Gusztav Kosztolanyi

The headquarters of Hungarian Television, MTV, situated in downtown Pest opposite the American embassy on Freedom Square (Szabadsag Ter), must rank amongst the most impressive homes for a television company in Europe. The premises, appropriated by the state immediately after the Second World War, originally served as the capital's stock exchange (a somewhat obsolete function under Communist rule), and their palatial splendour instil in the beholder a sense of awe: powerful interests lay behind the construction of this edifice. Its sprawling expanse lay virtually idle until 1956, when the new medium found its home there. Initially, broadcasting was limited to weekends and a couple of weekdays. Advertising was permitted, although in those days, it did not interrupt the programmes, nor was it always particularly imaginative in its slogans, a case in point being the peremptory "Buy shoes at the shoe shop!" However, then, as now, the main source of revenue was the so-called "subscription fee", payable by every owner of a TV set.

The original channel, MTV 1 enjoyed an uninterrupted monopoly until the mid-70s, when MTV 2 was launched. Both were owned by the state and both were in the iron grip of the Communists, but having more than one channel created the impression of variety and choice. After the collapse of Communism a new channel, Duna TV (Danube TV) was set up, primarily to serve the needs of ethnic Hungarians living in neighbouring states. From the very outset, it was broadcast on satellite. This was the lie of the land when the media law came into being in December 1995.

The Hungarian Parliament enjoys direct influence over radio and TV output, as it is responsible for appointing the members of the bodies which govern MTV and Hungarian Radio within a hierarchical structure. Naturally, these bodies are accountable to Parliament. The mainstay of the system is the National Radio and Television Corporation, or ORTT. It is headed by a President (with the same legal status as a Minister) and six other members, each with the equivalent rank (and salary) of an administrative under-secretary of state. Immediately subordinate to it is the ORTT Office, comprising of a President (with deputy under-secretary status), four Directors and an administrative apparatus with a hundred or so members of staff. Alongside the ORTT proper, there is also an ORTT Complaints Commission. The ORTT's role is that of regulating national, regional and local commercial and non-commercial TV and radio stations, as well as allocating frequencies and monitoring compliance with the rules, adjudicating in disputes where necessary. It was also responsible for overseeing the privatisation process, implementing the provisions of the media law.

MTV and Duna TV are dealt with separately, by their respective Boards of Trustees, which are in turn subject to scrutiny by oversight commissions. The media law stipulates that the political parties with representation in Parliament may put forward candidates for the Boards. The President is normally proposed by the party in government and the Vice President by the opposition, in an effort to maintain a proper democratic balance. The final selection of members of the Presidium of the Board takes place on the basis of a parliamentary vote. In order to secure a post, candidates have to win by a two-thirds majority.

The process of reaching an agreement on members of the Boards is often a strenuous exercise, calling for both stamina and patience. These appointments are highly sensitive, bound up with political prestige and ideological concerns. MTV remains a national institution, in spite of all the difficulties it has encountered with falling ratings and a chronic lack of resources. (For information on the administrative architecture of MTV see the influential newspaper HVG, 25 May 1996, which has a particularly useful diagram)

One further institution, Antenna Hungaria (now a joint stock company), acts as broadcaster. In 1996, its prices were limited by a ceiling agreed on by the authorities. Its clients, though, have called them into question or simply refused to pay them altogether. AH, for example, has transmitted Duna TV's programmes to the broadcasting satellite since 1993 at a price agreed on by the latter (and this price included a profit calculated at 28%). Although Duna TV does not fall into the category of notorious non-payers, AH is responsible for forking out the fee for use of the satellite if the money from Duna arrives late. (See HVG, 27 April 1996)

The purpose of the 1995 media law was fairly self-explanatory: to lay the foundations for privatisation television and to ensure that the transition to a more liberal market would be as smooth as possible. This proved to be easier on paper than in practice. From its inception, the law was supposed to support a system in which the public and private sectors could flourish side by side, instead of engaging in internecine warfare. It took account of the ailing fortunes of the public service channels, as the example of the then beleaguered Duna TV shows.

In April 1996, one month after the media law entered into force, Duna's prospects looked bleak indeed. Critics blamed the situation on the law itself, saying that it had overestimated the country's capacity for funding a public sector, thereby making the financial difficulties permanent. Certainly, the media law restricted the room for manoeuvre available to media chiefs by prohibiting them from making provision for anticipated problems ahead: any financial, organisational or programming policy decisions had to relate directly to the immediate day-to-day concerns of running stations. The law explicitly mentioned the need to boost the level of support given to Duna TV, by giving the channel one third of all licence fee revenues as of 1 August 1996 (the other two thirds going to Hungarian Radio and MTV), by which date the state-owned channels were originally scheduled to have been transformed into joint stock companies. However, in spite of this, Parliament voted HUF 200 million (USD 85 million) less in aid to the channel in the budget.

