CTC Media, Inc. Q2 2008 Earnings Call Transcript

Jul.29.08 | About: CTC Media, (CTCM)

CTC Media Inc. (NASDAQ:CTCM)

Q2 2008 Earnings Call

July 29, 2008 9:00 am ET

Executives

Alexander Rodnyansky - CEO

Boris Podolsky - CFO

Vladimir Khanumyan - COO

Analysts

Ben Mogil - Thomas WeiselPartners

David Ferguson - RenaissanceCapital

Laurie Davison - Goldman Sachs

Julia Gordeyeva - ING

Julian Rosy - Morgan Stanley

Evgeny Gavrilenkov - TroikaDialog

Ajay Mehra - Third EyeInvestments

Daniel Soles Ubeme - UBS

Anna Kurbatova - Unicredit Aton

Alexander Wisch - S&P EquityResearch

Operator

Good morning. My name is Judithand I will be your conference operator today. At this time, I would like towelcome everyone to the CTC Media Second Quarter 2008 Earnings Call. All lineshave been placed on mute to prevent any background noise. After the speakers’remarks, there will be a question-and-answer period. (Operator Instructions).

Thank you. It is now my pleasureto turn the floor over to your host, Mr. Alexander Rodnyansky. Sir, you maybegin your conference.

Alexander Rodnyansky

Hello. Thank you, Judith. Goodday, everyone, and welcome to the CTC Media second quarter Earnings Call. I amjoined today by Boris Podolsky, our Chief Financial Officer; as well asVladimir Khanumyan, our Chief Operating Officer. In the past six years, CTCMedia has evolved from a single free-to-air channel to a diversified verticallyintegrated public media company with five channels in three countries, andin-house production capabilities.

For the first time, our resultsinclude the financial and operational figures from all over the newly acquiredassets in Russiaand the CIS territories. This includes our two production studios: Soho Mediaand Costafilm, DTV, and other operations in Kazakhstanand Uzbekistan.

For the second quarter 2008,reported year-over-year consolidated revenue growth of 54% to 172.8 million.OIBDA increased 43% to 73.4 million, and net income grew 59% to 48.8 even overthe second quarter of 2007. The performance of our core assets, which excludesrecent acquisitions and station launches, was in line with our expectations andcontinued market growth. The overall Russian advertising market continues toshow exceptional growth and has seen limited impact from the soft macroeconomicenvironment from other global markets.

CTC Media remains poised to takeadvantage of Russia’sbooming ad market by delivering premium programming to key demographics, and wecontinue to position ourselves for further expansion and growth as we executeon our strategic plan.

We believe all our territoriespresent tremendous opportunities and are poised to remain among the fastestgrowing advertising markets in the world. Industry growth forecast for theRussian TV advertising market in 2008 remain in the range of 25 to 30% as itcontinues to benefit from strong GDP numbers and an expanding consumer market.

Turning to the performance of ourCTC Network, I am pleased to report that in the second quarter the averageaudience share in our target six to 54 year old demographic reached 11.6%compared to 11.2% in the same period last year. This success reinforces CTC’sability to capture its target demographic in an increasingly fragmented mediaenvironment, while providing viewers with the compelling programming they wantto watch.

Regarding CTC’s rating in ourtarget demographic, where our original series Daddy’s Girl and Ranetki. Thefirst showing of the fifth season of Daddy’s Girl had an average share of 21.8in the target demographic. The first season of Ranetki had an average share of17.3%. I would also like to mention that in July, which is usually consideredto be so-called “death season” for CTC Network, since mid-summer istraditionally vacation season, and the young dynamic CTC’s target audiences donot spend much time in front of their TV sets.

However, CTC’s viewership in itstarget audience grew to an impressive 11.9% in July. This hike coincides withthe start of the new series, The Red Hat, which premiered on CTC on June 30.This show has an average share of 13.3% in the CTC’s target demographic.

As we enter the fall season, weare focused on taking the proven brand we have created and building upon theirsuccess with our audiences. We have a firm understanding of our targetdemographics, and believe we have created a fall schedule that caters to them.Beginning September 1, we will launch the fall season with a mix of new andalready established programming. We will premier new seasons of our moresuccessful Russian sitcoms: Daddy’s Girls airing in weekday’s primetime as wellas the new – old – new seasons of our breakout hit, My Fair Nanny, which hasrun its 133 episodes multiple times, and proven very successful with theRussian audiences.

The new season of My Fair Nannycoordinated with Sony Pictures Television International will feature four ofthe original episodes created and produced exclusively for CTC with Russian TVviewers in mind. This marks the first time writers of an original non-Russianseries have teamed up with Russian creative teams to develop new episodesspecifically for Russian TV audiences.

We are optimistic the popularityof My Fair Nanny will translate well for CTC’s fall schedule. We will alsolaunch the fourth season of the mega-hit, Cadets, premiering in primetime thisfall. In addition, we will air the second session of the Ranetki, a seriesabout the musical girl band that delivered an outstanding 17.6% of audienceshare in our target six to 54 year old demographic earlier this spring with itsfirst season. While, Cadets is a show about military school, it’s mostlytargeting teenage boy viewers, Ranetki is definitely skewed towards the youngfemale audience, so this fall season we are confident that everyone will findsomething that caters to them at CTC.

We will also be taking Ranetki’ssuccess and leveraging it into a weekend show, CTC lines up as Superstar, whichis also very good form with all new contestants. This time CTC Lifestyle –excuse me, Superstar will have the girls from the Ranetki band judging schoolbands from across all Russia.

Approximately 25% of all of ourprogramming lineup, and most of prime time shows on CTC will be producedin-house by our production studios: Costafilm and Soho Media. This highlightsthe development and success of our studios. We are confident that the lineup wehave developed for this coming season will continue to provide our viewers thekind of entertainment and television programming they have come to expect fromCTC Network.

Turning to Domashny, we continueto see Domashny expand its audience share year-over-year, and we could not bemore thrilled with this progression.

For the second quarter 2008,Domashny’s audience share in its target demographic females aged 25 to 60 was2.7% in the second quarter up from 2.4% in the second quarter of 2007. Domashnychannel revenue comprised of the network and stations combined increasedyear-over-year by 58% to 20.9 million due to audience share and general marketgrowth.

We also getting ready to announcethe fall season of Domashny which would consist of the original proven formatfine-tuned to more closely reflect the preferences of its target demographic.That’s a good example of the synergy that the acquisition of DTV has provided.I would like to mention an important change in the current schedule ofDomashny.

