CTC Media (CTCM) 10-Q 2012 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2012
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to

Commission file number: 000-52003

CTC MEDIA, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	58-1869211 (I.R.S. Employer Identification No.)
31A Leningradsky Prospekt 125284 Moscow, Russia +7-495-785-6333 (Address Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
2711 Centerville Road, Suite 400 Wilmington, DE 19808 302-636-5400 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)

         Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ    No o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o
(Do not check if a smaller
reporting company) Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o    No þ

         As of July 30, 2012, there were outstanding 158,160,719 shares of the registrant's common stock, $0.01 par value per share.

CTC MEDIA, INC.

INDEX

		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Unaudited Condensed Consolidated Balance Sheets as of December 31, 2011 and June 30, 2012	4
	Unaudited Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2012	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2011 and 2012	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2012	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55
PART II.	OTHER INFORMATION	56
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 6.	Exhibits	77
Signatures		78
Exhibit Index		79

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This quarterly report contains forward-looking statements that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would," or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or of financial position or state other "forward- looking" information. The factors described in the "Risk Factors" section of this quarterly report on Form 10-Q, as well as any cautionary language elsewhere in this quarterly report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements. Other unknown or unpredictable factors could have material adverse effects on our future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed herein may not occur and actual performance and results may vary from those anticipated or otherwise suggested by such statements. You are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

3

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of US dollars, except share and per share data)

	December 31, 2011		June 30, 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 4)	$12,331		$25,808
Short-term investments (Note 4)	117,233		98,355
Trade accounts receivable, net of allowance for doubtful accounts (December 31, 2011—$977; June 30, 2012—$1,301)	21,831		25,615
Taxes reclaimable	20,311		24,597
Prepayments	57,091		59,454
Programming rights, net (Note 6)	106,947		135,490
Deferred tax assets	20,086		24,472
Other current assets	1,351		2,567
TOTAL CURRENT ASSETS	357,181		396,358
PROPERTY AND EQUIPMENT, net	46,299		43,595
INTANGIBLE ASSETS, net:
Broadcasting licenses	159,369		160,069
Cable network connections	28,148		25,827
Trade names	5,213		5,127
Network affiliation agreements	2,120		1,040
Other intangible assets	3,197		2,870
Net intangible assets	198,047		194,933
GOODWILL (Note 7)	164,375		161,266
PROGRAMMING RIGHTS, net (Note 6)	92,134		76,003
INVESTMENTS IN AND ADVANCES TO INVESTEES	5,041		4,798
PREPAYMENTS	3,012		2,545
DEFERRED TAX ASSETS	26,015		22,885
OTHER NON-CURRENT ASSETS	997		2,612
TOTAL ASSETS	$893,101		$904,995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft (Note 4)	16,941		—
Accounts payable	69,891		75,881
Accrued liabilities	21,393		25,711
Taxes payable	31,905		28,370
Deferred revenue	7,367		9,768
Deferred tax liabilities	12,613		12,697
TOTAL CURRENT LIABILITIES	160,110		152,427
DEFERRED TAX LIABILITIES	35,783		39,766
COMMITMENTS AND CONTINGENCIES (Note 11)	—		—
STOCKHOLDERS' EQUITY:
Common stock ($0.01 par value; shares authorized 175,772,173; shares issued and outstanding December 31, 2011—157,320,070; June 30, 2012—158,160,719)	1,573		1,582
Additional paid-in capital	481,969		489,476
Retained earnings	322,184		347,730
Accumulated other comprehensive loss	(111,754	)	(128,575	)
Non-controlling interest	3,236		2,589
TOTAL STOCKHOLDERS' EQUITY	697,208		712,802
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$893,101		$904,995

The accompanying notes are an integral part of these financial statements.

4

CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands of US dollars, except share and per share data)

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
REVENUES:
Advertising	$199,945		$183,393		$363,050		$364,062
Sublicensing and own production revenue	3,597		3,049		5,459		12,290
Other revenue	942		1,142		1,515		2,352
Total operating revenues	204,484		187,584		370,024		378,704
EXPENSES:
Direct operating expenses (exclusive of amortization of programming rights, sublicensing rights and own production cost, shown below; exclusive of depreciation and amortization of $3,286 and $4,098 for the three months and $6,480 and $8,209 for the six months ended June 30, 2011 and 2012, respectively; and exclusive of stock-based compensation of $2,407 and $(121) for the three months and $4,436 and $812 for the six months ended June 30, 2011 and 2012, respectively)	(10,757	)	(11,332	)	(21,467	)	(23,191	)
Selling, general and administrative (exclusive of depreciation and amortization of $923 and $885 for the three months and $1,665 and $1,931 for the six months ended June 30, 2011 and 2012, respectively; and exclusive of stock-based compensation of $6,210 and $831 for the three months and $10,400 and $2,809 for the six months ended June 30, 2011 and 2012, respectively)	(43,171	)	(41,543	)	(80,867	)	(84,271	)
Stock-based compensation expense	(8,617	)	(710	)	(14,836	)	(3,621	)
Amortization of programming rights	(75,474	)	(79,391	)	(146,211	)	(155,150	)
Amortization of sublicensing rights and own production cost	(511	)	(503	)	(825	)	(3,238	)
Depreciation and amortization (exclusive of amortization of programming rights, sublicensing rights and own production cost)	(4,209	)	(4,983	)	(8,145	)	(10,140	)
Total operating expenses	(142,739	)	(138,462	)	(272,351	)	(279,611	)
OPERATING INCOME	61,745		49,122		97,673		99,093
FOREIGN CURRENCY GAINS	614		1,955		1,747		551
INTEREST INCOME	1,253		1,859		2,739		3,988
INTEREST EXPENSE	(163	)	(164	)	(263	)	(365	)
OTHER NON-OPERATING INCOME, net	247		617		220		846
EQUITY IN INCOME OF INVESTEE COMPANIES	190		275		367		434
Income before income tax	63,886		53,664		102,483		104,547
INCOME TAX EXPENSE	(23,597	)	(18,225	)	(38,501	)	(35,496	)
CONSOLIDATED NET INCOME	$40,289		$35,439		$63,982		$69,051
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST	$(1,821	)	$(1,393	)	$(2,722	)	$(2,383	)
NET INCOME ATTRIBUTABLE TO CTC MEDIA, INC. STOCKHOLDERS	$38,468		$34,046		$61,260		$66,668
Net income per share attributable to CTC Media, Inc. stockholders—basic	$0.24		$0.22		$0.39		$0.42
Net income per share attributable to CTC Media, Inc. stockholders—diluted	$0.24		$0.22		$0.39		$0.42
Weighted average common shares outstanding—basic	157,266,697		158,160,719		157,135,034		157,648,016
Weighted average common shares outstanding—diluted	158,164,349		158,160,719		158,087,005		157,880,218
Dividends declared per share	$0.22		$0.13		$0.38		$0.26

The accompanying notes are an integral part of these financial statements.

5

CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)

(in thousands of US dollars, except share and per share data)

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
Net Income	$40,289		$35,439		$63,982		$69,051
Other Comprehensive (loss) income:
Foreign Currency Translation Adjustment	9,958		(86,347	)	67,989		(16,787	)
Other Comprehensive (loss) income	9,958		(86,347	)	67,989		(16,787	)
Comprehensive income (loss)	$50,247		$(50,908	)	$131,971		$52,264
Less: Comprehensive income attributable to non-controlling interest	(1,968	)	(1,074	)	(3,004	)	(2,417	)
Comprehensive income (loss) attributable to CTC Media, Inc. stockholders	$48,279		$(51,982	)	$128,967		$49,847

The accompanying notes are an integral part of these financial statements.

6

CTC MEDIA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of US dollars)

	Six months ended June 30,
	2011		2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income	$63,982		$69,051
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax (benefit) expense	(800	)	2,750
Depreciation and amortization	8,145		10,140
Amortization of programming rights	146,211		155,150
Amortization of sublicensing rights and own production cost	825		3,238
Stock based compensation expense	14,836		3,621
Equity in income of unconsolidated investees	(367	)	(434	)
Foreign currency gains	(1,747	)	(551	)
Changes in operating assets and liabilities:
Trade accounts receivable	14,284		(4,696	)
Prepayments	(7,142	)	(1,425	)
Other assets	2,611		(4,166	)
Accounts payable and accrued liabilities	(1,133	)	4,064
Deferred revenue	(7,530	)	2,313
Other liabilities	(16,585	)	(4,161	)
Dividends received from equity investees	271		485
Acquisition of programming and sublicensing rights	(177,304	)	(173,450	)
Net cash provided by operating activities	38,557		61,929
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment and intangible assets	(12,445	)	(5,782	)
Acquisitions of businesses, net of cash acquired	(20,935	)	(2,683	)
Increase in restricted cash	(3,377	)	—
Receipts from deposits	27,130		17,560
Net cash provided (used) in investing activities	(9,627	)	9,095
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	5,159		4,615
Settlement of overdraft	—		(17,530	)
Dividends paid to stockholders	(59,714	)	(41,122	)
Dividends paid to noncontrolling interest	(3,464	)	(3,064	)
Net cash used in financing activities	(58,019	)	(57,101	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	4,045		(446	)
Net increase/(decrease) in cash and cash equivalents	(25,044	)	13,477
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	59,565		12,331
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$34,521		$25,808

The accompanying notes are an integral part of these financial statements.

7

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of US dollars, except share and per share data)

1. ORGANIZATION

        The accompanying consolidated financial statements include the accounts of CTC Media, Inc. and all consolidated subsidiaries (the "Company"). CTC Media, Inc., a Delaware corporation, operates the CTC, Domashny and Peretz television networks in Russia. Before October 2011, the Peretz channel operated under the DTV brand name. The DTV television network and DTV Television Station Group are hereinafter referred to as "Peretz television network" and "Peretz Television Station Group", respectively. The Company transmits its signals by satellite to its owned-and-operated affiliate stations and repeater transmitters and to independent affiliate stations. The Company's Russian network operations, including its relationships with its independent affiliates, are managed by its network subsidiaries: the CTC, Domashny and Peretz television networks (the "Networks"). The CTC, Domashny and Peretz Television Station Groups (the "Television Station Groups") manage the owned-and-operated affiliate stations and repeater transmitters for each respective Russian network. In addition, the Company operates the Channel 31 network, a Kazakh television broadcaster, and a broadcaster in Moldova. These two broadcasters comprise an additional business segment—the Commonwealth of Independent States Group (the "CIS Group"). Moreover, the Company has a Production segment (the "Production Group"), responsible for the Company's in-house production operations, specializing in producing sitcoms, series, sketchcoms and entertainment TV shows for Russian networks.

        The Company generates substantially all of its revenues from the sale of television advertising on both a national and regional basis. At the national level and for substantially all of the stations in the Television Station Groups, this advertising is currently placed through the Company's own advertising sales house, which serves as the exclusive advertising sales agent for all of the Company's Russian networks and Television Station Groups in respect of Moscow-based clients. The Company also generates revenues from the sublicensing of programming rights and licensing of internally-produced programming to third parties.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        The accompanying unaudited condensed consolidated financial statements for the three and six months ended June 30, 2012 should be read in conjunction with the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, filed with the US Securities and Exchange Commission (the "SEC") on February 28, 2012. The Company's accounting policies are more fully described in the Annual Report. The preparation of the unaudited condensed consolidated financial statements requires the Company to make judgments in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following discussion addresses the Company's most critical accounting policies, which require management's most difficult, subjective and complex judgments.

8

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

        The condensed consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for the complete financial statements.

        For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Principles of Consolidation

        Wholly owned subsidiaries and majority owned ventures where the Company has operating and financial control, as well as variable interest entities where the Company has been deemed the primary beneficiary with power and ability to control, are consolidated. Those ventures where the Company exercises significant influence, but does not exercise operating and financial control, are accounted for under the equity method. The Company uses the purchase method of accounting for all business combinations. Results of subsidiaries acquired and accounted for under the purchase method are included in operations from the date of acquisition. Noncontrolling interests represent a noncontrolling shareholder's proportionate share of the equity in certain of the Company's consolidated entities. Intercompany accounts and transactions are eliminated upon consolidation. Disposals are reflected at the time risks and rewards of ownership have been transferred.

        The Company is the primary beneficiary of the Channel 31 Group, a variable interest entity consisting of a 20% participation interest in Teleradiokompaniya 31st Kanal LLP ("Channel 31"), and a 70% and 60% interest in Prim LLP and Advertising and Marketing LLP, respectively, which provide programming content and the advertising sales function to Channel 31 (together, the "Channel 31 Group"). These interests provide the Company with a right to 60% of the economic interest of the Channel 31 Group. The Company consolidates the Channel 31 Group. As of June 30, 2012, the Channel 31 Group had assets (excluding intercompany assets) totaling $24,267 and liabilities (excluding intercompany liabilities) totaling $10,661. These assets and liabilities primarily relate to broadcasting licenses, and the related deferred tax liabilities and tax contingencies assumed at acquisition of the Channel 31 Group. The Company finances the Channel 31 Group's operations during the ordinary course of business. As of June 30, 2012 the amount of intercompany payables of the Channel 31 Group totaled $5,333. Channel 31 Group's net income attributable to CTC Media, Inc. stockholders totaled $855 and $666 for the three- and six-month periods ended June 30, 2012, respectively. These amounts

9

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

include intercompany expenses of $156 and $305 for the three- and six- month periods ended June 30, 2012, respectively.

Seasonality

        The Company experiences seasonal fluctuations in overall television viewership and advertising revenues. Overall television viewership is lower during the summer months and highest in the first and fourth quarters. Seasonal fluctuations in consumer patterns also affect television advertising expenditures. In 2011, approximately 31% of the Company's total advertising revenues were generated in the fourth quarter.

Use of Estimates

        The preparation of financial statements in conformity with the accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in the financial statements include, among others, the estimate of fair values in business combinations, estimates of the fair value of the Company's common stock in determining stock-based compensation, the amortization method and periods for programming rights and sublicensing rights, useful lives of tangible and intangible assets, impairment of goodwill, valuation of intangible assets and long-lived assets, estimates of fair value of derivative instruments, estimates of contingencies, and the determination of valuation allowances for deferred tax assets. Consequently, actual results may differ from those estimates.

Revenue Recognition

        Revenue is recognized when there is persuasive evidence of an arrangement, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. An allowance for doubtful accounts is maintained for estimated losses resulting from the customers' inability to make payments. The Company recognizes advertising revenues at the moment when the advertising is broadcast and net of Value Added Taxes ("VAT").

        The Company's own sales house serves as the exclusive advertising sales agent for all of its networks in Russia, and the advertising is placed with advertisers and their agencies under direct sales arrangements with them. The sales house is primarily responsible for all national and regional advertising sales, with the exception of advertising sales to several local clients of regional stations, which are made through Video International. The Company recognizes its Russian advertising revenues, excluding regional advertising revenues from local clients, based on the gross amounts billed to the advertisers and their agencies under direct sales arrangements. Advertising sales to local clients of regional stations under the Company's agency agreements with Video International are recognized net of agency commissions. Compensation expenses payable to Video International for the use of advertising software, related maintenance and analytical support and consulting services are included in selling, general and administrative expenses in the Company's consolidated statement of income.

10

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Sublicensing, own production and other revenue primarily represent revenue the Company earns from sublicensing its rights to programming and from licensing of internally-produced programming. Sublicensing and own production revenue is recognized at such time as there is persuasive evidence that a sale or arrangement with a customer exists, the underlying programming is complete and has been transferred to the customer, the licensing period has commenced and the customer can begin use, the arrangement fee is fixed or determinable, and collection of the arrangement fee is reasonably assured.

        Payments received in advance for advertising and other revenue are recorded as deferred revenue until earned.

Fair Value Measurements

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the standard contains three levels as follows:

        Level 1—Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

        Level 2—Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets in non-active markets; (3) inputs other than quoted prices that are observable for the asset or liability; and (4) inputs that are derived principally from or corroborated by other observable market data.

        Level 3—Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.

        There were no transfers between categories during the periods presented.

        The carrying amounts of the Company's financial instruments, which include cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair value as of December 31, 2011 and June 30, 2012, respectively.

Goodwill and Indefinite-Lived Intangible Assets Impairment Tests

        The Company evaluates goodwill and other intangible assets with indefinite lives for impairment annually or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. Other than its annual review, factors the Company considers important that could trigger an impairment review are under-performance of operating segments or changes in projected results, changes in the manner of utilization of the asset, and negative market conditions or economic trends. Therefore, the Company's use of its assets and its judgment as to the future prospects of each of its businesses can have a significant impact on the Company's reported results and financial condition.

11

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        As the result of impairment reviews performed in 2011, the Company recorded non-cash impairment losses totaling $23,558 related to several regional broadcasting licenses and $71,688 related to Peretz goodwill. The decline in fair values of these assets was due to revised estimates of future cash flows during the third and fourth quarters of 2011, primarily to reflect revised expectations of the total advertising market, following reduced advertising demand and increased uncertainty in the medium-term. In addition, of the total impairment losses, $11,136 related to impairment of the DTV trade name as a result of the re-branding of the channel.

        During the first half of 2012, internal and external estimates of the TV advertising markets in which the Company operates indicated there were no downward revisions to the Company's internal cash flow projections. There were no indicators of additional impairment for the Company's goodwill or long-lived assets, and the Company was not required to record any additional impairment charges. In addition, the Russian government has announced plans to introduce digital broadcasting in various stages throughout Russia. The specific terms of the transition have not yet been fully determined. The transition to digital broadcasting could also adversely impact the Company's earnings and the value of the Company's broadcasting licenses and goodwill. See also Note 11.

Programming rights

        Programming rights are stated at the lower of their amortized cost or net realizable value. The Company reports an asset and liability for the rights acquired and obligations incurred at the commencement of the licensing period when the cost of the programming is known or reasonably determinable, the program material has been accepted and the programming is available for airing.

        The Company's programming rights also include internally produced programming. The cost of such programming includes expenses related to the acquisition of format rights, direct costs associated with production and capitalized overhead. The Company capitalizes production costs, including costs of individuals or departments with exclusive or significant responsibility for the production of programming that can be allocated to such particular programming, as a component of film costs. Internally-produced programming is reported at the lower of amortized cost or fair value.

        Purchased program rights are classified as current or non-current assets based on anticipated usage. Internally produced programming is classified as non-current.

        The Company amortizes programming based on expected revenue generation patterns, based on the proportion that current estimated revenues bear to the estimated remaining total lifetime revenues. If the initial airing of content allowed by a license is expected to provide more value than subsequent airings, the Company applies an accelerated method of amortization. These accelerated methods of amortization depend on the estimated number of runs the content is expected to receive, and are determined based on a study of historical results for similar programming. For content that is expected to be aired only once, the entire cost is recognized as an expense on the first run. To the extent that the revenues the Company expects to earn from broadcasting a program are lower than the book value, the program rights are written down to their net realizable value by way of recording an additional amortization charge. Such write-downs establish a new cost basis for programming rights.

12

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-based compensation expense

        The Company estimates the fair value of stock options at the date of grant using the Black-Scholes option pricing model. The Black-Scholes pricing model was originally developed for use in estimating the fair value of traded options, which have different characteristics than the Company's employee stock options. The model is also sensitive to changes in the subjective assumptions, which can materially affect the fair value estimate. These subjective assumptions include expected volatility, the expected life of the options, future employee turnover rates, future employee stock option exercise behavior and the fair value of the Company's common stock on the date of grant. The Company determines the fair value of its common stock by using closing prices as quoted on the NASDAQ Global Select Market. Performance-based non-vested share awards require management to make assumptions regarding the likelihood of achieving the set goals.

        Once the Company has estimated the fair value of the equity instruments, it recognizes this estimated cost as a stock-based compensation expense over the service period. Equity-based incentive awards that meet liability accounting criteria are remeasured at each reporting date at their fair value until settlement. The fair value of such unsettled equity-based incentive awards is recognized in liabilities.

Financial instruments and hedging activities

        The Company measures derivatives at fair value and recognizes them as either assets or liabilities on the balance sheet. The Company designates derivatives as either fair value hedges or cash flow hedges when the required criteria are met. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the consolidated statement of income together with any changes in the fair value of the hedged asset or liability that is attributed to the hedged risk. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in equity. The gain or loss relating to the ineffective portion is recognized immediately in the consolidated statement of income. For derivatives that do not meet the conditions for hedge accounting, gains and losses from changes in the fair value are included in the consolidated statement of income. See Note 11.

Tax provisions and valuation allowance for deferred tax assets

        The Company records valuation allowances related to the tax effects of deductible temporary differences and loss carryforwards when, in the opinion of management, it is more likely than not that the respective tax assets will not be realized. Changes in the Company's assessment of the probability of realization of deferred tax assets may affect the Company's effective income tax rate.

        The Company records temporary differences related to investments in its Russian subsidiaries. These temporary differences consist primarily of undistributed earnings that the Company does not plan to permanently reinvest in operations outside the U.S.

        Significant judgment is required to determine when income tax provisions should be recorded and, when facts and circumstances change, when such provisions should be released. Although the Company

13

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

believes that its judgments and estimates are reasonable, actual results could differ, and the Company may be exposed to impairment losses that could be material.

New Accounting Pronouncements

        Effective January 1, 2012, the Company adopted Accounting Standards Update 2011-08, Testing Goodwill for Impairment ("ASU 2011-08"), Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("ASU 2011-04") and Accounting Standards Update 2011-05, Presentation of Comprehensive Income ("ASU 2011-05"). The adoption of these amendments did not have a material impact on the Company's condensed consolidated balance sheet or results of operations.

        In December 2011, the FASB issued Accounting Standards Update 2011-11, Disclosures about Offsetting Assets and Liabilities ("ASU 2011-11") which require disclosure of both gross and net information about financial instruments and derivatives that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. The adoption of this guidance, which is effective for annual reporting periods beginning on or after January 1, 2013, is not expected to have a material effect on the Company's consolidated balance sheet or results of operations.

        In July 2012, the FASB issued Accounting Standards Update ASU 2012-02, the amendments to ASC 350, Intangibles—Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment ("ASU 2012-02"). The amendments apply to all entities, both public and nonpublic, that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. In accordance with the amendments an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and early adoption is permitted. The Company will apply these amendments for reporting periods beginning after December 31, 2012. The Company does not expect the adoption of the amendments to have a material impact on the Company's financial statements.

14

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

3. NET INCOME PER SHARE

        Basic net income per share for the three and six months ended June 30, 2011 and 2012 is computed on the basis of the weighted average number of common shares outstanding. Diluted net income per common share is computed using the "if converted method" with the weighted average number of common shares outstanding plus the effect of outstanding stock options calculated using the "treasury stock" method. The number of shares excluded from the diluted net income per common share computation because their effect was antidilutive was 4,385,592 and 3,859,419 for the three months ended June 30, 2011 and 2012, respectively, and 4,385,592 and 3,859,419 for the six months ended June 30, 2011 and 2012, respectively.

