Main trends of the Russian mobile content market (2006-2007)

The Russian VAS market in 2006-2007

Parallel to the web universe, the Russian mobile world is rapidly emerging. In 2006, the Russian value-added services (VAS) market developed steadily and continued to grow in the first quarter of 2007, reaching USD 615 million, a year-on-year growth of 34%, reported ComNews Research. The three main players in the VAS market, operators, content providers (CP) and aggregators, as well as subscribers, are growing with it. The major Russian mobile operators introduced more aggressive and assertive policies in the VAS scene, launching new portals and WAP services and drastically reducing the number of content partners. VAS’s share in the overall revenue structure of operators reached 14% in the first quarter of 2007. With the launch of the first 3G networks in 2007-2008, Russian operators will increase their content offer. Consolidation and tighter policy by operators reduced the number of core content providers to 80-100 companies. In the past year, CPs have honed their skills in delivering IVR and RBT services, driving more video content, mobile games and community services.

Top CPs drove better quality content offerings, new product introductions, and global market expansion. Today, the winning formula of the Russian VAS market is to guarantee the quality of the content and the diversification of products and services. IVR, SMS-based TV lotteries, RBT and mobile games were the most popular and successful section of content services. IVR services captured the “Lucky Lady” of revenue in 2006. In addition, continued growth in WAP penetration, mobile community services and user-generated content promised a positive year this year.

However, the otherwise resurgent market has its pinch of salt. Piracy is on the rise, while poor content quality and SMS spam remain a major obstacle to faster market development. Finally, the remaining high WAP traffic rates and the high share of the operators’ revenues serve as an additional burden for the evolution of the market.

What is the name of the game?

Pavel Roitberg, Head of the Department of Products and Services of MTS, pointed out at the last Mobile Content Forum held in Moscow in June 2007 that “we have changed the rules of the game”. Whereas before MTS, the largest Russian mobile operator, had between 250 and 300 content partners, the analysis showed that 70% of all revenue comes from 15 major partners, 20% from 20 CPs and 10% from 35 partners. As a result, MTS ceased contracts with ineffective partners, thus reducing its total number of partners to around 100 companies. And this is more or less the same situation for its rivals, VimpelCom and MegaFon.

Low content quality, as well as an abundance of fraudulent offers, reduced subscribers’ confidence in CPs and led to a sharp drop in content sales in 2005. Learning from this negative experience, major operators and content providers rushed to ensure a better quality of happy mobile. For example, MTS created a content quality assurance program that holds its partners directly accountable for content quality. At the same time, the leading Russian PCs created an association to control mobile content offers.

In 2006, sales of “heavy” and expensive content increased even more, as subscribers became more familiar with videos, games, software applications, and full mp3 tracks. The purchasing power of subscribers in major urban areas has increased, and they are satisfied paying more money for “heavy” content. A notable trend in 2006 is the resurgence of operator activities in the VAS niche. Several Russian mobile operators created and promoted their own portals. , and participated in joint promotion with some of the major content providers. In addition, operators launched new billing methods, such as WAP-tariff: MT-charge and WAP-click.

WAP networks grow even more

iKS-Consulting estimated an average monthly WAP audience in Russia at 14 million users. An average user is male (65%) in the 17-23 age group (60%), says WAPStart research. The highest growth rates of new subscribers are found in peripheral regions. 71% of subscribers browse WAP through pre-installed mobile browsers. As of April 2006, there were more than 80,000 Cyrillic WAP sites. However, only about 20 WAP sites have a large daily audience.

Below is the TOP-5 of WAP searches in May 2007:

1. Porn – 42.00%

2. Free Stuff — 29.49%

3. Software (ICQ, Jimm, Opera, AV Programs) – 7.23%

4. Homosexuals – 2.75%

5.Mail.ru – 2.65%

Source: poisk.wapstart.ru

MTS has been among the most active mobile operators in the development of the VAS niche. It launched a new well-designed WAP portal and optimized its cooperation with content providers, facilitating the content aggregation market. MTS’s direct competitor and Russia’s No. 2 operator, VimpelCom (“BeeLine”), successfully launched Voice-CPA and WAP-CPA programs.

