INTERVIEW: 1C – A Russian Revolution

Come to a sprawling Moscow and step back in time.

To a land where independent games retailers are still the most powerful High Street force. Where everyone in the games business is still under 40, and barely 30. Even the bosses.

And to a land where computer games rule. That’s home computers.

You might see a poster for the new PSP on the long schlep from airport to city centre, or an Xbox 360 in a glass case when you scour a computer shop. But PC is the daddy here. Even educational software sells well.

If this all sounds familiar, then you obviously remember the old UK games industry. And given the size of Russia (it takes eight days to take the train from Moscow to Vladivostok), then it is easy to see what potential this market has. Let alone Poland, the Czech Republic and many more long-term goldmines for the business.

1C, which has fast-tracked its games division after building infrastructure and resources on the back of business software, is looking to grow these territories as retailer, distributor, developer and publisher.

And so far so good. Group turnover will have doubled to $350m in 2007. 1C claims to be the biggest domestic IT company in Russia.

Its games arm alone will have hit $71m last year and that’s not including affiliate operations in other territories, an $18m annual retail business or multimedia and casual software.

The 30 year-old Nikolay Baryshnikov is in charge of international, with key partners including Activision, Take 2, Microsoft’s PC games division, Eidos, some Ubi and latest new signing 505.

The deal with 505 is an interesting one because it is at the heart of a new determination in the company to widen its own product mix to include more consoles and also to play a bigger part on the world stage.

1C Publishing is the games division of a parent which began life in 1991. It develops and publishes, but also competes with rival Novy Disk for the rights to take western portfolios into central and eastern European territories.

The Russian games market alone is estimated to have been worth $370m in 2007, up from $194.4m in 2006.

1C reckons that 17m units were sold in 2007, some 11.5m via 1C, either as publisher, co-publisher or wholesaler. There are 20m PCs in the territory.

A push into console will follow, but the recent strategy has been to educate the market to buy official PC games not pirated games, and it is working.

The volumes are huge for PC games here, but the price level is also very different. We are talking $10-$12 a game, much lower than in the rest of Europe,” explains Baryshnikov.

But it used to be legal games at $30-$40 and pirated games at $1-$2. Since 1997, Russia has moved from 95 per cent pirate down to 40 per cent.”

The lower pricepoint strategy, bolstered by a burgeoning retail sector for software, is paying dividends. And the stock, thankfully, isn’t finding its way back into other markets.

There are no grey imports. Games are fully localised, and no one really wants Russian packaging. But even if they did, they wouldn’t be able to get hold of our games.

If it’s oil or gas you’re trading in, then you can ship it out of the country. But anything else, forget about it,” adds Baryshnikov wryly.

1C operates across 460 cities in Russian and CIS cities. A third of sales are in Moscow, but the potential of the whole country is huge.

As the market emerges, so do the big chains (Auchan, Metro, MediaMarkt and the usual European retail names). They have a market share edging towards 25 per cent, but are a long way from dominance.

The coming of the chains is inevitable, but in many ways they are our partners and they must develop the market with us.

Chains will still only account for 50 per cent of total sales here in ten years. It will take them years and years to get to where they want to be. The country is huge.”

1C, meanwhile, has 34 stores in total – 14 of them in Moscow. This will double to 70 by the end of 2008, either owned or franchised.

The company puts its own retail share at around 3.5 per cent (Auchan and Media Markt being the biggest with around four per cent).

Baryshnikov scoffs at the idea that a specialist giant like GAME or Gamestop might decide to make a play for leadership in Russia.

This country is very difficult. You have to be totally local and know how to work within the tax system. Their only entry point is to come here and buy a local chain.

It is not impossible for them to make it here, but super complicated. If I were GAME or Gamestop I would do Western Europe first.

Rules are easy and very transparent in other parts of Europe, though Russia is of course a very attractive market. If big players do come here, it would hopefully be good for the market.”

1C hopes that Nintendo, Sony and Microsoft will step up their efforts and drive the console sector in Russia. And as a business, the deal with 505 will take it closer to console thinking, both in terms of handling console SKUs and working jointly on developing new multi-format titles.

This new global thinking has been very much in evidence since the establishment of a UK office run by Peter King (ex-Novalogic, Mattel, Activision) and Darryl Still (Atari, EA, Nvidia) in the summer.

They will be an important liaison for the reciprocal publishing part of the 505 deal as well as new projects, whilst 1C also has small HQs in Beijing and a partnership in the US with Atari.

Everyone knows all about 505 Games and its success and strength in the console sector, whilst 1C’s strength is PC. It really is a perfect match. 1C also has 40 new titles in development for the PC and, cautiously, some console format projects too.

1C successes outside Russia have included IL-2 Sturmovik, the highly rated flight simulation title published by Ubisoft, and Soldiers, published by Codemasters.

Eagerly anticipated sequels are on the way and, whilst previous partners still hold the rights to some forthcoming titles, the new 505 relationship should start bearing fruit not too long into the first quarter of this year.

A completely new games label with serious long-term ambitions about making an impact on the global publishing landscape?

That really is like the old days…