Poland's new draft law targets US media giant

Poland’s populist leadership is no stranger to making enemies, whether they be judges, migrants, sexual minorities or the EU. Its battle with Discovery Inc may be harder to overlook by investors.

The ruling party has drafted a media law that Prime Minister Mateusz Morawiecki said is needed to prevent Russian and Chinese companies entering the broadcasting market. Yet the legislation targets one company: the American owner of Polish broadcaster TVN. The regulator has for more than a year declined to extend news channel TVN24’s license.

Parliament is scheduled to vote on the bill next week and there’s opposition within the ruling coalition, which has been flirting with collapse over the proposals as well as tax changes. But the controversy has already lit another warning light in the EU’s biggest eastern economy. It’s raising questions over whether there’s a shift in Poland’s approach to investors whom the authorities generally courted to create new jobs.

A senior State Department official said the media law—if implemented—will impact future decisions by US investors. On Wednesday, a bipartisan group of senators chided Poland for “efforts designed to undermine independent media and one of the largest US investments in the country.” They said the country was on a “troubling trajectory” that could negatively impact defence, business and trade relations with the fellow Nato member.

Meanwhile, Poland is effectively avoiding EU court rulings it doesn’t agree with, upending the pan-European legal system that helped it attract roughly $200bn in foreign direct investment since the nation joined the bloc in 2004. Vera Jourova, an EU vice-president in charge of values and transparency, said last month that foreign companies were worried about the legal risks in Poland.

“For an investor, the most important things are legal stability and dialogue,” said Krzysztof Krawczyk, who runs the Polish arm of CVC Capital, one of the world’s largest private equity funds. “You should talk to investors and not treat them as the enemy. Unfortunately, we often experience this ourselves.”

Along with Hungary, Poland has frequently clashed with the EU over the independence of courts, the media and democratic rule of law. Both countries, though, have so far remained magnets for investment, from German carmakers to global banks and technology firms.

For Morawiecki and the governing Law & Justice party in Warsaw, the legislation is another indication of the country finally standing up for its rights after decades of passively accepting the international order. Critics say TVN24 has repeatedly uncovered corruption scandals at various government levels. There’s also nothing to suggest so far that Russian or Chinese entities are seeking a piece of the Polish market. 

Discovery acquired TVN through its purchase of Scripps Networks Interactive , which bought the broadcaster in 2015 when it was valued at 6.8-billion zloty ($1.8bn). To date, it’s the third-biggest investment in Poland by a US company, according to the American Chamber of Commerce in Warsaw. 

There’s no reason for not renewing TVN24’s license, Jean-Briac Perrette, the CEO of Discovery Networks International , told Variety in July. This “fundamentally goes to destabilise the country for all businesses,” he said.

The media revamp even has critics within the ruling coalition, which could ultimately force the ruling party to blink ahead of next week’s planned vote by lawmakers. In the past, the government has sought to take over media through state-run companies, such as oil refiner PKN Orlen buying 20 regional daily newspapers and 150 regional weekly magazines last year.

If passed, it would “negatively affect the investment climate around Poland,” said Deputy Prime Minister Jaroslaw Gowin, who leads the junior coalition partner. “It is not just about US investments. We have clear information from Washington that such a solution would freeze economic relations. The negative impact could be much wider.”

On top of the legislation, there’s also a slower burning fuse that’s boosting legal risks in the $595bn economy. Last month, the Constitutional Tribunal in Warsaw ruled that interim orders by EU courts on judicial matters weren’t enforceable, effectively taking Poland out of the bloc’s legal system.

Poland has until Aug. 16 to comply with the latest EU ruling to “immediately suspend” its disciplinary regime for judges. President Andrzej Duda, a Law & Justice ally of the government, indicated on July 30 that the country may seek a compromise to ease the standoff. 

Billions of euros in EU transfers are potentially on the line if the country digs in its heels, along with Poland’s reputation as a place where investors can get a fair trial. Not only is that being undermined now, but the impact on businesses is growing as the role of the state in the economy increased since Law & Justice came to power in 2015, said Wojciech Kozlowski, a partner at law firm Dentons in Warsaw.

“Foreign investors are often in disputes with various state regulators or state-owned companies,” he said. “No investor goes into the details of who said what, but they understand the simple message coming from the EU Court of Justice—the impartiality of legal protection in Poland is at risk.”

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