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Country focus Untapped pay-TV potential Farah Jifri reports on a large, unique market, where low ARPU households dominate, and asks what the picture will look like going forward

ussia is Europe's largest million pay-TV subscribers by 2012. division manger at AMT Group (a partner television market with 52.2 In keeping with its Eastern European of Appear TV) points out: “Russian cable Rmillion TV homes and is set to neighbours, Russia's pay-TV market television operators have not previously account for 28 million of the region's 63 has been growing at more than double seen a high ARPU due to the lack of a pay- the rate of markets in Western Europe TV market in general compared to Western and the US. Europe and the US. The Russian consumer Many observers see the Russian model is not accustomed to paying for television as unique, and the prevalence or free and therefore the uptake of the emerging terrestrial TV - similar to the UK's market pay-TV industry has been slow.” Freeview model - providing If pay-TV operators can demand higher high quality content is a prices for higher quality content and case in point. As services, such as VoD, catch-up TV and so Zaven Kirakosov, on, then Irakly Nakashidze, sales director at Verimatrix, believes there is huge untapped potential that could lead to significant growth going forward. Currently, there are two major DTH operators in Russia, each with over one million subscribers offering a basic free package along with paid-for value-added services. “My guess is that the majority of subscribers just take the basic package,” says Victor Belov, CTO of Russia's Comstar Direct. With 20 free-to air channels already in existence in Moscow, pay- services need to offer an attractive alternative for subscribers to willingly pay out any additional charges, adds Belov. “It is important for operators to differentiate themselves and create 'sticky' services and customer service to reduce churn,” explains Jeremy Maddocks, NDS regional director, Russia. “Such initiatives enhance the value of

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the operators' services and history has households have a contract with a cable IPTV currently lags behind CATV and shown that when customers perceive value operator,” says Sebastian Moeritz, president DTH services due to a range of factors, they are prepared to pay.” MPEGIF and CEO Dicas. “Cable operators including price. As Nakashidze points out, Operators are beginning to move in this have spent about three billion Euros over “IPTV has been driven by telco operators direction already. Comstar Direct, for the last three to four years to modernise with limited industry experience in pay-TV instance recently launched its new EPG networks for these households. There is a and they are finding it difficult to secure based on the NDS Master UI user interface phenomenal opportunity for growth and to the best quality content, or that which design and Akado has launched an HD implement fantastic next generation digital is most in demand. With cost such a key service (again using NDS technology). services in Russia.” issue, customers will opt for a cheap The government has earmarked 2014 cable package which provides the content as the deadline for all-digital broadcasting. they want, rather than a more expensive The total investment in the transition to DTT IPTV package.” is expected to be Euro 10 billion from Nevertheless, IPTV penetration is on 2008-2015, according to Moscow-based the rise in the Russian pay-TV market and consultancy Groteck. analysts J'son & Partners forecast that over A report from Frost & Sullivan reveals that 2% (more than 1.1 million) of Russian the bulk of this investment will come from households will receive their TV-signals via private investors. The main distribution IPTV technology by 2010. With broadband channels for digital TV are likely to be penetration reaching around 45% by mid- broadband subscriber access networks, 2007, about 1.3 million households in based on DOCSIS, ADSL, and Ethernet Moscow used broadband internet access by technologies, the analyst firm adds. that stage; all of which bodes well for IPTV. A recent report from Grotek states “The major metropolises have enough that the move to digital will deliver wealth for IPTV to be viable; because of the the most financial benefits to CATV. A number of multi-dwelling units (MDUs) in view echoed in a report from iKS- these areas, they are crying out for it,” says Consulting which put the number of David Price, VP of business development at CATV subscribers in Russia at 13.51 Harmonic. Price Harmonic believes that as million (or 27.5% of the Russian IPTV grows, satellite will suffer subscriber households), by April 2007. churn - especially in the big cities. “IPTV is Meanwhile, the CATV Association going to be big time in cities, but cable will believes that 70 per cent of households continue to dominate due to high-speed in the large cities of Russia currently have internet,” he adds. “Cable operators are access to the CATV networks. investing a lot to be able to offer HD and Satellite delivery remains a popular value-added services.” second to CATV, with the number of Maddocks at NDS sees IPTV running subscribers to the three satellite TV alongside cable in Russia. “The cable operators reaching 2.5 million by the end networks are generally analogue, old and of 2007. In the satellite TV segment have limited capacity. Some operators have 100% of signals are now broadcast in recognised that if they are going to Digital drives growth digital format. DTH also has a practical upgrade the network in any case, then Although the majority of pay-TV is still edge over CATV and broadband it may as well be IP. The smart cable analogue, there is little doubt that the move alternatives due to the large footprint it operators will not be threatened by IPTV towards digitisation will push further growth can cover in such a vast territory. but see it as a complementary technology. in the Russian market. Equally, telcos are keen to exploit the The biggest opportunity is the fact that IPTV on a roll opportunity of triple play amid falling Russia is in the process of transitioning AMT's Kirakosov believes that “In addition telephony and internet revenues. Innovative from analogue to digital services. There are to the process of digitalisation, there will marketing solutions and content will 140 million people living in about 45 be increased demand for the distribution determine success, not the pipe,” million households, of this about 36 million of such technologies as digital signal IP he explains. households have the possibility to connect for subsequent conversion of it to DVB Moeritz takes a similar stance: “There to a cable network, and about 15 million and RF.” won't be an enormous challenge from IPTV,

