Hello! Our top story this week is about why a glossy magazine magnate bought a small media outlet that punched above its weight with blockbuster investigations into a controversial businessman close to Putin. We also look at a billionaire’s son and his investment in the world’s first cryptocurrency exchange (which opened this week in Belarus), a telling social media frenzy over some new egg boxes and the recent sale of two big Russian IT companies and a futuristic TV series to North American buyers.

The media outlet that exposed Prigozhin is sold to a magazine magnate

What happened

This year began with an important media deal: Viktor Shkulev, a veteran media operator and the Russian partner of U.S.-owned publishing giant Hearst, bought St. Petersburg’s most famous publication, Fontanka. In recent years, the news portal has been praised for its investigations into Yevgeny Prigozhin, the controversial figure known as ‘Putin’s chef’.

Despite its small size, Fontanka is one of Russia’s most important publications:

  • Its founder — journalist and writer Andrey Konstantinov — has an impressive reputation. In the 1990s, St. Petersburg was considered the capital of Russian crime, and Konstantinov was the city’s most famous crime reporter: it is even believed he has ties to local criminal groups and deceased crime boss, Roman Tsepov, who starred in a television series based on Konstantinov’s books. Finally, Konstantinov is known as a talented investigative journalist.
  • Fontanka doesn’t have a huge audience: it is only ranked in the top 60 Russian media outlets. But it has a phenomenally high citation rate. In 2017, Fontanka was ranked 5th in terms of citations among all Russian online media outlets.
  • This is explained by the powerful investigations it has published. In recent years, much of their work has centered on St. Petersburg businessman Prigozhin, the founder of the ‘troll factory’ who is accused by Robert Mueller of interfering in the 2016 U.S. election, and is believed to be the sponsor of Russian mercenaries in Syria and Africa. Fontanka was the first to write about Prigozhin’s Wagner mercenary outfit taking part in operations in Syria, government awards (Rus) received by mercenary officers and the oil and gas contracts Prigozhin received in return for military aid to Damascus.

The sale of Fontanka’s has reportedly been under discussion for years, but the final deal is unusual, to say the least, and the background of its new owner is intriguing:

  • According to Meduza, Prigozhin himself tried to buy the publication in 2017. The then owners (in addition to the founders, these were a group of St. Petersburg businessmen) dithered for months until Prigozhin gave them a deadline and offered $2.3 million. After this, according to Meduza, the talks ended.
  • Instead, Fontanka was sold to one of Russia’s largest publishers, Viktor Shkulev. The 60-year old Shkulev is a true veteran of Russia’s media industry. His holding, Hearst Shkulev Media is the country’s largest publisher of glossy magazines and their titles include the local versions of Maxim, Elle and Marie Claire. His publications reach a total audience of 90 million people each month. Back in 1995, Shkulev began his business with a Western partner, French group Hachette Filipachhi, but now 20 percent of his company is owned by Hearst Media and 20 percent is owned by Shkulev’s own holding.
  • In some ways, Shkulev is a logical buyer for Fontanka. He has been acquiring publications in the regions in recent years to build a network of local media assets in which he can sell advertising. But the deal is also strange. Firstly, Shkulev was never interested in publications where politics could jeopardise advertising income — and Fontanka is one of these. Secondly, the buyer was not Hearst Shkulev Media, but Shkulev himself. “My American partners are not interested in such investments,” the media magnate said when asked. This approach might well mean that the purchase was political in nature.

Why the world should care

Fontanka is one of only a handful of media outlets in Russia that do real investigations, particularly into politically dangerous issues. Its new owner, Shkulev, is not under the direct control of officials, but this deal couldn’t have taken place without the Kremlin’s approval. For Shkulev’s apolitical media business, Fontanka’s investigations carry significant risks — and this means there are likely to be fewer of them in the future.

Why is the world’s first cryptocurrency exchange an attractive investment for an oil billionaire’s son?

What happened

The son of Russian billionaire Mikhail Gutseriev has been revealed as an investor in the world’s first legal crypto-currency exchange, which has just opened in neighboring Belarus. The new project provides a legal platform to convert bitcoin into real money and The Bell has previously reported that Russian billionaires are significant investors in cryptocurrencies.

  • Crypto-exchange Currency.com was launched in Minsk on January 15, advertising itself as the world’s first regulated tokenized securities exchange. This is a consequence of Belarusian president Alexander Lukashenko’s becoming, in 2017, the first European leader to sign a law legalizing cryptocurrency trading. Cryptocurrency companies have also been offered tax breaks and other incentives to work in Belarus.
  • One of the investors in the exchange is Said Gutseriev, son of Mikhail Gutseriev, the oil magnate whose net worth Forbes estimates at $4.2 billion. The 60-year old Gutseriev senior is no stranger to risk. In 2007, he was mired in a criminal investigation and fled abroad. The billionaire almost lost his primary asset, oil company Russneft (now valued at nearly $3 billion). But two years later, the case against him was closed and he returned to Russia, where his business is thriving.
  • Belarus has become home to a business that in Russia is considered illegal — or semi-legal at best. After gambling was banned in Russia, for example, many casinos moved to Minsk, which is a seven hour drive or a one hour flight from Moscow.
  • The new exchange will allow Russian owners of cryptocurrency to transfer their holdings into real currencies and invest in the stock market, which is impossible to do legally in Russia. As far back as of the end of 2017, no less than 10% of the Russian Forbes list had invested in cryptocurrencies — and Russian billionaires are well used to high returns for high risk. Even the Russian government was briefly interested in cryptocurrencies, but after the bitcoin fell sharply in 2018, it appears to have lost interest.

