ivi moves into original content production
BY Alexandra Shutova
Russia’s leading OTT platform ivi has proven that even in countries where piracy dominates the market, high-quality content and user-centric services will always find their audience and build it over time. Only last year, the company increased its revenues with more than 60% and currently counts more than 50 unique million monthly users. Having achieved a market leadership with 42% share, now the company is entering a new stage in its development with the launch of original content production. Alexandra Shutova met in Moscow with ivi CEO Oleg Tumanov to talk about the new strategy and the preferences of the Russian OTT viewers.
ivi CEO Oleg Tumanov
You recently announced plans to invest close to a billion rubles in original content. Why did you take this decision?
We started our business in 2010 in the piracy ecosystem. It took us a while to attract the audience and build a business model. Obviously, at that stage of development licensing was the only possible option. In terms of commercial effectiveness, it still remains the most effective one. But as the competition got tougher and our monetization abilities grew, there emerged a possibility and a necessity to create unique offering for our audience.

ivi is growing fast, we generate high income. Last year, the share of our company reached 42%. The competition becomes more noticeable and stronger. We see this step as a timely response to this competition and beneficial in terms of the offering for the audience – something ours, unique and special that will attract and help retain viewers. There are many factors that necessitated and made this move possible.

The 1-billion-ruble budget is easily comparable to what some big channels are spending on primetime content. Where will this huge sum come from?
We have enough of our monetization opportunities, but we do not exclude investment rounds that can give a greater impetus to the development of the company.

How many original shows do you plan to shoot? What genres will you focus on? Can you reveal some of the projects?
Our audience is very diversified. We have almost 50 million monthly unique users, dozens of millions watch content, and almost 1.4 million paying users. There are different customer segments. Contrary to TV channels, which have a very strictly-defined content policy, we are more flexible. Of course, we understand what audience any given title will target, but there is no need to fit it into the overall picture. It is more important for us to say something new and not to fill the slots, because we simply don’t have them.

We are considering thrillers, comedy stories (even though there is nothing more difficult than to make a good comedy), dramas and mixed genres. We are looking at topics that raise sensitive issues of society development, those that look at the transformation of society under the influence of technology, and transformation of interpersonal relationships. These are ageless themes but in a new presentation, explored in the new stage of the social development. Our audience is hard to please, it demands something extraordinary. It does not watch passively but does so actively. If users do not like, their loyalty is gone, and our project is over.

In terms of the number of original shows, there will be dozens of titles of various formats – both, short and full features. We have already participated in 14 movies: 11 of them have released, and three will premiere in the near future. Needless to say, we are interested in serial production.

Will you rely more on the paid model in the future?
ivi has a combined model – freemium, and it will remain fundamental for the foreseeable future. The share of pirated viewership is still extremely high in Russia, and it is very difficult to teach the audience to pay. Therefore, the advertising model works well for us in terms of monetization – we have attracted a large audience and a great team that can work with online video advertising and reach results that are important for advertisers. On top of that, the free model is a source of promotion of our business, therefore, both models will develop in the future.

Clearly, the paid model has huge potential in Russia and the world, but given the particular nature of our country, we do not plan on giving up the free model.

How much do you expect to grow in the next two-three years?
Let’s not guess at the future but look at the results of the previous years instead. In 2018, ivi grew by 62%, which is more than a year before that, when we showed a 50-55% increase. Up until 2014, the company doubled annually, but then the base was much smaller.

The market is still at the very early stage of development. OTT is the driver of structural changes in the media in the world. The cinema market in Russia covers 1.9% of the global one, and the market of online video – only 0.4%. We are very far behind, there is a number of reasons for that and we need to close that gap. The OTT market is taking over a major media segment because it can give users personalization of media experience, which traditional media cannot.

Who would you say are your main competitors and which companies do you expect to see pushing the competition?
In regard to customer attention, piracy has been and remains our main competitor. But from the standpoint of competition for resources related to the formation of the segment, there is a tough competition with legal players, each of whom has own ambitions and opportunities, for everything – content, talent, marketing, distribution, - all the resources instrumental to our business development. There is a large number of online video services in Russia compared to the size of the market we present – same if not more than in the huge American market, and they all want to grab a piece of that pie.

Do you look at traditional TV broadcasters more as rivals or as partners?
I have always seen them as friends, but they, for some reason, call us enemies (laughs). We work together and partner with some. Others decide to build their own distribution. Time will show, but I think that it is very difficult for a TV broadcaster to make a heavy-weight business only on own content, especially in such a competitive environment. It is very expensive, requires large investments, spider work, extensive efforts and know-how. We have been building our business for nine years now, and you will not believe how much more work we have to do. Our teams of product development, analytics, data processing and marketing work with incredible intensity. There is a giant misunderstanding on the market that launching and developing such business is easy, but it is not.

Besides that, regardless of how wonderful movies and series that channels produce are, I think it is not enough to attract and retain a large audience. ivi works with 400 content providers from all over the world – all the six majors, European studios, the majority of Russian companies, as well as studios from Turkey, Israel, India, and other countries. The audience in Russia is spoiled with pirated websites – users got used to an abundance of content, its variety and freshness, and it is very difficult to meet their demands.

