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Competition / Competitors The Russian television business is highly competitive. We compete with other broadcasters and other forms of media for advertising spending, and we compete with other broadcasters for audience share, programming rights, affiliate stations and broadcast frequencies (in particular, stronger VHF frequencies in key markets). In particular, as competition for advertising expenditures increases, we anticipate a comparable increase in competition among broadcasters for the rights to the most popular Russian and foreign programs. In addition, the television broadcasting industry is continuously faced with technological change and innovation. Commercial free-to-air television broadcasting in Russia may face future competition from interactive video and data services, information and data services delivered by commercial television stations, cable television, direct broadcast satellites, multi-point distribution systems and other video delivery systems. For sales of advertising, we compete primarily on the basis of both the actual and anticipated sizes of our audiences for specific time slots, as well as the demographic characteristics of our viewers. Competition for television audiences is based principally on the selection of programming, the acceptance of which is dependent on the viewing public, which is often difficult to predict. Both CTC and Domashny compete with broadcasters that have significantly higher audience shares and coverage than they do. Television broadcasters On a national level, CTC competes directly with the other larger national networks and channels, Channel One (ORT), Rossiya (RTR), NTV, REN-TV and TNT. Though Domashny does not currently have direct competitors that focus exclusively on its target audience, it competes for advertising sales generally with the other thematic channels and smaller networks such as DTV, MTV, TV-3 and TVC and also competes with the national broadcast networks and channels for viewers within its target demographic group. In local television markets, we also compete with a multitude of stations. We compete to a more limited extent with pay television services, which are currently relatively undeveloped in Russia. We believe that our network model will allow us to continue to compete effectively in the Russian television market. Our network structure, in contrast to a channel structure, allows us to use independent affiliates to increase our broadcast coverage without incurring additional transmission costs. In addition, our owned-and-operated stations allow us to capture a portion of the local advertising market that some of our national competitors have not captured using their channel strategy. Moreover, we believe that, as the Russian television advertising market continues to mature, our strategy of targeting 6-54 year-old viewers for CTC and of focusing on the targeted audience of Domashny will increase our shares of the television advertising market relative to our audience shares. The table below provides certain key statistics about CTC and its major television competitors: Technical penetration (1) Principal target audience (age) (2) Ownership Average audience share (3) 2004 2005 Channel One 99.4% All 18+ 51% state 25.8 % 23.0 % Rossiya 99.1 All 18+ 100% state 19.9 22.7 NTV 91.2 18-45 50+% Gazprom Media (4) 11.9 11.1 CTC 84.9 6-54 100% private 9.8 10.3 TNT 77.3 18-45 50+% Gazprom Media (4) 6.7 6.7 REN-TV 72.8 18-54 100% private (5) 5.2 5.0 (1) TNS Gallup Media, Establishment Survey, September—October 2005. (2) CTC Media estimates. (3) TNS Gallup Media. (4) Gazprom Media is an indirect subsidiary of Gazprom, the state-controlled natural gas and oil company. (5) REN-TV is owned 35% by Severstal, 35% by Surgutneftegaz and 30% by RTL Group. RTL Group is a subsidiary of Bertelsmann AG. Table of Contents The table below provides certain key statistics about Domashny and its major television competitors: Technical penetration (1) Principal target audience (age) (2) Ownership Average audience share (3) 2004 2005 (6) TVC 64.6% 18-54 97% City of Moscow 2.6 % 2.5 % TV-3 49.3 6-54 100% private 1.9 1.9 DTV 40.3 6-54 100% private (4) 1.3 1.5 Domashny 47.1 25-60 (women) 100% private N/A 1.0 MTV 50.3 11-34 100% private (5) 1.3 1.0 (1) TNS Gallup Media, Establishment Survey, September—October 2005. (2) CTC Media estimates. (3) TNS Gallup Media. (4) Gazprom Media is an indirect subsidiary of Gazprom, the state-controlled natural gas and oil company. (5) REN-TV is owned 35% by Severstal, 35% by Surgutneftegaz and 30% by RTL Group. RTL Group is a subsidiary of Bertelsmann AG. Technical penetration (1) Principal target audience (age) (2) Ownership Average audience share (3) 2004 2005 (6) TVC 64.6% 18-54 97% City of Moscow 2.6 % 2.5 % TV-3 49.3 6-54 100% private 1.9 1.9 DTV 40.3 6-54 100% private (4) 1.3 1.5 Domashny 47.1 25-60 (women) 100% private N/A 1.0 MTV 50.3 11-34 100% private (5) 1.3 1.0 (1) TNS Gallup Media, Establishment Survey, September — October 2005 (2) CTC Media estimates (3) TNS Gallup Media (4) DTV is wholly owned by MTG Broadcasting AB. See ‘‘Risk Factors—One of our principal stockholders owns a controlling interest in a competing Russian television network, and its interests may conflict with ours.’’ (5) MTV is wholly owned by Viacom International (6) For Domashny, audience share for the year is calculated on the basis of the full year; the Domashny Network only began broadcasting on March 6, 2005. Principal competitors To date, CTC’s primary competitors have been networks and channels owned by the state. as well as the private broadcaster NTV. With large direct and indirect government subsidies, the state broadcasters have been able to air recent ‘‘blockbuster’’ movies and hit series, bidding up the price on high-quality programming. They have also maintained their dominance through significant outlays on news and local production. Channel One — Public Russian Television (ORT). Channel One, the formerly 100% state-owned national television station Ostankino, was reorganized in 1995 and since that time has been 49% privately owned. Channel One’s schedule includes Vremya (Time), the highest-rated and longest-running news program in Russia; Russian-made series; foreign-produced programming, including blockbuster movies; game shows; and major sporting events, such as major soccer and ice hockey games. Channel One is particularly well positioned in the Russian national television broadcasting market due to its historical position as the ‘‘First Channel’’ in Russia and its broadcast coverage, which is the greatest of all Russian television broadcasters. As a result of its broadcast coverage and channel model, however, we believe that Channel One’s transmission expenditures are substantially greater than ours. Rossiya — Russian Television and Radio (RTR). Rossiya, the state-owned television channel, is the second largest television broadcaster in Russia in terms of audience share. Following the partial privatization of Channel One, Rossiya is the sole remaining 100% state-owned channel in Russia. Rossiya remains a primary source of government-sponsored news and information programs. Rossiya’s programming schedule includes the channel’s trademark program Vesti (News); political programs; a variety of Russian-produced series and made-for-television films; talk and game shows; documentaries; some foreign-produced programming, including blockbuster movies; and major sports programming. The channel was also one of the first Russian broadcasters to attempt its own large-scale television film production. We believe that, as with Channel One, Rossiya’s transmission expenditures are substantially greater than ours because of its channel model and the extent of its broadcast coverage. NTV. NTV’s programming consists of information and entertainment programming, with a major emphasis on news and movies. From its broadcasting launch in 1994, NTV rapidly gained audience share and in both 1999 and 2000 achieved the second largest average national audience share, surpassing Rossiya. Thereafter, highly publicized financial and political difficulties resulted in abrupt changes in NTV’s ownership and management, with a controlling interest in NTV being transferred in Spring 2001 to Gazprom Media, NTV’s principal creditor and part of the state-controlled Gazprom natural gas and oil company. Shortly after these ownership and management changes, NTV’s programming changed as the rights to several of its popular Russian series and shows were bought by a competing network. Over the same period, NTV’s average audience share declined from 17.9% in 2000 to 12.6% in 2001, with audience shares of 13.2% in 2003, 11.9% in 2004 and 11.1% in 2005. Because of the different audience focus and programming strategies of NTV and CTC, we do not believe that the CTC Network benefited directly from the decline in NTV’s audience share in this period. Nevertheless, we believe that we benefited from the change in market dynamics caused by this re-alignment, in that these events assisted CTC in consolidating its market position and increasing its profile among viewers and advertisers. We believe that the CTC Network now operates in close competition with NTV — behind Channel One and Rossiya, but ahead of other competitors in terms of audience share. Additional competitors Over the past decade, a number of new, smaller networks or thematic channels targeting specific audiences have been established. We have identified the following as other key competitors of CTC and/or Domashny: Name Year of Launch Programming Format Technical penetration Average Audience Share in 2005 REN-TV 1996 News and analytical programs, documentaries, entertainment and music programs, sports news and major sporting events, popular foreign series and Hollywood movies Produces a large proportion of its own programming 72.8 % 5.0 % TNT 1998 Domestically produced programming, including entertainment, talk shows, documentaries and educational programs, news programs and children’s programming Produces a large proportion of its own programming 77.3 6.7 TVC 1997 Moscow political and social themes, news and analytical programs, movies and Russian and foreign drama series 64.6 2.5 TV-3 1998 Foreign programming, primarily movies 49.3 1.9 DTV (1) 2002 Mix of entertainment programming 40.3 1.5