        The components of basic and diluted net income per share were as follows:

	Three months ended June 30,		Six months ended June 30,
	2011	2012	2011	2012
Net income attributable to CTC Media, Inc. stockholders	$38,468	34,046	$61,260	66,668
Weighted average common shares outstanding—basic
Common stock	157,266,697	158,160,719	157,135,034	157,648,016
Dilutive effect of:
Common stock options	897,652	—	951,971	232,202
Weighted average common shares outstanding—diluted	158,164,349	158,160,719	158,087,005	157,880,218
Net income per share attributable to CTC Media, Inc. stockholders:
Basic	$0.24	$0.22	$0.39	$0.42
Diluted	$0.24	$0.22	$0.39	$0.42

        The numerator used to calculate diluted net income per common share for the three and six months ended June 30, 2011 and 2012 was net income attributable to CTC Media, Inc. stockholders.

4. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS; BANK OVERDRAFT

        The Company's cash and cash equivalents and short-term investments comprise bank accounts and term deposits. Deposits with an original maturity ranging from 91 to 365 days are classified in

15

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

4. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS; BANK OVERDRAFT (Continued)

short-term investments. Below are breakdowns of cash and cash equivalents and short-term investments:

	December 31, 2011	June 30, 2012
Cash and cash equivalents:
Russian ruble bank accounts	$6,434	$19,930
US dollar bank accounts	$4,479	$4,403
Other	$1,418	$1,475
Total cash and cash equivalents	$12,331	$25,808

	December 31, 2011		June 30, 2012
	Annual interest rate	Amount	Annual interest rate	Amount
Short-term investments:
Ruble-denominated deposits	4.1% - 8.7%	$102,068	5.5% - 8.01%	$87,407
US dollar-denominated deposits	2.1% - 2.2%	15,165	2.4% - 2.6%	10,948
Total Short-term investments		$117,233		$98,355

        Bank overdraft—In October 2011, the Company signed a Ruble-denominated overdraft agreement with Alfa Bank bearing annual interest at 7.2% with a credit limit of approximately $34,000. As of December 31, 2011 the Company had an overdraft position of $16,941, which is presented as a current liability separately on the Company's balance sheets. As of June 30, 2012, the balance of overdraft was $nil. In July 2012, the Company signed a new Ruble-denominated overdraft agreement with Alfa Bank bearing annual interest at variable Mosprime rate +2.21% with a credit limit of approximately $30,000.

5. INVESTMENT TRANSACTIONS

Acquisitions

        In the second quarter of 2012, the Company acquired a 100% interest in a television station in Bratsk for total cash consideration of $266 and a 90% interest in a television station in Belgorod for total cash consideration of $2,417. The Company assigned a total of $3,279 to the broadcasting licenses acquired. The remainder of the purchase price was assigned to other assets acquired and liabilities assumed. The Company's financial statements reflect a preliminary allocation of the purchase prices based on a fair value assessment of the assets acquired and liabilities assumed, using the best information available as of the date of these financial statements.

16

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

6. PROGRAMMING RIGHTS, NET

        Programming rights as of December 31, 2011 and June 30, 2012 comprised the following:

	December 31, 2011		June 30, 2012
Internally produced—TV broadcasting and theatrical:
Released:
Historical cost	$122,454		$131,757
Accumulated amortization	(111,999	)	(125,699	)
Released, net book value	10,455		6,058
Completed and not released	1,528		1,804
In production	521		1,109
Total	12,504		8,971
Acquired rights:
Historical cost	554,310		598,981
Accumulated amortization	(367,733	)	(396,459	)
Net book value	186,577		202,522
Total programming rights	$199,081		$211,493
Current portion	106,947		135,490
Non-current portion	92,134		76,003

        The Company expects to amortize approximately $7,084 of internally produced TV programming for its completed and released programs and completed but not yet released programs during the twelve months ending June 30, 2013. In addition, the Company expects to amortize all of its unamortized internally produced programming rights within the three years following June 30, 2012.

7. GOODWILL

        Goodwill as of December 31, 2011 and June 30, 2012 comprised the following:

	Balance December 31, 2011	Foreign currency translation adjustment		Balance June 30, 2012
CTC Network	$48,850	$(924	)	$47,926
Domashny Network	16,094	(304	)	15,790
Peretz Network	57,683	(1,092	)	56,591
CTC Television Station Group	1,977	(38	)	1,939
Domashny Television Station Group	9,309	(177	)	9,132
CIS Group	99	—		99
Production Group	30,363	(574	)	29,789
Total	$164,375	$(3,109	)	$161,266

17

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

7. GOODWILL (Continued)

        The Company has accumulated impairment losses against goodwill totaling $71,688 at each balance sheet date presented related to the Peretz Network, recorded as a result of impairment tests performed during 2011. In addition, the Company has accumulated impairment losses against goodwill totaling $58,189 at each balance sheet date presented related to the CIS segment, recorded as a result of impairment tests performed during 2008.

8. STOCKHOLDERS' EQUITY

        As of December 31, 2011, and June 30, 2012 the Company's outstanding share capital was as follows:

Type	December 31, 2011	June 30, 2012
Common stock outstanding	157,320,070	158,160,719

Common Stock and Additional-paid-in capital

        The increase in additional paid-in capital includes proceeds in excess of par value from exercises of stock options and stock-based compensation expenses recognized in the Company's earnings. In the six months ended June 30, 2012, the Company's former CEO exercised options to purchase 840,649 shares of common stock, for aggregate consideration of $4,615.

Dividends

        During the first six months of 2012 the following dividends were declared and paid:

Declaration date	Per Share Dividend	Aggregate Dividend	Record Date	Payment Date
February 24, 2012	$0.13	$20,561	March 15, 2012	March 30, 2012
April 27, 2012	$0.13	$20,561	June 1, 2012	June 27-28, 2012

18

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

8. STOCKHOLDERS' EQUITY (Continued)

        The following table summarizes the changes in stockholders' equity during the six months ended June 30, 2011 and 2012:

	Total		CTC Media, Inc. stockholders		Noncontrolling interest
Stockholders' equity, December 31, 2010	$794,641		$793,024		$1,617
Net Income	63,982		61,260		2,722
Other comprehensive income	67,989		67,707		282
Comprehensive income	$131,971		$128,967		$3,004
Share capital	3		3		—
Additional paid-in capital	18,648		18,648		—
Acquisition of non-controlling interest	3,854		—		3,854
Dividends declared	(63,178	)	(59,714	)	(3,464	)
Stockholders' equity, June 30, 2011	$885,939		$880,928		$5,011

	Total		CTC Media, Inc. stockholders		Noncontrolling interest
Stockholders' equity, December 31, 2011	$697,208		$693,972		$3,236
Net Income	69,051		66,668		2,383
Other comprehensive (loss)/income	(16,787	)	(16,821	)	34
Comprehensive income	52,264		49,847		2,417
Share capital	9		9		—
Additional paid-in capital	7,507		7,507		—
Dividends declared	(44,186	)	(41,122	)	(3,064	)
Stockholders' equity, June 30, 2012	$712,802		$710,213		$2,589

9. STOCK-BASED COMPENSATION

        The Company has several stock-based compensation programs. See the Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 28, 2012—Item 8. Financial Statements—Note 16, Stockholders' Equity" for a discussion of these programs.

        On January 6, 2012, the Compensation Committee of the Company's Board approved the additional grants of options to purchase up to 560,000 shares of common stock to certain employees of the Company, at an exercise price of $9.07, under the Company's 2009 Stock Incentive Plan. The exercise price represents the closing price of the Company's common stock on the grant date. These options are divided equally into two tranches: options that vest over four years and are subject only to the passage of time (with 25% of options vesting on the first anniversary and the remainder vesting on a quarterly basis over the following three years) (the "Time-based Tranche") and options that are subdivided in four equal sub-tranches that vest upon the achievement of certain performance criteria set by the board of directors for each of 2012, 2013, 2014 and 2015 (the "Performance-based Tranche").

19

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

9. STOCK-BASED COMPENSATION (Continued)

        Also, in February 2012, the Compensation Committee of the Company's Board approved performance criteria for the 2012 Performance-based sub-tranche in respect of options to purchase an aggregate of 619,375 shares of common stock granted under 2009 Stock Incentive Plan.

        The following assumptions were used in the option-pricing model to assess the fair values of the options granted in the six months ended June 30, 2012:

	Options
Risk free interest rate	0.38 - 1.20	%
Expected option life (years)	2.5 - 5.5
Expected dividend yield	5.40 - 6.28	%
Volatility factor	51.44 - 84.69	%
Weighted-average grant date fair value (per share)	$2.24

        As of June 30, 2012, the total compensation cost related to unvested granted awards not yet recognized of $10,169 is to be recognized over a weighted average period of 3.2 years.

10. INCOME TAX

        The Company is subject to US (domestic), Russian and Kazakh income taxes, based on US legislation, Russian tax legislation, Kazakh legislation and the Double Tax Treaty of 1992 between the US and Russia (the "Treaty"). The Company's Russian- and Kazakh-based subsidiaries are subject to Russian and Kazakh income tax. The statutory income tax rate in Russia and Kazakhstan in 2011 and in the first half of 2012 was 20%. US taxable income or losses recorded are reported on CTC Media, Inc.'s US income tax return. CTC Media, Inc.'s taxable revenues consist predominantly of dividends by its Russian subsidiaries. Dividends distributed to CTC Media, Inc. are subject to Russian withholding tax of 5% under the Treaty. Dividends distributed within Russia are subject to a withholding tax of 9% in case of ownership of less than 50%.

        The Company's effective income tax rate was 37% and 34% for the three months ended June 30, 2011 and 2012, respectively, and 38% and 34% for the six months ended June 30, 2011 and 2012, respectively. The decrease in effective tax rate when comparing the three- and six-month periods ended June 30, 2011 and 2012 was primarily due to decreases, as a percentage of consolidated income before tax, in stock-based compensation expense, which is not deductible from income tax, and the recognition of certain foreign tax credits that will be deducted from US income tax.

11. COMMITMENTS AND CONTINGENCIES

Operating environment

        Russia and Kazakhstan continue to implement economic reforms and to develop the legal, tax and regulatory frameworks to support a market economy. The future stability of the Russian and Kazakh economies is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by their governments.

        The Russian and Kazakh economies are vulnerable to market downturns and economic slowdowns elsewhere in the world. Considerable uncertainty remains concerning economic stability globally in the

20

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

11. COMMITMENTS AND CONTINGENCIES (Continued)

medium-term. The economic downturn experienced in the second half of 2011, in both the European and global economies, resulted in reduced growth in the advertising market. In the first half of 2012, the Russian and Kazakh governments continued to take measures to support their economies in order to overcome the consequences of the economic downturn. A continuation of this economic downturn could adversely affect further economic growth, access to capital and cost of capital, advertisers and business confidence, which could negatively affect the Company's future financial position, results of operations and business prospects. Despite some indications of recovery there continues to be uncertainty regarding further economic growth in Russia, the depth and duration of the European area recession, and consequently the extent of the global economic slowdown, which could negatively affect the Company's future financial position, results of operations and business prospects.

        Although management believes it is taking appropriate measures to support the sustainability of the Company's business in the current circumstances, unexpected further deterioration in the areas described above could negatively affect the Company's results and financial position in a manner not currently determinable.

Assets with indefinite useful lives

        The Company has assets recorded on its consolidated balance sheet, such as broadcasting licenses, trademarks and goodwill, which have indefinite lives and represent a significant portion of the Company's total assets. Assets with indefinite useful lives are not subject to amortization but are tested for impairment annually, in the fourth quarter, or between annual tests if events or changes in circumstances indicate that an asset might be impaired. Outside the annual review, there are a number of factors which could trigger an impairment review including under-performance of operating segments or changes in projected results; changes in the manner of utilization of an asset; severe and sustained declines in the traded price of the Company's common stock that are not attributable to factors other than the underlying value of its assets; negative market conditions or economic trends; and specific events, such as new legislation, new market entrants, changes in technology or adverse legal judgments that the Company believes could have a negative impact on its business.

        The economic slowdown experienced in the second half of 2011, in both the European and global economies resulted in reduced advertiser demand. The instability in the macroeconomic environment adversely affected the Company's expectations for the total advertising market in the medium-term and, in turn, affected the fair values of certain of the Company's assets as of December 31, 2011. For the year ended December 31, 2011, the Company recorded non-cash impairment losses totaling $106,382 related to certain intangible assets and goodwill. For a discussion of the sensitivity of major assumptions on fair values of indefinite-lived assets, refer to the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2011. The Peretz reporting unit and the Peretz umbrella license, as well as several regional broadcasting licenses, are the most sensitive to changes in television advertising growth assumptions. During the first half of 2012, internal and external estimates of the TV advertising markets in which the Company operates were for the most part unchanged and there were no downward revisions to the Company's internal cash flow projections.

        In addition, the Production Group reporting unit is highly sensitive to the volume of programming that the Company produces in-house. As of December 31, 2011, the Company concluded that, based on management's projections of internally-produced volumes, the fair value of the Production reporting

21

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

11. COMMITMENTS AND CONTINGENCIES (Continued)

unit exceeds its carrying value by more than 15%. A significant decline in in-house production compared with planned volumes, or downward revisions of long-term projections, could result in decreases in the fair value of the Production Group reporting unit, and the Company may then be required to record an impairment of goodwill of this segment. As of June 30, 2012, there were no downward revisions to the Company's in-house production projections.

        There were no indicators of additional impairment for the Company's goodwill or long-lived assets, and the Company was not required to record any additional impairment charges.

        In addition, the Russian government has announced plans to introduce digital broadcasting in various stages throughout Russia, with several packages of digital signals, or "multiplexes", to be launched over time. The specific terms of the transition have not yet been fully determined. The Company's channels are not included in first multiplex; In August 2012, the Russian press reported that the Russian Prime Minister had ordered the Ministry of Communications to hold a tender for the second multiplex by the end of 2012. In addition, media reports have indicated that, according to the Ministry of Communications, each channel participating in the second multiplex is expected to pay up to $30 million annually to fund the construction of the infrastructure and signal transmission. These costs will be specified after the exact terms of the tender are established. The Company has begun preparation for the tender process. However, the Company will assess, based on its economic modeling, the value of the participation of each of its CTC, Domashny and Peretz channels in the tender for the second multiplex after the specific terms, including the costs of investments and legal framework, have been specified. To date, no information on these terms is available.

        Depending on the terms of the digital transition and the related regulatory framework, the Company may revise its estimates of the useful lives of its existing broadcasting licenses from indefinite to definite lives. As of June 30, 2012, the carrying value of its broadcasting licenses, which are recorded as indefinite-lived intangible assets, totaled $160 million. If there are indicators that the life of these assets are no longer indefinite, the Company must first test these assets for impairment, and then prospectively amortize these assets over their estimated remaining useful lives. These impairment losses and subsequent amortization, if required, could significantly impact the Company's earnings.

        The estimate of economic useful lives is highly dependent on the particular milestones of the transition to digital broadcasting and the related regulatory framework and on the historical experiences of such transitions in other countries. In order to evaluate the sensitivity of the impact of the revision of useful lives to the Company's earnings, the Company assumed hypothetical terms ranging from 2015 to 2020. Based on information currently available, the revision of useful lives of broadcasting licenses from indefinite to definite until 2015 would result in impairment charges of broadcasting licenses of approximately $96 million and a subsequent annual amortization charge of approximately $17 million through 2015; the revision of useful lives of broadcasting licenses from indefinite to definite until 2020 would result in impairment charges of broadcasting licenses of approximately $39.5 million and a subsequent annual amortization charge of approximately $13.4 million through 2020. This sensitivity analysis assumes a hypothetical revision of economic lives, and it does not consider the effect of changes on other key assumptions; in addition, the sensitivity analysis does not consider any changes in business modeling that could occur to mitigate the impact of any adverse changes in operations.

22

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

11. COMMITMENTS AND CONTINGENCIES (Continued)

        In addition, the transition to digital broadcasting could also impact the Company's historical economic models and its assessment of the carrying value of its goodwill. As of June 30, 2012, the carrying value of goodwill related to the CTC, Domashny and Peretz reporting units was $47.9 million, $15.8 million and $56.6 million, respectively. Depending on the terms of transition to digital broadcasting and the Company's decisions regarding participation in the tender for the second multiplex, the Company could revise its projected cash flows, which could adversely impact the fair value of its reporting units.

        The Company believes that the introduction of digitalization will not adversely affect its existing analog broadcasting in the medium term as its channels will continue to broadcast in the analog format under existing analog licenses until the full transition to digital format is completed. However, there is currently great uncertainty regarding the timeframe for implementation of digital broadcasting with respect to each of the multiplexes and regions to be covered. Subject to the availability of further information from the government and market participants, and the Company's ability to make further assessments of the government's plans, we are unable to determine if impairment and amortization charges may be required in the foreseeable future.

        The Company considers all current information in determining the need for impairment loss; however, future changes in events or circumstances, such as a continuation or worsening of the current economic instability, decreases in audience shares or ratings, increased competition from cable providers or others, or changes in the audience measurement system, could result in decreases in the fair value of its long-lived assets and require the Company to record additional impairment charges that could have a material adverse impact on its net income.

Exchange rate

        Although the Company's reporting currency is the US dollar, it generates almost all of its revenues through the sale of advertising, which in Russia is sold primarily in rubles. The ruble is also the functional currency of the Company's principal operating subsidiaries. As a result, the Company's reported revenues and results of operations are impacted by fluctuations in the exchange rate between the US dollar and the Russian ruble. Additionally, given that substantially all of its revenues are generated in rubles, the Company faces the exchange rate risk relating to payments that it must make in currencies other than the ruble. The Company generally pays for non-Russian produced programming in US dollars. In the three months ended June 30, 2012, the Russian ruble depreciated by 11% against the US dollar, and was on average 10% lower than the average value of the Russian ruble compared to the US dollar during the three months ended June 30, 2011. In the six months ended June 30, 2012, the Russian ruble depreciated by 2% against the US dollar, and was on average 7% lower than the average value of the Russian ruble compared to the US dollar during the six months ended June 30, 2011. If the exchange rate between the ruble and the US dollar were to depreciate further, the revenues and operating results of the Company, as reported in US dollars, would be adversely affected.

Derivative Financial instruments

        As part of its risk management strategy, the Company uses derivative financial instruments, primarily foreign exchange forward contracts, to mitigate its exposure to currency exchange risk related

23

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

11. COMMITMENTS AND CONTINGENCIES (Continued)

to US-dollar denominated payments. The Company's objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, thereby reducing volatility of earnings or protecting fair values of assets and liabilities. It is the Company's policy to enter into foreign currency derivative transactions only to the extent considered necessary to meet its objectives as stated above.

        The fair values of the Company's derivative assets of $1,743 and derivative liabilities of $677 have been classified as Level 2. The fair value of the Company's foreign exchange forward contracts is determined based on the present value of future cash flows using market-based observable inputs such as forward rates, discount rates and foreign currency exchange rates. Counterparty credit risk did not have a material impact on derivative fair value estimates. The Company's derivative instruments are short-term in nature, primarily one month to one year in duration.

        The following table summarizes the fair value of the Company's assets and liabilities related to derivative financial instruments and the respective line items in which they were recorded in the Company's condensed consolidated balance sheets as of the dates presented:

	Balance sheet location	December 31, 2011	June 30, 2012
Assets:
Derivatives designated as hedging instruments:
Foreign exchange forward contract	Other current assets	$—	$1,287
Total		$—	$1,287
Derivatives non designated as hedging instruments:
Foreign exchange forward contract	Other current assets	$—	$456
Total		$—	$456
Liabilities:
Derivatives designated as hedging instruments:
Foreign exchange forward contract	Accrued liabilities	$—	$677
Total		$—	$677

Fair Value Hedges

        From January 2012, the Company entered into certain foreign exchange forward contracts designated as fair value hedges to protect the value of its existing foreign currency liabilities and firm commitments. For these derivative instruments that were designated and qualify as fair value hedges, the Company recognized the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item, immediately in the foreign currency gain (loss) on the condensed consolidated statement of income. The notional amount of these foreign exchange forward contracts was $22,829 as of June 30, 2012. The following tabular disclosure summarizes the effect of the Company's derivative

24

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

11. COMMITMENTS AND CONTINGENCIES (Continued)

financial instruments designated as fair value hedges on the condensed consolidated statement of income for the periods presented:

		Three months ended June 30,			Six months ended June 30,
	Location of gain (loss) recognized in the statement of income (loss)
Fair Value Hedging Instrument		2011	2012		2011	2012
Foreign exchange forward contract	Foreign currency gain (loss)	$—	$1,104		$—	$(505	)
Hedged items	Foreign currency gain (loss)	$—	$(1,271	)	$—	$180
Total		$—	$(167	)	$—	$(325	)

Economic (Non-designated) Hedges

        While certain of the Company's derivative instruments are designated as hedging instruments, the derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments, are referred to as an "economic hedge" or "non-designated hedges". Changes in the fair value of these non-designated hedging instruments are recognized in the expense line item in the condensed consolidated statement of income that is consistent with the nature of the hedged risk. During the first half of 2012, the Company entered into short-term non-designated hedges to mitigate its exposure related to US-dollar denominated payments of dividends. The notional amount of these foreign exchange forward contracts was $4,000 as of June 30, 2012. The following tabular disclosure summarizes the effect of the Company's outstanding economic hedges as of the dates presented:

		Three months ended June 30,		Six months ended June 30,
	Location of gain recognized in the statement of income
Fair Value Hedging Instrument		2011	2012	2011	2012
Foreign exchange forward contract	Foreign currency gain	$—	$1,089	$—	$595

Purchase commitments

        The table below summarizes information with respect to the Company's commitments as of June 30, 2012:

	Total	Through 2012	2013	2014	2015	2016
	(in thousands)
Acquisition of programming rights	$266,508	$139,152	$92,004	$31,068	$4,284	$—
Transmission and satellite fees	$98,169	$10,040	$20,577	$21,367	$22,523	$23,662
Leasehold obligations	$32,625	$3,201	$6,779	$7,162	$7,551	$7,932
Cable connections	$5,425	$757	$1,167	$1,167	$1,167	$1,167
Acquisition of format rights	$3,158	$3,158	$—	$—	$—	$—
Payments for intellectual rights	$3,331	$328	$694	$732	$770	$807
Network affiliation agreements	$6,727	$1,452	$1,988	$1,847	$1,273	$167
Other contractual obligations	$1,401	$855	$469	$24	$26	$27
Total	$417,344	$158,943	$123,678	$63,367	$37,594	$33,762

25

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

11. COMMITMENTS AND CONTINGENCIES (Continued)

Non-Income Taxes

        The Company's policy is to accrue for contingencies related to non-income taxes in the accounting period in which the liability is deemed probable and the amount is reasonably determinable. In this regard, because of the uncertainties associated with the Russian tax system, the Company's final Russian taxes may be in excess of the estimated amount expensed to date and accrued at December 31, 2011 and June 30, 2012. This is due to a combination of the evolving nature of applicable tax legislation, varying approaches by regional and local tax inspectors, and inconsistent rulings on technical matters at the judicial level. The tax authorities may take a more assertive position in their assessment of the legislation and it is possible that transactions and activities that have not been challenged in the past may be challenged retroactively.

        As of December 31, 2011 and June 30, 2012, the Company included accruals for contingencies related to non-income taxes totaling $2,722 and $2,911, respectively, as a component of accrued liabilities, including amounts relating to pre-acquisition operations of the Channel 31 Group of $1,700 and $1,688, respectively.

