New ad law set to wreak havoc in Russian TV market

A new Russian law banning advertisements on pay TV appears aimed at further tightening the Kremlin's grip on the country's key media. But it is also set to wreak havoc on large parts of the TV industry.

The amendments to the law on TV advertising came like a bolt from the blue. First tabled by little-known MP Igor Zotov on 24 June, they raced through four readings in the two houses of parliament in less than three weeks.

They were signed into law by President Vladimir Putin on 22 July and come into force on 1 January.

Introducing the legislation, Zotov said it was intended to create a level playing field between pay TV and its free-to-air competitors. According to Zotov, it is unfair that pay channels should be able to earn revenue from both advertising and subscriptions.

Critics would say the MP was being disingenuous and that the law further loads the dice in favour of the big terrestrial channels, which not only get the lion's share of advertising revenues but in many cases benefit from state subsidies.

In a statement published on 14 July, media watchdog Roskomnadzor said the ban could affect 1,400 channels, 300 of which feature in cable and satellite packages available across Russia. These include major international players such as Discovery and National Geographic. But it is the smaller Russian niche channels that are likely to be hit hardest. While the big pay channels can charge operators lucrative licence fees, the smaller channels are much more reliant on advertising revenue.

In an open letter to Putin, several prominent pay TV bosses said the law would bring around 150 channels to the "brink of extinction". Others will be forced to cut costs and lower programme quality, industry insiders say.

The law has also been criticised in other quarters. The Russian Presidential Human Rights Council said it would "effectively create conditions for a monopoly position for certain companies", while the OSCE said it could "further limit media pluralism" in Russia.

Among the channels that will be hit by the new law is Dozhd, Russia's only independent news and current affairs channel. Dozhd's future was cast into doubt this year after it was dropped by Russia's top cable and satellite operators in a move that was widely seen as a Kremlin-inspired reprisal for its sympathetic coverage of anti-government protests at home and in Ukraine.

The ad ban will be a "stern test" for Dozhd, owner Natalya Sindeyeva told the channel's viewers. But she added that because of its earlier problems it had already rebalanced its revenue structure away from advertising and towards viewer subscription.

Still, Sindeyeva is angry at what she calls the "stupidity, absurdity and cynicism" of the new law. "They have taken a segment of the industry and killed it," she said.

The main beneficiaries of Zotov's law will be the three big state-controlled terrestrial channels, Rossiya 1, Channel One and NTV, whose audiences have declined from around 50% to just 40% in the past three years.

Cable and satellite channels have meanwhile seen a steady rise in their combined audience share, which now stands at around 12%, according to an article on liberal website Slon.ru.

As the Ukraine crisis has shown, TV remains the key lever for influencing public opinion in Russia. A recent poll by the independent Levada Centre found a little more than 90% of respondents got their information about the crisis from TV, and around 80% judged Russian media coverage of it to be more or less "objective".

But the new law on advertising could also pose risks for the authorities. As a representative of Russia's largest satellite operator, Trikolor, told Forbes Russia, it will lead to higher subscription charges, which will "hit the ordinary Russian viewer in the pocket".

The BBC College of Journalism’s Russian website