The Orbán government and RTL Group: a cease-fire?

Soon enough it will be a year since the Orbán government decided to levy an exorbitant tax on the largest and most profitable commercial television station in the country, RTL Klub. I wrote extensively about the tug of war between the Hungarian government and the German-owned station. According to rumors, the government plan was to squeeze the station’s owners into selling and then have the station be purchased by some “well-deserving,” meaning pro-government, individual or individuals whose newscasts would be as lopsided as those of HírTV and the state-owned MTV. Apparently, RTL was not ready to sell, so the government had to settle for the second largest commercial station, TV2, which was eventually sold to a shadowy group of people. The special levy that specifically targeted RTL Klub was intended as a form of punishment. Knowing Viktor Orbán’s warped psyche, I’m sure that this story is more than mere rumor.

So, the war began. RTL Klub coughed up the money. What else could they do?  But they paid the government back many times over. Their newscast, which used to consist of short, mostly tabloid items and police reports, was extended to an hour with a heavy emphasis on political news. Suddenly the dirt that emerges daily around this government could be seen on a commercial station’s evening news, watched by 1 million people as opposed to the state television’s propaganda news with its 400,000 viewers. The people who in the past had watched RTL Klub for its “entertainment lite” programming suddenly were confronted with the kind of news that earlier had never reached them. The result was stupendous. Although some commentators wondered whether RTL Klub’s viewers would be turned off and would switch to TV2, exactly the opposite happened. RTL Klub’s viewership grew substantially. Political analysts are convinced that Fidesz’s tremendous loss of popularity is due, at least in part, to RTL Klub’s newscasts.

From the beginning RTL Klub planned to take its case to Brussels because, while RTL Klub’s share of the Hungarian advertising market is 13.5%, it is obliged to pay 90% of all revenues received from taxes on advertising. Indeed, last October RTL Klub lawyers turned in an official complaint to the European Commission. Yet for months we heard nothing. Then, on January 19, Népszava reported that some Fidesz politicians would be very happpy if Viktor Orbán “made peace” with RTL Klub. The paper added that “according to some sources, the Orbán government is counting on ‘a cease-fire’ before the arrival of Angela Merkel” in Budapest on Monday.

RTL Group headquarters in Luxembourg

A week later 444.hu learned that János Lázár had already had several conversations, not with the Hungarian CEO of RTL Klub but with Andreas Rudas, director of East European operations, and Guillaume de Posch, CEO of the international RTL Group. Earlier they met in Munich and last week in Budapest. 444.hu claimed to know that they will meet again in Berlin sometime this week. The government allegedly wants to end the war with the German firm, which complained about its treatment in Hungary to Angela Merkel herself. The paper also seemed to know that the top management of RTL Group was ready to make a deal but that Dirk Gerkens, the man who is heading the Hungarian RTL Klub, refuses to compromise. Gerkens was indeed outspoken and combative, which raised the ire of some true believers. Gerkens told Bloomberg that he received threats of violence, delivered via friends and e-mails. He added that he moved his family out of the country, left his apartment for a hotel in central Budapest, and hired bodyguards.

After the report of 444.hu about the ongoing negotiations, rumors began to circulate in the media, especially after Népszava yesterday came out with the alleged details of the deal. According to the paper, the 50% tax on RTL Klub will be reduced to 5-10% but only if the station “tones down” its newscasts and fires Dirk Gerkens. Not surprisingly, journalists are up in arms. FSP (Péter Földes), whose blog regularly appears on Népszabadság On Line (NOL), summarized the sentiment. If what 444.hu and Népszava reported is true, then “RTL is preparing to commit public suicide combined with betrayal.” I agree, and that’s why I think such an outcome is unlikely. It would not only be ruinous for the RTL Group’s reputation but would also make the Hungarian government’s interference in the media, which they steadfastly deny, blatantly obvious. I don’t think it is in the interest of either party to cut such a “dirty deal.”

Meanwhile, in the last few hours HVG learned that the Orbán government’s decision to retreat on the 50% levy on RTL Klub resulted from diplomatic pressure: both the German chancellor and the prime minister of Luxembourg, where RTL Group is headquartered, strongly suggested to Viktor Orbán that he settle his dispute with Europe’s largest media firm.

Apparently, contrary to Népszava‘s claim, negotiations have not yet ended and the deal has not been sealed. Lázár, who is negotiating for the Hungarian side, admitted that his job as negotiator has been very difficult because “the prime minister insists on upholding the advertising tax.” For Orbán “this is a question of principle.” But it looks as if principle will have to be sacrificed in the face of diplomatic pressure and the hopelessness of Hungary’s case if the RTL Group actually sues. It seems that the prime minister will sketch out changes in the advertising tax tomorrow morning during his regularly scheduled radio interview, with details about the exact figures to be revealed later.

So, another defeat, another retreat. These are hard times for Viktor Orbán. Moreover, I suspect that the newscasts of the Hungarian RTL Klub will not change substantially in the future. RTL Group cannot afford it. Neither can Viktor Orbán.

