Weekly 4 December 2021

State social media

Hello! This week our top story is about the sale of one of Russia’s biggest internet holdings — that includes popular social network Vkontakte — to two state-owned companies. We also look at a jailed YouTube blogger who alleges he was threatened by investigators, and the scams that plagued Black Friday sales in Russia.  

Russia takes direct control of top social media networks

Billionaire Alisher Usmanov announced Thursday the sale of his stake in internet holding company VK, which controls two major Russian social networks: Vkontakte and Odnoklassniki. The stake will pass to state-owned bank Gazprombank and insurance company Sogaz, which is controlled by Putin ally Yuri Kovalchuk and his family. The new head of VK looks set to be the son of top Kremlin official Sergei Kiriyenko.

  • After the completion of the sale (no price was given), Sogaz and Gazprombank will each obtain 45 percent of MF Technologies, which owns 57.3 percent of the voting shares in VK. State defense corporation Rostec holds the remaining 10 percent of MF Technologies.
  • While it’s clear that the deal gives the state much closer control over social networks Vkontakte — which has about 100 million users and is often touted as the Russian answer to Facebook — and Odnoklassniki, it’s less clear what plans the new owners have for VK. One commentator speculated Saturday that VK could be used as a platform to create a Russian equivalent of YouTube and squeeze out the Western video service. “From the audience figures for different platforms it was clear how foreign platforms were gaining popularity and how Vkontakte was losing ground,” said one source close to the negotiations about the sale. “For political reasons, the state did not want Vkontakte to lose touch with a Russian audience.”
  • Sogaz and Gazprombank are closely connected to one another: both through state-owned gas giant Gazprom (that helped to set-up both Sogaz and Gazprombank), and via Kovalchuk. The largest shareholder in Sogaz (with 34.8 percent of voting shares) is Aquila LLC, which is owned by Kovalchuk, his wife and former senior managers at Kovalchuk-controlled Rossiya Bank. Gazprom holds a further 22.9 percent of Sogaz, while 13.4 percent belongs to Mikhail Shelomov, the son of Russian President Vladimir Putin’s cousin.
  • The situation is similar at Gazprombank. While 49.9 percent of Gazprombank is held by Gazprom, the company’s second largest shareholder (with 40.9 percent) is Gazfond. The biggest shareholder in Gazfond is Gazprom (which controls 41.2 percent) — but 33.3 percent of Gazfond’s shares are held by Sogaz.
  • But this does not mean that Gazprombank and Sogaz are not separate entities, with different agendas. Both Gazprombank and Kovalchuk are apparently seeking to build their own media empires, which are in competition with one another. Gazprom Media — 77.2 percent owned by Gazprombank — has nine broadcast TV channels, as well as satellite networks and streaming platforms. And National Media Group — which has a secretive ownership structure but is known to be 21.2 percent owned by Sogaz — has four federal TV channels, a streaming service, and Izvestia newspaper. Yury Kovalchuk’s nephew, Kirill Kovalchuk, is head of National Media Group. Intriguingly, Kirill Kovalchuk’s son, Stepan Kovalchuk, is a vice-president at VK.
  • Boris Dobrodeyev, the current head of VK, announced his departure Friday and the new head of VK will be Vladimir Kiriyenko, the current vice president of state telecommunications giant Rostelekom. On Friday he was introduced to executives at VK as the new CEO, sources told The Bell. Vladimir Kiriyenko is also the son of Sergei Kiriyenko, the powerful deputy head of the presidential administration who ‘oversees’ domestic politics for Putin.
  • If the fate of VK is unclear, it’s more understandable why Usmanov wanted to be rid of VK, which he has owned since 2008 (until October, VK was known as Mail.ru Group). Not only was Vkontakte a political headache, but Usmanov is “tired” of internet business, one source said. After this sale, he has almost no internet holdings left. One of The Bell’s sources added that, compared with Usmanov’s other metals and mining assets, VK was a “suitcase without a handle” that did not generate enough profit.
  • The news of the VK deal was initially well received on the markets: VK’s shares were up 6.6 percent Thursday. But they fell 7 percent the following day — perhaps — as the story of Rusnano shows — investors had second-thoughts about whether ties to the state do, indeed, provide a cast-iron guarantee for your investments. Over the past year, VK’s shares have fallen 42 percent.

Why the world should care

The deal means that VK is to all intents and purposes now a state company, and the involvement of Kiriyneko’s son suggests there will be political consequences.

 

 

Jailed YouTube-blogger claims investigators threatened family

Imprisoned blogger Yury Khovansky claimed Monday that investigators were threatening his family in an effort to get him to give false testimony. “I’m scared and I don’t know what to do,” Khovansky wrote in an open letter that detailed the pressure he has faced since being arrested in June for allegedly justifying terrorism.

