A Lannister with debts The troubled track record of Forbes Russia's new Russian owner

In October 2015, the Artcom Media Group (ACMG), owned by businessman Alexandr Fedotov, became the publisher of Forbes Russia. The German publisher Axel Springer sold the impeccably reputable magazine under inauspicious circumstances. In September 2014, the State Duma passed a law limiting foreign ownership of any single Russian media outlet to 20 percent. For a long time, Forbes’ publishers could not decide on a buyer, and were eventually left with only one option: to sell to an entrepreneur disinterested in media. Fedotov has already said Forbes is too political. Moreover, Artcom Media Group is known in the industry for wage arrears and opaque financial reporting. Meduza’s special correspondent Ilya Zhegulev (who worked as a Forbes Russia columnist from 2009 to 2014) reports on the twists and turns of this strange deal.

When Axel Springer International, one’s of the world’s largest media conglomerates and the publisher of Bild, the most popular German newspaper, decided to enter Russia in 2003, it was viewed as a positive step in the development of the Russian media. The company obtained a license to publish a weekly edition of Newsweek (they called it Russian Newsweek) and a Russian edition of Forbes magazine. Paul Klebnikov, the famous American journalist and author of an acclaimed book about Boris Berezovsky, was named Forbes Russia’s editor-in-chief.

“The fact that the Russian market is ready for such a magazine is one of the hallmarks of Russian business’ ascension to a new, more civilized stage of development,” Klebnikov wrote in his introduction to Forbes’ first issue. By risking their investments and reputations here, the German and American backers of Forbes Russia endorse that the West accept Russian business as part of the international business community.”

Klebnikov was convinced that Forbes Russia would become an independent force not beholden to any business interests or government. Just three months after the magazine’s first issue, the editor-in-chief was murdered a five minutes’ walk from the Forbes office. (The murder’s contractor has not been found, the main suspect is apparently hiding in Chechnya, the murder’s investigator has retired, and the prosecution’s chief witness is terminally ill.)

Nevertheless, Forbes demanded high standards in Russian business journalism together with other influential and established newspapers like Vedomosti and Kommersant. And after Russian Newsweek closed down due to financial difficulties in October 2010, Forbes became the main engine and income source for Axel Springer Russia.

Maxim Kashulinsky, an accomplished journalist, succeeded Khlebnikov, and, under him, the magazine achieved notoriety for scandalous investigations like that into the business practices of Elena Baturina, the wife of Moscow Mayor Yuri Luzhkov. In spring 2011, Elizaveta Osetinskaya was named editor-in-chief of Forbes Russia (Kashulinsky left for Slon.ru) after three years as Vedomosti’s editor-in-chief. Under her, the magazine began ranking the "Kings of State Contracts" and conducting significantly larger investigations. In December 2011, Roman Badanin, the former deputy editor of Gazeta.ru responsible for politics and opinion, took charge of Forbes.ru. Under him, Forbes.ru extensively covered the 2012 street rallies and protests, and the site published political analysis and investigations on a daily basis. In December 2013, Osetinskaya left for a post as managing editor of RBC. She was replaced by Elmar Murtazaev, the magazine’s deputy editor-in-chief. Under Murtazayev, Forbes Russia’s editorial policy has maintained its independence.

At the same time, there was a smooth reshuffling of the media landscape in the mid to late 2000s. More and more players ideologically committed to the state appeared. For example, in 2006, Alisher Usmanov bought Kommersant and Gazeta.ru. In 2008, Usmanov sold Gazeta.ru to Alexander Mamut. Initially, the new owners seemed indifferent to editorial policy, but they have gradually tightened the screws since the 2011-2012 elections and the accompanying protests. By fall 2014, the Mamut-owned Lenta.ru and Gazeta.ru had changed management and staff. (Many of Meduza's staff, including its founder, were affected by these changes.) Weakened by the departure of many key journalists, Kommersant, too, did not have the best of times. Vedomosti and Forbes Russia remained the only truly independent business and public affairs dailies, apart from RBC, which belongs to billionaire Mikhail Prokhorov, who was in the opposition for a while, and even ran against Vladimir Putin in the 2012 elections. On the other hand, the businessman has laid low and has not been politically active since.

