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Article by DailyStocks_admin    (10-08-08 07:13 AM)

The Daily Magic Formula Stock for 10/08/2008 is CTC Media Inc. According to the Magic Formula Investing Web Site, the ebit yield is 11% and the EBIT ROIC is >100%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Overview

We operate the CTC Network, a Russian television network offering entertainment programming targeted at 6-54 year-old viewers, and the Domashny, or "Home" Network, a Russian television network principally targeted at 25-60 year-old women. As of the date of this Annual Report on Form 10-K, the CTC Network's signal is carried by more than 350 television stations and local cable operators, which include 19 of our owned-and-operated stations and 23 unmanned repeater transmitters. Approximately 100 million people are within the coverage of CTC's signal. Domashny's signal is carried by over 230 television stations and local cable operators, including 13 owned-and-operated stations and nine unmanned repeater stations. Approximately 63 million people are within the coverage of Domashny's signal.

We generate substantially all of our revenues from the sale of television advertising. In 2007, our share of the total Russian television advertising market was approximately 14%. The CTC Network's average overall audience share was 9.0% and its average audience share in its target demographic was 11.3%, making CTC the fourth-most watched broadcaster in Russia. Domashny's average overall audience share for 2007 was 2.0%, and its average audience share in its target demographic was 2.4%.

We commenced television operations in May 1994, initially broadcasting from our first owned-and-operated station in St. Petersburg to 22 cities across Russia as a "superstation"—a single station that retransmits its signal to remote locations. In December 1996, we launched CTC (the Cyrillic acronym for the "Network of Television Stations"), a national network broadcasting by satellite from our center in Moscow. Domashny, our second national network, was launched in March 2005 following our acquisition in 2004 of four affiliated television stations in Moscow, St. Petersburg, Perm and Kazan.

While the operation of our television networks in Russia represents the core of our business, we also seek opportunities to expand our business through select media acquisitions that complement our existing businesses. On February 29, 2008, we acquired an interest in Kazakh television broadcaster, Channel 31. The Channel 31 transaction represents a significant opportunity to effectively leverage our management and programming resources in an adjacent Russian speaking market, a key part of our growth strategy. In addition, in December 2007, we entered into definitive share purchase agreements to acquire two Russian production companies, Costafilm LLC and Soho Media LLC. We expect to complete these acquisitions in March 2008. These acquisitions, if completed, will provide the platform from which we will build our proprietary content library. These completed and pending acquisitions are described in more detail under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisitions;—Pending Acquisitions".

Our Business

We have modeled our business on the major U.S. broadcast television networks. We manage our network programming centrally, own and operate stations in strategic cities and expand our broadcast coverage through agreements with independent affiliates and by means of unmanned repeater transmitters in smaller markets, which allows us to enhance our coverage without incurring incremental infrastructure costs. In exchange for the right to broadcast our signal, we allow our affiliates to broadcast local advertising during designated time windows, from which they derive revenues. Our network structure differs from the "channel" model used by our biggest competitors, Channel One and Rossiya, in which these national broadcasters provide their own transmission infrastructure throughout the area they desire to reach and bear the full cost of such infrastructure.

Our networks' management is responsible for our programming, marketing and promotion for both CTC and Domashny, as well as relations with our independent affiliates and with our advertising sales house.

Programming

In order to maximize the audience numbers and desirable demographics that we deliver to advertisers, we seek to:

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emphasize entertainment programming to support our brand and the affinity of our audiences;

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target viewers in the 6-54 age range on the CTC Network and women aged 25-60 on the Domashny Network;

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broadcast an optimal mix of Russian and foreign entertainment programming and develop high-quality original programs with Russian producers;

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schedule according to a well-researched "daypart" strategy, focusing on discrete parts of the day that have distinctive viewing characteristics;

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create "appointment viewing"—where a regularly scheduled program has such a strong appeal that viewers set aside a specific time period to view it; and

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adapt our broadcast schedule to reflect seasonal variations in viewing habits.

Entertainment focus. From our inception, our focus has been on entertainment. We seek to capture a dynamic, youthful audience by offering a range of entertainment programs suited to particular time slots, including original Russian series and shows, recent and classic Russian and Soviet films, popular foreign series and films, and animation. Although we broadcast entertainment and celebrity news on our national networks, we do not broadcast national "hard" news, commentary or analysis.

Advertising sales. Television advertising revenues are generally affected by the overall size of the television advertising market, a broadcaster's ratings and audience share, and its audience profile. In general, the price of national television advertising in any particular time slot is based on a reference price determined on the basis of "gross rating points," or "GRPs." An advertiser or advertising agency will typically place with Video International, our sales house, either a "fixed placement," an amount of advertising placed on a specific broadcaster and time slot by reference to the GRPs estimated by Video International to be delivered by that broadcaster during that time slot, or a "floating placement," an amount of advertising placed at Video International's discretion at a time that will deliver the total number of agreed GRPs.

Because advertisers often seek to reach particular demographic groups, including particular ages and genders, they will often base their advertising placement decisions on the specific ratings among such groups, rather than among the overall population. Video International generally places CTC's advertising on the basis of GRPs achieved in our target audience, the 6-54 demographic, and places Domashny's advertising on the basis of ratings in Domashny's target audience, 25-60 year-old women.

We also derive revenues from the sale of advertising by our owned-and-operated stations in their local markets, as well as through the sale of sponsorships of our programming and sublicensing of programming. Historically, our owned-and-operated stations sold their local advertising principally through their own sales forces. However, since January 2006, Video International has placed local advertising on behalf of substantially all of our owned-and-operated stations.

Role of Video International

In Russia, virtually all national television advertising has historically been sold through so-called "sales houses"—intermediaries between the television broadcasters and the advertisers and advertising agencies—which receive commissions on the sales. We have agreements with one of the two primary sales houses, Video International, to sell national advertising on both CTC and Domashny. We also have an agreement with Video International to sell local advertising for substantially all of our owned-and-operated stations. For more details of these arrangements, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Agreements with Video International."

Demographic targets. Although we seek to maximize our audience share on the CTC Network among the entire viewing population (considered to be those age 4 and older, or "4+"), we focus principally on viewers in the 6-54 age group and have particularly strong appeal to younger audiences. We believe that in Russia, as in more mature advertising markets, the 6-54 age group is the demographic group most in demand by television advertisers. This group generally has the most disposable income and, we believe, is the most responsive to advertising. Viewers in the 55+ category, on the other hand, are generally deemed less likely to change their purchasing decisions based on advertising and, in Russia, to have less average disposable income.

Among both children and teenagers, CTC is one of the top two broadcasters in most applicable time slots. Although these younger demographic groups are not currently the principal targets of advertisers in Russia, we believe they will be of increasing importance, both as consumers themselves and because of their influence on their parents' purchasing decisions. In addition, we believe that if CTC can capture this audience early, these viewers may maintain a strong identification with the CTC brand as they enter adulthood.

Our target audience for the Domashny Network is women aged 25-60. We believe that this focus limits overlap between the target viewers of Domashny and CTC. We also believe that no other broadcaster in Russia currently exclusively targets this demographic group, which we believe to be in particular demand in Russia by advertisers of products for women.

