Turkey: Enhancement Of Foreign Investment Opportunities In The Turkish Media Sector

Last Updated: 14 December 2010
Article by Esra Tekil

Turkey, as a fast developing country linking Asia to Europe, is also a dynamic and attractive market in terms of media investments. The general perception of foreign investors has positively changed about Turkey with the effect of the country's good performance and economic growth during the global downturn. Nowadays Turkey is certainly counted among the most attractive investment areas within the emerging markets.

Following the removal of the state-monopoly on the media through the permission of private companies' access to the sector in 1994, the Turkish media market expanded considerably, especially upon entry of the global players to the local sector. Some of the big global media players such as Time Warner (CNNTurk), NBC (CNBC-e), NewsCorp (FoxTV), Bloomberg (Bloomberg HT) and Axel Springer (Kanal D) are already active in the Turkish media sector through shareholding or licensing. Experts foresee a consecutive growth in the Turkish entertainment and media sector in the coming five years, with an annual average growth of 13 percent. The sector is estimated to be worth US$9.7bn by 2014, according to PricewaterhouseCoopers in its 'Global Entertainment and Media Outlook: 2010-2014' report.

Despite the fast development of new digital technologies in Turkey, the lack of legal basis fully regulating these technologies, and particularly the existing local media regulations limiting foreigners to a 25 percent stake in the Turkish media companies, have been criticised in the last few years due to their negative impact on the local media market's growth. The Radio and Television Supreme Council (RTÜK), which is the official authority responsible for making national and regional frequency planning and supervising the compliance of radio stations and television channels to the media regulations in force, was the main target of these ongoing critics. Finally, by the influence of Turkey's legal compliance process to the EU and the noticeable interest of foreign investors towards the Turkish media sector, RTÜK drafted a new bill amending the existing law no. 3984 concerning the establishment and broadcasting of radio stations and TV channels.

Under the current system regulated by the Law no. 3984 dated 1994, foreign entities and real persons are only allowed to own a maximum 25 percent of the shares in a Turkish media corporation to be determined over the total paid capital. It is important to note that foreigners may only hold the shares of one media company according to the regulations in force. The issuance of privileged shares for local or foreign shareholders is not allowed either. Despite the legal shareholding limitations, it is well known that foreign investors gain more rights in the internal control and management of the Turkish media companies through shareholders' agreements that are not declared to the public.

In 2009, the above-mentioned restrictions caused strong discussions in Turkey, when the Ministry of Finance imposed the highest tax fine of the country's whole corporate history – Turkish Liras 3.76bn (approximately US$2.5bn) – to one of the biggest Turkish media groups. The tax penalty was considered to have accrued between 2005-2007, due to consecutive share transfers in 28 subsidiaries belonging to the relevant media company. Following the transfer of the shares in its 28 subsidiaries, the media company assigned 25 percent of its shares to a foreign media corporation. Although the shareholding ratio of the new foreign shareholder in the relevant media company did not exceed 25 percent, the Ministry of Finance considered that the foreign shareholder exceeded the limit of 25 percent together with the restriction of becoming shareholder in only one company, by indirectly holding the shares in these 28 subsidiaries. The Ministry reported the matter to RTÜK as a violation of the existing law no. 3984 and emphasised that no notification was done with regards to these share transfers to RTÜK, as required by law. After long discussions, RTÜK interpreted the law in favour of the media group by considering that the limitation of a 25 percent foreign shareholding stipulated by law was only valid for the direct transfer of shares and declared that this restriction was not applicable to indirect shareholdings. The media group also won most of the cases filed against the tax fine.

All these discussions will be ended to some extent with the enactment of the new draft bill, which is currently at the stage of the Parliament's approval and is expected to become effective by the end of this year. It is important to mention that, however, although the draft bill has not yet passed from the Parliament's approval, RTÜK already has a more flexible approach towards foreign shareholdings in the media sector.

The draft bill mainly reflects the EU media principles, in particular those concerning foreign capital and shareholding ratios applied in the EU member states. From that perspective, the new law will facilitate foreign media ownership in Turkey by allowing foreign entities and real persons to have a shareholding ratio representing a maximum 50 percent of the paid capital in a Turkish media corporation. The new regulation also permits foreigners to become direct shareholders in two media companies. The issuance of privileged shares for local or foreign shareholders remains prohibited.

The bill does not clearly mention any limitation in terms of indirect shareholding. However, where a foreign entity or real person becomes an 'indirect shareholder' of a private radio or television broadcasting company, as a consequence of being a direct shareholder in another company holding the shares of the relevant radio or television, the chairman, vice-chairman, the majority of the board of directors and the general manager of the radio or television broadcasting company in question are required to be Turkish citizens. Likewise, the majority of the votes in the general assemblies of this radio or television broadcasting company must consist of Turkish citizens.

The bill also regulates certain new broadcasting technologies such as IPTV (Internet Protocol Television) and DVB-H (Digital Video Broadcasting-Handheld) and establishes the necessary legal infrastructure of these technologies in Turkey. Before the enactment of the new bill, RTÜK has rapidly introduced the IPTV Regulation determining the licensing conditions of internet protocol television broadcasts in Turkey, which entered into force recently, on 17 July 2010.

On its way into the EU, Turkey will probably maintain its restrictive approach to avoid foreign control over Turkish media companies in the coming years. Nevertheless, it is now foreseen that even the new law will significantly increase the interest of foreign media corporations in Turkey, many of which will consider making acquisitions in the Turkish media market, which is expected to become a 'booming investment area' in the near future.

First published in the September 2010 edition of Financier Worldwide Magazine.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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