Russia and the CIS countries of the former Soviet Union offer a huge market for internet users, but rampant piracy and nightmarish logistics have seen most of the big western companies shake their heads and walk away.
The path has been left wide open for a British expat and a Russian information security whizz-kid to pursue a plan that could revolutionise the way music is sold in emerging markets.
“Some people see piracy as a threat, but we see it as a ready market with tens of millions of people consuming music online. It’s an opportunity,” says Simon Dunlop, one half of the duo behind Zvooq.ru, the online music service (whose name reflects Russian zvuk “sound”).
“If you have an established pirate market, it forces you to be that much better because you are competing with the free stuff,” he says.
Mr Dunlop and Alexei Ostroukhov, his business partner, have built a online music sharing platform that allows you to listen to music online free, share it with friends through Facebook and/or to synchronise unlimited music with a phone or desktop – all for $5 month.
The service works with 25,000 music labels, most of which have never worked in Russia or the CIS before. Services such as iTunes and Spotify are not available in the region.
Zvooq also acts as an online community. You can see what your friends are listening to, follow their recommendations and playlists and tip them off about new discoveries.
“Consumers in emerging markets download pirate tracks because it is faster and more convenient, not simply because it’s cheaper,” says Mr Ostroukhov.
However, he says most Russians who download pirate tracks online have 8,000 to 10,000 files on their hard drives, but never listen to 80 per cent of the those they have downloaded illegally because there is no way to sort or browse through them.
With no artwork, the face of music had disappeared, leaving users with a pile of anonymous computer files.
Mr Dunlop describes Zvooq as a “music discovery engine”.
In the sixth months since the service was launched, Zvooq.ru, which operates in 12 Russian-speaking countries, has acquired 2m users through word of mouth.
The region’s internet market is growing fast with 110m people online, 35m of them consuming media on a daily basis.
The service also offers opportunities for artists, who have previously had no way to profit from their recordings or to connect with fans. They can set up fan pages and update them with news.
“Russian artists have been limited to making money by playing live at gigs and on tours. They have had no way of reaching consumers through their mobile phones, but we provide them with a route to do that,” says Mr Dunlop.
Large numbers of artists have tribes of fans that would be willing to pay money for services but no way to connect with them.
Zvooq gives them what Mr Ostroukhov describes as a tribal management service that enables brands to partner with artists in the CIS in way they could not do through online pirated services.
For telecoms providers, which are seeing revenues from voice calls declining, this is a huge opportunity.
The Zvooq music service is already at a point where it can be exported to other developing markets, where music distribution has so far been conducted by pirates.
“Many other markets have similar dynamics, so we aim to provide a solution,” says Mr Dunlop.
In Russia, and the other Bric countries, consumers on low incomes have developed a culture of sharing property, from books to clothes, that has spilt into intellectual property.
Mr Ostroukhov comments: “It’s too late to enforce laws on piracy, so you have to give consumers something extra. Igor might give Ivan 250 gigabytes of music but Ivan can’t see what’s worth listening to, and Zvooq gives him a way of doing that.”
The two partners and their 70 staff also run the CIS’s biggest online bookshop www.bookmate.ru [1] and are expanding into online education.
“Russia is difficult market to operate in, but it’s a wonderful place for big ideas,” says Mr Dunlop.
By Rachel Morarjee