Similarly, even before privatisation, MTV was teetering on the brink of financial ruin. This sad fact was recognised, albeit obliquely, by the law, which called for a review of budgetary legislation to remove the element of arbitrariness introduced by fluctuating levels of state support arising from budgetary haggling each year. Given, however, that the same law imposes restrictions on advertising time in the public service (with effect from 1997, which was the original date from which commercial channels were supposed to commence broadcasting), a paradox emerged: the law seemed tailor-made to undermine the financial viability of public service channels rather than accomplishing its aim of guaranteeing their survival on a competitive market. As of 1997, MTV would be forced to cut the advertising slots at peak viewing times by half, to a maximum of five minutes (see HVG, 27 April 1996 for more information on this section).

This was, unfortunately, as we shall see, not the only flaw to be encountered.

The timetable for privatisation was agreed upon in the law as follows (HVG, 25 May 1996):

1996

1 May: Call to tender for national commercial radio frequencies, including the privatisation of Danubius Radio

30 May: Assessment of applications for the post of President of MTV

1 June: Call for tender for the licence to run TV2 and the former Soviet Channel 58.

10 June. Assessment of the applications for the post of head of Hungarian Radio

1 August: Valuation of MTV's and Hungarian Radio's assets, to be followed by their transformation into joint stock companies; lodging of applications for commercial radio stations

1 September: Lodging of applications for commercial TV stations

1 October: Assessment of applications for commercial radio stations

1 November: Assessment of applications for commercial TV

31 December: Extending the capacity of the former Soviet Channel 58 to cover 70% of the country instead of 20-30%; setting up two Western standard ultra-short-wave bands for Hungarian Radio to cover 80% and 50% of the country respectively; MTV2 to be broadcast by satellite

1997

1 January: Commercial TV2 to commence broadcasting

31 December: Completion of the work to extend the range of the former Soviet Channel 58 to cover 85% of the country

An impressive list of candidates queued up for the prestigious post of President of MTV. Mr. Istvan Petak carried the day. Having completed his studies at the University of Pecs (Hungarian and teaching), he moved into journalism before working for the local radio station in Szolnok. Working his way up the ranks to become the head of a studio, he ended up moving to MTV, where he worked in the Youth Department. Between 1981 and 1989, he was editor-in-chief of Ablak (Window), an afternoon slot programme with two hosts, containing news and weather reports, examining viewers' complaints, and providing helpful advice for housewives on, say, how to take out bank loans - in short, the sort of format that has become familiar on daytime TV in the West. In 1994, he was appointed as head of minority and regional programming. His further experience included participating in the Socialist Party's TV Committee and running TV2.

Was this pedigree enough to prevent MTV from sinking further into debt and desperation? The situation was critical: according to a report published in 1996 by the national Court of Auditors a culture of waste had taken firm root within MTV. In that year, MTV would require HUF 6 billion (USD 25.4 million) more by way of a state bail-out than had been set aside in the budget, if it were to avoid going under. One of the principle problems pinpointed by the Court of Auditors was the lack of guidelines for costs, staffing levels and time limits for programme production. The report suggested that perhaps a fraction of the 630 to 670 man-hours put into every hour of programme output would suffice whilst maintaining quality. Nor did MTV make full use of its existing capacity: at the same time as it hired equipment from outside firms at high costs, MTV made its own stocks of set decorations, costumes and props available free of charge to external programme producers without imposing any contractual obligation upon them to allow MTV to access the final product. This was compounded by the fact that the state channel happily farmed out work to external programme-makers whilst its own staff sat around idle.

To make matters worse, a paper published by the then President of MTV, the eminent sociologist Elemer Hankiss in 1991 had revealed that one third of the external firms with which MTV had contracts were owned by employees of the state channel. Their activities in these external firms coincided exactly with the activities they performed within MTV in what they declared as their full-time jobs. To remedy this malpractice, a decree was adopted, stipulating that MTV could, in future, only sign contracts with companies which provided a list of their owners.

