Soviets Stymie Studios : Bootlegging, Ruble Inhibit Cashing In on U.S. Film Craze

A few hundred paces from the Oktyabr movie theater, where “Gone With the Wind” opened last fall to packed houses, stands a modest little kiosk that is souring the plans of U.S. film distributors to exploit the commercial potential of the vast Soviet entertainment market.

Located on Arbat Street, the privately owned kiosk sells pirate videos of foreign, mainly American films. Of the list of 181 films on sale, at least 90% are U.S. titles, selling for 130 to 200 rubles each--$73 to $112, at the greatly inflated official commercial exchange rate.

Kiosks like this one, of which there are about 270 in Moscow, together earn estimated annual revenues of about 36 million rubles, or $20 million, in the Soviet capital alone. There are probably hundreds, if not several thousand, more in the rest of the country. And not a kopek of their earnings goes to the U.S. producers or distributors.

Meanwhile, less than a block away, the Oktyabr theater’s premiere of “Gone With the Wind” pulled in an extraordinary 500,000 viewers in less than 10 weeks. Its U.S.-based distributor, UIP, which represents Paramount Pictures, MGM and Universal, has done well with the release: It received a share of the box-office receipts and an upfront payment in hard currency. Michael Macclesfield, UIP’s vice president for international sales and development, said that the 2,500-seat Oktyabr was booked solid, three showings a day, from opening night Oct. 19 until mid-February.

“It’s unbelievable,” he said. “That kind of capacity is unheard of in the West.”

This represents a troubling dichotomy for foreign-film distributors: American titles already dominate the huge Soviet market, particularly for videos, and an extensive marketing and distribution network is already in place. But because this network is largely illegal and based on bootlegged films, U.S. firms benefit very little in financial terms from their dominance of the Soviet market.

Even the successful run of “Gone With the Wind” was tainted; bootleg videos of the film circulate freely. And UIP’s Moscow-based partner in the distribution deal, the Soviet-British Creative Assn., has already raided one illegal showing of the film, confiscated the copy and taken its proprietors to court.

One U.S. film executive summed up the situation succinctly.

“Right now, there are no legitimate home video products in the U.S.S.R., to my knowledge,” said Franklin Tonini, vice president for Eastern Europe and the Soviet Union with the influential Motion Picture Export Assn. of America. “Video piracy is rampant in the Soviet Union, and as long as it remains rampant, we can’t enter the market.”

The owner of the Arbat Street kiosk agreed. “For the moment, copyrights don’t exist here,” said Gennady Tityonok, who earns about 600 rubles a month, or about twice the average Soviet salary, copying and selling videos. “If they recognized copyrights officially in this country, then we wouldn’t be here.”

“Right now, (penalties for bootlegging) amount to a slap on the wrist,” Tonini said. “And unfortunately, (piracy) is semiofficially condoned (by the Soviet state).”

So frustrating is the situation that the major U.S. studios, hoping to pressure the Soviet government to crack down on piracy, agreed this week not to license any more of their films for sanctioned showings in the Soviet Union.

Yet even the problem of video piracy pales in comparison to another obstacle that foreign investors have had to face in every sector: How to turn a profit in the Soviet market while the ruble remains non-convertible.

“We’ve had people come in and try to think in the long term,” said one U.S. official familiar with the cultural market here, “but until (U.S. distributors) can repatriate their profits in tangible goods or currency, they won’t be able to expand the market.”

Still, several foreign, and particularly U.S. film distributors have been finding ways of selling films on the Soviet market.

One company, Story First Distribution Inc., distributes films such as “Mac and Me,” “Lambada” and “Ski Patrol” to about 400 cinemas throughout the Soviet Union. According to Clayton Simons, Story First’s Moscow general director, the firm has found ways to deal with both of the main obstacles to doing business.

On the question of piracy, it distributes its films through Soviet intermediaries, and obliges them to take responsibility for preventing copyright violations.

