Entrepreneurship and Digitization of News Media in a
Transition Economy
Case Study on Novaya gazeta, Russia
Paper within: Business Administration Authors: Kateryna Khozroshyna Nadezda Gushchina
Tutor: Bozena Mierzejewska
Acknowledgements
We would like to thank everybody who has contributed to the
completion of this master thesis by sharing their experience,
knowledge, time and providing helpful feedback.
To our tutor Bozena I. Mierzejewska, who always provided us with
useful and fair comments, and constant inspiration for the perfection.
To Svetlana Bochkalova, Konstantin Poleskov, Viktor Sakson, Galina
Timchenko and Elena Vartanova for openness in interviews and
ability to use their names in our thesis.
To other groups in the seminars, whose feedbacks allowed us to
improve our thesis.
Finally, to the external reviewers, Olena Ivanko, Said Tezel and
Jeffrey Altmann, who helped us with proofreading and editing.
Kateryna Khozroshyna
Nadezda Gushchina
Jönköping International Business School
May, 2012
Master Thesis in Business Administration
Title:
Digitization and Entrepreneurship of News Media in
Transition Economy: Case Study on Novaya gazeta, Russia.
Authors:
Kateryna Khozroshyna, Nadezda Gushchina
Tutor:
Bozena I. Mierzejewska
Date:
May, 2012
Subject terms:
digitization, entrepreneurship, online newspaper, transition
economy
Abstract
Background and
Problem Statement:
The increased amounts of Internet users, emergence of new technologies that allow content digitization, create an entrepreneurial opportunity for news media to go online. However, the process of digitization has been happening at a different pace in different regions of the world. To understand the keys to success and to learn on mistakes, it is important to understand what are the factors that affect entrepreneurship and digitization of news media.Purpose:
The purpose of this study is to investigate the news media sectorin Russia in terms of digitization of the newspaper content and entrepreneurial activities associated with this.
Literature Review:
The literature reviews contains the overview of previous studies on entrepreneurship in transition economies and its characteristics, as well as news media and digitization processes in Russia and background information on the case of the study, newspaper Novaya gazeta.Method:
The method used is a case study, as authors conduct aqualitative research, using interviews and secondary data as a research base.
Conclusion:
Authors conclude that transition economy factors have animpact on digitization of newspapers in Russia. Specifically these factors are state’s involvement in the business sector, political and economical conditions in the market and risk-averse entrepreneurs who run newspapers in transition economies.
TABLE OF CONTENTS 1. Introduction ... 5 1.1.
Background ... 5
1.2. Problem Statement ... 8 1.3. Purpose ... 9 2.
Literature Review ... 9
2.1. Entrepreneurship in Transition Economies ... 9
2.1.1. Definition of entrepreneurship ... 9
2.1.2. Characteristics of entrepreneurship in transition economies ... 11
2.1.3. Russia as a transition economy ... 12
2.2. News Media in Russia ... 14
2.2.1. Newspaper industry in transition economy ... 14
2.2.2. News media in Russia after the war in Chechnya ... 15
2.2.3. Digitization in Russia ... 18
2.3. Case Introduction: Novaya gazeta ... 20
3. Research Questions ... 21
4. Method... 21
4.1. Research Approach ... 21
4.2. Data Collection and Analysis ... 22
4.3. Reliability ... 23
4.4. Validity ... 23
5.
Results... ... 23
5.1. Printed media trends in Russia ... 24
5.2. Entrepreneurship in newspapers in Russia ... 26
6.
Analysis….. ... 28
7.
Conclusions ... 31
7.1.
Discussion ... 32
7.2. Limitations and Further Research ... 33
References...34 Appendixes...38-‐51
1. Introduction
The Internet became a part of everyday routine for many newsreaders. In 2010, the percentage of people who read news online was 10% higher than the percentage of people who read news from the printed newspaper. The number of online newsreaders increases as the age of the group decreases. In other words, people of age 18-29 are more likely to read news on the Internet, than people over 30 years old (O’Dell, 2011). The increase of the Internet users created opportunities for online advertisement. In its turn, a need for online advertisement encourages media to respond by placing their product online. Therefore, many media get involved in the process of digitization. This process implies the selection and conversion of the physical analogue to the digital format with further storing, preservation and distribution (Poole, 2010). The digitization is a part of entrepreneurial activities for the media. It occurs at a different pace in different countries. In Eastern Europe, entrepreneurship is a complicated process due to the economical and political transitions. The process of media digitization is also affected by the region’s transition from a planned to a market economy. To understand the degree to which the transition economy affected the entrepreneurial activities, namely digitization, in the newspaper industry, the specific case has to be studied. For this purpose, Novaya Gazeta1 was chosen as a subject to this research.
Further for more accurate research results, the paper will discuss the following, the background information on media digitization, problem statement and purpose of the research, comprehensive literature review on entrepreneurship in news media and digitization, methodology of the research, results from the collected data, analysis of the results, conclusions and discussion of further research and limitations.
1.1. Background
Thirty five percent of printed media publishers had launched a mobile application and another 27% plan to launch it in 2012 (Stoltzfus, 2011). Forty seven percent of journalists all around the world use Twitter as an information source. Video viewers pay 18.3% more
1 Novaya gazeta is a newspaper published in Russia. The printed newspaper published since 1993 until present.
The online version of the newspaper launched in 2003 and operates till present.
attention to commercial videos online than television (TV) advertisement (Six New Digital Media Statistics, 2011). Statistics indicates a shift in the consumption behavior of the media audience. Consumers spend more time on browsing the Internet and finding news online. Mobile applications, online versions of printed media, online TV broadcasts become more popular in the media market. In order to keep up with a progress printed media adjust to the change. This change involves digitization. The digitization creates an opportunity for entrepreneurship in the market. New forms of business administration, namely management of online content, require new knowledge and skills. Moreover, success of traditional media is altered by an emergence of digital alternatives. For example, in music industry digitization affected CD sales. The music content downloads are available online free of charge. Therefore, Internet users do not purchase CDs in the stores, but rather download music tracks from the Internet (Petiz & Waelbroeck, 2005). Another illustration of digitization altering the success of traditional media is TV. The emergence of online broadcasting, creates an alternative to the TV. Viewers gain more access to their favorite TV shows and movies. Moreover, audiences can choose what they want to watch, unrestricted with the TV schedule or advertisement breaks. Moreover, emergence and development of photojournalism allowed Internet users to see visual news reports online. Photojournalists upload pictures to their blogs or webpages before news air on the TV channels. Therefore, viewers can gain access to news faster online. Therefore, growth of photojournalism decreases the number of television viewers (Tomlinson, 1992).
