This is how politics distorts the advertising market in Hungary: threats, blackmail and corruption

It has been widely known for years that the Hungarian government uses the allocation of state advertising to fund pro-government media, and thus those serve as key instruments of soft censorship. The goal of Mérték Média Monitor‘s latest research was to ascertain how advertising money spent by commercial/privately owned companies is diverted from certain media outlets for political or other reasons. This is an excerpt from Mérték’s latest study on soft censorship, not yet published elsewhere. It was written by Leonárd Máriás.  

In parallel with the rapid and substantial expansion of their influence in the media market, government-friendly investors have achieved similar gains in the advertising market over the past few years.

The rise of pro-government investors in the advertising market has created a situation that triggered vast changes in the allocation of commercial advertising as well. The advertising spaces and radio and television advertising airtime that became concentrated in the hands of pro-government sales houses are increasingly becoming unavoidable for commercial advertisers.

The present excerpt summarises the insights from our interviews with nearly a dozen current and former advertising and media market figures, who talked to us about the considerations that tended to guide advertisers in their recent decisions when it came to choosing which media they should send their advertising money to. They spoke to us on the condition of anonymity.

Several of our interview subjects said that the distortion of advertising purchasing practices in conformity with political expectations has always been part and parcel of the way the advertising industry operates in Hungary, regardless of who was in government at any given time.

“We start with a highly distorted market where decisions have always been rendered on the basis of a fear of politics rather than on the basis of the target group that one wants to reach or how much money the advertiser has on hand” – explained one of our interview subjects.

We also encountered opinions arguing that before 2010 – in other words before the second and third Orbán governments took office – the advertising market had not been as obviously lopsided as it is today. Market players assess that the political environment has become far harsher than it was previously.

Because of the overwhelming pro-government concentration among the owners of major media outlets, the advertisements of privately owned companies do not need to be diverted based on political considerations in order to be published/aired mainly in pro-government media – even if these advertisers focused mainly on a business logic, they would still mostly advertise with pro-government media outlets.

The market for regional newspapers is a case in point, as that segment is now completely controlled by pro-government investors. Hence, for reaching that particular audience, there are no alternatives to pro-government media.

Our sources suggest that advertisers can be assigned into several groups based on how far they take political factors into consideration in allocating their advertising spending. Which of these categories a given company falls into depends on how vulnerable they are to political blackmail or whether the economic sector they are active in is potentially a target of government-affiliated investors.

In addition to these, a company’s outlook will also be determined by the web of personal relationships of their owners and executives, as well as the question of whether the foreign owner of a Hungarian subsidiary understands the intricacies of the domestic situation.

One clearly distinct segment are those companies that advertise strictly according to business rationality. One of our sources said that such an approach can primarily prevail in those sectors of the industry where the government or investors affiliated with the government currently have no designs on anything. They assessed that insurance has been such a segment of the market in the past years.

There are sectors in the economy where commercial operations depend substantially on regulatory changes, which makes it easy for the government to interfere with their business operations. One such area is retail, for example, where the market players depend on the government because they need permits to open new branches, and pharmaceutical companies, where the provision of state drug licenses may hinge on a conflict with the government.

A prominent food chain and an established producer of pharmaceuticals stuck with Hír TV after G-Day, and then they received the message telling them they should no longer advertise on HírTV, said a source who was acquainted with the story.

The strategy that our interview partners often use is to divide advertising spending between different political forces according to some underlying conceptual framework.

Typically, they strive to make sure that some money flows in all directions, or that on the whole a greater slice ends up with pro-government media.

This “let peace prevail” attitude is typical of advertisers that qualify as major corporations. These include some who will augment their careful apportionment of advertising funds with support for foundations and football clubs that are close to the government.

A media agency market awash in corruption

Like the advertising companies, the media agencies also continuously weigh their activities based on political considerations. According to our interview subject, professional considerations are becoming less important in the advertising market.

Instead, what is increasingly relevant is whether an advertising agency is willing to commit to one side or another politically. In most cases, advertisers force the agency to go down this route, and a frequent expectation of theirs is that the media agency be “on the good side” of the government.

Another interview subject who had worked for several Hungarian media agencies in senior positions recounted that one advertiser, a major domestic corporation, stipulated that its commercials must be broadcast on the state television channels even though that was not at all where the company’s target group was. Its commercials should have been broadcast on RTL or Cool TV at times when urban youth would be watching television rather than the elderly generation that is most inclined to watch state television.

