Apple’s iTunes store dominates digital music sales in Russia, according to a study by AC&M Consulting. The iTunes store already accounts for one third of the online music market in Russia, less than one year after launch. The online store’s sales may reach up to 634 million rubles (around $19 million) in 2013.
Yandex.Music and Megafon’s Trava.ru occupy up to one half of the Russian online music market, with combined sales reaching up to 906 million rubles ($27.4 million) this year.
Megafon insists that Trava.ru actually leads in terms of turnover because content is sold by subscription, the Russian business daily Vedomosti reported last week.
Other Internet services including Zvooq, Deezer, Zabava, Rostelecom, and Muz.ru make up the remaining 20% of the market. In additional, the international music service Spotify will be launched in Russia in early 2014, and it is also possible that Google’s Play Music store will enter the Russian market this year.
Sales of digital music in Russia totaled 14.99 billion rubles (approximately $450 million) in 2012, with 11.8 billion ($357 million) being earned by mobile operators and content providers. Online music services already are predicted to reach a more modest 1.8 billion rubles ($54 million) in revenue by the end of the year, but these services have the high growth rates within the sector. “People will gradually stop buying music from operators and content providers are moving to online services,” believes AC&M-Consulting’s Oksana Pankratova.
“Russian users already trust purchases made at the AppStore, iTunes and Google Play. Now it is important to offer them ways to pay for content alternative to credit cards,” according to Leonid Agrnonov, CEO of the National Federation of the Music Industry. A good example of this alternative is Yandex.Money’s solution for the iTunes store that allows for payment without bank card.
Old and new business models
The sale of digital music follows two basic business model, notes Vedomosti: selling tracks and albums for download or subscriptions, which allow the buyer to listen to all the music available in a directory (but not to download this content). iTunes and Zvooq.ru work based on the download model. Yandex.Music, Deezer, and Muz.ru, meanwhile, use the subscription model. Google also recently launched a subscription-based music service, Google All Access, that is not yet available in Russia.
“iTunes sets the benchmark for the development, simultaneously debunking the myth about the unwillingness of people to pay for content,” added Agronov in an exchange with Vedomosti. However, in Russia, the advertising model still reigns supreme. Globally the paid subscription model is more common with the share of subscription services growing from 6% in 2008 to 13% in 2012. At the same time, the share of paid mobile services has decreased from 26% to 8%.
A third business model could emerge, Mikhail Ilychev of Zvooq’s mother company Dream Industries told East-West Digital News. “In-stream audio advertising has not yet been explored in Russia – even though it has already overrun radio in revenue terms in some advanced countries. The growth of music streaming services, the number of streams across all platforms, the unwillingness of music listeners to pay online, and advances in recommendation algorithms applied to online music create favorable conditions for this new format to assert itself as a major revenue model in Russia’s online music industry.”
Piracy in decline?
However, the market is still dominated by pirated content. To fight this trend, Russia’s legislature approved an anti-piracy law that came into effect on August 1, 2012 and that allows rights owners to block sites with illegal content. The law currently only applies to video content, but its provisions could be extended to music later this year.
Russia’s number one social network, VKontakte, is one of the key sites cited as being involved in online piracy. In June 2013, shortly before the anti-piracy law came into effect, the social network began to remove much illegal music from the pages of users.
Pavel Durov, Vkontakte’s founder, also stated in July that his company is in talks with Sony Music, Warner Music, and Universal Music to find a suitable solution for music on the site.
The social networks Moi [email protected] and Odnoklassniki are also looking into partnership agreements for extending legal music options on their sites, Vedomosti notes.
