In a remarkably short period of time, the Bermuda-based, American-financed Central European Media Enterprises Ltd. (CME) has bushwhacked its way through the untested lush and green legislative jungles of post-communist Central and Eastern Europe to become the most successful broadcasting group in recent history.

Although foreign investors have generally met with considerable resistance as governments in the region continue to hold a tight grip on television (and to a lesser degree radio) airwaves, the privatisation-happy Czech Republic (then part of the former Czechoslovakia) was among the first to relinquish total control. CME was the first to set up shop, leaving the likes of US broadcasting giants Turner Broadcasting and Time Warner in the dust.

Nova TV today is the leading commercial television broadcaster in the Czech Republic and the rising star of CME's ever-expanding universe. However, the Czech Council for Radio and Television Broadcasting wants to take away Nova TV' s license, not over controversial indirect changes in ownership, but due to the station' s allegedly slanted news coverage.

TRANSITION magazine, a biweekly publication of the Prague-based Open Media Research Institute (OMRI), in a special-focus issue last year addressed the political and cultural sensitivity that peoples and governments attach to television.

"Politicians and advertisers are among the few who appreciate the importance of this piece of social technology, which is to the second half of the twentieth century what the battleship was to the first," wrote Peter Rutland, assistant director of research at TRANSITION, by way of introduction to the "Television and Society" April 1996 issue.

"Is [television] merely a tool of political elites and a narcotic for indolent viewers beset by political uncertainty and economic hardship, the modern version of bread and circuses?" queried Rutland. "In the worst cases, television has become a mouthpiece for authoritarian political leaders and has proved well-suited for crude nationalist propaganda."

"INVISIBLE DOG" AND THE MILD-MANNERED PROFESSOR

Milan Smid, an assistant professor at Prague's Charles University, has studied and taught broadcast and electronic media studies for some twenty years. He had a major hand in drafting the nation' s first broadcasting act, adopted in 1991, and watched with some frustration as Parliament thoroughly revised it in 1996, largely under the guidance of media commission chairman Jan Kasal (KDU-CSL).

Smid has also come under attack by some for being xenophobic as he has frequently questioned the way in which CME has gained control of the country' s leading station. Smid noted with some irony that in order to buy into US's Fox TV, Rupert Murdoch had to give up his Australian passport and become a US citizen. Yet CME has indirectly gained control of 88 per cent of Nova TV with few such symbolic diplomatic manoeuvres.

The law that allowed for the creation of Nova TV generally permits up to 10 per cent of its broadcast time to be used for advertising, compared with 1 per cent of broadcast time on each public channel. In 1996, Nova TV gained seven of every 10 crowns spent on TV advertising.

In mid-November last year, Smid brought a group of students to the OMRI/Center for Independent Journalism library, housed in Radio Free Europe' s Prague headquarters to pass on techniques of investigative journalism he had learned at Columbia University in New York. From the library's Bloomberg Business News terminal, he called up stories and stock histories of CME, which is traded on the NASDAQ under the symbol "CETV".

What he found could change history.

As CME is publicly traded in the United States, it is required by that country's Securities and Exchange Commission (SEC) to file quarterly reports and other documentation of interest to potential investors. On a "10 Q" document dated Nov. 14th was a loan agreement that appears to violate the spirit, if not the letter, of condition No. 17, relating to possible changes in the ownership structure of CET 21 s.r.o. - the broadcast-license holder for Nova TV. Condition No. 17 requires that the council be informed of all proposed changes in ownership.

Although quite fluent in English, it took Smid a few weeks of study to fully comprehend the legal jargon contained therein. He decided to post the SEC' s Internet site (http://www.sec.gov) on a Czech on-line media chat group, "Invisible dog", and on Dec. 19th passed a hard copy over to the Council for Radio and Television Broadcasting, the nation' s independent media watchdog group.

At Nova TV' s helm is General Director Vladimir Zelezny, who estimates his 2 per cent share in CME to be worth "hundreds of thousands, if not millions" of Czech crowns. Council spokeswoman Marina Landova confirmed that the body first learned of the loan agreement through Smid, and that Zelezny only "officially" informed the council of the situation on January 29th. And, she said, the council' s legal team is still poring over the documents.

"I am not speaking about this [CME - Zelezny] agreement - but if it happened in any [broadcast] company, it would be quite serious. The council must study it. If it would be realised in the Trade Register, it would be a real problem," said Landova.

Thus far the transaction has not been registered with relevant Czech authorities.

Few believe the council has the political will, legal expertise or grounding to go head-to-head with CME on this front. And so, it appears, the council has changed its tactics.