Optimal mix of Russian and international programming. During 2007, approximately 22% of the content we broadcast on CTC consisted of Russian series, 10% consisted of Russian shows that were developed specifically for CTC, 30% consisted of foreign movies, 22% consisted of foreign series, 14% consisted of animation and 2% consisted of other types of programming such as documentaries. Reflecting the higher cost of original programming, our original Russian series and shows accounted for approximately 60% of our amortized programming costs in 2007, while foreign movies accounted for 27%, foreign series for 5%, animation for 3% and other programming for 5%.

For Domashny, during 2007 approximately 26% of the content we broadcast was Russian programming developed specifically for Domashny, a further 17% consisted of movies (predominantly Russian Soviet-era films and Hollywood classics), 47% consisted of foreign series, and 10% consisted of other types of programming.

As of December 31, 2007, we had contractual programming rights for approximately 10,200 hours of programming, including approximately 1,900 hours of Russian series, 5,000 hours of foreign series, 1,400 hours of foreign movies, 500 hours of Russian movies, 100 hours of Russian shows and 1,300 hours of animation. We generally acquire the rights to classic Soviet movies and contemporary Russian movies shortly in advance of broadcast and do not have substantial advance contractual rights to such programming.

Emphasis on Russian programming. We believe that our emphasis on television series and shows produced in Russia is an important factor in maximizing our share of our target viewers on both CTC

and Domashny. We have historically developed original individual programs and long-running series, including dramas, sitcoms and game shows, with production companies located in Russia and Ukraine—sometimes in conjunction with a foreign studio or rights holder, which allows us to leverage existing formats of foreign programs for use in the Russian market. For example, we have entered into licensing and production agreements with Sony Pictures Television and AMedia Group, a Russian production house, for a number of series produced exclusively for the CTC Network.

Through these licensing and production arrangements, we obtain access to the formats of existing foreign series (including plotlines, scripts and characters), as well as expertise in translating such material into Russian and reworking it to maximize its appeal to Russian audiences. In conjunction with production houses such as AMedia Group, we are able to leverage existing production facilities and expertise to cost effectively produce targeted original programming based on such formats.

A format licensor will generally provide an agreed number of scripts under these licensing and production arrangements. Our programming department then works with the licensor's writers to adapt the scripts to Russian tastes and culture. The licensor also provides production experts who typically supervise pre-production and the early stages of production and provide advice regarding production quality, set design, consistency with the original format and casting. We then work with a production company that undertakes the actual production, which includes set design, filming and pre- and post-production activities. Our programming department is integrally involved in all steps in this process.

We have also entered into license agreements with Russian studios and distributors for the rights to broadcast recent Russian made-for-cinema films.

While we will continue to work with third party production companies to produce Russian programming, our acquisition of the Costafilm and Soho Media production companies, if completed, will provide us with in-house capabilities to produce a portion of the Russian programming broadcast on our CTC Network and some of the Russian shows broadcast on the Domashny network. We expect to complete these acquisitions in March 2008.

International programming. We have developed important relationships with suppliers of programming in the United States, Western and Central Europe and Latin America. We translate and dub foreign programming into Russian using both our own translators and contract translators.

We have programming agreements with a number of major Hollywood studios, including Sony Pictures Television International, Walt Disney (Buena Vista International), Paramount, Universal, Warner Brothers and MGM. These contracts give us the right to broadcast a broad range of feature films, series, mini-series and animated programs. We license other international programming from independent producers in the United States, as well as leading European distributors such as the BBC in the UK and TF1 in France Licensing agreements with Russian distributors have also become significant to us in recent years.

Cost-effective programming. Although we will own the programming produced for us by production companies we are currently in the process of acquiring, we have not historically owned our programming or maintained a program library of owned titles. Instead, we have licensed and, with respect to programming produced by third party production companies, expect to continue to license a limited number of runs of each program from foreign or Russian producers and distributors. We carefully plan our acquisitions to ensure our access to the most desirable programming on the most favorable terms possible. A number of studios and distributors "pre-sell" licenses to Russian and foreign films well in advance of release in Russia. Many studios and distributors also require licensees to license packages of films or shows—for example, bundling less popular titles with titles that are expected to be particularly successful. In addition, to date some distributors have agreed to arrangements pursuant to which two or more broadcasters in Russia may "share" the rights to multiple

showings of certain movies or shows at different times, resulting in lower licensing costs for each broadcaster. For example, our agreement with Sony permits us to sublicense programming rights to certain channels in Russia. We have entered into such agreements with Channel One, pursuant to which we "share" with Channel One the rights to multiple runs of certain programming available under the agreement, primarily blockbuster movies. By sharing programming rights, the cost to us of these rights is materially reduced.

Programming format and schedule. We follow a "daypart" format on both our networks and have designed our broadcast schedules in a manner similar to that of a US television network. We research, map and analyze our audience flow and incorporate the results into our program acquisition and scheduling strategy. The result is a differentiated programming strategy according to which we seek to assign different kinds of programming to different parts of the day and days of the week based on viewer characteristics and preferences.

One of the goals of our programming strategy is to create "appointment viewing" by broadcasting programs with strong drawing power, promoting them, and scheduling them at consistent, easy-to-remember times. We believe that this strategy can create a habit among viewers over time that may generate consistently high audience levels. This "western"-style format was entirely new to Russia (with the exception of the daily government news program) when we introduced it on CTC, and we believe it has now been adopted by many of our competitors.

CTC Network. Our programming strategy for CTC focuses on entertainment and an optimal mix between Russian production and international programming of interest to our target viewers. We seek to schedule relatively expensive programming for broadcast during time slots with higher viewership. We seek to adjust our weekend schedules appropriately to reflect our viewers' schedules.

Domashny Network. Our programming strategy for Domashny also focuses on entertainment and an optimal mix between Russian and international programs, targeting women viewers. Approximately 26% of programming broadcast on the Domashny Network in 2007 was original Russian programming developed specifically for Domashny, consisting primarily of talk shows, cooking programs and similarly formatted programs. Such shows are designed to appeal to the network's target audience and are typically less expensive to produce than original drama series or sitcoms.

Seasonality. We seek to exploit seasonal fluctuations in overall television viewership and television advertising sales to maximize our revenues and control our costs. Overall television viewership is lower during the summer months, when good weather results in a reduction in the number of viewers and average viewing times, and highest in the fourth quarter, when the weather is colder and vacations and holidays are less common.

Channel One, Rossiya and NTV broadcast more expensive and popular programming during the month of January, which increases their audience shares at the expense of their competitors, including CTC and Domashny. Seasonal fluctuations in consumer patterns also affect television advertising expenditures. We therefore seek to concentrate programming that we believe will achieve relatively higher audience shares in those periods when viewership is higher and advertising is in greater demand, while taking into account the relative strength of our competitors' programming in particular periods.

Audience share and ratings

Our advertising revenues are largely driven by our audience share (the percentage of all people watching television at a given time who are watching CTC or Domashny) and ratings (the percentage of the total population that is watching CTC or Domashny at a given time). Our audience shares and ratings, in turn, depend in large part upon the appeal of our programming, and vary depending on the day of the week, time of the day, nature of our competitors' programming at any given time, shifting public tastes and interests, and the success of our promotional activities.

Russian television viewing data, including ratings, audience shares and related metrics, are currently gathered by TNS Gallup Media. The TNS measurement system uses internationally recognized methods and is the standard currently used by all major television broadcasters, advertisers and advertising agencies in Russia.

