The five problems of Russian video streaming market
A 15 May 2013

The five problems of Russian video streaming market

In Russia, running an online streaming video service is not an easy job. With the country's piracy rates still very high, the task of making a Russian viewer pay for a legal video seems daunting. Offering viewers a broad selection of legally licensed, high-quality videos is rather expensive, as one would have to pay for licensing all of the films in their catalogue, ensure they build a working technical infrastructure and maintain it, and spend huge amounts on marketing to get the desired millions of views that will attract advertisers.

It is impossible to start such an expensive business fr om a scratch. The task of creating a Russian version of Hulu or Netfix may be shouldered by a powerful holding whose assets include a TV channel and other media that can support the project with enough ads. But even so, owners of online video businesses face many problems and often have to be the first in the country to tackle them.

Rights holders dictating prices

By 2011, when experts declared that the audience's interest in professional content online was steadily growing, quite a few Russian sites were already offering quality videos online:,, Tvigle, Zoomby, Videomore, among others.

All market players say they spend most on technical maintenance and on distribution rights, as rights holders dictate their own conditions to Internet cinemas. Currently, there are two payment schemes in use: either you pay per every view of the content on your site; or you make a deal with the rights owner and split and give them 50% of your advertising proceedings, adding an extra fee as a guarantee payment.

Dmitry Pashutin, Media Analytics Director at, says the competition between businesses to get hands on film catalogues is so intense that rights owners do not have to bother introducing new payment schemes.

Meanwhile, users still believe that streamers, and not film companies, set the prices of the movies online. A few surveys show that up to 70% of the video streamer sites are prepared to pay for the films they watch online, but only 10% have actually done it at least once in the past. "The price that most users think is acceptable is much lower that market average", Pashutin explains. Aleksander Belenov, CEO at, says holders of movie rights want to set prices at the same level as in the West, although Russia's video ads market is still far behind that in Western nations.

VKontakte, piracy and torrents

Another problem that online theatres with legal content have to face is piracy. But if a few years ago the word 'piracy' stood for torrents, now the industry's worst enemy is VKontakte - Russia's most popular social network that allows subscribes with tons of pirated video and audio files that any user can upload and play.

Today, most users think it much handier to stream videos online rather than download it, and they usually don't care if the content they are using is legal or stolen, all they want is to see the film in high quality. Many market players think that the tough pricing policies of rights holder is to blame for the flourishing piracy.

"Sometimes the position of rights holders on pricing is so rigid that online theatres simply cannot form an attractive and civilised offer to their subscribers, which pushes viewers into the 'pirate zone' of the Runet", says Pashutin.

Russians generally have low income and like getting as much as they can for free, so they are not hard to be lured by pirates. The remarkable speed with which pirates rip, translate and upload films on VK or torrent sites, also gives them an advantage. Sergey Korenev, Development Director at Zoomby, says streaming video sites could even learn from pirates: it only takes the latter one day to translate the latest episodes of popular Western series!

The Monopolists

There is not doubt that when we hear the words 'online video' the first thing we think of is YouTube. The site is 'king' of video content, able to react instantly to the demands of the market, but YouTube also pulls the plug on other video hosting sites, as well as online streaming video systems and even b2b services.

While YouTube is just a huge catalogue of user-uploaded videos for most of the audience, businesses see the site as an arch-rival in terms of both quantity of videos and the number of other features, such as many partner programmes, premium services for rights holders, exclusive live broadcasts, etc.

"I don't want Google to be the only search engine I use, and I don't want YouTube to be the only site I use for watching videos", says Evgeny Fisun, Internet project Director at U-TV. Formerly known as MuzTV, the company launched its ClipYou site in 2011, with the aim of transferring both music videos and their audience to the Internet, so that U-TV could become a general entertainment channel.

The 'all music videos in one place' positioning seemed to be a success at first, and ClipYou offered viewers as many as 40,000 video items on the day of its launch. But the was one problem: the audience could still watch the videos they wanted on the site they were more familiar with to: YouTube. And, as there are more and more legal videos appearing on YouTube, its competitive power is increasing, and other video streamers will soon be under threat, says Fisun.

ClipYou is now trying new ways of attracting and hold viewers: it has become a video-centered social network, with online clip battles, discussions, voting and many other features, such as allowing users to upload their VKontakte audio playlist to the site, so that it automatically finds official videos to all the songs.

Technical issues

A reliable technical platform is yet another important issue to take care of, and spend extensive amounts on, if one wants to run a successful online movie theatre or video streamer. Some Russian businesses, like TVZavr, use their in-house design, while others (ClipYou) use outsider services. According to Fisun, any licensed content-based video service spends about 15% of its total expenses on streaming, platform rental and traffic (50% for user content sites). He believes, however, that every streamer should have a platform of its own design to keep all the technical issues under control, otherwise they risk losing both money and audiences.

Video Ads

One of the market's positive trends is growth of its audience and video advertising. Data from ComScore shows that nearly 56 million Russians watched 10.5 billion videos in January 2013 alone. But there are problems here, too.

Firstly, the amounts advertisers spend on TV ads are beyond online video services' competition, as they are still more impressed by traditional notions of show and host popularity and prime time than by the Internet's smart targeting strategies. Speaking at Connected TV forum earlier this spring, Natalia Makienko, Google's Video and Display Lead, said that efficiency of video ads was under question. According to Mrs. Makienko, while online video audience is about 75% of that of television, its budget is only 1% of the latter. The situation is somewhat better in more developed nations, such as the US, wh ere video ads spending is about 5% of that on TV.
Furthermore, an Internet movie theatre makes less money that other parties, given all its expenses, so these services have to try and earn some extra on various special projects and other types of ads.

Secondly, online video ads in the Us and Europe account for up to 8% of all video content (compared to 20% of screen time on US television). The difference is huge, but at the same time, viewers can't help noticing that online video ads are becoming increasingly like TV commercials, and just as much annoying, so it will inevitably push users to opt for ad-free videos offered by the pirates.

Naturally, user involvement in the online video market will only grow in the near future, and so will advertising budgets. As long as there are YouTube and VKontakte, and as long as advertisers maintain their tough position (and it is hard to imagine a drastic change in the situation), new arrivals in the video streamer market should not plan overtaking the world. They can, however, think of better quality niche content, of narrowing their target audience and increasing its value. Major players could learn how to work fast from pirates, and how to throw important and much-awaited premiers from Western services such as Netfix.