Profil (Moscow) – September 29, 2008

The advertising market has been on the verge of systemic changes: editors of printed publications and TV channel owners have been anxiously watching as Internet audiences and online advertising volumes grow. German Kaplun, chairman of the board of directors and co-owner of the RBC group of companies, which incorporates a whole string of popular online and printed mass media, is positive that it is still too early to worry, as advertising budgets will be enough for all high-profile media resources.

- The audience of western mass media has been quick to go online, and so do the advertisers. Can we say that we have already caught up with that trend? And what specific qualities does this trend have in Russia?

- We are moving in the same direction, but very slowly. In Great Britain, for instance, the share of Internet advertising has zeroed in on 20 percent, while, according to different estimates, we have some 3-4 percent. To illustrate in figures, advertising per capita reached $61 in Russia compared to $384 in Great Britain, and this against the $9bn estimate of the Russian advertising market as a whole, while the British market is $23.3bn. We have been lagging far behind the western processes. It would be wrong to think of a massive flight of advertisers to online resources. The Internet has actually won over classifieds almost entirely, and yellow page ads have been gradually dying out. The online advertising growth rate is largely the result of a new type of advertiser emerging: advertisers targeting online promotion. For instance, over 50 percent of Google’s revenue is generated by advertisers in the Internet business sector. Most likely, advertisers are shifting, but the market is not being entirely reshaped.

Increased promptness is yet another important issue for the mass media, which bears upon newspapers and even more so upon weekly magazines. It has become pointless just to import information, as the news piece will appear online even sooner. The publications that meet the requirements of the time definitely have a future.

- In your opinion, should print publications move toward analysis?

- When a weekly magazine makes predictions on Friday, for instance, about what is to be expected on Monday, the future is hard to predict for the editorial office. When readers finally buy the magazine, trends are likely to have already changed. While it ousts some publications from business, others learn to be more analytical and give longer-term forecasts.

- So the rumors of the demise of print publications are somewhat hyper-inflated, aren’t they?

- Despite the loss of classifieds, the advertising market in the printed mass media is still roughly 10 times the size of the online market. The media market has been affected by the global financial crisis aftermath, but the impact cannot be termed as strictly negative. The market has thousands of print publications, most of which can boast neither a clear concept, nor large circulation. Yet they do get their share of advertising. Amid the raging crisis, advertisers have moved away from inefficient resources to focus on leading publications. Additionally, some categories of advertisers - luxury goods advertisers as such – tend to deal with only magazines, as it is highly important for them to present their goods in an attractive way.

- As a matter of fact, you attempted to create online fashion and lifestyle resources. Do you count on drawing luxury advertisers to new formats?

- We are experimenting a lot, and the experiments are successful most of the time. But the process takes a long time. Advertisers of the segment have started advertising with our business titles quite actively, seeing that the ultimate consumer of their goods is the business audience who uses our information resources. We have won over 10-15 percent of budgets of certain trade marks, and we are looking to boost the number of advertisers by adding the first anti-aging magazine LifeTime, as well as the women’s Internet portal Tata.ru, to our range of business web resources.

- For print mass media, advertising efficiency criteria are quite vague, as rankings provide the only guidelines for advertisers. What are the efficiency criteria for online advertising? Just the website traffic?

- You make an interesting point. Let’s look back. Advertisements started a hundred years ago, with just newspapers around, from classifieds. As time went by, the market started to change, and advertising became centered on brands. For instance, if your aim is to draw customers to a particular shop which sells voice recorders in the Kitai-Gorod district, it has to advertise in directories and yellow pages and place contextual advertisements online positioning itself as “Kitai-Gorod, voice recorders.” On the other hand, it is irrelevant for Panasonic - a company producing a whole range of goods - which of its dealers sells a voice recorder. In this case, branding comes into play, facilitated by media advertising, including Internet banners. This is what the bulk of advertising budgets is assigned for, but the efficiency of such advertising is very difficult to assess. My ideology is that although instruments may change, advertisers’ aims remain the same. We should use both contextual and media advertising depending on the task we are facing.

