I will start with a phrase that may sound rather ridiculous to US citizens. Yes, in Russia only a very tiny fraction of people have a subscription to Netflix. In fact, many Russian people do not have a single subscription to an online-cinema. Due to some cultural backgrounds and ad technology in some distant parts of the country some people do not watch films online at all, and 93% of those who watch, use illegal resources. They are already a part of Russian culture; pretty talented people translate foreign films using jokes, irony and satire and make films only better! This is why many people hesitate to switch to official resources; they are adore foreign films that are modified a bit with Russian creativity.
But pirate websites is not the only problem Netflix faced when entering the Russian market. Low incomes, cultural backgrounds and heavy opposition joined forces.
Problems Netflix Faces
Firstly, on average, a standard Russian has an income of about 490 dollars a month. A subscription to an online video service costs anywhere from 3 to 10 dollars, an amount that is not negligible in this case when one has to consider all the other expenses people have to cover. With inflation hitting 6% a year, and salaries not growing by the same percentage, Russians are unwilling to spend money on content, which could be accessed for free through another source.
Secondly, not all Russian people adore the films that are suggested by Netflix: there is a very significant cultural difference between Russians and Americans. The times of the Soviet Union left a very large stain on Russian mentality. People do not want to see that some people lead a happy life somewhere in another part of Earth while they don’t. They want to see movies that reflect the problems they face. That is why genres such as arthouse are very popular in Russia. Netflix does not offer such films. Also, many Russian people, due to Soviet prejudices, are pretty intolerant, and they dislike the idea of seeing people of sexual minorities on their screens.
And thirdly, Netflix has to battle with three very serious opponents: Kinopoisk, OKKO and IVI. For many years, Kinopoisk was just a website about films, where people could discuss their opinions and put marks — it was like IMDB – but then it partnered with Yandex, one of Russia’s largest non-governmental companies to open a service that could try to fight with Netflix for the audience. Having an abundance of money and a very talented management, Yandex straight away started buying copyrights for Russian distribution of some of the most famous films and series, such as “The God Father”, “How I Met Your Mother”, “John Wick”, etc. It even received exclusive rights to show Warner Brothers’ “Justice League: Snyder’s Cut” from the first days of its release. Tigran Hudoverdyan, Yandex’s deputy CEO, uses the same tactics as he used when he single-handedly concurred Russian Taxi Business – he attracts customers by setting very small rates at first, and then lifting them when the customers are already acquired. Yandex are basically buying rights to distribute an abundance of famous titles from the largest American film companies, and even Netflix. Many films that one can usually find on Netflix can be found on Kinopoisk in Russia instead. The only issue is that Yandex is spending too much money, even considering the fact that is is Russia’s largest IT company. The question is whether Yandex will manage to gain enough from this business to cover all of the expenses.
Competitors of Netflix in Russia
The other two large companies: IVI and OKKO are less dangerous. Even though OKKO is controlled by Russia’s second biggest company, Sberbank, it is, most definitely, not the service they consider the most important due to great revenues from its banking investment and other IT businesses. But, OKKO has a lot of rights to distribute different sportive events such as the matches of English Premier League or the fights from Bellator MMA. IVI does not have such finances as the other two companies but it has a passionate collective. Opened by a former financier, IVI became a project of his life, and he desires to fight until the end with the giants that oppose him. Even though he does not have the money that his rivals have, he invests reasonably into content that would be unique to the service (something that OKKO and Kinopoisk also do, but rely on less). Also, the management of the company has plans to have an IPO on Nasdaq to receive money for the future development of the business. In 2019, the company already had more than 100 millions of dollars of revenue a year, and this number grew by 50% a year. At that time, IVI was the most popular Russian online media service. All of these factors made IVI an interesting company to invest into, but its IPO was shattered by the COVID-19 outbreak.
To conclude, the most important factors of Netflix’s failure to win dominance in Russia were low incomes, the cultural background of Russian people and heavy opposition from local companies. In my own humble opinion, the last factor is the most significant one.