In September 2014, the State Duma introduced a bill that limits the share of foreign capital in any media, including print and Internet media, to 20 percent. The media industry saw the proposal as a bad joke. Nevertheless, the bill was quickly and unanimously passed. Adopted and signed by the president, the law became known as The Vedomosti and Forbes Law, since it seemed to have been written just for them (Business News Media, which includes Vedomosti, at the time belonged to the Finnish company Sanoma and the American Dow Jones & Co and FT Group; Axel Springer Russia, which included Forbes, is owned by the German Axel Springer SE).

Publishers with foreign capital were given until February 2016 to change their structure of ownership and liquidate foreign ownership control. (In 2017, the law will apply to Russian media whose owners run them as offshore companies.) Without hesitation, legislators justify the restrictions’ necessity by referring to the “information war” the West conducts through foreign-owned Russian media in the context of events in Ukraine.

According to a source in Axel Springer Russia, at first the company's headquarters in Berlin decided to go for broke: stick things out, weather the newspaper’s closure, and then sue Russia for damages in international court. Later, however, the company decided the financial risks were too high.

In mid-June 2015, the owners finally decided they needed to put the publishing firm up for sale. They played hardball until October. “Deals of this magnitude are not done on such terms, or, if so, they’re done shitty,” says a senior staff member of the publishing firm, throwing up his hands. They relied on the international auditing company PricewaterhouseCoopers (PWC) to usher a deal, but at first, investors searched for a buyer themselves. Industry sources say that negotiators first approached former Russian Finance Minister Alexei Kudrin, Sergei Petrov, the founder of Rolf Group, and Dmitry Zimin, the founder of Beeline. Each one refused. Then, PWC representatives joined the deal. They had already started offering to buy Forbes for interested entrepreneurs and to bring their prospects and the publishing firm together. There were five prospective candidates: Demyan Kudryavtsev, Gregory Berezkin, Boris Belotserkovsky, Ruben Vardanyan, and Alexander Fedotov.

Axel Springer Russia's CEO, Regina von Flemming (a former Russian correspondent for Der Spiegel and successor to Irina Silaeva at Axel Springer Russia in 2005), immediately crossed off the list Damian Kudryavtsev, the former General Director of the Kommersant publishing firm. According to a Forbes Russia source, it was because of Kudryavtsev’s questionable reputation. That is to say, the businessman had bought Business News Media, which owns a third of Vedomosti, and was one of the main contenders for the remaining two-thirds owned by The Wall Street Journal and Financial Times (and Kudryavtsev bought eventually did buy these shares in late November 2015).

Whereas Elmar Murtazaev, Forbes Russia’s editor-in-chief, came out against Gregory Berezkin, the co-owner of Komsomolskaya Pravda: Berezkin’s closeness to Russian Prime Minister Dmitry Medvedev, and especially, Komsomolskaya Pravda’s editorial policy generated many misgivings.

Boris Belotserkovsky, the former owner of the Ritzio Entertainment gambling franchise was interested in a deal, and entered negotiations, but, according to a source, asked about the magazine’s “black cash" despite the fact that its accountant has always been impeccable.

As a result, only two finalists remained. Ruben Vardanyan, a member of Forbes Russia’s 100 Richest and founder of the Troika Dialog investment firm, and Alexander Fedotov, the young owner of Artcom Media, a small media company which publishes several glossy magazines. Vardanyan was considered the favorite at the end, but he called Regina von Flemming three days before wrap-up talks, and said that he had changed his mind. He did not disclose the reasons why.

As a result, Axel Springer was left toe to toe with the investor negotiators knew the least about.

Interior Design and Capital Renovations

The office entrance to Alexandr Fedotov’s Artcom Media Group is easily missed. It’s located on the far side of an inconspicuous courtyard of a run-down building on the Savvinskaya embankment. But inside, it’s a high-tech wonder of modern design. A shiny black wall on the ground floor detracts attention from the drab wooden framed security booth. It’s also shiny upstairs, but the office is in red tones, the design of which was developed by Paola Navone, one of the most famous Italian “object” architects. (Fifteen years ago, the German magazine Architektur und Wohnen named her the number one designer in the world.)

Fedotov loves beauty and many famous people trust his taste. His entire career was somehow linked to design and architecture. In September 1990, as a Physics and Technology Institute graduate, he and two friends from the institute started a small company, Art-Service, under the Soviet-American Foundation’s "Cultural Initiative" established by the philanthropist George Soros. The company sold art and renovated buildings. Fedotov parted from his friends pretty quickly. They had gone into the construction business; his company concentrated on the capital renovation of buildings.

