MegaFon reduced its share in the Start online cinema

MegaFon reduced its stake in the Start video service to 45%. The operator, which entered this business in 2020, announced plans to invest 5 billion rubles in the company. The transaction took place against the background of the inclusion of MegaFon in the sanctions list

MegaFon has reduced its stake in the Russian online movie theater Start from 50% to 45%. The corresponding changes from April 2023 are reflected in the Unified State Register of Legal Entities (EGRLE).

MegaFon confirmed to RBC that they "actually sold a 5% stake in Digital Media Holding (Start's parent structure) to the founders of the company," since they considered this distribution of participation "the most reflective of the relationship with this asset." “We have never been involved in the operational management of Start, this is a non-core business for us,” the operator’s press service added. To whom the share was transferred and under what conditions, the company did not specify.

“We acted within the framework of the initial agreements,” the Start press service notes. “It was also an important factor that our strategic partner MegaFon does not take part in the operational management of the company.”

MegaFon acquired a stake in Start's parent structure, Digital Media Holding LLC, in October 2020. Then the operator got 33.8% of the company, which at that time owned 74% of the video service and the film studio of the same name. The effective share of MegaFon in the company after the transaction was 25% each, its actual owner was a 100% subsidiary of MegaFon, JSC Megalabs. At the same time, the operator announced its intention to invest up to 5 billion rubles in the development of Start in the next three years.

As early as January 2021, MegaFon increased its stake in Start to 50%. The deal, as Yulia Mindumaeva, CEO of the service, said at that time, “both contributed to the results of Start in 2020, as well as the pace and prospects for the development of the market.” The representative of the operator himself then stated that Start remains a separate business and will retain its business model, and MegaFon, as a shareholder, will only support the development of the company.

In April 2022, MegaFon announced the merger of Start with its own video platform MegaFon TV, which was the first time that two large independent streaming services have merged on the Russian market.

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What the Start Ownership Structure Looks Like

The structure of owners of the main legal entity Start, Start.Ru LLC, as of August 15, is as follows. The company is 100% owned by Start Media LLC. The owner of this legal entity, in turn, is 99.9999% owned by Digital Media Holding LLC. The rest of the share is owned by the same company through Start Studio LLC, which produces films and TV series. The owners of Digital Media Holding are Russian and Belarusian producers Denis Zhalinsky, Alexey Trotsyuk and Vitaly Shlyappo (each has a little less than 11.9%), executive directorStart Julia Mindubayeva (2.5%) and the general producer of the service Eduard Iloyan (slightly less than 16.9%). The remaining 45% belongs to MF Digital JSC. According to the Unified State Register of Legal Entities, the sole shareholder of MF Digital is Megalabs JSC, which in October 2022 was reorganized and merged with MegaFon. This information is confirmed by the financial report of MegaFon for 2022.

The change in shares in Digital Media Holding, as indicated in the extract from the Unified State Register of Legal Entities, occurred on April 19, 2023. A week before, on April 12, MegaFon was on the US sanctions list . The deal, as Start insists, "is not related to external circumstances."

Sanctions work according to the “50+” rule, reminds lawyer, partner of BGP Litigation Sergey Glandin: “If a sanctioned person has 50% or more in some business, then similar sanctions apply to this person . But usually the business itself determines how to behave in such a case. Formally, when the share is reduced to 45%, Start is not considered sub-sanctioned. But, as practice shows, the majority of Western counterparties, even with such a share, are unlikely to enter into any legal relations with this company.”

Mikhail Zhuzhzhalov, Senior Associate at Tomashevskaya & Partners, in turn, also notes that, in accordance with the official position of OFAC (Office for Foreign Assets Control of the US Department of the Treasury), it is not necessary to specifically include companies in the SDN list in which companies directly listed in the SDN list persons have a 50% share in the authorized capital. “For persons with control of 50% or more by sanctioned persons, the sanctions regime of such beneficiaries is automatically distributed without being added to the list,” he explains. “This criterion, as a first approximation, is formal and easy to apply, but its implementation may not be enough, because it takes into account not only direct, but also indirect control, which is already determined informally.”

The head of the information and analytical agency TelecomDaily, Denis Kuskov, suggested that the decrease in MegaFon's share in Start could be due to the video service's desire to provide greater autonomy from the operator and more flexible management.

What is the famous online cinema Start

The Start service was founded in October 2017 by the Yellow, Black and White company, known for the film franchise The Last Hero and the films Slave and Cheburashka. Almost from the very beginning, Start has relied on content of its own production. In 2019, the rights to show his series “Better Than People” were acquired by American streaming Netflix for a record amount for the Russian media market – $1 million. Apple Originals lineup on Apple TV. In 2022, Forbes included Start in the top 30 most valuable Runet companies.

According to the results of the first half of 2023, the information and analytical agency TelecomDaily put Start in fifth place in the rating of online cinemas, estimating its market share at 8.5% (taking into account the revenue of services from subscription and advertising). For comparison, the market leader - "Kinopoisk" - this figure is 33.9%. At the same time, in the rating of services, compiled on the basis of earnings from licensing its own content, Start, according to TelecomDaily, takes second place with a share of 17.7% and is second only to more.tv, which accounts for 20.9%.

The revenue of Start.Ru LLC according to RAS in 2022 amounted to 4.4 billion rubles, the net loss was 133.8 million rubles. According to IFRS, as follows from the reporting of MegaFon, in 2021 Start's revenue was 6 billion rubles, the loss was 187 million rubles. Start's financial results are not reflected in MegaFon's financial statements for 2022.