The DTV court show, the courtroomdrama has been moved to Domashny, where it almost doubled its viewership andsignificantly strengthened our popular show, Family Cases. On DTV, thecourtroom drama had an average share of 1.9 in the all four-plus audience onDomashny’s group to 3.3%. The acquisition of DTV Group’s national free-to-airtelevision network and its owned and affiliated stations in Russia providesanother opportunity for us to capitalize on our established operating platform,production capabilities and the target audiences.

Since closing this acquisition,we successfully integrated DTV into our operations, and have been focused onthe stations we launched this fall. We have started the process of making DTVeven more attractive to the male demographic, and though we have not yetannounced the new concept for the channel, we have started to work on tuning itfurther to scale to the level of quality that every CTC Media’s network isassociated with.

For a start, we have moved theCTC’s docu-fiction series, The Silent Movement to DTV, where it became animmediate success and boosted the overall audience share of the channel. Atthis moment, we are in process of finalizing the fall programming lineup for DTV.Our programming will take advantage of the station’s current target demographicof everyone above 18 years old with more focus on male audiences.

Without going into much detail, Iwould like to tell you that the programming mix of DTV was very much dissimilarto that of Fox Crime with high action detective and action series and shows. Wehave already started the production of a fall show – a few shows andinfotainment program on the Famous Criminal and the Daily Criminal news show.Once those shows are produced in-house, and tailored specifically to the tasteof DTV’s target demographic.

We have also decided to move thepublic presentation of DTV’s new look to later date. We feel that it would beunreasonable to present a new season of DTV simultaneously with leadingchannels such as CTC, Channel One, Channel Russia or MTV. The new season wouldbe officially unveiled in mid-fall.

We have recently announced theappointment of Vladimir Kartashkov as General Director of DTV Group. With morethan 12 years of television broadcasting experience, Vladimir is recognized by the industry as aproven and effective manager. He has a comprehensive understanding of TVaudiences and the types of television programming they desire. In the last fewmonths, Vladimirhas chaired the re-launch effort at DTV, and I am confident in his ability tomanage the network.

We are in active discussions withDisney International about sales initiatives for the stations for next year,and believe we are well on track for the station’s re-launch. For the secondquarter of 2008 DTV’s audience share was 1.7% in this target demographiceveryone above 18 years old. Currently DTV’s technical penetration isapproximately 54% of the country, and we will continue to look for strategicopportunities to expand the station’s reach in the future.

Turning now to Channel 31 in Kazakhstan, webegan broadcasting here in the second quarter with the CTC programming, locallyproduced news, and Kazakh language programs, as well as foreign contentacquired specifically for Channel 31.

The station is off to a terrificstart with a new (inaudible) to launch in CTC format. For the second quarter of2008, Channel 31 audience share grew to an average of 11.8% versus an averageaudience share of 7% in the first quarter. Additionally, Channel 31 audienceshare and its target demographic it means all aged six to 54 years old was animpressive 13.3% for the second quarter of 2008.

I should note that the channel iscontinuously gaining audience share, and is now strengthening its position ofthe second most watched broadcaster in the most important market in Central Asia. Channel 31 is already the number two rankedfree-to-air network after channel Eurasia,local version of Russian Channel One.

The Kazakhstan economy has beenexperiencing some softness for the last 10 months at least, and this isbelieved to have an impact on advertising market growth in 2008. The industryexperts’ expectation for the full year of 2008 derived from highly optimisticzenith of the media forecast of over 40% year-on-year TV and market growth tomuch more conservative Media International forecast of less to slightlydeclining TV and market volume in 2008 compared to 2007.

Realistically, we expect to see alimited growth story in Kazakhstanthis year. However, we believe in the long term growth opportunity of Kazakhstan, andwe will be in a strong position to capture advertising share as marketimproves. Further our audience share performance demonstrates the appeal of CTCcontent, and gives us confidence as we look to opportunistically expand in themarket and entering neighboring CIS countries.

In Uzbekistan, our channel has begunfull time broadcasting with a schedule built off a mix of CTC and Domashnyprogramming. Our management team together with our local strategic partners isworking with advertisers, media sale houses, and cable operators as well asbuilding the station’s brand and viewer base. Uzbek viewers have been veryreceptive to CTC format and content, especially with our original shows, Cadetsand Daddy’s Girls. Currently, we are reporting the media offering andadvertising pricing policy for the channel with a view to start the sales inthe upcoming fall season. While the commercial broadcasting and advertisingmarket is in its infancy, we believe we are creating a solid foundation toparticipate in this market as it continues to develop.

With regard to our distributionplatform, we are constantly looking for opportunities to grow the reach of ournetworks, and further participate in the development of local and regionaladvertising markets. In the mid term, we plan to mainly focus on continuing theregional expansion and increasing the technical penetration for our smallernetworks, Domashny and DTV.

Now I would like to turn the callover to Boris Podolsky, Chief Financial Officer, who will cover the financialresults.

Boris Podolsky

Thank you, Alexander. I wouldlike now to take you through our financial results for the second quarter inmore details. Our second quarter result demonstrated strong growth on bothrevenue and OIBDA basis. Consolidated operating revenues, which includesresults from our – all our recent acquisitions, increased by 54% toapproximately $173 million. Increase in revenue reflects continued growth ofthe Russian TV ad market and higher advertising rates, as well as the impact ofnon-organic growth, acquisition primarily of DTV Group and several regionalstations were acquired subsequent to the second quarter of 2007.

These acquisitions contributed approximately$14 million for the DTV Group and $2 million for the new acquired stations, andaccounted for approximately 14.6 percentage points of 54% year-over-yearincrease. Our advertising revenues increased by 52% year-on-year and amountedto $165 million in Q2, 2008, up from 108 million in second quarter of 2007.

Looking at just organic operatingrevenues of CTC and Domashny, it increased by 40% to approximately $157 millionin the second quarter of this year. Our operating revenue is primarily drivenby the sale of national and local advertising in Russian, which is priced inrubles. During second quarter, the ruble maintained its strength against theU.S. dollar creating a positive currency impact for our results, andcontributed approximately 9.5 percentage – percent or $10 million to ouroverall revenue growth for the second quarter.

Looking now to our individualnetwork performance; the CTC Network remains the most significant contributorto our results, and accounts for approximately 65.6% in our consolidated groupresult for the second quarter. Its second quarter advertising revenues amountedto approximately $104 million, a 43% increase over second quarter of 2007,primarily driven by increase in advertising rates, higher ratings for the CTC Networkin target audience that was partially offset by lower inventory levels.

