In addition to financial problems the Russian video services can be restricted at the legislative level.
As Vedomosti newspaper reported, according to the results of research conducted by TMT Consulting and J’son & Partners Consulting companies Russian online cinema IVI is the most independent video service in the country. According to the information from SPARK-Interfax system, IVI revenues increased by 45 % in 2015 and reached RUR 1.06 billion, and the company’s losses have not increased since 2014 and account for RUR 328.9 billion.
According to J’son & Partners Consulting information the entire Russian market of video services has reached the level of RUR 5.9 billion. Also, as TMT Consulting agency noted, during the last year this market has grown by 32 % and amounted to RUR 3.4 billion. According to analysts, online movie theatres compose the fastest growing segment on the advertising market in Russia, as its advertising revenues increased by 20 % to RUR 2 billion. Revenues from paid subscription for users also increased 1.5 times to RUR 1.4 billion.
Online movie theatre Okko is the next after IVI by the amount of revenue. According to TMT Consulting, revenue of this video service has amounted about RUR 650 million during the last year. However, its founder, the British company with the same name (Okko) does not disclose its financial data.
The third leader among the video services is Megogo, according to SPARK-Interfax system its revenue has increased by 62 % to RUR 316 million. However, the losses of this video service increased up to RUR 31 million.
Financial figures of Tvigle and Tvzavr video services for the last year are still absent in the system. As Olesia Teplova, the representative of Tvzavr, told to Vedomosti, revenues of this online movie theatre amounted to RUR 82 million, and losses were RUR 13 million. She said that the revenue has increased by half – to RUR 180 million for the last year. Tvzavr’s representative did not tell the exact amounts.
The General Director of one big video service told to Vedomosti that most of the online movie theatres are unprofitable business. And although their development has been much invested, the expected rapid development of the market did not take place. Most investors of such projects can not find buyers who could compensate for their costs. According to Vedomosti’s information providers, absorption and consolidation of players in the Russian market of video services may occur soon.
However, insufficient revenues and slower growth of the market are not the only problems that can be expected by online movie theatres working in Russia. Difficulties may also arise at the legislative level.
Elimination the unwanted ones
According to reports of Kommersant, telecom operators and media holdings of the Russian Federation which are included in Mediacommunication Union (MCU) have proposed legislative amendments for “the organizers of audiovisual services which are the business entities of strategic importance for national defense and state security”. According to the proposed innovation, by March 01, 2017 the video services operating on the territory of Russia should not have foreign owners if their capital share exceeds 20 %. In particular, these changes will affect such online movie theatres as IVI, Okko and Megogo. Federal Supervision Agency for Information Technologies and Communications will be obliged to establish and maintain a list of such services.
It should be noted that MCU is uniting the major players in the media and telecom field. Its members are National Media Group, Gazprom-Media Holding, CTC Media, MTS, Megafon, Vympelcom, Transtelekom, ER-Telecom, Digital TV, Rostelecom, National satellite company.
Draft law is being developed for about six months. Pavel Stepanov, the Head of MCU, said:
“We are holding discussions and consultations on this draft within the MCU, its conceptual foundations are being discussed.”
“We know that this work is carried out and officially appealed to the Heads of the MCU with proposal to discuss the project over a wide range of experts, ministries and departments. The answer was not received“- said Irina Levova, the curator of “Communication and IT” working group of the Expert Council under the Government of Russia.
As the newspaper notes, online movie theaters are not invited to work on the law draft. According to Victor Chekanov, the Head of Megogo branch in Russia, the draft is designed to protect the Russian market players from Netflix. However, its adoption will be only a blow for the market itself. He is categorically opposed to coordinate the industry in this way.
Mikhail Platov, the Deputy Head of ivi.ru in legal affairs, is completely agree with him:
“This law is deteriorating investment attractiveness of the OTT segment in Russia which is at very early stage of development.
The main beneficiaries of this law will be a pirates only, all legal distributors, rights holders creating the movies, TV series and cartoons are loosing. Ultimately, the users will lose too.”
One of the top managers of some company in the Internet industry said to Kommersant that such innovations are “egregious thing”:
“The most of online movie theatres have foreign co-owners, and their shares are more than declared ones. Thus, market participants are forced to come to the major players and ask them to redeem their projects.”
As a reminder, these standards have been applied to the Russian media which had foreign owners with more than 20 % of the shares. Many companies had to be urgently restructured or seek buyers for their assets. Thus, media National Media Group holding and Discovery Communications have established a joint company Alliance Media which deals with broadcasting of the American media group TV channels in Russia. Later, the company bought Turner TV channels (TV channels of Cartoon Network, Boomerang, CNN). MTG has found buyers for the Viasat paid TV channels family, and the Sony Pictures Television – for Sony Turbo, Sony Entertainment Television, Sony Sci- Fi TV channels. The Swedish company MTG sold its share in CTC Media (STS, Home, Perets and CTC Love TV channels) to the Russian media holding UTV. Fox International Channels currently renewed its TV channels National Geographic, Nat Geo Wild, Fox, Fox Life, Baby TV to Telco Media, the official distributor in Russia. Viacom sold 80 % of its assets to Maxim Maiorets, the top manager of Renova. And NBC Universal (Universal Channel and E! Entertainment) and AMC Network (CBS Drama, CBS Reality, Outdoor Channel) decided not to make any changes in their structure or to search for new owners and just left Russian market.
There is no politics here
In addition to proposed changes MCU offers another draft law that will also restrict video services, but in the field of advertising. According to the information of Kommersant, they can prohibit to Russian audiovisual services to show an advertisement of political parties and election campaign for users.
“The organizers of audiovisual services on the Internet don’t have the right to inform the voters about the candidates, electoral associations, except the cases when informing is carried on TV channels of the broadcasting organizations providing access for the users of audiovisual services” – it is stated in the text of the draft.
Pavel Stepanov, the Head of MCU, told the newspaper that he was “not aware” of the situation and “did not discuss it with anyone.”
Victor Chekanov believes that in the draft law there are some positions that have no semantic load and look like some exchange items. He also noted that some political parties have already appealed to Megogo regarding advertising.
According to Mikhail Platov, videoservice ivi.ru generally does not place a policy regardless of the election. He believes that such advertisement can appear not on video services only, so, such restrictions have no sense.
MCU have proposed administrative responsibility for online movie theatres that will not comply with these norms. Any video service will be fined if they do not notify Federal Supervision Agency for Information Technologies and Communications which will maintain a list of such resources that they started their work, do not provide information about them or do it late. The amount of fine is RUR 1-30 thousand for citizens, RUR 10-30 thousand for officials and RUR 50-300 thousand for legal entities.
