Bankruptcy of Neo FM

On June 18, FM1 Zrt, the company that operates Neo FM, filed for bankruptcy protection. Two days later, the Media Council, exercising its right under the Media Act, canceled the station’s media service contract. Most of the media provider’s current debt of HUF 800 million comes from unpaid media service fees owed to the Media Council itself. 

The provider proceeded to contest the Media Council’s decision in court. Although the Metropolitan Court of Budapest commenced proceedings in the case on July 10, hearing documents being read and the depositions of the parties, it set the next hearing date for early September. Pending the proceedings, the Court has suspended the implementation of the Media Council’s resolution, so the station remains free to broadcast its programs for the time being.  The judgment of the first instance did not accept the arguments of the radio and hold the decision of the Media Council lawful.

On July 1, FM1 Zrt was acquired by a Budapest-based law firm for the nominal sum of HUF 1. Press reports have assumed that the transaction was backed by an American investor. 

FM1 Zrt won the nationwide radio frequency in 2009. In the outcome of the same tender, the other nationwide frequency was awarded to Advenio Zrt, which runs Class FM. Both bids came under expert criticism for their unfounded business plans, particularly as the two bidders had offered HUF 200 million each annually plus 50% and, respectively, 55% of their annual net revenues by way of a media service fee. Most of the media authority’s members at the time, including its current President, disregarded these professional opinions. The Authority’s then President, László Majtényi resigned in the wake of the decision over what he suspected was a political bargain. Meanwhile, several press reports have confirmed — given the Authority’s refusal to disclose the contracts at issue — that the Media Authority has significantly reduced the media service fees payable by both stations. While Class FM, which is closely linked to the ruling political party, has operated profitably, the receipts of Neo FM, the station affiliated by the opposition Socialist Party, plummeted by more than 50% percent in a single year, the station posting losses in excess of HUF one billion for the year 2011.  As several commentators have pointed out, this state of affairs has a lot to do with the fact that, whereas Class FM has been a favored advertising medium of state-owned companies, Neo FM has failed to attract any advertising from the public sector — despite the absence of any significant difference between the two commercial stations’ ratings.