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Russia's new media law

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Amendments to Russia’s new media law limiting foreign ownership to 20% show there is no free market in the country.

 

Aleksandra Romanycheva
27 November 2014

At the beginning of October 2014, the upper house of Russia’s legislature approved amendments to the country’s media law. The Federation Council made further restrictions to the list of those individuals and organisations barred from holding 20% or more of a media company: no foreign states or legal entities, international organisations, Russian legal entities owned partly by foreigners, foreigners, stateless people or Russians with dual nationality.

This law represents a considerable tightening up on the previous situation, whereby foreign citizens were merely banned from owning newspapers or magazines with a circulation of over one million, or owning over 50% of terrestrial TV channels or radio stations broadcasting to areas where more than half the population of Russia lives.

Who will be affected?

The change in the law will affect CTC Media, the leading Russian independent broadcasting company that owns the Home (Domashnii), Pepper (Perets) and Disney TV channels; and also Russian-language versions of Western TV channels available on cable, such as Discovery, TV 1000, Eurosport and others. Print publications affected by the law include some of the biggest periodical publishing houses: Burda, Hearst Shkulev Media, Sanoma Independent Media, Bauer Media and Edipresse-Konliga. The amendments will also have a significant effect on glossy magazines, where the drop in the number of foreign investors will allow Russian businessmen with sufficient money to control the advertising market.

However, many people, including Yevgeniya Albats, editor-in-chief of Russian political weekly New Times, are of the opinion that the law’s main targets are the Vedomosti business daily (Sanoma Independent Media) and Forbes (owned by German publisher Axel Springer). That being said, however, Albats also believes that 'with the Financial Times and Wall Street Journal as its co-founders, Vedomosti has more chance of remaining independent.'

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Founded with help from the Financial Times and Wall Street Journal in 1999, Vedomosti is a leading financial daily. (c) Pixabay.

The amendments were rushed through the Duma

The amendments were rushed through the Duma, and passed on 26 September, a mere nine days after the bill was presented to the lower house for debate. The Presidential Committee on Human Rights has been extremely critical of the new law, explaining that the speed with which it was passed has given rise to a whole series of terminological inaccuracies, creating a real danger of conflicts of law. The amendments were intended to avert any ‘threat to Russian national cybersecurity and harm to the rights and freedoms of Russian citizens,' but the legal terminology they use is sufficiently ambiguous to allow loopholes. For example, this might allow for a move to the franchise scheme of management, and the so-called Kazakh experiment, where the organisation acting as founder shareholder of a media outlet may outwardly satisfy legal requirements while it is actually managed via an unrelated, non-media legal entity whose owner could be a foreigner.

A blow to the market as a whole

Media market players have been equally critical of the new law. Companies have until 1 February 2017 to make sure they are compliant, but what this actually means in practice is that foreigners will have to find Russian buyers for their shares. In essence the purpose of the initiative is to destroy the free working of the market. Investors are being forced to sell their shares in difficult conditions and to a very tight schedule, which means in all probability that sales will be at knockdown prices and foreigners will incur losses.

In essence, the purpose of the initiative is to destroy the free working of the market

Viktor Shkulev is president of Hearst Shkulev Media, which publishes Elle, Maxim, Psychologies and Happy Parents among others, as well as the internet publication Woman's Day. In an interview with the internet platform Slon, Shkulev made the following comment: 'If this law is passed, it is not impossible that there will be further bills aimed at limiting business activity in Russia. This is not only a problem for the media industry, but for the market as a whole. The passing of this law brings nothing positive to the business environment and gives out negative signals that Russia has taken the route of increasing limitations on market-led business operations. When journals that have nothing to do with politics find themselves in a situation where foreign holdings are restricted to 20%, this is hardly a free market situation.'

The ban on foreign holdings is also having a negative effect on Russian investment prospects. On the one hand, the country is spending public money on funding special organisations and ministries to attract foreign direct investments (in effect, the reason why the Ministry for the Development of the Russian Far East was established), and the importance of attracting foreign capital into Russia is being discussed at the very highest level. As President Vladimir Putin said at the Business Summit of the Asia-Pacific Economic Cooperation forum, 'To attract investors, reduce risk levels and co-finance projects we are intending to use development institutes and part of the reserves accumulated in sovereign funds: the Russian National Wealth Fund and other resources. We shall also improve access to credit resources. Work is nearing completion on developing project financing structures and we are confident of providing support for large-scale long-term projects.'

On the other hand, the State Duma is passing amendments to a law, which will limit foreign equity in the media sector. This gives out mixed signals to foreign investors, only confirming the unpredictability of business in Russia and scaring off foreign capital. The Norwegian investment company Skagen has already sold its 2% share in CTC Media, the Russian media holding company. As Skagen Global explained in its annual report, 'The Russian parliament unexpectedly passed a law which limits foreign ownership in Russian media companies to 20%, and the company's share price fell sharply as a result. Despite the fact that the earnings multiple for 2015 has been reduced to 4.1 (EBITDA 2015), the increased political risk means they are no longer attractive, so we decided to offload our shares.'

The consumer will suffer most

On top of this, at the beginning of November, Vladimir Putin signed amendments to the law on foreign investment in ‘companies of strategic importance.’ From 6 December these will include periodicals with total annual sales of 15 million copies (previously the threshold was set at one million copies per issue). Any investments in media outlets affected by this law will have to be agreed with a government commission monitoring foreign investment in strategic industries.

The head of Sanoma Independent Media Jean Emmanuel de Witt believes that several thousand people in the media and distribution sector will lose their jobs. Some foreign media companies may leave Russia altogether because policy decisions in international publications are usually taken by the brand owners; and they will be unlikely to allow editors to take such decisions, as this could adversely affect the brand.

Media worldwide are struggling to stay afloat as print is replaced by digital formats

The result will be reduced competition in the media market. According to Viktor Shkulev, 'it will be the Russian consumer who suffers most, because any restriction aimed at making difficulties for businessmen means less competition and less choice.’

Media worldwide are all struggling to stay afloat during the crisis of transition from print to digital format, so Russia is not exceptional in this respect: these days it is very difficult to make any large circulation print publication profitable. The only businessmen who can afford to hold shares in such publications are those whose main business has nothing to do with the media.

In these challenging market conditions, the Russian media have a real need for foreign capital. New restrictions will only exacerbate their problems.

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