FOCUS: Bill capping foreigners in news aggregators to benefit govt, harm business

By Yekaterina Yezhova

MOSCOW, Oct 29 (PRIME) -- Like with mass media, Russia may limit foreign ownership in news aggregators to 20%, and analysts warn of a badly negative fallout for the business. The measure would force local Internet giants Yandex and Mail.Ru Group to reshuffle their ownership, but Google would be unaffected.

“The bill is evidently quite an understandable intention of the government to drive news aggregators into Russian jurisdiction. In this case, the government will have enough official and unofficial levers of influence on the information broadcast by the aggregators,” investment company Algo Capital senior risk manager Vitaly Manzhos told PRIME.

“Most likely, the bill will be adopted fast. I would not exclude similar or tougher measures in the future as well.”

The bill was submitted to the State Duma, the parliament’s lower house, on October 22. In case of disrespect, connection operators will suspend access to a resource following a court decision made upon a complaint from an authorized federal executive entity until owners of the aggregator improve.

Owners of aggregators are supposed to adjust their charter documents to the new requirements within no more than six months since the date of the law’s coming in force.

The measure could apply to four services: Yandex.News, Mail News, Rambler/News, and SMI2. All the other similar aggregators, including Google News, are not on the register of the communications service, which means their daily audience counts less than 1 million people.

Yandex belongs to Dutch firm Yandex N.V., which trades on the Nasdaq; and 28% of Mail.Ru Group belongs to South African fund Naspers, 7% to Chinese investment company Tencent and more than 50% are in free float on the London Stock Exchange.

A spokesperson for Yandex said the company is closely watching the situation. “If the law is adopted, the board of directors will study possible options of restructuring the news service with respect to the law requirements,” the spokesperson said.

Mail.Ru Group said it expects no negative impact on the company because of the bill.

Rambler Group fully belongs to a Cypriot company and SMI2 belongs to Internet holding E-generator, which is 40%-owned by Cyprus’s Finam Company, according to mass media. Rambler Group said the initiative will not influence portal Rambler because it works in compliance with the Russian law.

State interests first

The bill’s authors said the initiative will “prevent threat for public order in Russia and create favorable conditions for development of the civil society.”

President Vladimir Putin’s spokesman Dmitry Peskov said the Kremlin finds the initiative fair, but the matter should be worked through with experts. Aggregators that cover a great number of users could be equaled to mass media, where foreign ownership is capped to 20%, he said.

Speaker of the Federation Council, the parliament’s upper house, Valentina Matviyenko said the chamber will undoubtedly support the bill, because the law already treats news aggregators as mass media.

Manzhos at Algo Capital said the bill along with other legal initiatives – amendments to the law to reduce chances of foreign influence on local elections and the Transport Ministry’s intention to localize servers and databases of booking and sales of flight tickets for national airlines – imply stronger regulation to enhance government control over information flows, including those in the Internet.

“Judging by the current trends, we can expect further toughening of limits for local IT companies. The trend could be directly linked to the repeated accusations of Russia of interference in the U.S.’ elections. This is why it would be quite logical to expect some meddling in Russian elections as well by foreign states in the next few years,” the senior risk manager said.

Business to suffer

The politically-motivated regulation will hurt business of Internet companies, which have been traditionally perceived as progressive and independent.

“Big foreign investors will go cold on the shares of such companies as Yandex and Mail.Ru. In such a way, the main negative impact of the bill is in worsening of the investment climate,” Manzhos said.

Sergei Plugotarenko, director of the Russian Association for Electronic Communications (RAEC) agreed, adding that the measure is excessive and will wipe out the investment potential of the local Internet industry.

“Foreign investors are shareholders in all the biggest local Internet companies, including public ones. The initiative will harm not only the existing Internet companies, but also the investment climate as a whole. Amid the current lack of funding, such a restriction could entail strongly negative consequences,” Plugotarenko told PRIME.

“Moreover, such restrictions could undermine availability of information resources in Russian in the global Web.”

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