        Additionally, the Company has identified possible contingences related to non-income taxes that are not accrued. Such possible non-income tax contingencies could materialize and require the Company to pay additional amounts of tax. As of June 30, 2012, management estimates such contingencies related to non-income taxes to be up to approximately $1,277.

        It is the opinion of management that the ultimate resolution of the Company's tax liabilities, to the extent not previously provided for, will not have a material effect on the financial condition of the Company.

Broadcast Licenses

        All broadcast television stations in Russia are required to have broadcasting and other operating licenses. Only a limited number of such licenses are available in each locality. These licenses historically generally required renewal every five years, and starting November 2011, every ten years. Also, in November 2011, the federal law "Improving Regulation of Mass Media, Television and Radio Broadcasting" came into force and introduced a standard license term of ten years, as well as the new concept of a so-called "universal license". A universal license permits the channel to broadcast through free-to-air, cable and satellite broadcasting, in either digital or analog format. Currently, it is uncertain how this law will be interpreted by the applicable authorities.

        A broadcaster must conform its programming to the programming concept outlined in the broadcasting license. In particular, the broadcaster is obliged to ensure the compliance of its programming with the declared genres of the channel and to sustain the volume-genre ratio of broadcasted materials prescribed in the license.

        The broadcasting license of Channel 31 in Kazakhstan contains various restrictions and obligations. Kazakh law currently requires that broadcasters broadcast at least 50% of their programming in the Kazakh language during every six-hour slot.

        The Company may not always be in full compliance with these requirements. Also, the Company's independent affiliates have not always been in full compliance with all the requirements of their

26

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

11. COMMITMENTS AND CONTINGENCIES (Continued)

licenses or obtained all the licenses necessary for broadcasting. If the terms of a license are not complied with, or if a television station otherwise violates applicable Russian legislation or regulations, the license, after a warning notice from the regulator, may be suspended or terminated (which decision may be appealed in court). If an independent affiliate were to broadcast without all the necessary licenses, broadcasting may be terminated and fines could be imposed. Management believes that the probability of initiation of action against any material owned-and operated station or independent affiliate is remote.

Net Assets Position in Accordance with Statutory Requirements

        In accordance with Russian legislation, joint stock companies must maintain a level of equity (net assets) that is greater than their charter capital. In the event that a company's net assets, as determined under Russian accounting legislation, fall below certain minimum levels, specifically below zero, the company can be forced to liquidate.

        Certain of the Company's regional subsidiaries have had, and some continue to have, negative equity as reported in their Russian statutory financial statements. Management believes that the risk of the initiation of statutory liquidation procedures or other material adverse actions is remote. However, if such actions were taken, it could have a material adverse effect on the Company's results of operations, financial position and operating plans.

Legal and Tax Proceedings

        In the ordinary course of business, the Company may be party to various legal and tax proceedings, and subject to claims, certain of which relate to the developing markets and evolving fiscal and regulatory environments in which the Company operates.

        In late 2011, a lawsuit was filed in Russia against the Company (Peretz Channel) and other unrelated parties concerning alleged patent infringement in connection with a process used in a TV program aired in 2009 and 2010. In March 2012, the plaintiffs filed an amended claim substantially increasing the amount of damages sought and alleging joint liability on the part of the Company and the other defendants. In July 2012, the plaintiffs further amended the claim to decrease the amount of damages and remove their claim for joint liability. As of the date of this report, the plaintiffs have not provided support for these claimed damages. The court has scheduled a hearing on the merits of the plaintiffs' claim for August 29, 2012.

        The Company believes it has meritorious defenses against the claim. The Company has reassessed the probability of an unfavorable outcome in the case and the minimum amount of damages that it has determined to be probable as of the balance sheet date; such amount is not material. Management is unable to estimate any additional losses that may reasonably be incurred with respect to this matter at this time.

        The Company intends to continue to vigorously defend this claim. Although the course and outcome of litigation cannot be predicted with certainty, the Company expects that this matter will be resolved within one year.

27

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

12. SEGMENT INFORMATION

        The Company operates in eight business segments—CTC Network, Domashny Network, Peretz Network, CTC Television Station Group, Domashny Television Station Group, Peretz Television Station Group, CIS Group and Production Group. The Company evaluates performance based on the operating results of each segment, among other performance measures.

	Three months ended June 30, 2011
	Operating revenue from external customers	Intersegment revenue		Operating income/ (loss)		Identifiable assets		Depreciation and amortization		Amortization of programming rights		Amortization of sublicensing rights and own cost of production
CTC Network	$127,829	$125		$48,081		$812,214		$(693	)	$(53,302	)	$(506	)
Domashny Network	24,320	2		4,146		68,492		(251	)	(12,375	)	—
Peretz Network	15,905	—		780		195,568		(773	)	(9,561	)	—
CTC Television Station Group	25,360	471		17,970		102,604		(538	)	(90	)	—
Domashny Television Station Group	4,063	941		1,680		57,976		(455	)	(2	)	—
Peretz Television Station Group	1,827	249		(1,324	)	135,418		(1,268	)	(1	)	—
CIS Group	4,813	—		1,340		26,538		(120	)	(1,855	)	—
Production Group	44	10,595		248		50,165		(12	)	(46	)	(9,715	)
Business segment results	$204,161	$12,383		$72,921		$1,448,975		$(4,110	)	$(77,232	)	$(10,221	)
Eliminations and other	323	(12,383	)	(11,176	)	(385,632	)	(99	)	1,758		9,710
Consolidated results	$204,484	$—		$61,745		$1,063,343		$(4,209	)	$(75,474	)	$(511	)

	Three months ended June 30, 2012
	Operating revenue from external customers	Intersegment revenue		Operating income/ (loss)		Identifiable assets		Depreciation and amortization		Amortizations of programming rights		Amortization of sublicensing rights and own cost of production
CTC Network	$111,597	$117		$27,697		$824,392		$(1,325	)	$(57,884	)	$(335	)
Domashny Network	20,989	3		1,598		79,149		(336	)	(12,309	)	(32	)
Peretz Network	17,820	—		5,122		85,706		(745	)	(6,398	)	—
CTC Television Station Group	23,229	615		15,807		71,861		(519	)	(88	)	—
Domashny Television Station Group	4,450	1,031		1,754		53,723		(713	)	(1	)	—
Peretz Television Station Group	2,336	621		(470	)	100,410		(1,180	)	(1	)	—
CIS Group	6,006	—		1,565		24,988		(106	)	(2,601	)	—
Production Group	161	830		(1,051	)	47,555		(9	)	(23	)	(831	)
Business segment results	$186,588	$3,217		$52,022		$1,287,784		$(4,933	)	$(79,305	)	$(1,198	)
Eliminations and other	996	(3,217	)	(2,900	)	(382,789	)	(50	)	(86	)	695
Consolidated results	$187,584	$—		$49,122		$904,995		$(4,983	)	$(79,391	)	$(503	)

28

CTC MEDIA, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands of US dollars, except share and per share data)

12. SEGMENT INFORMATION (Continued)

	Six months ended June 30, 2011
	Operating revenue from external customers	Intersegment revenue		Operating income/ (loss)		Identifiable assets		Depreciation and amortization		Amortization of programming rights		Amortization of sublicensing rights and own cost of production
CTC Network	$236,121	$256		$81,116		$812,214		$(1,264	)	$(105,912	)	$(932	)
Domashny Network	44,068	5		7,304		68,492		(475	)	(22,289	)	—
Peretz Network	28,576	—		345		195,568		(1,517	)	(17,674	)	—
CTC Television Station Group	43,219	939		28,686		102,604		(1,089	)	(176	)	—
Domashny Television Station Group	6,692	1,651		2,119		57,976		(882	)	(2	)	—
Peretz Television Station Group	2,881	632		(3,074	)	135,418		(2,432	)	(2	)	—
CIS Group	7,892	—		981		26,538		(272	)	(3,705	)	—
Production Group	66	12,807		(306	)	50,165		(36	)	(46	)	(11,463	)
Business segment results	$369,515	$16,290		$117,171		$1,448,975		$(7,967	)	$(149,806	)	$(12,395	)
Eliminations and other	509	(16,290	)	(19,498	)	(385,632	)	(178	)	3,595		11,570
Consolidated results	$370,024	$—		$97,673		$1,063,343		$(8,145	)	$(146,211	)	$(825	)

	Six months ended June 30, 2012
	Operating revenue from external customers	Intersegment revenue		Operating income/ (loss)		Identifiable assets		Depreciation and amortization		Amortization of programming rights		Amortization of sublicensing rights and own cost of production
CTC Network	$236,230	$192		$68,496		$824,392		$(2,754	)	$(111,422	)	$(3,070	)
Domashny Network	43,865	12		3,660		79,149		(695	)	(25,061	)	(32	)
Peretz Network	33,500	—		7,057		85,706		(1,521	)	(13,897	)	—
CTC Television Station Group	41,022	1,015		26,456		71,861		(1,014	)	(172	)	—
Domashny Television Station Group	7,935	2,044		3,041		53,723		(1,424	)	(2	)	—
Peretz Television Station Group	3,805	1,173		(1,673	)	100,410		(2,391	)	(1	)	—
CIS Group	10,314	—		1,311		24,988		(223	)	(5,596	)	—
Production Group	194	7,016		(1,629	)	47,555		(16	)	(23	)	(6,694	)
Business segment results	$376,865	$11,452		$106,719		$1,287,784		$(10,038	)	$(156,174	)	$(9,796	)
Eliminations and other	1,839	(11,452	)	(7,626	)	(382,789	)	(102	)	1,024		6,558
Consolidated results	$378,704	$—		$99,093		$904,995		$(10,140	)	$(155,150	)	$(3,238	)

13. SUBSEQUENT EVENTS

        On July 31, 2012, the Company's Board declared a dividend of $0.13 per outstanding share of common stock, or approximately $20,561 in total, which will be paid on or about September 28, 2012 to shareholders of record as of September 1, 2012. The Company's Board currently intends to pay further dividends in the final quarter of 2012. Although it is the Board's current intention to declare and pay further dividends in 2012, there can be no assurance that such additional dividends will in fact be declared and paid. Any such declaration is at the discretion of the Board and will depend upon factors such as Company's earnings, financial position and cash requirements.

29

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis relates to our financial condition and results of operations for the three and six months ended June 30, 2011 and 2012. This discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 28, 2012 and our Unaudited Condensed Consolidated Financial Statements and the notes thereto appearing elsewhere in this quarterly report.

Overview

        We currently operate three Russian television networks—CTC, our flagship network, Domashny and Peretz; one television network in Kazakhstan—Channel 31; and a television channel in Moldova, all offering entertainment programming. Before October 2011, Peretz operated under the "DTV" brand. In addition, we have in-house production operations focused on series, sitcoms and shows.

        We currently organize our operations into eight business segments: CTC Network, Domashny Network, Peretz Network, CTC Television Station Group, Domashny Television Station Group, Peretz Television Station Group, CIS Group and Production Group.

Russian Networks

•

CTC Network.  CTC Network's principal target audience is 6-54 year-old viewers. CTC's technical penetration is 94.7% with its signal covering approximately 100 million people in Russia. Starting January 2013, CTC will focus on 10 to 45 year-old viewers.

•

Domashny Network.  Since January 2012, Domashny channel has focused on 25-59 year-old female viewers. Domashny's technical penetration is 84.9% with its signal covering approximately 63 million people in Russia.

•

Peretz Network.  Since January 2012, Peretz channel has focused primarily on 25-59 year-old viewers. Peretz's technical penetration is 80.1% with its signal covering approximately 61 million people in Russia. Starting January 2013, Peretz will focus on 25 to 49 year-old viewers.

        Each of our networks is responsible for its own broadcasting operations, including the licensing and commissioning of programming, producing its programming schedule and managing its relationships with its independent affiliates. Substantially all of the revenues of our networks are generated from the broadcast of national television advertising.

Russian Television Station Groups

•

CTC, Domashny and Peretz Television Station Groups.  The CTC Television Station Group, Domashny Television Station Group and Peretz Television Station Group manage 55, 44 and 50 owned-and-operated stations and repeater transmitters, respectively. Our owned-and-operated stations and unmanned repeaters provide 61.3% technical penetration for the CTC Network (or 64.7% of its total penetration of 94.7%); 43.7% technical penetration for the Domashny Network (or 51.5% of its total penetration of 84.9%); and 49.83% technical penetration for the Peretz Network (or 62.2% of its total penetration of 80.1%). All 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 all owned-and-operated and independent affiliates of our networks.

CIS Group

•

CIS Group.  We operate the Channel 31 network, a Kazakh television broadcaster. Channel 31 is targeted principally at 6-54 year-old viewers. The signal of Channel 31 is broadcast by 97

30

television stations and local cable operators, including 11 owned-and-operated stations and repeater transmitters. We also operate a broadcaster in Moldova.

Production Group

•

Production Group.  Our Production Group comprises our in-house production operations that specialize in sitcoms, series, sketchcoms and entertainment TV shows for our networks.

Sales house

•

Sales house.  Our own sales house, EvereST-S, serves as the exclusive advertising sales agent for all of our Russian Networks and for our Television Station Groups in respect of Moscow-based clients, and as non-exclusive advertising sales agent for other Television Station Group clients. See "—Television Advertising Sales". The sales house does not represent an operating segment but rather a functional sales department. The sales house expenses are allocated to our reportable segments based on the revenues earned by each of the segments.

Key Factors Affecting Our Results of Operations

        Our results of operations are affected primarily by the overall demand for and consequent pricing of television advertising, the limited supply of television advertising time, our ability to deliver a large share of viewers with desirable demographics, the availability and cost of quality programming. Our results of operations are also affected by the value of the Russian ruble compared to the US dollar.

        Beginning in the second half of 2008, Russia, like many other countries, experienced economic instability, characterized by a steep decline in the value of shares traded on its stock exchanges, devaluation of its currency, capital flight and a decline in gross domestic product. Additionally, because Russia produces and exports large amounts of oil and gas, its economy is particularly vulnerable to fluctuations in the price of oil and gas on the world market and decreases in international oil prices have adversely affected and may continue to adversely affect its economy. Total television advertising spending in Russia was adversely affected by this economic instability and, as a result, our operating results for 2009 were materially adversely affected. Like Russia, Kazakhstan has also experienced economic instability. Although conditions generally improved in 2010, the economic downturn experienced in the second half of 2011 both in Europe and globally, has resulted in reduced advertiser demand. Although, the Russian economy demonstrated modest recovery in the first half of 2012, considerable uncertainty remains concerning economic stability globally in the medium-term. Though we anticipate that the advertising market in 2012 as a whole will be larger than in 2011, we expect that such growth will be moderate. We are cautious about the potential negative impact that current economic conditions, particularly the global economic recession, could have on television advertising spending. If overall spending by the largest multinational advertisers in the Russian television advertising market falls substantially, our advertising revenues may be significantly reduced, materially adversely affecting our results of operations.

        The supply of television advertising time is limited by Russian legislation (as discussed below). As a result of this limited supply of advertising time, we are only able to increase our revenues by delivering larger audience shares and through increases in the price of advertising.

        The continued success of our advertising sales depends largely on our ability to attract a large share of the key target audiences, especially during primetime. Our ability to attract our key target audiences in turn depends in large part on our ability to broadcast quality programming. We face strong competition from other television broadcasters for programming content, and we must continue to strive to air programming that addresses evolving audience tastes and trends in television broadcasting.

31

        In addition to the factors discussed above affecting our ability to generate advertising revenues, our reported results of operations are also materially impacted by currency fluctuations. Our reporting currency is the US dollar. Substantially all of our revenues, however, are generated in rubles. Through our Channel 31 operations, we also generate revenues in Kazakh tenge. Additionally, we face exchange rate risk relating to payments that we must make in currencies other than the ruble. We generally pay for non-Russian produced programming in US dollars. In the three months ended June 30, 2012, the Russian ruble depreciated by 11% against the US dollar, and was on average 10% lower than the average value of the Russian ruble compared to the US dollar during the three months ended June 30, 2011. In the six months ended June 30, 2012, the Russian ruble depreciated by 2% against the US dollar, and was on average 7% lower than the average value of the Russian ruble compared to the US dollar during the six months ended June 30, 2011.

        While the ongoing development and expansion of our television networks represents the core of our strategy, we also seek opportunities to expand our business through select media acquisitions that complement our existing businesses, including opportunities in Russian-speaking markets where we can effectively and efficiently leverage our management and programming resources. We also continue to explore opportunities to further expand our presence in the local advertising market, principally through the careful expansion of our owned-and-operated television stations in major cities, new cable connections and agreements with independent affiliates. These acquisitions or expansion plans, if completed, could subject us to a range of additional factors that could affect our subsequent results of operations.

Television Advertising Sales

        We generate substantially all of our revenues from the sale of television advertising on both a national and regional basis. At the national level and for substantially all of the stations in the Television Station Groups, this advertising is currently placed through our own advertising sales house, EvereST-S, which serves as the exclusive advertising sales agent for all of our Russian networks and Television Station Groups in respect of Moscow-based clients, and as non-exclusive advertising sales agent for other Television Station Group clients. Advertising sales to local clients of our regional stations are made, primarily, through Video International, an external sales house. EvereST-S has direct sales arrangements with advertisers or their agencies. Our cooperation model with Video International provides for the licensing of specialized advertising software by Video International to our internal sales house, as well as the provision by Video International of related software maintenance and analytical support and consulting services. See "—Our Agreements with Video International" below and "Item 1A. Risk Factors—Changes to the Russian law "On Advertising" have fundamentally changed the way in which we sell advertising, and which could adversely affect our business, financial condition and results of operations."

        Current Russian law limits the amount of time that a broadcaster may devote to advertising to no more than 15% of any broadcasting hour. In Kazakhstan, the maximum airtime available for advertising is limited to no more than 20% of total broadcasting time each day.

        The level of advertising revenues that we receive is directly tied to our audience shares and ratings. Audience share represents the audience attracted by a channel as a proportion of the total audience watching television. Ratings represent the number of people watching a channel (expressed as a proportion of the total population measured). Because advertisers often seek to reach particular demographic groups, including particular ages and genders, they will often base their advertising placement decisions on ratings among such groups, rather than among the overall population. CTC's advertising has generally been placed on the basis of our ratings in CTC's current target audience, the 6-54 year-old demographic. Since January 2012, Domashny has focused primarily on 25-59 year-old female viewers and Peretz has focused primarily on 25-59 year-old viewers. Starting from 2013, the target demographics for the CTC and Peretz Channels will be narrowed to "all 10-45" and "all 25-49",

32

respectively, as part of our overall positioning strategy for these channels. These more narrow demographic groups are highly commercially attractive for advertisers. While we undertake all necessary steps to maximize the audience numbers and desirable demographics that we deliver to advertisers, there is currently a strong competition among Russian channels for audience and ratings. See "Item 1A. Risk Factors—A reduction in our audience shares and ratings would likely result in a reduction in our advertising revenues".

        We generally derive no direct revenues from our independent affiliates. These independent affiliates broadcast our network signal in their local areas in exchange for the right to broadcast local advertising during designated time windows, from which they derive their own revenues. We also pay fees to some of our independent affiliates in exchange for broadcasting our network signals. By providing us with a means of expanding our broadcast coverage with limited investment on our part, these independent affiliates help to increase our audience share and ratings, thereby indirectly increasing our national advertising revenues.

        Generally, our ability to grow our revenues depends primarily on increases in the price of our advertising, demand for advertising and our ability to increase our advertising inventory by increasing our audience shares, as well as on overall television viewership. Due to the current economic instability, we believe that increases, if any, in the price of our advertising in the near term will be moderate. In addition, because of the current economic instability, sellout rates may decrease, which in turn would negatively impact our revenues. Our ability to increase our advertising inventory at the national level depends upon our success in increasing our audience share, which in turn increases the number of gross ratings points (GRPs) we have available to sell.

        Television advertising sales vary over the course of the year. Overall television viewership is lower during the summer months and highest in the first and fourth quarters. Seasonal fluctuations in consumer patterns also affect television advertising expenditures. In 2011, approximately 31% of our total advertising revenues were generated in the fourth quarter.

Our Agreements with Video International

        Effective January 1, 2011, our sales house has licensed Video International's proprietary advertising software package (including its automated system for the placement of television advertising, automated document management system, and media calculator modules). In addition, the Video International group provides a number of support services related to maintenance of the software package, such as technical support and consulting along with integration of the software; as well as Russian advertising market analytical services including forecasts, market surveys and research. In particular, Video International provides a detailed analysis of the Russian television market, including audience share and advertising market dynamics.

        Under the terms of this agreement, we pay Video International both fixed license fees for the use of the software package and variable service fees, which depend on the amount of services rendered. The aggregate amount of compensation payable is calculated on the basis of our Russian channels' television advertising revenues (including network revenues and the revenues from regional advertising placed by Moscow-based clients, but excluding revenues from social advertising). We expect that the overall annual compensation payable to Video International will be in the range of 10% to 12% of our Russian channels' advertising revenues. The parties have also agreed that the compensation payable to Video International under the new agreement may be decreased by the mutual consent of the parties on an annual basis.

        The current agreement has a five-year term, running through the end of 2015, and may be unilaterally terminated by either party effective January 1st of any year during the term without penalty, provided that such party provides written notice of termination not later than 180 days before such date. In addition, we have the exclusive right to terminate the agreement unilaterally under certain

33

defined circumstances in the event that our advertising sales under-perform the overall Russian television advertising market by specified margins. In the event of termination on such grounds, the parties have also agreed on an option to seek to negotiate an amendment to the financial terms of the agreement should they desire to continue their cooperation. In any other case of early termination, the terminating party will be required to pay to the other party compensation in an amount approximately equal to the aggregate fees payable under this agreement in respect of the six calendar months prior to such termination.

        In addition to the agreement between our sales house and Video International described above, a number of our owned-and-operated regional stations have signed agency agreements with local subsidiaries of Video International with respect to advertising sales to local clients. Under the terms of such agreements, we pay Video International a commission fee set as a percentage of the actual gross revenues received from advertising sales by the relevant local station. The aggregate headline commission payable to Video International under such agreements annually is 12% of the regional station's total gross advertising revenues, including VAT. The parties have also agreed that the commission payable to Video International under those agreements may be subject to reduction upon mutual consent of the parties on an annual basis.

        The agreements are terminable either by mutual written agreement, or unilaterally by giving 180 calendar days' notice. As compensation for early termination, the terminating party must pay the other party a forfeit fee based on a certain percentage of the regional station's actual gross revenues for the six full calendar months preceding the termination date. Such forfeit fee will be subject to further negotiations between the parties and may be subject to adjustment.

        We also have an agreement with Video International for the placement of advertising on Channel 31, expiring in 2015. Under the Channel 31 agreement, the commission rate payable by us is fixed at 12.5% of gross advertising sales in 2012, and 12.0% of gross advertising sales in years 2013 through 2015.

