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Pay TV for $18 a Year Thrives as Russians Seek Cheaper Amusement

10 february 2015

(Bloomberg) — With food and clothing prices soaring amid an economic slump, Russians have found a way to keep leisure expenditure in check: $18-a-year pay-television.

Satellite-TV provider Tricolor TV has accumulated 10.9 million customers, with sales soaring 28 percent last year as Russians were drawn to channels such as Animal Planet and Nickelodeon for less than $2 a month. The growth has made Tricolor, formally known as National Satellite Co., Europe’s third-biggest pay-TV operator by the number of users, after Sky Plc and Liberty Global Plc, according to researcher IHS.

Revenue is set to rise at least 15 percent this year, Chief Executive Officer Alexey Kholodov said in an interview, making closely held Tricolor a rare growth story among Russian media companies trying to cope with the economic slowdown and tighter regulation. By keeping prices low, Tricolor is seeking to lure consumers away from theaters and cinemas, Kholodov said.

«Television in Russia costs users much less than other types of entertainment,» Kholodov said. «In crisis those who used to consume more expensive kinds of entertainment are switching to us.»

Tricolor’s service costs the equivalent of 100 rubles ($1.50) a month, compared with a theater ticket at 1,000 rubles, or a cinema visit at 300 rubles, Kholodov said.

Russians are coping with the fastest inflation since 2008 and a looming recession caused by a decline in oil prices and U.S. and European sanctions over Vladimir Putin’s incursion in Ukraine.

Fox, VH1

Tricolor’s sales totaled 10.4 billion rubles last year. Its revenue per user was 998 rubles for the year, less than the average monthly bill at larger European peers. Starting this year, the company is charging a single rate of 1,200 rubles a year after scrapping some cheaper packages. For that price, users get about 150 channels including National Geographic, Fox, and VH1.

The Russian pay-TV market reached 61 billion rubles last year, according to the country’s pay-TV lobby association. The market is much smaller than in the U.S. and elsewhere in Europe as consumers’ incomes are lower and international channels charge less in emerging economies, Kholodov said.

Tricolor, co-owned by Russian investment bank VTB Capital, has delayed plans for an initial public offering because of unfavorable market conditions, Kholodov said. The company had been weighing a $500 million IPO.

Founded in 2005, Tricolor has been profitable since 2008, according to Kholodov. Its cost for renting satellite capacity has risen in recent months as prices are linked to the U.S. dollar, he said. At the same time, Tricolor has convinced most content providers to fix prices in rubles, the CEO said.

The company’s strategy is similar to U.S. satellite-TV provider DirecTV’s effort to gain users in emerging markets, Kholodov said. For instance, Tricolor began offering an option to watch its content on tablets last year, following a similar move by DirecTV. Tricolor is seeking to expand its offerings on mobile devices, Kholodov said.

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