Sublicensing revenue at the CTCNetwork increased by 99% to $6 million in second quarter of this year from 3million in second quarter of 2007 that was primarily due to the sales ofRussian series in Ukraine.Those series included One Night of Love, Heartbreakers, Daddy’s Girls and ICure.

At Domashny Network secondquarter advertising revenue increased to 16 million, up 78% over second quarterof last year, when advertising revenue was 9 million. Domashny’s growth wasimpacted by continued strength in its rating performance, in addition to anincrease in advertising placement at higher rates.

At DTV, second quarter revenuecontributed 14 million to our consolidated group’s results for the quarter. Insecond quarter of 2008, DTV group total operating revenue was up 69% from thesame time in 2007. Our CIS Group, including Channel 31 in Kazakhstan and Uzbekistan operations addedapproximately $2 million in revenue in the second quarter results.

Now moving on to our expenses andOIBDA. Our consolidated OIBDA margins for the quarter was 42.5%. Organic OIBDAfor the three months ended June 30, 2008, remained stable at 44.8% compared to45.9% in Q2 2007.

Now a few words on our expenses.Our second quarter consolidated expenses increased by 54% to approximately $103million, and I am going to take you through some of the drivers for that.Amortization of programming rights increased by 64% to $62 million, andincreased as a percentage of revenue from 33.6% in second quarter of 2007 to35.8% in the second quarter of this year.

There are a number of factors:number one, the increase in amortization of programming rights was primarilydriven by the company’s decision in second quarter prospectively changeamortization policy for Russian-produced series with 20 or more episodes inorder to better reflect our dynamic and competitive programming strategy. Thecompany’s previous policy, just to remind you, was to amortize 60% of the costof a long-running Russian series after the first run, 30% after the second run,and 10% after the third.

After introduction of the newaccelerated amortization policy and effective beginning of April this year,series with 20 or more episodes irrespective of the number of runs provided bylicense are amortized 75% after the first run, and 25% after the second run.

The impact of this change inamortization policy amounted to approximately $6 million in the three monthsended June 30, 2008. This charge also increased the amortization of programmingrights as a percentage of revenue for the second quarter by 3.3%. This alsowill add estimated $10 million or additional 1.3 to 1.5% in programming rightsamortization line as a percentage of revenue to our full year consolidatednumbers.

The second driver for the growthin amortization of programming rights expected as a percentage of revenue wasincrease in impairment charges from 1 million in the second quarter of 2007 to4 million in the second quarter of the current year. This increase is primarilydue to the one-off charges related to the relative underperformance of theRussian series, Heartbreakers launched during the second quarter of 2008. Thisresulted in 1.7% increase of amortization of programming rights as a percentageof revenue.

And finally, talking aboutamortization of program rights, acquisition of DTV added $4 million to theamortization line item in the quarter, while Channel 31 and our operations inUzbekistan added approximately 1 million resulting in a combined 3.1% increasein amortization of programming rights altogether. Organic amortization ofprogramming rights as a percentage of revenue is 32.6 or 27% excluding one-offeffects of changes in the amortization policy and impairment charges, that isvery much in line with the prior periods.

Moving on selling and general andadministrative expenses in the quarter increased by 44% to $24 million. As apercentage of revenue, SG&A expenses were 14.2 in second quarter of thisyear, down from 15.2 in Q2 of 2007. Organic growth of SG&A expenses is 15%in the second quarter, and was driven primarily by increases in salary andbenefits, and increases in head count, in line with inflation and ourdevelopment plans.

The remaining percentage of thegrowth are coming from non-organic integration of DTV, $2 million; Channel 31and Uzbekistan operations approximately $1 million; and two productioncompanies, Costafilm and Soho Media also added about $2 million to this lineitem.

Moving on to the direct operatingexpenses, this line item in the quarter increased by 89% to approximately 9million, and increased as a percentage of revenue from 4.1 to 5%. The $4million increase in direct operating expenses in absolute terms in the quarterwas driven by the acquisition of DTV and increased transmission cost andmaintenance cost at Domashny and CTC. Organically, direct operating expensesincreased by 43% and comprised 3.8% of our consolidated revenue.

Depreciation and amortizationexpense in the second quarter of 2008 was down by 44% compared to the secondquarter of 2007 and amounted to $3 million or approximately 2% of our totaloperating revenues compared to 5.5% in the year ago period. The decrease indepreciation and amortization expense in absolute terms and as a percentage ofrevenue was principally caused by a change in the way in which we counted ourbroadcasting licenses.

Starting this year, just toremind you, our broadcasting licenses are not amortized but tested for theimpairment on an annual basis. Our net income line for the quarter wasapproximately 49 million compared to 31 million for the three months ended,June 30, 2007.

Organic net income for thequarter was 48 million, up 57% from a year ago. Our effective tax rate was 30%and 36% for this new month ended, June 30, 2008, and 2007 respectively.Effective tax rate quarter-on-quarter decreased primarily due to the decreasein some of the non-deductible expenses as a percentage of income tax. Also,again just for your benefit, to remind the effective tax rate was higher in thethree months of prior year due to the reporting of additional tax expenses ofapproximately 2.5 million related to the management decision to begin payingdividends. So, we experienced from our CTC Moscow stations that was a prioryear discussion.

I would like now to highlight fewpoints on our cash flow position. For the quarter ended, the company generatedfree cash flow of $60 million. We ended the quarter with a total debt of 165million, almost all of which was our debt to MTG in connection with a DTV Groupcompany acquisition. After the quarter end, we received $135 million in cash.Under the syndicated loan facility, which together with our old funds was usedto repay the remaining debt to MTG.

Now moving on to our guidance forthe remainder of year, full year 2008. The full year ending December 31st,2008, the company currently expects to generate consolidated total advertisingrevenue in the range of 650 to $700 million, with a consolidated OIBDA marginin the range of 42 to 46%. This updated guidance range includes expectedrevenues and OIBDA contributions from our CIS operations, DTV Group andproduction companies, all of which we acquired and launched earlier this year.

Also at this point we would liketo reiterate the guidance which I’ve given out previously, organic guidance.The company expects a full year revenue organic in the range between 600 and$650 million. And OIBDA margin in the range of 45 to 48%. This guidance, justto remind you, does not include revenues and OIBDA contribution from our CISoperations, DTV Group and production companies. With that, I will now turn thecall back over to Alexander.

Alexander Rodnyansky

Thank you, Boris. Beforequestions and answers, let me conclude by addressing the issue of changes inthe company’s management team, which happened earlier and of which you are wellaware.

