Netflix Clones in Russia Get a Head Start With Piracy Law

Russia is seeking to shed its image
as a hub for pirated movies and become the next hot market for
legal online video, a boon for local services trying to lure
users before competitors such as Netflix (NFLX) Inc. enter the country.

Starting today, a law signed by President Vladimir Putin
makes it harder for Russian websites to host illegal copies of
movies or TV shows. The national communications regulator will
start adding sites with such content onto a list of addresses
that Internet-service providers must block.

While Netflix and Hulu LLC operate in a Web-video market
worth billions of dollars in the U.S., the market in Russia,
with a population topping 140 million, is just emerging. Movie
services such as are betting on a change in the behavior
of Russian consumers used to watching pirated content on social-networking sites or through so-called torrent services.

“It should curb piracy and boost the civilized online-video market in Russia,” said Oleg Tumanov,’s founder.

Ivi and local peers conquering the market would be the
latest example of U.S. technology giants losing out to Russian
clones in the country. Even as Google Inc., Facebook Inc. and Inc. are leaders in the U.S. and much of Western
Europe, in Russia it’s online-search provider Yandex NV (YNDX), social
network VKontakte and e-commerce company that dominate.

Early Leader, based in Moscow, is the early leader in Russia’s
fledgling online-video market, saying it has more than 17
million users on different platforms — desktop, mobile devices
and smart TV — after doubling its customer base in 2012.

About 90 percent of its content is free and has ads, as the
wide availability of free pirated movies and TV shows has made
it difficult to charge for content, Tumanov said. Though
also offers a subscription package similar to Netflix, so far
Russian consumers prefer the free, ad-supported model.

Ad revenue tied to online video will be about $75 million
in Russia this year, according to video-site operator Gazprom-Media Digital. That compares with more than $4.1 billion for the
U.S., according to EMarketer Inc. The difference between U.S.
and Russia shouldn’t be more than 10 times, given income and
consumer trends, Tumanov said.

“This shows we have a room to grow,” said Tumanov, who
used to be a banker at billionaire Mikhail Fridman’s Alfa Bank
and also worked for billionaire Len Blavatnik’s Access
Industries before setting up his own business in 2007.

Tumanov owns with investors including Tiger Global
Management LLC, the hedge fund founded by Chase Coleman, and
Baring Vostok Capital Partners, an early backer of Yandex.

Netflix Threat

Netflix has said it wants to be a global provider, though
it hasn’t disclosed plans for Russia. The world’s biggest
subscription-video service recently announced service in the
Netherlands after starting in the U.K. and the Nordic region.

Chief Executive Officer Reed Hastings has said Netflix will
look for countries with high broadband penetration, stable
payments platforms and decent rights opportunities.

Russia’s Internet audience expanded 15 percent last year to
61.3 million users and was the largest in Europe, surpassing
Germany and France and outpacing them in growth, according to
ComScore Inc. Mobile Internet and smart-TV usage also increased.

“We haven’t announced any plans for Russia,” Joris Evers,
a Netflix spokesman, said in an e-mail, declining to comment
further on Russia. Netflix, based in Los Gatos, California, has
30 million users in the U.S. and 8 million elsewhere, and the
company is on track for annual revenue topping $4 billion.

Sweden’s Modern Times Group AB, which has TV operations in
Russia, expanded its Viaplay video-subscription service into the
country last year. It hasn’t provided subscriber numbers.

‘Notorious Market’

The new law aims to do away with Russia’s decades-old
disregard for copyrights, with illegal DVD copies having been
replaced by websites providing pirated movies from around the
world. The Motion Picture Association of America regards Russia
as a “notorious market” where people download 31 million
copies of U.S. movies a year using torrent services. At the same
time, there wasn’t a single Internet piracy criminal case begun
in Russia in 2012, according to the International Intellectual
Property Alliance, or IIPA.

Measured by desktop users,’s 8.3 million visitors
lags far behind sites that critics contend include illegal
content — social network VKontakte with 34 million video users
and file-sharing site with 12.4 million, according
to research firm TNS.

Piracy Hotbed

VKontakte, part-owned by billionaire Alisher Usmanov’s Group Ltd. (MAIL), “has become a hotbed of online piracy for
movie, television and music files,” Hollywood lobby MPAA said
last year. The site allows searching and uploading movies for
free, helping to make it Russia’s second most-popular website.

VKontakte fully complies with the Digital Millennium
Copyright Act, Georgy Lobushkin, a company spokesman, said by e-mail June 26, declining to comment further. The DMCA is a
framework for global copyright regulation on the Internet. works with copyright owners to delete
material they don’t want to be freely distributed online,
Alexander Volkov, a spokesman for the site, said by e-mail.’s position on the new law is “sharply negative”
as it can result in the manipulation of the Internet, he said.

Past attempts to curb illegal sites have been unsuccessful
and it remains to be seen whether the new law will be effective,
said Svetlana Gorokhova, CEO of, a legal movie

Won’t Pay

There’s also the problem that authorities have to identify
the Web pages to be blacklisted, and they are likely to be
swamped by the sheer volume of blocking requests from studios
and other copyright owners, said Maxim Kulish, head of Internet
Copyright Management LLC, a Moscow company that works to protect
the interests of filmmakers.

Olga Sorokina, a 27-year-old child psychologist in the
Moscow region, said she downloads comedies and Bruce Willis
movies for free from file-sharing websites such as and

“I am not ready to pay for them,” she said. “Sometimes
you see a warning saying that access to this particular movie is
’denied on request of copyrights owner.’ But it’s no problem —
you can always go to another website to download it.”

To contact the reporter on this story:
Ilya Khrennikov in Moscow at

To contact the editor responsible for this story:
Kenneth Wong at

Enlarge image
Netflix CEO Raises Hackles With Earnings Video Emulating Buffett

Netflix CEO Raises Hackles With Earnings Video Emulating Buffett

Netflix CEO Raises Hackles With Earnings Video Emulating Buffett

Norm Betts/Bloomberg

Reed Hastings, president and CEO of Netflix Inc., speaks during a luncheon at the Canadian Club of Toronto on Feb. 3, 2011.

Reed Hastings, president and CEO of Netflix Inc., speaks during a luncheon at the Canadian Club of Toronto on Feb. 3, 2011. Photographer: Norm Betts/Bloomberg

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