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Digital Business Lawyer
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Russia clamps down on video on demand services

Russian authorities have recently adopted a new law on ‘online cinemas,’ which amends the Federal Law ‘On Information, Information Technologies and Protection of Information’ and which is directed at video on demand (‘VoD services’). The new Law has however been subject to some criticism, and also contains some ambiguities, for instance there is some confusion around platforms with user-generated content. David Aylen and Meldir Erbulekova of Gowling WLG (International) Inc. analyse the new Law, the concerns and the possible market impact.

Until recently, there were no laws in Russia regulating any over the top (‘OTT’) telecommunications services including OTT messenger services, social media platforms or video on demand (‘VoD services’)1. From a regulatory perspective, all OTT services were treated simply as ordinary data traffic.

The first areas to be regulated in the TMT2 sector were OTT messengers and social media platforms with an obligation being imposed on network operators to store information on calls and messages.

On 1 May 2017, the controversial and sometimes criticised draft law on ‘online cinemas’ was adopted. The law on online cinemas amends the current Federal Law ‘On Information, Information Technologies and Protection of Information’ (the ‘Law’)3 and is directed at VoD services.

The new legal framework came into force on 1 July 2017 but there remain uncertainties as to how the new Law will apply in practice.

Audiovisual services defined

The new Law regulating VoD services sets a range of restrictions on the providers of these services.

The Law includes a definition of an audiovisual service which, broadly speaking, says that it may be a website (web page) on the internet, an information system or software, which collects and organises and provides for the dissemination of audiovisual works on a platform having more than 100,000 Russian viewers per day.

In particular, for a VoD service to qualify as an audiovisual service the following criteria must be met:

• the video on demand is delivered via a website, an information system or software;

• the service collects and organises audiovisual works;

• it has at least 100,000 Russian viewers per day; and

• it is provided as VoD by subscription (‘SVoD’) or by an advertising VoD (‘AVoD’) business model.

The first criterion is broad and extends to all OTT video services, IPTV and mobile applications since the legal definitions of information systems and software are designed in a way that makes them fall under this category. The Law does not differentiate between videos that are downloaded or that are streamed. In other words, any method for delivering content will qualify in regards to the audiovisual work.

According to the second criterion, the service provider must collect and organise audiovisual works.

Article 1263 of the Russian Civil Code defines an audiovisual work as a work consisting of a fixed series of interconnected illustrations (with or without sound) and which is meant for visual and aural (in the case of accompanying sound) perception with the use of appropriate technical devices. Audiovisual works include cinematographic works and all works expressed by means analogous to cinematographic (television and video films, and other similar works) regardless of the means of their initial or subsequent fixation.

The Law explicitly exempts from regulation platforms with user-generated content, online media and search engines. A lot of confusion has arisen already as regards platforms with user-generated content. For example, besides blog posts and vlogs, a service such as YouTube hosts a considerable amount of professional content. In this respect, the Law stipulates that only websites with ‘predominantly’ user-generated content are exempted from the Law. One wonders whether Russian authorities will be able to conduct web analytics research on the amount of professional and user-generated content in order to assess whether the Law should apply or not - however they would certainly pursue more obvious cases that come to their attention.

Foreign participation

The Law also sets a restriction in respect of the ownership of an audiovisual service provider.

Under the Law, only Russian legal entities and Russian citizens can wholly own an audiovisual service business. A foreign company may own no more than 20% of such a Russian legal entity unless special permission from the Russian Governmental Commission is provided.

It is not clear whether the permission that is required is from the existing Government Commission on the monitoring of foreign investment4 or whether it is to be from a new Commission. Restrictions in respect of foreign participation in more conventional audiovisual services are applied when the subject matter is seen to have strategic importance for national security and the safety of the state.

Registration

If a VoD service provider qualifies as a provider of an audiovisual service, the provider must be registered on the Register of audiovisual services (the ‘Register’).

The Federal Service for Supervision in the Sphere of Telecoms, Information Technologies and Mass Communication known as ‘Roskomnadzor5’ will maintain this Register.