Sambamurthy, Bharadwaj and Grover (2003) conclude that to remain competitive in a modern market firms have to develop more dynamically. Authors suggest that constructing new investment strategies is necessary for a contemporary firm’s success. One of the investment strategies has to be planned within the context of information technology, social media and digitization. In other words, contemporary firms’ performance depends highly on their ability to adapt to a digital era. Authors suggest that the influence of digitization on firms’ performance happens via three aspects of firm’s organizational skills (digital options, entrepreneurial awareness, agility) and three strategic processes (capability-building, entrepreneurial actions, and evolutionary adaptation) (Sambamurthy et al, 2003). Also, the importance of digital media for the contemporary entrepreneurs is emphasized by Hall and Rosson (2006). The entrepreneurial behavior in the media market is changing because of the online possibilities of evolving start-ups. New ventures have a competitive advantage over the existing market players. Their competitive advantages are technological and
communication skills of start-ups’ employees. New market players already have the necessary knowledge base for a successful launch of new online projects in the Internet (Hall and Rosson, 2006). Therefore, entrepreneurs who plan for investment into digitization and social media can become more competitive in the market.
Printed media similarly to the music industry and TV production mentioned before, is expected by customers to engage into the digitization processes. Increased number of Internet users creates an environment where printed media, not to lose market share has to adjust and enter the online market.
Digital newspapers2 are not subject to the research in the peer-reviewed literature too often.
However, Benson, Blach-Ørsten, Power, Willig and Zambrano (2012) conducted a research on newspapers in USA, Denmark and France. Authors investigate the change in the form of news reported in American, Danish and French newspapers as they change from printed to online version. The launch of online version of the newspaper is a corporate entrepreneurship. Nonetheless, authors conclude that the reasoning behind a digitization of the newspaper’s content is due to the new advertisement strategies (Benson et al., 2012). The increase of Internet users had also affected advertisers. The last ones want their promotional material to be also available and viewed online. Therefore, printed media, in order to keep the income from advertisers had to launch online version of the newspaper. Another scholar, Todorov (2007) investigated the digitization of the news media in Bulgaria. Unlike Western countries mentioned in a previous study, Bulgaria had undergone more political and economical changes in the last two decades. The media industry faced challenges associated with legal regulations, access to the new technologies and changing market structures. Therefore, the process of media digitization in Bulgaria is occurring at a slower pace. The author concludes that digitization of media is an important step in the country’s development, and is necessary for the formation of pluralistic media, democracy and market economy (Todorov, 2007). Hence, both studies conclude the importance of media digitization, despite the region. However, Western media sectors appear to be more prepared to respond to the need for a digitization of the content. Eastern Europe appears to be less prepared due to the many challenges they face in transition from planned to the market economy. However, to justify such conclusions further research of media digitization has to be made, particularly in Eastern Europe.
1.2. Problem Statement
Content digitization creates opportunities for companies from different business sectors. The media sector is one of the top sources of information for the society. Therefore, despite reporting on the digitization processes in different business sectors media is also expected to implement newly invented versions of themselves. The number of Internet users is constantly increasing. Partially because more people gain access to the Internet, but another reason is audience formed of a new generation. The generation is called Millennials. These are people born between 1980s and 2000s. Their main characteristics are sufficient skills and knowledge about digital media (Mooney, Wright & Higgins, 2010). Online TV and radio broadcasting, various social media, digital newspapers and magazines are becoming a common source of information for the generation of Millennials. Moreover, this generation does not only acquire necessary skills to consume and use digital media, but also have expectations for media content to be available at any time, any place and on multiple electronic devices. This is true for not only developed countries of the West, but also Eastern Europe. News viewers and readers expect the development of the online news media and entrepreneurial activities associated with it. However, it is hard to start a business in Eastern Europe countries such as Belarus, Ukraine, and Russia. In the ‘starting business‘ category of World Bank’s Doing Business 2012 report, Belarus was ranked as 69th, Russian Federation as 120th and Ukraine as 152nd out of 163 countries (Doing Business, 2011). How difficult is it to digitize the content and to operate an online start-up in such countries as Belarus, Ukraine, and Russia? What are the key characteristics of digitized media administration in a transition economy? What are the prerequisites for success of a digital news media?
These questions are problematic to answer due to the limited academic research in the area. To answer these questions it is important to understand the trends of the entrepreneurship and digitization in a transition economy. How can online entrepreneurship be developed, encouraged and maintained? In order to answer these questions and understand the condition of online entrepreneurship and digitization in transition economies, a study has to be conducted. In addition, the problems associated with entrepreneurship and digitization of the news media have to be found and, if any found, analyzed. The results of this work will investigate the feasibility of online entrepreneurship and will look at ways to achieve a higher productivity of the businesses in the transition economy. To investigate the entrepreneurship and digitization of media, we will concentrate on newspapers. Newspaper is the oldest form
of media. It was able to maintain its audience despite the emergence of radio and television. In this research, we are to find out how the emergence of Internet affects the business administration of printed newspapers.
The time and budget constraints prevent the study to be conducted on the entire region of the Eastern Europe. Therefore, in this research we will focus on Russia. It is a country with characteristics representative of the transition economy.
1.3. Purpose
The purpose of this study is to investigate the news media sector in Russia in terms of digitization of the newspaper content and entrepreneurial activities associated with this. We analyze how the transition economy environment affected the entrepreneurship of Novaya
gazeta. Alongside we explore how the process of digitization occurred and what effect did it
have on a printed version of the newspaper.
2. Literature Review
2.1. Entrepreneurship in Transition Economies
2.1.1. Definition of entrepreneurship
Before we can analyze the state of the entrepreneurship in Russia, in terms of digitized newspaper, we will make clear what do we mean by entrepreneurship in the context of this work. The general definition of entrepreneurship used in this research, is the definition by Ronstadt (1998, p. 38):
“Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals who assume the major risks in terms of equity, time and/or career commitment or provide value for some product or service. The product or service may or may not be new or unique, but value must somehow be infused by the entrepreneur by receiving and locating the necessary skills and resources.”