Critical Accounting Policies, Estimates and Assumptions

        The preparation of financial statements in conformity with the accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates include, among others, the estimate of fair values in business combinations, estimates of the fair value of the Company's common stock in determining stock- based compensation, the amortization method and periods for programming rights and sublicensing rights, useful lives of tangible and intangible assets, impairment of goodwill, valuation of intangible assets and long-lived assets, fair value of derivative instruments, estimates of contingencies, and the determination of valuation allowances for deferred tax assets. We have discussed the estimates that we believe are critical and require the use of complex judgment in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 28, 2012. Since that date, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

        Assets with indefinite useful lives—We assess the carrying value of goodwill and other intangible assets with indefinite lives on an annual basis, or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. Other than our annual review, factors we consider important which could trigger an impairment review include: under-performance of reporting units or changes in projected results, changes in the manner of utilization of the asset, a severe and sustained decline in the price of our shares and negative market conditions or economic trends. Therefore, our judgment as to the future prospects of each business has a significant impact on our

34

results and financial condition. We believe that our assumptions are appropriate. If future cash flows do not materialize as expected or there is a future adverse change in market conditions, we may be unable to recover the carrying amount of an asset, resulting in future impairment losses.

        The economic slowdown experienced in the second half of 2011, in both the European and global economies, resulted in reduced advertiser demand. The instability in the macroeconomic environment adversely affected our expectations for the total advertising market in the medium-term and, in turn, affected the fair values of certain of our assets as of December 31, 2011. For the year ended December 31, 2011, we recorded non-cash impairment losses totaling $106.4 million related to certain intangible assets and goodwill. For a discussion of the sensitivity of major assumptions regarding fair values of indefinite-lived assets, refer to our Annual Report on Form 10-K for the year ended December 31, 2011. The Peretz reporting unit and Peretz umbrella license, as well as several regional broadcasting licenses, are the most sensitive to changes in television advertising growth assumptions. During the first half of 2012, internal and external estimates of the TV advertising markets in which we operate were for the most part unchanged and there were no downward revisions to our internal cash flow projections.

        The fair value of our Production Group reporting unit is highly sensitive to the volume of in-house programming that is expected to be produced and sold to our networks for broadcast. In making our periodic assessment of the fair value of this unit, we make judgments based on the volume and marketability of historical production, our near- and medium-term production plans and existing purchase commitments received, as well as the impact of competitive programming that is available to our networks. As of December 31, 2011, based on management's projections, we concluded that the fair value of our Production Group reporting unit exceeded its carrying value by more than 15%.

        If our Production Group is not successful in developing and producing appropriate levels of quality programming for our networks, we may be required to lower our estimates of future production by this unit. A significant decline in in-house production compared with planned volumes, or downward revisions of our long-term projections, could result in decreases in the fair value of the Production Group reporting unit, which may then require us to record an impairment of the goodwill associated with this segment. As of June 30, 2012, there were no downward revisions to our projected in-house production.

        There were no indicators of additional impairment for our goodwill or long-lived assets, and we were not required to record any additional impairment charges. We consider all current information in respect of determining the need for, or calculating, any impairment loss; however, future changes in events or circumstances, such as a continuation or worsening of the current economic instability, decreases in our audience shares or ratings, increased competition from cable providers or others, or changes in the audience measurement system, could result in decreases in the fair value of our long-lived assets and require us to record additional impairment losses that could have a material adverse impact on our net income. In addition, the Russian government has announced plans to introduce digital broadcasting in various stages throughout Russia. The specific terms of the transition have not yet been fully determined. The transition to digital broadcasting also could adversely impact our earnings and the value of our broadcasting licenses and goodwill. See Part II. Item 1A. Risk Factors—"We are likely to face additional expenditures, and may face increased competition, in connection with the planned transition from analog to digital broadcasting in Russia and Kazakhstan, and may incur impairment charges and amortization expense in connection with this transition". See also "—Total operating expenses".

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Results of Operations

        The following table presents our historical consolidated operating results as a percentage of total operating revenues for the periods indicated:

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
REVENUES:
Advertising	97.8	%	97.8	%	98.1	%	96.1	%
Sublicensing	1.8		1.6		1.5		3.2
Other revenue	0.4		0.6		0.4		0.7
Total operating revenues	100.0		100.0		100.0		100.0
EXPENSES:
Direct operating expenses (exclusive of amortization of programming rights and sublicensing rights, shown below, exclusive of depreciation and amortization and exclusive of stock-based compensation)	(5.3	)	(6.0	)	(5.8	)	(6.1	)
Selling, general and administrative (exclusive of depreciation and amortization; exclusive of stock-based compensation)	(21.1	)	(22.1	)	(21.9	)	(22.3	)
Stock based compensation	(4.2	)	(0.4	)	(4.0	)	(0.8	)
Amortization of programming rights	(36.9	)	(42.3	)	(39.5	)	(41.0	)
Amortization of sublicensing rights and own production cost	(0.2	)	(0.3	)	(0.2	)	(0.9	)
Depreciation and amortization (exclusive of amortization of programming rights, sublicensing rights and own production cost)	(2.1	)	(2.7	)	(2.2	)	(2.7	)
Total operating expenses	(69.8	)	(73.8	)	(73.6	)	(73.8	)
Operating income	30.2		26.2		26.4		26.2
Foreign currency gains	0.3		1.0		0.5		0.1
Interest income	0.6		1.0		0.7		1.1
Interest expense	(0.1	)	(0.1	)	(0.1	)	(0.1	)
Other non-operating income, net	0.1		0.4		0.1		0.2
Equity in income of investee companies	0.1		0.1		0.1		0.1
Income before income tax	31.2		28.6		27.7		27.6
Income tax expense	(11.5	)	(9.7	)	(10.4	)	(9.4	)
Consolidated net income	19.7		18.9		17.3		18.2
Income attributable to noncontrolling interest	(0.9	)	(0.8	)	(0.7	)	(0.6	)
Net income attributable to CTC Media, Inc. stockholders	18.8	%	18.1	%	16.6	%	17.6	%

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Comparison of Unaudited Condensed Consolidated Statements of Income for the Three and Six Months ended June 30, 2011 and 2012

Total operating revenues

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	$127,954		$111,714		$236,377		$236,422
Change period-to-period			(12.7	)%			0.0	%
Domashny Network	$24,322		$20,992		$44,073		$43,877
Change period-to-period			(13.7	)%			(0.4	)%
Peretz Network	$15,905		$17,820		$28,576		$33,500
Change period-to-period			12.0	%			17.2	%
CTC Television Station Group	$25,831		$23,844		$44,158		$42,037
Change period-to-period			(7.7	)%			(4.8	)%
Domashny Television Station Group	$5,004		$5,481		$8,343		$9,979
Change period-to-period			9.5	%			19.6	%
Peretz Television Group	$2,076		$2,957		$3,513		$4,978
Change period-to-period			42.4	%			41.7	%
CIS Group	$4,813		$6,006		$7,892		$10,314
Change period-to-period			24.8	%			30.7	%
Production Group	$10,639		$991		$12,873		$7,210
Change period-to-period			(90.7	)%			(44.0	)%
Eliminations and other	($12,060	)	($2,221	)	($15,781	)	($9,613	)
Total	$204,484		$187,584		$370,024		$378,704
Change period-to-period			(8.3	)%			2.3	%

        Our total operating revenues decreased by 8.3% when comparing the three-month periods under review, primarily due to the depreciation of the Russian ruble against the US dollar. When comparing the six-month periods under review, our total operating revenues increased by 2.3%, due to increased sublicensing and own production revenues. In ruble terms, our total operating revenues were approximately flat when comparing the three-months periods under review and increased by approximately 9% when comparing the six-month periods under review, reflecting the net result of an increase in advertising prices, increased audience shares for the Domashny and Peretz channels and decreased audience share for CTC channel.

        The increase in advertising prices resulted from the increase in the advertising market when comparing the first half of 2011 and 2012. Though we anticipate that the advertising market in 2012 as a whole will be higher than in 2011, we anticipate that such growth will be moderate. We are cautious about the potential negative impact that economic conditions, particularly the global economic recession, could have on television advertising spending. If overall spending by the largest multinational advertisers in the Russian television advertising market falls substantially, our advertising revenues may be significantly reduced, materially adversely affecting our results of operations. See "Item 1A. Risk Factors—We derive almost all of our revenues from the sale of advertising, which is sensitive to broader economic conditions. Our revenues may substantially decrease if the economic environment deteriorates in Russia or other CIS countries in which we operate."

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Advertising revenues

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	$124,171		$108,755		$230,634		$224,642
Change period-to-period			(12.4	)%			(2.6	)%
Domashny Network	$24,258		$20,917		$43,987		$43,357
Change period-to-period			(13.8	)%			(1.4	)%
Peretz Network	$15,904		$17,756		$28,556		$33,318
Change period-to-period			11.6	%			16.7	%
CTC Television Station Group	$25,227		$23,150		$42,984		$40,867
Change period-to-period			(8.2	)%			(4.9	)%
Domashny Television Station Group	$3,984		$4,377		$6,560		$7,788
Change period-to-period			9.9	%			18.7	%
Peretz Television Group	$1,767		$2,316		$2,819		$3,750
Change period-to-period			31.1	%			33.0	%
CIS Group	$4,637		$5,910		$7,510		$10,019
Change period-to-period			27.5	%			33.4	%
Production Group	$29		$26		$42		$26
Change period-to-period			(10.3	)%			(38.1	)%
Eliminations and other	($32	)	$186		($42	)	$295
Total	$199,945		$183,393		$363,050		$364,062
Change period-to-period			(8.3	)%			0.3	%

        We recognize advertising revenues in the period that the corresponding advertising spots are broadcast. Our advertising revenues are recorded net of VAT. In addition, advertising sales to local clients of our regional stations and sales of CIS under our agency agreements with Video International are recognized net of agency commissions. See "Item 1. Financial Statements—Note 2, Basis of Presentation and Summary of Significant Accounting Policies—Revenue recognition".

        The table below provides certain key statistics about CTC, Domashny and Peretz television channels:

	Average target audience share		Average All 4+ audience share		Average target audience share		Average All 4+ audience share
	Three months ended June 30,				Six months ended June 30,
	2011	2012	2011	2012	2011	2012	2011	2012
CTC	11.1	8.9	8.0	6.5	11.1	10.0	7.9	7.2
Domashny	3.1	3.8	2.3	2.7	3.0	3.8	2.2	2.7
Peretz	2.1	2.6	1.7	2.1	2.0	2.6	1.7	2.1

        CTC Network.    CTC Network's advertising revenues decreased by 12.4% and 2.6%, respectively, when comparing the three- and six-month periods under review, mainly due to the decrease in audience share and depreciation of the Russian ruble against the US dollar in the second quarter, partially offset by increased ratings, which resulted in part from an increase in television viewership, and by the increase in advertising prices. The decrease in audience share was primarily the result of the decreased amount of first run content in the second quarter of 2012 as compared to 2011. See "Item 1A. Risk Factors—A reduction in our audience shares and ratings would likely result in a reduction in our advertising revenues".

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        Domashny Network.    Domashny Network's advertising revenues decreased by 13.8% and 1.4%, respectively, when comparing the three- and six-month periods under review, principally due to depreciation of the Russian ruble against the US dollar and decreased sellout, partially offset by the increase in audience share. The increase in audience share was due to strong performance of our programming during the three- and six-month periods under review, primarily driven by the success of the Turkish drama series.

        Peretz Network.    Peretz Network's advertising revenues increased by 11.6% and 16.7%, respectively, when comparing the three- and six-month periods under review, principally due to increased audience share and, to a lesser extent, the increase in advertising prices, partly offset by the depreciation of the Russian ruble against the US dollar. The increase in our audience share over the periods under review was the result of better performance of our programming in the first half of 2012 compared with the same period of 2011, which primarily included locally produced shows.

        A new law "On protection of children from harmful information" came into force on December 31, 2010, and is effective from September 1, 2012. See "Item 1A. Risk Factors—"The Russian legal system can create an uncertain environment for investment and business activity, which could have a material adverse effect on our business and the value of our common stock". We do not believe that implementation of this law will adversely affect our CTC Channel, which is positioned as a family entertainment channel, or Domashny Channel, which is geared towards women. We may revise our approaches to the programming of our Peretz Channel since it is more provocative with a "reality" format. Although we believe that the overall Peretz channel's positioning will remain the same and that we will be in compliance with this new law, the revisions of our programming could adversely impact the audience share of our Peretz Channel.

        Television Station Groups.    Advertising revenues of the CTC Television Station Group decreased by 8.2% and 4.9%, respectively, when comparing the three- and six-month periods under review, primarily due to the joint effect of the depreciation of the Russian ruble against the US dollar and the decreased audience share of CTC, partially offset by increased advertising rates. Advertising revenues of the Domashny and Peretz Television Station Groups increased by 9.9% and 31.1%, respectively, when comparing the three-month periods under review and by 18.7% and 33.0%, respectively, when comparing the six-month periods under review. At Domashny and Peretz Television Station Groups, the increased advertising revenues were primarily due to increased advertising rates, and increased audience shares of the channels, resulting in increased inventory to sell, as well as revenues of newly acquired stations, partly offset by the depreciation of the Russian ruble against the US dollar.

        We expect that the growth in advertising prices in 2012 as a whole will be moderate.

        CIS.    The majority of the CIS Group's advertising revenues represented revenues of the Channel 31 Group. Advertising revenues of the Channel 31 Group increased by 27.5% and 33.4%, respectively, when comparing the three- and six-month periods under review, primarily due to increased sellout. The target audience share of Channel 31 was 15.8% and 15.6% during the three months ended June 30, 2011 and 2012, respectively, and 15.3% and 15.1% during the six months ended June 30, 2011 and 2012, respectively.

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Sublicensing, own production and other revenues

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	$3,780		$2,959		$5,740		$11,780
Change period-to-period	—		(21.7	)%	—		105.2	%
Production Group	$10,610		$965		$12,832		$7,184
Change period-to-period	—		(90.9	)%	—		(44.0	)%
Eliminations and other	($9,851	)	$267		($11,598	)	($4,322	)
Total	$4,539		$4,191		$6,974		$14,642
Change period-to-period			(7.7	)%			110.0	%

        Networks.    Our sublicensing, own production and other revenues at CTC Network decreased by 21.7% when comparing the three-month periods under review, as a result of the timing of sales to broadcasters in Ukraine. When comparing the six-month periods under review, these revenues increased by 105.2%, due to higher sublicensing sales to broadcasters in Ukraine in the first quarter of 2012. The increase in sublicensing revenues in the first half of 2012 is not indicative of the revenues that may be expected for the whole of 2012.

        Production Group.    The substantial majority of own production revenues for the Production Group represent sales of in-house produced programming to our networks. These revenues are eliminated in consolidation.

        Eliminations and other.    We eliminate intercompany revenues from sublicensing, own production and other revenues. These intercompany revenues consist primarily of programming rights sold by our Production Group to our networks.

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Total operating expenses

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	($79,873	)	($84,017	)	($155,261	)	($167,926	)
Change period-to-period			5.2	%			8.2	%
Domashny Network	($20,176	)	($19,394	)	($36,769	)	($40,217	)
Change period-to-period			(3.9	)%			9.4	%
Peretz Network	($15,125	)	($12,698	)	($28,231	)	($26,443	)
Change period-to-period			(16.0	)%			(6.3	)%
CTC Television Station Group	($7,861	)	($8,037	)	($15,472	)	($15,581	)
Change period-to-period			2.2	%			0.7	%
Domashny Television Station Group	($3,324	)	($3,727	)	($6,224	)	($6,938	)
Change period-to-period			12.2	%			11.5	%
Peretz Television Group	($3,400	)	($3,427	)	($6,587	)	($6,651	)
Change period-to-period			0.8	%			1.0	%
CIS Group	($3,473	)	($4,441	)	($6,911	)	($9,003	)
Change period-to-period			27.9	%			30.3	%
Production Group	($10,391	)	($2,042	)	($13,179	)	($8,839	)
Change period-to-period			(80.3	)%			(32.9	)%
Eliminations and other	$884		($679	)	($3,717	)	$1,987
Total	($142,739	)	($138,462	)	($272,351	)	($279,611	)
Change period-to-period			(3.0	)%			2.7	%
% of total operating revenues	69.8	%	73.8	%	73.6	%	73.8	%

        Our total operating expenses as a percentage of operating revenues increased from 69.8% to 73.8% when comparing the three months ended June 30, 2011 and 2012, and from 73.6% to 73.8%, when comparing the six months ended June 30, 2011 and 2012, mainly due to increases, as a percentage of operating revenues, in amortization of programming rights, partially offset by decreases, as a percentage of operating revenues, in stock-based compensation expense.

        For the full year, we expect our selling, general and administrative expenses to grow faster than our revenues, primarily due to investments in regional expansion, our sales house unit and marketing.

        In late 2009, the Russian government announced a federal program to introduce digital broadcasting throughout Russia by 2015. In Russia, the government's plan calls for digital broadcasting to be introduced in stages, with several packages of digital signals, or "multiplexes", to be launched over time. The government has announced the channels that will be included in the first multiplex (Channel One, Rossiya 1, Rossiya 2, Rossiya 24, Rossiya K, Channel 5, NTV and Karousel), determined milestones for the transition to this multiplex, and indicated that the infrastructure for this first multiplex will be funded by the government. The channels that are to be included in the second and remaining multiplexes have not been determined. In August 2012, the Russian press reported that the Russian Prime Minister had ordered the Ministry of Communications to hold a tender for the second multiplex by the end of 2012. In addition, media reports have indicated that, according to the Ministry of Communications, each channel participating in the second multiplex is expected to pay up to $30 million annually, to fund the construction of the infrastructure and signal transmission. These costs will be definitively determined when the exact terms of the tender are established. We have begun preparation for the tender process. However, we will assess, based on our economic modeling, the value of the participation of each of our CTC, Domashny and Peretz channels in the tender for the

41

second multiplex after the specific terms, including the costs of investments and legal framework, have been specified.

        As of June 30, 2012, the carrying value of our broadcasting licenses, which we record as indefinite-lived intangible assets, totaled $160 million including $12.5 million related to broadcasting licenses in Kazakhstan. Depending on the terms of the digital transition and the related regulatory framework, we may revise our estimates of the useful lives of our existing broadcasting licenses from indefinite to definite lives. Under the applicable US GAAP framework, if there are indicators that the lives of our intangible assets are no longer indefinite, we must first test these assets for impairment, and then prospectively amortize these assets over their estimated remaining useful lives. These impairment losses and subsequent amortization, if required, could significantly impact our earnings.

        The estimate of economic useful lives is highly dependent on the particular milestones of the transition to digital broadcasting and the related regulatory framework and on the historical experiences of such transitions in other countries. In order to evaluate the sensitivity of the impact of the revision of useful lives to our earnings, we assumed hypothetical terms ranging from 2015 to 2020. Based on information currently available, the revision of useful lives of broadcasting licenses from indefinite to definite until 2015 would result in impairment charges of broadcasting licenses of approximately $96 million and a subsequent annual amortization charge of approximately $17 million through 2015; the revision of useful lives of broadcasting licenses from indefinite to definite until 2020 would result in impairment charges of broadcasting licenses of approximately $39.5 million and a subsequent annual amortization charge of approximately $13.4 million through 2020. This sensitivity analysis assumes a hypothetical revision of economic lives, and it does not consider the effect of changes on other key assumptions; in addition, the sensitivity analysis does not consider any changes in business modeling that could occur to mitigate the impact of any adverse changes in operations.

        In addition, the transition to digital broadcasting could also impact the Company's historical economic models and its assessment of the carrying value of its goodwill. As of June 30, 2012, the carrying value of goodwill related to the CTC, Domashny and Peretz reporting units was $47.9 million, $15.8 million and $56.6 million, respectively. Depending on the terms of the transition to digital broadcasting and the Company's decisions regarding participation in the tender for the second multiplex, the Company could revise its projected cash flows, which could adversely impact the fair value of its reporting units.

        We believe that the introduction of digitalization will not adversely affect our existing analog broadcasting in the medium term as our channels will continue to broadcast in the analog format under existing analog licenses until the full transition to digital format is completed. However, there is currently great uncertainty regarding the timeframe for implementation of digital broadcasting with respect to each of the multiplexes and regions to be covered, and regarding costs that we would pay during the transition period and thereafter. Subject to the availability of further information from the government and market participants, and our ability to make further assessments of the government's plans, we are unable to determine if impairment and amortization charges may be required in the foreseeable future.

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Direct operating expenses

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	($3,135	)	($3,036	)	($6,136	)	($6,100	)
Change period-to-period			(3.2	)%			(0.6	)%
Domashny Network	($1,976	)	($2,087	)	($3,851	)	($4,014	)
Change period-to-period			5.6	%			4.2	%
Peretz Network	($1,398	)	($1,548	)	($2,826	)	($3,361	)
Change period-to-period			10.7	%			18.9	%
CTC Television Station Group	($2,196	)	($2,156	)	($4,355	)	($4,432	)
Change period-to-period			(1.8	)%			1.8	%
Domashny Television Station Group	($1,283	)	($1,305	)	($2,498	)	($2,604	)
Change period-to-period			1.7	%			4.2	%
Peretz Television Group	($1,428	)	($1,642	)	($2,698	)	($3,147	)
Change period-to-period			15.0	%			16.7	%
CIS Group	($477	)	($459	)	($944	)	($947	)
Change period-to-period			(3.8	)%			0.3	%
Production Group	($166	)	($732	)	($739	)	($1,275	)
Change period-to-period			341.0	%			72.5	%
Eliminations and other	$1,302		$1,633		$2,580		$2,689
Total	($10,757	)	($11,332	)	($21,467	)	($23,191	)
Change period-to-period			5.3	%			8.0	%
% of total operating revenues	5.3	%	6.0	%	5.8	%	6.1	%

        Networks.    At the Network level, direct operating expenses principally consist of the salaries of our networks' engineering, programming and production staff, network affiliation costs and satellite transmission fees. Direct operating expenses at the CTC Network as a percentage of this segment's total operating revenues increased from 2.5% to 2.7% when comparing the three months ended June 30, 2011 and 2012, and remained flat at 2.6% when comparing the six months ended June 30, 2011 and 2012. Direct operating expenses at the Domashny Network as a percentage of this segment's total operating revenues increased from 8.1% to 9.9% when comparing the three months ended June 30, 2011 and 2012, and increased from 8.7% to 9.1% when comparing the six months ended June 30, 2011 and 2012. These increases in direct operating expenses as a percentage of revenues at the CTC and Domashny Networks were principally due to decreased second quarter revenues. At Peretz Network, direct operating expenses as a percentage of this segment's total operating revenues were approximately flat at 8.8% and 8.7% in the three months ended June 30, 2011 and 2012, and at 9.9% and 10.0% when comparing the six months ended June 30, 2011 and 2012.