Information on audience numbers is gathered through the use of TNS's "Peoplemeters," which are physically installed in households in selected locations, based on sampling techniques and census data designed to capture a statistically significant sample of the desired population. Currently, Peoplemeters are installed in a panel of 65 cities. The panel cities are chosen from among those Russian cities with more than 100,000 residents (according to Federal State Statistics Services data for 2007 census), which together account for approximately 48% of the total population of Russia. Because of the relative lack of affluence in smaller communities—and consequently very different consumer habits—we believe that advertisers are not currently focused on reaching audiences in cities with populations of less than 100,000.

The CTC Network signal is currently broadcast in each of the 65 panel cities. The Domashny Network signal is currently broadcast in 49 of the 65 panel cities. TNS Gallup Media reported that, in 2007, 87.4% of households located in cities of more than 100,000 residents had the technical ability to receive the CTC Network broadcast signal, and 64.8% had the ability to receive the Domashny Network signal.

CTC Network. In 2007, the overall average audience share of CTC was 9.0% compared to 10.4% in 2006. CTC has been the fourth most-watched broadcaster in Russia for four consecutive years. Prior to 2003, the top six television broadcasters in Russia could be classified into two groupings according to audience shares—with Channel One, Rossiya and NTV in the top tier, and CTC, REN-TV and TNT in the second tier. Since 2003 these broadcasters have fallen into three pairs by audience shares—with Channel One and Rossiya in the top tier, NTV and CTC in the middle tier, and REN-TV and TNT in the bottom tier. We believe that our strong positioning reflects our success in promoting the CTC network and in licensing and developing attractive programming, and represents a fundamental realignment of the top of the Russian broadcasting market.

Domashny Network. The overall average audience share of Domashny in 2007 was 2.0%, compared to 1.4% in 2006. Within Domashny's principal target audience, 25-60 year-old women, Domashny had an average audience share of 2.4% in 2007, compared to 1.7% in 2006.

Principal network television advertisers

In 2007, approximately 200 advertisers purchased national advertising on CTC and/or Domashny. Of these, our 80 key clients generated approximately 90% of our national advertising revenues. The top ten advertisers, in the aggregate, represented approximately 35% of our total national advertising revenues for the two networks together, and included many of the multinational companies that are the largest advertisers in the Russian national television advertising market. We do not believe that we are dependent on any one or any small number of advertisers for a material portion of our revenues.

We have experienced shifts in the types of advertisers placing national advertising over the past several years, which we believe reflects shifts in the broader market as new types of companies, such as mobile phone providers, have initiated or expanded their advertising on television. Certain advertising sectors, such as financial services, that typically purchase a substantial proportion of total television advertising in more developed markets do not currently place significant amounts of advertising on Russian television.

Marketing and promotion

Our marketing team promotes awareness of both CTC and Domashny among television viewers and advertisers, with an emphasis on the promotion of our prime-time lineups, new shows, special events and morning programming. Such efforts include producing on-air promotional television spots, placing commercials on national and regional radio stations, print advertisements and outdoor media. We have a small on-site studio and an editing system for producing on-air promotional segments. We have pioneered the use in Russia of "western" television promotion techniques, such as the use of a contact management system and on-air promotions.

Our marketing team also assists our affiliates with their local marketing efforts, preparing high-quality, standardized regional marketing materials, including print advertisements, radio spots and promotional materials, which it sends to our affiliates for distribution in their regions. Our agreements with our affiliates contain provisions with respect to the marketing of network programming in the local area. In particular, when broadcasting CTC and Domashny programming, our affiliates are required to display the CTC or Domashny logo on screen. Affiliates must also ensure that the CTC and Domashny programming schedules are published in the local press and are required to advertise CTC and Domashny programming in their local markets.

Transmission

From our headquarters in Moscow, CTC and Domashny send their signals digitally via a dedicated fiber optic cable to a transmission center, from which they are transmitted to satellite uplinks and by satellite throughout the territory of Russia. Our broadcasts are time-shifted for four different time zones so that programs are aired at the appropriate local times in each of Russia's far-flung population centers across 11 time zones, with a maximum of a one-hour time shift from our standard daily programming schedule in some areas. In order to reach areas across Russia, the signals are uplinked separately to two separate satellite systems, one of which is owned by the Russian Satellite Communications Company, a state-owned company, and another by Gazcom, an affiliate of state-controlled Gazprom. We also have an agreement with a third back-up satellite facility owned by GTSS. In the event of the loss of service of any one of these satellite systems, the remaining systems will continue to deliver our signal to between 62% and 100% of our affiliates. We believe that the remaining useful life of the satellites we currently use is between 10 and 15 years.

Distribution

Our signals are broadcast by the owned-and-operated stations in our Television Station Groups, our independent affiliate stations and local cable operators, and unmanned repeater transmitters.

Television Station Groups. We own and operate stations in significant markets throughout Russia, in some cases together with local joint venture partners. These owned-and-operated stations comprise our CTC and Domashny Television Station Groups. Our CTC Television Station Group includes 19 owned-and-operated stations that are currently broadcasting our signal, and our Domashny Television Station Group includes 13 such stations. Like our independent affiliates, our owned-and-operated stations broadcast programming received by satellite from the CTC Network or the Domashny Network, including national advertising. In addition, they earn revenues by selling local advertising, which is broadcast during designated windows.

We believe that our owned-and-operated stations are strategically positioned to capture Russia's largest local markets and secure our position in key cities where audiences are measured. These stations serve as the backbone of our networks' operations by ensuring that our program schedules, generally in their entirety, along with our national advertising and promotional announcements are telecast with the highest quality to the audiences in Russia's principal television markets.

Although historically we found it useful to enter into joint venture arrangements with local partners in establishing and/or acquiring our owned-and-operated stations, our general strategy now is typically to seek majority control of the stations we acquire or establish. We are either the sole or majority shareholder of all but one of our Russian owned-and-operated stations.

We believe that our strong market position now makes it easier than was historically the case for us to seek a majority position in the case of acquisitions or newly formed companies, and we believe that a majority position maximizes our flexibility in implementing our business decisions. We therefore intend typically to seek majority control of new stations that we acquire or establish. At the same time, we believe that in many cases we will continue to benefit from participation by local partners on a minority basis.


CEO BACKGROUND

Hans-Holger Albrecht. Mr. Albrecht has been a member of the Board of Directors since July 2002 and was appointed Co-Chairman in December 2003. He is president and CEO of Modern Times Group MTG AB, a publicly listed television and media group based in Sweden ("MTG"). An affiliate of MTG is one of our principal stockholders. Mr. Albrecht joined MTG in 1997 and has served as its president and CEO since August 2000. Prior to joining MTG, Mr. Albrecht worked for Daimler-Benz and for the CLT media group in Luxembourg, where he had responsibility for SuperRTL and CLT's Digital-TV project, as well as for all television activities and development in Germany and Eastern Europe. Mr. Albrecht also serves as a director of EM.TV, a German listed company.

Peter Aven. Mr. Aven has been a member of the Board of Directors since July 2002 and was appointed Co-Chairman in December 2003. He is president of Alfa Bank, one of Russia's largest commercial banks, where he is responsible for overall strategy and for relations with business and government leaders. An affiliate of Alfa Bank is one of our principal stockholders. Prior to joining Alfa Bank in 1994, Mr. Aven was Minister of Foreign Economic Relations for the Russian Federation (1991 to 1992). He had previously worked at the International Institute for Applied Systems Analysis in Austria. Mr. Aven is an internationally recognized economist and the author of works on econometrics and Russian agricultural reform. He holds a Ph.D. in Econometrics from Moscow State University. Mr. Aven is chairman of the board of directors of Golden Telecom, Inc., a telecommunications company based in Russia. He is also a trustee of the board of directors of the Russian Economics School and serves on the board of directors of the Bolshoi Theater in Moscow.