As you know, starting August 4thof this year, I will be joining the Board of Directors of CTC Media and willcontinue serving as the President of the company, while Mr. Anton Kudryashovwill step in as new CEO. I am very grateful to the Board of Directors of CTCMedia for implementing those changes, which I strongly advocated. As thePresident of the company I will continue to oversee the company’s programminginitiatives. As a member of the Board I will also be able to concentrate onissues of strategic development of our business, while the new CEO will put allhis energy and experience in operational management, including integration ofrecently acquired assets into CTC Media and implementing structural changes inthe company.

In the past six years, CTC Mediahas grown tremendously, and I am personally very proud of our achievements. Iam confident that the company is on the right track. Today, CTC Media is well-positioned to capitalize on the growth of this market and build value forshareholders on our belief that in the years to come it will reach new levelsof operational excellence.

Today is obviously my last callas CEO of CTC Media and I’d like to thank the Board Of Directors, for theopportunity to give me a chance to serve as CTC’s CEO for the past six years.And I want to thank all our shareholders for their support. I look forward tobeing a part of CTC’s continued success and growth in my new capacity. And nowI’d like to turn the call over for the questions. Judith?

Question-and-Answer Session

Operator

Thank you. CTC Media would liketo remind everyone that this conference call has contained certainforward-looking statements relating to future events, future financialperformance, strategies, expectations, competitive environment, regulations andavailability of resources. Such forward-looking statements are based uponcurrent expectations that involve risks and uncertainties. Actual results maydiffer materially from those stated, and any forward-looking statements basedon a number of factors and other risk, which are more specifically identifiedin CTC Media’s filing with the SEC.

(Operator Instructions) Yourfirst question is coming from Ben Mogil of Thomas Weisel Partners. Please goahead.

Ben Mogil - Thomas Weisel Partners

Hi guys. Good morning. So thequestion which I had this morning was actually on the programming amortization,the change which you made recently to accelerate the amortization, was thatyour decision based on sort of how you were seeing the market when it came tothird-time airings or was that something that the auditors were sort of pushingyou towards?

Boris Podolsky

Okay Ben, it’s Boris. I will tryto answer your questions. That obviously was driven by us. The two main reasonsfor the change. Number one reason is basically the more aggressive competitionwe see on the market in terms of the programming and effectively for us to showthe lineup with a third run of our sitcoms would be something that managementbelieved to be not a good competitive advantage. That’s number one driver forthat decision. And that’s probably the main driver. The second one, which wasless relevant for us in terms of making the decision but was important to lookat was also the revenue generated by the third run of our shows. So,respectively both factors have affected our decision but that was ours and it’sdriven primarily by the market and our programming strategy.

Ben Mogil - Thomas Weisel Partners

Thank you. And then so, if youtalk from a programming perspective obviously the market has been quicklygrowing but obviously competitive at the same time. When you’re doing morestuff in-house, I mean, do you have a sense of how much ultimately programmingyou’d like to be done internally, versus, imported or third-party buys?

Alexander Rodnyansky

At the moment, this year, we’veannounced we have already 25% of the programming, including almost allprime-time lineups to be delivered – produced and delivered by our productionhouses. We believe this is a great proportion and if our production studioswill be able to deliver such a strong quality product as they did for thiswhole season, we will be completely satisfied. It’s going to be a little bitmore tough, if possible, but we don’t believe it would be a great chance forthe company to be so much depending just on the product produced by our ownproduction companies.

We always want to have thecompetition between the different production companies, specifically the onesowned by us. Generally, we believe this is a good idea for control of thequality and securing the rights over the all geographical and technologicalplatforms. For example, Kazakhstanian expansion is a great example how theproduct produced by our own production companies; being owned by us gave us achance to jump in the audience share.

Ben Mogil - Thomas Weisel Partners

Sure. Okay, that’s great. Thankyou. And then last question and I’ll let someone else get the line, you spokewith the Kazakhstaneconomy being weaker than other markets that you’re in, and that’s why we’reseeing some of the weakness in Channel 31. Can you talk to us what’s a littlebit about what’s different in that economy and why you’re not concerned if thatweakness spreads to other markets that you’re in?

Vladimir Khanumyan

Actually, it’s Vladimir. Actually, Kazakhstan’sadvertising market was growing last calendar year in the same pace as Russianadvertising market. The problem now we see is that advertising economy washeavily impacted by the global recession and especially banking system was, andstill is, under the pressure. We expect that these problems will – at the sametime I will say that consumer market is not as much – was not so much impactedby the banking crisis. So, we believe that these problems would be digested by Kazakhstaneconomy because it’s being supported heavily by the local government. I meanthe economy is supported by the government.

At the same time, it’s important– so we think we will have more exact understanding of the development inKazakh market late this fall, but we think that we anyway will monetize oursuccess starting next year in this country. At the same time, I think it’simportant at this point to underline that we don’t have the same problems – Imean we don’t have impacts of the global recession to the market in Russia,which is very good news, as our 95 or even more percent of our revenue is inRussia. Because, the main explanation is that Russian oil revenues are mostlyrepatriated to the Russian economy and this makes great support to the consumermarket in this country. So that’s the answer.

Ben Mogil - Thomas Weisel Partners

Okay, great. Thank you very much.

Operator

Thank you. Your next question iscoming from David Ferguson of Renaissance Capital. Please go ahead.

David Ferguson - Renaissance Capital

Hi, thanks. It’s David Fergusonfrom Renaissance. Just looking at the ad growth in Q2 for the CTC network, itlooks like it’s strengthened again. I think you have correctly said that maybesell-out rates hadn’t been as high as previously; so, I was just wondering ifyou could clarify what the level of price inflation in the quarter was, and ifyou are running one off effects behind that. And then, in terms of looking outto 2009, what kind of initial feedback are you hearing from Video Internationaland I’m assuming that they would have some preliminary conversations withadvertisers about next year. So I would just be interested to get a feel onwhat they’re saying there please? Thanks.

Boris Podolsky

Okay, thank you, David, for yourquestion. The price inflation, I think, as we discussed it in our prior calls,basically the level of inflation we have seen for all of our channels is in therange of between 50 and 60%. I think it’s consistent for all the networksincluding the CTC. It varies depending on the season, but I mean for CTCnetwork, we have a 43% growth in top line and that corresponds ad revenuegrowth. I believe that’s good and 50 to 60% increase in CPT.

David Ferguson - Renaissance Capital

Okay. And then, just in terms ofany comments you can give about the feedback from beyond 2009?

Alexander Rodnyansky

The beyond is actually well,confident, David (inaudible). Is very much confident on, predicting the marketfor the next couple of years, specifically he we would do something in line. Wewill be seeing – the animators we have, as we have to date. So, expect theadvertising market in Russiato be, the world, in the range of 25 to 30%, and we have a huge deal ofadvertising inventory booked already for 2009 and even from 2010 by VideoInternational. At the moment that’s a very good deal, some additionalvisibility for the company.

