Until the dissolution of the Soviet Union in 1991, television broadcasting was a government monopoly. The two principal state-controlled broadcasters, both founded in the Soviet period, continue to be the largest television channels in terms of technical penetration and audience share. Since 1991, a number of privately owned television broadcasters have commenced operations in Russia. As a result, the market has become increasingly fragmented with the development of a number of thematic channels and smaller networks. These broadcasters range from small, independent broadcasting ventures to well-capitalized Russian enterprises and joint ventures involving major Russian investors and western partners. In addition, several pay television providers, including both cable and satellite operators, have entered the market.

As commercial television in Russia has expanded in recent years, the Russian television advertising market has been among the fastest growing in the world. Total television advertising expenditures grew from a negligible amount before 1991 to $550 million in 1997, when the 1998 Russian economic crisis precipitated a substantial decline in expenditures, culminating in a post-crisis low of $190 million in 1999. The market did not recover to pre-crisis levels in dollar terms until 2002, but has since continued to grow strongly. In 2005, the market increased to $2.33 billion, a 37% increase over 2004, and was forecast by VI in November 2005, when VI released its most recent projections, to reach approximately $2.95 billion in 2006, a 27% increase over 2005.

The total television advertising market consists of both national advertising, which is broadcast across the country, and local advertising, which is broadcast only in particular localities. National television advertising is sold primarily to multinational groups and a limited number of large Russian companies targeting the whole of Russia, while local television advertising is sold primarily to smaller companies seeking to promote their products or services in particular localities.

The Company organizes its operations into four business segments: CTC Network, Domashny Network, CTC Television Station Group and Domashny Television Station Group.

Each network is responsible for its broadcasting operations, including the licensing and commissioning of programming, producing its programming schedule and managing its relationships with its independent affiliates. Both the CTC Network and the Domashny Network generate substantially all of their respective revenues from the sale of national television advertising, which they place through VI, their exclusive advertising sales house.

The CTC Television Station Group manages its 14  owned-and-operated stations and 17 repeater transmitters. The Domashny Station Group manages its four owned-and-operated stations and two repeater transmitters. Both Television Station Groups generate substantially all of their revenues from the sale of local television advertising that is broadcast during the local advertising windows allotted to the affiliates by the Company’s networks. Substantially all of the Company’s local advertising has been placed through VI since January 2006.

The Company has modeled its business on the major U.S. broadcast television networks. The Company manages its network programming centrally, owns and operates stations in strategic cities and expand its broadcast coverage through agreements with independent affiliates and by means of unmanned repeater transmitters in smaller markets. In exchange for the right to broadcast its signal, the Company allows its affiliates to broadcast local advertising during designated time windows, from which they derive revenues.

The Company’s signals are broadcast by the owned-and-operated stations in the Company’s Television Station Groups, its independent affiliate stations and local cable operators, and unmanned repeater transmitters.

Total advertising revenues were $232.4 million for the year ended December 31, 2005 and $153.8 million for the year ended December 31, 2004, an increase of 51.1%.

Total operating expenses were $147.3 million for the year ended December 31, 2005 and $93.0 million for the year ended December 31, 2004, an increase of 58.4%.

Interest income was $3.1 million for the year ended December 31, 2005 and $5.4 million for the year ended December 31, 2004, a decrease of 42.4%.

Interest expense was $8.5 million for the year ended December 31, 2005 and $6.7 million for the year ended December 31, 2004, an increase of 28.2%.