Vagan Abgaryan. Mr. Abgaryan served as a member of our Board of Directors from June 2006 until his resignation on March 28, 2008, as described in footnote 4 above. Mr. Abgaryan is currently an entrepreneur managing several businesses in which he is a partner. From 1995 to 2007, Mr. Abgaryan worked for Alfa Bank, where he held various positions responsible for managing merger and acquisition transactions, as well as supervising long-term investments for Alfa; his last position there was senior vice president, serving as the head of Alfa's asset management department. Mr. Abgaryan continues to act as a consultant for Alfa. Prior to joining Alfa Bank, Mr. Abgaryan worked as an auditor with Ernst & Young CIS' Moscow office from 1993 to 1995. Mr. Abgaryan graduated from the Moscow State Academy of Management as a fellow of the International Economic Relations faculty.

Tamjid Basunia. Mr. Basunia has been a member of our Board of Directors since June 2006. Mr. Basunia was a partner at PricewaterhouseCoopers L.L.P. for more than 20 years until his retirement in December 2005, working in London, Eastern Europe, the Middle East and, for 11 years, the Russian Federation. Mr. Basunia has worked in audit and business advisory roles for banks and other financial institutions, assisting on a variety of issues such as strategy, profitability reviews, risk management and human resource policies. His role at PricewaterhouseCoopers included serving as chairman of the supervisory board for Eastern European operations and as chairman of the audit committee for more than ten years. Mr. Basunia was also chairman of the regulatory group established by the principal international accounting firms in the Russian Federation. Mr. Basunia is a fellow of the Institute of Chartered Accountants in England and Wales.

Maria Brunell Livfors. Ms. Brunell Livfors has been a member of the Board of Directors since February 2006. She has been the chief executive officer of Investment AB Kinnevik, the principal shareholder of MTG, since August 2006. She served as chief financial officer of MTG from 2001 to May 2006. From 1992 to 2001 she served in a number of financial management and controlling positions with MTG. Prior to joining MTG, Ms. Brunell Livfors worked as a controller at Consensus AB, a finance house providing securities brokerage, insurance brokerage and financial advisory services. She also serves as a member of the boards of directors of Metro International S.A., Transcom Worldwide SA, Tele2 AB and Milllicom International Cellular S.A., all publicly listed on the Stockholm Stock Exchange. Ms. Brunell Livfors studied business and economics at the University of Stockholm.

Charles Burdick. Mr. Burdick has been a member of our Board of Directors since June 2006. Mr. Burdick has an extensive background in telecommunications and media, with over 25 years experience in the industry. Until July 2005, he was chief executive officer of HIT Entertainment Plc, a publicly listed provider of pre-school children's entertainment. From 1996 to 2004, he worked for Telewest Communications, the second largest cable television company in the United Kingdom, serving as chief financial officer and chief executive officer. In these roles he oversaw the financial and operational restructuring of Telewest and was responsible for leading and financing the acquisitions of a number of cable companies. Mr. Burdick has also held a series of financial positions with TimeWarner, US WEST and MediaOne, specializing in corporate finance, mergers and acquisitions, and international treasury. Mr. Burdick currently serves as a non-executive director and audit chairman of Singer and Friedlander, a UK merchant bank, owned by the Kaupthing Group, a non-executive director and chairman of Converse Technologies, an NYSE-listed company, and as a non-executive director of Bally Total Fitness Holding Corporation. Mr. Burdick holds a M.B.A. from University of California, Los Angeles and a B.A. in Economics from the University of California, Santa Barbara.

Kaj Gradevik. Mr. Gradevik has been a member of the Board of Directors since July 2002. He joined MTG, an affiliate of one of our principal stockholders, in May 2001 as a business development manager and is currently its head of mergers and acquisitions and business development, mainly responsible for origination and execution of MTG's mergers and acquisitions as well as its international expansion in the television broadcasting sector having, inter alia, managed the execution of MTG's investments in CTC Media and TV Prima (Czech Republic). Prior to joining MTG, he was an investment manager at Spray Ventures, a Swedish venture capital firm focusing on the IT sector. From 1998 to 2000, Mr. Gradevik worked as an investment banker at Merrill Lynch in London, specializing in mergers and acquisitions in the emerging markets. He also previously worked as a diplomat for the Swedish Ministry of Foreign Affairs and holds a degree of Master of Political Sciences from Uppsala University. Mr. Gradevik also serves as a member of the Supervisory Board of FTV Prima Holding and as a director of Balkan Media Group Ltd.

Elena Grechina. Ms. Grechina joined our Board of Directors on March 28, 2008. Since 1999, Ms. Grechina has worked for Alfa Bank, where she has held various positions responsible for managing merger and acquisition transactions in the corporate finance department, as well as supervising long-term investments for Alfa. Her current position at Alfa is senior vice president, heading Alfa's asset management department. Prior to joining Alfa Bank, Ms. Grechina worked as a securities analyst with Alfa Asset Management, a Moscow-based private equity investment group, from 1998 to 1999. Ms. Grechina also serves as a director of AV-TO, a subsidiary of Amtel-Vredestein N.V.

Werner Klatten. Mr. Klatten has been a member of our Board of Directors since June 2006. Mr. Klatten has extensive experience in the media industry and is currently chairman of the management board of EM.TV AG, a German publicly traded media and marketing company focused on sports and entertainment. Early in his career, Mr. Klatten joined Martin Brinkmann AG in 1977 as senior legal advisor. In 1984, he was appointed to the board of directors of Martin Brinkmann, where he was responsible for marketing and one year later became chairman of that board of directors. In 1988, Mr. Klatten moved to become chief executive officer of the television channel Sat. 1. In 1994, he moved to Spiegel-Verlag as management executive in charge of markets and revenue. Ultimately, he assumed management of Spiegel TV and, in September 2000, he became the chairman of the board of directors of SpiegelNet AG. Mr. Klatten studied jurisprudence and began his career practicing law in Hamburg, Germany.

Oleg Sysuev. Mr. Sysuev has been a member of the Board of Directors since October 2003. He is first deputy chairman of the board of directors of Alfa Bank, where he is responsible for the bank's regional branch network and banking in the regions.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We operate the CTC Network, a Russian television network offering entertainment programming targeted principally at 6-54 year-old viewers, and the Domashny, or "Home" Network, a Russian television network targeted principally at 25-60 year-old women. CTC's signal is broadcast by over 350 television stations and local cable operators, including 19 owned-and-operated stations and 23 unmanned repeater transmitters. Domashny's signal is broadcast by over 230 television stations and local cable operators, including 13 owned-and-operated stations and nine unmanned repeater stations. The signals of CTC and Domashny cover approximately 100 million people and 63 million people in Russia, respectively.

We organize our operations into four business segments: CTC Network, Domashny Network, CTC Television Station Group and Domashny Television Station Group.

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Networks. Each network is responsible for its broadcasting operations, including the licensing and commissioning of programming, producing its programming schedule and managing its relationships with its independent affiliates. Both the CTC Network and the Domashny Network generate substantially all of their revenues from the sale of national television advertising, which they place through Video International, their exclusive advertising sales house.

