Yuri Sapronov will independently manage Russian World Studios / Ilya Pitalev / RIA Novosti

Yuri Sapronov increased his stake in Russian World Studios (RWS) from 49 to 70% of shares, AFK Sistema now directly owns 30% of this production company. Previously, Vladimir Yevtushenkov's holding controlled RWS through its subsidiary Sistema Mass Media (SMM), which reported the restructuring yesterday. Sapronov confirmed this information to Vedomosti.

It is a no-cash deal that requires approval from the Federal Antimonopoly Service to complete (see sidebar).

How the deal is structured

Sapronov gained control over RWS in exchange for the company reducing its stake in United Russian Film Studios (ORK) from 99% to 30%. While RWS itself is involved in production, its only subsidiary ORK owns a studio in St. Petersburg where TV series and films are shot. Now SMM directly owns 70% of ORK shares (previously 1%). Sapronov remained CEO of ORK.

SMM's decision to exit the production business is connected with the desire to focus on developing other areas of activity, the holding company's statement says. A source in Sistema adds: SMM's recently approved strategy is primarily connected with the so-called new media, and content production for traditional distribution channels does not really fit into it.

"The production of TV series and films is a rather specific business, tied primarily to the personality of the producer, so it is optimal if the producer controls it himself and is responsible for the result," SMM President Gulnara Khasyanova explained to Vedomosti. Sapronov said that he is pleased with the partnership with AFK. The production business, according to him, requires operational freedom in decision-making, it is associated with high risks and the need to quickly make decisions on projects, rather than justify them through complex corporate business processes.

RWS produces films and TV series, its main partner is Channel One. Last year, this channel aired such RWS series as “Where Does the Motherland Begin” and “Pregnancy Test”. This year, its film “Fighter” is scheduled to be released.

RWS was founded in 1998 by Sapronov, Andrey Smirnov and Olga Sinelshchikova. In 2007, Sistema and RWS created a joint venture, where the holding received a controlling stake, and Smirnov and Sapronov divided the remaining shares. A year later, AFK merged its media assets into SMM, and after that RWS was fully integrated into this subsidiary of the holding. Smirnov and Sapronov exchanged their RWS shares for a stake in SMM (they controlled 12.5% of the shares each).

But in early 2014, Sapronov swapped his share in SMM for a share in RWS and received 49% of the shares in the production company. In 2014, Sistema carried out an additional issue of SMM shares and now controls 96% of its shares, the rest is owned by Smirnov. It turns out that after seven years, Sapronov returned to direct partnership with Sistema, but now his share in RWS has almost tripled – from 24.5 to 70%.

Until recently, RWS was Sistema's largest media business. In 2013, SMM's total revenue was $86.7 million, of which $57.2 million came from the production business. But producing TV series and films is not a very profitable business. RWS only made a net profit for the first time in 2013 - $1.9 million. A source in the company says that such a low net profit was due to debt servicing, but now the debts are almost paid off.

SMM has not yet published its financial results for last year. A source familiar with the company's business says that SMM's largest business now is the company Stream. It is also more profitable: Stream's net profit in 2013 was $7.6 million with revenue of $11.6 million.

Khas'yanova points out that without RWS, CMM will lose part of its revenue, but will increase the profitability of the business. In addition, the advertising market is in crisis and TV channels' purchases of content have noticeably decreased, she added.

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