Roskomnadzor, with the aid of its visitor tracker software, will conduct monitoring and will notify service providers if they ought to be registered. Within two months after such notice, the provider must submit evidence confirming its compliance with the foreign ownership restrictions. Failure to do so may result in Roskomnadzor obtaining a court order to block the service in Russia.

Content filtering

Under the Law, all audiovisual service providers must:

• Monitor content and filter information that is prohibited by Russian law;  

• Comply with the laws on mass media, elections and referendums, state secrets and the law on information;

• Install and apply state approved software for website visitor tracking;

• Provide age ratings for audiovisual works; and

• Provide contact details for receipt of correspondence.

Par. 1 of Article 10.5 of the Law on Information provides a list of information, dissemination which will be specifically prohibited in respect of an audiovisual service:

• state secrets and other confidential information; materials which encourage or justify terrorism and other extremism information; materials which propagandise pornography or the cult of violence; and

• materials which contain strong language. 

The Law does not specify what methods or tools should be used for monitoring and filtering the content.

In respect of ‘propagandising pornography,’ this is already very controversial wording that is being used in another statutory context; the term leaves it open to interpretation whether the dissemination of pornography itself is prohibited or whether it is only the promotion of the same which is forbidden. Lack of clarity as to what this term means has already created challenges for global website platforms that provide adult content. The key issue is whether the mere posting of pornographic content means that it qualifies as propaganda.

Website visitor tracking

As mentioned earlier one of the main criteria in determining whether a VoD service is an audiovisual service is that it must have a minimum of 100,000 Russian viewers per day. The Law obliges providers of audiovisual services to only use software that is approved by Roskomnadzor to monitor a website’s activity. The wording of the Law suggests that there will be a list of approved software products. The process for obtaining approval of software is not clear, and what particular software is on the approved list is still unknown. This question has been the subject of criticism with allegations being made that the regulatory authorities may be favouring certain software for other reasons.

Potential impact on the market

Russian consumers have a voracious appetite for all things online. With internet access becoming widely available throughout all of Russia, the demand for online video is growing very quickly and conventional TV has already taken a back seat.

For many years pirated content and peer-to-peer websites were the only available options. However, in recent years the Russian authorities have executed anti-piracy campaigns that have enabled them to block outrageous online piracy and infringing websites. For example, in the last two years, 1,500 websites featuring pirated videos have been shut down.

The effective reduction of pirated content online has created an increase in consumer demand for more legitimate content and spawned the growth of legitimate VoD services in Russia including those from established foreign platforms such as Netflix. Although this growth trend is very favourable, the market is still relatively small. In 2016 the total estimated revenue from all legitimate AVoD services was about $82 million and about $45 million for SVoD services, while in 2008 the revenue of DVD sales in Russia was $1.6 billion6.

The new legal framework for VoD services will definitely pose new procedural and administrative challenges for all service providers and may lead to the shutdown of some of them, and some commentators have speculated that on the whole this new Law may be a further means to strategically control freedom of speech. Much will depend upon how the new Law is applied.

David Aylen Managing Partner

david.aylen@gowlingwlg.com

Meldir Erbulekova Legal Intern

Gowling WLG (International) Inc., Moscow

1. OTT service refers to a mobile application or service that provides a product over the internet and bypasses traditional distribution, https://www.techopedia.com/definition/29145/over-the-top-application-ott 

2. TMT refers to the technology, media, and telecom sector, an industry sector used by investment bankers, investors, traders and other market participants. 

3. http://publication.pravo.gov.ru/Document/View/0001201705010016?index=0&rangeSize=1 

4. Website of Government Commission on Monitoring Foreign Investments - http://government.ru/en/department/8/events/

5. Website of Roskomnadzor - https://rkn.gov.ru/ 

6. http://www.forbes.ru/biznes/343495-pyat-trendov-v-razvitii-onlayn-kinoteatrov-kuda-dvizhetsya-rynok

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