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Television Station Groups. The CTC Television Station Group manages its 19 owned-and-operated stations and 23 repeater transmitters. The Domashny Station Group manages 13 owned-and-operated stations and nine repeater transmitters. Both Television Station Groups generate substantially all of their revenues from the sale of local television advertising that is broadcast during the local advertising windows allotted to them by our Networks. Substantially all of our local advertising has been placed through Video International since January 2006.

Key Factors Affecting Our Results of Operations

Our results of operations are affected primarily by the overall demand for television advertising, the limited supply of television advertising time, our ability to deliver a large share of viewers with desirable demographics, and the availability and cost of quality programming.

Overall demand for television advertising in Russia has experienced significant growth in recent years due to improved general business and economic conditions, including the levels of gross domestic product ("GDP"), disposable income and consumer spending. Presently, the Russian advertising market is one of the largest and fastest growing in Europe. Despite this rapid growth, however, advertising spending in Russia, both on a per capita basis and as a percentage of GDP, remains low by international standards. We believe this indicates that the television advertising market is still relatively under-developed. We intend to capitalize on this growth by strengthening our position as a leading advertising platform for reaching consumers in Russia.

The supply of television advertising time is limited by Russian legislation (as discussed below). As a result of this limited supply of advertising time, we are only able to increase our revenues by delivering larger audience shares and by increases in the price of advertising.

The continued success of our advertising sales depends on our ability to attract a large share of the key target audiences, especially during primetime. Our ability to attract our key target audiences in turn depends in large part on our ability to broadcast quality programming. To date, we have been able to achieve significant audience share at the CTC Network by broadcasting attractive entertainment programming, including original Russian series and shows as well as popular foreign series, films and animation. The audience share at our Domashny Network has been steadily increasing since its establishment. Although we believe we have been successful in licensing programming content that appeals to our key target audiences, we continue to compete with other television broadcasters for programming content, and to seek to air programming that addresses evolving audience tastes and trends in television broadcasting. Our programming costs have risen substantially in recent years and we expect that they will continue to do so as competition for high-quality Russian and foreign entertainment programming intensifies among Russian television broadcasters, in conjunction with anticipated growth in the Russian television advertising market.

While the ongoing development and expansion of our television networks represents the core of our strategy, we also seek opportunities to expand our business through select media acquisitions that complement our existing businesses, including opportunities in adjacent Russian speaking markets where we can effectively and efficiently leverage our management and programming resources. On February 29, 2008, we acquired an interest in the Kazakh television broadcaster, Channel 31. In December 2007, we entered into definitive share purchase agreements to acquire two Russian production companies, Costafilm LLC and Soho Media LLC. We expect to complete these acquisitions in March 2008. These completed and pending acquisitions are described in more detail below. We will also continue to explore opportunities to further expand our presence in the local advertising market, principally through the careful expansion of our owned-and-operated television stations in major cities. These acquisitions or expansion plans, if completed, could subject us to a range of additional factors that could affect our subsequent results of operations.

Television Advertising Sales

In the Russian television market, national advertising is generally not placed directly with broadcasters. Instead, two "sales houses," Video International and NTV Media, control the placement of virtually all national television advertising in Russia. Since 1999, Video International has placed, on an exclusive basis, our national advertising.

Prior to 2006, local advertising sales at our owned-and-operated stations were generally placed directly by our in-house sales teams. Beginning on January 1, 2006, we engaged Video International to place, on an exclusive basis, local advertising at substantially all of our owned-and-operated stations. Therefore, revenue sold through Video International accounted for substantially all of our advertising revenues in 2006 and 2007.

The price of television advertising is primarily driven by demand, reflecting the fact that the amount of available television advertising is relatively limited. Current Russian legislation limits the amount of advertising to no more than 15% of any broadcasting hour.

In general, national television advertising in any particular time slot is sold on the basis of gross rating points ("GRPs"), which refers to a particular measure of the population that has been watching a given broadcaster during a given 30-second time slot. Local television advertising, on the other hand, is currently sold by time (in 30 second slots) in some Russian cities, rather than by GRPs. Video International is seeking to restructure local sales to be sold on a GRP basis in larger Russian cities where audience shares are individually reported. It currently sells a portion of local advertising on the basis of GRPs, primarily in Moscow and St. Petersburg.

At the network level, where advertisers and advertising agencies purchase advertising on the basis of GRPs, if we fail to achieve the projected audience share for a particular time period, we will have fewer GRPs to sell and, therefore, our advertising revenues will be less than anticipated. On the other hand, if we achieve higher than anticipated audience share for a particular time period, advertisers do not generally compensate us for the over-delivery of GRPs. We therefore seek to adjust the projected GRPs to be delivered for a particular time slot on a rolling monthly basis in an effort to minimize the advertising revenues lost to over-delivery of GRPs when our audience share in that time slot is generally increasing.

Because advertisers often seek to reach particular demographic groups, including particular ages and genders, they will often base their advertising placement decisions on ratings among such groups, rather than among the overall population—for example, on the basis of ratings among 18-45 year olds. Video International generally places the CTC Network's advertising on the basis of ratings in CTC's target audience, the 6-54 demographic, and it generally places the Domashny Network's advertising on the basis of our ratings in Domashny's target audience, 25-60 year-old women.

We derive no direct revenues from our independent affiliates. These independent affiliates broadcast our network signal in their local areas in exchange for the right to broadcast local advertising during designated time windows, from which they derive their own revenues. By providing us with a means of expanding our broadcast coverage with limited investment on our part, these independent affiliates help to increase our audience share and ratings, thereby indirectly increasing our national advertising revenues.

Television advertising sales vary over the course of the year. As a result of seasonality trends in viewing, the broadcasting industry generally achieves a greater proportion of advertising revenues in the fourth quarter. In 2007, approximately 35% of our total advertising revenues were generated in the fourth quarter.

We expect that our future growth in advertising revenue will depend primarily on increases in the price of our advertising and our ability to increase our advertising inventory. At the national level, our ability to increase our advertising inventory depends upon our success in increasing our audience share, which in turn increases the number of GRPs we have available to sell. At the local level, the acquisition of additional owned-and-operated stations would provide us with additional local advertising time to sell.

Our Agreements with Video International

We have three agreements with Video International for the placement of our advertising: one with CTC, one with Domashny and one umbrella agreement for both of our Television Station Groups, with sub-agreements for each of our individual owned-and-operated stations that have retained Video International to place their advertising. The current agreements for the CTC and Domashny networks run through December 2012 and December 2009, respectively. The umbrella agreement for our Television Station Groups runs through December 2010.

Under the terms of the network agreements, we pay Video International fixed commissions of 13% and 12%, respectively, of the gross advertising sales of the CTC and Domashny networks. Our networks bear the credit risk associated with any failure by an advertiser to make payments when they are due. However, Video International guarantees the payment of any unpaid debt of advertising clients to the extent that such debt has been outstanding for at least 180 days and exceeds, in the aggregate, 0.05% of CTC Network's or Domashny Network's gross advertising revenues for the year. This guarantee is not applicable in the event of a material downturn in the Russian economy.

The CTC Network and Domashny Network agreements are terminable upon 180 days' notice by either party. As compensation for early termination, the terminating party under either the CTC Network or Domashny Network agreements must generally pay the other party an amount equal to the commission that was paid for the six-month period preceding the termination date. If, however, the agreement is terminated upon six months' notice by either party as of January 1 of any year other than 2008, no termination fee is payable.

