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Russia’s Music Industry Crumbles After Ukraine Invasion: What’s Next?

Russia was once one of music's most promising emerging markets — until Ukraine invasion sent streamers, labels and promoters scrambling.

The prospects for once-burgeoning Russia to be a prominent player in the growth of the global music industry are drying up quickly.

A shutdown by Visa and Mastercard of payment services in Russia combined with an anti-censorship push by Spotify, YouTube and TikTok have effectively shut off the taps for revenue from advertising and subscriptions from music streaming. And on Tuesday (March 8), Universal Music Group (UMG), the world’s largest music company, said it was “suspending all operations in Russia” and closing its offices there.

The crisis among music companies accelerated over the weekend when the credit card companies said they would no longer process payments from Russian customers as part of their support for Western economic sanctions imposed against Russia for its unprovoked invasion of Ukraine.

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As a result of the credit-card shutdown, Spotify is no longer running advertising in Russia, a source at a streaming platform tells Billboard. The news follows decisions by Netflix and TikTok over the weekend to pull back from Russia amid an anti-fake news crackdown by streaming platforms. Last week YouTube and TikTok banned content from Russian state-sponsored news outlets RT and Sputnik, with Spotify soon following suit.

While YouTube and TikTok have shut down most of their Russian operations, Spotify’s service was still functioning in the country as of Tuesday (March 8), with its news podcast content — which includes verified news sources like BBC, CNN and Le Monde — providing potentially valuable information for Russian citizens about the conflict. (BBC said Friday that it had shut down most of its news operation in the country.)

Amid escalating military action, Russia enacted a law on Friday that criminalizes dissemination of “false information” about the military invasion of Ukraine, a European democracy of 44 million people, which Vladimir Putin’s government has described as “a special military operation.” Violators can be jailed for up to 15 years.

TikTok, a Chinese-owned video app, said on Twitter on Sunday that it was suspending live-streaming and new content for its video service in Russia as it reviews the “safety implications” of Russia’s law.

Meanwhile, the major record labels — Universal Music Group Group, Sony Music Entertainment and Warner Music Group — were dealing with cratering sales in Russia and logistical challenges brought on by sanctions that are making it challenging to pay artists and employees there. The companies are supporting employees in Russia while assisting humanitarian air efforts for Ukrainian refugees who are fleeing the escalating military conflict. And Western artists are continuing to cancel live shows as promoter Live Nation says it’s pulling out of the country altogether.

Spotify said on Wednesday that it had closed its Russia office “indefinitely” and was providing individual support to its people in the region “as well as our global community of Ukrainian employees.” The DSP launched in Russia and Ukraine in 2020, along with 11 other emerging markets in Europe. (A Spotify spokesperson declined to comment further on whether individual employees had been terminated.)

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Zivert performs at a concert as part of the White Nights of St Petersburg music festival at the Sibur Arena. Valentin Yegorshin/TASS (Photo by Valentin YegorshinTASS via Getty Images) Valentin Yegorshin\TASS via GI

Russia, the world’s 16th-largest music market, saw its revenues grow by 30% in 2020 to $199.2 million and, along with China, logged the fastest growth of users of subscription streaming services across the top 10 markets for subscribers, according to IFPI’s “Global Music Report.”

Only a month ago, the Swedish streamer was enduring widespread criticism for its support of Joe Rogan’s podcast, despite Rogan’s promotion of conspiracy theorists and use of “racially insensitive language.” But Spotify’s growing podcast offerings from traditional news sources are lending a hand in helping battle Russian disinformation.

The streaming platform said it had launched a “global guide” on the Spotify platform to provide “trusted news” to users around the world. “It’s critically important to try to keep our service operational in Russia to allow for the global flow of information,” Spotify said in its statement. The hub includes podcasts for daily news, news from around the world and a “Ukraine Explained” tab.

On Friday, Spotify said it was mobilizing its Artist Fundraising Pick feature in Spotify for Artists to help raise funds to support humanitarian efforts. The feature allows artists to select a fundraising destination to place at the top of their Spotify profile to collect donations from listeners. The DSP has said it would match donations “two to one” to support local humanitarian efforts. “We are exploring additional steps that we can take and will continue to do what is in the best interest of our employees and our listeners,” Spotify said in a statement.

The moves come as credit card providers effectively canceled Russia. Visa said in a statement that it would “work with its clients and partners within Russia to cease all Visa transactions over the coming days.” Mastercard and American Express also said they would suspend all operations in Russia. PayPal also said Saturday that it had shut down services in Russia but that it would support withdrawals “for a period of time.”

Record Labels Supporting Relief Efforts For Ukrainian Refugees

The far-reaching actions by logistical companies, including commercial airlines, to cease activities involving Russia are preventing major record labels from importing physical product into the country.

But Tuesday’s action by UMG went farther, with a full pull out of the country following news that McDonald’s had decided to temporarily close its restaurants in Russia and pause all operations in the market. (UMG did not say what had prompted its decision.)

UMG, in a statement sent to Billboard, said it was “adhering to international sanctions and, along with our employees and artists, have been working with groups from a range of countries (including the U.S., U.K., Poland, Slovakia, Germany, Czech Republic and Hungary) to support humanitarian relief efforts to bring urgent aid to refugees in the region.”

The label said it has ceased all promotional and marketing activities in Russia, including physical product releases, “as we evaluate the nature of our business there in the future.” The company said in a statement that it was working with employees and artists from a range of countries — including the U.S., U.K., Poland, Slovakia, Germany, the Czech Republic and Hungary — to support humanitarian relief efforts in Ukraine. “We are gravely concerned about the violence in Ukraine,” the company said.

