BANKRUPTCY OF THE FIRST CHANNEL: IS THE FORMER TELEVISION LEADER ON THE VERGE OF A COLLAPSE?

Recently the rumors that the First Channel stepped into bankruptcy appear with enviable regularity. Billion dollars debts, content problems, dissatisfied partners. Can a real titan of Russian television just go broke and leave the arena, giving way to the growing entertainment TV? “Rusbankrot” tries to clarify the situation.

The First Channel in power of Berezovsky and Abramovich

For many years, the channel was getting all the perks. To begin with, the First Channel (ORT until 2002) was formed in 1994 and was initially state-owned by 51% in contrast to the "second" (VGTRK), which belonged to the country by 100%.

In the 90s, the second share of the First (49%) was the property of Boris Berezovsky (and then Abramovich). Berezovsky, in his turn, was close to the then president Boris Yeltsin. Contemporaries assert that it was Berezovsky, who persuaded Yeltsin to create the “Sibneft” company in 1995 and privatize it so that it ended up with oligarch Abramovich. That is why “Sibneft” was used as a source of financing for “ORT”. Why did the authorities need this? It is simple - the channel was supposed to support Yeltsin in the 1996 elections. And it did.

In 1998 a crisis erupted, which affected the First Channel - there was “completely”no money, the vehicle fleet was arrested (correspondents stopped going to the scenes). But soon the channel received a loan of 100 million dollars from “VEB” and the channel’s situation leveled off.

The First Channel in the 2000s

The crisis was left behind, oil prices began to grow extremely fast and the long-awaited advertisement poured on the First Channel. The revenues were enormous - in the small cities there were only two channels - the First and VGTRK, that is why advertisers were willing to pay good money for exclusive coverage.

As a result, the First Channel had everything it wanted: shootings of the numerous TV shows (even for the future), bought franchises from popular Western shows like “Who Wants to Be a Millionaire”, and even was buying creative projects that did not match the TV channel format, for example, Valeria Guy Germanica’s “School”. But the channel’s leadership did not really think about the future, which was a mistake.

Dividends were rarely paid, all money was invested in production and there was no special income. In fact, the First Channel have always been facing this problem, but at that time nothing portended troubles and the situation seemed to suit everyone.

Problems of the First Channel

In the period of euphoria from huge revenues, the channel’s management made many strategic mistakes. In addition to the fact that the channel was spending all the money and the Internet was underestimated. The channel went to the Internet platform only in 2012-2013, while “TNT”, “Pyatnitsa” and other “Gazprom Media” members had an Internet access since 2008.

There was another problem with the Internet - the First Channel did not acquire Internet rights from producers of TV shows for a long time, saving quite small amounts in comparison with those that could be earned on the network. As a result - one source of income less.

Then crisis of 2014 struck. The amount of advertising has decreased greatly and because of the sanctions, domestic companies with modest budgets have come to replace the wealthy international advertisers. As we have already noted, the First Channel did not save money for the future, so the reduction in income immediately struck a nerve. If before the channel was managing to release news, premiere series and numerous shows, now it was necessary to revise the politics and give up something (in this case, the series - those that were filmed in the best of times, but didn’t come out because there was enough of content). 

At the same time, the First Channel started to have debts. Every year the debts were growing and by 2018 reached 20 billion rubles. It is difficult to give exact data - in 2017 the channel ceased to be an open joint-stock company, which means that it is no longer required to disclose its reporting.

The First Channel and The Red Square company

"Red Square" studio (produces multimedia content) is the largest contractor of the First channel - it owed the “Red square” more than 7 billion rubles, though their relationship began quite smoothly.

The company was registered in 2007 by Larisa Sinelshchikova, the former common-law wife of the First channel Director Konstantin Ernst. In fact, Red Square and the First channel worked in tandem, representing an example of a family business. But in 2014 Ernst and Sinelshchikova broke up and the businesswoman sold her studio to oligarch Arkady Rotenberg. The channel began to order not so much content from the new owner and year by year their relationship became increasingly tense. 

Representatives of the "Red Square" began to complain that the channel started constantly delay payments. Moreover (as insiders say) the First channel started delaying payments much more than other channels, acquiring shows and series.

