U.S. Media, Tech Companies Facing Harsh Regulatory Environment in Russia in 2020

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The Kremlin

New protectionist legislation takes aim at Apple, Facebook, Twitter and Netflix, with more measures currently in the works.

U.S. media and tech giants are likely to face increased pressure in Russia next year as various laws are being tightened.

Under a piece of legislation that comes into effect July 1, all computers and mobile devices sold in Russia will have to have preinstalled Russian software, which some foreign tech companies, including Apple, are unwilling to do.

In Apple's case, the U.S. tech giant would have to preinstall a web browser developed by Russian online giant Yandex and other applications, incurring extra costs for technological developments and license fees. Apple didn't reply to The Hollywood Reporter's request for comment. However, earlier, several companies, including Apple, Google, Samsung and Dell, made futile calls on Russian authorities not to pass the legislation.

The Association of Trading Companies and Manufacturers of Electrical Household and Computer Equipment (RATEK), of which Apple is a member, has also been critical of the initiative.

"The initiative is potentially harmful for the market," a spokesman for RATEK told THR. "It will hit consumers, electronics manufacturers and software developers, alike. Specifically, manufacturers will suffer as operational systems of some of them are not suitable for external applications, and even those who potentially can preinstall local apps, will have to pay sizable license fees."

Meanwhile, Facebook and Twitter are currently in breach of Russian legislation enacted three years ago that requires Russians' personal data to be stored in Russia. While LinkedIn, which openly declined to comply with the new law, was immediately blocked, Facebook and Twitter have been less vocal about the legislation, but they continue to store their Russian users' personal data outside of the country.

Calls for blocking access to Facebook and Twitter have continued as legislators and politicians accuse the two companies of meddling in Russia's affairs by allowing anti-Kremlin content to be published. This past fall, a legislation has been passed that stipulates much higher fines for online companies breaking various regulations, including the personal data law.

Under the legislation, fines for failure to comply with the personal data law will go up dramatically from the merely symbolic 5,000 rubles ($78) to 6 million rubles ($95,875) for the first violation and 18 million rubles ($287,924) for repeated violation of the law.

Although the numbers may still appear low compared with the tech giant's revenues, those fines could be technically applied repeatedly.

Meanwhile, Russian operations' future for global streaming services, such as Netflix and Apple TV+, remains unclear.

Prior to the launch of Apple TV+, the Russian government said it will prepare legislation restricting operations of foreign video services in a move to protect local companies from foreign competitors, specifically mentioning Apple.

Since its launch, Apple TV+ has kept a low profile, which apparently satisfies local streaming services.

"At this point, we don't see Apple TV+ as a competitor, since they have a totally different content policy and audience," Elena Khlebnikova, content director at the online video service tvzavr, told THR. "As we know, the service doesn't offer content dubbed into Russian, which probably means that they don't expect a substantial audience at the initial stage, as Russian viewers are mostly not used to subtitled content."

However, if Apple TV+ and Netflix step up their activity in the Russian market, increasing viewer numbers, they may face not only new restrictions, but also, under the very worst-case scenario, be driven out of the market completely.

A law restricting foreign ownership in major video streaming services to 20 percent stakes was adopted two years ago, but it only applies to services whose number of subscribers is over 50 percent of all Russian video streaming users.

So far Netflix and Apple have never revealed their user numbers in Russia, but under the law they will be required to do so. If the government determines the services have hit the 50 percent threshold, their Russian operations could immediately become illegal.