Central and Eastern Europe may not be a priority for ambitious Western VoD services like Netflix, but the market is still growing steadily thanks to local players. Andrew McDonald reports.
The growth of international video-on-demand (VoD) services such as Netflix, Hulu and Amazon’s LoveFilm has been a major factor in the online development of the television and film industries in recent years. With considerable money behind them, these companies have been able to break into new markets, taking on local incumbents to carve out new business.
But in Central and Eastern Europe (CEE) it’s a different picture. Unlikely to be affected by the intervention of these big Western players, the market is growing organically. TV providers across the region are building up their own online services, broadcasters are offering catch-up and local independent web outfits are filling the gaps with their own take on subscription- or ad-based film and TV websites.
However, there are big hurdles to overcome. Pan-regional rights issues are as much a problem in CEE as they are elsewhere on the continent, while digital licensing rules can in some cases make it difficult to offer older archive content. On top of this, piracy is a blight, particularly in Russia, which lacks the legislation that the West has adopted to clamp down on copyright infringement.
Although the market is fragmented across CEE, satellite and cable TV firms are becoming evermore savvy to the online opportunities open to them. Take Viasat Broadcasting, one of the leading pay- and free-TV operators in Scandinavia and the Baltics. The firm recently launched its Viaplay online service in Russia to take advantage of its bridgehead in the market, letting subscribers use a single ID and password to access its pay-TV content, both live and on-demand, on any connected device.
“For us, Russia is a very exciting market. We’ve had great success with our movie service TV1000 there, so it’s a natural progression of our business,” says Viaplay CEO Niclas Ekdahl.
Voyo, the subscription portal from Central European Media Enterprises (CME), is now available in the Czech Republic, Bulgaria, Croatia, Romania, Slovakia and Slovenia. CME’s head of new media Robert Berza says moving down the paid route is a positive step, and Voyo is seeing subscriber numbers grow. It had 20,000 users at the end of December and 55,000 by the end of March. “We expect to maintain a healthy trend,” he says.
“Ad-supported vs subscription is comparable to present vs future. We have chosen the future. Also, we are convinced we can capture the ad market on our other websites – news portals, TV websites, niche sites etc. Pay-per-view still works well for content available in a post-theatrical window, but as a product is less convenient than a subscription. Still, it’s a good complementary service.”
The evolution of the pay-TV provider into the online service operator is seen again and again across CEE. In Poland, DTH provider Cyfrowy Polsat bought out VoD service Ipla in March for a reported PLN150m (US$44.2m) to shore up its digital strategy. The site includes TV shows, films and live sport.
Elsewhere, TV, internet and phone provider Telekom Slovenia recently launched an online service called TviN to make its SiOL TV service of about 50 channels available via computers, tablets and smartphones.
“For Western Europe and North America, OTT has been seen much more as a disruptive force, with new entrants such as Netflix coming into the market and shaking up all of the traditional players. But what you’re seeing in Eastern Europe is actually that the incumbents are further entrenching their position by launching such services. There might not be a massive consumer demand for them at the moment, but they are launching pre-emptively and stamping out the potential for any local start-up competitor or new entrants into the market,” says Informa analyst Michael Dean.
However, one independent that’s gunning for growth in the region is the Czech Republic’s Topfun. The firm, which skews mainly towards film content, is already available domestically and in Slovakia and offers transactional VoD as well as a recently introduced subscription VoD option, Topfun Non-Stop.
“Our goal, starting this autumn, is to go further into Poland, Hungary, Slovenia, Croatia, Bulgaria, Romania, Ukraine, Latvia, Lithuania and Estonia, and to get into the position where we are a strong brand within these territories,” says Topfun sales director and board member Yadek Prikryl, claiming it is still early days for VoD in CEE.
Although Prikryl tips the market to peak next year, as it attracts more interest from local and worldwide players, he admits that Topfun even now has difficulty licensing local TV content. “The majority of local TV firms are trying to have their own VoD service with their own content. They have to appreciate that we are not competition for them but we could be the tool for them to get on to more technologies,” he says, referring to Topfun’s strategy of launching across as many platforms as possible.
For this reason, attaching a ‘European Hulu’ tag to Topfun would be misleading. From a content point of view, the US service benefits from having major broadcasters as backers: NBCUniversal, Fox Entertainment Group and Disney-ABC Television Group. In Europe, it is unsurprising that broadcasters also want to protect their own output in order to exploit its VoD potential themselves.
Polish broadcaster TVN is a case in point. Its TVN Player makes all its content, licences permitting, available across a range of devices using an ad-supported model. Though it distributes older content to other online players, it keeps its portal as the exclusive home to its online content.
“Some of the older shows are available on Onet, which is the biggest internet portal in Poland. Onet is actually part of the ITI Group, which is our parent company, but they don’t have our current shows, they only show what they call the long tail,” says Bogdan Czaja, deputy programming director of TVN Poland, adding that the network also has a deal with Orange in Poland. Since C21 spoke to Czaja, Ringier Axel Springer Media paid US$273m for a 75% stake in Onet.
While for TVN the selective licensing of content may be a strategic decision, elsewhere in CEE practical limitations have also scuppered the chances of deals between broadcasters and online portals and video services.
Visual Unity is an intellectual property and broadcast technology firm that helps power many of the VoD services in the region. With offices in Prague, London, Dubai and Belgrade, the firm works with the likes of Topfun, CME Group’s regional Voyo platform and public broadcaster Czech Television.
“For Czech TV, we provide the whole video internet experience, which basically is a lot of live streaming and everything they have rights for,” says Visual Unity president Thomas Petru, describing a rich archive of thousands of hours of news and documentary content spanning many years.