David Ferguson - Renaissance Capital

Okay. That’s great. Thank you.

Operator

Thank you. Your next question iscoming from Laurie Davison of Goldman Sachs. Please go ahead.

Laurie Davison - Goldman Sachs

Hi there, it’s Laurie here fromGoldman’s. Could you please just give us an indication of when do you thinkCOSTA and SOHO film will start to benefit thegross margins? And secondly, can you give us the ad market revenue growth ofCTC internationally and on an organic basis for what are you expecting on thosetwo channels? And then lastly, am I right in thinking just on your previouscomments that Russian market growth in the second quarter – Russian marketincrease – price increases were around 50, 60%. What direction of that overallmarket growth, including the reduction of inventory that we’ve seen? Thanks.

Alexander Rodnyansky

Okay. Thank you for yourquestion. Great question. All three of them. I will try to answer them. Thefirst one on COSTA and SOHO margins again, maybe correct me if I answer thewrong question, but there are a couple of things I guess important when wetalking about those.

Number one, as you couldunderstand those companies now are consolidated in our financial results. So,effectively all the margins are eliminated as a part of the consolidationprocess. We do get a portion of their administrative overhead impacting ourconsolidated margins. But the 99% of cost and revenues are eliminated in theprocess of consolidation, so that’s number one.

Number two, in general, theproduction companies’ margins, again, from our understanding, tends to vary inthe range of 10 to 20%, so if we would’ve been acquiring the content from theoutside production companies, those would’ve been the margins we, or theadditional cost we would’ve incurred as a result of that. So, in terms of theircost savings, we generally estimate that this is how much we potentially savingas a result of acquiring and producing content internally. Is that a fairanswer to your question?

Laurie Davison - Goldman Sachs

There was more actually about,when we’re looking at your CTC international channels. You presumed you’regoing to get some gross margin benefit from lower costs of programming fromhaving it in-house. I was wondering specifically when that will start to impactgrowth in ‘08.

Alexander Rodnyansky

Okay. Well I think the firstimpact are going to be in second quarter and thereafter obviously, becausenumber one, we have to produce, or our production companies have to produce theproduct. And number two, we have to bleed the cost of those production to ourP&L as we show the products on the air.

So the third and fourth quarter,and Alexander mentioned that in the fall season, we going to have a fairportion of our in-house production on the air. This will start flowing throughour P&L, and will result in some programming cost savings. I mean, at thispoint, I probably would stop short to give you an exact number, but I’m sure aswe move on through the year we’ll be able to reiterate on that.

Vladimir Khanumyan

Now the market. As Alexander andBoris have already mentioned, the market growth for the year before this year –was a long term forecast and will be in the range of 25, less 30%. At the sametime the market, the inflation of the prices as also we have mentioned todaywas in the range between 50 and 60% on average in the market. And of course,for our two channels. Generally this quarter, now in this year CTC Media asalways outperforms the markets. So I think that was your question.

Alexander Rodnyansky

But let me remind that 50, 60% ofmedia inflation, that was the reaction of the industry in order to mitigate theeffects of the deciding law being an asset after the first of January thru thesecond phase. Been in effect after the first of January 2008. So, there asprobably we have mentioned 25, 30%; this is the range of the market growth forthis year in Russia.

Boris Podolsky

Your last question, I believe,was about organic growth for CTC and the Domashny; I think I mentioned that inmy speech. But just to reiterate, the CTC network organically has grownquarter-on-quarter by 43%. And Domashny network grew by 78%. Again just for thefull picture, the DTV, growth quarter-on-quarter, well we have not consolidatedas you are aware, DTV last year; DTV has grown approximately 69% quarter-on-quarter.So that’s organic growth.

Laurie Davison - Goldman Sachs

I’m sorry. Were these numbers adrevenues or that’s...

Boris Podolsky

Yes, that’s ad revenues.

Laurie Davison - Goldman Sachs

That was ad revenues. Okay,great. Thanks.

Boris Podolsky

Thank you.

Operator

Thank you. Your next question iscoming from Julia Gordeyeva of ING. Please go ahead.

Julia Gordeyeva - ING

Good afternoon, everyone andcongratulations on a solid set of results. My questions really related to yourprogramming costs particularly as a percentage of revenues. If we exclude allof the effects of change in accounting and impairment charges, it looks likeyour margins are actually quite stable, if not uptrending. Can you split thehigher; can you split out basically your inflation and programming costs into,for our inflation versus what you have – what you have said has been used toacquire more quality content. And also the impairment charges, is thatsomething that we should be expecting going forward that you will be writingoff problems that does not track with the audience and can you name perhaps afew projects that you have launched recently, that did not do that well?Thanks.

Vladimir Khanumyan

Julia, thank you for yourquestion. I guess the first part of your question is fairly complicated, so itwill be a little bit difficult to give you a complete answer over theconference call. So we will be pleased to do this via e-mail which of course goto ER directly, but we’ll try to answer it as comprehensively as we could. Asfar as the second part of your question, on impairment charges, as weindicated, and again, as you understand those are the one offs, usually it’svery difficult to forecast and very difficult to predict.

The one offs we had this quarterrelated to the – as I mentioned, underperformance of one particular show, TheHeartbreakers. Basically, the company, as you mentioned, takes all actionspossible to mitigate things like that. I mean by our programming strategy, byrelying on the product that have a proven success and obviously by doing pilotsand using other tools available to us to try to avoid situations like this, Imean obviously it’s the television and it’s unavoidable...

Alexander Rodnyansky

It’s the nature of the...

Vladimir Khanumyan

Yes, as Alexander is saying so.We cannot guarantee you or give you exact guidance on whether this is going tohappen or not, but we’re doing all we should now power to avoid those things tothe extent possible.

Julia Gordeyeva - ING

But, maybe you have, in aprevious, I mean we’re in July already, it’s just been a month. Do you have anyshows that did not track well with the audience so far this month?

Alexander Rodnyansky

No, nothing yet.

Vladimir Khanumyan

And know that we got the showsuccessfully launched in July, which is the which is The Red Hat.

Julia Gordeyeva - ING

Great, okay thanks.

Alexander Rodnyansky

Thank you.

Operator

Thank you. Your next question iscoming from Julian Rosy of Morgan Stanley, please go ahead.

Julian Rosy - Morgan Stanley

Hello, everyone, and just onequick question on your – the cost base really; I was wondering what cost do youthink will appear in the P&L this year for the office rent and what are youbudgeting for 2009, so the question is on office rent? Thank you.