Why the world should care

New ways of getting Russian money into the West are appearing just as fast as Western governments are closing old loopholes.

The social media frenzy over a missing egg that wasn’t missing

What happened

This week the world has been discussing the egg that topled Kylie Jenner’s world record for the most “liked” Instagram post. But eggs have also been a hot topic on Russian social media and there was furious speculation, and many jokes, about new egg boxes that contained one less egg than normal. Was it a conspiracy? Probably not, but the frenzy was instructive.

  • For years, eggs have been sold in Russia in packs of ten and there is even a phrase in Russian for ‘a tenner of eggs’. So, when a photo appeared on Pikabu (the Russian equivalent of Reddit) on January 8 showing a shop selling packs of nine eggs (in 3×3 boxes), it went viral. The photo caused a storm of indignation and a flurry of memes (one widely shared joke was that the Instagram record-setting egg was actually the one that had disappeared from the pack of ten). Most explained the ‘disappearance’ of the egg as an attempt to hide rapidly rising prices, which many fear following an increase in VAT (on January 1, VAT went up from 18% to 20%).
  • But this story is a classic example of fake news: there is no reason to think that retailers in Russia will now sell eggs in packs of 9 — and it would be even more ridiculous to suggest that this is a strategy developed with the government. The 9-egg pack was actually just an experiment launched by Russia’s 7th largest egg producer, which is not even planning on abandoning the standard packaging.
  • Regardless of rational explanations, the social media anger is a wonderful reminder of frustrations over rising prices. Month-on-month egg prices rose (Rus) by 15 percent in December, faster than any other food. The reasons are threefold: the price of chicken feed went up last year; fuel producers have cancelled discounts on gasoline purchases by businesses; and the so-called Oliviye factor (Oliviye is a traditional New Year salad, made in December, that is unthinkable without eggs). And price increases are set to continue through January: during the first five days of 2019, the month-on-month consumer price index rose by 0.5 percent.
  • Russia is by no means the only country that has suffered from ‘shrinkflation’, when food products shrink in size even as prices goes up. In the UK, analysis has shown that major chocolate and biscuit brands have gradually reduced the size of their products: most notably, the gap between triangles on a Toblerone triangles shrank, Snickers lost 28 percent of their weight over 5 years, and Twix bars are now 20 percent smaller.

Why the world should care

One sociologist explained (Rus) the social media frenzy over the ‘disappearance’ of an egg as rooted in questions of trust and fairness. Indeed, in the the context of recent unpopular reforms, particularly increases to the pension age, even completely false ‘proof’ of rising prices was like taking a match to a powder keg.

Russia’s new exports? North American buyers snap up software companies and a TV series

What happened

Amid Western sanctions, business ties between Russia and the West are suffering and it is increasingly harder for Russians to travel to the U.S. — the waiting list to apply for a visa is now 12 months long. However, this doesn’t seem to be stopping successful IT companies and media projects. In just two months, two IT companies with Russian roots have been sold to North American investors, and a Russian-made TV series has become a Netflix Original.

  • On 7 January, multinational corporation DXC Technology announced it had bought Russian software developer Luxoft for $2 billion, sending the company’s 80 percent higher. The deal will close in the first half of 2019 and Luxoft will be delisted after five years as a publicly traded company. But Luxoft’s shareholders really can’t complain: DXC Technology paid an 86% premium.
  • While Luxoft now has offices in 22 countries, the company was founded in Moscow in 1995. It began as a development center for IT service company IBS, founded by Anatoly Karachinsky (who began as a programmer in a Soviet research institute) and Sergey Matsotsky. Prior to the deal, Karachinsky and Matsotsky controlled about 83 percent of Luxoft’s voting shares. But the sale to DXC Technology is the end of a long ‘divorce’ between Luxoft and Russia: several months after the annexation of Crimea in 2014, Luxoft transferred 500 programmers out of Russia and Ukraine and made a decision not to base more than 20% of its employees in a single geographical location.
  • Luxoft’s success is not unique. In December, software developer Parallels, founded by Russians Sergei Belousov and Ilya Zubarev, was acquired by Canada’s Corel. Parallels (in which Cisco bought a stake in 2013) has offices in 10 countries.
  • Another successful recent sale to foreign buyers was announced last week: Netflix Originals bought the futuristic, Russian-made television series Better Than Humans. The main character is a robot called Arisa who is trying to figure out what it’s like to be a human while the cyber-police try to understand why she is different to other androids. It hasn’t been disclosed how much online video service Start (co-owned by Gazprom Media) and Russia’s largest television station, Channel One, made from the sale. But according to business newspaper Kommersant, Netflix may have paid $1 million — a record price for a Russian-made program. Although Netflix has bought Russian content before, this was the first time something has been selected for the prestigious Netflix Original category. Better Than Humans will be made available in 25 languages.

Why the world should care

Several waves of Western sanctions may be helping to cut-off the Russian economy from the rest of the world, but in some sectors it is business as usual. These successful sales in the entertainment and IT industries show Russia has more to offer than just commodity exports.

Anastasia Stognei

Translation by Tanja Maier, editing by Howard Amos.

This newsletter is supported by the Investigative Reporting Program at UC Berkeley

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