More resolute foes of Orbán’s plans for Hungary come from unexpected quarters: Luxembourg and Norway

In the past four years most of the battles between Viktor Orbán and the European Union have ended with a victory for the Hungarian prime minister. Or, if the Budapest government was forced to make changes in some of its controversial laws, they usually smuggled in other equally controversial provisions while allegedly fixing the problems with the first version. Eventually, the “bureaucrats” of Brussels, worn down, were satisfied with superficial, inconsequential changes that did not matter as far as Viktor Orbán’s long-range plans were concerned. But now he is confronted with other kinds of foes: Norway, which does not belong to the European Union, and the Luxembourg-based RTL Group, Europe’s leading entertainment company which is majority-owned by the German media conglomerate Bertelsmann. Neither of them seems to be a pushover.

I was surprised to see that almost three weeks had passed since I first wrote about the war between the Hungarian government and RTL Klub, the Hungarian subsidiary of RTL Group. At that time I reported that the Hungarian government had proposed a bill that was designed to tax the advertising revenues of all media outlets on a sliding scale depending on profitability. RTL Klub is the most profitable television station in the country and hence would get hit the hardest. In fact, the proposed tax of 40% on its revenues could cripple it. Since more than half of all revenues from the advertising taxes would come from RTL, it became evident fairly early in the game that the whole bill was designed to target this particular television station.

The answer from RTL Klub was swift: the news editors decided to spend more time on political news than before, and they made sure that every day there was some story that reflected badly on the government. The government answered in kind. Mihály Varga, minister of national economy (basically the minister of finance), instructed the Nemzeti Adó- és Vámhivatal (NAV/National Office of Taxation and Customs) to examine the tax history of RTL Klub because, as he put it, “there is a suspicion that some of the transactions of Magyar RTL Klub in the past years are fictive; they don’t reflect actual business activity but are designed solely for tax write-offs.” It was at this point that an MSZP member of parliament charged that Hungary was no longer a country of law  (jogállam). The government was using the tax authorities to “punish” companies not to its liking.

The management of RTL didn’t cower. They told reporters that NAV has been after the company constantly. By now they have a department that deals only with tax matters. They have nothing to hide, and they invited NAV to come and investigate. It turned out that the “suspicious transaction” was a 2011 loss of 23 billion forints. The loss came about in the following way. RTL Klub purchased two cable companies which a year later were sold to its parent company. Apparently this transaction is a perfectly legitimate business practice. Because of this loss, RTL wouldn’t have to pay advertising tax this year. And that cannot be allowed.  Thus, the government had to come up with some other way to get to RTL.

Source: http://www.targetgdpi.com/

So came the old Orbán trick. If the law for one reason or another doesn’t have the desired result, let’s change the law. And indeed, as one newspaper put it, before the ink had even dried on the bill came an amendment according to which a company would be exempt from the tax this year only if its profits were either zero or negative in 2013. Clearly, this amended bill targets only RTL Klub. As László L. Simon, the man who presented both the original bill and its amendment, said, Hungarian newspapermen were the ones who called attention to this loophole. Since the government wants to make sure that everybody pays an equal share of the tax, they decided to change the bill.

Yesterday L. Simon for a solid 17 minutes tried to explain the intricacies of his amendment to the audience of ATV while a helpless young reporter sat and listened without interrupting him. He was less lucky when he made the mistake of giving an interview to RTL Klub. As a result of this interview it became evident that L. Simon doesn’t know what is in his “own” amendment. So much for law making in Hungary.

The RTL Group refuses to throw in the towel. Only yesterday a long interview appeared with Andreas Rudas, the director responsible for South-Eastern Europe, who as you might suspect from his name has a Hungarian background. He made it eminently clear that what is going on right now “is not a question of money” as far as the RTL Group is concerned. The firm is ready to stand by media freedom and to go to the highest courts to win against the Hungarian government.

During the course of the conversation we learned that Lis Mohn, the widow of Reinhard Mohn who was the owner of the media conglomerate Bertelsmann, serves on the supervisory board of the firm. And what is also important is that she is a good friend and supporter of Angela Merkel. Rudas revealed that he knows that the topic of what is going on with RTL Klub in Hungary is being discussed in Berlin as well as in other European capitals. RTL Klub is prepared to sue and they don’t care how much it will cost or how long it will drag on. It seems that Orbán has found his match in the business world.

Equally resolute is the Norwegian government. On June 25 a letter was sent to the Prime Minister’s Office which was brief and to the point concerning the suspension of the Norwegian Grants. No lifting of the suspension can take place until the demands of the Norwegians are met, which include the immediate cancellation of “the on-going audit by the Government Control Office.” The letter added that the “audit of the Hungarian NGO program is the responsibility of the Financial Mechanism Office in Brussels.” Well, that is clear enough. No answer has come yet from János Lázár’s office. As Népszabadság commented on the situation: “Lázár and Co. ran into a cement wall.”

In both cases we will see who will break his head first on that cement wall.