Alexander Rodnyansky

Thank you for your question.Actually, to our regret, talking about costs it’s rare, I guess synonym youcould use. The office rent cost never mentioned in this year. CML we have beenunfortunate enough for various reasons not to be about to look into the newoffice buildings. So we basically have zero costs related to the new officespace. We continue to use premises. We used in the prior year at the rateswhich are similar to the prior year levels as well.

Julian Rosy - Morgan Stanley

Okay fine. So, nothing new forthe moment as to when you think you’re going to move next year?

Alexander Rodnyansky

We currently are in the processof finding a new office, which will be suitable for the growing business, andcan work well for all the operations we currently have. We, at this point,don’t have any affirmative information to give on the subject. But we arelooking for the new premises.

Julian Rosy - Morgan Stanley

Okay. Thank you very much.

Operator

Thank you. Your next question iscoming from [Evgeny Gavrilenkov of Troika]. Please go ahead.

Evgeny Gavrilenkov - Troika Dialog

Good evening everybody. Aquestion on programming cost as a percentage of revenues. Given significantvolatility we observed in the past four quarters or last year, it probablymakes more sense to ask the question where do you see the programming costs asa percentage of revenues?

Programming amortization costsfor the entire year 2008 including or taking into account all the factors thatyou described such as the acquisitions, your own production, and what will bethe change compared or I’ll put it differently, what would be the change ofthis new level given the increased or accelerated depreciation, or whatamortization you will be using going forward to the situation, if there were nosuch accelerated depreciation?

Vladimir Khanumyan

Thank you for your question. Iwill try to answer the last part of your question first. As far as the movingonto the new amortization policy as you understand that is basicallyamortization and so has nothing to do with the cash expenses. For this year andI think I mentioned that we expect a significant change in amortization for thead growth, 1.3% to 1.5% to our amortization expenses as a percentage ofrevenues and basically we will have, sort of, a similar level impact goingforward as opposed to whatever rates we had before.

Now as far as the plans inprogram rights amortization, in general and we do understand that this remainsto be one of their biggest questions on the table and concerns for everyone. Ithink talking about this, or talking of this subject, you now have tounderstand the composition of the group has changed and we have a differenttrend for different channels. We found CTC, which is a channel with establishedhistory, well developed with a fair sized audience share and we currently seethe programming amortization cost being fairly stable there with basically, byintroducing own production. As we discussed before, we are trying to reduce thepressure, which we found on the program rights, amortization as a result of themedia inflation.

So that’s what we do to mitigateit. We have Domashny and DTV, those are two channels where we believe we have apotential for the audience share growth. They will require investment into theprogramming and those channels basically supposedly at the early stages of thedevelopment have a higher rate over the programming right amortization as apercentage of revenue.

At the same time we have lesscontribution to the top line, so this is what’s visible. Finally you havechannels in Kazakhstan and Uzbekistan,which again in some ways resemble the patterns of the newly establishedchannels and the rates of – program rights amortization rates are higher thereagain when compared, for example, to the CTC. Now in general, if you see as thegroup results and where we’re currently see the level of the amortization ofthe programming rights, we see them trending fairly stable when you look at the2008 levels. So, we look at this at somewhere between 32% and 34% as a percentof revenue at the group level with a different trend for different channels asI discussed right now.

Evgeny Gavrilenkov - Troika Dialog

Okay. Thank you very much, andone probably follow-up question: I really missed your answer on what’s theimpact of competition on your new amortization polls? I mean what does it haveto do with the competition? I mean I understand the logic behind, you aretrying to accelerate, and probably you are not being sure that the third runwill give you as much revenue as the first one, but it was part I didn’t quiteunderstand.

Alexander Rodnyansky

Let me answer your question. Youmean the new amortization policy that’s considered for the programming with theseries run specifically. There’s very few long-running periods, so we don’tspeak about sitcoms who are, which are by the submission are supposed to bemultiply used. Just very, very few long running periods are able to deliverthese strong ratings with each series run in the zones close to prime time.

Usually, we’ve been monetizingthem and using them in wee part of our CTC schedule. But these new amortizationpolicy applies to all through a strategic and financial reasons, we have thegreat opportunity to use the long running series with these series runs for thesmaller networks like Domashny or DTV just to provide you with an example ofthe few series which have never, which could have never had such a chance to bepicked up by Domashny schedule.

But the fact that it used to,even the third one was a little bit too expensive for this smaller network.Right now with all the new amortization policy our smaller networks will get anaccess to the library of our long running series, which are not definitely veryattractive for CTC very much established in leading network in the market, butcould definitely work very effectively with Domashny or DTV. That is notdefinitely the most important reason of implementing the new amortizationpolicy, but one of the consequences related to the problem and what you askedabout.

Evgeny Gavrilenkov - Troika Dialog

Okay. Thank you.

Alexander Rodnyansky

Thank you.

Operator

Thank you. Your next question iscoming from Ajay Mehra of Third Eye Investments. Please go ahead.

Ajay Mehra - Third Eye Investments

Hi, it’s Ajay Mehra. I have twoquestions; one is about the growth of the market and you’ve made severalobservations in the growth of the market. I just want to see if I got themright. You said the market is going to grow at 25 to 30%, but the priceinflation right now is 50 to 60% which is 4 times the rate of inflation Iguess. So that means the unit volume in the market is declining? If that is thecase then the GDP is growing at 7.5%, and installation is 15, so nominal growthis about 22.5%.

So is the Russian advertisingmarket going to grow at the rate of 1.2 times or 1.3 times GDP? I wanted to seeif I have that right and then are you growing at the rate of market growth orare you growing above market growth although I know in the second quarter youdid grow above market growth, right? But the profitability is not keeping pacewith that growth rate. So I wonder if you could clarify that for me and then Ihave one more question?

Alexander Rodnyansky

Thank you for the question. Letme talk, and then probably Boris would give them in more detail. First I’vementioned already about the mid-inflation. That was the reaction of the marketwith 50 to 60% of prices growing up. It should be a second phase of it retiringlow which limited decreased the advertising inventory number of minutesavailable for sale.

You know that to mitigate thisdecrease markets have reacted with the media inflation which achieved this 50to 60%. But all companies working at the market sector from Genesis Media orVideo International, our sales house, a are providing the data with, theynumerical for growth of the market in the range of 25 to 30% in the year 2008.It’s definitely is in ruble. If you speak in the U.S. dollar trends, it will beof course, the different numbers exactly what you trust you cannot waive. Thisis a round 35% in the second quarter.