Therefore, entrepreneurship assumes value generation. However, the value can come as from the newly developed product or service the same from the better allocation of resources. This is important to understand when we look at the digitization of the newspaper as a part of the
entrepreneurial process. The newspaper does not have to invent a new form of online news media to be called entrepreneurial. The placement of the newspaper content online can be an entrepreneurial activity as well, if the ‘incremental wealth‘ was created. However to have a better understanding of the entrepreneurship in Russia, we have to define entrepreneurship in transition economies separately.
Scase differentiates two different types of business start-ups in transition economy countries: legitimate and illegitimate. Into the first one the author includes entrepreneurs and proprietors, while the second one involves anarchistic business owners, Mafia members being one of them (Scase, 2000). In our work, we refer to the legitimate type of the entrepreneurship. Therefore, we differentiate two terms: ‘proprietorship‘ and ‘entrepreneurship‘. It is important to distinguish between these two concepts, as the administration and management of business depends on which one of these two types the venture represents. In other words, the operational management of proprietor is different from the one of entrepreneur. Scase had made a clear distinction between these two concepts in his analysis of small and medium businesses in Central Europe and Russia. Proprietor and entrepreneur mainly differ in their motives. It is hard to distinguish one from another in the countries that are in the process of transition, such as Russia (Scase, 1997). Entrepreneurship is characterized by the motive of ‘rational‘ decision-making related to the opportunities’ change in the market. Therefore, entrepreneur is interested in investing revenues generated from business operations into the growth of the venture. Proprietorship, on the other hand, is rather motivated by personal interests, and enjoyments. The owner would choose to maintain his lifestyle and consumption habits rather than investing into the business growth. It results in capital assets not being used for financing of a long-term capital accumulation (Scase, 2000). Therefore, proprietorship is oriented towards consumption, and aims for a business to survive rather than grow (Goss, 1991). As it was mentioned before, it is rather easy to confuse these two forms of business administration in former Soviet Union countries, and so in Russia. In this work, we are rather focusing on entrepreneurship than proprietorship in online newspapers of Russia.
For the purpose of this work, we use a meta-analytical definition given by Paul Burns.
Entrepreneurship is an administration of a business by entrepreneurs, who ‘use innovation to
exploit or create change and opportunity for the purpose of making profit. They do this by shifting economic resources from an area of lower productivity into an area of higher
productivity and greater yield, accepting a high degree of risk and uncertainty in doing so‘
(Burns, 2005, p. 10).
2.1.2. Characteristics of entrepreneurship in transition economies
Entrepreneurship in transition economies, apart from being associated with proprietorship, has a number of other characteristics. Baumol argues that the ‘rules of the game‘ have main affects on entrepreneurship. The policies and regulations determine how the entrepreneurs will behave and how they will run their business. The transition in the economy from one phase to another affects the set of rules and the allocation of entrepreneurial potential. The number of entrepreneurs or their motives is only a secondary factor influencing the development of entrepreneurship in the transition (Baumol, 1990). The transitional nature of the environment, in such countries as Russia, shapes certain characteristics in entrepreneurship. We will explain them through three features discussed in the academic literature most widely. These are types of entrepreneurs, state’s role and environmental factors (Aidis, 2003).
Types of entrepreneurs
Bruno Dallago divides entrepreneurs in transition economies into four types: elite members, domestic, returning migrants and foreign entrepreneurs. Elite members are described as political figures. These people used to be a part of the political elite in the ‘old‘ regime. Most of them were top managers of the state-owned ventures. Dallago characterizes these entrepreneurs as rather unproductive, extremely competitive and oriented towards redistribution rather than production. Second type is domestic entrepreneurs. These are native entrepreneurs who are not a part of the elite, but have been entrepreneurs even before the collapse of the USSR. The third type of entrepreneurs Dallago describes as returning citizens who potentially can have a positive impact on the entrepreneurship, as they bring new human, knowledge and financial capital. Finally, Dallago identifies foreign entrepreneurs as a fourth type and associates them with foreign direct investments and innovation (Dallago, 1997).
In addition, Aidis characterizes entrepreneurs of the former Soviet Union countries as short-term oriented who are more focused on getting rich, and getting rich fast. This is due to the corrupted nature of government structures, where state officials get personal benefits and compromise the image of the country as a whole. As a result, entrepreneurs are risk-averse,
and many of them are part-time state workers (Aidis, 2003).
State’s role
Another distinctive characteristic of entrepreneurship in the transition economy countries is the role of the state in the process. Smallbone and Welter (2001) argue that in countries with comparably slower transition such as Belarus, Ukraine or Russian Federation governments tend to over-regulate business sector. The state sees small business start-ups as an additional source of tax revenue, rather than a necessary bridge for the transition into the market driven economy. These regulations reduce the growth and further development of the private business sector. The entrepreneurship is restricted by regulations, preventing the emergence of new jobs and innovation, along with the entry of external investment (Smallbone & Welter, 2001).
Environmental factors
Finally, the environment that affects the development of enterprises can characterize the entrepreneurship in the transition economies. Environmental factors are linked to government operations we discussed above, but not limited to them. The transition process creates an intimidating economic environment for the start-ups due to the high unemployment, growing inflation and decreasing real earnings (Smallbone & Welter, 2001). The transition requires acceptance and allowance of private forms of ownership, but most of countries in transition lack the productive entrepreneurship. This results in a lack of business infrastructure, support for entrepreneurship and external investments (Aidis, 2003)
2.1.3. Russia as a transition economy
Transition economy assumes re-orientation of the country’s economic system from planned to market-driven. This transition brings changes into the political, social and economical environment in the country. In the analysis of the first twelve years’ transition economies, Svenjat (2002) concludes that transformation occurred in all of the transition countries. Nonetheless, the difference between advanced and transition economies got bigger. The typical characteristic for transition countries is fast adoption of reforms concerning liberalization of process, stabilization of macroeconomic environment, and privatization on a small-scale. However, those economies that stepped further and developed corporate
governance and functional legal system were more successful in the transformation than those who did not. Russia was one of the countries that neglected the establishment of a well functioning legal and banking system, along with engagement in large-scale privatization (Svenjat, 2002).
