Nine countries issued a joint statement from their Budapest embassies taking Hungary’s government to task for pulling the plug on two radio stations with foreign owners, including Slager Radio, whose principal owner had been US-based Emmis Communications. Also, a resolution has been introduced in the US House of Representatives calling for Hungary to treat foreign investors fairly.
The joint statement from the embassies was reported by the Hungarian online political news site, Politics.hu. This week’s jerking of the licenses of Slager and German/Austrian-owned Danubius Radio was not the first time in recent months that politically-connected entities had seized business assets in Hungary owned by foreigners. The statement cited several recent instances “of non-transparent behaviour affecting investors in such areas as public utilities, broadcasting and elements of the nation's transport infrastructure.” It was jointly signed by the ambassadors of the US, Belgium, France, Germany, Great Britain, Japan, the Netherlands, Norway and Switzerland, who noted that most of the foreign capital invested in Hungary came from their countries.
Meanwhile, Rep. Joe Donnelly (D-IN) introduced a resolution that “(1) condemns the recent action by the Hungarian National Radio and Television Board that awarded the national community radio licenses; (2) encourages the Republic of Hungary to respect the rule of law and treat foreign investors fairly; and (3) encouragers the Republic of Hungary to maintain its commitment to a free and independent press.”
Leading up to that finale, the resolution noted that Hungarians revolted against Soviet rule as far back as 1956. Once the Iron Curtain fell, Hungary joined NATO in 1999 and the European Union in 2005. Donnelly’s resolution noted that over $9 billion has been invested in Hungary from the United States since 1989, making the US the 4th largest contributor and largest non-European contributor to foreign investment in Hungary. And it notes that the Hungarian Investment and Trade Development Agency has termed foreign investment crucial to the nation.
It then cites reports from the Financial Times, Wall Street Journal and The Economist regarding political corruption in awarding the radio licenses to new entities connected to major Hungarian political parties and rejecting the renewal bids of Slager and Danubius.
Donnelly, who proudly calls himself a “Blue Dog Democrat,” represents Indiana’s 2nd Congressional District. That does not include Indianapolis, where Emmis is based, but runs from South Bend to Kokomo.
RBR-TVBR observation: No one, it seems, is speaking out in defense of political corruption in Hungary. But now that the two major political parties have determined that they can get along well enough together, so long as they share their ill-gotten spoils, who is going to stop them?
Editor's Note: Emmis CEO Jeff Smulyan replied below but for follow up comments on Smulyan's reply review 'Emmis's CEO Jeff Smulyan sets record straight...'
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It was hardly a "purely financial bidding process."
Jack Messmer
Executive Editor
RBR-TVBR
On the other issue of whether a 50% bid can ever be a feasible business case - that's a risk up to the bidder, unless the rules set a high limit (which they apparently didn't). I just looked up Emmis's performance in Hungary last year. It seems that their EBITDA margin was nearly 50% - and that included the cost for their license fee (whatever it is). Thus, i don't see why someone can't make money on the same set of frequencies with a license fee of 50% of revenues.
I think the only thing that is corrupt in this story is the angle at which it's being reported.
Right. I don't know what I'm talking about. Neither does Joe Biden, the Wall Street Journal, The Financial Times, The Economist, the former head of Hungary's ORTT, the ambassadors of nine nations on the scene in Budapest, various local publications in Hungary and the leaders of Hungarian political parties not involved in the rigged bidding. We're all misinformed and it was, as you insist, "a transparent process."
Jack Messmer
Executive Editor
RBR-TVBR
I don't speak or understand Hungarian, but it seems like the radio station "lives on" online - to some limited extent. At 4:10pm CET today I heard "It's No Good" by Depeche Mode and what sound like a soundbyte announcing Slager Radio's disappearance from the airwaves.
I doubt living on as an online station will be financially successful.
So what's next for Emmis - and was this fair for Emmis? No. It wasn't.
Is this akin to what was seen in Cuba when Castro came to power, or what's been seen of late in Venezuela?
I'm not sure.
But let's not forget that a foreign company can only maintain a minority interest in a U.S. broadcast company. I'm sure Grupo Radio Centro and Emmis would have loved to make a deal for KXOS-FM 93.9 in Los Angeles.
Instead, GRC has a deal with Emmis to control the station.
So is there a double-standard here?
Not sure. But I don't think we should be feeling so horribly for Emmis or Danubius Radio's owners - they knew the risks when they first entered the market. They gambled and lost.
Jack Messmer
Executive Editor
RBR-TVBR
Jack Messmer
Executive Editor
RBR-TVBR
The fact that Emmis successfully lobbied to get Joe Biden et al to support their cause does little to add any substance to Emmis's underlying complaint.
I will be the first to accept any reasonable, substantiated answer to the simple question: how exactly were the Hungarian state and the ORTT supposed to issue the licenses to anyone other than the highest bidders? What would "good politics" have been in this case - to award it to the lowest bidder? Or to award more points to incumbents (which would have been illegal under European Union law?) Or, to overturn the original law from 1997, according to which the licenses must finally and ultimately expire in 2009, to allow a chance for newcomers to enter the market? That would have been also illegal under EU law (as there is a one-extension limit, which Emmis already got).
I don't like the level of corruption in Hungary (which exists, don't get me wrong) any more than Emmis does, but what I hate even more is absence of a logical debate on this case, and the blind indignation in support of a business, at the apparent expense of total disregard for another country's laws.
