Russian media market: tight constraints for foreign investors in sight

06.10.2014

Russia moves to drastically restrict foreign participation in the Russian Mass Media. Those foreigners already involved in Russian Mass Media entities may be forced to divest or at least to significantly restructure their Russian undertakings.
 
Foreigners will not be able to directly set up, own shares in, or control the editorial content, of Russian Mass Media, once the new draft law on Russian Mass Media, which passed the penultimate step of the legislative process in Russia on 1 October 2014, comes into effect (the “New Law”). The New Law will also restrict indirect ownership and control by foreigners to a maximum of 20%.
 
The New Law will affect printed periodicals and online editions as well as radio and television broadcasters in Russia. Due to the wide wording of some of the definitions in the Russian media legislation, it would appear that the New Law could also apply to a number of e-commerce businesses (collectively, classical media and e-commerce will be referred to as “Russian Mass Media”), although this implication did not feature in the wide ranging debate as the law was passing through the Russian parliament, so it would seem to be an unintended side effect.
 
The New Law defines “Foreigners” as:
 

  • a foreign state, an international organization, or entity controlled by them;
  • a foreign legal entity;
  • a Russian legal entity with a foreign shareholding of more than 20%;
  • a foreign national.

 
Foreigners will be prohibited from:
 

  • acting as a founder, a shareholder, or as the editorial office of a Russian Mass Media entity;
  • owning, managing or controlling (directly or indirectly) more than 20% of the participatory interests/ shares in the charter capital of a company which is a shareholder in a Russian Mass Media entity or the editorial office of a Russian Mass Media entity; and
  • otherwise controlling a shareholder (including a founder) of a Russian Mass Media entity, its editorial office or the indirect shareholders of a Russian Mass Media entity.
 
Compliance with the New Law will be monitored by the Federal Service for Supervision in the Sphere of Communication, Information Technology and Mass Communications (“Roscomnadzor”). Any entities failing to comply with the new requirements will be at risk of suspension of their activity at the request of Roscomnadzor. The details of how compliance will be monitored have yet to be adopted, and how the New Law will be interpreted in practice by the authorities will only come with time.
 
Assuming that the New Law is signed by President Putin as expected by the end of October 2014, it will become effective on 1 January 2016. A grace period until 1 January 2017 may be applicable if the foreign entities are ultimately owned by Russian beneficiaries that have a stake of at least 80% in such foreign entities, provided that such ownership has been reported to and confirmed by the authorities prior to 1 February 2016.
 
The New Law will certainly have a huge impact for foreign companies involved in Russian Mass Media businesses. As mentioned above, this could extend to e-commerce businesses as well. Given the potentially drastic implications of the New Law, ways how to deal with it should be explored sooner rather than later, taking into account the specific details of each investment potentially affected by the New Law. The New Law will likely require restructuring of existing structures and operations, and it is possible that some element of divestment could be required as a last resort.
 
Noerr has been present in Russia for more than 20 years and has advised on some of the biggest foreign investments in Russian Mass Media businesses. We would be delighted to help you find the best solution for your business in terms of dealing with the restrictions in the New Law.