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which should not mean that there is no broadband companies offering IPTV; Russia: Quick stats space for an IPTV proposition. The trend bundling of services is very profitable and of online video, however, entering the it's good value for customers,” Belov adds. Population: 140m lounge and coming to TV sets is a trend TV households: 52.2m which will ultimately also embrace Russia. Success for HD and mobile TV? Cable subscribers: 13.5m Over-the-top (OTT) services, as well as the High-definition (HD) is also something that Satellite subs: 2.5m use of IP technology for delivering targeted, operators such as NTV Plus, Akado, IPTV: 0.1m relevant and addressed advertising will also Platforma HD and HD Media are rolling out (1.1m forecast in 2010) be a strong topic in Russia going forward.” and Moeritz believes that it will certainly These opinions are echoed by Frost & play a big role. “The motivations are in Source: Various: CSI Sullivan's report which states: “The market essence the same as everywhere else; opportunities for broadband internet, 3G fantastic picture quality. The availability and digital TV are significant; it is likely that of content is certainly an item for Further plans are in place to open up the Russia will see an upsurge in demand for discussion, but over time and bearing market with several working groups triple and quad play services as a result.” in mind that most productions are shot at the Ministry of Communications Grotek puts broadband internet access in HD these days anyway, this will not - as well as within industry organisations in Moscow at around or over 50% in 2008, be a major issue,” he says. such as Digital Alliance of Russia, the thanks largely to the aggressive strategy Nakashidze points out that since National Association of TV and Radiio of operators like AKADO. Blu-Ray devices and discs are still Broadcasters (NAT) and the Association As NDS' Maddocks points out, Russian expensive in Russia, HD could prove of Cable Television (AKTR) - currently operators have the advantage of being able a good pay-TV industry driver. However, examining how the industry should to leapfrog legacy systems since they are until there is a quality HD content offering, be regulated. at the stage of planning their new networks. it is difficult to see how consumers will be “Both foreign and domestic content “In order to compete, VOD, HD and PVR persuaded to invest more, he adds. providers need to have this certainty in are requirements now and operators need Mobile TV is also something that order to invest in new programming and to get the technology right from the very could reap significant revenues in the content for the long term. Operators need beginning,” he says. “There is a lot of Russian market. However, the sector the assurance that licences and tenure and competition today with many small pay-TV is still in its infancy and regulation changes will be made transparently and technology providers, but very few have the frameworks are still being finalised quickly to keep pace with new proven capability to deliver a mass-market by the government. technologies,” Maddocks explains. working solution with proven systems “Nobody knows quite how or when As the market opens up, some degree integration expertise.” mobile TV will take off. Russia has a very of consolidation becomes inevitable. Technology advancements will also push unique mobile market in which consumers Opinions are varied about just how far growth in the IPTV space, says Verimatrix's are very aware of the latest technologies this will go, with many believing that the Nakashidze, who adds, “Traditional and devices available. Russia might be the small local operators that are a feature of operators can now incorporate more great success for mobile TV, but it requires the Russian pay-TV landscape will remain in personalisation features and incremental co-operation on standards and regulation place alongside the larger players. “There revenue generation using Internet protocols, so that consumers are not confused and isn't the same commercial pressure to creating a hybrid service.” the operators can leverage their marketing consolidate as in the US; it's all about local This view is shared by Victor Belov. If cost effectively,” Maddocks explains. services,” says Harmonic's Price. IPTV is to really challenge the dominance “As the fight for market share remains AMT's Kirakosov takes the opposing view, of CATV and DTH Satellite, then VoD, catch fierce, we expect to see greater adding that “The process of consolidation is up/replay and interactive services are going consolidation through a growth in this area already active, and indeed within the next to be key. From a customer perspective as it allows customers to receive the best five years, we will see only a small number however, there is little difference between content as well as two-way connectivity of very large universal quad-play operators pay-TV and IPTV; it's the value offered and interactivity,” says Nakashidze in the Russian market.” by that service that counts.” What can be seen at this stage in “At Comstar Direct, we're trying to create Regulations and consolidation its evolution, there is little consensus differentiators in the form of value added Regulations governing the communications on whether the final picture in Russia services. After pay-TV, VoD is the second and broadcast space changed around will resemble the US or European largest revenue generator. Moscow is very two years ago, so that any regulation that model, or whether it will have it's own competitive right now, with several was put in place was technology agnostic. unique composition. CSI

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