During the past twenty years, Russia has acquired an image with a scandalous political and social profile, sourced by the number of changes related to political and social issues. In addition to that, an ever-increasing process of globalization and digitization all over the world has greatly influenced the overall development of the country. Within a sudden change of government regime and a countrywide anarchy in the early 90s, companies and organizations experienced dramatic changes. Some of them collapsed, while others managed to adapt to the new ‘rules of the game‘.
The egalitarian economic system of the USSR conflicted with the principles of the market economy. On the labor market, the government calculated wages artificially in order to discourage free competition. However, in 1989 the gradual transition to free market capitalism in Russia had started (Noland & Son, 2012). The main principle of moving from a planned economy to a market economy is based on “transferring property rights from the state to the private sector”, implying that the “economic incentives are shifted and socialist central planners and managers are effectively turned into free market capitalists” (Noland & Son, 2012, p. 2). Kolodko (1999) states that transition to a free market economy is a continuous process and the change cannot happen at once because it involves modernization of the entire system, as well as implementation of new business administration principles; it requires “not only liberal regulation and private ownership, but also adequate institutions” (Kolodko, 1999, p. 234). The transition in Russia has been also characterized by the development of small enterprises. However, the dynamic was mainly conditioned by high rates of unemployment and desperate attempts of citizens to increase a life quality level (Smallbone & Welter, 2001).
Nonetheless, Shigeki (2012) argues that Russia already went through its hardest stage of transition and is on the way to a market economy. The shrinkage of GDP and extensive inflation were predominant in the first half of 90s, but the 1999 Russia’s economy grew rapidly. The depreciation of ruble allowed more feasibility for exporters, development of domestic products for a substitution of now too expensive imports. Although some doubts concerning the regulations of Russia’s banking system still remain, which might indicate that
transition has not been completed in full (Shigeki, 2012). Similarly, Pankin, Fedotov, Richter, Alekseeve and Osipova (2011) state that from 2005 until the economic crises of 2008, country experienced a rapid growth of the economy, mainly due to the increased prices in the oil and gas market. Nonetheless, following the financial crisis stroke in 2008 with decreased prices on natural resources including oil and natural gas, Russia’s GDP and per capita income had dropped; followed by the increase in unemployment rates in 2009 (Pankin et al., 2011).
Therefore, having a general overview of the entrepreneurship in Russia and comprehensive understanding of the characteristics of transition economy that country prevails, we next review the trends in the media industry in Russia.
2.2. News Media in Russia
2.2.1. Newspaper industry in transition economy
All the industries in Russia went through the transition period. Media sector is not an exception. Media also had to switch from the planned form of economy to the one driven by the market. Before the collapse of the Soviet Union, the media in Russia was owned and financed by the state. One of the functions of the news media in the USSR, and Russia as a part of the Union, was to distribute propaganda. The propaganda involved USSR government ensuring that the ideology of the communism is delivered and accepted by every citizen. Mass media was a helpful tool for implementation of propaganda (Braguinsky & Yavlinsky, 2000, p. 4). Radio and printed media were the distributors of propaganda and Soviet ideology. Therefore, these media were of a great importance to the leaders of the Union, with this realization government did everything to remain as the main controller and owner of the newspapers and other media. Means of information were deeply integrated into the state machine and were used as a mean to manipulate the information delivered to the society. Zassurskiy (2011) calls mass media a ‘fourth power’ of the USSR; executive, juridical and legislative being the first three. Journalists as representatives of these ‘power‘ were aiming at enlightening and agitation of the society for the ideology of the USSR, rather than objective and independent reporting of news.
After the collapse of the Soviet Union in 1991, mass media in Russia gained the possibility of private ownership. The law from 1990 allowed first legal production of private mass media. However, the printing and distribution costs of the media were too high for a private
ownership. In addition, Russian news media market lost a big part of its readers due to the collapse of the Soviet Union and emergence of separate independent states that have their own media. The government subsidies were no longer forced on media carriers. Therefore, news media gained an opportunity of functioning independently from the government. However, this worked only in theory. In practice newspapers had to turn to the state for help, in order to remain competitive in the market, as for example “Komsomolskaya Pravda” and “Izvestiya” did (Zassurskiy, 2011). Therefore, one of the characteristics of Russian media in early 90s was its remaining financial dependence on the government.
The crisis of economical stability and financing of the newspapers started in early 90s. Since then, it has been a part of Russia’s transition to the market economy. Another characteristic of the newspaper industry in Russia is the content of the paper itself. Due to the financial ties with the government, newspaper industry inherited the USSR’s form of reporting. The news were presented with an angle convenient to the subsidy giver. However, reporting became less biased after the war in Chechnya. With the emergence of controversial theories about government’s role in the war, the loyalty of journalists went back to the reader. Newspapers had a chance to present the situation from their own perspective. Many journalists refused to favor government actions in their reports on situation in Chechnya. Reporters decided to discuss the conflict objectively, without influence from government. At this point, printed media repositioned itself as independent, which is also as a point where newspapers, along with other Russian media, got closer to the freedom of speech (Grabel’nikov, 1996). Therefore, one Chechnya war became a changing point for many printed media in Russia. However, it is important to look at the development of Russia’s media sector after the events in Chechnya.
2.2.2. News media in Russia after the war in Chechnya
In the first few years of the 21st century, mass media in Russia increased their share in the
market. Since 2003 till 2008 the average annual growth of the market size of Russia’s media was 5.7%. Consequently, the market size grew from $6.5 billions in 2003 to $10 billions in 2008. However, in 2005, the law that guaranteed partial economical support for printed editions since 1995 was annulled. For the printed media, it meant a cut off from any financial support sourced by the federal budget. Newspapers and other printed media had to find other sources of financing, which included advertisement as a means of income. To attract more
advertisers, newspapers had to expand their audience base and increase its circulation numbers. In 2003, 40% of the income from the advertisement was distributed among nine major publishers of printed media, such as “Kommersant“ and “Independent Media“ (Sodruzhestvo Bumazhnyh Optovikov, 2004). The remaining newspapers got relatively small share of income from advertisement and had to look for additional sources of financing. This resulted in newspapers being patronized by either entrepreneurs or government officials. Therefore, from 90s until today, newspapers in Russia often served the personal interests of those who supported the media financially (Vartanova and Smirnov, 2009). Despite the financial dependence the annulation of the law in 2005 had brought, news media in Russia had experienced an unparalleled growth in 2006-2007. The overall economic condition in Russia has bettered due to the higher market prices on raw materials, of which Russia is a big exporter in the world. The economic growth also increased the access of the society to the computers, Internet subscriptions and advertisement in the media. These resulted in two successful years for the economical development of Russia and its news media industry, before the economic crisis of 2008 stroke (Pankin et al., 2011).
