Georgia’s advertising market, characterized by a lack of competition, is dominated and controlled by a small but closely interlinked network of friends and business partners, thus having “high leverage over the development and sustainability of the Georgian media sector,” Transparency International Georgia said in its report.

The watchdog group’s report, released on December 13, is a research of the country’s advertising market and its key players, which also provides insight into how ad expenditures with its unsustainably low prices are distributed by sectors. (An interactive map of the market’s key players is available on the organization’s website).

“The fact that a number of key companies are controlled by relatives or close friends of current government officials or former high-level government/ruling party members raises not only questions about conflicts of interest, but also about competitiveness and political independence, potentially posing a major burden on the development of Georgia’s creative industry and media sector,” the report says.
 
“Davit Kezerashvili, who served as Georgia’s Defense Minister from 2006 to 2008, with the help of a network of close friends and family members, is widely believed to have taken control over large parts of the Georgian advertising sector,” according to the report.

The report found “numerous off-shore shell companies” operating on the Georgian ad market, which are registered in Panama and the British Virgin Islands to conceal ownership and financial flows.

TI Georgia estimated that the net advertising expenditure in Georgia in 2010 was between USD 43 and 46.5 million – that includes all the sectors of the market, involving TVs and radios, print and online media, outdoor advertisement. No exact figures for net ad expenditure are available, because while it’s easier to monitor gross ad spending (standing at GEL 192 million in 2009), which is calculated based on official ad price lists, discounts and special conditions offered to advertisers are only known to a media outlet and an advertiser.

According to the report, television stations, which are Georgians’ dominant source of information on current events account for 78% of all advertising spending, followed by radio (7%); outdoor advertisement (6%); newspapers and magazines (4% each). The report estimated net online advertising between USD 500,000 and USD 1 million – the figure also includes ads displayed in internet search engines.

Two media sales houses dominated the country’s television ad market until the end of 2010 – Touch Media, an Imedi TV affiliated firm which was selling ad airtime for this broadcaster and Media House, selling ad slots for Rustavi 2 TV, another nationwide broadcaster. The report says that in early 2011 a new player emerged on the market as a result of “de-facto merger” of these two media sales houses – General Media, which has “a de-facto monopoly” with an exclusive right to sell ad slots on Imedi and Rustavi 2, as well as on Sakartvelo, Mze, Real TV and I Stereo TV stations. The report estimated that General Media controls about two-thirds of all TV advertising flows.

According to the report because of low costs for national television ads, there are little incentives for advertisers to move parts of their campaigns from Rustavi 2 and Imedi TV to smaller television stations or to radio and print media.

The report notes that advertising expenditures in Georgia are currently too small to support all existing media outlets and the larger part of them are not financially sustainable; there are only very few exceptions with media holding Palitra among them. Palitra incorporates five newspapers – including the weekly Kviris Palitra, boasting with the largest circulation in Georgia; eleven magazines; news agency InterPressNews; Tbilisi-based FM radio station Palitra; press distribution agency; book publishing business and printing houses, as well as a network of twenty five book stores; the same group runs eleven various websites.

“Not only small outlets in the regions, also major Tbilisi-based outlets, including the country’s largest outlet, Imedi TV, operate in the red,” according to the TI Georgia’s report.

According to the report ad market has a “significant growth” potential and if TV ad prices were allowed to rise gradually and economic growth in Georgia remains consistent, a real growth rate of advertising expenditure of 15 or 20% per year “seems achievable”. But the report also notes that some sector insiders and those working with independent outlets “painted a fairly bleak picture” about the sector’s mid-term development.

“Monopolization of the advertising sector, a lack of competition in several key sectors of the economy and political involvement and pressure on potential advertisers are undermining growth,” the report says.

It also says that in the private sector “a climate of self-censorship persists” with advertisers remaining reluctant to cooperate with outlets known for critical views, fearing negative consequences for their businesses.