In general, premieres became much less frequent at the channel and one had to forget about such luxury as two new episodes during the evening. The channel mired in problems. Government subsidies would have helped to get out of all these debts and troubles that have plagued the First channel over the past 6 years, but is the channel entitled to them?

Subsidies for the Channel

In 2018, the First Channel asked the state for 11.5 billion rubles to stabilize the financial situation: 6.5 billion rubles until 2021 and 5 billion rubles for the period 2022-2025. Representatives of the channel noted that one of the main causes of losses is the socio-political mission. In other words, the propaganda that Russians no longer want to watch TV and just switch the channel. And therefore, it was logically noted at the First Channel that once the state requires a specific subject, then it should be paid for so that the channel does not finally slip into outsiders list.

By the way, the First is still 51% state-owned, but Abramovich got rid of his share in March 2019. Now the remaining 49% is divided between several shareholders, including VTB, the Federal Property Management Agency and the National Media Group. And yet, if the First Channel was previously considered an absolute television leader among the Russian audience, then in the last few years VGTRK channel became more popular. The first channel is no longer the first.

Let us talk a little more about VGTRK. In fact, the First Channel and the All-Russian State Television and Radio Broadcasting Company are engaged in state propaganda, but at the same time the All-Russian State Television and Radio Broadcasting Company receives 25 billion rubles of subsidies per year, and the First Channel, for comparison, received 5.2 billion rubles in 2016 and 7.32 billion rubles in 2017 (for broadcasting in cities with a population of less than 100 thousand people). It seems to be a good sum of money, but in reality it all goes to pay for the services of FSUE Russian Television and Radio Broadcasting Network. In addition, over the past 20 years, the First Channel received subsidies of 2.5-3.5 billion rubles, but they all diverged to cover the debts.

We cannot but note that according to the results of 2018, the most profitable television company was the “Network of Television Stations”, which includes the STS channel - revenue of more than 5 billion rubles. And the loss of the First for the same year is almost 7 billion rubles. Why is it so? It is simple - there is no news on STS and to publish stories every day is quite expensive. In addition, there is no advertising in the news, which means that it is difficult to recoup. At the same time, the rating of those very news falls every year - it turns out that the victim of the First is in vain.

But there is no money, and if the news propaganda previously had been wrapped in a label of good content in the form of new series and entertainment shows, now politics is becoming less and less interesting for the viewers.

Is the First Channel a bankrupt?

The introduction of digital television is throwing oil in the. It means that if earlier the First Channel had almost a monopoly on advertising in small towns, now all Russians can watch 20 federal channels. With such a choice, the First Channel is switched on much less often.

But does the channel face bankruptcy? Yes, if the state does not take it for its support, like the VGTRK. Another question -  is there enough budgetary funds to fully ensure two channels at once? The exact size of the debts of the First Channel is unknown, but judging by the numerous complaints of contractors, we are talking about tens of billions of rubles.

If the state helps to the channel, then the problems with debts will be solved and it will continue its successful existence. If not, a bankruptcy option is possible. We should not lose sight of the fact that in the whole story with the First Channel, there is a certain paradox - in 2018 the channel showed the largest revenue - almost 33 billion rubles. But at the same time, it also became the proud owner of the largest net loss. We cannot forget about the video message of Ostankino CEO Mikhail Shubin, who said that due to the debts of the First Channel, there might be interruptions in the broadcasting of Russian television channels as the situation went out of control.

In fact, the channel was heavily in debt due the state actions and its instructions in terms of voluntary-forced broadcasting of propaganda. At the same time, the state is not in a hurry to take responsibility for its “helper” and leaves the First Channel alone with its huge debts, without additional subsidies. But who and in which case will initiate bankruptcy? Judging by the size of the obligations of the creditors, there should be enough, but all of them are still waiting and are not in a hurry to fill up the channel with claims. But how long should this go on? And will the state begin to allocate huge budgets to the channel, while global changes in social policy, requiring huge money are coming? Is there a possibility that in the series of changes so significant for the country, will there be a couple of extra billions for additional news that the VGTRK gives in excess? It does not sound very cost - effective. But, as they say on the First Channel, time will tell.