Another allegedly widespread phenomenon in the media agency market is that domestically-owned companies or their owners – or even the marketing executives of multinational corporations – use accounting tricks to extract substantial untaxed kickbacks from advertising spending.

The majority of these advertisers do not look at advertising as an investment that will yield returns, most of them do not care where the media agencies place their ads.

What matters is that the bill charged by the media agency to their company is as inflated as possible, and that at the end of the deal the agency use the larger portion of the money – often as much as 50-80% of the total amount – to pay the owner or the head of marketing in an envelope. Whoever selects the agency to work with will pick a partner that is willing to cooperate on this.

“What you see going on in public procurement on a grand scale is also manifest on a smaller scale in the market for media agencies. In some cases I represented the company that had been pre-selected as the winner, and I had to submit bids in the names of two other media agencies, using e-mail addresses that I had to create myself. I had to do this so that the head of marketing could go to the owner and highlight the best offer, which was highly inflated in fact. There was one case when we sold the advertising space for ten times the market price” – an interview subject who used to work for a domestic media agency told us.

He/she said that almost all clients at the agency worked like this, and as he/she said these were not unknown or small Hungarian companies, either, but major corporations whose advertisements we often encounter in the streets. With domestic clients, the person who ordered the ads was the owner, while in the case of multinational corporations the head of marketing was usually charged with this responsibility.

In his/her retelling, the media agency generated a massive revenue and a significant portion of that stemmed from the marketing budget of state projects. It is said that there are numerous agencies in the market that mainly focus on laundering money for companies or political players under the guise of advertising spending.

The gist of the accounting scam employed by the agency was that it was not the media agency itself that bought the advertising airtime from the television channels but a minor and unknown company that was in effect managed by the agency; then the agency bought the advertising time from this company at a massively inflated price that could be as high as ten times the original price.

“I called the radios, the television channels, and I did everything relating to the advertising time we purchased, but I had two-three other companies where I didn’t even know the owners, I even created their e-mail addresses myself. At the television channels and the radios, they knew full well that the media agency was the actual partner, but the invoice was nevertheless not sent to the media agency but to some phony company” – said our interview subject.

The advertiser paid the agency the tenfold price, and then an amount somewhere between 50-80% was paid to the owner or the head of marketing in cash. The fact that the phony company at the bottom of this chain – which was in a contractual arrangement with the media outlet – could not account for the money to the tax authority was not an issue.

“The owners and the signatories were foreigners, and after a while all these companies were liquidated, especially when a tax inspection was underway. And then I got a new list of companies telling me that in the future I would do the advertising acquisitions with these” – said our source.

The same murky marketing stories went on in the context of the state projects managed by the agency. A well-known government agency had an EU-funded tender, for example. The extensive study that had to be produced as part of the undertakings in the winning application had to be written by a staffer at the media agency in the name of someone else.

“The government agency paid 20 million forints for this study, and then someone came knocking from the agency asking for 19 million in kickbacks. The accounting was performed by involving another, unknown PR agency that specialised on such deals – the owner was also unknown – and this company claimed authorship of the study and submitted a bill for 19 million, which we paid them as a subcontractor fee, and they brought the money back in cash so that we could pay the person at the government agency” – explained our source, though the aforementioned amounts were not the actual figures in the case.

The invoicing of all state procurement was handled in the same manner by the agency, regardless of whether it concerned media campaigns or film production.

In addition to market corruption, political corruption, too, is an everyday component of the media agency universe. Market players had to cooperate with the Socialist Party as well, and in those instances they had to adjust in the same way to the ideas concerning market advertising of László Puch, the MSZP treasurer, just as they had to accommodate the demands of Lajos Simicska between 2010 and 2014.

Among those who are familiar with the operations of the advertising market, there is a widespread perception that the Fidesz government that entered into office in 2010 was capable of “capturing” the media agencies precisely because of the corruption mechanisms that were in place in the market; these mechanisms rendered the agencies susceptible to political pressure.

Before the Fidesz government, however, professional considerations and corruption operated side-by-side, one of our interview partners said, putting the corruption of the earlier era in context.

Written by Leonárd Máriás, Mérték Média Monitor

You can read the Hungarian version of this story here.

Cover art: Pawel Kuczynski / Facebook – with the creator’s permission.