Netflix Continues Operating in Russia Despite Foreign Ownership Restrictions

MOSCOW, RUSSIA -A general view of Red square and Kremlin-Getty-H 2016
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As of this weekend, a law limits foreign ownership of online video services to 20 percent stakes, but the streaming video giant's service hasn't been shut down or interrupted.

Netflix continues operating its online streaming service in Russia despite a new law limiting foreign ownership of online video services, which came into effect this weekend.

The law stipulates that foreign ownership of online video services operating in Russia is limited to 20 percent stakes, but on Monday, Netflix's service in the country was still running without interruption or signs of being shut down.

Netflix and the Russian regulator did not immediately comment on the situation, but sources tell The Hollywood Reporter that the streaming service would "not be impacted in the near term."

It was not immediately clear why, with observers suggesting Netflix may benefit from some clause in the law. For example, it stipulates that ownership limits apply to services with a daily viewership of over 100,000, but Netflix has so far never revealed how many subscribers it has in Russia.

This April, Alexander Zharov, head of Roskomnadzor, Russia's communications watchdog, said that Netflix would have to partner with a Russian company to continue operations in the country and that, according to his knowledge, the U.S. video service was in negotiations with potential Russian partners. Neither Netflix, nor Russian online video services confirmed any negotiations.

Under Roskomnadzor's requirement, all online video services operating in Russia will have to install software for reporting the number of users. However, the agency did not clarify if the information would be made public.

When Netflix launched in Russia in early 2016, local experts said that the company could potentially attract 10 percent of local online video subscribers, the number of which has been estimated at 2.5 million.

The new law is similar to a law enacted two years ago that also limited foreign ownership of Russian media companies to 20 percent stakes, leading to the exit of Modern Times Group and the transfer of Discovery Communications' Russian assets to local distributors.

The law on online video service ownership was largely provoked by Netflix's launch in Russia. In 2016, a number of local online video services complained that Netflix, as a global player, would present unfair competition to their operations.

The first step towards restricting operations of foreign online companies in Russia was the introduction of a value added tax for them as of January 2016.

Local competitors of Netflix include Okko Ivi, Megogo and TVzavr. The market of online video services in Russia is worth about $100 million a year, according to J’son & Partners Consulting.