10-K pages 53
- ↑ CTC Media, Inc. 2008 10-K, page 51
- ↑ CTC Media, Inc. 2008 10-K, page 43
- ↑ CTC Media, Inc. 2008 10-K, page 51
- ↑ CTC Media, Inc. 2008 10-K, page 15
- ↑ Morningstar.com: Russian Telecom Firms Still Extremely Uncertain
- ↑ CTC Media, Inc. 2008 10-K, page 45-46
- ↑ CTC Media, Inc. 2008 10-K, page 15
- ↑ Bloomberg.com: Kazakh Central Bank Devalues Tenge 18%, Ends Support (Update2)
- ↑ CTC Media, Inc. 2008 10-K, page F-44
- ↑ Dow Jones Newswires 5/7/2009
- ↑ Economist.com| Country Briefings:Russia
- ↑ CTC Media, Inc. 2008 10-K, page 19
- ↑ CTC Media, Inc. 2008 10-K, pages 12-13
- ↑ CTC Media, Inc. 2008 10-K, page 3
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