Before the financial crisis of 2008, the newspaper industry in Russia was subject to economic growth. However, the trends and characteristics of newspapers in Russia started to change after 2008, therefore, it is important to discuss the period from 2008 until today separately.
Pankin et al. (2011) concludes that the changes in news media in Russia occurred under influence of four major factors: the rapid growth before 2008, the financial crisis, the new head of the state - prime-minister tandem and the boom in the online communication. Each of these factors has to be discussed separately.
1) The rapid growth before 2008
The rapid growth in the media sector in Russia attracted new investors from abroad, such as Norwegian Schbsted and German Wochenarbeitszeit (WAZ). Nonetheless, to stay away from the influence of state officials, foreign investors were mostly interested in local, regional media. As for the major, national printed media companies, they remained under the control of state-owned enterprises or oligarchs that are close to the government (Pankin et al., 2011).
2) The financial crisis of 2008
The second factor, the financial crisis, had caused a downturn in economics of news media. The newspaper industry lost a part of its profit from advertisers. There has been a 4-5% decrease in the income from advertisement in 2010, compared to pre-crisis period (Rossiyskaya Periodicheskaya Pechat, 2011). To get through the crisis, owners of newspapers had to look for the ways to increase or at least maintain their audience. This caused a major shift in the industry, turning newspapers into entertainers rather than sources of news. Vartanova and Smirnov (2009) suggest that today’s mass media in Russia became an entertainment-focused industry. Newspapers have become a vivid example of such a transformation. The best-selling newspapers in the country are those of entertaining nature. In the popularity ranking constructed by Rospechat along with Federal Agency of Press and Mass Communications in Russia, there is only one newspaper in the top ten that does not classify as an entertainment medium. It is newspaper “Izvestiya“ which ranked ninth and has only 2% popularity in the market (the first three newspapers in the ranking have 14%, 13% and 8%). Such a transformation is criticized by its lack of strategic planning and lack of long-term solutions (Vartanova & Smirnov, 2009).
3) The new tandem: head of the state and prime minister
The third factor is the emergence of new political unity in Russia. After the elections of 2008, Dmitry Medmedev became the new president of Russia. He is perceived by society as the protégé of the ex-president Vladimir Putin. Vladimir Putin in his turn was appointed a prime minister of Russia by the new president. It led to the concentration of power in one political party. For the newspaper industry, it meant an increased control from the state over the printed media of Russia. This slowed down the development of printed media towards more independent and democratic ways of reporting news. Instead, mass media, including printed media, remained paralyzed by the state and oligarchs, who are faithful to the new political tandem (Pankin et al., 2011).
4) Online communication boom
The forth factors that shaped the current trends of news media industry in Russia is online communication. An increase number of Internet users made means of online communication more popular, than ten or even five years ago. However, not only peers communication has
been brought online, but also Internet became a popular source of information, including news. Now readers of printed newspapers can find similar news sources online, most often than not, free of charge. Internet became a new distribution channel for newspaper content, and in order to remain competitive many newspapers choose to digitize their content.
2.2.3. Digitization in Russia
The audience of newspapers in Russia started to shrink in 2008. Apart form being affected by the cost cutting measures smaller audience was due to the digitization of media in the country.
Figure 1 Internet users in CEE sector 2007-‐2009 (adopted from Pelc, Wardzinski & Dukat, 2009) As table shows, Russia has the largest amount of Internet subscribers in the CEE region (38 million users). However, this is due to the large population of the country, rather than the growth of Internet users. In 2009, Russia had 33% penetration for the use of Internet. However, the increase of online communication is visible through the increase of Internet penetration. From 2006 to 2009, there had been a 13% increase (Pelc, Wardzinski & Dukat, 2009). The increase of Internet users was also visible through the use of newspaper. In 2010, the newspapers’ profit from advertisement did not change, but the circulation of printed media decreased. This was caused by the increase of Internet users. The audience switched to
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000 2007 2008 2009 growth 2007-2009
the use of Internet and mobile applications as the source of news. In addition, the propaganda of sophisticated reading materials is rather small, as the younger generation prefers entertaining information to analytical reports. Finally, the content of printed newspaper can be accessed online free of fee. In order to remain profitable, newspapers had to focus on advertisers as the source of income. Therefore, printed media focused on audience that is the most attractive to advertisers. To compensate for the readers they lost to the Internet, major newspapers in Russia increased the issue price of the printed editions. They re-positioned themselves in the market by creating an image of media for ‘elite‘. (Rossiyskaya Periodicheskaya Pechat, 2011).
The shift of news consumption in Russia had severely effected the development of printed media. The content published in the Internet in Russia lacks regulation, which creates a competitive environment, providing the reader with a variety of choices. The economic crisis and competition it created gave consumers an opportunity of finding desired content online cheaper, than the same content in printed newspapers. In order to stay competitive and not to loose their audience to other Internet media, newspapers had to enter the online media market. Hence, the crisis encouraged the digitization of newspaper content (Pankin et al., 2011). For the newspapers, a more traditional way of digitization is creation of the online version of the newspaper, based on the printed version. This provides cost advantage for the newspapers, requiring only 20-30% of the financing used for the printed version. The journalists working for newspapers and media groups would be writing for both platforms rather than only printed edition. Therefore, the human capital of the newspaper would be optimized. This is practiced by the majority of media groups in Russia (Rossiyskaya Periodicheskaya Pechat, 2011). Furthermore, some newspapers go beyond a creation of an online version of the newspaper. In 2010, two newspapers ‘Komsomolskaya Pravda‘ and ‘Vedomosti‘ in edition to already existing online versions created and launched an iPad version of their newspapers. Moreover, “Vedomosti“ also created an electronic version of the newspaper on ePub, format that is compatible with electronic book readers (e.g. Amazon Kindle). This was followed by the release of Android application of the newspaper for smartphones (Korporativnye Novosti, 2012).
