Who owns the media in Ukraine?

Ukrainian article of the week published in the 39th edition of the "What about Ukraine" newsletter on July 25th, 2024. The article was written by Natalia Dankova for Detector Media and was translated for n-ost by Tetiana Evloeva. Read the original article here.

Owners of two of Ukraine’s three largest media groups are currently under arrest and sanctions. However, that does not hinder their companies from developing their businesses, launching new channels, and obtaining state funding, as well as making money from their media.

How is this changing the media landscape? Into de-oligarchisation in a mild form, or a state take-over of parts of the media, or a win-win arrangement between parts of the state and the co-owners of influential media groups?

On 25 June, Ukraine president Volodymyr Zelensky extended the existing sanctions against Dmytro Firtash, a Ukrainian businessman and co-owner of TV channel Inter, for another ten years. Three days later, his station announced the launch of a new TV channel, Inter Ukraine, with a seven million USD investment (according to Forbes Ukraine).

Ukraine introduced personal sanctions against Firtash back in 2021 for his role in the titanium business and supplying raw materials to Russian military enterprises. The businessman vehemently denies these accusations, and has tried to challenge the sanctions in both Ukrainian and international courts. Since 2014, Firtash has been staying in Vienna, while the FBI continues to investigate him.

In May 2023, the Ukrainian security service, the SBU, served Firtash and his top managers, with the notice of charges of the misappropriation of UAH 18 billion [~400 million euros] worth of state-owned gas. In August of the same year, in connection with this case, Firtash's assets worth 7.4 billion hryvnias [~165 million euros] were seized in Ukraine. This did nothing to affect the businessman’s media group, which he controls through the Group DF conglomerate. Moreover, months after Firtash was charged, in July 2023, he purchased former head of Viktor Yanukovych's presidential administration Serhiy Liovochkin’s share in the Inter Channel, increasing his assets from 53.4 percent ​​to 59.5 percent. Liovochkin, despite being a co-owner, didn’t have a significant stake, due to owning just under ten percent through intermediaries.

Thus, it is clear that the authorities have no intention to close down Inter, nor do they plan to confiscate the Channel from its owners. Moreover, they are interested in the channel’s participation in the production of the ‘Edyny Novyni’ telethon [a multi-hour news update on the war which the Ukrainian state has financed since the beginning of full-scale hostilities]. The media group has appointed a new management team led by supervisory board member Serhiy Sozanovskyi, and gained a new production contract from the state for the ‘Edyny Novyni’ telethon, as well as production of content for broadcasting abroad (worth UAH 122.3 million [~2.7 million euros], + UAH 25 million [~0.55 million euros], + UAH 48 million [~1.1 million euros]).

Thus, we have a conundrum where the State imposes sanctions on the media owner, while simultaneously investing millions in its operations, instead of nationalising its assets.

This is not the only such case involving sanctions against media moguls. Another large media group, 1+1, is thriving, even after Ukraine arrested its owner Ihor Kolomoyskyi. In autumn 2023, 1+1 Media Holding announced that, following a decision by its owner Ihor Kolomoyskiy, the media holding's corporate rights were to be managed by its work collective, represented by the current director general Yaroslav Pakholchuk. Shortly afterwards, the media group began the process of registering its channel brands as new legal entities, free of the control of oligarchs. These owners had included Kolomoyskyi, oligarch and Dynamo Kyiv owner Ihor Surkis, and Russian-based oligarch Viktor Medvedchuk's wife Oksana Marchenko (who was listed as a 1+1 co-owner as recently as November 2023).

Solutions LLC, now listed on the 1+1 official website as the main channel’s owner, is positioned as a private business owned by director general Yaroslav Pakholchuk along with Svitlana Mishchenko, CEO of satellite television distributor Viasat. This platform incorporates TV and movie platform KyivstarTV (legal entity PlusTV LLC), satellite operator Viasat (Vision TV LLC), along with Comedy Central Channel (Vision Media LLC) and UNIAN Channel (DG-One LLC). The company is also engaged in the distribution of TV channels and business in the digital segment. Pakholchuk and Mishchenko also own a new company Vision Media Holding, incorporating Vision 1+1, Vision 2+2, Vision 3, and Vision 4, which are a bunch of TV channels that take part in public tenders and obtain new licenses.

Only large media groups admitted by the state to the telethon can apply for state finance for news production.

Other media groups are suffering due to sanctions against their owners, such as coal tycoon Vitaliy Kropachov, who has been charged and arrested. However, in his case, that had an immediate impact on his TV channel Ukraine World News (UWN), which is now facing a reduction in staff and, according to UWN’s director, will only stay afloat for another several months at most.