The labels employ dozens of workers in Russia – Warner Music Group has nearly 100 employees due to its acquisition of indie Gala Records in 2013 and Zhara Music last year (since rebranded as Atlantic Records Russia). Sony Music Entertainment has about 35, mostly based in Moscow, label sources say. They are all now scrambling to figure out how to support them while being cautious to say anything that could place staffers and artists (Russian and Ukrainian) in danger. Most labels have no Ukrainian staffers, relying instead on licensees and third parties to distribute content there, say label sources familiar with the matter.

With Western sanctions putting the Russian banking system on ice, the labels are worried about how they will pay their artists and employees. “There isn’t a precedent for this,” says one label executive. “We’ve never been in a situation where a country has effectively switched from South Korea to North Korea — an open economy to a closed one — overnight.” Label execs are also concerned about protecting staff on the ground with sources telling Billboard that all communications with colleagues and artists in Russia are being carefully worded, with the knowledge that communications are likely being monitored by the Russian authorities.

People cheer during a concert in support of rapper Husky, in Moscow on Dec. 26, 2018.
People cheer during a concert in support of rapper Husky, in Moscow on Dec. 26, 2018. AP Photo/Pavel Golovkin

All the labels are making efforts to aid the humanitarian relief effort as Ukrainian refugees pour over the borders into neighboring countries. In a note to employees sent to Sony employees globally, the company says it is working with Sony Corp.’s philanthropic partners to donate to global relief organizations that include the Red Cross, Save the Children and World Central Kitchen. (UMG is also working with World Central Kitchen and the Red Cross.)

Sony said that beginning on Tuesday it will match every full-time employee’s donation up to $2,000 for approved organizations.

And in an internal memo sent to Warner Music employees on Friday, the company said it was matching contributions to the International Committee of the Red Cross through the end of March and was also making donations to Polish Humanitarian Action and Project Hope, which are “both supplying refugees with medical provisions, food and other basic items, while protecting the safety and dignity of displaced people.”

WMG also told its workers that it was providing its Polish team in Warsaw with supplies and resources. “Our colleagues there are among those helping to house and support Ukrainian refugees who were able to cross the border,” the memo said. “We are grateful for and humbled by their efforts and are in regular contact to stay apprised of the local situation.”

In a statement, a spokesperson for WMG said they were “deeply saddened, moved and disturbed by the consequences that the war in Ukraine has had on millions of people.”

On Tuesday (March 8), the U.K.’s biggest collection society PRS for Music announced that it was suspending its relationship with its Russian counterpart RAO with immediate effect, “pending confirmation of its separation from the Russian Government and those individuals and companies on the sanctions lists.” PRS said it was also working with CISAC, the International Confederation of Societies of Authors and Composers Societies, to consider the ongoing membership of Russian societies in its global network.

Touring Cancellations in Russia Growing

The live music sector, meanwhile, has also swiftly disentangled from Russia. By Billboard’s count, a dozen Western artists, mostly from the U.S. and the U.K., have cancelled concerts in the country scheduled for 2022.

In 2019, the tour map for artists was bigger than it had ever been for artists. But the reality is that Russia is not a widely visited country by major Western touring acts. Only three of the top 10 world tours tracked by Billboard Boxscore — Bon Jovi, Metallica and Ed Sheeran — performed in Russia that year. Nearly all the concerts in the country performed by major Western artists take place in four Moscow venues — Crocus City Hall, Dynamo Central Stadium (also known as VTB Arena), Luzhniki Stadium and Spartak Stadium.

Agents for the dozen major acts scheduled to play Russia in 2022, including Iron Maiden, Green Day and Franz Ferdinand, have a number of options for cancelling the shows, “the main one being giving the money back,” one booking agent tells Billboard.

When it comes to Russia, financial transactions can be complicated by international sanctions and anti-money laundering legislation, but the preferred method of payment between promoter and artist is usually via escrow accounts facilitated by private banks.

Most Western artists traveling to Russia are going to require that 100% of their performance fee in U.S. dollars be deposited into an escrow account prior to the concert being announced. The artist agent could cancel the show by releasing the escrow funds back to the promoter.

In normal times, travel expenses and marketing costs would eventually be settled between the two parties. That’s highly unlikely to happen now. Artists that paid out of pocket for travel to Moscow aren’t going to be reimbursed, and promoters who paid up front for airfare or private travel are out of luck as well and subject to the travel providers refund policies.

“It’s a very sad situation and the acts feel for the promoters — they don’t want this either,” Billboard’s source says. “If there is any cancellation, the money is being returned in dollars” and retains its value as opposed to Russian rubles.

Live Nation, which said last week that it would not promote shows in Russia for the foreseeable future, operates 350 foreign subsidiaries on five continents according to its latest SEC filing, but does not have a presence in Europe east of Hungary.

AEG Presents, the concert promotion arm of Phil Anschutz’s multi-billion-dollar live entertainment empire, said it has historically had no business presence in Russia, and had “no plans to conduct business there in the future.”

Both companies do, however, promote global tours that do stop in Russia and are usually guaranteed and produced by a Moscow promotion company, like Nadia Solovieva’s SAV Entertainment, which promoted shows by both Metallica and Bon Jovi in 2019 at Luzhniki Stadium and was the promoter for four of Moscow’s biggest shows scheduled for 2022 — Green Day on May 29, Iron Maiden on June 1, Bjork on June 8 and Franz Ferdinand on July 1.

While Solovieva did respond to request for comment, the reaction from a fan on the company’s Facebook to the Iron Maiden cancellation struck a universal chord. “Will they also refund $ for the tickets?????” the fan asked in a post that was translated from Russian to English by Facebook.