        Television Station Groups.    At the Television Station Group level, direct operating expenses consist primarily of transmission and maintenance costs and payroll expenses for engineering and distribution staff. Direct operating expenses at our Television Station Groups are materially higher as a percentage of those segments' total operating revenues compared to the networks because we bear the transmission costs of our owned-and-operated stations and repeaters. At the CTC Television Station Group, direct operating expenses as a percentage of that segment's total operating revenues increased from 8.5% to 9.0% when comparing the three months ended June 30, 2011 and 2012, and increased from 9.9% to 10.5% when comparing the six months ended June 30, 2011 and 2012, primarily, due to decreased revenues and increases in transmission and maintenance costs. At the Domashny and Peretz Television Station Groups, direct operating expenses as a percentage of these segments' total operating revenues decreased from 25.6% to 23.8% and from 68.8% to 55.6%, respectively, when comparing the

43

three months ended June 30, 2011 and 2012, and decreased from 29.9% to 26.1% and from 76.8% to 63.2%, respectively, when comparing the six months ended June 30, 2011 and 2012. These decreases were mainly due to increased revenues, partially offset by increases in transmission costs. The increases in transmission costs in the Television Station Groups over the periods under review were due to annual raises and newly acquired regional stations for CTC and Peretz.

        When comparing the three-and six-months periods under review in absolute terms, direct operating expenses at the Networks and Station Groups were impacted by the depreciation of the Russian ruble against the US dollar. In the three and six months ended June 30, 2012, the Russian ruble was on average 10% and 7%, respectively, lower than the average value of the Russian ruble compared to the US dollar during the three and six months ended June 30, 2011.

        CIS Group.    For the CIS Group, direct operating expenses principally consist of transmission and maintenance costs and payroll expenses for technical, programming, production and distribution staff of the Channel 31 Group. Direct operating expenses as a percentage of that segment's total operating revenues decreased from 9.9% to 7.6%, when comparing the three months ended June 30, 2011 and 2012, and decreased from 12.0% to 9.2% when comparing the six months ended June 30, 2011 and 2012, mainly due to increased revenues.

        Production Group.    For the Production Group, direct operating expenses principally comprise general production overhead.

        Eliminations and other.    We eliminate intercompany expenses from direct operating expenses. These intercompany expenses consist primarily of service fees charged to our Networks by our Television Station Groups for the operation and maintenance of repeater transmitters.

Selling, general and administrative expenses

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	($22,239	)	($21,437	)	($41,017	)	($44,580	)
Change period-to-period			(3.6	)%			8.7	%
Domashny Network	($5,574	)	($4,630	)	($10,146	)	($10,415	)
Change period-to-period			(16.9	)%			2.7	%
Peretz Network	($3,034	)	($4,007	)	($6,121	)	($7,664	)
Change period-to-period			32.1	%			25.2	%
CTC Television Station Group	($5,036	)	($5,273	)	($9,852	)	($9,963	)
Change period-to-period			4.7	%			1.1	%
Domashny Television Station Group	($1,584	)	($1,708	)	($2,842	)	($2,908	)
Change period-to-period			7.8	%			2.3	%
Peretz Television Group	($703	)	($604	)	($1,454	)	($1,112	)
Change period-to-period			(14.1	)%			(23.5	)%
CIS Group	($1,021	)	($1,275	)	($1,991	)	($2,237	)
Change period-to-period			24.9	%			12.4	%
Production Group	($453	)	($447	)	($895	)	($831	)
Change period-to-period			(1.3	)%			(7.2	)%
Eliminations and other	($3,527	)	($2,162	)	($6,549	)	($4,561	)
Total	($43,171	)	($41,543	)	($80,867	)	($84,271	)
Change period-to-period			(3.8	)%			4.2	%
% of total operating revenues	(21.1	)%	(22.1	)%	(21.9	)%	(22.3	)%

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        Our selling, general and administrative expenses principally consist of advertising and promotion expenses; salaries and benefits; rent and utilities; audit, legal and other consulting fees; travel expenses; insurance costs; and non-income taxes. In addition, our selling, general and administrative expenses include compensation expenses payable to Video International for use of advertising software, related maintenance and analytical support and consulting services (See—"Our agreements with Video International").

        We lease approximately 9,365 square meters of office space in an office building in central Moscow. We recognized rental expense related to these premises of approximately $0.9 million and $2.5 million, respectively, during the three- and six-month periods under review. We expect to recognize approximately $37.7 million for the period from 2012 through 2021 (at the US dollar/ruble exchange rate as of June 30, 2012). In addition to the lease payments described above, we are also required to pay technical costs arising from maintenance of the premises and some supplementary municipal services.

        Networks.    Selling, general and administrative expenses at the CTC Network as a percentage of the segment's operating revenues increased from 17.4% to 19.2% when comparing the three-month periods under review and increased from 17.4% to 18.9% when comparing the six-month periods under review, mainly due to decreased second quarter revenues, increases in payroll costs due to transfers of some employees from other segments to the CTC Network segment and increased promotion expenses for our new media projects. When comparing the three-month periods under review, these increases were partially offset by decreases in advertising and promotion expenses because of the timing of advertising campaigns.

        Selling, general and administrative expenses at the Domashny Network as a percentage of the segment's operating revenues decreased from 22.9% to 22.1% when comparing the three-month periods under review, primarily, due to the decrease in advertising and promotion expenses because of the timing of advertising campaigns partially offset by decreased revenues, and increased from 23.0% to 23.7% when comparing the six-month periods under review due to decreased revenues.

        Selling, general and administrative expenses at the Peretz Network as a percentage of the segment's operating revenues increased from 19.1% to 22.5% when comparing the three-month periods under review and increased from 21.4% to 22.9% when comparing the six-month periods under review, mainly due to the timing effect of the increase in advertising and promotion expenses, partially offset by increased revenues.

        Television Station Groups.    Selling, general and administrative expenses at the CTC Television Station Group as a percentage of the segment's total operating revenues increased from 19.5% to 22.1% when comparing the three-month periods under review, and increased from 22.3% to 23.7% when comparing the six-month periods under review, mainly due to decreased segment's revenue. Selling, general and administrative expenses at the Domashny and Peretz Television Station Groups as a percentage of each segment's total operating revenues decreased from 31.7% to 31.2% and from 33.9% to 20.4%, respectively, when comparing the three-month periods under review, and decreased from 34.1% to 29.1% and from 41.4% to 22.3%, respectively, when comparing the six-month periods under review, principally due to the increased revenue derived from these segments. In addition to the factors noted above, the decrease in selling, general and administrative expenses as a percentage of the Peretz Television Station Group's total operating revenues was due to a decrease in advertising and promotion expenses reflecting the later timing of advertising campaigns when comparing the six-month periods under review.

        When comparing the three- and six-month periods under review in absolute terms, selling, general and administrative expenses at Networks and Station Groups were impacted by depreciation of the Russian ruble against the US dollar. In the three and six months ended June 30, 2012, the Russian

45

ruble was on average 10% and 7%, respectively, lower than the average value of the Russian ruble compared to the US dollar during the three and six months ended June 30, 2011.

        CIS Group.    Selling, general and administrative expenses of our CIS Group consist primarily of payroll expenses related to sales, marketing, finance and administrative personnel, advertising and promotion expenses, consultancy and outside service expenses, office space rent expenses and utilities expenses of the Channel 31 Group. As a percentage of this segment's operating revenues, selling, general and administrative expenses remained flat at 21.2% when comparing the three-month periods. This increase was primarily due to the increased advertising and promotion expenses of the new Channel 31 content, offset by increased segment revenues. Selling, general and administrative expenses as a percentage of this segment's total operating revenues decreased from 25.2% to 21.7% when comparing the six -month periods under review, mainly due to increased segment revenues.

        Production Group.    Selling, general and administrative expenses of the Production Group consist primarily of payroll expenses related to finance and administrative personnel, office space rent expenses and utilities expenses of our production companies.

        Eliminations and other.    Other selling, general and administrative expenses consist principally of the general and administrative expenses of our corporate headquarters, as well as intercompany eliminations.

Stock-based compensation expenses

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands)
Stock-based compensation expenses	$(8,617	)	$(710	)	$(14,836	)	$(3,621	)

        The majority of our stock-based compensation expense relates to stock options and equity-based cash incentive awards granted to our executives and employees under our 2009 Stock Incentive Plan. The decrease in stock-based compensation expense over the periods under review primarily resulted from the departure of our former CEO at the end of 2011, as a result of which his options ceased to vest.

        We expect to recognize stock-based compensation expense related to all of our currently outstanding stock options and equity-based cash incentive awards of approximately $3.1 million for the remainder of 2012, $5.3 million for 2013, $1.2 million for 2014 and $0.6 million for 2015. In addition, our Board of Directors has agreed to grant an equity award to our new CEO in connection with his promotion to CEO ("CEO Award"). The Compensation Committee of our Board of Directors has not yet determined the quantity, price and vesting conditions of such CEO Award, but expects that such terms will be finalized by the end of 2012. The grant date will be the date when the key terms of this CEO Award are determined and agreed. We expect that our estimated stock-based compensation expense will increase due to this CEO Award.

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Amortization of programming rights

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	$(53,302	)	$(57,884	)	$(105,912	)	$(111,422	)
Change period-to-period			8.6	%			5.2	%
Domashny Network	$(12,375	)	$(12,309	)	$(22,289	)	$(25,061	)
Change period-to-period			(0.5	)%			12.4	%
Peretz Network	$(9,561	)	$(6,398	)	$(17,674	)	$(13,897	)
Change period-to-period			(33.1	)%			(21.4	)%
CIS Group	$(1,855	)	$(2,601	)	$(3,705	)	$(5,596	)
Change period-to-period			40.2	%			51.0	%
Eliminations and other	$1,619		$(199	)	$3,369		$826
Total	($75,474	)	($79,391	)	($146,211	)	($155,150	)
Change period-to-period			5.2	%			6.1	%
% of total operating revenues	36.9	%	42.3	%	39.5	%	41.0	%

        Networks.    The amortization of programming rights is our most significant expense at the Networks level. Amortization of programming rights at the CTC and Domashny Network segments, as a percentage of total operating revenues, increased from 41.7% to 51.8% and from 50.9% to 58.6%, respectively, when comparing the three months ended June 30, 2011 and 2012, and increased from 44.8% to 47.1% and from 50.6% to 57.1%, respectively, when comparing the six months ended June 30, 2011 and 2012, primarily due to decreased second quarter revenues, and a more expensive programming mix. At CTC, the increase was mainly due to increased hours of foreign content and more expensive Russian series aired in the second quarter of 2012 compared to the second quarter of 2011. At Domashny, the programming increased due to more expensive shows and foreign series. In addition, when comparing the three-month periods under review, the increase in CTC's programming amortization as a percentage of operating revenues was due to decreased sublicensing revenues. At the Peretz Network, amortization of programming rights, as a percentage of total operating revenues, decreased from 60.1% to 35.9% when comparing the three months ended June 30, 2011 and 2012, and decreased from 61.8% to 41.5% when comparing the six months ended June 30, 2011 and 2012, primarily, due to increased segment revenues and less expensive programming. The programming expense decreased over the periods under review due to a higher proportion of locally produced entertainment shows in the programming mix.

        When comparing the three- and six-month periods under review in absolute terms, programming amortization expenses at the Networks were impacted by the depreciation of the Russian ruble against the US dollar. In the three and six months ended June 30, 2012, the Russian ruble was on average 10% and 7%, respectively, lower than the average value of the Russian ruble compared to the US dollar during the three and six months ended June 30, 2011.

        The Company amortizes programming based on expected revenue generation patterns, based on the proportion that current estimated revenues bear to the estimated remaining total lifetime revenues. If the initial airing of content allowed by a license is expected to provide more value than subsequent airings, the Company applies an accelerated method of amortization. These accelerated methods of amortization depend on the estimated number of runs the content is expected to receive, and are determined based on a study of historical results for similar programming. For content that is expected to be aired only once, the entire cost is recognized as an expense on the first run. These estimates are periodically reviewed and adjustments, if any, will result in changes to programming amortization rates. To the extent that the revenues the Company expects to earn from broadcasting a program are lower than the book value, the program rights are written down to their net realizable value by way of

47

recording an additional amortization charge. Based on recurring reviews of revenue patterns for the programming library we recognized additional charges on programming rights of $8.2 million and $1.4 million, during the three months ended June 30, 2011 and 2012, respectively, and $16.8 million and $4.9 million, during the six months ended June 30, 2011 and 2012, respectively. These amounts include CTC Network's charges of $4.9 million and $1.0 million, for the three months ended June 30, 2011 and 2012, respectively, and $12.2 million and $3.2 million, for the six months ended June 30, 2011 and 2012, respectively.

        Our estimates of future advertising and other revenues, the performance of our channels and our future broadcasting schedules have a significant impact on the value of our program rights and the annual programming amortization expense.

        CIS Group.    The amortization of programming rights for the CIS Group primarily consists of the amortization of in-house programming and acquired programming rights by the Channel 31 Group. Amortization of programming rights for the CIS Group segment, as a percentage of the segment's total operating revenues, increased from 38.5% to 43.3% when comparing the three months ended June 30, 2011 and 2012, and increased from 46.9% to 54.3% when comparing the six months ended June 30, 2011 and 2012, due to the more expensive programming mix of Kazakh sitcom and foreign content.

Amortization of sublicensing rights and own production cost

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	($506	)	($335	)	($932	)	($3,070	)
Change period-to-period			(33.8	)%			229.4	%
Production Group	($9,715	)	($831	)	($11,463	)	($6,694	)
Change period-to-period			(91.4	)%			(41.6	)%
Eliminations and other	$9,710		$663		$11,570		$6,526
Total	($511	)	($503	)	($825	)	($3,238	)
Change period-to-period			(1.6	)%			292.5	%
% of total operating revenues	0.2	%	0.3	%	0.2	%	0.9	%

        Own production cost represents the cost of internally produced programming sold to other segments in our group as well as licensed to third parties.

        CTC Network.    The increase in the amortization of sublicensing rights and own production cost at the CTC Network level when comparing the six-month periods under review was mainly due to increased sales of certain programming to third parties in Ukraine in the first quarter of 2012.

        Production Group.    Direct production costs for the Production Group, which consists mainly of production staff salaries, compensation to actors and other direct costs associated with programming sold to our Networks, are classified within amortization of sublicensing rights and own production cost. These expenses are eliminated in consolidation.

        Eliminations and other.    Intercompany expenses consist primarily of programming rights sold by our Production Group to our Networks.

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Depreciation and amortization expense (exclusive of amortization of programming rights and sublicensing rights)

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands, except percentages)
CTC Network	($693	)	($1,325	)	($1,264	)	($2,754	)
Change period-to-period			91.2	%			117.9	%
Domashny Network	($251	)	($336	)	($475	)	($695	)
Change period-to-period			33.9	%			46.3	%
Peretz Network	($773	)	($745	)	($1,517	)	($1,521	)
Change period-to-period			(3.6	)%			0.3	%
CTC Television Station Group	($538	)	($519	)	($1,089	)	($1,014	)
Change period-to-period			(3.5	)%			(6.9	)%
Domashny Television Station Group	($455	)	($713	)	($882	)	($1,424	)
Change period-to-period			56.7	%			61.5	%
Peretz Television Group	($1,268	)	($1,180	)	($2,432	)	($2,391	)
Change period-to-period			(6.9	)%			(1.7	)%
CIS Group	($120	)	($106	)	($272	)	($223	)
Change period-to-period			(11.7	)%			(18.0	)%
Eliminations and other	($111	)	($59	)	($214	)	($118	)
Total	($4,209	)	($4,983	)	($8,145	)	($10,140	)
Change period-to-period			18.4	%			24.5	%
% of total operating revenues	2.1	%	2.7	%	2.2	%	2.7	%

        Our depreciation and amortization (exclusive of amortization of programming rights and sublicensing rights) relates to the depreciation of our property and equipment, mainly broadcasting equipment, transmitters, buildings, computer hardware and office furniture, and the amortization of our intangible assets other than programming rights, sublicensing rights and own production costs, principally network affiliation agreements and cable network connections.

        Networks.    At the Network level, the depreciation of broadcasting equipment, network affiliation agreements, computer hardware and office furniture represents the principal component of this expense. When comparing the three- and six-month periods under review, the increase in depreciation and amortization is due to the launch of the new digital broadcasting complex in July 2011, partially offset by depreciation of the Russian ruble against the US dollar.

        Television Station Groups.    We have entered into contracts with Mostelecom to secure the right of the CTC, Domashny and Peretz Moscow stations to be connected by cable to certain households in Moscow. These contracts do not, however, grant us the right to be connected to all households in Moscow for all of our Networks. Based on our analysis of the terms of these agreements with Mostelecom, we will amortize these cable network connections through 2015.

        CIS Group.    Depreciation and amortization expenses of the CIS Group mainly consisted of depreciation of broadcasting, studio and office equipment and amortization of office software.

        As of June 30, 2012, the carrying value of our broadcasting licenses, which we record as indefinite-lived intangible assets, totaled $160 million. The Russian government has announced plans to introduce digital broadcasting in various stages throughout Russia. The specific terms of the transition have not yet been fully determined. Depending on the terms of the digital transition and the related regulatory framework, we may revise our estimates of the useful lives of our existing broadcasting licenses from indefinite to definite lives. Under the applicable US GAAP framework, if there are indicators that the lives of our intangible assets are no longer indefinite, we must first test these assets for impairment,

49

and then prospectively amortize these assets over their estimated remaining useful lives. These impairment losses and subsequent amortization, if required, could significantly impact our earnings. See Part II. Item 1A. Risk Factors—"We are likely to face additional expenditures, and may face increased competition, in connection with the planned transition from analog to digital broadcasting in Russia and Kazakhstan, and may incur impairment charges and amortization expense in connection with this transition". See also "—Total operating expenses".

Foreign currency gains

	Three months ended June 30,		Six months ended June 30,
	2011	2012	2011	2012
	(in thousands)
Foreign currency gains	$614	$1,955	$1,747	$551

        The functional currency of our Russian subsidiaries is the ruble, and the functional currency of our Channel 31 Group is the Kazakh tenge. Given that substantially all of our revenues are generated in rubles, we face exchange rate risk relating to payments that we must make in currencies other than the ruble. We generally pay for non-Russian produced programming in US dollars.

        During the three months ended June 30, 2011 and 2012, the Russian ruble appreciated approximately 2% and depreciated 11% against the US dollar, respectively. During the six months ended June 30, 2011 and 2012, the Russian ruble appreciated approximately 9% and depreciated approximately 2% against the US dollar, respectively.

        In the three and six months ended June 30, 2011, our foreign currency gains primarily represented the impact of the Russian ruble appreciation on our dollar-denominated liabilities, partially offset by the impact of the Russian ruble appreciation on our dollar-denominated assets. In the three months ended June 30, 2012, our foreign currency gains primarily represent gains from our forward contracts earned during the three months ended June 30, 2012, partially offset by the impact of Russian ruble depreciation on our dollar-denominated liabilities. In the six months ended June 30, 2012, our foreign currency gains primarily represent gains from the Russian ruble depreciation on our dollar-denominated deposits.

        In the first half of 2012, we entered into foreign currency forward contracts for approximately $99.6 million to reduce a portion of our foreign exchange risk related to US-dollar denominated payments. During the three and six months ended June 30, 2012, we recognized $2.2 million of gains and $0.1 million losses, respectively, resulting from changes in the fair value of these contracts. See also "Item 1. Financial Statements—Note 11, Commitments and Contingencies".

Interest income

	Three months ended June 30,		Six months ended June 30,
	2011	2012	2011	2012
	(in thousands)
Interest income	$1,253	$1,859	$2,739	$3,988

        Interest income for the three-month periods under review primarily represents interest earned on our cash balances and short-term investments. See "Item 1. Financial Statements—Note 4, Cash and cash equivalents and short-term investments; Bank overdraft".

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Income tax expense

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands)
Income tax expense	$(23,597	)	$(18,225	)	$(38,501	)	$(35,496	)

        Our effective tax rate was 37% and 34% for the three months ended June 30, 2011 and 2012, respectively, and 38% and 34% for the six months ended June 30, 2011 and 2012, respectively. The decrease in effective tax rate when comparing the three- and six- month periods under review was primarily due to the decreases, as a percentage of consolidated income before tax, in stock-based compensation expense, which is not deductible from income tax, and the recognition of certain foreign tax credits that will be deducted from our US income tax.

Income attributable to non-controlling interest

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
	(in thousands)
Income attributable to non-controlling interest	$(1,821	)	$(1,393	)	$(2,722	)	$(2,383	)

        Income attributable to non-controlling interest represents the share of our net income attributable to each of our consolidated owned-and-operated stations that is not wholly owned, as well as of the Channel 31 Group and our broadcasting group in Moldova. In the three- and six-month periods under review, income attributable to non-controlling interest mostly related to income in the CIS Group and to our consolidated owned-and-operated stations in the CTC Television Station Groups.

Other comprehensive (losses) income attributable to controlling interest

	Three months ended June 30,			Six months ended June 30,
	2011	2012		2011	2012
	(in thousands)
Other comprehensive (losses) income	$9,810	$(86,028	)	$67,707	$(16,821	)

        The functional currency of our Russian-domiciled subsidiaries is the Russian ruble, and the functional currency of our Channel 31 Group is the Kazakh tenge. As a result, the financial statements of these subsidiaries were translated into US dollars using the current rate method. During the three months ended June 30, 2011 and 2012, the Russian ruble appreciated approximately 2% and depreciated 11% against the US dollar, respectively. During the six months ended June 30, 2011 and 2012, the Russian ruble appreciated approximately 9% and depreciated approximately 2%, respectively.

        Other comprehensive income in the three- and six-month periods ended June 30, 2011 primarily represents the income relating to these translations due to the appreciation of the Russian ruble against the US dollar. Other comprehensive losses in the three- and six-month periods ended June 30, 2012 primarily represents losses relating to these translations due to the depreciation of the Russian ruble against the US dollar during these periods.

Consolidated Financial Position—Significant Changes in our Consolidated Balance Sheets as of June 30, 2012 Compared with December 31, 2011

Short-term investments

        As of December 31, 2011 and June 30, 2012, short-term investments represented cash deposits placed in Russian banks with maturities ranging from three to six months.

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Short-term and long-term programming rights

        The increase in programming rights of $12.4 million from December 31, 2011 to June 30, 2012 was primarily due to to the acquisition of foreign movies and series during the first half of 2012, which will be used during the remainder of 2012 and thereafter.

Goodwill and Intangible assets

        Goodwill and Intangible assets decreased from December 31, 2011 to June 30, 2012 by $3.1 million and $3.1 million, respectively, primarily due to the depreciation of the Russian ruble against the US dollar, partly offset by the acquisition of new broadcasting licenses in the second quarter of 2012.

Taxes payable

        Our taxes payable decreased from $31.9 million to $28.4 million from December 31, 2011 to June 30, 2012, primarily due to a decrease in Income tax and VAT payable as the result of seasonally lower revenues in the second quarter of 2012 compared with the fourth quarter of 2011.

Liquidity and Capital Resources

        Our sources of capital primarily consist of cash flows from operations. We believe that our operating cash flow, cash on hand, and available short-term and long-term capital resources are sufficient to fund our working capital requirements, capital expenditures and programming commitments, income tax obligations, anticipated dividends to our shareholders and any contemplated acquisitions.

