Foreign media companies leaving Russia as new ownership law looms

People by the new Press kiosks on the square in front of the Shabolovskaya metro station, Moscow. Source: RIA Novosti/Konstantin Rodikov

People by the new Press kiosks on the square in front of the Shabolovskaya metro station, Moscow. Source: RIA Novosti/Konstantin Rodikov

Ria Novosti/Konstantin Rodikov
With a new law limiting foreign ownership of media in Russia to 20 percent due to come into force on Jan. 1, 2016, many international companies are already leaving the market due to loss of revenue.

With less than half a year left until controversial amendments to a law on mass media ownership that will limit foreign participation in Russian mass media to 20 percent goes into effect, many foreign publishers are already thinking of completely selling their businesses – it is simply no longer profitable.

The law will enter force on Jan. 1, 2016, and media companies are obligated to submit reports on their shareholders by Feb. 15, 2016.

In September it was announced that two large foreign media holdings, the German Axel Springer and the Swiss Edipress, are selling their Russian assets. President of Axel Springer International Ralph Buchi said that the demands of the new mass media law are "not acceptable" for the company.

Assets are also being sold in the world of television. STS Media, 37.9 percent of which belongs to the Swedish Modern Times Group, announced that it is selling 75 percent of its assets to UTH Russia for $200 million.

 

Why has the media business in Russia become unprofitable for foreigners?

According to IFC Markets analyst Dmitry Lukashov, foreigners are ready to leave the Russian media business not only because of the government ownership ban, but also for financial reasons.

He explained that foreign mass media is interested in profits in foreign currencies, while its revenues in Russia are generated in rubles. In 2014 the ruble fell by 72.2 percent to the dollar and 51.73 percent to the euro, which had a direct impact on revenues.

Moreover, in the field of advertising, foreign mass media is accustomed to working with western clients and producers of consumer goods. Due to the economic crisis in Russia, sales of foreign advertisement have fallen, thus reducing the advertising budget.

According to analyst from Otkrytie Kapital Alexander Vengranovich, in the first six months of 2015 the volume of advertising in print publications in Russia shrank by 33 percent (in 2014 there had been an 11-percent growth). Meanwhile, in television volumes fell by 21 percent in the first half of 2015 (in 2014 there had been a 2-percent growth).

"Foreign owners of Russian mass media are leaving the Russian market due to the unprofitability of participating with a 20-percent share, regardless of the publication," said Sergei Varlamov, partner at Delovoi Farvater.

Following the adoption of the law on mass media ownership, the quoted prices of media companies in Russia fell by an average of 60 percent.

 

Who's left?

However, there are some companies that are happy to remain on the Russian market. TV channels belonging to the Disney and Discovery family (Discovery, Animal Planet and Eurosport) will be managed by specially created Russian companies, while TV channels from the Fox family have changed their owner: The official Fox distributor in Russia will now be a Russian company,.

However, Alexander Vengranovich notes that restructuring assets and transferring 80 percent of the ownership to a Russian company (with 20 percent remaining for the foreign media company) does not necessarily mean that revenues will be distributed accordingly.

"Shareholder's agreements can be made that separately determine the distribution of revenues," he said.