RealTime IT News

Russian Ad Company Plays Catch Up With Online Division

[Moscow, RUSSIA] Some would say it had to happen, eventually: The one sector of the Russian Internet that had remained free of outside investments -- that of advertising agencies specializing in the Web -- is set for a change of direction.

Russian advertising group Video International, which until now specialized in TV, radio and written press advertising, recently launched an online advertising branch, IVI (Video International Interactive), which will begin its activities September 15.

Joining the trend is American businessman Peter Gerwe, who operates in the Central and East European mass media sector and owns stakes in firms including TV channel STS, and who has invested a hefty sum in the venture. The exact amount has not been disclosed, but it represents more than 25 percent of IVI's shares and "a seven-digit sum in dollars."

Still, advertising agencies only account for a small amount of the total turnover generated by Internet activity. According to Timofey Bokaryov, general director of one of these agencies, promo.ru, there are "five to six" serious firms in this line of business in Russia. Among the leading names, said Alexander Andreyev, an Internet analyst with investment bank Brunswick Warburg, are manifest.ru, Proryv and promo.ru.

According to Mark Sanor, director of corporate finance with Arthur Andersen Moscow, the majority of deals are struck directly between Net holdings and advertisers, and several of these Internet holdings -- including ru.net, The Rambler Group or NetBridge -- are at least partially controlled by Western investors.

"The Russian advertising market as a whole was badly shaken by the August 1998 financial crisis and is only now starting to bounce back, and the Internet advertising market is still in its early days," Sanor said.

Gerwe said that he didn't expect to break even on his investment before two to four years, and named as subsector obstacles the poor quality of telecom services and high PC costs.

"We look at this as at a marathon," he said.

When asked for their reasons for looking ahead, observers and players alike point to the growth of the Net advertising market's success in the West and note that there is no reason the same progress won't take off in Russia. For instance, Gerwe said last year that the U.S. Internet ad business had a turnover of $1.9 billion, exceeding outdoor advertising by $300 million. And, taking a smaller market, Italy's Net advertising amounted to $15 million two years ago, it was up to $40 million in 1999 and is expected to reach $300 million in 2000.

Second, as the Russian Web develops, experts predict Internet advertising here will grow strongly in the very near future -- others claim that the spike has already begun. According to Bokaryov, citing figures by Arthur Andersen, Internet advertising in Russia amounted to $2 million last year and is expected to reach $5 million in 2000, $30 million in 2001 and $150 million in 2003. And, Brunswick Warburg's Andreyev said, Net advertising's proportion of total advertising in Russia is also likely to rise in the near future.

Finally, another sign of the growth of the market is that the volume of banner exchange is declining, and the number of financial transactions between an advertiser and a Web site and/or an advertising agency is increasing, Andreyev said.