BARKING UP THE WRONG TREE

Although OMRI' s Rutland wasn't writing on the Czech case directly, it is precisely its allegedly biased newscasts that have landed CME's Czech holding "Ceska nezavisla televizni spolecnost, s.r.o. (CNTS or "Nova TV") in hot water with the watchdog group, which on Jan. 29th said it might exercise its power to pull the plug on Nova TV's operations.

In the council's estimation, Nova TV continuously promotes its own business interests and legislative agenda both in its news programming and on CALL THE DIRECTOR, a 26-minute Saturday afternoon program wherein viewers are invited to hear the gospel according to Zelezny, its host. The council claims the program violates conditions of objectivity placed on CET21 s.r.o.' s license, the first broadcast license awarded in the Czech Republic (February 1993). Zelezny said on a recent showing that he would consider taking CALL THE DIRECTOR off the air.

The council also takes issue with Kasal' s having been a frequent guest on Nova TV programs, where he has discussed the need to further limit advertising on public television - Ceska Televize (CT 1) is Nova's chief competitor - and the need to overhaul relevant broadcasting laws.

A high-ranking employee of a CME holding who wished to remain anonymous, noted that Nova TV news program called "7 days" has a 12 - 15 pr cent market share in its time sot, while Nova TV's evening news attracts 3,5 million viewers, about twice that of CT 1 That viewership directly translates into a colossal piece of the advertising pie, "and according to this pie, members of Parliament behave," said the source.

Jiri Pehe, OMRi' s director of research and analysis, said that CET 21 s.r.o. and Nova TV have ignored most of the 31 conditions initially placed on the CET 21 s.r.o. broadcasting license. Over the course of 1996, all but one, No.17, were taken off the books; that, too, was repealed on January 2nd of that year

"The broadcasting council has threatened to revoke TV Nova's operating license on a number of occasions,", said Pehe, "but TV Nova has become such a factor in Czech politics and culture that [to do so] would be a scandal of such proportion that I really can't imagine that the council would take that step."

The council has been nipping at the station' s heels - and those of competing public service stations CT1 and 2 and the other private station, Prima (formerly Premiera TV) - for some time over minor infractions, which carry a maximum fine of 2 million Kc (74,000 dollars).

THAT WAS NO BONUS

CME President and CEO Leonard M. Fertig called THE PRAGUE POST on Saturday, Feb.3, to object to the tone of what he said was a "slanted" and unprofessional article (The Prague Post, Jan 29th - Feb. 4th). Of condition No. 17, Fertig noted that the council had "taken the law into its own hands."

"[The Council] didn't act to drop that particular provision as quickly as it should have, perhaps. But - the point is that specifically, changes in ownership in CET 21 [s.r.o.], were not, oddly enough, in the license condition,: which, said Fertig, "weirdly enough, was set on the CNTS Company [Nova TV], regarding changes in the CNTS company."

THE PRAGUE POST regrets several other errors. Firstly, Zelezny was not "fresh from talks in New York with CME," as erroneously reported. "He was attending an industry function in New Orleans," said Fertig, contradicting information provided this paper by the Nova TV press department.

Fertig also said he wished to correct a false assertion made in this paper (and many Czech ones) that Zelezny had received a 100 000 dollar bonus from CME for his efforts to gain control of CET 21 s.r.o. through a complex share transfer occurring after CME loaned Zelezny 4,7 million dollars to buy out all but one of his partners in CET 21 s.r.o.

Fertig offered the following explanation which deserves to be quoted at length.

"The interest on the 4,7 million dollars loan during the time period the loan was outstanding was made equal to the dividends we received, except for $100 000 worth of dividends. So, in other words, as the shareholder holding those additional shares, CET would be entitled to a certain amount of dividends for as long as that loan lasted, that would be coming from Nova to the shareholders of Nova, of which CET was one," explained Fertig.

"And then, by definition, CET gets the dividend, and then that is divided up among the shareholders of CET. So, in other words, the interest on the loan was made approximately equal to the dividends that would have been received by Dr. Zelezny, due to the incremental piece that he bought," he continued.

"However, we said, as much as he is taking the risk, he is entitled to something for his risk. So the dividends - net of $ 100,000 - wasn't a bonus for anything, it was his payment for the risk he was taking with this loan, and making this investment, which essentially is on his head. Because, indeed, if for some reason the value plummeted - of Nova - he'd be stuck for $5 million," said Fertig.

Or $4,7 million, to be exact. According to the SEC documents, that's how much Zelezny borrowed from CME on July 1st, 1996. The buyout would increase Zelezny's stake in CET 21 s.r.o. to 60 per cent.

One month later, CME entered into an agreement with Ceska sporitelna savings bank for the purchase of the bank' s 22 per cent take in Nova TV (and 20 per cent of its voting rights) for 1 billion Kc ($37 million). In connection with that agreement, CME was to receive Ceska sporitelna's remaining 1995 dividend of 38,8 million Kc, scheduled to be paid in November 1996, as well as 88 per cent of all future dividends declared.