Therefore, the positive effects of digitization are cheaper and more diverse content available for users; more freedom of speech for journalists due to the poorly regulated Internet environment; and new opportunities on the Internet, which in overall bring a demand for new
journalism. On the other side, the desire to maintain their audience forced newspapers to play a role of entertainers in the market; and the state ownership of the printed media is still typical in Russia, which complicates the development of independent newspapers (Pankin et al., 2011).
2.3. Case Introduction: Novaya gazeta
Novaya gazeta is a daily socio-political newspaper that was created in 1993. The
establishment of Novaya gazeta occurred when Russia was experiencing the transition into the market economy. 1993 was a year of "perestroika", the process of transformation characterized by political non-stability and economic bankruptcy of Russia. At that time,
Novaya gazeta was financially constrained and entered the market as a weekly newspaper,
but over the years, the frequency of publications gradually increased reaching at two issues per week (on Mondays and Thursdays). In 2012 newspaper is printed three times per week (on Mondays, Wednesdays and Fridays).
The group of people working in “Komsomolskaya Pravda”, which is another Russian socio-political newspaper, initiated the launch of the newspaper. However, the ideological and managerial conflicts that arose between the Chief Editor of “Komsomolskaya Pravda” and some journalists resulted in the separation of the staff of “Komsomolskaya Pravda“. It led to the establishment of Novaya gazeta by those who disagreed with the ways of administration of “Komsomolskaya Pravda”.
In the first years of operating in the market, the company faced few financial and organizational challenges. Mikhail Gorbachev, the first and the last President of the USSR, who was also a co-founder of Novaya gazeta in the early 90s, played the key role in its survival. In general, among Russian journalist society, Gorbachev’s political work is deeply associated with manifestation on freedom of speech and publicity in Russia. Nowadays
Novaya gazeta stands as an independent noncommercial newspaper.
The main means of distribution of Novaya gazeta are subscription and retail in Moscow and eight other regions in Russia (St. Petersburg, Nizhniy Novgorod, Ryazan, Krasnodar, Samara, Yekaterinburg, Novosibirsk, Vladivostok). The newspaper has offices in Kazakhstan, Israel and Germany. A weekly digest is released in Germany in order to keep Russian tourists and immigrants living in Germany informed about current socio-political situation in Russia. In
order to attain the same goals in Israel, brochures with materials from Novaya gazeta are inserted in local magazines and newspapers. The publication abroad allows supporting and advancing the newspaper’s image in these countries. This positions Novaya gazeta as a newspaper interested in the development of business networks and distribution channels. In 2003 Novaya gazeta launched its online version.
Novaya gazeta was chosen as a subject to this research for several reasons. First reason, as we have discussed above, the entrepreneurship in newspaper industry in Russia is hardened by the intervention from the state. However, Novaya gazeta positions itself as independent of state influence, which allows newspaper to be entrepreneurial. In this work we will research if this statement is true. Second reason, is that Novaya gazeta entered the digitization process in 2003, when launched its online version. This is an essential requirement for our research. Third reason is that Novaya gazeta existed since 1993, which allows us to see its transformation and operational administration throughout the transition period. Finally,
Novaya gazeta is in top 15 list by the number circulation and content citation across the
country in 2012, which makes a good subject to the research (Samye Cytiruemye Mediaholdingi Fevralia 2012 goda, 2012).
3. Research Questions
• Did the transition economy affect the digitization process of Novaya gazeta? • Did operational management of the Novaya gazeta change after digitization?
• How did transition economy affect the entrepreneurial activities of a Novaya gazeta?
4. Method
4.1. Research Approach
In order to answer the research questions mentioned above, the case study method is used. The subject to the case study is Novaya gazeta, which appears to be a representative of Russia’s newspaper industry. The case study method allows authors to describe and analyze certain circumstances of the studied subject and draw conclusions valuable to the academic community. Moreover, case study makes it possible to relate the theoretical framework to a real-life scenario and understand to what extent the theory is applicable to practice. It will also enable authors to investigate the extent characteristics of Russia’s transition economy
influence the development of online newspapers. Case study provides a better understanding of the process behind this transformation. In addition, case study allows this research to get an in-depth knowledge of the newspaper’s administration through personal interviews. The research approach used in this study is a qualitative research. In order to get data that is more comprehensive and obtains a higher validity, we are to use multi-modal approach. Multi-modal approach of the case study assumes collection of data via several types of information. This is discussed in more detail next.
4.2. Data Collection and Analysis
The qualitative approach defines the data collection for this study. Among the choices of direct participant observations are primary and secondary documents or archival records, and systematic interviewing. Authors chose the type of data collection that is the most feasible for this particular study. Therefore, data will be collected via in-depth interviews and secondary documents. The argument for this choice is that these two methods are most relevant and accessible in the case of the newspaper. By secondary documents, authors assume data collected from the business reports, external evaluations and press investigations retrieved from the Internet, archives or personally from newspaper representatives. By in-depth interviews, authors imply personal and written interviews with management of the company. In addition, the interviews with regular journalists employed by Novaya gazeta and journalists employed by other newspapers in Russia; also interviews with experts in the field of media economics in Russia (e.g. university professors, critics). Before the data collection, the interview guide was developed in Russian with open-ended questions for a better flow of the conversation [Appendix 1]. To ensure that interview questions were easy to understand and were appropriate for this particular work, the pilot study was held. Two senior students with a major in Journalism were asked the questions from the developed interview guide. Afterwards, questionnaire was modified in accordance with the comments received. During the process of the data collection five interviews were conducted [Appendix 2].
The data is interpreted by composition research rather than holistic research. In other words, the data is analyzed systematically, with text being classified into separate categories according to the information it contains. The results of the research are placed into characteristics of entrepreneurship in online media identified in the literature review. The data collected is placed under its respected category based on the content the interview or
document upholds. To analyze the data authors separate the content into the subsections that answer research questions of the study.
