Bear bullish on Web TV's future

Broadband gains lift Russia's online content sector

As Russians up-grade to broadband in ever larger numbers, the country appears poised for an Internet television boom, with experts pointing to a rash of new project launches and an influx of cash into the sector.

"Online television is one of the most promising areas for the development of the Internet in Russia," said Kira Sokolova, a senior analyst at J'son & Partners consultancy in Moscow.

"The area of online-rich media content has a vast potential," said Nikolay Mityushin, director for investment at the ABRT venture fund, which recently bought a 45% share in TV Click, an online TV project. "What do people often do (in their leisure time)? They communicate with each other and watch TV. And they want to do the same on the Internet."

Internet TV is still relatively new in Russia, where it first began to develop only a couple of years ago. One of the pioneers in the market was Internet provider Corbina Telecom, which launched its online television project, Corbina TV, in late 2006. The company draws 80,000-120,000 viewers a day, according to Corbina general director Alexander Malis, a figure he hopes will at least double by the end of this year.

At least three major online TV projects — TV Click, TVIGO and Top4Top — have either launched or are in preparatory stages. But Russia still lags behind Western Europe and the U.S. in broadband penetration and the number of active watchers of online video content. Broadband Internet connection that allows viewers to watch videos online is still unavailable or too expensive to many people outside such major cities as Moscow and St. Petersburg.

"In many cities, people would like to watch more online stuff, but that's still too expensive for them," Malis said. "In some places, for the price they have to pay for watching a one-minute video, a user could browse the Internet for a few weeks. But this issue is being dealt with, and a surge in the number of online TV watchers is going to happen soon."

Experts share the optimism. According to Sokolova, the number of Russian households that have broadband increases 40%-60% every year, and forecasts promise an increase in the penetration rate from the current 13% to 50% by 2012.

In the meantime, online broadcasters have to keep in mind the technological lag.

"The average length of a video people can afford to watch online is still limited," said Yegor Yakovlev, general director of TVIGO Entertainment, which produces online video content and runs its own Internet TV broadcasts. "Developing our formats, we have to keep in mind that an average length of a video program a user watches online here is two-and-a-half to three minutes, compared with about six minutes in Western Europe and the U.S."

Players in the domestic Internet TV market consider advertisements the main potential source of revenue, including traditional online banners and video commercials that would be shown at the beginning, in the middle or at the end of online broadcasts.

At this point, ad revenues are still small as many prospective advertisers try to determine what options Internet TV can give them. "(But) the potential is substantial," Sokolova said.

On the content side, the video area is still dominated by user-generated content. According to research data from J'son and Partners, the top providers of video content in the Russian segment of the Internet all are user-generated sites such as rutube.ru, a local version of YouTube.

However, some see the prevalence of amateur content as a good opportunity for professional players to step in.

"So far, the number of quality video projects on the Internet is ridiculously small," Yakovlev said. "However, there are people who don't want to rake through rutube or YouTube looking for something interesting. A new type of online audience is emerging, for which there is currently almost nothing to watch."
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