In connection with previous network agreements with Video International, we paid Video International a one-time $9,900 signing fee that we are recorded on a straight-line basis from 2005 through 2007 as a reduction in revenues. We accounted for that signing fee as commission, allocating it to the CTC and Domashny Networks proportionally to their revenues. This increased Video International's effective average commission rate on CTC's and Domashny's gross advertising sales during the 2005-2007 period.

Under the umbrella agreement with Video International for our Television Station Groups, the commission rate payable by our individual owned-and-operated stations is fixed at 15% of gross advertising sales. For advertising sales during the period from April 1 to December 31, 2007 only, we agreed a modified commission structure with Video International to incentivize them to achieve negotiated sales targets during this period. Under this modified commission structure, the full 15% commission was only payable for stations where Video International achieved, on a station-by-station basis, the agreed quarterly sales targets during the April 1 to December 31, 2007 period. During this period, a nominal fixed monthly commission, generally 25,000 rubles (approximately $1,019 at exchange rates as of December 31, 2007) per station, was the only commission payable where sales fall more than 15% below the negotiated sales target. A straight-line sliding scale commission starting from the nominal fixed commission to 15% of sales was payable on all sales where sales fall between 15% below the negotiated sales target and the sales target. All sales above the sales target were subject to an 18% commission. During the April 1 to December 31, 2007 period, Video International did not achieve the agreed quarterly sales targets at a majority of our owned-and-operated stations and, as a result, the average commission rate paid by our Television Station Groups for the full-year 2007 was 4%. Starting January 1, 2008, the fixed rate commission of 15% was re-instated on all local advertising sales.

Pursuant to the Television Station Group agreements, Video International has agreed to guarantee unpaid debt of local advertising clients to the extent such debt has not been paid within 60 days of the end of the month in which the related advertising was broadcast and exceeds, in aggregate, 0.05% of a station's advertising sales for such month. Such guarantee does not apply to unpaid debt resulting from a material downturn in the Russian economy.

The Television Station Group agreements can be terminated upon 180 days' notice by either party. If a station terminates its agreement, it must pay Video International an amount equal to 15% of the amount of the station's advertising sales for the six months preceding the termination date. If Video International terminates the agreement, it must pay the station an amount equal to the station's advertising sales for the six months preceding the termination date, net of commissions paid during that period.

Prior to 2006, contracts for the placement of advertising, our principal source of revenue, were denominated primarily in US dollars, with only contracts for the placement of local advertising outside of our Moscow and St. Petersburg stations being denominated in rubles. Beginning in January 2006, Video International began placing substantially all our advertising sales in rubles, and we currently expect that almost all of our advertising revenues in future years will be denominated in rubles as contracts from previous years that were denominated in US dollars expire.

In order to mitigate our currency risk exposure, Video International has agreed that it will seek to further amend its agreements with existing advertisers. These amendments would provide that either Video International or the advertiser could terminate the agreement in the event that the average exchange rate between the ruble and the dollar during any 30-day period fluctuates by more than 15% from the exchange rate on January 1 in the same calendar year, provided that the parties have not otherwise agreed to new advertising rates to reflect such currency fluctuations. We have further agreed with Video International that, in the event that Video International does not enter into such amendments with advertisers and such currency fluctuations do occur, Video International will compensate us for depreciations in the value of the ruble as compared to the dollar in excess of such 15% variation.

Video International, in consultation with us, determines advertising prices, agrees the terms of sales contracts between it and advertisers and oversees the collection of advertising sales revenue. Video International consults with us on general budgeting matters, including average selling prices, the total number of GRPs expected over the year, the allocation of GRPs across the year and similar matters.

We receive copies of all contracts entered into between Video International and advertisers in respect of our network advertising, including agreed pricing terms, and we verify the revenues under these agreements based on the contract terms and the advertising spots that we air for the advertisers. We are in the process of implementing a similar monitoring process at the local level, where most advertising sales have been handled by Video International only since the beginning of 2006. Although our agreements with Video International do not contain specific provisions regarding audit procedures, this monitoring process enables us to verify revenues and related data reported by Video International.

Recent Acquisitions

Kazakh broadcaster

On February 29, 2008, we acquired interests in a Kazakh television broadcast company, Teleradiokompaniya 31st Kanal LLP ("Channel 31"), and affiliate companies that will provide the advertising sales function and programming content for Channel 31 (together, the "Channel 31 Group"). These interests provide CTC Media with a right to 60% of the economic interest of the Channel 31 Group. The total consideration in connection with the acquisition will be $65 million, less 50% of the net outstanding debt of the Channel 31 Group at closing, payable in cash. Of the total consideration, $10 million has been retained by us pending the completion of the transfer of ownership of six regional television stations to Channel 31, and receipt of applicable anti-monopoly approvals in connection with such transfers. Pursuant to the applicable agreement, such additional actions and payment are to be completed before the end of the first quarter of 2008.

We hold a 20% participation interest in Channel 31 and majority ownership positions in the other companies in the Channel 31 Group. In addition, CTC Media has the right, pursuant to the charters and foundation agreements of each company in the Channel 31 Group, to appoint the senior management of each company within the Channel 31 Group. In the event that Kazakh law is amended to permit non-Kazakh parties to hold more than a 20% interest in a Kazakh television broadcaster, we have an option to acquire additional participation interests in Channel 31, at no additional cost, so that our total participation interest in Channel 31 is the lesser of 50% or the ownership interest permitted by Kazakh law. Upon exercise of such option, the relative ownership interests in each other company in the Channel 31 Group will be adjusted to reflect such exercise, and we would continue to have a 60% economic interest in the Channel 31 Group as a whole.

From closing, we expect to consolidate the results of operations of the Channel 31 Group with our results of operations.

Owned-and-operated stations

In 2007, we completed several acquisitions to acquire new owned-and-operated stations and/or increase our ownership interest in existing owned-and-operated stations.

In February 2007, we acquired the remaining 49% interest in a station located in Samara for cash consideration of $4.6 million, bringing our ownership in this station to 100%. In that month, we also acquired a 100% interest in a station located in Rostov for a total purchase price of $2.7 million, consisting of $2.6 million in cash consideration and $0.1 million in assumed debt.

In May 2007, we acquired a 100% interest in a station located in Vladivostok for cash consideration of $2.5 million.

In July 2007, we acquired the remaining 50% interest in a station located in Kazan for cash consideration of $10.0 million and we also acquired a 49% interest in each of four stations located in Irkutsk for a total purchase price of $12.2 million, $9.9 million of which was paid in cash. The remaining $2.3 million of the purchase for the Irkutsk stations price will be payable in cash upon receipt of certain regional broadcasting licenses. In September 2007, we acquired another 2% in each of these stations for total cash consideration of $0.5 million, bringing our ownership interest in each station up to 51%.

In August 2007, we acquired a 100% interest in a station located in Stavropol for cash consideration of $3.8 million.

In December 2007, we acquired a 100% interest in a station located in Ussuriysk for cash consideration of $2.0 million.