4.3. Reliability
In order to ensure the reliability, authors will use the multi-modal approach. To increase the reliability of results, authors will maintain contact with interviewees, to make sure that interviewers understood correctly the meaning of the answers. In this particular study, due to the country of origin of authors, the matter of objectivity has to be monitored carefully. The objectivity refers to the biases authors may have due to the personal interests and attitudes. To maximize the objectivity, study will be given to an independent reviewer once it is finished.
4.4. Validity
In order to be considered as valid, study has to reflect the measured concept or process accurately. The difference between reliability and validity is that the first one evaluates the procedure of measurement, and the second one evaluates the subject of measurement itself. In this study, the validity is measured by the achievements of research done on entrepreneurship of online newspaper Novaya gazeta in Russia.
The validity is divided into internal and external. Internal validity checks the certainty of researches on the results. In other words, a valid study has to have design that would not compromise the truthfulness of results. To ensure internal validity, authors of this study have to make sure that the factors they depict, but not others, shape trends they see in the collected data. However, internal validity is easier to check if the data is quantitative. In this study, authors may encounter difficulties with an internal validity check. External validity implies the generalizability of the results. In other words, it evaluates to what extent the results of the study can be applied to other cases. However, in the case study the external validity can be irrelevant when the subject differs from other players in the market.
5.
ResultsThe data was collected from the interviews with employees and top-management of the
experts. It provided us with feasible results for an analysis of entrepreneurship and digitization of Novaya gazeta. The information received from interviewees wasn’t controversial, which adds to the internal validity of the research. In order to structure the results from the interviews into more comprehensive form, the collected information will be divided into two categories. First the data on the general perceptions of trends in Russia’s printed media sector will be introduced. Second, the information on the media entrepreneurship in the transition economy will be presented. The case of Novaya gazeta will be discussed in each of the categories.
During the process of data collection, five interviews were conducted with representatives of
Novaya gazeta, editors of Russian newspapers that operate online and professor on media
economics [Appendix 2]. The extensive summary of the interviews can be found in the Appendixes to this work [Appendix 3-7].
5.1. Printed media trends in Russia
Based on the information received from the interviewees the trends in the printed media in Russia are
• State intrusions into the politics of the newspaper;
• Inequality in access to the media throughout the country; • Printed media dependence on advertisers.
First of all, Journalists of Novaya Gazeta, Vedomosti and Lenta.ru state that government officials try to influence the news formation in newspapers. According to the interviewees this is not necessarily the case in their newspapers. But they describe it as a general trend in media industry remaining from the times of the Soviet Union. The influence of government officials is not always direct. At times, it comes through the businessmen, who are related to the government. Galina Timchenko, chief editor at Lenta.ru, suggests that economical and political pressure can always become an issue. A top manager, who aims to be successful, should always be prepared for it. She/he should have a plan for handling situations of political or economic intrusion if such should arise (Timchenko, Chief editor at Lenta.ru). Elena Vartanova, Dean of journalism faculty of Moscow State University, brings up another point. One of the goals of the government is to unite Russia, in order to maintain and strengthen the national culture and identity. Media is a very important tool that can help to
accomplish this goal. Therefore, it becomes important for the state to create an infrastructure within mass media in order to distribute information from Kremlin across the country. Elena Vartanova suggests that state in a certain way “is using the traditional mechanism of self-censorship or the informal influence over the media“ (Vartanova, Professor of Media Economics at Moscow State University (MSU)).
Novaya gazeta, however reports no pressure from the state. Svetlana Bochkalova, head of the
sales department of printed version of Novaya gazeta, states that this newspaper does not depend on any political party. In other words, state does not control the content that is published in printed or online version of the newspaper. Newspaper sustains itself financially from advertisement and sales revenues (Bochkalova, Head of sales department at Novaya
gazeta). In addition, Novaya gazeta gets sponsor support from businessman Alexei Lebedev.
However, all interviewed employees of the Novaya gazeta confirm that sponsor does not influence the type and character of the published material.
Next trend of the media in Russia that has been discovered in the process of data collection is an inequality in the access to media across the country. This trend is related to the size of the country and large population. Russia has a large territory containing many time zones, as a result the morning news in one part of the country are the night news in another. This means that one part of the audience gets news much later and remains less informed. Elena Vartanova explained that this can have a harmful effect on the news distribution and is an inequality of a kind (Vartanova, Professor of Media Economics at MSU). However, there is also a technical inequality in the society. Not all the readers have access to the Internet, therefore some may prefer printed version of newspapers that are distributed free of charge. Furthermore, technical inequality might be caused by the age of consumers.
Konstantin Poleskov, editor of online newspaper Novaya gazeta, states that the audience of this online newspaper is 25-34 years old, which is on average 10 years younger, than the audience of the printed newspaper (Poleskov, Editor at Novaya gazeta). This generation has more knowledge about the use of online content, than older generations. Older readers usually lack technical knowledge and thus cannot freely navigate though online media and thus use its advantages. It adds to the technical inequality of media access in Russia.
The third trend of the printed media in Russia that became evident from the interviews is newspapers’ dependence on advertisement. The development of entrepreneurship requires
financial resources. In Russia newspapers get financed either by state, private businessmen, advertisement or various combinations of the above. For the online newspaper Lenta.ru advertisement is a primary source of income. However, Galina Timchenko mentioned that newspapers that have ‘negative ads’ articles3 or articles that have a hidden promotional context are more profitable than newspapers, which desire to stay objective (Timchenko, Chief editor at Lenta.ru). Therefore staying honest can result in smaller revenues from the advertisers and create a difficult financial situation for the newspaper. Viktor Sakson, journalist of the national newspaper “Vedomosti”, agrees that printed media is highly dependent on advertisement revenues. The main profits don’t come as much from subscribers and direct sales as from advertising activities. An advertisement in printed newspaper is more expensive than advertisement in online newspaper (Sakson, Chief editor at Vedomosti). This discourages newspapers from switching to the digital versions of their medium entirely.
Novaya gazeta is not financed by the state. However, unlike most of the newspapers in
Russia it claims that newspaper is not dependent on advertisement either. Svetlana Bochkalova claims that the main income comes from the sales revenues, sponsor’s donations and grants. The newspaper has a very strict censorship on the advertisement published in
Novaya gazeta. This is true for both, printed and online versions. However, printed version
has less advertisement (Bochkalova, Head of sales department at Novaya gazeta).