At the same time, he became an Olivetti dealer. Fedotov did not have to promote the brand—it was already done for him. The Italian manufacturer of cash registers and calculators entered the Soviet market rather boldly. It was the first company in the USSR to place ads on the television program Vremya.

It is in the small building on the Savvinskaya embankment, which now houses the Artcom Media Group, that Fedotov took office space for his dealership Oliros. As Fedotov tells it, back then Olivetti offered customers a standalone cash register, which was officially permitted in Russia: "A law was put in place where everything was sold through a cashier, and at the time there were no Russian registers that operated on rechargeable batteries. So we started producing them. But this didn’t go anywhere.”

Fedotov established two other companies involved in design and building renovation on the Savvinskaya embankment. All the design firms were later consolidated into Art Trading Group, which specialized in exclusive building design.

In the beginning of the 2000s, Fedotov decided to stop reselling electronics, and at the same, time pursue something more ambitious. Fedotov became partners with the future banker Alexander Svetakov, developer Dmitry Aksenov, and the then-head of the headquarters of the Moscow Military District, Dmitry Sablin, who, it’s believed, provided security for Aksenov’s business dealings.

In the early 2000s, Sablin became an adviser to Boris Gromov, the governor of Moscow region and deputy chairman of Combat Brotherhood, an all-Russian organization of veterans of local wars chaired by General Gromov. The Afghan vets were a powerful and dangerous force in the real estate market. "We bought one farm,” explains the entrepreneur Ilya Dyskin, just to give one example. “And all of a sudden guys from Combat Brotherhood show up with two buses of riot police, and they say, either we also just bought this place or we'll take all of your stock with the riot police.”

Together with Sablin and Svetakov, Fedotov became the co-founder of the non-profit partnership Zhukovka XXI. According to the SPARK database, Fedotov is also listed as the registered owner in the Moscow region of the Legal Information Office, and through a chain of other firms, Sablin owns the management company of this office. In the 2000s, Sablin entered politics, was elected deputy of the State Duma, joined United Russia, and in 2014, co-founded the Anti-Maidan movement.

Connections helped Fedotov and his companions to succeed not only in buying real estate. Fedotov did the finishing touches on the palace of the head of Ingushetia in Magas and on one of the halls of the House of Moscow Regional Government. In addition, employees who worked for Fedotov mentioned that they remodeled Boris Gromov’s office and even partially decorated Dmitry Medvedev’s Prime Minister’s Residence. Fedotov’s workers decorated estates in the famous village Akulinino, where the estates of Transneft President Nikolai Tokarev, the state corporation Rostekh’s General Director Sergey Chemezov, and the former head of the Russian Railways, Vladimir Yakunin (Yakunin’s home decor even appeared on the Internet) are located. Finally, according to Kommersant, Fedotov’s company participated in reconstruction of the Luzhniki Stadium, the site of the Moscow Champions Football League finals in 2008.

Gloss and Poverty

It would seem that Fedotov must have gotten seriously rich off these projects. However, according to official data, all the companies registered to Fedotov either lost money or reported a small profit. In these conditions, he somehow managed to find the money for a publishing firm.

Fedotov’s media company Artcom Media Group is also about style. It includes magazines about fashion, design, and lifestyle: SNC, Port, Numero, Object, Golf Digest, and Interni and Exterieurs Design. In 2014, Fedotov acquired the rights to publish the Russian version of the French fashion magazine L'Officiel and immediately invited Ksenia Sobchak to be its editor-in-chief.

In recent years, Ksenia Sobchak has been Fedotov’s main journalist. Since 2010, he tried to persuade her to head the magazine SNC, but she turned him down. And only in 2012, when Sobchak was removed from the national airwaves and from hosting important ceremonies because of her close friendship with the opposition, she accepted the businessman’s offer. One of the employees working for SNC before Sobchak joined says the magazine was "a complete disaster": "People were not paid for more than a month. And not only the editors but also to all the freelancers and studios. Things began to improve, albeit slowly, with Sobchak’s arrival. She replaced almost everyone. Especially those who kept “riding on Fedotov.” But in my opinion, the entire old team still needed to go. "

After Sobchak left SNC for the more respectable L'Officiel, everything at the forsaken magazine returned to the way it had been before her arrival. Photographer Dmitry Chernyi says that the magazine owes him 100,000 rubles ($1,500) from December of last year. “I tried getting ahold of the accountant to find out their situation—asking if there no money now or if there isn’t any in general, or will there be money, for example, in December. They told me, 'We don’t know. We’ll tell you when we find out,'" Chernyi says. As a result, in September 2015, when the Chernyi and his friends were about to write a collective letter, or just sue in court, they paid him a third of what they owed him.

