Ruminations on Russia

Without getting overly cynical about a member of the Federation Council worrying about DVD prices this is a follow-up piece to My Friendly Local Video Kiosk Is Under Remont and tangentially about Korbina. Daniel Nezerov commented in effect that Hollywood's business model is broken. And to be fair to the VC blogosphere so has everyone else. This piece in the Moscow Times quotes a member of the Federation Council saying that there is little point trying to stamp out piracy if the narod cannot afford to buy licensed DVD's.

Being sure that Hollywood's business model is broken is very different from knowing how to make money from remaking it. It is now a pressing issue. As I pointed out in the Korbina link hi-speed internet ARPU's are on their way from $22 (ex-VAT) to $15 per month over the next three years. Additional services are essential to milking leveraging the investment in the network - however cheaply and well made they are.

For a number of reasons;

• 1. 14 channels of free-to-air
• 2. No meaningful cable only content
• 3. Must-carry provisions
• 4. The historical development of cable in Russia where crappy 250mhz networks carrying no more than 14 channels

cable TV has yet to take off in Russia yet. We are seeing better results outside Moscow and St. Petersburg where the competition for entertainment disposable income is a bottle of vodka and increasingly beer.

So if film and Hollywood content is the way to lure customers to buying premium packages, sports being the way, and the most recent blockbuster is being sold in every kiosk at Rbl90-120 ($3-4) what should the answer be and how should it be delivered? The simple answer is to make it easier to buy licensed than pirated; and that does not mean making the pirates go underground it means making licensed content really easy to pay for and watch. Whenever, however and over whatever medium. Acknowledge that however strong the DRM (an anti-consumer 4 letter word) protection someone will find a way to rip it off. So be it; as long as content is being sold at a fair price in a way that allows the user to view it as and when he/she wants then the needle will swing (violently) toward licensed versions. If iTunes isn't a lesson in fair-(ish) use there was no lesson.

I asked the head of Micorsoft's business in Moscow how she felt about competition from Linux about a year ago. Not bothered she said. I awaited the M$FT bullshit. She followed up with the view that her competitor was not Linux, OpenOffice (whatever) but pirated versions of Office et al at $10 for Office. Good point well made. The analogy is not easy to make but the point is the same. The competition is the most efficient business machine. It's input cost is close to zero and will charge whatever it can get away with. It will invest nothing in marketing or customer relations.

OK so that was the easy part; Hollywood busted, Russian piracy, poor cable TV uptake, booming consumer market. Any half-baked hack can write that part. The answer that makes money is so much harder than the question. In an environment where the only thing that costs a $ is a $ there are precious few opportunities to play the Hampton Court Maze game. The only way is forward.

Is it better to be the market leader setting the trend or the guy who has the subscribers and an open mind? Answers on a postcard please...

The technical answers are relatively simple; I just can't see the business plan without Hollywood's backing. And that's not an option to bet your hard won cash on.

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