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Rampant DVD/VHS piracy plagues Russia
By Nick Holdsworth
MOSCOW -- Russia's nascent DVD market is in danger of drowning in a sea of high-quality pirate discs that hit the market weeks before the films premiere at theaters, let alone come out as licensed video or digital versions, distributors, retailers and industry experts warn.
Russia's illicit market for video, DVD and music CDs -- second only to China in dollar figures -- was worth an estimated $311 million last year compared with $257 million for the legitimate market, according to recording trade body the International Federation of the Phonographic Industry.
International hits such as "The Matrix Reloaded" and Ang Lee's "The Hulk" are for sale in superb-quality DVD format on the streets of Moscow, St. Petersburg and throughout Russia weeks before theatrical release or secondary market sales from licensed rights holders.
It's a troubling scenario that seriously worries international industry pressure groups, distributors, retailers and rights owners alike. The MPAA's Jack Valenti has repeatedly urged the Russian government to take piracy seriously and is due back in Moscow in September for further high-level talks.
The IFPI regularly holds major Moscow press conferences and other events to publicize the threat piracy represents to Russia's own emerging and vibrant music scene, let alone international acts.
The Russian Anti-Piracy Organization, staffed by ex-KGB officers, former OMON (special police) members and other tough, streetwise types -- and which is part funded by the industry bodies -- spearheads actions against producers, distributors and retailers of pirated videos and discs.
It's unlikely to be enough to turn the tide, seasoned professionals say. Alexander Ageyev, retail manager at Russia's largest chain of sell-through DVD and video stores, Soyuz-Video, which has 65 state-of-the-art outlets in Moscow and four in St. Petersburg, holds little hope for the future after 25 years in the trade.
"It's a bleak outlook and I foresee nothing changing much in the future," says Ageyev. "The producers of pirated products have invested heavily in new technology; government antipiracy campaigns are unlikely to have much effect, and consumers will continue to buy pirate products."
"Pirated copies of 'Matrix Reloaded' in DVD format have already sold more than 100,000 copies, so those companies that will sell licensed copies of this film, legally, have already lost 100,000 sales," he adds.
The DVD market remains small in Russia, despite the relative economic boom of the past four years, with an estimated 675,000 DVD owners in a country with a population of 140 million. Chris Abel-Smith, a film industry executive of 30 years and a founding member of the Russian Video Assn. and Russian Antipiracy Organization, shares Ageyev's bleak summation of the current situation.
"The (DVD) market has been totally destroyed," he says. "The (Hollywood) majors, with the exception of one or two, have had great difficulty replicating their product in Russia and they are trying to import it, with all the attendant problems of import duties. This simply does not allow legal product to compete with pirated product."
DVD players retail for as little as $100, and their considerable growth is seriously eroding not only the DVD copyright market but also the copyright VHS market because people now buy pirated quality DVDs -- cheaper than licensed VHS -- six months earlier than legal VHS products are released.
The result, Abel-Smith says, is that DVD piracy has not only destroyed the legal DVD market but is seriously damaging the licensed VHS sector, sales of which were down 30% in April and May compared with the same period in 2002.
Piracy delivers wholesale and retail prices that give licensed distributors no room to maneuver. Wholesalers pay between $2 and $2.50 for products consumers buy for between $5 and $7. With licensed DVDs, for example, costing up to $18 or more, consumers willing to invest $130 in a DVD player figure the extra cost of licensed discs is just not worth it.
"There are half a dozen DVD-replicating plants in Russia that have government licenses to operate and produce legitimate product alongside lines replicating unlicensed material," reports Abel-Smith. "Shutting down pirate operations in these conditions is not such a straightforward proposition."
To make matters worse, the political will to tackle piracy in Russia seems strangely lacking.
An antipiracy commission set up under Russian Prime Minister Mikhail Kasyanov a year ago is not due to announce an antipiracy campaign until September, and a new measure, signed into law only recently, to outlaw street sales of video or DVDs (where most pirate products are sold) can be effective only if "militia" officers -- the Russian police- -- vigorously enforce it.
Ageyev, whose company sells videos and DVDs through shops and British Petroleum gas stations in central Moscow, welcomes the new law but remains cynical.
"The militia have little motivation to prioritize antipiracy operations when they receive money or themselves run kiosks and stalls selling pirated material," he says. "It's very important for (Yuri) Luzhkov (Moscow's mayor) to control the market in Moscow so that (pirated) products cannot be sold here."
Overall, industry experts -- such as the MPAA -- calculate that pirate penetration in Moscow now accounts for roughly 40% of the sell-through market; beyond Moscow's bright lights all agree the pirates control 85% or more of the market.
Video rentals, although distributed through largely unsophisticated networks and with no large chains outside the twin "capitals" of Moscow and St. Petersburg, tend to be licensed now, if only because pirate videos are produced in smaller numbers and wear out with multiple use.
There's no single answer to solving Russia's piracy problem. Industry pressure groups howl in protest at the suggestion they lower their prices; and legislation to crack down on pirates, leading to more (higher-priced) legitimate product in the marketplace, is not a priority for politicians more concerned with winning two crucial upcoming elections -- parliamentary in December and presidential early next year.
According to Alexander Semenov, Moscow-based publisher of Video Magazine and Russian Film Business Today, essentially the solution boils down to two key issues: "Cutting down piracy and increasing legitimate product needs both government support and the understanding of Western partners."