And alas, Scott's realpolitik idea that 2 new national frequencies could be found in a landlocked country the size of Indiana which borders 7 (!) other countries is simply unfeasible.
Nah...Emmis just didn't do their politics right. When in Rome (er, Hungary) do as the Romans do.
When you try to run your U.S. type business in other countries, you have to acknowlege that your aren't in Kansas anymore. Emmis should have seen this coming a long time ago.
I'll bet they did. I'll bet they fought it. They lost, probably becuase they were'nt willing to pay the piper.
As it happens, Emmis indeed played the game, but weren't willing to pay the price being *asked*.
We fully prepared to pay the highest price for our license, and since we had by far the highest gross income (roughly 60 per cent of all dollars in the market), our percentage bid would have produced by far the most money for Hungary...and would have been the highest based on Hungarian law. The standards were changed after the bidding process started, which said that the highest percentage would be the winning bid. In effect someone could promise 50 percent of nothing and be the winner over someone providing 12 per cent of millions of dollars. This is what happened. The Chairman of the ORTT (Hungary's FCC) recognized this as a flawed process and demanded the bids (which were sponsored by the two political parties) be thrown out. By the way, Hungary's Prime Minister and President also called the process very questionable. When the parties voted for their proxies, the Chairman of ORTT resigned and called this a "major scandal". Perhaps it would also be helpful to know that both Slager and Danubius were visited by party officials in the weeks before the bids were due and were told, "either give us control, or you will lose your license".
In meeting with Prime Minister Bajnai, I mentioned that the request made of us was a crime in my country, and as a violation of the Foreign Corrupt Practices Act, would make it illegal for us to accept the request, (which we obviously would not have done anyway). The Prime Minister stated that this was, "also a crime in Hungary."
You should also know that one of the parties, Fidesz, nationalized a water company owned by the French several months earlier. The French Government and the European Union have registered protests over that case as well.
We entered Hungary under the rules of the Hungarian system. We were proud of what our people accomplished, Slager had nearly 4 million listeners a week, and won numerous awards for our civic involvement. I will be forever grateful to our employees and our listeners. When freedom and democracy are taken from people, everyone suffers, and I am very sad for Hungary.
Jeff Smulyan
I truly sympathize with the situation you are in. It is almost unfathomable - especially for an American broadcaster - that your frequencies would be taken away from you after a certain time has elapsed. Yet, I respectfully disagree with your position that this was done in an inappropriate (per local laws) manner. At the same time, I appreciate that you are approaching this debate in a structured and motivated manner.
Let me address your premises.
First, you state that the process was changed after it was initiated. I am not sure what you mean by that. I just looked up the publication date of the "Call to Tender", which was July 30th of this year. The tender documents explicitly refer to a percentage of revenues as a component of the bid. Unfortunately, I could find it only in Hungarian (http://www.ortt.hu/palyazatok/7/1248957757palyazati_felhivas_orszagos_20090730.doc - thanks, translate.google.com) - so I hope I was not misreading it.
Second, you say that 50% of nothing is less than 12% of something. Sure, that's correct. But who are you, or who are we, to say that the newcomer will generate "nothing". Even if they generate only 30% of Slager's revenues, their 50% would still produce a higher fee for the country's coffers, right? And I can't imagine anyone operating one of two national licenses so poorly that they would generate less than 30% of Slager's revenues (this would probably mean that the other national license holder would steal the rest of the market - obviously the state should be indifferent to either outcome).
Last, you state that Slager and Danubius were visited, before the award procedure, by party officials asking for controlling stakes in the respective operators. Well, if that was indeed the case, I am sure that Slager's (and Danibius's) management informed the authorities in due course. That's what most of us would do. Moreover I am sure they also publicized these arrogant and illegal overtures in their own news - Slager reaches 40% of the country on a daily basis, after all. If management didn't do either of these, then I would be very puzzled as to why not. As the only reasonable explanation I could think of would be that your local guys were in some sort of *negotiations* which just didn't end up right. But then again, if that wasn't not the case, and your management did what it was supposed to do in due course, then I am confident that Slager will win the legal battle and justice will prevail.
And I truly wish you that you win. I just don't believe that's an option.
Sincerely,
BattleStar.
I would have only two questions:
If you knew from the very beginning that your competitors using "sales house" method and this way the offers are not comperable because your competitors have offered higher percentage from a far lower turnover why did'nt you do the same thing? Not doing this seems a little bit like a business suicide.
In Hungary there is a gossip that the last profitable investment of Emmis was Slager. Is it true?
Thanks for the answers,
Gaspar
As to the sales house issue, it is patently fraudulent on its face, and is a clear violation of the ORTT rules. It would be no different than hiding revenues for the purpose of not paying taxes on them. If my gross income is 10 million dollars, but I only declare 2 million and leave the rest in a "sales house", then don't pay my percentage on sales house numbers, I am deliberately defrauding the government...and this procedure was always disallowed, as it should have been.
Please read the text of the tender and look only the numers as this is business, or not??? I am not a businessman but I can see this mess very clear. The Emmis is ok, they will survive but I still hope they ll fight further, but the country? What do you think about the money the new radio station is going to pay into the country's budget? is that going to be higher than what Emmis paid in. Please do not talk till you don't have evidences...I am a listener and yes, Jeff, we are waiting you back just starting to move on a new matter.
Good Luck!
Emmis is finished?
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