The pay TV market in Russia is at an early stage in its development. There are so many films and drama series to be seen for free on free-TV channels, pirate sites and AVOD sites that it’s tough to get Russians to pay for them.

The total pay TV market — including cable, satellite and IPTV platforms — grew in consumer revenues from €1.12 billion ($1.54 billion) in 2012 to €1.42 billion ($1.95 billion) in 2013, according to research firm IHS.

The pay-TV VOD sector has seen rapid expansion, with a 64% rise in consumer revenues from €9 million ($12.3 million) in 2011 to €15 million ($20.6 million) in 2012. The IPTV VOD segment more than doubled from €4.7 million ($6.46 million) to €9.8 million ($13.5 million) in 2012, and grew 38% in 2013.

It’s potentially a big market for Netflix — Russia’s population is 143 million but broadband penetration is only at 36%, Russia suffers from rampant piracy and only 11% of Internet users in Russia are ready to pay for online video content, according to the Russian Public Opinion Research Center.

“Russia is substantially behind the Western European markets in terms of online TV viewing — largely due to the lower broadband penetration, which limits the addressable market for online TV, but also due to the less developed nature of local services,” says Richard Broughton, director, broadband, IHS Technology.

The good news is that tough legislation was passed in August 2013 to curb piracy, and rights owners can apply through the courts to have a site shut down if it fails to remove pirated content. And to boost broadband takeup, the Russian government, in collaboration with the main players in the telecoms market, aims to boost penetration to 60% by 2015. Penetration in big cities such as Moscow and St. Petersburg is already above 70%.

Because Russians are not used to paying to watch films on the smallscreen, the vast majority of VOD services that are operating are ad-funded. Paid-for video services struggle against this tide of free content.

There are about 60 online VOD services in Russia, according to KVG Research, including the platforms of the leading TV channels (Channel One, CTC, Domashniy, Peretz, Dozhd and RBC), telcos, like Rostelecom and Vimpelcom, and mobile operators, like MTS and Megafon.

Services with a SVOD business model include Digital Access’ IVI, MTG’s Viaplay, Gasprom Media’s Now Ru, Rostelecom’s Zabava, Vimpelcom’s Beeline, Gazprom Media’s NTV, Tvzavr, MTS/Systema’s Stream, Megafon TV, Megogo and Amedia’s Amediateka.

Many of the same sites offer a tansactioinal VOD service.

IVI is one of the leading OTT players and has a library of about more than 70,000 titles, with deals with four Hollywood studios, the BBC and National Geographic.

There is growth in the number of broadband-connected devices on the market. IHS data indicates that the installed base of connected devices grew almost 20% from 110 million in 2012 to 132 million in 2013, and will reach 241 million in 2017.

Broughton adds another reason why ad-funded models will continue to dominate. “The last thing to bear in mind is availability of appropriate payment mechanisms — Netflix came unstuck in Latin America due to underpenetration of credit and debit cards, which make a huge difference for consumers in their choice of online media. A consumer who would be quite happy to watch ad-funded video may be unwilling or unable to engage with paid-for services,” he says.