CME also entered into a loan agreement with the bank to finance 85 per cent of the purchase price. According to the SEC document, the loan was to be drawn on in August 1996 and April 1997 in the approximate amounts of $ 16,3 million and $14,5 million respectively, to fund purchase-price payments due at those times, and was to bear an annual interest at the rate of 12,9 per cent.

These agreements and subsequent registration of CME' s increased ownership in Nova TV were subject to Czech laws. It is apparently for that reason and because all related laws have subsequently been repealed, that the council decided not to go after Nova TV in the matter.

THE RIGHT TO PRIVACY

Following the council meeting Jan.29, Nova Tv held a "private" press conference. A camera crew from Czech Television and reporters from TYDEN magazine and the dailies SLOVO and PRACE, which have written extensively on Nova TV, were denied entry. Zelezny told "invited reporters" that he had taken the loan in order to increase to 60 per cent his participant interest in CET 21 s.r.o., to fulfil his desire to become owner of the station. In an interview carried by Mlada Fronta Dnes the previous day, Zelezny reportedly said he had sought a loan from CME because he got a better rate than domestic banks could offer.

Jaroslav Plesl, a reporter for TYDEN, said Zelezny refused to answer questions before and after the news conference (THE PRAGUE POST and TYDEN collaborated on an article on Nova TV that appeared in TYDEN on Feb. 10.)

THE SUBTLE ART OF DIPLOMACY

On January 30th, Zelezny appeared before a meeting of the parliamentary media commission, which determines the make-up of the broadcasting council. He warned deputies that American financiers could exercise their rights to exert "diplomatic pressure", should the council follow through on its threats.

The secret of Nova TV's success is that they give the people what they want: a wide range of American and European films, sports, tabloid news and late-night adult entertainment on the weekend. It is a formula they hope to repeat: CME has been actively pursuing rights to television broadcast licenses since 1991 through its predecessor companies and myriad subsidiaries. Today, CME reckons it is THE leading provider of broadcast services in the region, reaching an audience of some 86 million people, stretching from the Rhine valley in Germany to the Carpathian mountains of Ukraine.

Equally important to CME's success has been the broadcast, financial, legal and lobbying talent of the CME Board of Directors, which reads like a page out of a WHO'S WHO IN BROADCASTING AND INTERNATIONAL POLITICS. CME is the child protege of two former Central Europe-based US ambassadors: Ronald Lauder, heir to the Estee Lauder cosmetics fortune, and ambassador to Austria, 1986-87, and Mark Palmer, ambassador to Hungary, 1982-1986 and a 27-year veteran of the US State Department. Palmer resigned from the board Oct. 8, but continues to work for the company. Both men remain active in US politics and worldwide human rights organisations.

Fertig has more than 20 years of consulting, planning and management of businesses under his belt, including stints with American Airlines and the US broadcasting outfit Capital Cities/ABC,

Lauder declined to be interviewed.

However Palmer, who was at one point a US deputy assistant secretary for "everything from Poland to Bulgarian and across the whole of the Soviet Union," said that although he'd not been asked to "intercede with anybody," he would b "favourable" to doing so. Palmer resigned his post as CME vice chairman of the board of directors to explore business opportunities in Asia and the Middle East.

THE SEATED SAY 'NO'

THE US Embassy in Prague issued the following press release January 31:

"The US Embassy wishes to correct the misperception that it may be contemplating a diplomatic intervention, or other 'expression of views' on behalf of TV Nova. The Embassy does not believe there are grounds for such action. It is our view that the climate for foreign investors in the Czech Republic is generally favorable."

The U.S. Ambassador, Jenonne Walker, declined to comment for this article. Her former Czech counterpart, Michael Zantovsky, told TYDEN magazine that Prague/based attorney Martin Radvan (who provides "legal services" to CME) accepted an invitation to attend Zantovsky's senatorial campaign fund-raiser. Zantovsky won his seat last fall, and resigned last month as ambassador; Deputy Foreign Minister Alexandr Vondra is expected to replace him.

"Mr Radvan accepted my invitation to the fund-raiser... but he definitely did not offer to contribute more than 10 000 Kc," Zantovsky told TYDEN. "I would not have taken more, regardless of the offer."

Through his secretary, Radvan declined to comment other than to say that he "was not authorised to speak for his clients," an apparent reference to CME.

'LEON'S CONSTRUCTION'

What is not readily apparent in the relationship between Palmer and an "S" corporation by the name Democracy Inc., which shares the same Washington, DC., address as a home listed under his wife's name. An "S" corporation allows income to be taxed at the personal rather than the corporate level. The Democracy, Inc. phone number is unlisted, and the property is next door to the French ambassador's residence.

