Abramovich and VTB step in to help ‘Russia’s Netflix’ resolve its problems with the government

Russia’s leading IT companies — like their counterparts around the world — frequently face government pressure. However, they are generally not suspected of infringing user rights or monopolistic behavior like in the West. In Russia, the government’s big concern is ensuring that these companies remain under the control of Russian shareholders (meaning the authorities have a lever of influence).

• The latest example of this is Russia’s leading streaming service ivi. Last year, the company began preparations for an IPO in New York and was hoping for a valuation of up to $1 billion. But these plans were scuppered by Anton Gorelkin, a deputy in the Russian parliament who has been at the forefront of clamor for tighter restrictions on the IT sector.
• Gorelkin announced a proposal to limit foreign ownership of Russian audio-visual services to 20 percent. “Foreigners can buy up our domestic online cinemas before they are fully grown,” he fumed. He said his idea would stop foreign competitors “swallowing” Russian companies.
• For ivi founder Oleg Tumanov (interviewed here for our ‘Russians are OK!’ project), this was bad news. Foreign funds including private equity outfit Baring Vostok already owned a stake in his company. So, Gorelkin’s initiative meant ivi could no longer risk an IPO. Apparently, ivi then embarked on a series of long negotiations with the authorities.

• The end result was that ivi announced a new round of funding Tuesday worth $250 million. The group of new investors is led by VTB Capital, the investment arm of state-owned VTB bank. A VTB representative will take a seat on the ivi board of directors. In addition, the streamer service got new shareholders linked to billionaire Roman Abramovich and his partners Alexander Abramov and Alexander Frolov.
• The timing is curious. Gorelkin unexpectedly announced in April that he was reviewing his proposals and the new version — which ivi supports — only mandates regulations for “service management”. That implies foreigners will only be able to own preferred shares in companies, or that operational management will be transferred to purely Russian-owned companies.
• This sort of compromise brings to mind the story of Russian IT giant Yandex. In 2019, Gorelkin also sought to limit foreign investment in the company. To water down his proposal, Yandex also had to change its management structure and create a special vehicle through which the state could influence business decisions. Within a year of this deal, VTB and Abramovich also appeared among the minority shareholders at Yandex.

Why the world should care

It seems ivi is still pressing ahead with its planned IPO. But foreign shareholders should keep in mind that the government will do everything in its power to keep Russia’s IT giants on a short leash.