Traditionally, what advertising directors do evaluate is the performance of television and print publications. They usually decide to launch an Internet campaign not because they expect it to be highly effective, but because “the current times call for it.” As a result, they get impersonalized statistics: 500,000 visitors clicked on the banner, 100,000 people registered on the website. It will take them a few more years to realize that the Internet is the most efficient channel for many brands.

- What companies are the heaviest Internet advertisers?

- Recently, large advertisers have tapped into the Internet market. With Russia emerging as the No.1 car market in Europe, car concerns and their dealers top the list of advertisers. Financial and real estate companies have been equally active. Traditionally, the Internet serves a good advertising platform for high-tech companies – producers of computers, consumer electronics – and cellular service providers. The newcomers here include beer brands. Travel agencies make up another type of advertisers. Moscow alone boasts 3,000 travel agencies, which can afford advertising in magazines or on TV channels. The rest are paying $300 for contextual advertising and banners on related websites. We see a similar situation with real estate agencies, which is the reason why we find so many real estate-related resources on the Internet.

- What are they looking for, a “high quality” audience sifted depending on their financial standing, or large-scale coverage?

- Both. They seek to reach out to the widest possible audience interested, for instance, in gadgets or cars, granted its average representative can afford an inexpensive mp3 player or a car worth $40,000. Each advertiser is searching for specific resources that can help him solve a particular task.

- One minute of TV commercial airtime has significantly risen in price. Has it had any pronounced impact on the situation on the Internet advertising market?

- For now, television has remained the major mass medium, and Internet resources are in no position to offer it any competition at all for large advertising budgets. Hi-tech companies are perhaps the only exception, as they are more comfortable with the Internet environment due to their mentality. Only when the online segment expands to at least 10 percent of the advertising market can price competition between online media and TV channels be possible.

- Are there any business models now which allow information resources to create their own content and employ their own correspondents on the back of the revenue generated by advertising?

- Such models are still working, but it is getting harder each year for all websites posting their own content to stay in business.

The problem is that the Internet offers opportunities for any user to run a blog and publish someone else’s news items and pictures there without spending a cent. Their readership expands even as the audience of the resources that actually do spend money to produce the content shrinks. This is why it is growing increasingly difficult for players pursuing the traditional business model to enter the market.

- From an investor’s viewpoint, what Internet resources are the most attractive right now?

- The ones that enjoy the highest growth rate. The coincidence of Russia's macroeconomic situation with the global trends is highly important from this angle. If a certain western Internet resource is popular, its Russian equivalent will also be a success. The most challenging task here is to both draw in and hold an audience. For instance, a store selling construction supplies on Tverskaya Street will hardly enjoy a lot of demand, even though the flow of people going by is enormous. It is the same with an Internet resource boasting high traffic. One can make money on any large audience, but it is up to the management and ideology.

- The owners of some niche Internet services have been able to generate alternative revenue streams, for instance, professional forums or managers’ associations that draw headhunting budgets.

- This is a beautiful myth. There are resources that cannot make money on anything outside their main business. Social networking is excellent, but it’s not mainstream business. There are a few popular websites targeting the job market; they run partnership programs, attract audiences from other websites, share revenue. Such projects will definitely be successful, but I hardly believe that job search services can be any more profitable than contextual or media advertising.

- What can have an impact on the online advertising market’s development?

- Broadband expansion. In Moscow, one can buy an unlimited broadband access package for just a few tens of dollars, but when it comes to the regions, the situation is dramatically different. Users have to pay extra for traffic in excess of their packages, while unlimited access in the regions not covered by leading providers may cost $300-500, which is quite a high price for middle class representatives – the target of advertisers. As a result, the online advertising market has been developing at an intolerably slow rate.

- Are any legislative restrictions on online advertising underway?

- Only one such restriction is being considered: all electronic resources must be registered as mass media. We, for instance, are registered as a mass medium, so it is no problem for us. Either way, this is not an issue that could influence the market’s growth rate.