They're everywhere: on the streets, in your homes, your cars and in the metro. But, while advertisements are spreading fast in Russia, industry leaders say the market in this country is still developing unevenly and remains small compared with Western countries.

Russian enterprises spent some $1.1 billion on advertising in 2000, up 47 percent from the previous year, according to statistics by the Russian Advertising Council and the Russian Public Relation Group (RPRG) research agency. That's an impressive jump, experts say, but the overall market comes nothing close to the rest of the world, especially for a country as large as Russia.

"This is comparable to Greece," said Dmitry Badalov, director of the Advertisement Council of Russia, which oversees the country's advertising market. "But the figure for Poland was $2.6 billion last year."

Per-capita annual advertisement expenditures in Russia are also low — less than $10 — compared with about $100 per person in Western Europe and $200-$300 in the United States, according to Badalov. "Ad expenditures depend on a company's turnover in the country," he said. "And a foreign company, say, Nestle, can't have a big advertising budget here if its sales are not as big as in other countries."

GAINS IN TV SEGMENT

Last year's growth was achieved chiefly in the television segment, which lured away advertisers from other media by offering discounted rates for commercial airtime, experts say.

"Thanks to the very low TV ad rates, most advertisers choose this media, while the others remain underused," said Andrei Fedotov, RPRG's managing director, adding that placing ads on Russia's national channels — ORT, NTV and RTR — allows an advertiser to target all segments of the population at a lower cost than by using any other media.

"Ad rates on Russian TV are several times lower than those in the Czech Republic or Hungary, not to mention Western countries," Fedotov said, "because most of the Russian TV channels do not rely on advertisements as the main revenue source and are financed by the state or — by order from the state — by large corporations."

The average ad rate on Russia's major national TV channel in the first quarter of this year was 30,100 rubles (about $1,038) per minute, according to Fedotov. But this figure does not include discounts that may reach 80-90 percent. In the West, ad agencies spend roughly $160 per person; in Russia, that figure is something like $3, he said.

Ad agency Video International dominates the Russian TV ad market, accounting for 75 percent of its activity, with the remainder mostly taken up by international advertising agencies that are responsible for most of the multinationals operating in Russia.

But Video International denied that it had a monopoly position in the TV ad market. "When talking of monopoly, they cite the fact that we have contracts with several major TV stations [including ORT and RTR]," said Yury Zapol, president of Video International Group. "But the Anti-Monopoly Ministry doesn't think this is a monopoly, and neither do I."

"We're just an intermediary, and it's up to TV stations' judgment, whether to sell ads by themselves or use an ad agency," Zapol added. "They are with us because they believe that we can sell their ads more effectively at lower cost."

Analysts say they attribute the situation to the TV stations' reluctance to get involved in selling ads. The TV channels prefer to use Video International as an intermediary, rather than try to sell ads by themselves, RPRG's Fedotov said. "TV stations find it more convenient to focus on producing shows and outsource selling ads to ad agencies."

SITUATION ‘COULD IMPROVE'

"The situation could improve only if we get truly independent TV channels that would have several ad agencies each or would sell ads by themselves," added the RPRG director.

Outdoor advertising was the second largest-growing segment of Russia's advertisement market last year. According to the Espar Analitik market research company, it grew by about 45 percent last year and reached $150 million, accounting for about 11 percent of the market.

"Although outdoor advertising has not yet reached the pre-crisis level of $175 million a year, the growth was substantial and by the end of this year the pre-crisis performance level could be surpassed," said Andrei Beriozkin, director of Espar Analitik.

Support from local authorities, for whom outdoor advertisement is an important source of income, coupled with the billboard-friendly architecture of Russia's biggest cities, contributed to the recent growth of the segment, according to Beriozkin.

But he added that Russian outdoor advertising has been developing unevenly, with about one half of all the billboards located in Moscow and St. Petersburg. These two cities account for 60-70 percent of all revenues from outdoor ads, according to Espar Analitik data.

The city governments of Moscow and St. Petersburg have recently announced that they plan to limit the number of ad billboards which, experts say, is a wise move and is likely to improve effectiveness of advertising.

"This measure would only increase the effectiveness of advertising and prevent prices from going down," Beriozkin said, adding that there are already too many billboards along Moscow and St. Petersburg's main streets, which brings down the ads' effect and makes advertisers opt for bigger campaigns. "In 1998, a large ad campaign involved about 250 billboards, but now this figure has jumped to 400-500 billion," Beriozkin said.

According to Maxim Tkachev, chairman of the board of APR City, Russia's largest outdoor advertising agency, the Russian outdoor advertisement market is at the stage where it is beginning to attract strategic investors and the main players are starting to realistically view their prospects in the market. This stage could continue for one or two more years, after which the segment could turn into a stable market, Tkachev said.

RADIO, PRINT SLOW IN 2000

Unlike TV and billboard advertising, the radio and printed-media segments did not fare well last year, chiefly because of their failure to compete with TV, analysts say.

Meanwhile, FM radio remains largely underused as an advertising medium, according to RPRG's Fedotov. "In Russia, it accounts for only 3-4 percent of the market, compared with 8-12 percent in most countries," he said. "Despite that, we have larger networks here than in the United States, such as Russkoye Radio (Russian Radio) or Europe Plus — they exist on sponsors' donations rather than ad revenues."

Fedotov added that the low cost of TV advertising has caused this situation. "In most countries, FM radio is an outlet for local advertisers, such as casinos or stores, but here TV wins these clients by offering very low rates."

According to Fedotov, the radio stations don't do enough to persuade advertisers of the advantages of FM radio — losing, for example, the opportunity to cite their ability to target middle-class listeners in their cars during rush hour, or executives who work with the radio on.

A similar situation stands in the print-media market, which also grew last year, but at a smaller pace — by 21 percent. Analysts say that the number of publications is growing, while their total readership is decreasing.

The radio- and print-media segments are too small to attract significant players, such as APR City or Video International, according to Fedotov.

The Internet, which many set their hopes on as a new advertisement media, has not lived up to the expectations, analysts say. According to the Russian Association of Advertising Agencies, this segment raked in about $3 million from advertisements last year. Although industry insiders cite a larger figure of $5 million, this is still less than 1 percent of the total advertisement market.

"There is no evidence that the Internet could significantly grow as an advertisement medium in the near future," said RPRG's Fedotov. "The Internet's potential for advertising shouldn't be overrated, since it is an information medium rather than an advertising one."

Industry insiders are more optimistic, although they admit that real money has yet to come to the Russian Internet.

"The Russian Internet advertising market is very young," said Timofei Bokarev, director of Promo.ru, Russia's leading Internet advertising agency. "It only dates back to 1997, while in most Western countries the market is at least three years older."

Bokarev added that the projected figure of $15 million in sales for this year could still be achieved, but advertising money is coming to the Russian Internet slower than expected.

"[Web ad agencies] must have failed to do enough to promote the Internet as an advertising media," Bokarev said. "There is a lot of talk about the Internet, but too little [advertising] money in it."

The Promo.ru director added that although leading multinationals, including L'Oreal, Nescafe and Coca-Cola, have run their first online campaigns on the Russian Internet, these projects were experiments. "Experimenting does not imply substantial investment, and that could come no sooner than 2002."