Results of Operations

The following table presents our historical consolidated operating results as a percentage of total operating revenues for the periods indicated:

Comparison of Consolidated Results of Operations for the Years ended December 31, 2005, 2006 and 2007

Our total operating revenues grew by approximately 56.2.% and 27.3%, respectively, when comparing 2005 to 2006 and 2006 to 2007. The increase in revenues reflects the continued growth of the Russian television advertising market resulting in higher advertising rates. In addition, the increase in our revenues when comparing 2005 to 2006 and 2006 to 2007 was partially due to the fact that starting from 2006 a significant majority of our advertising revenue is denominated in rubles. We estimate that the appreciation of the Russian ruble against the US dollar in 2006 and 2007 resulted in increases of approximately 4.0% and 6.6%, respectively, in our advertising revenues. Because we record our advertising revenues net of commissions, revenues at our Television Station Groups were also favorably impacted in 2007 by the significantly lower commission rate paid by our owned-and-operated stations to Video International in connection with the variable commission rate negotiated through 2007.

We recognize advertising revenues in the period that the corresponding advertising spots are broadcast. Our advertising revenue is recorded net of VAT and sales commissions.

CTC Network. Advertising revenues for the CTC Network increased by 53.5% and 20.1%, respectively, when comparing 2005 to 2006 and 2006 to 2007. This increase was principally due to the continued growth of television advertising in Russia and the appreciation of the Russian ruble against the US dollar. The television advertising market in Russia grew from $2.3 billion in 2005 to $3.2 billion in 2006, and then to $4.4 billion in 2007, which resulted in a general increase in our advertising rates.

The increase in our advertising rates in 2007 was partially offset by a decrease in our audience share over this period. The average audience share of the CTC Network was 10.3%, 10.4% and 9.0% in 2005, 2006 and 2007, respectively. The decrease in our audience share in 2007 compared to 2005 and 2006, was the result of broadcasting of our highly successful series Born Not Pretty during those earlier years, and, to a lesser extent, increased competition and relative underperformance of our programming. Born Not Pretty series, which made its debut in September 2005, was the CTC Network's most successful program to date in terms of audience share, and generated an average overall primetime audience share of 24.1% during the period from September 2005 to December 2005, and 28.8% while being broadcast during primetime from January 2006 until July 2006. This level of audience share is significantly higher than the average audience share of any other series or sitcom broadcast on the CTC Network. Although we continue to seek to acquire and commission high quality Russian and international programming, we do not expect that we will be able to replace Born Not Pretty with programming that is as successful as this series.

Domashny Network. The Domashny Network contributed $9.3 million, $20.6 million and $39.1 million, respectively, to our consolidated advertising revenues for 2005, 2006 and 2007. This amounts to 4.0%, 5.8% and 8.6%, respectively, of our consolidated advertising revenues. The Domashny Network was launched in March 2005. As a result, 2006 was its first full year of operation. The increase in revenues in 2007 compared to 2006 by 89.2% reflects growth of the Russian television advertising market, an increase in audience share of the Domashny Network, as well as the appreciation of the Russian ruble against the US dollar. The audience share of the Domashny Network increased from 1.4% in 2006 to 2.0% in 2007.

Television Station Groups. Advertising revenues of the CTC Television Station Group increased by 45.9% and 28.8%, respectively, when comparing 2005 to 2006 and 2006 to 2007. The increase in revenues during the periods under review was primarily the result of increased advertising rates. In addition, our 2007 advertising revenues were affected by a decrease in the effective commission rate payable to Video International (discussed below) effective during the last three quarters of 2007. Advertising rates generally increased during the periods under review due to an overall increase in the demand for television advertising in Russia. Beginning in the third quarter of 2006, however, the rate of revenue growth of the CTC Television Station Group slowed due to the reallocation of advertising time on the CTC Network which decreased the proportion available to affiliates and owned-and-operated stations from 30.0% to 25.0% in response to legislation reducing the amount of available advertising time.

The Domashny Television Station Group contributed $6.3 million, $9.4 million and $14.4 million, respectively, to our consolidated advertising revenues for 2005, 2006 and 2007, amounting to 2.7%, 2.6% and 3.2%, respectively, of our consolidated advertising revenues in those years. The increase in revenues during the periods under review was primarily the result of increased advertising sellout and a decrease in the effective commission rate payable to Video International (discussed below) for 2007.

Prior to January 2006, the internal sales teams at our Television Station Groups were responsible for advertising sales, with only limited assistance from local advertising agencies. From January 2006, our Television Station Groups engaged Video International to act as their exclusive sales house for advertising sales.

In order to incentivize Video International to achieve negotiated 2007 sales targets, we agreed a variable commission structure with them for our Television Station Groups during the period from April 1 to December 31, 2007, in lieu of the fixed 15% commission rate that is generally applicable to the gross advertising revenues of our Television Station Groups. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Agreements with Video International" for more information on this variable commission structure. Video International did not achieve the agreed quarterly sales targets during the period from April 1 to December 31, 2007 for a majority of our stations. As a result, the effective commission rate paid by our Television Station Groups for the full-year 2007 was 4%. Because the fixed 15% commission rate has been re-instated as of January 1, 2008, our Television Station Groups will not continue to benefit from the variable commission rate that was in effect for the last three quarters of 2007.

CONF CALL

Alexander Rodnyansky

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

For the first time, our results include the financial and operational figures from all over the newly acquired assets in Russia and the CIS territories. This includes our two production studios: Soho Media and Costafilm, DTV, and other operations in Kazakhstan and 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 over the second quarter of 2007. The performance of our core assets, which excludes recent acquisitions and station launches, was in line with our expectations and continued market growth. The overall Russian advertising market continues to show exceptional growth and has seen limited impact from the soft macroeconomic environment from other global markets.

CTC Media remains poised to take advantage of Russia’s booming ad market by delivering premium programming to key demographics, and we continue to position ourselves for further expansion and growth as we execute on our strategic plan.

We believe all our territories present tremendous opportunities and are poised to remain among the fastest growing advertising markets in the world. Industry growth forecast for the Russian TV advertising market in 2008 remain in the range of 25 to 30% as it continues to benefit from strong GDP numbers and an expanding consumer market.

Turning to the performance of our CTC Network, I am pleased to report that in the second quarter the average audience 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’s ability to capture its target demographic in an increasingly fragmented media environment, while providing viewers with the compelling programming they want to watch.

Regarding CTC’s rating in our target demographic, where our original series Daddy’s Girl and Ranetki. The first showing of the fifth season of Daddy’s Girl had an average share of 21.8 in the target demographic. The first season of Ranetki had an average share of 17.3%. I would also like to mention that in July, which is usually considered to be so-called “death season” for CTC Network, since mid-summer is traditionally vacation season, and the young dynamic CTC’s target audiences do not spend much time in front of their TV sets.

However, CTC’s viewership in its target audience grew to an impressive 11.9% in July. This hike coincides with the 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, we are focused on taking the proven brand we have created and building upon their success with our audiences. We have a firm understanding of our target demographics, 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 and already established programming. We will premier new seasons of our more successful Russian sitcoms: Daddy’s Girls airing in weekday’s primetime as well as the new – old – new seasons of our breakout hit, My Fair Nanny, which has run its 133 episodes multiple times, and proven very successful with the Russian audiences.

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

We are optimistic the popularity of My Fair Nanny will translate well for CTC’s fall schedule. We will also launch the fourth season of the mega-hit, Cadets, premiering in primetime this fall. In addition, we will air the second session of the Ranetki, a series about the musical girl band that delivered an outstanding 17.6% of audience share in our target six to 54 year old demographic earlier this spring with its first season. While, Cadets is a show about military school, it’s mostly targeting teenage boy viewers, Ranetki is definitely skewed towards the young female audience, so this fall season we are confident that everyone will find something that caters to them at CTC.