And coming back to your questionon the CTC Media outperforming the market, in the key so far, it depends, asnormal, but let’s talk about the second quarter and first six months’ results.This is exactly what we are in a position to do. So as always CTC Media hasoutperformed the market with this result. That was always the strategy of ourcompany by delivering the premium demographic attractive to advertisers andmonetizing these demographics in a way, which will definitely be effective todeliver such a result, which would outperform the market. So this is thestrategy of the company.

Ajay Mehra - Third Eye Investments

Okay, but are you buying marketshare or is the growth dropped? Why are the profits not giving pay to therevenue growth?

Boris Podolsky

Well, again maybe just toexplain...

Ajay Mehra - Third Eye Investments

Well your, revenues are growingat 54%, but the operating income is growing at 43% now. It could be sort of...

Boris Podolsky

Yes, there’s one factor in whichobviously needs to be mentioned, it’s so-called power ratio because CTC ishistorically had a very strong power ratio that’s effectively premiums itsadvertising paying for the CTC audience compared to what would be the averagemarket prices. So the CTC power ratio has been in a range of 1.4, 1.5 comparedto the average, and that is one of the reasons why CTC historically has beenable to continue to outperform the market growth.

This is the quality of theaudience, this is the strategy of the company, and if you’ve never had a chanceto watch CTC. CTC has young, good and skewed network which is able to deliverthe audience, which is usually very much hard to catch by the traditionaldominant and you know leading networks skewed at the demographics. That’s whyadvertisers are willing to get this audience by paying more. This is how thispower ratio comes up.

Ajay Mehra - Third Eye Investments

And my other question is someanalysts have recently made some observations about the expected fragmentationof the market, and the degradation or normalization of profit margins in theindustry as a whole. I wonder if you can provide some perspective on thatbecause the industry is still, it’s in an infancy it seems to me that theindustry should be able to grow faster than the GDP, and those things may befive, 10 years out, but I wonder if you could comment on that?

Alexander Rodnyansky

We generally agree with you. Wegenerally agree with you and we believe the analysts, we’ve read probablytogether have doubted the industry in general, in the world. Many industries inthe world, they never developed in the world, across the whole territory. In Russia webelieve, we are observing the great dynamics of the one, of the fastest-growingmarkets in the world. We never had an impact of full macro economics throughthe lenses over the world. Since last month we are in a position to see thelimit of the market being stable since a couple of years, and then predicted,then expected to keep such a dynamic for the next years to come.

We believe the strategy of ourcompany to capitalize on this fast-growing market is a very much right strategyand delivered the high results that you can see today. And generally, we don’texpect a slowdown of this market in Russia where television, we willspeak about the broadcasting business and television. Where we are wellpositioned, which, play worse than it is today. Because at the end of the day,television is only true nationwide medium to be able to deliver the nationalaudience to advertisers willing to establish their brands on the market. Sogenerally we don’t see the signs of slowdown of the market in Russia.

Ajay Mehra - Third Eye Investments

Thank you.

Alexander Rodnyansky

Thank you.

Operator

Thank you. Your next question iscoming from [Daniel Soles Ubeme] of UBS. Please go ahead.

Daniel Soles Ubeme - UBS

Good afternoon. You can tell us,we believe that the audience share of Kazakhstan 31 Channel, released in thesecond quarter is sustainable and could be approximate for the full year andgoing forward. For it was be determined by one off effect of launchingoperations in Kazakhstan?And what was the margin and capital levels you have budgeted for Kazakhstan’s 31Channel in this year and for the next year? Thank you.

Alexander Rodnyansky

Thank you. Let me start with theaudience share. We’ve started at 31st of March with the broadcasting the 31Channel in CTC format. To make the long story short, it is continuously gainingthe audience. This is not like one off job which turns out to be effectiveApril or May. In opposite the channel is building up and so it then has thepotential to grow. It doesn’t mean it would grow forever, I mean unless in thenext years to come.

But I believe 31 Channel is ableto capture its position. As we have mentioned already, this is already thesecond most watched network with over than 13% in the targeted demographic forthe audience share. So we believe this is exactly the good sign of thepossibilities of 31 Channel in Kazakhstan.We believe the position of CTC forward in Kazakhstanand potential of CTC for the demographics is even higher than in Russia, in themarket where the competition is stronger.

And a few networks are competingfor the young demographics. We think it’s pretty fair to say the growth fornext year; because we have started just with the year with a few line-ups, ofCTC programming picked up from our library. It doesn’t necessarily reflect all thecurrent programming schedule. We have a pretty good library for Kazakhstan.It’s not the same problem that we have right now in Russia. So it means we are prettyflexible getting this network, more and less competitive in the differentseason; so I mean to reflect the seasonality.

And we are pretty able tomonetize; our terrific our audience performance in Kazakhstan in a time the marketgets used to our appearance in this central Asian country and crisis, or let’ssay a slowdown of the softer development of the market, to put it mildly, ofthis market would be improved in next year. If you think about the financials,but Boris probably you have to.

Boris Podolsky

Yes, as far as the margins forthe 31 Channel are concerned, this year we expect the 31 Channel to be marginnegative, OIBDA margin negative for the reasons mentioned by AlexanderRodnyansky because, and this is the first year of operation. So it’s a startoff for us; and it will require some investment obviously, including investmentinto the programming. Going forward we expect the 31 channel to be in OIBDAmargin positive range in a few years basically getting to the levels of 25 to30% in three to four years time.

Alexander Rodnyansky

Hello, did you get your answer?

Daniel Soles Ubeme - UBS

Yes. Thank you. Thank you verymuch.

Alexander Rodnyansky

Thank you.

Daniel Soles Ubeme - UBS

A follow up, if I may. What willbe the strategy for the group of DTV, you would be a purely male audience or doyou plan to expand it somehow?

Alexander Rodnyansky

You ask about the audience ofDTV?

Daniel Soles Ubeme - UBS

Yes.

Alexander Rodnyansky

Generally at the moment, DTV, isalready very much targeted at the male audience. But if you speak about thetarget demographics to be delivered and the ratings in this demographic to besold out, it is very much depending on our consensus with our sales house VideoInternational. So everyone and then the participants of the advertisingindustry expect, DTV to be male audience skewed. But this is very much, this isvery much depending on the market expectations, what kind of audience should bedelivered.

So we are definitely – we are ina state of negotiations with Video International to see what kind of segmentsof the audience would be preferable and more prospective for the company to –for the whole CTC Media group to create and come up with a unique advertisingproposal to the market. But generally this is a good idea for us to have themale audience skewed metric as DTV to be added to the portfolio of youngaudience of CTC and female audience of the Domashny.