In the meantime, the ORTT had failed to keep up with the original schedule for privatisation, as we have already seen. Part of the problem was that Antenna Hungaria had not been given the necessary credit to set up the ultra short wave bands or to develop Channel 58. To take the example of the call to tender for the TV channels, the deadline of 1 June seemed illusory. This was partly due to the complexity of the law, which laid down strict parameters for the public service content of TV2 and Channel 58. In the case of TV2, 25% of daily programming had to have public service content, 35% of annual content had to originate from Hungary and 50% from Europe. The ORTT was given a freer hand in determining the public service content of Channel 58, but the rules on Hungarian production content had to be formally announced in the Hungarian Official Journal before any further progress could be made.

Another obstacle proved to be the rules on controlling interests in commercial channels: no single company was permitted to be in possession of more than 49% of the voting rights, and 26% of the votes had to be in the hands of natural or legal persons with their seat of operations in Hungary. The logic behind this rule is clear: to prevent complete foreign domination of an important cultural medium. The atmosphere of those days was fraught with fear concerning the sell-off of national assets. The utilities had already been snapped up by foreign firms, there was widespread, though largely unarticulated anxiety that - they could potentially hold the country to ransom with the threat of major price hikes. This was not to be repeated in the TV and radio sector.

Finding Hungarian partners with a solid financial base was like looking for a needle in a haystack. It seemed increasingly as if only the banks had the necessary financial clout: one of the potential foreign bidders, TF1 (Television Francaise 1), for example, entered into negotiations with three Hungarian banks, although it later claimed that this was more for intelligence-gathering purposes than for any other reason. The problem would have been less acute had the Hungarian firms' assets, including real estate as well as their technical stocks, been taken into account by risk-averse foreign firms. That considerable sums of money had to be mobilised was beyond doubt: the media law required that three years' worth of licence fee had to be paid in advance (the licences were to be awarded for a ten-year period). In addition, proof of the licence-holder's ability to pay the following year's fees had to be provided in the form of a bank guarantee. If the contractual obligations entered into were not fulfilled, the bank would be obliged to pay up as soon as the ORTT had given notice of the problem.

On top of this, there were also transmission fees, payments based on advertising revenue and the costs of actually producing programmes. In order to be viable, a new commercial channel would, it was calculated by experts, have to net a 60% share of the advertising market. With three to five channels operating, this was an unrealistic prospect to say the least. (For this and the preceding sections see HVG, 5 October 1996)

The status of Antenna Hungaria had still not been clarified, and this too acted as a disincentive to investment. AH continued to enjoy its broadcasting monopoly, it had still not been privatised in October 1996, although privatisation was supposed to have been completed by June, and certain influential media figures were clamouring for it to remain the property of the state.

Another unpleasant surprise was in store for bidders. The ORTT held its public hearing on the calls to tender on 11 December 1996. This was, in theory at least, the final opportunity to debate the draft version. On the second day of the hearing, the government announced that it had decided to charge 25% VAT on the programme service fee that frequency-holders were already liable for paying (increasing the amount payable in practice by some HUF two billion or USD 8.5 million). The VAT was payable in advance in a single lump sum that covered the entire ten-year period of the licence. At the same meeting, the government instructed the Minister responsible for the media to publish the list of frequency fees in the Hungarian Official Journal by 1 January at the latest, sparking off speculations about how much these might be. Publication in the Official Journal would, in other words, take place after the calls to tender themselves had been printed.

After the public hearing, the deadlines for bidders set out in the media law were fairly tight: 30 days from the hearing the calls to tender were to be issued (10 January 1997), and the ORTT was supposed to evaluate them by the beginning of June so that broadcasting could begin as of September. This meant that the bidders had to have everything in place beforehand, with fully functioning studios and equipment as well as qualified staff to hand, and having reached agreement with Hungarian partners about the ins and outs of collaboration.

In spite of all these difficulties, several companies expressed an interest. The main contenders were: Television Francaise 1, a consortium comprising the Hungarian MTM Communications and the Swedish Scandinavian Broadcasting System, Luxembourg's CLT paired with Germany's Bertelsmann, the American CME group (owned by Ronald Lauder) with Gyorgy Balo's 2002 Ltd, and finally the German Westdeutsche Allgemeine Zeitung group. (HVG, 21 December 1996)

By March 1997, three were left in the field, TF1 and the Westdeutsche group having dropped out. Next week's instalment will chronicle the conclusion of the privatisation process. Recent developments, such as the scandal over appointments to the Board of Trustees of MTV, will be analysed and the impact of satellite and cable technologies examined.

Gusztav Kosztolanyi, 31 July 1999