Sanoma WSOY, the Finnish media conglomerate, has given a strong vote of confidence to Russian stability and the future of free media in the country. In an all-cash deal, Sanoma, according official statements, bought 100 percent of Independent Media (IM), a leading Russian print media holding company owned by Dutch national Dirk Sauer and four other partners.

Sauer and Independent Media have an old relationship with Sanoma and its Amsterdam-based consumer magazine division, which Sanoma had acquired from Dutch publishing group VNU in 2001. VNU was the original employer of Sauer and had sent him to Moscow in 1989 to start a magazine venture.

The consumer magazines -- such as Cosmopolitan, Harper’s Bazar and Men’s Health -- which form the bulk of IM’s revenue, are thought to have been licensed to IM because of its VNU partnership. VNU’s Koos Guis, who is now president of Sanoma Magazines International in Amsterdam and will be Sauer’s effective boss after the acquisition, was considered key to IM’s venturing into consumer magazines a decade ago. Sauer will remain CEO of the company for three years, according to official press releases.

Sanoma is expected to infuse a new sense of confidence and integrity into IM’s newspapers and magazines. But that does not necessarily mean a change of editorial direction and policies, only a shift away from biased, paid-for opinions and other sultry practices toward fair, balanced and ethical journalism, for which Sanoma has built a strong reputation.

The group’s Moscow Times, St. Petersburg Times and Vedomosti newspapers, which developed under the financial “krysha” of jailed Russian tycoon Mikhail Khodorkovsky in the past decade, are not likely to give up their anti-Putin, anti-Kremlin and anti-Russia stance on international affairs. However, it will end Sauer’s dependence on the oligarchs who have faced the brunt of the current administration’s wrath because of their failure to pay taxes and abide by the rule of law, and that will result in better journalism.

The Russia Journal has long believed that IM’s newspapers have taken the anti-Russia, anti-Putin line based on extraneous considerations, often setting aside journalistic integrity and without explaining their shareholders’ vested economic interests that frequently clashed with Russian national interests.

The editorial line of Helsingin Sanomat, the leading newspaper of Finland – which is owned by Sanoma -- is also stridently against President Vladimir Putin, especially on his handling of the Yukos/ Khodorkovsky affair, but unlike IM, Sanoma has owed no debts or equity to Yukos. According to one Finnish businessman in Moscow: “Cool business analysis has prevailed. Sanoma did not take the advice of is own editors, who think of Russia as a high-risk country where Finnish companies should not invest.”

At The Russian Journal, we believe that Russian risk perception is being bloated out of proportion by many media outlets. Sanoma’s business analysis likely showed long-term stability and prospects for growth in the Russian market, especially if Putin’s current policies continue to be implemented.

Unlike IM’s and Sanoma’s editors, Sanoma executives and bankers have given an endorsement that the Kremlin could use to market its policies. The company has paid 142 million euros for a media organization that had revenue of barely 70 million euros in 2004. This comes at a time when many Western observers do not tire of repeating that the Russian media are under attack from the Kremlin. The 142 million euros represent nearly three times the consolidated proforma revenue of shares acquired by Sanoma (IM operates many joint ventures), which is said to be only about 47 million euros. The company has earnings of 10 million euros before taxes and has been showing solid growth of 25 percent each year for the past three years.

That a media group whose editors have been so critical of the Kremlin over its handling of the Khodorkovsky affair should value the deal at nearly 15 times earnings is a ringing declaration that executives of media companies do not believe in apocalyptic opinions of their own editors. Sauer, a former Communist whose own shares in the company should make him a millionaire many times over, has proven that Russia is ripe for entrepreneurship and that a free market, with big rewards for persistent business owners, has taken firm ground in Russia.

A source close to the Kremlin only commented that “there was no particular interest in the transaction in the Kremlin” and “I think every major investment in Russia is welcome. It only proves the point that the president has been making: that media should be commercially free and viable, and we have no problems if it is then critical [of the president].”

Sauer is known for his close ties to Russian oligarchs, and two of the most controversial Russian groups, Menatep and Interros, have been shareholders in his company during the Putin era. The new independence acquired by IM now gives it new freedoms as well. Sanoma should have no fears from the Russian government and should be able to further develop its media business in Russia without interference or harassment from the authorities. The Kremlin has shown its ability to take criticism, and even abuse, from media organizations that are financially independent and are not funded or subsidized by the state treasury.

Threats, intimidation, legal actions and frivolous lawsuits against media companies are more commonly originating from the oligarchs than the Kremlin. Sanoma would have calculated that it has nothing to be afraid of from the Kremlin, and Sauer would have confirmed that his newspapers not only operate in an environment of fearlessness but also cooperate with state- owned news agencies that manage the Kremlin’s propaganda campaigns.

Sanoma’s arrival marks the advent of hard-core magazine professionals in Russian publishing. The size and reach of the company in European markets can only be compared with that of Hachette of France and Burda of Germany. Publishing giants Bauer, Axel Springer and other consumer magazine publishers of Europe and the U.S. have tried to follow Sanoma, which is a pioneer in Eastern European markets.

The greatest threat Sanoma’s acquisition presents will be to market leadership in the weekly magazines segment enjoyed by Burda, which entered the Russian market in 1987. Sanoma could be expected to launch publications to compete with Liza and other weeklies that currently make Burda the leader of women’s weekly magazines in Russia. Many of the Russian publishers that have launched weekly and monthly magazines could now say goodbye to their ventures.

The arrival of Sanoma could force consolidation in the market in which only the big can survive. That is because Sanoma is known to invest in quality content and focus on building relationship with readers rather than advertisers alone. The Hachette and Sanoma groups are leading distributors and retailers of print media in many European countries. A major investment in Russian media distribution from a European company, including perhaps Sanoma itself, can’t be far behind. That would make print media more accessible to Russian readers and give an overall impetus to the magazine and newspaper publishing in the country.

The transaction creates conditions for more mergers and acquisitions in the country where publishers will have to compete for market share by improving content and building confidence among readers. Russian readers and the media sector at large have everything to gain from arrival of these hard-core media professionals with deep pockets. A media not dependent on the Kremlin or the oligarchs is the only truly independent media. To use the words of Viktor Yuschenko, the newly elected president of Ukraine, “Independent Media has been independent for a decade, but now it has its freedom.”

Full Disclosure: The author is a media professional and has been a competitor of Independent Media’s Moscow Times newspaper for many years. He filed a failed antimonopoly suit against IM, while IM sued The Russia Journal successfully on a copyright infringement. The Russia Journal closed its daily newspaper in 2003 and its publisher now publishes The Russia Journal as a monthly magazine, a quarterly consumer magazine IPOTEKA on Mortgage and many Web sites, including www.russiajournal.com The author also made a failed bid to partner with Sanoma and insists that his views are not just Sauer Grapes. The Russia Journal editors welcome the investment in the Moscow Times and hope that the newspaper will now be able to do independent and balanced reporting from Russia. - editor