  • The accusations against Khovansky relate to his rendition of a song mocking government efforts to resolve the 2002 hostage taking at the Dubrovka Theater in Moscow in which over 170 people died. Khovanksy maintains he performed the song in 2012 when Russia’s laws on justifying terrorism did not include any mention of the internet. If found guilty, he faces up to seven years in jail.
  • In his open letter, Khovansky alleged investigators demanded he admit the song was performed in 2018 (rather than 2012), fire his lawyers and accept a lawyer chosen by investigators. In case he refused, the blogger said investigators promised him a jail term (rather than a fine), and threatened to cause “problems” for his girlfriend, Maria Nelyubova. According to Khovansky, investigators previously threatened to plant drugs on Nelyubova.
  • While he disputes the date, Khovansky has admitted he did perform the song in question. In a video released by the authorities the day after his arrest, he is seen publicly apologizing for his actions. He repeated these apologies in his open letter. “I made an immoral and stupid joke when I performed a song,” he wrote. “Over these nine years, I have repeatedly repented, apologized and made a charitable donation to a charity helping victims of terrorism.”
  • Judging from his letter, Khovansky appeared shocked that he could be asked to admit to something he did not do — and he drew comparisons with the Stalinist repressions of the 1930s. “I did not think that in Russia in 2021 an investigator could openly threaten the family of the accused and demand to confess to what he did not commit,” he wrote.
  • Although less popular in recent years, Khovansky was one of the first individuals to achieve fame in Russia via YouTube, where he has 4.5 million subscribers. And his arrest and claims about threats from investigators come amid a wave of pressure on Russia’s cultural sector.
  • One of the witnesses in the Khovansky case, fellow blogger Dmitry Larin, recently fled Russia and published a video last Thursday explaining his decision. He said his reasons for moving to Bali included a desire for a warmer climate, “social depression”, and the increased attention that law enforcement was paying to bloggers. “When they take you to the precinct and put you in front of the Investigative Committee without a summons, when you suddenly find yourself a witness in a very strange case, you start to think it’s time to leave,” said Larin.
  • It was reported last week that popular rapper Morgenshtern had fled Russia after the head of the Investigative Committee, Alexander Bastrykin, accused him of drug dealing. The musician has since been spotted in Dubai. Morgenshtern may have come to Bastrykin’s attention in October when he questioned the value of the extravagant annual celebrations of the Soviet Union’s victory over Nazism.

Why the world should care

In today’s Russia, it’s harder and harder to keep track of the number of comedians, bloggers and musicians who are facing criminal charges, or who have fled abroad.

 

 

Russia’s Black Friday battle against fakes

The Black Friday sales in Russia saw another huge increase in online shopping — as well as more fraud. Scams included fake sites mimicking popular online marketplaces, and even sellers who tried to trick their own customers with fake discounts.

  • One of the most popular scams targeting Russian consumers this Black Friday was fake sites copying the layout of popular online marketplaces: more than 500 such links were blocked over the past month, Kommersant newspaper reported. Scammers also started inviting customers into WhatsApp chats, from where they pressured victims to click on links to pay for supposed special offers.
  • Nor was it unknown for sellers to try to trick their customers. One of their main tactics was to offer fake discounts — often putting up prices in advance, and then returning them to normal and claiming it as a discount.
  • However, online marketplaces are getting better at dealing with such scams, learning to automatically detect and delete bad-faith promotions. Their main weapon is the ability to assess discounts based not on the price of the goods on the eve of the sale — but on the average price over a longer period. Thus, for example, online marketplace Wildberries uses the average price from the two months prior to Black Friday. These sorts of calculations are made by a special algorithm: it’s almost impossible to outwit such technology.
  • The number of fakes and scams have risen in line with the boom in online shopping.The number of traders selling goods on online marketplaces was 200,000 in 2020, but had risen to about 300,000 this year. By the end of 2021 the total annual turnover in online trade in Russia should be 4 trillion rubles ($54 billion), Industry and Trade Minister Denis Manturov said last month. Five years ago, this was not even 1 trillion rubles.
  • Online shopping growth is reflected in the sales recorded by Wildberries, Russia’s biggest online retailer, which sold 43 billion rubles-worth of goods ($538 million) in the last week of November. That’s 2.6 times more than the equivalent period last year. Its biggest rival, Ozon, saw a five-fold increase in orders year-on-year on Nov. 26, and picked up a four-fold increase in revenues.

Why the world should care

Black Friday sales are not something unique to the Western world. Fraudsters and scammers in Russia are seeking ever more sophisticated ways of plying their trade as the boom in online shopping shows no sign of ending.