Ben Aris in Moscow -

Ben Aris in Moscow

"Tvigle.ru is the first online streaming portal for TV shows and movies in the universe," Egor Yakovlev, the founder and CEO of Russia's biggest video portal, says with his tongue almost entirely in his cheek.

But he is right. After spending nearly a decade working with computers and networks, Yakovlev founded his company in 2007, a year before the better know US rival Hulu.com went into business. And Tvigle has been doubling in size - both in terms of users and in terms of cash - every year over the last three years. "I think we are in the hockey stick stage of development now," Yakovlev says, this time a bit more seriously.

Yakovlev comes from a classic stable of Russian internet pioneers. He ran the Russian magazine Computerra for many years before going on to join Russian content guru Alexandr Akopov at AMedia, a pioneering TV production company owned by tycoon Lev Blavatnik, before leaving to found his own company.

In its early stages Tvigle raised venture capital funds from AllianzRosno Asset Management and then another round in 2011 from Media3, the media holding business of the Ananiev brothers who also own PromSvyazBank. Currently the shareholding is about a quarter Yakovlev, a quarter Allianz, a third Media3 and the rest owned by the company's management.

New ways of viewing

Russia has taken to the internet like a duck to water and passed Germany last year in terms of the number of people online: some 72m Russians - and rising - are connected to the internet, making Russia the largest online market in Europe.

With widespread access to broadband, people have been changing the way they view their favourite shows. "The whole idea of scheduling a programme is dying," says Yakovlev, whose offices are in a converted factory and his clothes the de rigeur casual for internet professionals. "People don't want to wait for their shows to air; they want them on demand. And they want quality: 80% of the content on TV - the programmes they show in the small hours - has no demand at all online."

Like most of the competition, Yakovlev went into the business assuming that he needed to gather together a large catalogue of movies and shows, and that most of the money would be made from the persistent viewing of the "tail end" of classic movies or programmes that never go out of style. But things worked out differently. "In Russia we have digital communism, as all the content is immediately available through many channels," says Yakovlev. "So we had to change and now we behave most like a medium-sized broadcaster. We have to figure out who are our audiences and deliver the content they want quickly."

Today, Yakovlev says that Tvigle acts more like a medium-sized TV station than an online distributor. The company has subdivided its audience into groups and in effect set up a series of channels to cater to each. There are designated channels for women, men, teenagers, kids and separated channel focusing on humor and music. And unlike most of its competitors, the company is already profitable.

The rampant piracy in Russia makes pay-per-view impossible. Yakovlev reckons that there are about 10bn streams a month in Russia of video content, but the legal streams, where the provider has a licensing deal with the owner, accounts for at best 10%. As such, everyone has to make money from advertising.

Tvigle usually strikes a revenue-sharing deal with the owner of the copyright. However, sometimes the company will buy unlimited rights or make up-front payments for licenses to fill out its offering.

Tvigle has also adopted a diversified strategy to attracting viewers. Of course, punters who want to put their feet up and spend an evening in can simply go to the company's website. But Tvigle has also signed syndication deals with 7,500 other partner sites that streams online video and it comes pre-installed in six brands of SmartTV connected to the Internet that will be the next big thing in consumer electronics in Russia: consumers are skipping over the cable TV and set-top box stages that are typical in the West and going straight for the internet-enabled SmartTVs, which have seen sales soar in the last year. The syndications already account for half of Tvigle's revenue stream. "The traditional TV advertising market in Russia is already worth about US$ 5bn a year and if you look at their client list, it is already the same as ours," says Yakovlev. The online advertising market is the fastest growing segment in Russian media, rising by 45% a year for the last three years. It was worth $1.8bn in 2012 and keeps on expanding. The company thinks that 10-12% of it will be online in a couple of years as it is the case in the US last year.

This model is extended to providing a "white label" platform to other companies that want to stream their content. Yakovlev has had conversations with most of the leading TV stations, many of which still prefer to stick to traditional broadcasting, but Tvigle has already started providing services to some 50 other broadcasters including: 2x2, MuzTV, Dozhd Optimistic Channel and MTV Russia. "It's also a part of our business now and it is very important for the future both of the company and the Russian market," says Yakovlev.

King content

The key to the business is getting good content to keep view numbers high. Currently the company is attracting 10m unique monthly video viewers from an estimated 52m video viewers a month in 2012 in Russia. Hollywood blockbuster movies are an obvious crowd pleaser, but it is TV shows that are the most attractive content for Tvigle. "Movies are a one-off event and the people that make them spend a lot of money, so expect a lot of money if you show them. But a viewer will come back every week to watch their favourite shows and the series can run over the whole year. This builds loyalty with the viewer that you can't get from a movie. And TV is a lot cheaper to produce, so the expectations of the owner are a lot lower," says Yakovlev.

In the West some six major studios dominate the media business with an 85% market share, says Yakovlev, handing them considerable market power. But in Russia the content production remains highly fragmented and the same six studios have only a 35% market share. One of the roles of Tvigle is to consolidate all this content into one simple place to access it all.

And Yakovlev is constantly looking for new partners at home and overseas. Last year he signed a deal with the BBC to run "The Misfits", one of Britain's highest rated shows that was broadcast, dubbed in Russian, simultaneously with the British version. The value of the deal - which included other programmes like motor show "Top Gear", period drama "Upstairs Downstairs", the comedy "Mongrels" and crime drama "Luther" - was not disclosed but market sources believe it was based on revenue share with a minimum guaranteed sum of $500,000. This makes the deal the biggest license agreement ever signed by a Russian online video service.

Audiences have been growing very fast, almost doubling each year since a brief hiatus during the 2008 crisis, with no sign of slowing down for the time being. "The number of views will double each year over the next three or four years," predicts Yakovlev. "After that growth will slow, but it will still grow at something like 50% a year."

The growth of online viewing is eating into traditional broadcasters' share of advertising spending. And as online viewing, unlike traditional broadcasting, can identify exactly how many people of what kind watch an advert, in theory the offering is much more attractive to advertisers because they can more aggressively target their audience. "But that is something still to come," says Yakovlev. "At the moment most of the advertisers are things like FMCGs [fast moving consumer goods] who simply want big audiences."

Tvigle's model has already made it the biggest online video provider in Russia with more than 8m unique monthly viewers in June, according to TNS (leading market research company in Russia). July being a slow month, Yakovlev believes this will rise to 12m-14m a month by the end of the year, building on its current 20% market share.

However, Yakovlev welcomes the competition, as everyone is still in "pie-growing" mode and the bigger fight is not to win viewers from competitors but from the pirates. "Competition is good, as it will grow the market," says Yakovlev.

"There are currently 10bn streams a month in Russia, but the legal content is only 10%. We need to widen the market and not fight against each other, but against the pirates. That's why I think the new law against piracy is a positive development," he says, referring to a recent controversial law that critics have decried as opening the way to censorship.

To coordinate their efforts against piracy and lobby the government, Russia's leading online media companies have set up an industry group, the Association of Internet Media, which came into being on September 18 and currently comprises 15 companies that together represent about 95% of the legal market, says Yakovlev.