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Banned dreams: public health vs deep pockets

Russian authorities have done it again: new restrictions are now applied to the alcohol advertising both in the Internet and in hard media. An already overregulated market has become even more overregulated. The 4th of July will become another “black day” for the Russian alcohol market and this time it makes no difference if you are a vodka producer, wine importer or anybody else.
Summarizing the new law “On advertising”

The official reason for this extremely strict legislation is (of course!) public health. Russia has a long history of alcohol (read – vodka) abuse and seems like State Duma naively believes that these measures will magically affect the desire of Russians lower classes to drink cheap poison. It is not only my opinion that the real motivation for that kind of legislation is far more prosaic and down-to-earth. Moreover, all the major amendments to the law were developed by the Duma in a suspicious rush – it took less than a week – with no public or even professional businesses discussion. State Duma didn’t even think of taking a moment of debate before passing the law. As was clearly stated in the letter from the magazines publishers and alcohol market professionals – “there’s a huge risk that the new legislation will leave consumers with no information on alcoholic beverages at all, which will result in an advantage for cheap and low-quality spirits”. The industry experts and businessmen also pointed out that no prohibition ever have done any good to the public health (quoting the World Health Organization research). “It’s the society circumstances and cultural and social norms that should rather work”.

  • It is now prohibited to advertise alcohol in ANY online resource even if this resource is your personal blog (i.e., it is not officially registered as media). If you do it, you’re guilty anyway.
  • It is now prohibited to place adverts of alcohol on first and last pages of the magazines, including light alcohol
  • It is now prohibited to place outdoor advertising at virtually any place including airports and railway stations
  • Until the 31st of December 2012 it is still possible to advertise inside hard media. After this date it will also be prohibited
  • It is now prohibited to use any reference or images of human beings or animals in the alcohol advertising

The rationale behind new alcohol legislation

After the crisis year of 2008 Russian government started seeking easy and fast ways to re-fill the federal budgets and turned its attention to the alcohol market. By saying  “Russian government” I also refer to the Russian government-related immune-to-the-law oligarchs. The alcohol market reform introduced in 2009-2011 led to bankruptcy for many smaller players on the market leaving space only for the bigger ones able to finance expensive renewals of the warehouses and able to get new licenses in reasonable time (although even some medium-to-big businesses were about to die – this happened to Simple Wine and MBG Impex, a couple of old-time wine market operators (and leaders)). Finally the strongest players managed to survive while those depending on short-term loans had to disappear. Experts say that the number of distributors and wine importers shrank twice during that period. Results? Less choice of interesting wines, few independent small businesses survived, more big brands.  Government needs to justify their stupid business-damaging decisions of the past.

The other reason is justifying the fiscal policy of duties increase for alcoholic beverages. Russia is already the country with the most expensive alcohol. The beer excise tax rose 3 times in 2010, resulting in 3 times higher revenues of the “government”. We await the same for the imported spirits.

The third reason is the populist rationale of various anti-alcoholism programs that are based on prohibition rather than on introduction of new cultural norms and Mediterranean diet with wine as a base instead of vodka and other spirits. Beer alcoholism is now the most damaging factor for the younger generation. “Ban everything, don’t make difference between wine and vodka”, – this must be the simplest way to keep the nation healthy, but is it really? The soviet short-minded thinking is still here and it doesn’t seem to disappear.  News bans will lead to decreased information on quality alcohol  (including wines).

Let the weakest die

Some Russian experts believe and I do agree that all new measures will lead to even more consolidation on the market and less opportunities for growing small and medium-sized companies. The old saying reads “Advertising is the progress’ engine”. Entrepreneurship has long been out of attention and out of fiscal interest of the “government” – I assume, because there are less bribery possibilities in these cases. The big players with established brands and huge promotion and BTL budgets (like Diageo or Pernod Ricard) will not suffer much. All the others, including wine importers and small independent companies will have much more “official” reasons to disappear forever. Western companies are more protected in every sense – starting from mostly official legal status and finishing with strong legal departments with the corresponding effect on business. I once heard the leading international spirits company CEO saying that it is not possible to operate an alcohol business in Russia without strong spendings on legal department.

First victims: Russian search engines and… Google & Facebook

On the day the new law was brought into force the major question in the offices of the biggest players on the market such as Bacardi-Martini, Pernod Ricard, Diageo was – what should we do with our online activities and presence? Suspend the Facebook fan pages? What are the possible actions against us that could be taken by Federal authorities if we continue?  The main problem which I will also describe below is the wide interpretation and blurry laws that can lead to any consequences depending on the judge interpretation and, let’s say, “mood”. Look at any public court trial in Russia and see for yourself.

As a matter of fact and oddly enough the first possible victims of the new anti-Internet law are the search engines and Facebook. Russian Anti-monopole Service Bureau has already issued some warnings to Google, Facebook and the major search engine Mail.ru to stop showing context advertising of alcohol near their search results. Possible penalties for such “violation” of new laws – from 100 000 up to 500 000 rubles (2500-12000 EUR). Mail.ru already commented that the alcohol  advertising didn’t reach the level of 5% of all the advertising shown. Google and Facebook are silent but obviously will obey new legislation sooner than later.

Media market to shrink even more

Magnum magazine was closed about 4 years ago

It was May 2009 when I wrote a note about wine magazines seizing.  After that I was thinking to write an even bigger research on the wine press in Russia. But then I suddenly realized that by the end of my writing I have pretty much chances that there will be no wine media left. It was partially true. Most wine media in Russia today exists in the form of personal blogs, important wine columns in online newspapers and a couple of glossy magazines and newspapers survived, one of them being quite a quality edition belonging to a wine importing company. With no advertising these editions are 120% doomed or have to stay a PR-instrument below any profits for wine importers. The new legislation makes even thinking about starting a wine magazine an idiotic idea. No Wine Spectator is going to appear in Russia, although there had been some rumors a couple of years ago. Again, all this is resulting in lack of quality info on fine wines and spirits, simplification of the market, no-choice, big brands domination, etc.

The estimated loss of the general glossy magazines advertising revenues is from 5 to 30% depending on the edition.

Lost in interpretation

What is happening now with the Russian alcohol legislation should be considered as a small part of the rotten Putin / Medvedev system where “the actual law” doesn’t exist and the only thing that matters is the law interpretation by the courts who hardly can tell their right from their left. Look at the Pussy Riot case, look at the new slander law, look at the new gatherings law  – all of them violate the most basic principles of the Constitution – the right to express opinions, the right to gather freely to express these opinions, the right for the fair court, the presumption of innocence, the antimonopole laws, consumer rights, etc, etc.

The last stroke for this ugly painting: when the western companies that have strong presence and usage of Facebook promotional fan pages inquired the Feds on what they should do with these fan pages (these pages usually bear the names of the corresponding brands like Hennesy or Johnnie Walker), the precise answer was (I am quoting): “Yes, we also paid attention to this advertising and we would think if we should interpret the invitation to join such a page on Facebook as the violation of law. We are also not sure how we should treat the advertising banners on these Facebook pages. It is my opinion there’s no violation in this case”. Lovely, isn’t it?

 

Additional links:

BBC News