Russia is one of the largest potential markets for pay-TV worldwide. It has a population in excess of 140 million people and with still very low digital television penetration; the market could see dramatic growth in the next few years, particularly if economic conditions improve. Flying the flag for DTH in Russia is NTV-Plus, a DTH operator that is already making a significant impact in the market. The operator ended 2004 with just about 370,000 subscribers and will hope to break through the 500,000 barrier soon. It has been broadcasting digital satellite services since 1999, making it somewhat unique in Russia.

In an exclusive interview to Satellite News, NTV-Plus Director General, Alexander Ordzhonikidze discussed the developing pay-TV market in Russia and the opportunities for the operator to become a market leader in this space.

The operator offers subscribers about 70 channels, and in terms of premium content, Ordzhonikidze believes the operator is already in a strong position. “There will be further development of premium channels, including expanding the number of movie channels,” he said. “Today NTV-Plus is the only Russian TV company to have partnerships with all the leading Hollywood studios, such as Warner Bros., Twentieth Century Fox, Sony Pictures (which includes Columbia Pictures and Tristar Pictures), Disney/Buena Vista, Metro Goldwyn Mayer, Paramount Pictures and NBC Universal. NTV-Plus holds exclusive television rights for showing their pictures in Russia. In addition, the movie channels range is being constantly enriched with movies made by independent producers, as well as the best Russian films.

Bringing more localized content is also a key for the operator this year. “We also want to introduce more domestic content,” Ordzhonikidze said. “The main sources of content and popularity for pay-TV in Russia are foreign satellite channels, while at present practically no exclusive domestic content is represented in the Russian pay-TV market. We plan to continue cooperating with producers of the Russian content and to put Russian-made channels on the NTV-Plus platform.”

Steady, Not Spectacular

NTV-Plus’s growth rates througout the past few years have been steady, not spectacular. Pay-TV is still a tough sell in Russia. Ordzhonikidze believes the comparison with the Russian mobile market is relevant here. “For us it is quite evident that there is likely to be a potential upsurge in demand for pay-TV, including digital,” he said. “Although smaller in its dimension, it may be similar to what the mobile communications market has experienced. While mobile may be more highly valued than pay-TV, many potential customers are already aware of all the advantages of pay-TV and are ready to pay for it just as they are paying now for mobile. They are seeing it as a necessary feature for their daily life. The subscription charges for NTV-Plus services are comparable to average monthly payments for mobile communications.”

The operator sees itself as pioneering the development of pay-TV services in the country. However, the dynamics of the Russian pay-TV market make it difficult. Ordzhonikidze admitted, “We, as the market leaders, are developing a new categories of services, are trying to alter the usual patterns of consumer behavior. Russia is one of the few countries with a national Free-To-Air (FTA) TV offering of about 20 channels broadcasting the most significant and interesting sporting events, as well as the latest films. This makes the onslaught of the pay-TV more difficult.”

According to Ordzhonikidze, recent marketing studies by the operator indicate that there is a high degree of satisfaction concerning the FTA offering, meaning upgrading to pay- TV is not really a priority for a number of people.

So, how does NTV-Plus get it message across? “In order to convey to our potential subscribers the information about our products we have to constantly persuade consumers that they are purchasing not ‘still more television’, but ‘the best television’ capable of meeting the most exacting requirements,” Ordzhonikidze said. “We constantly source and find new ways to make the audience aware of the value of satellite TV. For instance, we hold events, such as festivals, fairs and contests, in Moscow and in other regions, aimed at both increasing loyalty of our existing subscribers and attracting new ones.”

The operator is the only Russian satellite pay-TV operator and there is unlikely to be a second DTH player. Ordzhonikidze commented, “At present there is just one operator in the satellite TV market. According to experts, emergence of any second platform in the Russian market is unlikely. In the DTH markets in the majority of western European countries there is just one strong operator. As for changes in the digital TV coverage area in Russia, it will expand, in particular, due to significant reductions in the cost of upgrading an analog TV set into a digital one. At the same time we plan to extend our broadcast area to the whole of Russian Federation territory.”

Customer Service

The challenge for the operator will be to grow its subscriber base. It has an ARPU (Average Revenue Per User) of around $29 a month. In terms of improving its customer service to consumers, the operator is considering making a series of improvements. Ordzhonikidze commented, “In the near future we are going to consider the feasibility of implementing a project for monitoring ratings of the NTV-Plus audience using set top boxes (STB). We believe that the results of such instant monitoring will be the most effective means for optimizing the platform and programming, as well as for maximizing the subscriber base. We also have plans to create a club for NTV-Plus customers in order to have an opportunity to directly interact with our customers, to attract new subscribers and to provide some incentive programs for most loyal subscribers.”

At the moment, the operator is really concentrated on the business of boosting subscriber numbers. While most pay-TV operators in western Europe are talking about high- definition television (HDTV) and personal video recorders (PVRs), Ordzhonikidze said there will likely be some time before these services see the light of day in Russia. “The pay- TV market, including digital, is just at the beginning in Russia, and we believe that it is premature to plan introduction of expensive high-tech services such as HDTV, in spite of the fact that from the technical point of view NTV-Plus is ready to introduce most of them,” he said. “We believe that it is too early to plan HDTV introduction. It is evident that the demand for such service will be very low while the investments required are quite high.”

Competition Viewpoint

While the main competition for satellite pay-TV in Russia is still coming from FTA television, other pay-TV operators are beginning to emerge. One of them is Comcor-TV, which provides services over modern interactive hybrid fiber-coaxial (HFC) network. Its CEO Mihail Silin recently spoke to Satellite News‘ sister publication Inside Digital TV and believes the market could follow the lead of Poland, which is one of the more vibrant pay-TV markets in eastern Europe.

“I think that what we have today is close to what Poland had a few years ago that mostly operators implementing a basic packages without any conditional access systems,” Silin said. “So, there is one basic tier of packages. They have no premium channels or no additional packages and they have no digital platform. Due to competition, they need to implement additional services like pay-per-view and they are looking for new technology to provide it. So, they are implementing digital. NTV+ has a number of digital customers. It means that we have something like 400,000 digital customers including satellite and cable together.”

Silin agrees with Ordzhonikidze in the sense that the biggest obstacle to the take-up of pay-TV in Russia is the strength of the FTA market. He said, “You have very powerful FTA broadcasting in Russia. For example, in Moscow, we have 16 to 18 FTA TV channels. They cover main events, even sports events like football, Formula One and other main sports events. Some of them are thematic. We have now two sports thematic channels, maybe two music channels, maybe two movie channels. So, the main competition is from terrestrial broadcasting.”

TrailBlazer

Overall the market is taking shape and with an aggressive approach, NTV-Plus is likely to become a major force in the market. NTV-Plus reached operating breakeven point in 2004 and is set to go from strength to strength. Ordzhonikidze said, “In the Russian market NTV-Plus is the trail-blazer and the trendsetter of the digital broadcasting –we have been broadcasting in digital since 1999. In addition, being the leader in the Russian pay-TV market NTV-Plus, to a large extent, dictates strategies to its competitors for their further development as for broadcast quality standards, the services rendered and, of course, the content.”

–Mark Holmes (Anastasia Kazakova, NTV+, [email protected], Chevaan Seresinhe, Emmett and Smith for COMCOR-TV, [email protected])