Why is Netflix not a major factor in Russia?
Because it never entered the Russian market, it only opened access to local viewers, but hasn’t announced its strategy or shown its claws and teeth. Netflix is a very serious company that still ignores our country. Legislative restrictions are one of the reasons for that. Two years ago, Russia passed a law that requires a special license from foreign services after they reach 100.000 unique users a day. I cannot say whether Netflix has reached this mark, but as we can see now, it does not strive for that. Entering the market means licensing a Russian catalog, adaptation of the service and its pricing policy, marketing strategy. A market player does these things when there is a specific task, but Netflix has other markets, where the service is more active.

When do you register the biggest activity of your users? How much time on average do they spend watching shows in your ‘primetime’?
The core of our viewing audience is concentrated in the European part of Russia, and it complies with phases of the day. Naturally, we observe peaks of viewership during the evening and a decline late at night. But given the fact that people from other time zones watch us as well, viewership levels remain high all the time. Viewership time depends on the model and on the platform. People watch us 25-30 hours a month on Smart TV, less on other screens. Mobile web has the lowest viewership time.

Which are the favorite genres of the ivi users? Do they binge a lot? Are there differences by genres when it comes to the time of watching shows?
In terms of genres, our users watch thrillers, dramas, comedies and sci-fi content the most. These genres, however, are popular everywhere. On top of that, children’s content gets high viewership time. Of course, our users binge watch. We have recently strengthened our serial offering with Russian and foreign content. Contrary to traditional TV, when people watch what they are shown, we do not observe a difference in genres depending on the time of the day.

We all know how data collecting is so important for the success of Netflix and Amazon. Do you also operate with similar algorithms in order to offer the best content to your users?
Absolutely, we work with similar algorithms, because our main goal is to ease the process of picking content for our users – that is what we emphasize in the development. All personalization technology, recommendation mechanisms, understanding what users watch, how often they watch it, how often they come to the service and when they stop – we analyze many factors to make recommendations. In the current stage of improving user recommendations we have shifted to the profile viewership, when each member of the household can create his own profile. When there are several people in the family, but all use one Smart TV, creating a personal profile helps us understand better what each of them needs. This makes things so much easier, because some might watch Saw 8 and others Kikoriki. Simply an analysis of whether users buy content or not, and what platforms they prefer helps predict user desires as much as possible.

How are you planning to expand your audience? Will you rely mainly on Smart TV usage which in Russia is among the highest in Europe?
I think Smart TV is the most significant sphere. ivi is about long content – movies and series, and this is the most convenient screen to consume such content.  On top of that, Smart TV has absolutely no pirated content – vendors are very meticulous about that, which is great.

The mobile sphere is also significant for us – people always have smartphones on them, they begin and end their days using these devices. Therefore, it is important for us to maintain a relationship with users. PC/web have historically had the highest penetration, which means there is a large audience there. Thus, we support and will further develop all three platforms. But Smart TV is also important for us because its audience is financially better-off, even though this will change in the future.

On another note, there are 55 million households in the country, and 20 million Smart TV have been sold. This does not equal to 20 million households, because some have two-three TV sets, and others have none. Only a half of them are connected to the Internet. Statistically, our penetration in households is not that significant. But anyhow, over the course of the next 5-7 years, people will change their TV sets and the majority will have Smart TV. With the current level of penetration of broadband Internet access and the constant reduction of prices for data plans, we anticipate a large part of TV sets to be connected to the Internet. Then, and then you can expect a real revolution and significant shifts in the media.

Is ivi planning to enter other markets, beyond the Russian-speaking universe?
Russia and CIS remain our priority, along with the Russian-speaking audience residing abroad. We are not considering entering other markets.

Are you planning to invest in sports content?
We thought about that but decided to forego this topic for three reasons. First, sports content is very expensive. Second, and more importantly, it is in fact concentrated in a single pair of hands. This means high dependency on a single provider, who may refuse or be overbought at any moment of time. Third, we have not achieved everything we want in the segment of movies or series yet. That is where we want to succeed. Sports content requires a different attitude, interface, and user experience. We cannot embed sports content around the aura of movies and serial viewership and think that we do not need to.

Would you say OTT is the future of television in Russia?
I think that OTT is the future of the media segment. Not because our company is great, but because of the technology of personalization of user experience. Nothing can beat this trend, because users get to decide for themselves. Once they try the possibility to build their media experience around themselves and receive what they want, when they want it, in the quality and on the device they want it – how do you make them return to the format set by the TV – watch what we show, when we show it, on the device we show it. This is the reason for structural changes, traditional media has a hard time countering it.

That being said, it does not mean that TV will disappear in the near future. This segment is being supported by the state in Russia; money flows in and content will be produced to attract people. On top of that, there is a huge inertia of generations, which cannot be overturned in a month, a year or two. These people are used to such viewership. There is background/passive consumption, which has been formed by TV. What is more interesting, many people are having a hard time making a choice. It is easier to click on a remote than to choose to any specific series or movie. The combination of these factors will support television for many years.

There will likely be some symbiotic/hybrid models, where TV will work together with online platforms. They share costs on production and promotion of content, and each attracts its audience. We have touchpoints with both, terrestrial and thematic broadcasters. We are open to such cooperation, and I find it adequate.
In general, content is a very expensive area: licensing of top international content is costly, not even speaking about production. Piracy still covers around 60-70% of video viewership, and companies lose a part of their economy. It is more effective to search for partnership formats of cooperation instead of being ineffective on one’s own. ▪
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