        As of June 30, 2012, we had $25.8 million in cash and cash equivalents, of which approximately 17% was held in US dollar-denominated accounts. In addition, as of June 30, 2012, we had $98.4 million in deposits with maturities ranging from three to six months, of which approximately 11% was held in US dollar-denominated accounts. In October 2011, we signed a Ruble-denominated overdraft agreement with Alfa Bank bearing annual interest at 7.2% with a credit limit of approximately $34.0 million. As of December 31, 2011 and June 30, 2012, we had an overdraft position of $16.9 million and $nil, respectively. In July 2012, we signed a new a Ruble-denominated overdraft agreement with Alfa Bank bearing annual interest at a variable rate equal to the Mosprime rate +2.21% with a credit limit of approximately $30.0 million.

        We believe that our current cash on hand, along with cash from operations, will provide sufficient capital to fund our operations for at least the next 12 months. We can not assure you, however, that the assumed levels of revenues and expenses underlying this projection will prove to be accurate.

        We continually assess the counterparties and instruments we use to hold our cash and cash equivalents, with a focus on preservation of capital and liquidity. Based on the information currently available, we do not believe that we are at risk of default by our counterparties.

        On July 31, 2012, our Board declared a dividend of $0.13 per outstanding share of common stock, or approximately $21 million in total. The record date is September 1, 2012 and the payment date is on or about September 28, 2012. Our Board currently intends to pay further dividends in the final quarter of 2012. Although it is the Board's current intention to declare and pay further dividends in 2012, there can be no assurance that such additional dividends will in fact be declared and paid. Any such declaration is at the discretion of the Board and will depend upon factors such as our earnings, financial position and cash requirements.

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Cash flows

        Below is a summary of our cash flows during the periods indicated:

	Six months ended June 30,
	2011		2012
	(in thousands)
Net cash provided by operating activities:	$38,557		$61,929
Net cash provided (used) by investing activities:	(9,627	)	9,095
Net cash used in financing activities:	(58,019	)	(57,101	)

        Our net cash flows from operating activities were $38.6 and $61.9 million when comparing the six month periods ended June 30, 2011 and 2012, respectively, and reflected the decrease in taxes paid in the six months ended June 30, 2012 when comparing to the same period of 2011, mainly due to US income tax and VAT. Substantially all of our cash flows from operating activities are derived from advertising revenues. Our advertising revenues were $363.1 and $364.1 million, respectively, for the six-month periods ended June 30, 2011 and 2012. Our most significant use of cash in relation to operating assets and liabilities throughout the period under review was primarily attributable to the acquisition of programming and sublicensing rights and amounted to $177.3 and $173.5 million, respectively, for the six month periods ended June 30, 2011 and 2012. Amortization of programming rights, sublicensing rights and own production cost amounted to $147.0 and $158.4 million, during the six months ended June 30, 2011 and 2012, respectively.

        For the whole year 2012, we expect that operating cash flows will be on the level of 2011 or below 2011, the as we continue to invest to our programming.

        Cash used in investing activities includes cash used for the acquisition of property, equipment and intangible assets, purchases of new broadcasting stations, and investments in or receipts from cash deposits. In the six month period ended June 30, 2011, we paid $6.4 million of 2010 earnouts related to our acquisitions of Costafilm, and $14.5 million related to the acquisitions of new broadcasting stations. In addition, we spent $12.4 million for capital expenditures, mainly on purchases of equipment and software for our new digital broadcasting center in Moscow, as well as on cable connections and leasehold improvements for new office facilities. These cash payments were partially offset by net cash received from deposits in the amount of $27.1 million. In the six month period ended June 30, 2012, our cash provided by investing activities primarily represented cash received from deposits in the amount of $17.6 million. In addition, in the first half of 2012, we spent $5.8 million for capital expenditures, mainly on purchases of cable connections and leasehold improvements for new office facilities and $2.7 million related to the acquisitions of new broadcasting stations.

        In 2012, we expect capital expenditures to be at the level in 2011 as we continue to upgrade our broadcasting equipment and software and to connect to additional households pursuant to our contracts with Mostelecom.

        Cash used in financing activities includes repayments of borrowings, proceeds from exercises of stock options, proceeds from and payments of overdraft and payments of dividends. In the six month period ended June 30, 2011, cash used in financing activities primarily includes payment of dividends in the amount of $59.7 million to our stockholders and $3.5 million in dividends to minority shareholders of our owned-and-operated stations, partially offset by proceeds of $5.2 million received from the exercise of stock options. In the six month period ended June 30, 2012, cash used in financing activities includes payment of dividends in the amount of $41.1 million to our stockholders, $3.1 million in dividends to minority shareholders of our owned-and-operated stations and settlement of $17.5 million bank overdraft, partially offset by proceeds of $4.6 million received from the exercise of stock options by a former CEO.

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Off-balance sheet transactions

        From time to time, we issue guarantees in favor of banks that make loans to production companies that produce Russian programming for us. Currently, there are no such guarantees in place.

Purchase commitments

        The table below summarizes information with respect to our obligations as of June 30, 2012 (in thousands of US dollars):

	Total	Through 2012	2013	2014	2015	2016
	(in thousands)
Acquisition of programming rights	$266,508	$139,152	$92,004	$31,068	$4,284	$—
Transmission and satellite fees	$98,169	$10,040	$20,577	$21,367	$22,523	$23,662
Leasehold obligations	$32,625	$3,201	$6,779	$7,162	$7,551	$7,932
Cable connections	$5,425	$757	$1,167	$1,167	$1,167	$1,167
Acquisition of format rights	$3,158	$3,158	$—	$—	$—	$—
Payments for intellectual rights	$3,331	$328	$694	$732	$770	$807
Network affiliation agreements	$6,727	$1,452	$1,988	$1,847	$1,273	$167
Other contractual obligations	$1,401	$855	$469	$24	$26	$27
Total(1)	$417,344	$158,943	$123,678	$63,367	$37,594	$33,762

(1)

Accrued liabilities related to income taxes are excluded from this table because we cannot make a reasonably reliable estimate of the period of cash settlement with the taxing authorities.

Recently Issued Accounting Pronouncements

        We have considered all recently issued accounting pronouncements and disclosed the ones that could be material to our financial statements in the notes to our consolidated financial statements. See "Item 1. Financial Statements—Note 2, Basis of Presentation and Summary of Significant Accounting Policies."

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Foreign currency exchange risk

        Because our reporting currency is the US dollar and the functional currency of our principal operating subsidiaries is the Russian ruble, our reported results of operations are impacted by fluctuations in the exchange rate between the US dollar and the Russian ruble. Additionally, given that substantially all of our revenues are generated in rubles, we face exchange rate risk relating to operating expenses that we incur in currencies other than the ruble, primarily US dollar payments for non-Russian produced programming. For the six months ended June 30, 2012, if the value of the ruble compared to the US dollar had been, on average, 10% lower than it actually was, we would have reported decreases in total operating revenues and total operating expenses of approximately $31.4 million and $18.1 million, respectively. The total operating expenses we reported would have decreased in this hypothetical scenario because most of our operating expenses are ruble-denominated even though our reporting currency is the US dollar.

        The prevailing exchange rate as of July 31, 2012 was RUR 32.19 to $1.00.

        From time to time we enter into foreign exchange hedging arrangements in relation to a portion of our payments denominated in US dollars. In the first half of 2012, we entered into foreign exchange forward contracts for approximately $99.6 million to reduce a portion of our foreign exchange risk

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related to US-dollar denominated payments. See "Item 1. Financial Statements and Supplementary Data—Note 11, Commitments and Contingencies—Foreign exchange forward arrangements".

Item 4.    Controls and Procedures

Evaluation of disclosure controls and procedures

        Our management evaluated, with the participation of our Chief Executive Officer and our Acting Chief Financial Officer, the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of June 30, 2012. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2012, our Chief Executive Officer and our Acting Chief Financial Officer has concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

        During the three months ended June 30, 2012, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

        We are not currently party to any legal proceedings, the outcome of which would reasonably be expected to have a material adverse effect on our financial results or operations.

Item 1A.    Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on February 28, 2012 before purchasing our common stock. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, may also become important factors that affect us. There may be risks that a particular investor views differently from us, and our analysis of the risks we face might be wrong. If any of the risks that we face actually occur, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock could decline, and you could lose some or all of your investment. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Risks relating to our business and industry

Changes to the Russian law "On Advertising" have fundamentally changed the way in which we sell advertising, and which could adversely affect our business, financial condition and results of operations.

        Effective January 2011, an amendment to the Federal Law "On Advertising" came into force that prohibits television broadcasters from signing agency agreements with media sales houses that hold a television advertising market share greater than 35%. The Russian Federal Anti-monopoly Service has the authority to seek the termination of agreements that allegedly violate these provisions. Video International, the media sales house that historically sold all of our national advertising and substantially all of our regional advertising, in previous years controlled more than 35% of the Russian television advertising market. As a result of this amendment, the structure of the Russian television advertising market has changed.

        In response to these developments, in September 2010 we established our own sales house, Closed Joint Stock Company "EvereST-S", a wholly owned subsidiary of CTC Network. Our sales house now acts as the exclusive advertising sales agent for all of our Russian networks and Television Station Groups in respect of Moscow-based clients.

        In order to benefit from our long-term cooperation with Video International and to successfully support our own advertising sales we have entered into an agreement with Video International to govern our current cooperation, for licensing of specialized advertising software by Video International to our internal sales house, as well as the provision by Video International of related software maintenance and analytical support and consulting services. In addition, a number of our owned-and-operated regional stations have also signed definitive agency agreements with local subsidiaries of Video International with respect to advertising sales to local clients. We understand that Telcrest Investments Limited, one of our principal stockholders, has beneficial owners with indirect significant minority equity interests in Video International. Telcrest became one of our principal stockholders subsequent to the negotiations of our current principal agreement with Video International. We believe that the terms of our contract with Video International are generally consistent with other existing arrangements between Video International and third parties based on the

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same scope of services. See "Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Agreements with Video International."

        In order to support our sales function, we have substantially increased the size of our internal sales force and have implemented a range of new functions and systems. Although the new sales house has been operational for more than one year and has proved to be effective to date, we may be unsuccessful in maintaining these functions, and may be unable to continue to generate the same advertising volumes and revenues or margins under the current model of advertising sales as we did in the past. If we encounter difficulties in maintaining our sales house function, our advertising sales and revenues could suffer, and as a consequence our business, financial condition and results of operations could be materially adversely affected.

A reduction in our audience shares and ratings would likely result in a reduction in our advertising revenues.

        The level of advertising revenues that we receive is directly tied to our audience shares and ratings. If our audience shares or ratings were to fall as a result, for example, of competitive pressures, underperformance of key programs, failure to renew licenses, or a change in the method of measuring television audiences, this would likely result in a decrease in our advertising revenues, which could be material. Our ability to attract and retain viewers depends primarily on our success in offering programming that appeals to our target audiences. Russian viewer preferences have been changing in recent years, with increasing demand for programming produced in Russia. There is currently a relatively limited supply of Russian-produced programming and strong competition among Russian networks and channels for such programming and Russian production talent, as well as for popular foreign programming.

        From time to time we air one or two series during primetime that contribute disproportionately to our overall audience share, resulting in an overall audience share that we may not be able to sustain once that series is discontinued or loses popularity. Moreover, because we continue to rely on third-party production companies for a large portion of our programming and our programming library is not as extensive as those of some of our competitors, we may be unable to quickly substitute new programming for underperforming programming. For example, in 2011, the target audience share of the CTC channel was below the anticipated audience share and below the audience share for 2010, due to increased competition from other television channels and the relative underperformance of series launched during primetime. This decrease in audience share led to a lower than initially anticipated forecast for growth in advertising sales for 2011. Also, in the second quarter of 2012, CTC's audience share was lower than in the second quarter of 2011.

        If we are unable to produce or secure a steady supply of high-quality programming, particularly in the key timeslots, or if we fail to anticipate, identify or react appropriately to changes in Russian viewer tastes or legislation, or to increased competition, by providing appropriate programming, our overall audience shares could be negatively affected, which would adversely affect our advertising revenues. Moreover, if any of the programming we produce, commission or license does not achieve the audience share levels we anticipate, we may be required to write-off all or a portion of the carrying cost of such programming, and we could be forced to broadcast more expensive programming to maintain audience share, either of which could have a material adverse impact on our results of operations.

We derive almost all of our revenues from the sale of advertising, which is sensitive to broader economic conditions. Our revenues may substantially decrease if the economic environment deteriorates in Russia or other CIS countries in which we operate.

        We generate substantially all of our revenues from advertising. In general, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and buying patterns. Since the introduction of commercial television advertising in Russia following the fall of the Soviet Union,

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advertising spending has fluctuated substantially, generally increasing during periods of economic growth and decreasing during downturns.

        Beginning in the second half of 2008, Russia, like many other countries, experienced economic instability, characterized by a steep decline in the value of shares traded on its stock exchanges, devaluation of its currency, capital flight and a decline in gross domestic product. Additionally, because Russia produces and exports large amounts of oil and gas, its economy is particularly vulnerable to fluctuations in the price of oil and gas in the world market. Recent decreases in international oil prices have adversely affected and may continue to adversely affect the Russian economy. Total television advertising spending in Russia was adversely affected by this economic instability and, as a result, our operating results for 2009 were materially adversely affected. Like Russia, Kazakhstan has also experienced economic instability.

        In the second half of 2011, some large advertisers reduced their initially planned advertising expenditures for 2011. Though overall Russian television advertising spending increased in 2011 compared to 2010, and we expect that the advertising market for the full year 2012 will be higher than in 2011, we anticipate that such growth will be moderate. If overall spending by these companies in the Russian television advertising market falls substantially in 2012 or future periods, our advertising revenues may be significantly reduced, materially adversely affecting our results of operations.

Several recently adopted Russian laws may impact the programming and advertisements we are permitted to broadcast, which could result in a reduction in our audience share and advertising revenues.

        Effective June 1, 2012, the Russian government has prohibited the retail sale of medicines containing codeine or its sulfates without a prescription from an attending doctor. Since Russian advertising law prohibits the advertising on television of any medications that require a doctor's prescription, we are no longer able to broadcast ads for medications that contain codeine or its sulfates, such as Nurofen, Pentalgin, Caffetin and others. This restriction may result in a reduction in our revenues.

        The recently adopted federal law "On regulation of production and distribution of ethanol, alcohol and drinks containing alcohol" classifies beer and all drinks containing beer as alcoholic drinks, which in turn will prohibit the advertising of such drinks on television. Therefore, effective July 23, 2012, we are no longer able to broadcast ads for beer and drinks containing beer on our channels, which may result in a reduction in our revenues.

        Another new law, "On protection of children from harmful information", effective from September 1, 2012, could impact our approach to programming on our Russian channels. This law prohibits making available to children any information that may be harmful to them, such as scenes of violence, abusive language, pornography and scenes encouraging children to consume alcohol, drugs and tobacco. All information must be labeled into five categories: (1) information appropriate for children under 6 years, (2) information appropriate for children 6 years and older, (3) information appropriate for children 12 years and older, (4) information appropriate for children 16 years and older, and (5) information prohibited for children. We do not believe that implementation of this law will adversely affect our CTC Channel, which is positioned as a family entertainment channel, or Domashny Channel, which is geared towards women. We may revise our approach to programming on our Peretz Channel, since it is more provocative, with a "reality" format. Although we believe that Peretz channel's overall positioning will remain the same and that we will be in compliance with this new law, any revisions of our programming could adversely impact the audience share of our Peretz Channel.

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Changes in the method of measuring television audiences and ratings have at times in the past resulted, and may again in the future result, in decreases in our audience share and ratings.

        Audience share represents the share attracted by a channel as a proportion of the total audience watching television. Ratings represent the number of people watching a channel (expressed as a proportion of the total population measured). The system of audience measurement in Russia, currently run by TNS Russia, has evolved as the advertising market has matured and in response to changing Russian demographics.

        TNS Russia currently weights the panel of measured cities based on broadcasters' technical penetration in a group of 121 cities. Our audience share could be negatively affected if we were to lose an affiliate in one of the cities in that group, or if our technical penetration in that group of cities were to be lower than our average technical penetration.

        In 2010, the size of the panel itself was increased from 65 to 72 cities. In addition, in 2010 TNS Russia made changes to the relative weighting of the cities in the panel, which became effective in 2011. This re-weighting resulted in the impairment of some of our affected broadcasting licenses on a stand-alone basis, recognized in 2009. See "—A significant portion of our total assets are intangible assets with indefinite lives that we do not amortize. If events or changes in circumstances reduce the fair value of those assets, we may be required to record impairment losses that could materially adversely impact our net income." In June 2011, TNS Russia announced the increase in the size of the panel from 72 to 74 cities, which will result in the re-weighting of other cities in the panel. These changes are effective from January 1, 2013. We do not expect this change to have a material adverse effect on our operations.

        In addition, at the end of 2012, the governmental authorities plan to publish the results of the Russian population census which was taken in the end of 2010. These results may impact the TNS panel because of possible changes in demographics.

        When changes to the system of audience measurement occur, we attempt to take steps when possible in respect of our programming, distribution and sales to counteract the effects of such changes. We cannot assure you that these steps will be adequate or effective, or that any further changes in the measurement system will not result in further decreases in our audience shares and, as a result, a material decrease in our advertising revenues.

We are likely to face additional expenditures, and may face increased competition, in connection with the planned transition from analog to digital broadcasting in Russia and Kazakhstan, and may incur impairment charges and additional amortization expenses in connection with this transition.

        In late 2009, the Russian government announced a federal program to introduce digital broadcasting throughout Russia by 2015. Kazakh authorities have also initiated digitalization plans. The specific terms of these transitions are not yet fully known.

        In Russia, the government's plan calls for digital broadcasting to be introduced in stages, with several packages of digital signals, or "multiplexes", to be launched over time. Viewers will initially receive access to a first multiplex comprising eight channels, and will then receive access to a second multiplex comprising an additional 10 channels, with further multiplexes to be introduced at a later time. The government has announced the channels that will be included in the first multiplex, determined milestones for the transition to this multiplex, and indicated that the infrastructure for this first multiplex will be funded by the government. The first multiplex will be made available to 100% of the Russian population and will include the principal state-owned channels and several other national networks (Channel One, Rossiya 1, Rossiya 2, Rossiya 24, Rossiya K, Channel 5, NTV and Karousel). In July 2012, government authorities revised the deadlines for the particular milestones in the roll-out of the first multiplex. The second multiplex will be made available to 97% of the Russian population

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and will comprise 10 channels; the remaining multiplexes will cover only cities with populations of more than 100,000 people. The channels that are to be included in the second and remaining multiplexes have not been determined, and the framework for the build-out of this infrastructure, as well as the interaction between industry players and government authorities, have not yet been clearly specified.

        In August 2012, the Russian press reported that the Russian Prime Minister had ordered the Ministry of Communications to hold a tender for the second multiplex by the end of 2012. In addition, media reports have indicated that, according to the Ministry of Communications, each channel participating in the second multiplex is expected to pay up to $30 million annually to fund the construction of the infrastructure and signal transmission. These costs will be definitively determined when the exact terms of the tender are established. We have begun preparation for the tender process. However, we will assess, based on our economic modeling, the value of the participation of each of our CTC, Domashny and Peretz channels in the tender for the second multiplex after the specific terms, including the costs of investments and legal framework, have been specified. To date, no information on these terms is available. In late 2011, the government introduced the concept of "universal" licenses that permit broadcasting throughout the entire Russian Federation through free-to-air, cable and satellite, in either digital or analog format. These licenses are available to broadcasters (provided that all necessary criteria are met) in parallel to existing analog licenses. In preparation for the anticipated transition to digital broadcasting, we have obtained universal licenses for our CTC and Domashny channels and we have also applied for a universal license for the Peretz channel.

        Depending on the terms of the transition, we may face competition from other parties for digital frequencies or other access, and we may also face additional costs in connection with requirements for new equipment and added staffing, as well as the costs related to the build-out of the multiplexes as described above. We may also face increased competition from other broadcasters that may make the transition to digital broadcasting more quickly or efficiently than we do, or that are more successful in taking advantage of the new digital platform to introduce a better programming offering.

        In addition, the transition to digital broadcasting could also adversely impact our earnings and the value of our broadcasting licenses and goodwill. As of June 30, 2012, the carrying value of our broadcasting licenses, which we record as indefinite-lived intangible assets, totaled $160 million. Also, as of June 30, 2012, the carrying value of goodwill related to the CTC, Domashny and Peretz reporting units was $47.9 million, $15.8 million and $56.6 million, respectively. Depending on the terms of the transition to digital broadcasting and our decisions regarding participation in the second multiplex, we may revise our projected cash flows, which could adversely impact the fair value of our reporting units and broadcasting licenses. Also, we may revise our estimates of the useful lives of our existing broadcasting licenses from indefinite to definite lives. These impairment losses and subsequent amortization, if required, could significantly impact our earnings. See "Item 1: Financial Statements—Note 11, Commitments and Contingencies—Assets with indefinite useful lives", and "Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations—Total operating expenses".

        We believe that the introduction of digitalization will not adversely affect our existing analog broadcasting in the medium term as our channels will continue to broadcast in the analog format under existing analog licenses until the full transition to digital format is completed. However, there is currently great uncertainty regarding the timeframe for implementation of digital broadcasting with respect to each of the multiplexes and regions to be covered. Subject to the availability of further information from the government and market participants, and our ability to make further assessments of the government's plans, we are unable to determine whether impairment and amortization charges may be required in the foreseeable future.

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A significant portion of our total assets are intangible assets with indefinite lives that we do not amortize. If events or changes in circumstances reduce the fair value of those assets, we may be required to record impairment losses that could materially adversely impact our net income.

        We have intangible assets recorded on our consolidated balance sheet, such as broadcasting licenses, that have indefinite lives and that represent a significant portion of our total assets. Because these assets have indefinite lives, we do not amortize them but instead perform impairment tests on them annually or when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that our estimate of the current value of an asset is below the recorded value of that asset on our balance sheet, we record an impairment loss for the difference.

        The economic slowdown experienced in the second half of 2011, in both the European and global economies, has resulted in reduced advertiser demand. The instability in the macroeconomic environment adversely affected our expectation for the total advertising market in the medium-term, and in turn, affected the fair values of certain of our assets as of December 31, 2011. In 2011, we recorded non-cash impairment losses totaling $106.4 million related to certain intangible assets and goodwill. We consider all current information in respect of determining the need for, or calculating, any impairment loss; however, future changes in events or circumstances, such as a continuation or worsening of the current economic instability, decreases in our audience shares or ratings, increased competition from cable providers or others, or changes in the audience measurement system, could result in decreases in the fair value of our long-lived assets and require us to record additional impairment losses that could have a material adverse impact on our net income. See "Financial Statements—Note 2, Basis of Presentation and Summary of Significant Accounting Policies—Goodwill and Indefinite-Lived Intangible Assets Impairment Tests". In addition, as discussed above, the Russian government has announced plans to introduce digital broadcasting in various stages throughout Russia. The specific terms of the transition have not yet been fully determined. The transition to digital broadcasting also could adversely impact our operations or the value of our broadcasting licenses and goodwill. See "—We are likely to face additional expenditures, and may face increased competition, in connection with the planned transition from analog to digital broadcasting in Russia and Kazakhstan, and may incur impairment charges and amortization expense in connection with this transition" and "Financial Statements—Note 11, Commitments and Contingencies—Assets with indefinite useful lives".