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

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

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

For the second quarter 2008, Domashny’s audience share in its target demographic females aged 25 to 60 was 2.7% in the second quarter up from 2.4% in the second quarter of 2007. Domashny channel revenue comprised of the network and stations combined increased year-over-year by 58% to 20.9 million due to audience share and general market growth.

We also getting ready to announce the fall season of Domashny which would consist of the original proven format fine-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 of Domashny.

The DTV court show, the courtroom drama has been moved to Domashny, where it almost doubled its viewership and significantly strengthened our popular show, Family Cases. On DTV, the courtroom drama had an average share of 1.9 in the all four-plus audience on Domashny’s group to 3.3%. The acquisition of DTV Group’s national free-to-air television network and its owned and affiliated stations in Russia provides another 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 on the stations we launched this fall. We have started the process of making DTV even more attractive to the male demographic, and though we have not yet announced the new concept for the channel, we have started to work on tuning it further to scale to the level of quality that every CTC Media’s network is associated with.

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

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

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

We have recently announced the appointment of Vladimir Kartashkov as General Director of DTV Group. With more than 12 years of television broadcasting experience, Vladimir is recognized by the industry as a proven and effective manager. He has a comprehensive understanding of TV audiences and the types of television programming they desire. In the last few months, Vladimir has chaired the re-launch effort at DTV, and I am confident in his ability to manage the network.

We are in active discussions with Disney 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 second quarter of 2008 DTV’s audience share was 1.7% in this target demographic everyone above 18 years old. Currently DTV’s technical penetration is approximately 54% of the country, and we will continue to look for strategic opportunities to expand the station’s reach in the future.

Turning now to Channel 31 in Kazakhstan, we began broadcasting here in the second quarter with the CTC programming, locally produced news, and Kazakh language programs, as well as foreign content acquired specifically for Channel 31.

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

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

The Kazakhstan economy has been experiencing some softness for the last 10 months at least, and this is believed to have an impact on advertising market growth in 2008. The industry experts’ expectation for the full year of 2008 derived from highly optimistic zenith of the media forecast of over 40% year-on-year TV and market growth to much more conservative Media International forecast of less to slightly declining TV and market volume in 2008 compared to 2007.

Realistically, we expect to see a limited growth story in Kazakhstan this year. However, we believe in the long term growth opportunity of Kazakhstan, and we will be in a strong position to capture advertising share as market improves. Further our audience share performance demonstrates the appeal of CTC content, and gives us confidence as we look to opportunistically expand in the market and entering neighboring CIS countries.

In Uzbekistan, our channel has begun full time broadcasting with a schedule built off a mix of CTC and Domashny programming. Our management team together with our local strategic partners is working with advertisers, media sale houses, and cable operators as well as building the station’s brand and viewer base. Uzbek viewers have been very receptive to CTC format and content, especially with our original shows, Cadets and Daddy’s Girls. Currently, we are reporting the media offering and advertising pricing policy for the channel with a view to start the sales in the upcoming fall season. While the commercial broadcasting and advertising market is in its infancy, we believe we are creating a solid foundation to participate in this market as it continues to develop.

With regard to our distribution platform, we are constantly looking for opportunities to grow the reach of our networks, and further participate in the development of local and regional advertising markets. In the mid term, we plan to mainly focus on continuing the regional expansion and increasing the technical penetration for our smaller networks, Domashny and DTV.

Now I would like to turn the call over to Boris Podolsky, Chief Financial Officer, who will cover the financial results.

Boris Podolsky

Thank you, Alexander. I would like now to take you through our financial results for the second quarter in more details. Our second quarter result demonstrated strong growth on both revenue and OIBDA basis. Consolidated operating revenues, which includes results from our – all our recent acquisitions, increased by 54% to approximately $173 million. Increase in revenue reflects continued growth of the Russian TV ad market and higher advertising rates, as well as the impact of non-organic growth, acquisition primarily of DTV Group and several regional stations 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, and accounted for approximately 14.6 percentage points of 54% year-over-year increase. Our advertising revenues increased by 52% year-on-year and amounted to $165 million in Q2, 2008, up from 108 million in second quarter of 2007.

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

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

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

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

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

Now moving on to our expenses and OIBDA. Our consolidated OIBDA margins for the quarter was 42.5%. Organic OIBDA for the three months ended June 30, 2008, remained stable at 44.8% compared to 45.9% in Q2 2007.

Now a few words on our expenses. Our second quarter consolidated expenses increased by 54% to approximately $103 million, and I am going to take you through some of the drivers for that. Amortization of programming rights increased by 64% to $62 million, and increased as a percentage of revenue from 33.6% in second quarter of 2007 to 35.8% in the second quarter of this year.

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

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

The impact of this change in amortization policy amounted to approximately $6 million in the three months ended June 30, 2008. This charge also increased the amortization of programming rights as a percentage of revenue for the second quarter by 3.3%. This also will add estimated $10 million or additional 1.3 to 1.5% in programming rights amortization line as a percentage of revenue to our full year consolidated numbers.

The second driver for the growth in amortization of programming rights expected as a percentage of revenue was increase in impairment charges from 1 million in the second quarter of 2007 to 4 million in the second quarter of the current year. This increase is primarily due to the one-off charges related to the relative underperformance of the Russian series, Heartbreakers launched during the second quarter of 2008. This resulted in 1.7% increase of amortization of programming rights as a percentage of revenue.

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

Moving on selling and general and administrative expenses in the quarter increased by 44% to $24 million. As a percentage of revenue, SG&A expenses were 14.2 in second quarter of this year, 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 and benefits, and increases in head count, in line with inflation and our development plans.

The remaining percentage of the growth are coming from non-organic integration of DTV, $2 million; Channel 31 and Uzbekistan operations approximately $1 million; and two production companies, Costafilm and Soho Media also added about $2 million to this line item.

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

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

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

Organic net income for the quarter 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 decrease in 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 the three months of prior year due to the reporting of additional tax expenses of approximately 2.5 million related to the management decision to begin paying dividends. So, we experienced from our CTC Moscow stations that was a prior year discussion.

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

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

Also at this point we would like to 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, just to remind you, does not include revenues and OIBDA contribution from our CIS operations, DTV Group and production companies. With that, I will now turn the call back over to Alexander.

Alexander Rodnyansky

Thank you, Boris. Before questions and answers, let me conclude by addressing the issue of changes in the company’s management team, which happened earlier and of which you are well aware.

As you know, starting August 4th of this year, I will be joining the Board of Directors of CTC Media and will continue serving as the President of the company, while Mr. Anton Kudryashov will step in as new CEO. I am very grateful to the Board of Directors of CTC Media for implementing those changes, which I strongly advocated. As the President of the company I will continue to oversee the company’s programming initiatives. As a member of the Board I will also be able to concentrate on issues of strategic development of our business, while the new CEO will put all his energy and experience in operational management, including integration of recently acquired assets into CTC Media and implementing structural changes in the company.

In the past six years, CTC Media has grown tremendously, and I am personally very proud of our achievements. I am 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 for shareholders on our belief that in the years to come it will reach new levels of operational excellence.

Today is obviously my last call as CEO of CTC Media and I’d like to thank the Board Of Directors, for the opportunity 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 to being a part of CTC’s continued success and growth in my new capacity. And now I’d like to turn the call over for the questions. Judith?

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