Another photographer, Alex Baltsevich, says that the standard delay in payments from the publishing firm is eight to nine months. They have not paid the salaries of the editors of the print editions. "Moreover, Fedotov himself won’t meet with the staff to explain the situation. He even has a separate entrance to avoid meeting the rabble,” says the editor of one of the Artcom Media Group publications. “He threw under the bus the publisher, [Artcom Media’s General Director] Galina Gladka, who is squirming to save herself. Right up to her openly admitting she can’t sell advertising. Yet, Fedotov still pays key people on time.”

In a conversation with Meduza, Ksenia Sobchak was more demure in her judgement: "Sasha [Fedotov] is a decent man, and I trust him completely. There were a few isolated delays in paying salaries at L`Officiel, but everyone was always paid in the end. But there at SNC people would rather malign well-wishers. I can only say one thing: Fedotov is like a Lannister. He always pays his debts. He has really supported and developed a huge media venture. "

However, there has been a large turnover in personnel at the publishing firm. “A lot of good guys have left. They said that in order for you to be paid on a regular basis must also prove why you need the money,” Baltsevich says. This is not a very common situation in the media industry. For example, Chernyi remembers that at Sanoma Magazine he was paid an honorarium two months before the magazine’s release, and at Elle a contract guarantees the payment of honorariums within 20 days. No such contracts exist at Artcom Media Group.

There's a general problem with official contracts and “over-the-table” wages at the publishing firm. Here is how the payment process works for one of the employees of the new project at the ACMG Digital publishing firm: “One evening between the 5th and 10th of the month, a letter suddenly arrives from an accountant: come to such-and-such conference room for a paycheck. We arrive at the conference room, stand in a line in the hallway, nervously exchanging smiles, where they begin in single file, they give each person an envelope of cash and make us sign some piece of paper.”

"What’s happening at Artcom is no secret. Half the people connected to the media in Moscow talk about it in one way or another,” says another former editor from one of Fedotov’s publishing groups. “Getting pay in envelopes is not surprising. Okay, well, they usually pay themselves this way. But this isn’t about Artcom. In this publishing firm, a two-month delay is a common occurrence for the editorial staff. It’s about the freelancers—photographers, makeup artists, stylists, writers, illustrators—you can forget about them. You can find another hundred like them."

According to a former editor, few workers at Artkom are under any employment contract. Elena Ushakova, a former SNC employee, did not wait around for part of her money when she resigned in December 2014. “It was about 40,000 rubles [$600],” she says. “I'd been waiting for it for a long time, but then I realized that it was useless, and my work e-mail was deleted immediately after the writing a request.” According to Ushakova, they still delayed salaries when Sobchak was there, but she always cussed out the leadership for it, and she had to beat the money out of all of them. Things got much worse after Sobchak left SNC.

"Some of those who left tried to complain about it,” says another producer who left SNC. “But there are no employment contracts so it’s as if you did not work there at all. So what if your name is in the magazine? Where is your evidence? Human resources says they don’t have a single complaint from the labor inspectorate. But no one trusts it.” A former employee related how they laid her co-workers off without paying back pay, let alone severance. A few months before a court hearing, the management agreed to a few months’ back pay and two months’ severance. "But they never pay up everything, threatening one young woman with: 'You will take it, apologize, or you can kiss your career goodbye. We can make it so no one will hire you.' After thinking about it, the young woman gave up on a fixed severance," says a former SNC editor familiar with the story.

Many former Artcom Media employees simply refuse to talk or do so only on the condition of anonymity. On why people act this way, a former producer from one of Fedotov’s publications, who in his job dealt with his employer face to face on more than one occasion, told Meduza, "The man is like a gangster from the 1990s. This was and is the sense I have."

A Rapidly Growing Media Group

A source from Axel Springer Russia says that Regina von Flemming and the all other participants in the sale were not aware of Fedotov’s financial situation. Usually, due diligence is always done before a deal—a comprehensive examination of a buyer to assess his financial viability. But Axel Springer, as well as Forbes Media (the American franchisor of licenses for the publication of Forbes in other countries), decided to skimp on this procedure. The auditors from PWC could do it for a separate fee and additional time, but both were running short.

