Spotify is coming to Russia this fall, is this the end of Vkontakte’s illegal music circulation?

We all know Spotify, it’s a music streaming service, founded in Sweden four years ago, now present in 55 countries with around 24 million active users. For those not familiar with Vkontakte, or VK, it is a Russian social network, usually referred to as a “Russian Facebook clone”. It has approximately 60 million average daily users and is popular among Russian-speaking users around the globe, including Ukraine, Kazakhstan, Belarus, Azerbaijan, Moldova and Israel. And it also appears from time to time in the news considering music copyright infringement.

In a nutshell, Vkontakte allows its users to upload music tracks on their pages and transfer them from one user’s playlist to another, hence spreading unlicensed music content around the social network. And though the company allowed copyright holders to remove its content from the network after several complaints and court hearings, usually the content is being uploaded back faster than it is being removed.

Now back to Spotify. The company has already appointed Alexander Kubaneishvili as a head of Russian office and is planning the commercial launch in the autumn this year. Will Spotify’s presence in Russia change Russian music lovers bad habits? Well, that’s not an easy question. The level of content piracy in Russia is quite high and people are not used to pay for the content. That is why successful video streaming services tend to use advertising-based business model instead of paid subscription-based one. Spotify currently has three account types:

  • Free – with ads, unlimited listening time and without premium features
  • Unlimited – monthly fee, unlimited listening time and without premium features
  • Premium – higher monthly fee, unlimited listening time and premium features

(Premium features include exclusive content, better sound quality, offline mode)

The take-up of paid subscriptions will majorly depend on pricing for Unlimited and Premium accounts. Most likely Spotify will follow Apple’s footsteps in launching iTunes in Russia. To attract users to pay for the content, iTunes had to decrease the prices of content, with songs staring from as little as RUB 15 (US$0.43).

At the same time, Spotify might partner with one of Russian mobile operators to promote its music service. MTS expressed interest in a partnership with a music provider while discussing 3Q13 results. MegaFon has its own music streaming service Trava.ru, developed by MegaLabs, hence won’t be interested in Spotify’s deal. VimpelCom is known for partnerships with global OTT providers, such a Facebook, Whatsapp, Opera, Wikipedia. However, VimpelCom already has a deal with Yandex.Music, a music streaming service offered by Yandex. Tele2 Russia and Rostelecom cannot offer sufficient data speeds for music streaming at the moment – Rostelecom’s 3G network is still in the rollout phase, plus both companies are in the process of integrating their mobile assets.

Another important factor in launching a music streaming service in Russia is offering local content to users. The language factor plays a significant role and the inclusion of Russian music in the catalogue is crucial. According to Russian newspaper Vedomosti, content aggregators Orchard, Beleive и Rights Comunications will be supplying Russian music content to Spotify and the catalogue will be similar to iTunes’ music catalogue in Russia.

Vkontakte most likely will not change its attitude towards music distribution after the launch of Spotify in Russia – as the company did not react to iTunes launch in the country. It has a dominant position among other social networks in the country, and music for the network is more of a complimentary feature for its users rather than core business, in fact Vkontakte does not monetise on music, it makes money on ads. However, the presence of iTunes and Spotify, as well as the development of local music streaming services, such as Trava.ru indicate that there are positive changes in the music market distribution in Russia that might decrease the level of piracy and shift users behaviour towards licensed content.

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