Divan.TV's Kolodyuk Shares Formula for East European Success

BUDAPEST -- Digital TV Central & Eastern Europe -- Global OTT players face significant hurdles in central and eastern Europe, says Andrey Kolodyuk, founder of Russian-language video streaming service Divan.TV.

Speaking at the Digital TV CEE event in Budapest last week, Kolodyuk said Netflix Inc. (Nasdaq: NFLX) and Amazon.com Inc. (Nasdaq: AMZN) have struggled to attract viewers in the region despite their success in other parts of the world, as eastern Europe presents unique challenges. It's a collection of comparatively small countries with limited market size. But each one has its own language and local content and regulatory requirements. Discretionary income is lower than western Europe, so $10 OTT services that are acceptable in the US and western Europe are too high in this part of the world. And piracy is rampant, with pricier global OTT services being the primary target for content pirates.

Local content is critical, according to Kolodyuk -- or at least, "localized" content. This means adding subtitles or dubbing, depending on the market. The English speaking audience in the region is very small, offering no real opportunity for an OTT player.

Pricing also needs to be in the $3-$5 range; anything higher and consumer will baulk. And then there's regulation: Kolodyuk expects Netflix to withdraw from Russia, for example, due to new regulation imposing a 20% foreign ownership equity limit on OTT platforms with more than 100,000 subscribers.

Even among local platforms, Kolodyuk warns that the current level of competition is not sustainable. He expects consolidation, saying that four out of the top ten players in the region are considering mergers.

Divan.TV is a streaming service aimed at the 300 million Russsian and Ukranian speakers in 200 countries. It offers a combination of TV channels and VoD content and has 1.5 million registered users, with the largest percentage in the Commonwealth of Independent States (CIS).

Kolodyuk is clear that the number one strategy for any player in this region is to aggregate local content.

"The top ten shows in the CIS are all local shows," he said. "It's the local shows like X-Factor, The Voice, Dancing with the Stars, Ukraine has Talent etc., [that are driving viewership.]"

Divan offers both live and VoD content, which Kolodyuk also advocates as a best practice. But he thinks having catch-up rights are also critical for any player in the region.

Kolodyuk is also an advocate of partnerships, particularly with operators. He sees bundling the service with an ISP's broadband product is a very effective strategy. And it helps with the pricing, which has to be kept below $5 per month to appeal to this audience.

Lastly, he believes personalization will be important, and not just in the region. Divan has a personalized user interface, and also a personalized recommendations section. This is used by 42% of registered users and is growing rapidly.

Central and eastern Europe does appear to be a significant challenge for the global players to crack, given the small market sizes and language and other differences. Still, with a $6 billion content budget to play with, I wouldn't rule out Netflix just yet.

— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation