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Digital goods - Can the projects beat the pirates?

0 March 2014

The Russian digital goods market has considerable room for growth. With a total value of $1.4 billion, it represents less than 2% of the global market. According to J'son & Partners data, the South Korean and Japanese markets are 5 times bigger, while the US market is 15 times the size. 

The market is also heavily weighted towards games, which brought in 97% of the revenue in 2012. However, this is expected to change as piracy laws clamp down on illegal content distribution and people get used to paying for digital film, music and literature content. If you click on the image below you can watch a video-infographic about the sector. To see the English subtitles click the tab under the video.

This infographic was put together for the Digital Goods conference in Moscow. At the event RusBase CEO Maria Podlesnova gave a presentation in which dealt with each segment separately. Here's a summary. In each slide the first figure refers to the size of the Russian market, and the second to the global market.

Interestingly, the Russian online video audience is the largest in Europe. However, with a market value of just $120 million it represents less than 1% of the global digital video market. Piracy is the main reason for this - but there are signs that this is changing. A new piracy law brought in last summer to combat illegal film distribution online has had an effect. The first ever conviction for online piracy has been secured, and sites including VK.com have introduced licensed content

The huge quantity of music freely available online means that the digital music sector is also tiny, at least in terms of revenue. However, companies like Yandex.Music are trying to change Russians' attitude to online music, and Spotify is aiming to break into the market in the near future. The digital music industry could be boosted by the extension of the piracy law to music content, which is expected soon.  

Russians are some of the most well-read people in the world, and yet the e-books market is barely noticeable. This is partly due to the fact ebook readers have not fully caught on, although they are now a common sight on the Moscow and St Petersburg metros. The main reason is that free e-books are very easy to download, and until recently the govenrment has not done anything to limit this. If this changes, companies like LitRes, which has a strong position in the market, stand to benefit.

Games are by far the dominant segment in the Russian digital goods sector. The majority of games are free to play, but make money through advertising and in game purchases.

The mobile market is also yet to fulfil its potential. Twice as many smartphones were bought in Russia in 2013 than in 2012, but the amount spent on digital content for mobile is still comparatively small, with free-to-play games dominating the market.

As Russians are still predominantly unwilling to pay for online digital content, most companies generate the bulk of their revenue through advertising. This creates a lucrative industry for advertising agencies, who are often able to earn more than the content producers themselves. Some of the main agencies are shown above. 

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