"Paradui vadovausiu aš!" - Ostapas Benderis

In bed with Kremlin

In bed with the Kremlin

Swedish business in Russia


October 2011. Moscow. Russian President Dmitry Medvedev makes a fast entrance to the Red Hall of the Kremlin Palace. Everybody rises to their feet. The President is in a good mood, he immediately asks Cristina Stenbeck, chairman of the board of directors of Swedish company AB Kinnevik, to have a translator on hand “just to understand her better”. This is an unprecedented event – the President of Russia meets the biggest local and foreign shareholders and investors in Russian media. MTG, owned by AB Kinnevik, is the only foreign company to have a majority stake in a major Russian TV channel.

April 2014. Vilnius. Lithuanian and Latvian authorities temporarily suspend broadcast of several Russian TV channels including “RTR Planeta” and “NTV Mir” due to slanderous and deceitful interpretation of the Baltic states‘ history. However, Viasat, subsidiary of the Swedish company MTG, one of the biggest pay-tv satellite operators in the Baltics, refuses to comply with the authorities.

Mr. Henrik Toremark, spokesman for Viasat, takes part in a meeting with the Lithuanian Radio and Television Commission. He gushes with compliments to the bravery of Lithuanians defending their Parliament against Soviet tanks in 1991 but repeats Viasat position.

“We have a strong tradition of freedom of speech, we are not governed by Lithuanian laws, we will invite Russian TV channels to be more responsible” – this is an official position of Viasat.

How are these two events in Moscow and Vilnius linked? The common denominator is the owners of Viasat – the MTG media group which in fact is owned by AB Kinnevik. MTG also owns TV3, TV6 and TV8 channels in Lithuania.

The doubt whether Viasat is being entirely truthful with the reasons provided sparked this investigation which led deep into the Russian TV media market.

MTG is the only foreign company operating in the Russian television market and co-owning a major TV group – “STS Media”. How can we explain this phenomenon? First, let‘s get acquainted with the rules of the game in Russia.

Here is the list of top ten TV channels in Russia and their owners. The first impression is positive – a lot of companies, high competition, only several State run channels.

First impressions are usually wrong. Here are the main players in the media market:

State (“Russia 1”, “Channel 1”, “TV Centr”) – owned by All-Russia State Television and Radio Broadcasting Company, Russia 1 is the official mouthpiece of Kremlin. Through governmental agencies, the State owns 51% of the most popular TV channel in Russia “Channel 1”. Together with “Russia 1” these two channels cover the majority of the information field inRussia. The third pillar is “TV Centr”, fully owned by theMoscow city administration.

National Media Group (“Channel 5”, “Ren TV”, 25% “Channel 1”) – the biggest private media holding inRussia. Though we should be wary of the word “private”. National Media Group is owned by the bank “Rossiya”. The largest bank shareholder is Yury Kovalchuk, his nephew, Kirill Kovalchuk, is the chairman of National Media Group board of directors. Yury Kovalchuk is one of the wealthiest oligarchs inRussia and a personal friend of Vladimir Putin. In 1996 Kovalchuk and Putin together with five other shareholders (one of them, Mr. Nikolay Shamalov is the co-owner of bank “Rossiya”) have established co-op venture “Ozero” (“Lake”). Mr. Kovalchuk has been referred as “a personal cashier of President Putin”. This March US Treasury department announced sanctions against him as well as his bank “Rossiya”. Recently EU also included Mr. Kovalchuk in their sanctions list. National Media Group has its public council led by Ms. Alina Kabayeva, Olympic champion and, according to numerous sources, closely linked to Vladimir Putin.

The fact is clear – National Media Group led by Yury Kovalchuk is an affiliate of the Kremlin.

Gazprom-Media ( NTV, TNT, TV3) – another huge Russian media holding. The chain of its owners is confusing but the pattern is recognizable. Let’s try to unravel it. Gazprom-Media has the following shareholders:

–         41% “Gazprom” (the biggest Russian gas company, State owns 50% + 1 share)

–         47% “Gazfond” (the biggest private pension fund inRussia)

The president of “Gazfond” is Mr. Yury Shamalov, notably the son of Nikolay Shamalov, business partner of Yury Kovalchuk and co-owner of bank “Rossiya”. However “Gasfond” is operating under control of the holding company “Lider” whose biggest shareholder is an insurance company for Russian gas industry “Sogaz”.

