FOCUS: E-cinema idea may cost Ozon $250 mln to boost client loyalty

By Yekaterina Yezhova

MOSCOW, Oct 11 (PRIME) -- Russian marketplace Ozon may join a highly promising online cinema market to help the company follow other large ecosystems and improve client loyalty, analysts said estimating the initiative at U.S. $250 million to match the rivals.

“Most likely, the company needs the idea of an online cinema in its ecosystem to get clients into its infrastructure. If the clients use the services only in Ozon’s ecosystem, they won’t have to go to other service suppliers because of their habit and clear mechanisms of interaction with the service provider,” investment company Freedom Finance analyst Anton Sklovets told PRIME.

Media reported quoting sources that Ozon is discussing the use of a white label model – a product or service produced by one company that the other firms rebrand to make it appear as if they had made it – or acquire an existing market player to launch an online video streaming service.

Ozon may tap into the market that could reach 39 billion rubles in 2021, researcher TMT Consulting said. It increased by 40% on the year to 18.3 billion rubles in January–June. The online video streaming penetration remains low at 17% in April–June compared to 10% in 2019. In the U.S., household penetration of streaming giant Netflix alone stood at 67% in April–June, according to researcher Kantar Group.

Broker dealer Xtellus Capital Partners equities analyst Ivan Kim said, referring to TMT Consulting, that Russia’s online video streaming is relatively fragmented – online cinema ivi has a 29% market share, KinoPoisk 16%, Okko 15%, Megogo 7%, Amediateka 7%, and Start 7%.

Media also said that Ozon had already consulted ivi, Megogo, and video service Viasat, but the marketplace has no precise plan yet.

Sklovets at Freedom Finance said Ozon may launch an online cinema through a partnership agreement, acquisition of an asset or make it from scratch.

“All these options imply absolutely different approaches and costs. Creation is estimated at least at U.S. $100 million. The most optimal way would be partnership, yet we do not know what mutually beneficial terms a contract may stipulate,” he said.

Kim at Xtellus said that the competition among the ecosystems in the country is increasingly intense. “In this environment, we think customer retention and raising customer lifetime value are important strategic issues Ozon might need to address. Developing fintech products, which the company is focusing on, is one way. Branching out into content, to follow in the footsteps of Amazon Prime Video with 175 million Prime members streaming in 2020, or 87.5% of all Prime members, is another,” he said in a note.

“Its ecosystem rivals are already offering streaming services – KinoPoisk, Okko and Kion. The large independent players are ivi and Megogo, while Amediateka is primarily a distribution platform for HBO. We think it would make sense for Ozon to team up with one of them. In Russia, where the habit of paying for content is only being formed, churn for online streaming services is high – first year churn is likely to be comparable to that of mobile business.”

Ozon may offer various content in its online cinema, like other services do, Sklovets said.

“The main trend will be pay subscriptions thanks to a dramatic decrease of the pirated content share. I think that the market will evolve through ecosystems with an offer of exclusive coverages and broadcast of sports and education programs,” he told PRIME.

Kim said that Ozon may add basic streaming of non-exclusive foreign and local content at the first stage and later expand into exclusive content, which would help the company retain its customers and increase adoption of its Premium loyalty program.

“We think launching a platform will cost $80–100 million, and then expanding the content library to match the market leaders another $100–150 million. Production of exclusive content will not be a significant cost initially, unlikely more than 2–3 billion rubles a year, in our view,” the Xtellus analyst said.

(71.9882 rubles – U.S. $1)

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