"S" corporations are in common use in the United States and are normally used as "holding vehicles", said Palmer. "And in my case, that is all that Democracy Inc. is. It is a company in which I hold certain assets It is not an active company. It doesn't do any business."

Democracy, Inc.' s phone number was answered by a man who said, "Leon' s Construction". The man provided a contact for Palmer's office. Palmer was unable to return phone calls for one week, as he had been working for CME in Bosnia and Serbia. Since resigning from the CME board, he has sold a combined 270,000 CETV shares, which traded at $35 a share as of Feb 6; CETV traded at $22 in August last year.

Palmer chose to sell his shares under the name "Democracy, Inc." Bloomberg News Service listed Democracy, Inc.' s relationship to CME as "unknown".

"I resigned because I set up a new company called Television Development Partners to do television in the Middle East and Asia," said Palmer by phone Feb. 3, the day before Nova TV celebrated its third anniversary.

Palmer said he sold the 270,000 CETV shares because he needed to pay off loans, but was keeping 530,000 shares. He said he believed in the "very bright future of Nova TV". Some back-of-the-envelope calculations show that given the average stock price for the fourth quarter of 1996, $29 per share, Palmer earned a quick $7,83 million. And if the stock price stays stable, he still holds shares worth some $15,37 million. According to an SEC filing carried by Bloomberg, Democracy Inc. engaged in several CETV stock transactions throughout the fourth quarter of 1996.

GOD IS IN THE DETAILS

Sometimes one person is all it takes to throw a wrench in the spokes. Cestmir Kubat, attorney and proud owner of a single share in SPT Telecom, a.s., is effectively holding hostage the $1,27 billion partial privatisation of that company over technicalities.

Kubat also represents Peter Krsak, who, depending on whom you believe, was either frozen out of or refused to participate in the formation of CET 21 a.s. (not to be confused with CET 21 s.r.o., the broadcast licence holder). Kubat said in an interview with THE PRAGUE POST, following his latest appearance round against SPT, that Krsak had also been denied by Zelezny the right of first refusal relating to the latter's intended buyout of fellow CET 21 s.r.o. participants. If such a transfer is recorded at the Trade Registry, Kubat said his client will sue the others for damages.

Furthermore, Kubat is calling on the council to revoke Nova TV's operating license. "When you are issued a driver' s license, it may not be transferred to a second party. ... CNTS [Nova TV] doesn't have a license to broadcast - it technically provides 'services' to Nova TV. This is a very important point, because every society is controlled by television."

The broadcasting act placed conditions on "broadcasting" without clearly defining what that meant, said Kubat, and "Zelezny has abused this. It is high time proceedings to take away Nova TV's license began."

Prior to 1992, television advertising in the Czech Republic was limited to the two public channels. Since the onset of privatisation activities in 1992, the advertising market has increased to approximately $145 million in 1995, by CME estimates. Figures for 1996 show that Nova TV enjoys 70 per cent of the television advertising market.

CHAMPAGNE, SUPER NOVA

Currently, there are four over-the-air television stations in the Czech Republic: two public stations that reach 96 per cent and 87 per cent of the population, respectively; and two private commercial stations, Nova TV and Premiera, which reach 99 per cent and 40 pr cent of the population, respectively.

In July 1993, CME invested $48 million into Nova TV, which began full-time, nation-wide broadcasting on Feb. 4, 1994. It is CME's most profitable venture, as most others are still in the capital-intensive start-up phase Ever since the first quarter of 1995, the station has maintained a 65-70 per cent audience share, which over that year translated into net advertising revenues of $98 million. On Feb. 4, Nova TV celebrated its third anniversary of providing services to CET 21 s.r.o. and a 1996 profit of $55 million.

ZELEZNY TO THE PRAGUE CASTLE?

Zelezny had agreed to sit for a Jan. 24 interview with THE PRAGUE POST Editor-in-Chief Alan Levy (published as a Prague Profile, Feb 5-11), weeks before Nova TV came under the spotlight for alleged violations of conditions placed on CET21 s.r.o. He was given every opportunity to respond to questions put forth by Kubat and charges, made in the press.

Asked about possible political ambitions, Zelezny noted that as a former spokesman for the Civic Forum democracy movement, after the 189 revolution, he was in a position in which "there was open any ministerial ... position in the government".

He was offered and refused government posts many times. "And to use this very, very long complicated way, to be General [Director] of a television station - it was not necessary for me to get in touch with the potential or possibility to be in politics."

Even so, there is a lot Zelezny said he would like to do in politics:

"The environment for entrepreneurial affairs, for entrepreneurial behaviour in this country is still not set properly. This is a big task for those who are experienced as entrepreneurs, to be politicians later to explain to the decision-making structures, what is necessary to be done here to protect business, to protect investment, to impose here transparency into capital markets, transparency into ownership, transparency into your behaviour."