The advertisement tax and Hungarian media policy

It is widely known that the media industry has faced growing hardships over the past decade: the internet and its concomitant, free content, has already emerged as serious challenges, but it was the economic crisis beginning in 2008 that rendered the situation truly dramatic. Today, we can assert that the media market’s current functioning is untenable and working business models are sought after worldwide; these generally aim to increase revenue and to transform free services into paid ones.


These global processes haven’t spared Hungary either. Indeed, for understandable reasons they have manifested themselves more prominently here. The small size of the domestic market, the traditionally strong influence of the state and the resultant cultural patterns have combined to prevent the emergence of large and well-capitalized media empires that could act as veritable watchdogs monitoring the powers that be, resisting potential efforts at pressuring them by political or economic players. It must be added that this is by no means particular to Hungary, in fact the other countries of the region face a very similar situation. Instead, the media market is dominated by foreign media corporations that have invested in Hungarian media outlets – and they primarily aim to earn a profit on their investments -, along with Hungarian-controlled companies that openly serve the interests of one party or the other. Large segments of the market, which was recently hit by the crisis and the resultant decline, consists of companies that are economically vulnerable and vie for political favours. 


In this situation Fidesz’ two-thirds electoral victory in 2010 offered the possibility for completely revamping the market. The governing party used a variety of instruments for redrawing the media map, but the new advertisement tax announced in May 2013 marks the culmination of its media policy.


The media law, which became effective on 1 January 2011, elicited extraordinarily intense reactions. Today it is fair to say that the media law was probably more detrimental than conducive to the governing party’s media policy objectives: it drew considerably more domestic and international criticism than anticipated and has made Hungarian media issues an object of heightened attention and pronounced scrutiny.


Fidesz has been markedly more successful in its use of instruments that fall outside the regulatory framework:

–       public service media operate under intense party influence and propagandistic practices are typical of news editing;

–       within a brief period of time, the Media Council practically rearranged the entire radio market through its decisions on frequency tenders (interestingly, here they also made the mistake of drawing the public’s attention to the overarching issue through their decisions in a symbolic case, that of the Budapest frequency of an opposition radio station, Klubrádió; even as Klubrádió’s frequency became a focal point of outcries over press freedom, the really significant changes occurred in rural markets);

–       advertising spending by government institutions has served to bolster the positions of right-wing companies, while simultaneously squeezing media outlets that hew to the opposition;

–       business circles close to Fidesz are engaged in an expansive policy of media acquisitions.     


Fidesz’ media policies are clear. On the one hand, there are media outlets for the loyal party base; though the left has these as well, for the time being the right-wing institutions are obviously better positioned financially (see Magyar Nemzet v Népszabadság, Hír TV v ATV, Lánchíd Rádió v Klubrádió). At the same time, the diversity of local media markets is in decline, a process that includes the reshaping of radio markets and the expanding role of municipal governments in the media markets. Finally, Fidesz’ great insight was that it is not enough to address its own base, which is already committed in any case, and that it must also reach the audience that is uninterested in public affairs and not conscious about its information consumption. The national commercial radio station (Class FM), which enjoys a monopolistic position, and the country’s only free daily (Metropol) are ideal for this purpose; apart from business considerations, this larger goal obviously also motivates the intent to acquire TV2. It is unlikely that these media will be turned into openly propagandistic mouthpieces. They are considerably more useful if they retain their audience and employ more subtle forms of manipulation, for example by suppressing news that could negatively impact the government’s popularity. Of course, if the need arises, the electoral campaign might yield surprises and reality might override level-headed planning.


This process of quite construction has now been interrupted by the news of the advertisement tax, which is somewhat of a misnomer, as in reality it is a media tax. It is telling that the proposal is entitled Measures taken in the interest of ending the excessive deficit procedure, which seeks to suggest that in truth we did not even want all this but must resort to it as a result of ongoing pressure from Brussels. And the fact that in its current form the tax primarily afflicts Western European – and especially German-owned – companies is obviously just an unfortunate coincidence. Be that as it may, we can obviously disregard the economic arguments advanced by the government which try to pin the tax on the excessive deficit procedure, and not only because the procedure against Hungary is being discontinued now in any case. For one, if the government would genuinely hope to collect significant revenues from the media tax, then it would not have waited to introduce it this late, but would have levied it already in the first wave of special taxes that were imposed on telecommunications, energy and retail corporations. Moreover, this is clearly not an area where a tax on windfall profits would be called for, as according to data provided by mediabrowser, the combined profits of the 100 largest Hungarian media corporations were nearly minus 3.7 billion HUF, with 41 of the top 100 companies registering losses. The exchequer is unlikely to receive significant revenue from the tax. If the government is nevertheless willing to confront the media sector, which wields considerable power over public opinion, then there are clearly some serious considerations underlying this decision.


