VKontakte large

VKontakte, the biggest social network in Russia, has had a mixed relationship with the music industry, with it being attacked in the past as a major piracy portal and subjected to lawsuits. How times change and it is now on a charm offensive, with aims to bring its long-promised music streaming service to market before the end of the year.

Speaking to Billboard, Oleg Butenko, the founder of United Music Agency who is handling the licensing negotiations for the Mail.ru Group (VKontakte’s parent group), said, “We’ve begun the process of filtering and finger-printing, so to match what has already been uploaded to VKontakte with licensed content we have obtained access through the signed licensing agreements.”

Rather than a straightforward monthly subscription model, the imminent music service is expected to have various pricing points, which would place it closer to Bloom.fm, the low-cost service that was set up in the UK by Russian businessman Oleg Fomenko, with investors including Russian broadcaster TNT (but which folded in May 2014). Given the very particular dynamics of the Russian music market, there will be a large free angle to it, with an initial emphasis on hitting scale as quickly as possible. Monetising it will, however, be a serious challenge if the rumours are true that it is, according to Billboard, agreeing to deals that “stipulate an $8 million minimum guarantee in a three-year deal with UMG, $2.5 million a year for Warner and $2 million a year for Sony Music”.

Russia was the 28th largest recorded music market in the world last year according to IFPI data, worth $51.7m. That was an increase of 7% from $48.3m the year before, which is an encouraging sign that a problematic market is now offering growing opportunities for the record business. Digital made up 45% of the Russian market while streaming (a combination of ad-supported and paid subscription/freemium services) made up around $8.6m last year, so VKontakte’s proposed offering chimes perfectly with current consumer trends.

The hope in the music business is that VKontakte, with 369m accounts across Eastern Europe and its position as the second most visited website in both Russia and the Ukraine, will be a catalyst for huge and positive change now it has deals with all three majors in place. The signs are encouraging (a growing market and a major online platform wanting to finally play nice with rightsholders), but there is still a long way to go here, especially given it has a population of 142.4m which means that the total music revenue per capita in the country is a mere $0.40 annually. Music spend is chillingly low and free is the default price for most consumers. This is the mountain VKontakte is promising the record business it can ascend.

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