Discovery among pay-TV firms hit by Russian advertising ban

[MOSCOW] Russia's advertising ban on pay-TV channels with foreign content may cut Discovery Communications Inc. and Modern Times Group AB's sales in the country by as much as a third, according to a cable-television lobby group.

Popular channels are losing a major revenue stream as the new rules took effect this month, Yuri Pripachkin, head of the association of cable-TV operators, said in a phone interview. Discovery operates its namesake channel, Animal Planet, and others. Modern Times's channels include TV1000 and Viasat Sport.

The ban is part of President Vladimir Putin's campaign to tighten his grip on foreign media amid geopolitical tensions with the US and Europe. Comcast Corp.'s NBCUniversal said last week it's shutting its Russian pay-TV business, citing challenging economic environment.

"Popular channels used to earn a third of their revenue from advertising and two-thirds from subscriptions," Pripachkin said. "With the new legislation, they are losing one of these revenue streams." Shares of Modern Times dropped as much as 1.8 per cent and lost 0.7 per cent to 236.30 kronor at 1:26 pm in Stockholm. Discovery fell 0.1 per cent to US$29.74 in New York yesterday.

Lawmakers initially banned advertising on pay-TV channels starting January 1. The Russian parliament is now amending the law to keep the ban only for channels featuring less than 75 per cent of local content, according to its website.

Russia's pay-TV subscriptions rose 12 per cent last year to 61 billion rubles (US$863 million), according to Pripachkin's group. Advertising on pay-TV channels reached 2.8 billion rubles in the first nine months of 2014, data compiled by Russia's Association of Communications Agencies showed.

Channels owners that have a significant part of their business in Russia, including Discovery and Modern Times's Viasat Broadcasting, will probably stay and accept a sales drop, Pripachkin said.

"We are watching the amendments in Russian legislation closely and run our operations in full accordance with laws, and should these amendments take effect we'll change our short-term strategy," Discovery Networks said in an e-mailed statement. Discovery has been in Russia for more than 15 years and the country remains one of its key markets, the Silver Spring, Maryland-based company said. It doesn't break out sales in Russia.

A Modern Times representative in Stockholm declined to comment. In October, the company said the new law's full effect will be seen in 2015. For 2014, Modern Times said the law would have a negative impact on its operating profit amounting to about half of its ad sales. Its Russian ad sales were 103 million kronor (US$12.5 million) in 2013. The company is scheduled to report 2014 earnings next week.

Restrictive laws are negatively affecting business together with the economic slowdown, Alexey Krol, head of Russia for Modern Times's Viasat, told an industry conference in Moscow this week. It's impossible to change the channels' content overnight to adapt to legislation, he said.

At least one of Viasat's channels, Russian Cinema, has local content and can keep showing ads, Pripachkin said.

NBCUniversal plans to stop broadcasting its Universal Channel and E! Entertainment Television in Russia in the coming months.

BLOOMBERG