What is going on with the 1+1 and Inter Media Groups? How do they get funding, how are they making money, and are they really now controlled by the President’s Office?

Media group expenses forced to restructure

Every Ukrainian media group has its own structure, economy, staff and operations. Its main expenses cover content production, wages, broadcasting, rent of premises, utilities and general services.

Broadcasting expenses are the easiest part of this to work out. The average annual cost of a broadcasting license through T2 is UAH 15 million [~333,065 euros], while satellite broadcasting is about UAH 100,000 [~2,220 euros]. The Inter Group consists of eight TV channels (for now), while 1+1 owns ten broadcasting licenses, with three MX–7 Channels yet to launch — which means, about UAH 1.44 – 1.8 billion [~32 million to 40 million euros] per year.

The salaries of the team and the management are harder to figure out, as this depends on the personnel and their experience. After the full-scale war broke out, every media group underwent restructuring, with every one of them downsizing their staff by three times on average. The 1+1 Media Group, for instance, let go of 24 percent of their staff, scaling back the number of their in-house projects. The channels specifically dropped some large-scale studio shootings, and the respective staff servicing them.

It is unknown how much is spent on management. However, one can consider the 2023 wages of Oleksandr Buhutskiy declared by his wife Olena Kondratiuk: he received UAH 23 million [~508,724 euros] from his main job in 2023, and UAH 18,936,371 from his part-time job (the 2023 declaration doesn’t specify other jobs, however, in her previous declarations, his wife, a Ukrainian MP, mentions ICTV LLC as his main job, and Starlight Media LLC as his part-time job).

In addition to staff cuts, other costs are also being reduced. In particular, Inter dropped their rented properties, leaving only the 30 Dmytrivska Str. Building (their HQ in Kyiv) and moving their employees who used to work at their Bulvarno-Kudriavska Street office to the hub.

A significant part of the funds is spent on content production. Before the full-scale war, media groups used to make large scale TV shows, TV series and news broadcasts. As of now, channels continue with content production, but their budgets are significantly smaller, so they try to monetise their existing content as much as possible.

According to Yaroslav Pakholchuk, in 2023, 1+1’s overall budget for content production was about UAH one billion [~22.2 million euros].

This spring saw the signing of new contracts with a variety of media groups. In particular, TV and Radio Broadcasting Company Studio 1+1 (from the Ihor Kolomoyskiy group) received UAH 139 million [~3.09 million euros] for ‘Edyny Novyni’ telethon (an hourly cost of UAH 155,000 [~3,442 euros]), while the Foreign Enterprise 1+1 Production received UAH 48 million [~1.07 million euros] on FreeDom (UAH 92,000 [~2,043 euros] per hour). New contracts have also been drawn with PJSC Telekanal Inter, for the production of the telethon, UAH 122.3 million [~2.7 million euros] + UAH 25 million [~555,109 euros], with another UAH 48 million[~1.07 million euros] allocated for content production for FreeDom.

Therefore, content producers for the telethon receive over USD 400,000 [~EUR 368,344] each month. These figures are commensurate with the full budgets of news TV channels.

Are these funds enough for media groups to survive?

“Obviously, no media company can sustain itself today without resorting to drastic cuts in their expenses, and closing parts of their businesses,” explains Otar Dovzhenko, a media expert. “I believe that for both media groups, the public funding that they receive for the production of the Telethon, as well as Russian-language content for foreign broadcasting, is of utmost importance. This money substituted subsidies from the owners that used to nourish those media groups in the past. Now, it’s the public funding that keeps them afloat, plus their income from advertisement and other healthy sources, at the time when the competition decreased, and when there is no more ‘arms race’ [for content]: AKA the competition for the most expensive international format or a Russian series, which was the reason behind most of the owners’ cash infusions (‘investments’) into those media groups. Thus, those media groups are indeed able to stay afloat.”

According to the expert, there is an obvious ambiguity in the situation where media groups, despite the sanctions imposed on their owners, spur us “to a better understanding and definition of the processes going on with Ukrainian media” (specifically, with the national television):

“This spring, Yaroslav Yurchyshy, head of the Verkhovna Rada’s Committee on the Freedom of Speech, offered his vision (in his interview for the RBC-Ukraine): ‘De-facto, the state resorted to such a mild type of de-oligarchisation, where we offer the funding, and the channels, on their part, guarantee compliance with certain editorial standards, so that we do not have some new, say, [Russian pro-Putin propagandists] Solovyov or Simonyan on air.’ However, the situation where the state takes over an enterprise, starts publicly funding its operation and defining the principles of said operation (which in our case entails editorial policies and the media’s participation in the telethon), has a different name, which is ‘nationalisation’. At the same time, the state doesn’t assume legal ownership [of media groups], it just acts as such in all but name. Basically, those media were confiscated for the needs of the state. No wonder, then, that those media are immune to sanctions.”