Moreover, even the financial performance of Fedotov’s assets available in public sources was not encouraging. According to SPARK, in 2013-2014, when the yearly earnings of Art Trading Contract (Fedotov’s main business is in design and decoration) were 1.1 million rubles, it posted losses of 800,000-990,000 million rubles. Artcom Media also showed a loss of 35.96 million rubles in 2013 and 24.3 million in 2014. The sellers of Forbes Russia either knew nothing about this or turned a blind eye. In an interview with RBC, Fedotov explained that the losses were partially the cost of doing business—investment and rapid expansion and starting new magazines require a certain period of time to become profitable.

The internal situation in Fedotov’s publishing firm was also unknown before signing of the agreement, says a source close to the negotiations. It all came to light too late, after the signing of the three-party agreement between Fedotov, Axel Springer International, and Forbes Media. Prior to the sale, rumors about what was happening in Artcom Media started to reach participants and left a severe impression on Regina von Flemming. The situation at the publishing firm demonstrated two things: either Fedotov had no money and someone else was bankrolling his purchase of Forbes (which suggests the presence of another shadowy beneficiary), or Fedotov just does not know how to run a business according to Western standards, squeezed all of the staff, and played "under the table.” Both scenarios, says a source close to the negotiations, were bloodcurdling for von Flemming.

As three sources from the Forbes editorial board tell it, Regina von Flemming decided to renege on the promised 20 percent bundle of the publishing firm’s shares to Fedotov and tried to cancel the sale. There were formal opportunities to do this. Forbes’ American licensee had a month to transfer the license, and could refuse in case of any force majeure. Von Flemming counted on this. She began to sound the alarm after notifying both the Americans and the Germans about Fedetov’s financial situation. And there was purportedly an alternative buyer for the same amount. Axel Springer Russia was ready to sell to the founder of the Rolf car dealership, Sergei Petrov, a businessman with a clean reputation who is not known for any special relationships with the government. The businessman, who declined to buy during the first negotiations, by the fall of 2015, was “ripe,” and wanted to save the publication. (Sergey Petrov refused to comment on this story, and his representative Svetlana Branitskaya advised against believing “rumors.")

However, as a source familiar with the matter says, Axel Springer International distanced itself from the situation. Essentially, the Germans did not care: the fate of Forbes Russia couldn’t damage their reputation, unlike Forbes Media, whose brand was at risk. The Americans took time to think, and after a month simply transferred the license for the Russian edition of Forbes to Fedotov. How he managed to persuade the Americans remains a mystery.

Regina von Flemming resigned before the agreed time, and Natalia Gandurina, the former publisher of L'Officiele took her place. Von Flemming refused to give any official statement. So did Elmar Murtazaev, Forbes’ editor-in-chief.

Preserving an independent editorial policy is the last big concern. This is especially true following Fedotov's recent interview with RBC, where he expressed disapproval that Forbes is so “devoted to politics.” The businessman promised to rectify this. Later, in a conversation with the magazine’s staff, Fedotov explained that he was simply misunderstood. But Murtazaev is doing everything to protect himself, say magazine employees close to him. He wrote a letter to Forbes’ American headquarters and demanded a broadening of the rules for license termination for the Russian edition, so that they more distinctly spell out the clauses of publisher non-interference in editorial policy. However, Forbes’ main office did not go for it. Murtazaev had already tried to get Fedotov to sign a similar document stipulating publisher non-interference in the production of content. Fedotov preferred to leave it at a verbal assurance that everything will be okay.

Fedotov refused to comment to Meduza about this story. "We do not intend to comment on your submitted questions, or on the inner workings of the ACMG media organization, which includes Axel Springer Russia’s Forbes brand,” states an official letter from Artcom Media. “We do not consider these questions relevant when the conditions of the purchase are confidential." At the same time, the group’s representative assured that the magazine "will continue to evolve, measure up to Forbes’ high standards around the world, and to be the leading business publication with the powerful website Forbes.ru, whose editorial policy has been and will remain unchanged."

Meduza asked Mia Carbonell, Forbes Media’s official spokeswoman, why due diligence was not carried out on Fedotov’s assets, whether she’s bothered by what is going on with "under-the-table" pay and the financing of his publishing firm, and if Forbes Media fears that Fedotov’s “bad boy” image could affect the reputation of all of Forbes. 

The response was this: “Artcom Media is a rapidly growing media group. It owns publications in Russia and Germany. Mr. Fedotov and his team have shown that they are capable of achieving success in various markets. We are confident that our partners are people who will be able to guarantee that Forbes conforms to all standards of quality."