Russian SVOD consumer spend to increase 1,000% by 2024

Thursday, October 29th, 2020
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A new video insights report from Futuresource Consulting shows that although Russia’s SVoD market is underdeveloped, it is undergoing a rapid transformation. SVoD doubled in size last year to achieve RUB 6.6 billion (US $83.5 million), exceeding the digital transactional market for the first time, and is on track to develop at a similar rate in 2020. What’s more, Futuresource forecasts point to SVoD spend increasing by one thousand percent by 2024.

Netflix at a Disadvantage

Netflix is impeded in the Russian market, with legislation limiting the service to 100,000 viewers per day. As a result, homegrown players are taking command of the OTT streaming landscape, leveraging enormous financial investment and ramping up the competitiveness of the sector. Kinopoisk HD, IVI and Okko are the frontrunners, all of them implementing a range of three different OTT business models, namely SVoD, TVoD and AVoD (subscription, transactional and ad-funded).

Ad-funding is the Gateway to Paid Content

“AVoD has a far more important role to play in Russia than in other territories,” says Tara Patel, Research Analyst at Futuresource Consulting. “Leading services such as IVI achieve around half their revenue through advertising. Furthermore, AVoD acts as a steppingstone, with users being upsold to SVoD. That’s in stark contrast to most other markets, where consumers supplement their SVoD viewing with AVoD.”

EST is also a prominent feature on the Russian video landscape, driving the overall transactional sector. According to Futuresource, it accounts for 74% of the transactional home video market, compared to just 30% in the UK. This is due to a combination of ownership culture, rising affluence of the middle classes, a negligible physical market and a tightening of piracy control. EST’s popularity comes despite DVD and Blu-ray never achieving a significant foothold in Russia because of piracy.

Heavy SVoD Investment Pays Dividends

Kinopoisk HD is the SVoD service developed by Yandex, Russia’s multi-billion-dollar search engine corporation. Known as the ‘Google of Russia’, Yandex also employs an Amazon-like business model, with an ecommerce division and the option to subscribe to a Yandex+ service which provides users with free shipping and access to KinoPoisk HD, as well as discounts for Yandex Taxis, a partnership with Uber.

“Yandex is built on robust financial foundations, allowing it to invest heavily in its Kinopoisk HD service,” says Patel. “The offering service was purchased by Yandex in 2013 with the brand well known as originally a service providing information about films and TV series before a 2015 redesign started providing aggregated access to free ad-supported content via other services. The service now provides paid-for content on a subscription or transactional basis.

“Like its rivals, Kinopoisk HD has been making significant investments in local productions, which are more appealing in Russia than American shows. This investment in local content is helping to differentiate services from each other and is attracting an influx of new consumers to the services. And for Yandex, it’s a virtuous circle. Investment in Kinopoisk HD not only captures new subscribers but is also used to prevent churn from Yandex+.”

In terms of consumer spend, IVI is Russia’s largest SVoD service, accounting for almost half of all SVoD revenue in the country. Backed by one of Russia’s largest commercial banks, Alfa Bank, the business has been operational since 2010 and began as an AVoD service before diversifying into subscription and transactional offerings. IVI has been highly successful in transitioning its customers onto paid subscription services, though it still makes most of its content available on AVoD. IVI is also strong on its transactional offerings, hosting ‘ivi weekends’, where it offers cheap video rentals.

Okko is the third largest SVoD service in Russia and the leading EST (electronic sell through) service, which was the company’s original focus. Okko built its reputation with a premium transactional service before beginning to invest in SVoD packages. Sberbank, a major state-owned bank, acquired a 46.5% stake in Okko’s holding company and has recently announced preparations for additional investment. As well as providing a significant cash injection, Sbebrbank is preparing Okko for accelerated growth, aiming to make the multimedia service the largest OTT platform in Russia as soon as in 2021.