It appears that the state didn’t want to play the nationalisation game, as they managed to find a more convenient means to control these media. Should there be a nationalisation and transfer of titles to the Asset Recovery and Management Agency (ARMA), every process would be much more transparent, and it would cost the state much more to support such media. Dovzhenko believes that in choosing a unique path, Ukraine invented a new form of ownership, private in form and public in substance:

“‘Setting these media free’ is not an option, as they will be forced to close (or drastically reduce their operations) as soon as the state cuts off their public funding. Their formal owner can neither sell them nor keep financing them (and even if they could, they hardly would do so, given that under the current circumstances with no elections or political process going on, they are unlikely to be able to use them for their own interests). Nationalising those assets would be a fair thing to do, but it goes against the EU-approved policy of renouncing state ownership in the media. Transferring those assets to the [public broadcasting company] Suspilne would both look good and be beneficial [to news consumers].” This is unlikely to happen, adds the analyst, although nothing is uncertain in Ukraine today.

According to three different sources from the media and the government who spoke to Detector Media, both the Inter Group and We Are Ukraine are in dire need of public funding, otherwise, these projects cannot survive:

“While Inter does have some income due to their commercial connections, they have zero investments from their owner now,” one source said. “As for We Are Ukraine, they operate exclusively on public funding.”

As for the rest of those media groups, specifically 1+1 and StarLightMedia, they supplement their content production from private funds. One of the sources states that the groups fund 30 percent of their production, while the other source insists this figure is closer to 40 to 50 percent.

“Today, both 1+1 and StarLightMedia could drop out of the telethon, as their earnings are sufficient and they are not strapped for public money,” says a source to Detector Media (DM). “To them, the telethon is commercially unfeasible, as they have to invest their own money to cover for the shortfalls. So they are giving the telethon a boost, which makes the government thankful.”

This source believes that those who are not completely dependent on public funding can negotiate with the state rather than just being its pawns, as is the case with We Are Ukraine and Rada.

So, with whom does the state negotiate? Not with the sanctioned owners, obviously. However, media assets are also controlled by other partners. One of DM’s sources alleges that former head of Viktor Yanukovych's presidential administration Serhiy Liovochkin still has some power over Inter, despite having sold his assets. It is said that he is the one to exercise strategic control and the one who negotiates telethon-related matters. Operational management is the domain of supervisory board member Serhiy Sozanovskyi.

According to the sources, the 1+1 assets are under the immediate supervision of individuals close to Kolomoysky’s Privat group, MP Ihor Palytsia and formerly one of Ukraine’s richest men Hennadiy Boholiubov (the latter, however, is known to have fled the country recently).

“Even after the war is over, ‘unhooking’ the media from public funding would prove to be quite difficult,” says Halyna Petrenko, director at the NGO Detector Media. “I wouldn’t be surprised if they come up with some new formats and justifications to keep the public funding in place. In the meanwhile, I wonder what another monetisation hybrid, specifically selling advertisements on the telethon, would look like. The idea has been around for quite a while now, however, the media groups only dared to come to its implementation only when the telethon significantly lost its views (and, accordingly, its advertising potential), and the nation was plunged into long-lasting electricity supply problems.”

Media business for entertainment TV

When coal, steel and energy oligarch Rinat Akhmetov closed his Media Group Ukraina, the market had one less ‘mouth’ to feed. Even despite the disruption caused by the full-scale war, the market can still feed the rest of the players, but to a lesser extent. Thus, the full-scale war forced entertainment TV to achieve its long-standing goal and become a media business. According to some sources, the media groups are living hand to mouth, spending on what can bring in some income.

The registers show that in 2023, enterprises from Inter and 1+1 groups were profitable, whereas in 2022, they were at a loss. For instance, the net profit of PRSC Inter TV Channel was UAH 838.8 million [~18.6 million euros] (against UAH 552 million [~12.3 million euros] a year before). Other channels were less profitable: TNT earned UAH 14,200 [~315 euros], Mega gained UAH 16.5 million [~366,372 euros], and K1 generated UAH 47 million [~1.05 million euros].

