Russia's largest social networking web site VKontakte, often dubbed as "the Russian Facebook," sees a recent court ruling in a lawsuit filed by Warner and Universal as a victory and a basis for creating a strong and legitimate market for online music in Russia.
"We see the judgment as a certain victory for us," Boris Dobrodeyev, VKontakte CEO, tells Billboard in recent visit to the Moscow office of its parent company, Mail.ru Group. "The court completely agreed with our arguments, and, which is important for us, it deemed us to be 'intermediary in good faith'."
According to Dobrodeyev, the plaintiffs' only argument that the court partially accepted was that VKontakte should implement an effective filtering system to prevent users from uploading illegitimate content.
"We don't view this part as a defeat because we're already using an instrument of that kind, and we have planned to develop that technology, the 'digital fingerprint,' and improve its efficiency," he explained.
Later this month VKontakte will release an improved version of that technology, which will allow it to verify a digital music file against a sample using just a few seconds of the work. Currently, rights holders can file a complaint using a DMCA form and, if they can prove they are a legitimate rights holder for a file that was illegitimately uploaded, it will be deleted. "But we would like it to be done under an agreement with rights holders, which would allow us to not just delete the file, but replace it with [a legitimate copy] and monetize it," said Dobrodeyev.
The lawsuit was originally filed against VKontakte by Sony Music Russia, Universal Music Russia & Warner Music UK in April 2014, and included a claim for damages of just over 50 million rubles ($796,000) for infringing repertoire, caused by VKontakte users uploading unlicensed music tracks. The hearing of the case began this past August. Almost immediately, Sony pulled out of the suit, signing a goodwill agreement with VKontakte. It became VKontakte's first deal with a major, and the company expects more deals to follow.
It is currently in negotiations "with all other major rights holders," Dobrodeyev says. VKontakte already has a precedent of successfully working with local video content rights holders, and international deals may soon be concluded, as well.
"We are working on an ad-based model, bringing substantial revenues to the rights holders," says Dobrodeyev. "And we are currently testing a digital footprint technology for video with two large Hollywood studios. As long as the test is successful, we'll be able to talk about agreements with majors for video content, as well."
Various monetization models are to be tested, with local specifics kept in mind. "Here, users are generally unwilling to pay for online content, and the market of audio commercials is still in its formative stages -- it's value is, currently, laughably small," Dobrodeyev explained.
The main instrument in monetizing VKontakte's music service is supposed to be an application for mobile devices, while the company intends to also continue work on improving the existing music service, which attracts a substantial number of users. Few specifics are available at this point, including a timeframe for its debut, which, according to Dobrodeyev, will depend, to some extent, upon how negotiations with rights holders go.
When it comes to music content, VKontakte also expects to find ways for the company and rights holders to cash in.
According to Dobrodeyev, the recent court judgment is to be beneficial for the entire online industry "because it creates a basis for concluding mutually beneficial agreements with rights holders and building a big business for digital content," while relations with rights holders should be "constructive and friendly."
"Once we have agreements with majors, we will together invest in the development of this segment," he adds. "And, while developing that segment, we will test all existing models for content monetization. But we will be monitoring users' reactions closely."
A social network has an advantage over other online music services. "Listening to music is a 'social' activity, which, in a large number of cases, is linked to friend activities," Dobrodeyev explains. "Users want to share music with their friends, and this will make the service more interesting."
Overall, VKontakte CEO is optimistic about Russia's digital prospects.
"We believe that at this point the market is under-monetized," he said. "We have all necessary recipes for success, we have a user base, we have a music service, and I am sure that in partnership with majors, we'll be able to build an optimal service for users and a viable and profitable business."