Recent declines in the value of the Russian ruble against the US dollar have negatively impacted our reported revenues and operating results. If the ruble depreciates further against the US dollar, our revenues and our operating results, both as reported in US dollars, will be adversely affected.

        Although our reporting currency is the US dollar, we generate almost all of our revenues through the sale of advertising, which in Russia is sold primarily in rubles. The ruble is also the functional currency of our principal operating subsidiaries. As a result, our reported revenues and results of operations are impacted by fluctuations in the exchange rate between the US dollar and the Russian ruble. Additionally, we face the exchange rate risk relating to payments that we must make in currencies other than the ruble. We generally pay for non-Russian produced programming in US dollars.

        In 2011, the Russian ruble depreciated against the US dollar by 5.3%. In the second quarter of 2012, the Russian ruble depreciated against the US dollar by 11%, resulting in overall depreciation for the six months ended June 30, 2012 of 2%. During the three and six months ended June 30, 2012 the average value of the Russian ruble against the US dollar was lower by 10% and 7%, respectively, compared with the same periods of 2011. If the Russian ruble depreciates against the US dollar, our revenues and operating results for 2012 or future periods, as reported in US dollars, will be adversely affected.

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Restrictions on direct or indirect foreign ownership of Russian television companies could limit our ability to grow our business through acquisitions.

        In May 2008, the law "On foreign investments in economic entities that have strategic importance for defense and security of the state (the "Strategic Enterprises Law") came into effect in Russia. The Strategic Enterprises imposes restrictions on direct or indirect non-Russian ownership in "strategically important" industries, including television broadcasters that broadcast to more than 50% of the population of a relevant constituent entity of the Russian Federation. Among other things, the Strategic Enterprises Law requires prior approval from the Commission for Control Over Foreign Investments, and potentially from the Federal Security Bureau, for the acquisition by a non-Russian entity of an interest above a certain ownership threshold in a company operating in a strategically significant sector. We understand that such approval generally requires at least six months.

        The Strategic Enterprises Law contains a "grandfather" provision with respect to pre-existing holdings in affected companies that requires notification of such pre-existing holdings but does not have an approval requirement. We therefore believe that neither CTC Media's pre-existing ownership of its Russian operating subsidiaries, nor the pre-existing ownership of shares of CTC Media by non-Russian stockholders, violates the Strategic Enterprises Law or requires any approval. We do believe, however, that we will be required to obtain approval under the Strategic Enterprises Law for any acquisition of an affiliate television station that broadcasts to more than 50% of the population of a relevant constituent entity of the Russian Federation, or any acquisition of another Russian network. Such approval process is likely to be time-consuming and may, in any event, ultimately result in a rejection of a proposed transaction. As a result, we may lose out on acquisition opportunities to competitors, and our ability to grow our business through acquisitions in Russia may be limited. Even if the authorities approve such a transaction, they may do so subject to conditions regarding the operation of the company—including, for example, the composition of its management—that may limit our effective control and operational flexibility.

Restrictions on foreign involvement in the television business in Russia could potentially be amended or interpreted in such a way as to result in our loss of necessary licenses or to require us to divest majority control of our Russian operating subsidiaries.

        In addition to the Strategic Enterprises Law discussed above, the law "On Mass Media" (the "Mass Media Law") also restricts direct (but not indirect) foreign involvement in Russian television businesses. Following adoption of these provisions in 2002, we implemented a restructuring plan pursuant to which we created a holding company structure and reduced CTC Media's direct ownership in the CTC Network and each of our owned-and-operated stations below 50%. CTC Media's direct ownership of Domashny and the Peretz Group, which were acquired subsequent to the adoption of these restrictions, is also below 50%. This restructuring was completed prior to the August 2002 deadline with respect to all entities in our group, other than our CTC-Moscow station; the restructuring of the ownership of that station was completed in December 2002. To date, no Russian governmental authorities have taken any action against our CTC-Moscow station for its failure to comply with the restrictions on foreign legal ownership by the deadline. Because CTC Media itself does not broadcast or distribute television programming in the Russian Federation, we believe that CTC Media itself does not fall under the definition of a "founder of a television or video program" for purposes of the Mass Media Law, and that CTC Media does not violate the foreign involvement restrictions of that law.

        The Mass Media Law could in the future be interpreted by Russian governmental authorities or a court to extend to, and to prohibit, indirect foreign ownership of or control over Russian broadcasters of television or video programs. In addition, the Strategic Enterprises Law described above could be implemented or interpreted to apply in some respects to foreign holdings existing at the time of adoption of the law. In either case, it is possible that Russian governmental authorities could suspend or revoke broadcasting licenses or permits held by our networks and our owned-and-operated stations,

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or fail to renew any such licenses. If any law were to be adopted or interpreted to restrict indirect foreign ownership and control of Russian television broadcasters, and did not contain a "grandfather" provision with respect to existing holdings, CTC Media could be obliged to restructure its group in order to comply with such requirements, including by divesting a controlling stake in our networks and our owned-and-operated stations. If we failed to comply in a timely manner, the authorities could suspend, revoke or fail to renew broadcasting licenses or permits held by our networks or our owned-and-operated stations, or could take other actions against us that could limit our ability to operate.

Restrictions on foreign involvement in the television business in Kazakhstan could be amended or interpreted in such a way as to result in our loss of necessary licenses or to require us to divest control of our Kazakh operating subsidiaries.

        The Mass Media Law in Kazakhstan restricts direct and indirect foreign ownership of any Kazakh television broadcaster to no more than 20%. In 2008, we acquired a 20% interest in the Kazakh television broadcast company Channel 31, and established two subsidiaries that provide the programming content and advertising sales functions to Channel 31 on an exclusive basis (together, the "Channel 31 Group"). Together, these interests provide us with a 60% economic interest in the Channel 31 Group as a whole. If the existing 20% limit were to be interpreted to restrict effective or economic control, rather than just direct ownership, or if the law were to be changed or interpreted to impose further restrictions or limitations on foreign ownership of Kazakh television broadcasters, we could be obliged to restructure this group in order to comply with such requirements or could be required to divest all or a portion of our interest in the Channel 31 Group. If we failed to comply in a timely manner, the authorities could suspend or revoke Channel 31's broadcasting licenses or could take other actions that could limit our ability to operate the Channel 31 Group. The book value of Channel 31's broadcasting license as of June 30, 2012, was $12.4 million.

We may encounter difficulties integrating acquired businesses, and if we fail to identify additional suitable targets our growth may be impeded.

        As part of our growth strategy, we intend to continue to evaluate potential acquisitions that we believe are commercially attractive. While acquisitions represent an important component of our growth strategy, the integration of new businesses poses significant risks to our existing operations, including:

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additional and significant demands placed on our senior management, who are also responsible for managing our existing operations;

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increased overall operating complexity of our business, requiring greater personnel and other resources;

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difficulties of expanding beyond our core expertise;

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significant initial cash expenditures to acquire and integrate new businesses;

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contingent liabilities associated with acquired businesses; and

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incurrence of debt to finance acquisitions and high debt service costs related thereto.

        Additionally, the integration of new businesses may be difficult for a variety of reasons, including differing cultures or management styles, legal restrictions in the target's jurisdiction, poor target records or internal controls and an inability to establish control over cash flows. Furthermore, even if we are successful in integrating new businesses, expected synergies and cost savings may not materialize, resulting in lower than expected profit margins.

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        As a US public company, we are subject to securities laws and regulations requiring that we file with the SEC audited historical financial statements for businesses we acquire that exceed certain materiality thresholds. Given the financial reporting practices in Russia and other CIS countries, such financial statements are often not readily available or are not capable of being audited to the standards required by US securities regulations. As a result, we may be prevented from pursuing acquisition opportunities that our competitors and other financial and strategic investors are able to pursue.

A change in Russian law further limiting the amount of advertising time permitted on television could materially adversely affect our results of operations.

        Current Russian law limits the amount of time that a broadcaster may devote to advertising to no more than 15% of any broadcasting hour. From time to time, there are discussions in the Russian government regarding imposing additional restrictions on television advertising, such as limiting the types of products that may be advertised, limiting product placements in programming, limiting the number of advertising breaks allowed in certain programs or requiring channels to devote more broadcast time to public service announcements. If legislation were introduced to further limit our ability to broadcast paid advertising or product placements, we cannot guarantee that increases in advertising prices, if any, or any other steps we would be able to take to mitigate the impact of such further limitation would be sufficient to compensate for the loss of advertising time.

If free-to-air television does not continue to constitute a significant advertising forum in Russia, our revenues could be materially reduced.

        We generate substantially all our revenues from the sale of television advertising in Russia, which constituted approximately half of all advertising expenditures in Russia in 2011, having increased from 25% in 1999. In the broader advertising market, television competes with various other advertising media, such as print, radio, internet and outdoor advertising. In addition, the television broadcasting industry is affected by rapid innovations in technology. The implementation of new technologies and the introduction of broadcasting distribution systems other than free-to-air broadcasting, such as direct-to-home cable and satellite distribution systems, the internet, video-on-demand, user-generated content sites and the availability of television programming on portable digital devices, are changing consumer behavior by increasing the number of entertainment choices available to the audience. While television continues to constitute the single largest component of all advertising spending in Russia, there can be no assurance that television will maintain its current position among advertising media. Increases in competition arising from the development of new forms of advertising media could have an adverse effect on our ability to maintain and develop our advertising revenues and, as a result, on our results of operations.

The loss of licenses, or the failure to comply with the terms of licenses, could have an adverse affect on our business.

        All broadcast television stations in Russia are required to have broadcast and other operating licenses, which generally have renewable terms of five years. Pursuant to a new License Law that came into force on November 13, 2011, the term of broadcast licenses will be extended from five to 10 years, and new licenses will cover both digital and analog broadcasting. Only a limited number of broadcasting licenses are available in each locality. In addition, Russian law could be interpreted as requiring cable television operators to have broadcast and other operating licenses for each of the channels or networks they transmit on their cable systems. Most of the independent cable television operators that currently carry our networks do not possess such licenses. The issuance of a license, as well as the terms and conditions of any license, are often subject to the exercise of broad discretion by governmental authorities.

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        A broadcaster must conform its programming to the programming concept outlined in the broadcasting license. In particular, the broadcaster is obliged to ensure compliance of its programming with the declared genres of the channel and to maintain a required balance in the volume-genre ratio of broadcasted materials, both of which are prescribed in the license. Until recently, the broadcasting licenses of our affiliate stations also contained various restrictions, including requirements with respect to the minimum amount of locally produced programming that must be broadcasted.

        The broadcasting license of Channel 31 in Kazakhstan also contains various restrictions and obligations. Kazakh law currently requires that broadcasters air at least 50% of their programming in the Kazakh language during every six-hour slot.

        We may not always be in full compliance with license requirements. Also, our affiliates have not always been in full compliance with all the requirements of their licenses or obtained all the licenses necessary for broadcasting. If the terms of a license are not complied with, or if we violate applicable legislation or regulations, the license may be suspended or terminated (which decision may be appealed in court). If an affiliate were to broadcast without all the necessary licenses, broadcasting may be terminated and fines could be imposed.

        The loss of an existing broadcasting license, or the failure to obtain a broadcasting license in a new market, particularly in a significant market, could reduce or limit the coverage of our networks and result in a loss of audience share and a fall in ratings, which could materially adversely affect our advertising revenues and business.

The failure of our independent affiliates to comply with requirements in our network agreements that they broadcast our advertising creates potential for complaints from our advertising clients.

        We seek to enter into formal agreements with our independent affiliate stations governing various aspects of the broadcast of our network programming. These agreements generally require our affiliates to air most of our programming, including advertising during federal advertising slots. The majority of our independent affiliate stations have their own broadcasting licenses which entitle them to form their own broadcasting grid structured in accordance with their licenses as well as our network agreements.

        Some of these affiliates operate in small cities which are not included in the TNS Gallup panel. As a result, there is no regular TNS monitoring of the advertising they broadcast, and we cannot ensure that our affiliates are consistent in their compliance with the federal advertising provisions of our agreements. If an independent affiliate breaches its obligations under our network agreement, we may face complaints from our clients.

The loss of independent affiliates could result in a loss of audience shares.

        We seek to enter into formal agreements with our independent affiliate stations that govern various aspects of the broadcast of our network programming. These agreements generally provide each party with the right to terminate the agreement on 60 or 90 days' notice without penalty. In certain instances, particularly in smaller cities and towns and with local cable networks, our arrangements are governed by letters of understanding that provide us with only limited recourse in the event of a disagreement. If an independent affiliate in a larger market, particularly in a city where audiences are measured and in which we do not own and operate a station, were to terminate its agreement with us, sell itself to a competing network or lose the ability to broadcast our signal, it could result in a decrease in our audience share.

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We rely on third parties to provide us with re-transmission capabilities in certain locations, and our business would be adversely affected if such parties terminated or adversely changed the terms of those relationships.

        In certain locations, we depend on cable operators or other third parties to carry our signal. In Moscow, for example, television signals are transmitted from a central tower to roof antennas located on buildings throughout the city, and are then amplified for retransmission within the buildings. The original system, which was introduced in the 1960s, carried only six VHF channels. Mostelecom, the major local provider, upgraded a number of roof antenna systems from 1997 to 2004 to add capacity for a limited number of additional channels. We collaborated with Mostelecom in this project, paying an amount per additional household connected, in order to help ensure that our CTC Network has allocated access on Mostelecom's systems where capacity was increased.

        We have entered into contracts with Mostelecom to secure the rights of our CTC and Domashny Moscow stations to be connected by cable to additional households in Moscow. Peretz also has a number of agreements with Mostelecom for cable connections to households in Moscow. These contracts do not, however, grant us the right to be connected to all households in Moscow for all of our networks. We continue to evaluate, from a cost benefit analysis, whether to enter into additional contracts with Mostelecom regarding other households. A second cable operator carries our networks' signals to approximately 15% of the Moscow households covered by our networks' signals. We pay this cable operator an annual fee for transmission to these households. A cable system similar to that provided by Mostelecom is in place in St. Petersburg and is operated by the local provider; there we currently have no binding contractual right of access to the system.

        In April 2007, the Russian Ministry of Telecommunications requested evidence of the legal basis pursuant to which some cable television operators, including those carrying the signals of our networks, carry certain broadcasters' signals over their systems. As a result of this request, some of our cable television operators, including Mostelecom, which is the primary carrier of our networks' signals in Moscow, indicated that they might be required to begin charging us transmission fees for carrying our signals on their networks. We and representatives of other Russian broadcasters met with the Russian Ministry of Telecommunications in the second quarter of 2007 to understand the ramifications of this inquiry. It was agreed that the broadcasters and cable television operators should try to resolve this issue independently, without involvement of the Russian Ministry of Telecommunications, by the end of 2007. While discussions continue on resolving this matter, to date, no resolution has been reached and no further actions have been taken.

        If we were to be denied continued access to the cable systems that carry our networks' signals in Moscow or St. Petersburg, our technical penetration would be materially adversely affected which would, in turn, have a material adverse effect on our audience shares. Moreover, if we were required to pay transmission fees to these cable operators, our operating costs would be increased, possibly materially.

We may not be able to compete successfully against other television free-to-air channels and networks that may have broader coverage, greater name recognition, larger market share, wider programming content or access to more funding than we do, or with niche channels or non-free-to-air channels offering competitive programming formats.

        The Russian television broadcasting business is highly competitive. Approximately 20 free-to air television channels account for approximately 98% of the television advertising market. The market also includes multiple non-free-to-air television channels. The free-to-air channels include five larger national channels, namely Channel One, Rossiya 1, NTV, CTC and TNT, and a number of smaller niche channels, including Domashny and Peretz. Our networks compete for audience share with other national television networks and channels and with local stations, as well as with niche broadcasters. We

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compete on the basis of both the actual and anticipated size of our audiences for specific time slots, as well as the demographic characteristics of our viewers.

        On a national level, CTC competes directly with other larger broadcast networks and channels, including Channel One and NTV, as well as with the smaller network TNT. Domashny competes for advertising revenues primarily with Rossiya 1 and TVC, and Peretz competes primarily with TV-3 and REN-TV, although they both also compete with the larger broadcast networks and channels for viewers within their target demographic groups. On a local level, our owned-and-operated stations compete with other stations for local advertising.

        Channel One and Rossiya 1 were established as state television channels during the Soviet period and they remain under Russian state control. As a result, we understand that these channels receive state benefits not generally available to private companies, including free signal transmission (in the case of Channel One), direct state budget subsidies (in the case of Rossiya 1) and preferences in licensing. Moreover, nearly every viewing household in Russia can receive the broadcast signals of Channel One and Rossiya 1, while only a more limited viewing audience can currently receive our network signals. The much broader coverage and name recognition of Channel One and Rossiya 1, coupled with programming geared toward a broader demographic group, help them to attract large audience shares. NTV, which is indirectly controlled by the state through Gazprom, the state-controlled energy company, also has a broader coverage than our networks, and we believe also benefits from free signal transmission. In the six months of 2012, Channel One had an average audience share of 14.3%, while Rossiya 1's was 13.1% and NTV's was 14.4%. CTC's average audience share in the six months of 2012 was 7.2%. We believe that the strong audience shares of Channel One, Rossiya 1 and NTV may give these broadcasters added leverage in negotiations with advertisers, advertising agencies and sales houses. Moreover, as we focus on entertainment programming, we are unable to compete with other broadcasters for audiences for news and sporting programs, some of which have among the highest audience shares and ratings in their time slots.

        In 2011 the Walt Disney Company acquired a 49% stake in the Russian 7TV channel, a part of UTH Russia holding. Disney Channel replaced the current branding and programming of 7TV and launched its free-to-air broadcasting in Russia using frequencies of 7TV effective December 31, 2011. The Disney channel focuses on family entertainment by combining Disney programming with original Russian TV shows. The launch of the Disney Channel in Russia resulted in increased competition and impacted CTC's younger audience share.

        On June 1, 2011, Telcrest acquired 25.15% of our common stock from a former stockholder. We understand that the beneficial owners of Telcrest, including Bank Rossiya (which is not affiliated with Rossiya television channel), have investments in Russian media businesses, including through ownership interests in Channel One, REN-TV and Channel 5. Telcrest and Bank Rossiya may have interests different from, or in addition to, the interests of other stockholders of CTC Media. See also "—Our principal stockholders may have interests that are different from, or in addition to, the interests of other stockholders of CTC Media."

        On April 17, 2012, President Medvedev signed an Order establishing a new Russian public channel that will commence broadcasting on January 1, 2013. This channel will be freely available alongside Channel One, Rossiya, NTV and others when digital broadcasting commences. On July 18, 2012 President Putin appointed Anatoly Lysenko, a prominent Russian journalist, as head of Russian public channel. In the nearest future the Public council by President of Russia will appoint members of Public supervising council of this channel. We are currently unable to forecast the impact that this channel will have, if any, on our audience shares and ratings, and we cannot guarantee that it will not result in a decline in our audience shares and ratings.

        In addition to competing with larger free-to-air broadcasters, we compete with multiple niche free-to-air and non-free-to-air channels. During the last three years the audience shares of Russian

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niche free-to-air and non-free-to-air television have increased, which has had a negative impact on the audience shares of all larger free-to-air channels, including CTC channel. Non-free-to-air channels typically provide services to subscribers for a regular subscription fee, and typically do not generate a significant portion of their revenues from advertising. As a percentage of the overall television market, the non-free-to-air market in Russia is currently smaller than in the United States and Western European countries. Audience share for these channels, however, is increasing. In other countries, such as the United States, growth in non-free-to-air television services has often resulted in a fragmentation of the market and a corresponding decrease in the audience share of large national networks and channels. If niche and non-free-to-air channels continue to grow their customer base in Russia, our audience shares and ratings, especially the audience share of CTC channel, could be negatively affected, which would adversely affect our advertising revenues. See also "If free-to-air television does not continue to constitute a significant advertising forum in Russia, our revenues could be materially reduced".

We have substantial future programming commitments that we may not be able to vary in response to a decline in advertising revenues, and as a result could experience material reductions in operating margins.

        Programming represents our most significant expense, and at any given time we generally have substantial fixed commitments for the succeeding two to three years. For example, as of June 30, 2012 we had contractual commitments for the acquisition of approximately $139.2 million in programming rights in 2012 and $127.4 million in 2013-2015. Given the size of these commitments, at any time a reduction in our advertising revenues could adversely affect our operating margins and results of operations. We would have only limited ability to reduce our costs in the short-run in response to such developments.

Our relationships with the co-owners of our television stations may limit our ability to implement our business plans and strategy.

        More than half of our owned-and-operated stations are 100% owned by CTC Media. Other shareholders own between less than 1% and 50% of each of the remaining owned-and-operated stations. In some cases, we depend to a significant extent on our local partners for their familiarity with the local business environment and public authorities. Moreover, we may in the future similarly rely on joint-owners as we acquire additional stations. Any significant disruption in our relationship with these parties could make it more difficult for us to operate these stations.

        Russian law and some of the agreements governing these stations grant protective rights to our co-owners that enable them to block certain significant corporate actions. Under Russian company law, significant corporate decisions, such as declaring and paying dividends and entering into substantial transactions, require the consent of the holders of two-thirds or three-quarters of the voting interests of the company, depending on the subject matter and the legal structure of the company. In addition, unanimous shareholder approval is required in limited instances, which could further affect our control over certain actions. For example, approval of a joint stock company's initial charter and reorganization of a joint stock company into a non-commercial partnership require 100% approval of shareholders. In the case of a limited liability company, increases in charter capital, amendments to a limited liability company's charter, and liquidation, among other actions, require 100% approval of the holders of participation interests.

        As a result, we are often required to obtain the consent of our co-owners when making significant corporate decisions. Although we are not aware of any specific transaction in which we failed to obtain the requisite approval of the co-owners of our stations, due to the formalistic nature of Russian law and the large number of corporate actions that are taken annually by our co-owned stations, we believe it is likely that, from time to time, not all necessary minority shareholder consents have been obtained. As a result, we cannot guarantee that co-owners of our stations will not bring claims against us for

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failure to obtain these necessary consents, which, if successful, could result in the transaction in question being voided. Moreover, even if not technically required by law or contract, we generally prefer to obtain the consent and support of our co-owners before undertaking significant corporate actions. If this consent cannot be obtained, we may decide to forego a transaction that is commercially favorable to us in an effort to preserve goodwill with our co-owners.

Loss of key personnel could affect our growth and future success.

        We believe that our growth and our future success will depend in large part upon our ability to attract and retain highly skilled senior management, production talent and finance personnel. In 2009 and 2010 we lost several key personnel, including several important content production, legal and finance personnel. In addition, we believe that certain competitors continue to aggressively court some of our personnel. The competition is intense in Russia for qualified personnel who are familiar with the Russian television industry and/or who are knowledgeable about US accounting and legal practices. Although we have managed to find replacements for the personnel we lost, we cannot assure you that we will be able to retain qualified personnel, or hire appropriate replacements on reasonable terms or at all.

A broadcasting systems failure could prevent us from transmitting our network signal and lead to a loss of viewers, damage to our reputation and a reduction in our advertising revenues.