Daniel Soles Ubeme - UBS

Okay. Thank you very much.

Alexander Rodnyansky

Thank you.

Operator

Thank you. Your next question iscoming from Anna Kurbatova of Unicredit Aton. Please go ahead.

Anna Kurbatova - Unicredit Aton

Good evening. My first questionis regarding the amortization of your both costing licenses. Are you going toapply indefinite just for DTV and Channel 31 in Kazakhstan, like you did it in yourRussian district?

Boris Podolsky

Thank you for the question, Anna.Yes, we are.

Anna Kurbatova - Unicredit Aton

Thank you. And the secondquestion is again regarding DTV. Do I understand right that DTV will appear innew format in the next half of this year? For ‘08, with the new programming?

Alexander Rodnyansky

Yes, we would announce the newformat of DTV in the immediate fall. That’s what we mentioned. Because webelieve this is not a great idea for DTV to come out with a new format in theSeptember, October when all the leading networks start their fall seasons. LikeFirst Channel, CTC, for MTV, TNT and all others. We believe such a, you know,thematic lift, putting it this way, thematic networks such as DTV woulddefinitely get their chance to better in then traditional leading networks havealready set up there fall seasons.

Anna Kurbatova - Unicredit Aton

Thank you.

Alexander Rodnyansky

Thank you.

Operator

Thank you. Your next question iscoming from Alexander Wisch of S&P Equity Research. Please go ahead.

Alexander Wisch - S&P Equity Research

Hi, this is Alex Wisch from theStandard & Poor’s Equity Research. Just a couple of questions. One isregarding the margin guidance now and the DTV impact. The guidance you’regiving now, which is a bit lower in the margins, is it just because of DTV?Will it recover to the old levels before DTV? That’s the first question. Andthe second one, which is related – it’s a, the seasonality of your sales andnow with DTV – does the seasonality change at all? I was still expecting therethat fourth quarter to remain the strongest quarter at around 35% of annualsales. Thank you.

Boris Podolsky

Thank you, Alex for yourquestion. As far as margins are concerned, I guess the DTV channel margin forthe second quarter was fairly high. It was about 43%. That is higher than whatwe would think the normal level for DTV should be. The reason for that is wecompleted the acquisition of this channel in April 16th and effectively thisquarter was primarily for us as a quarter when we concentrated on integrationof DTV operations. Taking control over the DTV programming rate strategy andfocusing on other operational things. So obviously that measure will postponesome of the DTV expenses. So what we expect for the DTV is more normalizedOIBDA levels to be around 30, 33%. That’s what our current estimates are, andwe basically will focus on keeping this at similar levels going forward.

The next year, again, we aregoing to look at as a part of our budgeting process and the programmingstrategy, so we are assuming to take some steps to may be meet with assumption.But, in general, I think 30 to 32% is a sustainable level for this channel ingeneral. So, naturally, in my speech I touched on the various profitabilitylevels for our channels, that is, lower levels of profitability then forexample, of regular channels CTC has. And that impacts our margins and that’sthe reason – one of the reasons why the consolidated group results, guidance wehave given out is lower than what the organic guidance we have given outbefore.

We obviously are very muchfocused on the margins; on the profitability and the management team will tryto do at most possible to, you know, to keep the high profitability for thecompany in general. That’s the first of your questions. The second question onthe seasonality, the seasonality for TV is somewhat similar to what we have forCTC and Domashny. So, you’re correct in your assumptions, that the highestrevenue results we demonstrated in Q4 over any given year.

Vladimir Khanumyan

And so I may just add to whatBoris said that, seasonality is not a channel or a natural seasonality.Seasonality is based on consumer behavior and advertising standings. So it’soverall TV market seasonality for any channel working in this market.

Alexander Wisch - S&P Equity Research

Okay. Thank you. I appreciate it.

Alexander Rodnyansky

Thank you.

Boris Podolsky

Operator, we are just going to betaking a few more questions. We’ve been on the call for an hour and a half. AndI hope ladies and gentlemen will excuse us for this. Just few more questions,please.

Operator

Thank you. Your final question isa follow-up question from Ben Mogil of Thomas Weisel Partners. Please go ahead.

Ben Mogil - Thomas Weisel Partners

Hi. Very quickly because it’sobviously been a long time for you guys, I know. You talked earlier about thepower ratios’ historically being around 1.4 to 1.5 times range for the sort oflegacy CTC and Domashny channels. I think the last couple of quarters it’s beenaround 1.3. Do you sort of seeing it being around that level for the rest ofthe calendar year?

Alexander Rodnyansky

I’m sorry, the power ratio forCTC network in year 2008 is on average between 1.5 and 1.6 and we believe thatCTC network growth maintains these levels of power ratio for the whole year.

Boris Podolsky

Power ratio, this could not workjust a couple of months, this is one quarter, this is the let’s say theconsensus between the network, the broadcaster and the industry. You are ableto deliver the audience and industry accept the prices will like to have thempaying for this type of audience. So at least it would be stable for the wholeyear.

Ben Mogil - Thomas Weisel Partners

Sure. Sorry, maybe I misspoke.What I meant was if we look at the power ratio for not just CTC but CTC andDomashny together, is the blended or weighted average power ratio around 1.3?Or is it a little bit higher?

Alexander Rodnyansky

No. That is comparing apples tooranges, I’m sorry. You can’t blend two absolutely different channels withabsolutely different audiences while CTC as you might know has audience of sixto 54, while Domashny has audience of female, 25 to 60, has absolutelydifferent audiences. And regards to your second, as we mentioned CTC has apremium audience or young audience, which is very much appreciated by theadvertiser. And CTC is building up its audience for more than ten years by now,unlike Domashny, which has absolutely started from scratch three years ago andalready achieved a power ratio of one, which is very high, compared to themarket.

So we have to look at theseissues from this point of view. You can’t blend different channels because theyhave different audiences and different percentages, vastly differentpercentages. This is so and second the channels grow their power ratios duringtime period and we believe that Domashny will grow its power ratio within nextcouple of year’s period.

Ben Mogil - Thomas Weisel Partners

Okay. That sounds great. Thankyou very much.

Alexander Rodnyansky

Thank you.

Operator

Thank you. There appears to be nofurther questions. At this time I would like to turn the floor back over toyour host to for any closing remarks.

Alexander Rodnyansky

The very simple remarks. Thankyou, everyone, for joining this call and have a very good day.

Operator

Thank you. This concludes today’sCTC Media Second Quarter 2008 Earnings Conference Call. You may now disconnect.

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