Until March 2014, 51% of “Sogaz” was owned by the investment company “Abros” which in turn is fully owned by the bank “Rossiya”. However after the first wave of USA sanctions bank “Rossiya” lowered its stake in “Sogaz”/”Abros” to 48.5% in order for “Sogaz” to avoid the consequences of sanctions. However this does not change much as additional 12.5% is owned by Nikolay Shamalov.

Another piece of Kovalchuk media puzzle is the current general director of “Gazprom Media” – Mikhail Lesin, former Minister of Communications and Mass Media, former advisor to the President of Russia Vladimir Putin and Dmitry Medvedev. According to Russian financial media he was fired by President Medvedev due to too close a relationship with Yury Kovalchuk and in 2013 landed in “Gazprom Media”. Mr. Lesin was also one of the creators of “Russia Today”, official Russian propaganda TV channel broadcasting worldwide in English.

The fact is clear – “Gazprom Media” is under the direct control of Yury Kovalchuk and bank “Rossiya”.

So eight out of the ten biggest TV channels in Russia are owned either directly by the State or by media mogul and “personal cashier of Putin” Yury Kovalchuk. This gives the State enormous power to control the flow of information in Russia.

And the other two channels – STS and “Domashniy” – belong to the “STS Media” group which is primarily owned by the Swedish company MTG.

So here is the question – how on Earth is a foreign company allowed to operate in the lucrative Russian media market fully blanketed by State and the companies associated with the Kremlin? How is it possible for MTG to do so without having binding ties to the Kremlin?

Let’s have a look.

“STS Media” has two major shareholders:

–         “MTG” 39%

–         “Telcrest Investment Limited” 25% (since 2011)

The rest of the shares are freely floated in the NASDAQ stock exchange; however they tend to float to the hands of US financial institutions. According to Bloomberg, almost 25% of the floating shares are concentrated among JPMorgan Chase & Co., BlackRock Inc., and Franklin Resources Inc.

The cream of MTG sits on behalf of the company on the “STS Media” board of directors: Mr. Jorgen Madsen Lindemann, CEO and president of MTG, Ms. Irina Gofman, CEO of MTG Russia, and Mr. Lorenzo Grabau, non-executive member of MTG Board of Directors.

The second shareholder of “STS Media” – “Telcrest Investment Limited” – appeared in a quite interesting way. Until May 2011, 25% of “STS Media”, a blocking minority share package, was owned by “Alfa group” which was looking to sell. MTG waived its preferential right and Telcrest stepped in paying 1.07 billion USD despite being registered in Cyprus just one month ago.

Who is behind Telcrest and who gave such a huge financial injection?

To answer this look no further than National Media Group and bank “Rossiya”. Through National Media Group and other affiliated companies, bank “Rossiya” owned 86.4% shares of Telcrest. In April 2014 the bank strengthened its position, buying 10.46% of Telcrest directly.

After the sale of “STS Media” shares to Telcrest, Yury Kovalchuk himself was quoted as “looking forward to prospective partnership with MTG”.

Until 2013, Telcrest was represented on the board of directors of “STS Media” by Mr. Dmitriy Lebedev, chairman of the board of directors of bank “Rossiya”. He was replaced by Alexander Pentya, vicepresident of “ABR Management”, a corporate management company for bank “Rossiya”.

Another representative of Telcrest in “STS Media” and co-chairman of the board is Mr. Angelo Codignoni, former CEO of Eurosport and more interestingly former member of public council of National Media Group. According to the Russian daily “Komersant”, Mr. Codignoni was the advisor of Yury Kovalchuk and is very close to the former Italian prime minister Silvio Berlusconi. In the files disclosed by Wikileaks, Mr. Codignoni has been called by US diplomats “the middle man between Putin and Berlusconi”.

The fact is clear. MTG has a very opinionated business partner in “STS Media” in the guise of bank “Rossiya” and Yury Kovalchuk.


However the Swedish company is curbed not only by minority blocking shares owned by Kremlin affiliates. Another tool of control is money. Until 2011 the majority of advertising in “STS Media” were placed through the exclusive contract with “Video International”, the biggest TV advertising agency in Russia, having more than 70% of national Russian TV advertising market.

However after the new law on advertising was passed, the appetite of “Video International” was curbed. Their market share was limited to 35% and “Video International” had to void five out of thirteen lucrative contracts with Russian TV channels including “STS Media”. However soon they managed to find a breach in the law and became “consultants” for “STS Media’s” own TV advertising agency. Nothing changed – “Video International” still brings advertising to “STS Media”, but instead of commissions takes a “consultancy fee” or “compensation”. In 2013 “STS Media” paid $78 million to “Video International”, MTG spokesman Per Lorentz confirmed for Bloomberg.