In 2006, major mobile content providers significantly diversified their services and continued their expansion into the neighboring CIS market as well as globally, such as INFON (Belarus), InformMobil (Tajikistan, Georgia and Kazakhstan), i-Free (Brazil and India) and PlayFon (South Africa, Germany, Latvia, Lithuania, Estonia). Other content providers, such as A1 and Interactivi, have honed their skills in mobile marketing and intellectual branding services. For example, A1 actively upgraded the leading FMCG brands in Russia and launched its new Java-based mobile community services “Ogloblya”. Similarly, Interactivi reported that during 2006 the company worked with around 1 million subscribers in Russia and organized more than 60 successful promotional activities.

There were also changes in promotion strategies. Many PCs admitted that the efficiency of television advertising is declining, while the prices for placing an ad are skyrocketing. As a result, many CPs have shifted their advertising budgets to WAP and B2B partnership development. However, some CPs still rely on TV advertising, for example, Nikita Mobile was ranked 13th on the TOP-100 list of top advertisers in 2006.

bumpy road

Despite the steady growth of the mobile content market, several challenges remained unresolved. One of the most pervasive was the lack of creative content and services. In general, the low quality of the content and the lack of education among the subscribers significantly reduced the faster acceptance of the market. For example, TV contests based on low-quality SMS undermined the trust of subscribers: in many cases, subscribers received a large number of SMS-spam. In addition, many market analysts pointed out that the mobile operators’ share of revenue was too high and that resulted in an increase in the price of content. In addition, the high costs of WAP traffic added to the burden of increasingly expensive “heavy” content for mobile subscribers.

All About XXX: Mobile Game Sales Will Grow

Some 15 million copies of mobile games were sold in 2006, Playmobile estimated. Many market analysts and gamers perceive mobile gaming to be among the future revenue-generating giants. Adult and branded games generated the most revenue and will remain popular in 2007, DDM said in its mobile gaming research. Erotic games generated nearly 50% of revenue, while branded games accounted for 20-40% of revenue, followed by casual games. Other potentially interesting products include multiplayer games, ad games, and PC games.

TOP-3 mobile game developers:

QPlaze-RME

clover games

hero craft

TOP-3 Russian publishers of mobile games:

QPlaze-RME

mobile content factory

hero craft

TOP-5 Russian mobile game distributors:

playphone

information

Iricom

Nikita

playmobil

Mobile games — main sectors:

casual games

brand games

adult games

Source: MDD, #1 2007

Quarter Dynamic VAS

In the first quarter of 2007 the market continued its dynamic growth. According to ComNews Research, during this period the Russian VAS market totaled $615 million, representing an increase of 3% from the fourth quarter of 2006 and a year-over-year growth of 34%. VAS’s participation in the general structure of operators’ income reached 14%.

ComNews Research highlighted the growing popularity of WAP services, as well as the continued growth in prices for end users. The two sides blamed each other for the price increase: the operators think the problem lies in the inability of the CPs to produce meaningful and quality content, while the CPs believe that the operators have an oversized revenue share.

20% of the operators’ income came from the VAS segment. The total structure of SVA income (gross) was as follows:

Services base – 6% (USD 36 million)

Content – 20% (USD 124 million)

Internet M – 20% (USD 123 million)

Messaging – 54% ($332 million)

Source: ComNews Research

In the first quarter of 2007, mobile Internet brought operators some USD 123 million, almost equaling mobile content revenues (USD 124 million). The main trends of 1Q 2007 are practically similar to those of 1Q 2006. Personalization services revenues are falling, while IVR and RBT continue to be in demand. Other new segments are community services and mobile commerce. Therefore, i-Free reported the successful launch of Jamango, a mobile community portal, in various global markets, including India and Singapore. Other trends include the personalization of mobile phones at the production stage and the popularity of SMS-based contest technology.

However, content operators can no longer ignore the new trend: the active promotion of the operators’ own portals. Their sales increased significantly to almost 35%.

The average revenue share structure between CP and the carrier in the first quarter of 2007 was 61% and 39% respectively, ComNews Research said.

Mobile Content Revenue Structure:

Personalization – 34%

Mobile Commerce – 3%

Games – 14%

Infotainment – 16%

Chat/Community – 9%

M-Marketing – 6%

Media projects – 18%

Off-portal sales prevailed over portal sales, with 65% and 35% market share, respectively.

What does the future look like? According to Playmobile, the growth of sales of the brand and erotic games will continue in 2007. The company estimates that this year some 25 million copies will be sold. Multiple role-playing games and PC title games will increase. However, ComNews Research predicts that in 2007 the mobile content market will grow only 16% to reach $520 million. To sustain their income, PCs will have to think about diversifying their business, moving into corporate business areas.

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