On July 1 2017 the controversial (and sometimes criticised) draft law on online cinemas came into force. The law amends the existing federal law on information, information technologies and protection of information and is directed at video-on-demand (VoD) services.

The new legal framework is already in force but there remain uncertainties as to how the new law will apply in practice.

Audiovisual services

The new law regulating VoD services sets a range of restrictions on the providers of these services. It includes a definition of an ‘audiovisual service’ which, broadly speaking, states that it may be a website or web page on the Internet, an information system or software, which collects, organises and provides for the dissemination of audiovisual works on a platform with more than 100,000 Russian viewers a day.

For a VoD service to qualify as an audiovisual service, it must:

  • be delivered via a website, information system or software;
  • collect and organise audiovisual works;
  • have at least 100,000 Russian viewers a day; and
  • be provided as VoD by subscription (SVoD) or by an advertising VoD (AVoD) business model.

The first criterion is broad and extends to all over-the-top video services, internet protocol television and mobile applications since the legal definitions of information systems and software are designed to include them in this category. The law does not differentiate between videos that are downloaded and those that are streamed (ie, 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 Civil Code defines an ‘audiovisual work’ as a work consisting of a fixed series of interconnected illustrations (with or without sound) and 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 cinematographics (eg, television, video films and other similar works) regardless of the means of their initial or subsequent fixation.

The new law explicitly exempts from regulation platforms with user-generated content, online media and search engines. Confusion has arisen already as regards platforms with user-generated content. For example, besides blogs and vlogs, a service such as YouTube hosts a considerable amount of professional content. In this respect, the new law stipulates that only websites with “predominantly” user-generated content are exempt. It remains to be seen whether Russian authorities will be able to conduct web analytics on the amount of professional and user-generated content in order to assess whether the new law should apply – they would certainly pursue more obvious cases that come to their attention.

Foreign participation

The new law also sets a restriction on 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 it is granted special permission from the government commission.

It is not clear whether this permission will be granted by the existing Government Commission on Monitoring Foreign Investment or a new commission. Restrictions with respect to 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 Federal Service for Supervision in the Sphere of Telecom, Information Technologies and Mass Communication (Roskomnadzor) will maintain this register.

Roskomnadzor, with the aid of its visitor tracking software, will monitor and notify service providers if they should 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.

Article 10.5(1) of the law provides the following list of material which will be specifically prohibited from being disseminated in respect of audiovisual services:

  • material which contains state secrets or other confidential information;
  • material which encourages or justifies terrorism or contains other extremist information;
  • material which propagandises pornography or the cult of violence; and
  • material which contains strong language.

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

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

Website visitor tracking

One of the main criteria for determining whether a VoD service is an audiovisual service is that it must have at least 100,000 Russian viewers a day. The law obliges providers of audiovisual services to use only Roskomnadzor-approved software to monitor a website’s activity. The wording of the law suggests that there will be a list of approved software products. However, the process for obtaining software approval is not clear, and the approved list of software remains unknown. This lack of clarity has been criticised, with the regulatory authorities facing allegations of touting favoured software for undisclosed reasons.

VoD market

Russian consumers have a voracious appetite for all things internet related. With internet access becoming widely available throughout Russia, the demand for online video is growing rapidly and conventional television is taking a back seat.

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

The effective reduction of pirated online content has increased consumer demand for legal content and spurred the growth of legal VoD services in Russia, including those from established foreign platforms such as Netflix. Although this trend is favourable, the market is still relatively small. In 2016 the total estimated revenue from all legal AVoD services was approximately $82 million and approximately $45 million for SVoD services, while in 2009 the total revenue from legal DVD sales in Russia was $1.6 billion.

The new legal framework for VoD services will pose new procedural and administrative challenges for all service providers, and may lead to some of them shutting down. While some view the new law as a further means to strategically control freedom of speech, much will depend on how the new law is applied.

This article was first published by Intellectual Asset Management (IAM).