Why is “Video International” important in this puzzle?

Until the summer of 2010 “Video International” was completely owned by private individuals but in 2010 all these individuals sold their shares to Russian corporations. And looking at the list of current shareholders of “Video International” we see familiar names:

15% – “Sogaz” (bank “Rossiya”)

15% – “Abros” (bank “Rossiya”)

Ownership of 69% of “Video International” is hidden within several other offshore companies with Cyprus registration – “Namiral Trading”, “Med Media Network Ltd” and “Dewar Investments Ltd.”. These companies do not provide the names of their beneficiaries.

However sources close to former “Video international” shareholders insist that the interests of bank “Rossiya” hide within these offshore companies and “Video international” de facto belongs to bank “Rossiya” companies. 100% ownership was also confirmed in the Unicredit bank financial report on “STS Media” and its partners.

One of the leading experts on media law Vladimir Entin was quoted by “Novaya gazeta” in 2012 – “In any other country such deals would be heavily limited. The biggest TV channel as well as several others and the biggest advertising seller are in the same hands. Not in Russia. We do not have direct restrictions on media influence. Just grab what you can”

The fact is clear. The advertising revenue and well-being of “STS Media” and MTG depend directly on bank “Rossiya” and on Kremlin through Yury Kovalchuk.

As the only foreign company in the State-monopolized TV market, surrounded by bank “Rossiya” overseers inside and outside “STS Media”, MTG has to be extraordinarily flexible in order to retain status quo. They cannot allow any action which might anger their Kremlin bedfellows. For example, Viasat suspending several Russian TV channels.

“We do not meddle in politics”, news agencies quotes an unnamed MTG representative. “Our mission in Russia is to provide “quality entertainment”. Our activities in Russia do not have any influence on our channels in Baltic countries. There is no proof of that.”

The market capitalization of “STS Media” is $1.7 billion so MTG shares are worth around $650 million. The market capitalization of the whole MTG group is around $3 billion. The Russian market is vitally important for Swedish company to remain in. How do they manage this?

Money. Telcrest bought 25% “STS Media” on the condition that at least 50% of profits will be paid as dividends to shareholders. Since 2011 “STS Media” has paid $71.7 million to Telcrest. At the moment payments are frozen because of the United States and European Union sanctions against Yury Kovalchuk and bank “Rossiya”. After the second quarter “STS Media” owes Yury Kovalchuk $13.8 million. However business with “Video International” goes as usual. Officially bank “Rossiya” does not control more than 50% of “Video international” thus there are no sanctions against the “media consultants” of “STS Media”.

“STS Media has sought and received confirmation that the parties subject to the sanctions do not own more than 50 percent of Video International,” Bloomberg quotes the MTG spokesman, Per Lorentz.

In 2013 “STS Media” paid $78 million to “Video International”.

Political lobby. Ms. Cristina Stenbeck, chairman of the board of directors of  investment company AB Kinnevik which owns MTG, is no stranger to meetings with highest Russian officials.

In 2011 President Dmitry Medvedev met in Kremlin with Cristina Stenbeck, Yury Kovalchuk and other representatives of MTG and National Media Group. Here is the shortened transcript of this meeting:

[Russian President Dmitry Medvedev]: I would like to welcome all the
shareholders of the National Media Group, as well as our foreign
partners who are involved in Russian media companies <…> Your cooperation is an example of successful interaction between Russian investors, major Russian companies and foreign companies in a rather sensitive sector, because, let’s be honest, not every European country allows foreign shareholders into its media holdings and its television companies, as well as companies involved in information technologies. But we are an open nation, hence our position on the media. Would you like to say something?

[Bank Rossiya chairman Yuriy Kovalchuk] Yes, if I may.

[Medvedev] Of course, Mr Kovalchuk.

[Kovalchuk] First of all, Mr President, thank you very much for this
meeting.I will speak on behalf of Russian shareholders <…> I
will say frankly that we were apprehensive of pressure from the
government with regard to what should be done, and how.

[Medvedev] And how did the government react?

[Kovalchuk] Now, I can say that the government did not interfere in this
process in any way, which is extremely important for us <….> I would like to use this meeting as an opportunity to express gratitude  on behalf of Russian shareholders to the government for its policy.