While much of this is available free to viewers, complicated rights issues have upset plans for a separate pay-VoD portal – and by extension the chance to exploit many more hours of content on other platforms.
“I don’t think it’s about whether Czech TV is willing to license its content. It’s just that digital rights are new, so old movies have to be negotiated to have viable rights, because the Czech author law has been built in a way that means every kind of use has to be negotiated again with the owners.
“It’s impossible because you have to negotiate with the authors, with the actors, with the music [rights owners], with everybody. With older movies, some of the companies don’t even exist anymore,” he adds, claiming that regulation should be brought in to resolve these problems, such as imposing TV- and movie-style rights to digital content that dates back more than 10 years.
Difficulties in licensing locally produced TV may seem to cast a shadow over the development of CEE’s VoD sector, as in most cases it is local rather than imported content that drives the success of such services. However, not all TV players are opposed to working with outside players – even the likes of Netlfix, Hulu and Amazon, should they ever launch in these markets.
Although Hungary is still a relatively under-developed VoD market, ProSiebenSat.1-owned national broadcaster TV2 is one example of a forward-thinker. TV2 business development director András Megyeri says the firm is open to working with these players, though “as far as I know, our competitors may not be.”
As well as running its own VoD portal, TV2 licenses its content, which includes a strong local production library, to the VoD platforms of major cable operators such as T-Com, UPC and Invitel. It is also one of the few players in the country that uses YouTube as a platform to officially promote its programmes.
“We are constantly looking at opportunities to invest in and capitalise on the wide marketing power of our television channels and our web businesses. Of course, we look into every individual case carefully, but I would call our approach entrepreneurial in every respect,” says Megyeri.
Like many VoD players in the region, the firm is looking to the future. Informa’s Dean describes Hungary as a market where broadband penetration is still fairly low and pay-TV penetration high. “If you put that together, a large proportion of the population are having their entertainment needs well served by cheap pay-TV,” he says.
In comparison, Russia, by far the largest market in the area, does not have a well-developed cable TV business. “To some extent it gives more chances to independent players. For example, in Russia you would not have any single local media company that owns a visible part of the market for content rights,” says Egor Yakovlev, CEO of independent Russian VoD service Tvigle.ru.
“If you take Channel One or NTV as examples, of all the content they are able to deliver on their own, they probably would have only a very small percentage of the market online. So if you are a media holder, it will not give you any visible benefits as a result. In such a situation, from an access to content point of view, it’s much more interesting to be independent and be able to buy this content from different sources.”
Tvigle offers TV shows as well as movies, including content from major providers such as the BBC and Disney, and is competing in an increasingly tough market. One of its major rivals is movie-skewing Stream.ru (recently rebranded from Omlette.ru). Asked to define its current strategy, Stream CEO Inna Shalyto is bullish: “The goal is to take 30% of the VoD market in Russia within the next three years.
“We plan to be available on all mobile devices, platforms and smart TVs accessible in the country. We have contracts with the leading American film studios and major European studios and will add to them.”
Availability across different devices is also at the heart of Russian broadcaster CTC Media’s strategy. The Modern Times Group-owned firm’s Videomore.ru runs a mixture of Russian and international programming. Chief new media officer Anna Maria Treneva says the focus for its ad-supported online platform is to launch on more connected TVs and to explore new payment options, such as ‘catch-forward.’
In its most recent earnings call, CTC said Videomore.ru attracted an average of 340,000 unique visitors each day in the first quarter of 2012, up from 65,000 in Q1 2011 and 270,000 in Q4 2011, representing strong growth. However, in its latest quarter the firm made just US$500,000 from “new media” – mostly ad sales on Videomore.ru – which is a tiny proportion of its total revenue of US$191.1m.
A major problem is piracy. “Once an episode of an American TV series goes on air in the US, the next day we have it on Russian pirate websites dubbed into Russian,” says Treneva, pointing particularly at Russia’s most popular social network, VKontakte. While the site may look like Facebook, it is allegedly a hotbed for pirated TV, film and movie content. “You can pretty much watch anything there,” she says.
Although Videomore has now reached an agreement with VKontakte to upload and replace pirated content with its own ad-supported version, where possible, this tackles only part of the issue. “The main problem in making deals with studios and TV broadcasters is the long windows, when VoD platforms get the content only after feature movies have had their theatrical and DVD releases, or only after the end of the season for TV series,” says Stream’s Shalyto.
“Such models make no sense in a highly pirated market such as Russia because all legal VoD platforms get the content significantly later than pirate ones. Besides the facts that major deals are very expensive for an unformed market and Russian anti-piracy laws are not perfect, such a situation gives the pirates many advantages over legal VoD platforms.”
Tvigle’s Yakovlev agrees, claiming that responsibility for beating piracy in Russia rests partly with the US studios. “From five or six top majors, only half of them even decided to provide content on an advertising-based model in Russia,” he says, claiming it’s impractical for a studio to license a previous season of a TV show on a pay-per-view basis when most Russians are watching the most recent episodes for nothing. However, he gives special mention to Disney-ABC, Fox Television and the BBC for taking a more lenient approach in trying to develop the market.
It remains difficult to see how the VoD market in CEE will make meaningful returns in the near-term, but then these companies are playing the long game. With smart TV and even broadband penetration tracking behind Western Europe, they are setting themselves up for an inevitable shift in consumer behaviour. By cementing user patterns now, often with free, ad-supported services, they hope to benefit from future gains.
But what about a last word of advice for players like Netflix that are trying to enter a market like Russia? Sergery Kornikhin, senior VP of Russia’s leading pay-per-view service IVI.ru, makes a suggestion with which many of his rivals may agree: “Acquire an established player in the market.”