Therefore, the research results conclude that there are three main characteristics in printed media trends in Russia. These are state intrusion into the printed media, audience inequality in the access to the media content and dependence of newspapers on advertisement.
Next, we will present the research results in the category of entrepreneurship in the newspapers.
5.2. Entrepreneurship in newspapers in Russia
Entrepreneurship in the newspaper has been associated by all interviewees with a process of digitization of the newspaper content. Konstantin Poleskov has stated that even though printed edition will never be extinct as a form of a media, online version of the newspaper is a logical development of the newspaper as a business (Poleskov, Editor at Novaya gazeta).
On the contrary, Galina Timchenko stated that simple launch of the online version of the newspaper cannot be considered an entrepreneurship. Anyone can go digital, however to become truly competitive and successful, newspaper has to be much different from others, “one has to re-invent the wheel to get noticed and to get read“. In order to do that newspaper has to either present a new product, completely different from already offered in the market or to start a trend, with entirely different concept (Timchenko, Chief editor at Lenta.ru).
Viktor Sakson describes the entrepreneurship of newspapers in a different context. Journalist states that newspapers can branch out to other industries, not just media sector. For example, newspaper Vedomosti created a wine menu option for its online customers. Internet readers can choose and buy elite wine from the newspaper website. Similarly, newspaper became an intermediary in selling airplane tickets, clothes and concert tickets, looking for additional sources of income. However, low margins of these products require large sales revenues, to benefit from the revenue share of 3-5% that newspaper received. Therefore, Vedomosti shut down the business, but newspaper management is constantly looking for other market opportunities to branch out. Sakson considers this activity as a feasible direction for newspaper development, in terms of entrepreneurial activities (Sakson, Chief editor at
Vedomosti).
Staff members of Novaya gazeta exemplify entrepreneurship differently. Konstantin Poleskov also associates it with digitization of the newspaper. However, the entrepreneurship of the Novaya gazeta is not a launch of the online version itself, but in the role online newspaper plays for the printed version of the newspaper. Poleskov states that the launch of the online version of Novaya gazeta helped to promote the printed newspaper. The digital copy is published before the printed newspaper gets to the subscribers or buyers. Therefore, the online version serves as an advertisement, even though the content of both versions is the same and available online for free, the sales of the printed newspaper had increase since 2003, when the online version was launched (Poleskov, editor at Novaya gazeta). Svetlana Bochkalova pointed out that another plausible entrepreneurial activity for the Novaya gazeta will be launch of the mobile application. Also if the printed newspapers will become less profitable, newspaper will transform into the digest, which will increase sales revenues due to the cost per item (Bochkalova, Head of sales department at Novaya gazeta).
Therefore, the research results describe entrepreneurship in the newspapers as a process of content digitization, a branch out to the industries other than media and re-focusing the function of the online media from the income generating to a promotional function.
In the following section, authors will analyze the research results in terms of theoretical framework of this study.
6.
AnalysisIn this section, authors will answer the research questions by analyzing the results from the collected data, in terms of theoretical framework of this study.
• Did the transition economy affect the digitization process of Novaya gazeta?
Before answering this question we have to understand what is the process of digitization for
Novaya gazeta and why did it happen. The process of digitization in the case of this
newspaper is the launch of the online version of the newspaper in 2003. According to the research conducted in this study, we can name three reasons for digitization of the Novaya
gazeta.
#1 Technological changes in news media delivery and production. The production and delivery of news content for online newspaper is considerably lower in comparison to the costs of printed edition. Russia is a country with a huge territory and many of its regions are remote from each other. Therefore, the physical delivery of a newspaper is a long and expensive process.
#2 Interactive characteristics of the Internet. The life has become more intent in the post-industrial era. People suffer the lack of spare time, what influences the mode of news consumption. Nowadays the readers are highly selective in regards to the information they consume. Therefore, the second reason for growing digitization is the interactive characteristics of the Internet. They facilitate a faster collection of information and allow the reader to have a control over the content. Moreover, the life circle of news in the Internet is significantly faster than the one of the printed edition. This means that the content of the newspaper produced today will be outdated tomorrow.
#3 Media literacy. In this work by media literacy we imply the level of news media consumption through the Internet. The media literacy of an individual comes into being from media education. Fedorov (2003) considers media education as “a part of basic entitlement of every citizen, in every country in the world, to freedom of expression and the right to information and is instrumental in building and sustaining democracy”. In terms of technological development the transition period of Russia is characterized by rapid growth of the Internet consumption (Perfiliev, 2002). The availability of technical equipment needed for consumption of news media (such as computers, net books and cable TV) has also grown. In other words, the access to digital devices increased. This means that besides the overall expansion of the Internet connection in transition economy, the decrease of costs on digital devices as technological units played a crucial role in the growth of national media literacy.
Therefore, management of Novaya gazeta decided to digitize the content. Konstantin Poleskov, the editor of online newspaper Novaya gazeta, stated that in the present market conditions ‘we couldn’t not go digital‘.
However, Russia’s being a transition economy country had affected the process of digitization of Novaya gazeta. First, big part of the population in Russia does not have access to the Internet or does not have a sufficient knowledge to use it. In the established market economies in the West, the number of Internet access points is larger than it is in Russia. Elena Vartanova indicated that market development in the country is still lacking stability. The particular characteristic of the digitization in Russia is ‘uneven access to digital
technologies in different regions, which creates tensions inside this media’ (Vartanova,
Professor of Media Economics at MSU). The audience of Novaya gazeta is not limited to a specific region. On the contra, newspaper is consumed across all the country, which means audience with different degrees of access to the technology. Therefore, Novaya gazeta cannot eliminate the printed version of the newspaper, as it will loose big part of its audience. Second, the transition to the market economy implies more competition in the industry. Newspapers established by the principles of a planned economy used to the have fewer players in the market. Novaya gazeta is an example of such a newspaper. The process of the digitization was a response to the activities of the other players in the market. Therefore, the transition to the market economy in Russia, initiated the digitization of Novaya gazeta.
Overall, the transition economy affected the digitization of Novaya gazeta. The negative affect is that all the readers cannot access online newspaper. The positive affect is that