[Medvedev] I’d like to say that you have selected good partners in RTL
and MTG. In this regard, it was the right choice.

[Kovalchuk]: And beautiful partners (note: this remark was not in the official transcript but was reported by the Russian daily “Komersant”)

[Cristina Stenbeck, chair of Investment AB Kinnevik and MTG Group
majority shareholder]: Mr President, thank you very
much for having us today.

Partners, ladies and gentlemen, first of all, I believe strongly in the
partnership that we have managed to create in the last six years with
the National Media Group. We remain grateful for the support we’ve received over the years and the opportunity we’ve had to build our business up until now.

Most importantly, though, I want to thank this administration for
allowing this kind of partnership to come to fruition, and to enable and
support this kind of foreign specialist relationship with world-class
Russian partners like National Media Group. We are encouraged by the
positive development that we see here on the wider media front, and we
hope to be an active participant here in the future development, so
thank you. 


In the light of the current media situation in Russia the dialogue between President Medvedev and Yury Kovalchuk about “non-interfering” government is truly priceless.

Russian daily “Komersant” commented that “while waiting for the President, Mr. Kovalchuk and Ms.Stenbeck were in excellent spirits. It was hard to understand which of media moguls flirts more with the other”.

RTL group, another foreign investor in Russian media based in Germany, was also present in the meeting. Mr. Gerhard Zeiler, CEO of RTL group, was quoted: “We are not the driver of the car here in Russia, but we are very happy sitting in the back of the car and watching Mr Kovalchuk steer the car, and sometimes, give our advice of our experience”.

However RTL willingness to “sit in the back of the car” ended in two years. The German company sold its 7.5% share in National Media Group and left Russian media market.

Ms. Stenbeck is a welcome guest to the Kremlin under President Putin’s administration as well. This picture (courtesy of Agence France Press) was taken during the investment forum “Russia calling” in 2013.

Sitting next to President Putin Ms.Stenbeck had to answer several questions about Russia. With Russian President commenting.

QUESTION: Cristina Stenbeck, do you believe that in 15 to 20 years, Russia will have a modern, qualitatively new industrial structure?

VLADIMIR PUTIN: Like in Sweden.

INVESTMENT AB KINNEVIK CHAIRMAN OF THE BOARD CRISTINA STENBECK (retranslated): Yes, I very much hope so. As it happens, right now, my business is actively participating in the creation of infrastructure”

No politics, pure business. Only once did “STS Media” make a mistake of airing a political program. In 2006 two famous journalists – Svetlana Sorokina and Aleksandr Venediktov – were invited to host a talk-show “In the spotlight” on TV channel “Domashnii”. The show was closed after four airings. Wikileaks revealed that American diplomats had the information about a displeased phone call from the President’s administration to shareholders of “STS Media”.

“I understand that the owners of “STS Media” are afraid for their business. Whole TV channels are being shut down in Russia, so this is nothing new”, commented Mr. Venediktov on the internet news portal “Gazeta.ru”.

In 2012 two popular TV anchors, long time presenters of entertainment programs on STS, Tatyana Lazareva and Mikhail Shats left the channel after their contracts suddenly were not renewed. Of course it has nothing to do with both presenters actively supporting Russian political opposition.

Small favours. Viasat, an MTG subsidiary, will never agree to suspend the broadcast of Russian TV channels slandering the history of Baltic states. They will quote “freedom of speech”, “fairness of EU laws”, “market openness” and other nice things.

AB Kinnevik has a lot business interests in Russia including telecommunications and agricultural business. When you are in bed with someone for twenty years you get used to their bad habits. But can the respected Swedish company get used to blatant lies, media repressions and violations of human rights coming from the hands of their bedfellows? How can they flirt with people held in check by economic sanctions of the United States and the European Union?

Well, $400 million earned in the six months of 2014 by “STS Media” are worth the trouble and the bad smell in your bed.

But Russia is known for respecting only power. What will happen if the charm of Ms. Stenbeck, the nice profit line of “STS Media” and small favors are not enough? If Russia starts waging a full-time information and propaganda war on Europe, which side will MTG stand on?

Sources: Baltic News Service, Bloomberg.com, Dan and Bradstreet database, SEC database, US Treasury department, komersant.ru, vedomosti.ru, “Novaya gazeta”, Interfax news service, forbes.ru









Comments are closed.

Scroll to top