        Our networks' signals originate in Moscow and are uplinked to multiple separate satellite systems that transmit our signals to our affiliate stations and unmanned repeater transmitters. Despite our back-up systems, from time to time we experience signal failures. Prolonged or repeated disruptions in our signals could lead to a loss of viewers, damage to our reputation and a reduction in our advertising revenues. We do not carry business interruption insurance to protect us in the event of a catastrophe or termination of our ability to transmit our signals, even though such an event could have a significant negative impact on our business.

We do not carry all of the insurance coverage customary in many countries for a business of our size and nature, and as a result could experience substantial loss or disruption.

        The insurance industry is less developed in Russia than in other developed countries, and many forms of insurance protection common in other countries are not yet available in Russia on comparable terms, including coverage for business interruption. At present, we have no coverage for business interruption or loss of key management personnel. We do not maintain separate funds or otherwise set aside reserves for these types of losses. Any such loss may cause substantial disruption and may have a material adverse effect on our business, results of operations and financial condition.

We may from time to time be involved in lawsuits and investigations that could entail significant costs and, if determined against us, could require us to pay substantial damages, fines and/or penalties.

        In the normal course of our business we are involved in various legal proceedings. These lawsuits and other proceedings include commercial disputes, claims regarding intellectual property, tax disputes and labor disputes. Litigation can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. If a lawsuit is decided in a way that is unfavorable to us, this could have a material adverse effect on our business, reputation, operating results, or financial condition.

        As a publicly listed company, we may be exposed to lawsuits in which plaintiffs allege that CTC Media or our directors or officers failed to comply with applicable securities laws, stock market regulations or other laws, regulations or requirements. Whether or not there is merit to such claims, the time and costs incurred in defending our company and its directors or officers, and any potential settlement or compensation we might be obligated to pay the plaintiffs, could have a significant impact on our reported results, as well as our reputation.

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Our principal stockholders may have interests that are different from, or in addition to, the interests of other stockholders of CTC Media.

        Each of our two largest stockholders, which together hold approximately 63% of our common stock, is involved in the television business in Russia.

        MTG Russia AB, an affiliate of the publicly listed Modern Times Group MTG AB ("MTG"), holds a 50% interest in Raduga Holdings. Raduga is the sole owner of LCC DalGeoCom, which operates Raduga TV, a nationwide Russian digital satellite pay-TV platform. Hans-Holger Albrecht, the President and CEO of MTG, is a Co-Chairman of our board of directors; Mathias Hermansson, Chief Financial Officer of MTG, and Irina Gofman, Chief Executive Officer of MTG Russia AB, are members of our board of directors. Although we do not currently operate in the pay-TV market, and do not currently compete with or have any commercial relationship with Raduga TV, MTG may have interests that are different from or in addition to interests of other stockholders of CTC Media, including as a result of its interest in another Russian television business.

        We understand that the beneficial owners of our second largest shareholder Telcrest, including Bank Rossiya, have investments in Russian media businesses, including through indirect equity interests in Channel One, REN-TV and TRK 5 (Channel 5). We understand that Bank Rossiya also has indirect significant minority interests in Video International, with which we have software license and service agreements in respect of advertising sales. Pursuant to a stockholders agreement, Telcrest has designated three of our directors, none of whom we understand is currently primarily engaged in the operations of Channel One, REN-TV, TRK 5 or Video International. We compete with broadcasters in which the beneficial owners of Telcrest have equity and financial interests, and we believe the services of Video International are important to our operations. Although we are not aware of any conflicts of interest with Telcrest in this regard, Telcrest and its beneficial owners may have interests that are different from or in addition to interests of other stockholders of CTC Media.

Risks relating to doing business and investing in Russia

The Russian banking system remains underdeveloped, and another banking crisis could place severe liquidity constraints on our business.

        Russia's banking and other financial systems are less developed and regulated than those of many other developed countries, and Russian legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. Many Russian banks do not meet international banking standards, and the transparency of the Russian banking sector still lags far behind internationally accepted norms. Furthermore, Russian bank deposits made by corporate entities generally are not insured.

        The disruption in the world credit markets in 2008 and 2009 also negatively impacted the banking sector in Russia. There are currently a limited number of creditworthy Russian banks, most of which are located in Moscow and the largest of which are state-owned. We generally hold a large majority of our cash balance in Russian banks, including the Russian subsidiaries of foreign banks. Of that balance, a significant portion is held in ruble-denominated accounts. There are few, if any, safe ruble-denominated instruments in which we may invest our excess ruble cash. A banking crisis or the bankruptcy or insolvency of the banks from which we receive or with which we hold our funds could result in the loss of our deposits or affect our ability to complete banking transactions in Russia, which could have a material adverse effect on our business, financial conditions and results of operations.

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Businesses in Russia, especially media companies, can be subject to politically motivated actions, which could materially adversely affect our operations.

        The Russian government has taken various actions in past years against business people and companies operating in Russia that have been perceived as having been politically motivated, including actions for technical violations of law or violations of laws that have been applied retroactively, including violations of tax laws. These actions have on occasion resulted in significant fluctuations in the market prices of the securities of businesses operating in Russia, a weakening of investor confidence in Russia and doubts about the progress of market and political reforms in Russia.

        Media businesses can be particularly vulnerable to politically motivated actions. NTV, TV-6 and TVS have all experienced what could be characterized as politically motivated actions, including efforts to effect changes of control. As a result of these actions, TV-6, which became TVS, is no longer broadcasting. We believe that our focus on entertainment, and the fact that we broadcast entertainment and celebrity news, but do not offer "hard" news, commentary or analysis on our national networks, could lessen the risk of provoking politically motivated actions. However, we do not restrict the ability of our independent affiliates to broadcast local news in local broadcasting windows, and some of our independent affiliates, as well as one of our owned-and-operated CTC stations, broadcast local political news, generally with the approval of our local partners and the local authorities. Any politically motivated action against us, our networks, our independent affiliates, or any of our principal stockholders, including the beneficial owners of MTG or Telcrest, could materially adversely affect our operations.

The Russian legal system can create an uncertain environment for investment and business activity, which could have a material adverse effect on our business and the value of our common stock.

        The legal framework to support a market economy remains new and in flux in Russia and, as a result, the Russian legal system can be characterized by:

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inconsistencies between and among laws and governmental, ministerial and local regulations, orders, decisions, resolutions and other acts;

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substantial gaps in the regulatory structure resulting from the delay in adoption or absence of implementing regulations;

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limited judicial and administrative guidance on interpreting Russian legislation;

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the relative inexperience of judges and courts in interpreting relatively new commercial legislation;

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a lack of judicial independence from political, social and commercial forces;

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under-funding and under-staffing of the court system;

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a high degree of discretion on the part of the judiciary and governmental authorities; and

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poorly developed bankruptcy procedures that are subject to abuse.

        As is true of civil law systems, judicial precedents generally have no binding effect on subsequent decisions. Not all Russian legislation and court decisions are readily available to the public or organized in a manner that facilitates understanding. The Russian judicial system can be slow, and enforcement of court orders can in practice be very difficult. All of these factors make judicial decisions in Russia difficult to predict and effective redress uncertain. Additionally, court claims and governmental prosecutions are sometimes used in furtherance of political aims.

        In addition, several key Russian laws, including the amendment to the Law on Advertising, the Strategic Enterprises Law and laws regulating alcoholic drinks and protecting children from harmful

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information (discussed above), have been subject to only limited interpretation to date. The untested nature of much of recent Russian legislation and the rapid evolution of the Russian legal system in ways that may not always coincide with market developments may result in ambiguities, inconsistencies and anomalies in the Russian legal system.

        For example, the new law "On protection of children from harmful information" does not contain any detailed regulation as to how information is to be categorized, what kind of experts are to label such information, or how this law will be implemented. This law is ambiguous and there is no practice of implementation of this law in Russia, which may lead to a high degree of discretion of governmental authorities in its implementation, as well as abuse of this law. In order to mitigate the risks relating to this new law we are working in cooperation with industry players to gain a clearer vision of how this law will be implemented and interpreted by government authorities. Although we believe that we will be in compliance with this new law, we cannot guarantee that authorities will not interpret this law or implement it in a way that may adversely affect us.

        Similarly, the federal law "Improving Regulation of Mass Media, Television and Radio Broadcasting", which came into force on November 10, 2011 and which regulates broadcasting by generally accessible television and radio channels in Russia, provides for a so-called "universal license", which permits the editorial staff of a channel to broadcast the channel through free-to-air, cable and satellite broadcasting, in either digital or analog format. We obtained universal licenses for CTC and Domashny channels and we have also applied for a universal license for Peretz. Although we believe that the universal license will give us advantages in broadcasting and will enhance our position to be included in the digital multiplex, and we do not currently anticipate that these laws will adversely affect our business, we do not know how these laws will be interpreted by the applicable authorities and cannot assure you that these interpretations will be favorable to us or will not affect our business negatively.

        Such uncertainties in the Russian legal system could affect our ability to enforce our rights under our licenses and under our contracts, or to defend ourselves against claims by others. Furthermore, we cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance with applicable laws, decrees and regulations.

Selective or arbitrary government action may have an adverse effect on our business and the value of our common stock.

        Government authorities have a high degree of discretion in Russia and have at times exercised their discretion selectively or arbitrarily, without hearing or prior notice, and sometimes in a manner that is influenced by political or commercial considerations. The government also has the power, in certain circumstances, to interfere with the performance of, nullify or terminate contracts. Selective or arbitrary actions have included withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and local government entities have also used common defects in documentation as pretexts for court claims and other demands to invalidate and/or to void transactions, apparently for political purposes. We cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance (including that of our subsidiaries) with applicable laws, decrees and regulations in Russia. Selective or arbitrary government action could have a material adverse effect on our business and on the value of our common stock.

If the Russian Federal Anti-monopoly Service were to conclude that we acquired or created a new company in contravention of anti-monopoly legislation, it could impose fines or administrative sanctions and could require the divestiture of such company or other assets.

        Our business has grown in part through the acquisition and establishment of companies, many of which transactions required the prior approval of, or subsequent notification to, the Russian Federal

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Anti-monopoly Service or its predecessor agencies (the "FAS"). The relevant legislation restricts the acquisition or establishment of companies by groups of companies or individuals acting in concert without the required approval or notification. This legislation is vague in parts and subject to varying interpretations. If the FAS were to conclude that an acquisition or establishment of a new company had been effected in contravention of applicable legislation and competition has been reduced as a result, it could impose administrative sanctions and require the divestiture of such company or other assets, adversely affecting our business strategy and our results of operations.

If one of our principal subsidiaries is forced into liquidation due to negative net assets, our results of operations could suffer.

        If at the end of any fiscal year a Russian company's net assets as determined in accordance with Russian accounting regulations are below the minimum amount of charter capital required by Russian law, the company is required to convene a shareholders meeting to adopt a decision to liquidate. If it fails to do so within a "reasonable period," the company's creditors may request early termination or acceleration of the company's obligations to them, as well as damages, and governmental authorities may seek to cause the involuntary liquidation of the company. Under an earlier version of this law, the company's shareholders could also bring an action to force the liquidation of the company. It is unclear under Russian law whether a historical violation of this requirement may be retroactively cured, even if a company later comes into compliance with the requirement. On occasion, Russian courts have ordered the involuntary liquidation of a company for having negative net assets even if the company has continued to fulfill its obligations and had net assets in excess of the minimum amount at the time of liquidation.

        Certain of our regional subsidiaries have had, and continue to have, negative equity as reported in their respective Russian statutory financial statements. None of these companies has applied for voluntary liquidation. We are currently taking steps to remedy the negative net asset value of these subsidiaries, but we have not included it as a contingency in our financial statements because we believe that, so long as these subsidiaries continue to fulfill their obligations, the risk of their forced liquidation is remote.

        There has been no judicial or other official interpretation of what constitutes a "reasonable period" within which a company must act to liquidate. If any of our subsidiaries were to be liquidated involuntarily, we would be forced to reorganize the operations we currently conduct through that subsidiary. The liquidation of any of the subsidiaries in our Television Station Groups would result in the termination of their existing broadcast and other licenses, and we cannot assure you that we would be able to secure new licenses needed for these stations to continue to operate. Accordingly, any liquidation could have a material adverse effect on our business.

Russian law requires the approval of certain transactions by the minority shareholders of our subsidiaries, including several of our owned-and-operated television stations, and failure to receive this approval could adversely affect our business and results of operations.

        We own less than 100% of many of our owned-and-operated stations. Under Russian law, certain transactions defined as "interested party transactions" require approval by disinterested members of the board of directors or disinterested shareholders of the companies involved. Our owned-and-operated stations that have other shareholders engage in numerous transactions with us that require interested party transaction approvals in accordance with Russian law. Due to the formulistic nature of much of Russian law, these transactions have not always been properly approved, and therefore may be contested by minority shareholders. In the event that these other shareholders were successfully to contest past interested party transactions, or prevent the approval of such transactions in the future, our flexibility in operating these television stations could be limited and our results of operations could be adversely affected.

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        Certain transactions between members of our consolidated corporate group may constitute interested party transactions under Russian law even when the companies involved are wholly owned by us. Although we generally endeavor to obtain all corporate approvals required under Russian law to consummate these transactions, we have not always applied special approval procedures in connection with our consummation of transactions with or between our subsidiaries. In the event that a claim is filed in relation to certain transactions with or between our subsidiaries, such transactions are found to have been interested party transactions, and we are found to have failed to obtain the appropriate approvals, such transactions may be declared invalid. The unwinding of any transactions concluded with or between our subsidiaries may have a negative impact on our business and results of operations.

Shareholder liability under Russian legislation could cause us to become liable for the obligations of our subsidiaries.

        The Russian Civil Code, the Law on Joint Stock Companies and the Law on Limited Liability Companies generally provide that shareholders in a Russian joint stock company or limited liability company are not liable for the obligations of the company and bear only the risk of loss of their investment. This may not be the case, however, when one person (an "effective parent") is capable of determining decisions made by another (an "effective subsidiary"). The effective parent bears joint and several responsibility for transactions concluded by the effective subsidiary in carrying out these decisions in certain circumstances.

        In addition, an effective parent is secondarily liable for an effective subsidiary's debts if an effective subsidiary becomes insolvent or bankrupt as a result of the action or inaction of an effective parent. This is the case no matter how the effective parent's capability to determine decisions of the effective subsidiary arises. For example, this liability could arise through ownership of voting securities or by contract. In these instances, other shareholders of the effective subsidiary may claim compensation for the effective subsidiary's losses from the effective parent that caused the effective subsidiary to act or fail to act, knowing that such action or inaction would result in losses. Accordingly, in CTC Media's position as an effective parent, it could be liable in some cases for the debts of its effective subsidiaries. Although the total indebtedness of CTC Media's effective subsidiaries is currently immaterial, it is possible that CTC Media could face material liability in this regard in the future, which could materially adversely affect our business and our results of operations.

Changes in the Russian tax system or arbitrary or unforeseen application of existing rules could materially adversely affect our financial condition.

        Our tax burden may become greater than the estimated amount that we have expensed to date and paid or accrued on our balance sheets. Russian tax authorities have often been arbitrary and aggressive in their interpretation of tax laws and their many ambiguities, as well as in their enforcement and collection activities. Many companies are often forced to negotiate their tax bills with tax inspectors who may demand higher taxes than applicable law appears to provide. Any additional tax liability, as well as any unforeseen changes in Russian tax laws, could have a material adverse effect on our future results of operations or cash flows in a particular period. We have at times accrued substantial amounts for contingent tax liabilities, a substantial portion of which accruals we have reversed as contingencies have been resolved favorably or changes in circumstances have occurred. The amounts currently accrued for tax contingencies may not be sufficient to meet any liability we may ultimately face. From time to time, we also identify tax contingencies for which we have not provided an accrual. Such unaccrued tax contingencies could materialize and require us to pay additional amounts of tax.

        Under Russian accounting and tax principles, financial statements of Russian companies are not consolidated for tax purposes. As a result, each Russian- registered entity in our group pays its own Russian taxes and we cannot offset the profits or losses in any single entity against the profits and losses of any other entity. Consequently, our overall effective tax rate may increase as we expand our

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operations, unless we are able to maintain an effective corporate structure that minimizes the effect of these Russian accounting and tax norms.

        The Russian tax system imposes additional burdens and costs on our operations in Russia, and complicates our tax planning and related business decisions. The uncertainty involved potentially exposes us to significant fines, penalties and enforcement measures despite our best efforts at compliance, which could result in a greater than expected tax burden on our subsidiaries. These factors raise the risk of a sudden imposition of arbitrary or onerous taxes on our operations in Russia. This could adversely affect our business and the value of our common stock.

Any US or other foreign judgments that may be obtained against us may be difficult to enforce against us in Russia.

        Although CTC Media is a Delaware corporation, subject to suit in US federal and other courts, we have essentially no operations in the United States, most of our assets are located in Russia, and most of our directors and their assets are located outside the United States. Although arbitration awards are generally enforceable in Russia, judgments obtained in the United States or in other foreign courts, including those with respect to US federal securities law claims, may not be enforceable in Russia. There is no mutual recognition treaty between the United States and the Russian Federation, and no Russian federal law provides for the recognition and enforcement of foreign court judgments. Therefore, it may be difficult to enforce any US or other foreign court judgment obtained against our company, any of our operating subsidiaries or any of our directors in Russia.

Risks relating to doing business elsewhere in the CIS

We face similar risks in other countries of the CIS.

        In addition to Russia, we currently have operations in other countries in the CIS, including Kazakhstan and Moldova. We may acquire additional operations in other countries of the CIS. In many respects, the risks inherent in transacting business in these countries are similar to those in Russia, especially those risks set out above in "—Risks relating to doing business and investing in Russia".

Emerging markets such as Russia and other CIS countries are subject to greater risks than more developed markets, including legal, economic and political risks.

        Investors in emerging markets such as Russia and other CIS countries should be aware that these markets are subject to greater risk than more developed markets, including in some cases legal, economic and political risks. Investors should also note that emerging economies, such as the economies of Russia and Kazakhstan, are subject to rapid change and that the information set out herein may become outdated relatively quickly. Furthermore, in doing business in various countries of the CIS, we face risks similar to (and sometimes greater than) those that we face in Russia. Accordingly, investors should exercise care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved and investors are urged to consult with their own legal and financial advisors before making an investment in our shares.

Risks relating to our stock

The price of our common stock has experienced significant volatility in the past and may be volatile in the future.

        Our stock price has experienced significant volatility in the past and is likely to be volatile in the future. The stock market in general and, in particular, the market for companies whose operations are

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in emerging markets, like Russia, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. This volatility has been more pronounced in recent periods due to the turmoil in world financial markets. As a result of this volatility, investors may not be able to sell their shares of our common stock at or above the price at which they purchase it. The market price for our common stock may be influenced by many factors, including:

•

fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

•

changes in estimates of our financial results or recommendations by securities analysts;

•

changes in market valuations of similar companies;

•

extraordinary expenses or charges in particular periods, including material impairment losses;

•

changes in general economic, political and market conditions in Russia and globally;

•

changes in the audience shares of our networks;

•

changes in the structure of advertising sales in Russia;

•

public announcements by industry experts regarding trends in advertising spending in Russia and globally; and

•

announcements regarding our acquisition activities, if any.

        Moreover, only a relatively small number of shares of our common stock are currently actively traded in the public market. As of June 30, 2012, approximately 37% of our outstanding common stock was held by parties other than our directors, executive officers and principal stockholders and their respective affiliates. The limited liquidity of our common stock may have a material adverse effect on the price of our common stock.

        In the past, following periods of volatility in the market price of a company's securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

        The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our stock could decline if one or more equity research analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

Insiders have substantial control over us and could delay or prevent a change in corporate control.

        As of June 30, 2012, our directors, executive officers and principal stockholders, and their respective affiliates, beneficially owned, in the aggregate, approximately 63% of our outstanding common stock. As a result, these stockholders, if acting together, may have the ability to determine the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these persons, acting together, may have the ability to control the management and affairs of our company. In particular, our principal stockholders have entered into a voting arrangement that determines the composition of our board of directors.

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Anti-takeover provisions in our charter documents and under Delaware law could prevent or delay change-of-control transactions.

        Anti-takeover provisions of Delaware law and our charter documents may make a change in control of our company more difficult. For example:

•

Stockholders' meetings may only be called by one of the Co-Chairmen of our board of directors, our Chief Executive Officer or the majority of the board of directors.

•

Our stockholders may not take action by written consent.

•

We have a classified board of directors, which means that our directors serve for staggered three-year terms and currently no more than three of our nine directors are elected each year. This structure may make it more difficult for an acquirer to take control of our company, which may make our company a less desirable acquisition target.

        Delaware law also prohibits a corporation from engaging in a business combination with any holder of 15% or more of its capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction or approves the transaction pursuant to which the holder became a 15% holder. Our board of directors may use this provision to prevent changes in our management. Our board of directors approved the transaction pursuant to which Telcrest became a holder of more than 15% of our capital stock, and accordingly this prohibition would not apply in the case of a business combination transaction with Telcrest.

        Under applicable Delaware law, our board of directors may adopt additional anti-takeover measures in the future.

        In addition, we are party to a stockholders' agreement with our two largest stockholders, MTG and Telcrest, pursuant to which each of these stockholders has agreed, with limited exceptions, not to acquire additional shares of our capital stock to the extent that such acquisition would cause its beneficial ownership to exceed 50% of the voting power of our outstanding shares without making a tender offer for all of our outstanding shares in compliance with the tender offer rules under the Securities Exchange Act of 1934, unless it reaches this ownership level through the exercise of rights of first offer set forth in the stockholders' agreement.

If there are substantial sales of our common stock in the market by our existing stockholders, our stock price could decline.

        If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of common stock, the market price of our common stock could decline significantly. The holders of approximately 63% of our common stock have the right under specified circumstances to require us to register their shares for resale to the public or participate in a registration of shares by us.

Item 6.    Exhibits

        The Exhibit index is hereby incorporated herein by reference.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CTC MEDIA, INC.
By:	/s/ BORIS PODOLSKY Boris Podolsky Chief Executive Officer Acting Chief Financial Officer
Date: August 7, 2012
CTC MEDIA, INC.
By:	/s/ YULIA SHTYROVA Yulia Shtyrova Acting Chief Accounting Officer
Date: August 7, 2012

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EXHIBIT INDEX

Exhibit No.	Description	Form on which Originally Filed	Original Exhibit Number		Original Filing Date with SEC		SEC File Number
3.2	Amended and Restated Bylaws	8-K		99.2		May 3, 2012		000-52003
10.1	Employment Agreement dated as of July 31, 2012 between the Company and Boris Podolsky	Filed herewith
31.1	Certification of Acting Chief Executive Officer and Acting Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)	Filed herewith
32.1	Certification of Acting Chief Executive Officer and Acting Chief Financial Officer pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Calculation Linkbase Document.
101.LAB*	XBRL Taxonomy Label Linkbase Document.
101.PRE*	XBRL Taxonomy Presentation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.

*

submitted electronically herewith.

        Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of December 31, 2011 and June 30, 2012, (ii) Unaudited Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and June 30, 2012, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2011 and June 30, 2012 and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.

        In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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