Most crucially, the media tax is likely to reshuffle the market for national commercial television channels. As a result of its progressive character, the new tax will burden Magyar RTL Zrt. (Zrt. is a Hungarian abbreviation for closed corporation), the mother company of RTL Klub, the most, but the owners of MTM-SBS Zrt. (the operator of TV2), which has incurred losses for years, are probably none to happy either. Some suspect that the motives underlying the new tax are nothing but political, since one of the right-wing weeklies recently published an article arguing that it is “veterans” from the Bertelsmann corporation that make up the group of Fidesz-critics within the European People’s Party. Comments on the internet have also suggested that the government has decided to mete out penalties in response to a shift in RTL Klub’s news show, which now features an increased share of public affair items.


All signs indicate that the tax plan also promotes the acquisition of TV2, and it is no coincidence that the recent past saw the resurgence of rumours that Infocenter, a company affiliated with the business interests controlled by Lajos Simicska and Zsolt Nyerges (two prominent and very wealthy entrepreneurs who are close to Fidesz), has designs on the commercial television channel. Infocenter is known to be a company that is close to the currently governing party. TV2’s acquisition had already been on the agenda previously, but market rumors had it that the parties involved failed to agree on a price, as Infocenter simply could not raise sufficient funds. According to Hungarian press reports the other potential buyer, the Modern Times Group (MTG), which already boasts several television channels in Hungary, has since emerged as a serious contender for completing the acquisition, and all that was missing from a concluded agreement sealing its purchase of TV2 were the signatures.


The government thwarted the deal by introducing a bill in Parliament: a media tax will drastically reduce the market value of the company. TV2, which is already in the red, will have practically no chance to become profitable. Thus the signing of the already drafted agreement was aborted and MTG will has re-evaluate the risks involved in the deal. Even if a deal were to be ultimately concluded, under the changed circumstances the parties will have to agree on a new price. It is also conceivable that MTG will back out and, left without rivals, Infocenter will obtain the most watched television channel in Hungary at a depressed price. Moreover, if Infocenter nabs the price, then it will control a TV2 that competes for viewers with a significantly weakened RTL Klub, since the latter will suffer even more from the tax. Though RTL Klub is unlikely to leave, it will probably move to substantially reduce the costs of its operations to cut losses (over time, both channels will presumably find ways to compensate for the revenue losses). The state therefore obviously intervenes in market relations, seeking to bring Infocenter into a favourable position in the race for TV2. Furthermore, while competitor RTL Klub is weakened by the advertisement tax, Infocenter’s tax burden will be compensated by government ad purchases or, if need be, an amendment of the tax rates so that it does not have to pay too much.


Reading comments on the internet gives one the impression that the audiences are not distraught by the news – the media tax is unlikely to become the law that will drive the masses to protest in the streets. A typical comment says that “I wouldn’t watch it anyway” or “at least the trash shows will be gone,” as if many commenters wanted to showcase their intellectual credentials by sharply rejecting commercial television channels. The commenters probably failed to consider that what we are facing here is a prime example of the phenomenon that Transparency International refers to as state capture: the Hungarian government introduces a bill to serve the interests of a given business group, in this case helping the latter to a commercial television channel. If Parliament approves this proposal, then it won’t do so in the interest of Hungarian citizens, but to serve business interests, even if official government communication seeks to lay the blame for the tax on Brussels and the excessive deficit procedure.


This affair is of immense significance, and not only because the tax may upset the television market and because the acquisition of TV2 could bring the business interests widely associated with Lajos Simicska and Zsolt Nyerges into the possession of its most valuable media asset yet. This situation also marks a turning point in that it signals the end of treating the media with kid gloves. The government presumably learned from the outcry surrounding the media laws that it was playing with fire and decided to avoid open confrontation. The Media Council, considered the government’s enforcer in the media arena, also shied away from making full use of the instruments at its disposal (e.g. fines). The current bill, however, suggests that the time when the government used underhanded methods to realize its media policy objectives is over, and the battle will now be waged out in the open.