GS Group and professional community against a ban on advertising on the Russian cable TV channels

July 7, 2014, the RBC press center held a press conference dedicated to the acceptance of the package of amendments to the Russian Federal Law "On Advertising". The main theme of the discussion was a bill putting advertising on the Russian cable TV channels under complete ban. Professional community representatives announced the possible negative consequences of the amendments acceptance: increase of subscription fees, destruction of a number of channels due to a sharp decline in revenues, loss of advertising tool with a democratic price for small and medium-sized businesses.

Nikolay Orlov, General Director of First TVCH, a part of the GS Group holding, noted in his speech that the reason for the acceptance of amendments is not a privileged market position of TV channels, having a two-tier revenue stream made up of subscription cash and advertising income, as stated by the Committee for Economic Policy. "Those who are only using the advertising income model, have chosen to undertake this scheme on their own", – explained Nikolay Orlov. – The state supports the mandatory public channels included in the first multiplex". He noted the fact that the thematic TV channels seize 10-20% of the terrestrial channels audience, and high-definition television (HDTV) – up to 50% of audience. Meanwhile such channels audience is generally young, and therefore more susceptible to advertising. "Probably, the advertising market share could be eventually redistributed in favor of thematic channels, – commented Nikolay Orlov. – Most likely, the decision of State Duma to adjust this business sector is lobbying interests of terrestrial channels".

Changes will affect all TV channels, which are accessed exclusively via paid basis or by using decoding devices, including those distributed through the TV operators basic packages, e. g.  RBC TV, RU.TV, Discovery Channel and others.

Then speakers raised the issue of the amendments shortcoming. The new law contains a number of terms previously not defined in the Russian legislation, such as "pay channel", "pay-TV", "decoder" and others. "Incorrect wording makes it difficult to handle the understanding of the bill as a whole and the ban specifics in particular", – said Natalia Piskunova, General Director of the National Association of Broadcasters. Industry organizations go on trying to clarify the terminology. "We find it unacceptable to solve such issues without discussing them with the professional community", – said Mikhail Silin, Vice-President of the Association of the Russian Cable Television. – The bill does not achieve any of the advertising market regulation objectives, but creates certain risks primarily for the consumer". Thus, for example, 30-40% of the First TVCH revenue structure is generated by advertising. This is the average rate typical for the thematic channels market. So, if the new rules are accepted by TV operators, subscription fee for users of cable and satellite TV services may increase by a third.

According to Andrey Balashov, Director for Business Development of the Agency 2, a part of GS Group and an exclusive seller of advertising for the channels assembled on Tricolor TV, the bill runs counter to public policy of the small and medium-sized businesses support. "Small and medium-sized businesses do not have sufficient budgets to advertise on federal TV channels, – commented Andrey Balashov, – The discussed bill endangers precisely these market players". "Our task is to postpone the adoption of the amendments till they are discussed in the industrial community", – Nikolay Orlov pointed out.

It is to be recalled that a package of amendments to the Federal Law "On Advertising" was accepted by State Duma on July 4, 2014 in the second and third readings. The new legislation was then approved by The Council of the Federation and signed by President on July 9. Most of amendments will come into effect from January 1, 2015.