Most of the companies of the 1+1 Media Group were also profitable. Most of them earned hundreds of millions of hryvnias. For instance, 2+2 (Real Estate TV LLC) secured UAH 122.8 million [~2.73 million euros], TET (PRC "TK TET") gained UAH 39.6 million [~879,292 euros], and provider Viasat (Vision TV LLC) earned UAH 103.8 million [~2.3 million euros]. As for Solutions LLC per se, it earned UAH 1.7 million [~37,747 euros].

In 2023, only some enterprises of 1+1 media group ran at a deficit, including 1+1 Channel (TV and Radio Company Studia 1+1 LLC) at UAH –244 million [~ – 5.4 million euros] and 1+1 Ukraine (Vision 1+1 LLC) at UAH –504 million [~– 11.2 million euros]. A year before, the net profit of 1+1 was over UAH 1 billion [~ 22.2 million euros].

As budgets for content creation decreased, TV series production became cheaper. This sphere is also subsidised by the state, which commissioned a number of TV series through its foreign broadcasting platform, with the media groups receiving the non-exclusive rights to air those shows — that’s a whole different cost involved, compared to filming a show from scratch.

The TV channels are heavily monetising the content they have filmed over the past years. For that purpose, they create so-called FAST–Channels (Free ad-supported streaming television). Basically, channels like SLM (which broadcasts shows such as ‘Supermama’, ‘Your Series’, ‘Your Humour’) are being created not just for the Over-the-top (OTT) media services (streamed content), but for the T2 digital television as well. They aren’t planning many new productions, though, having set their sights on monetising the content they already have.

The same goes for the new TV channel Inter Ukraine (that applied for the digital competition) is aimed at earning by monetising the content from the group’s digital library, or the content they are to receive from Film.ua owned by Serhiy Sozanovskyi. Also, the group has packages of purchased content. Still, the channel’s management wants to invest in a new project.

“In order to compete with the top players, we need to invest USD five to seven million [~4.6 million - 6.5 million euros] in our new channel,” Serhiy Sozanovskyi told Forbes Ukraine. It is unclear whether the media group is going to invest their own funds, or if they will be seeking external investments. The creation of that channel will probably mirror that of 1+1 Ukraine and ICTV2, which were launched as backups for the main channels involved with the telethon.

Advertising brings the media groups most of their revenue. Also, in the first years of the full-scale war, the TV channels survived due to telemarketing, aired in the mornings and evenings even on some of the leading channels. TV meter panels used for selling advertisements were updated, too.

Apart from that, media groups operate as businesses in various segments of the media market, not concentrating exclusively on television.

“The transformation from TV to media outlets is a focused strategy. This year (2023, — DM), advertisements on TV account for only a third of our revenue. Overall, advertisement accounts for 60 to 65 percent, and this is our main, yet not dominant, source of income,” Yaroslav Pakholchuk said during a forum at Kyiv Media Week last year. According to his estimates, in 2024, advertising will account for less than 50 percent of the overall revenue.

Grants from Western donors have become an important source of investment for media groups. Today, Starlight Media even has its grant department, and grants make up ten percent of its revenue. For instance, TV series ‘Holova’ [‘The Head’] (by Novy Channel) and ‘Botoferma’ [‘Sockpuppet Farm’] by ICTV were supported by USAID. The industry is aimed at offering digital products, with its revenue increasing five-fold over the past year.

In the digital field, one can monetise both the content from entertainment and from the telethon. Today, digital broadcasting has become a chance to generate some income for smaller channels. According to a DM source, today Ukrainian channels Channel 5, Priamyi and Espresso TV were purged from digital TV broadcasting, and are doing pretty well monetisation-wise in the digital sphere, specifically on YouTube, and returning to digital TV could actually make them cost-prohibitive.

Therefore, entertainment TV managed to become a business. Still, it remains to be seen how long that tactic of monetising without significant investment in creating new product can last, and whether prolonged blackouts will throw advertising out of balance. Informational and analytical television, on the other hand, is unlikely to survive without investment. After the telethon is closed down, given that there’s no investment from either the state or the media moguls, the news content can never go back to its pre-war level. Here, a lot will depend on who (and how much) will be interested in investing in this field, as most of their audience is now used to getting their news from elsewhere (such as from Telegram).

In this new reality, the public broadcaster can play a pivotal role, whose departure from the telethon and going back to independent broadcasting can offer an alternative and gather a TV audience of “people with critical thinking” (as defined by media expert Ihor Kulias), if these consumers manage to become more demanding.

This could lead to higher standards of reporting and journalism in general, which Suspilne has been able to offer.

If this happens, Kulias is confident that “the audience of Suspilne will eventually prevail over the audience of the Telethon,” and maintain a niche in news TV broadcasting.