“The (distribution) contracts we sign with our Soviet partners are very strict,” said Simons. “We have provisions for inspection by distributing agents.”

Story First’s agents are responsible for virtually every aspect of distribution and marketing of the films within the Soviet Union. One Story First agent, the film department of the Theatre Workers’ Union, is currently distributing “Lambada” and “Mac and Me.” The film department’s director, Valery Yanklovich, said that the union would spend at least 500,000 rubles on each film for advertising, prints and translation. Given that the union receives a 12.5% share of the gross box-office receipts (the movie theaters take 50% and Story First takes 37.5%), each film must generate at least 4 million rubles for the union to break even.

Yanklovich is optimistic.

“We expect ‘Lambada’ to do very well commercially,” he said. “It will give people a chance to relax. In these difficult times, people need entertaining films. They’re tired of problems.”

Ruble non-convertibility is not an obstacle for Story First: The firm’s ruble revenues, which Simons said run into the tens of millions, will be invested in starting up a pair of FM radio stations in partnership with NBC and the weekly liberal newspaper Moscow News.

But Story First, which has distributed five films (excluding television) since it opened here in 1987, is a relatively small player by comparison with the major U.S. distributors and studios.

Among the big players in the industry, Time-Warner’s $28-million joint venture to build a pair of ultra-modern multiplex cinemas is the most ambitious deal to date, though it is not yet up and running.

In partnership with Sovexportfilm, the export division of Goskino, Time-Warner hopes to complete 10-screen, 4,000-seat showplaces in Moscow and in Leningrad by the end of 1991. But it is likely that Time-Warner will also have to cope with video piracy eating into its market.

The French have been operating a similar venture for more than six months. The Parimedia joint venture, financed by the French film distribution group UGC and the Interagara trading house, spent about $360,000 to renovate Moscow’s Mir theater. The theater, now dubbed the Espace-Mir, screens films that are chosen by Parimedia--mainly French titles--and charges viewers up to three rubles per ticket, or twice as much as an ordinary Soviet cinema.

The venture is only a qualified success so far, said Espace-Mir director Nina Guryeva.

“For the moment, it’s profitable, but only because we don’t pay taxes,” she said, referring to the fact that joint ventures enjoy a two-year tax holiday. She said viewership had begun to drop off in the first two months of the year--suffering, she said, from a lack of advertising and what she called “the poor quality” of the films the French partner chooses for the venture.

“I don’t think the venture will succeed,” she said. “There are always good American films around that people prefer to see.”

Parimedia plans to spend about $5.4 million more to set up a chain of 10 cinemas throughout the Soviet Union. The ruble profits will be plowed back into co-production deals in the Soviet Union, with the films produced for export--eventually, it is hoped, to earn hard currency profits for the company. The firm’s first co-productions should be ready for worldwide distribution within 1 1/2 years.

Clearly, the Soviet film market does hold promise. And video piracy may not be intractable. Earlier this year, in the first court action of its kind in the Soviet Union, Goskino successfully sued a small video outlet that distributed one of its titles without permission. Meanwhile, the Soviet-British Creative Assn.’s lawsuit over “Gone With the Wind” is in court.

Also, the U.S. film industry has been actively lobbying for stronger copyright enforcement. It sent representatives to Moscow in November to participate in the second round of U.S.-Soviet “information talks,” which deal with a range of bilateral issues including copyrights, and met with Soviet film industry officials in Washington in March.

The industry’s efforts may have borne fruit: The Soviet Cabinet of Ministers is reportedly drafting legislation that would tighten copyright protection and allow the Soviet Union to join the World Intellectual Property Organization, the United Nations agency responsible for monitoring and policing copyright problems around the world.

However, there are persistent rumors that the Soviet government, alarmed at the pervasive spread of U.S. culture here, may instead impose a quota on imports of foreign films--perhaps to as few as 50 titles a year.

As for the question of ruble convertibility, there has been slow but steady progress: Limited currency auctions held by the government have allowed Soviet and foreign companies to trade rubles for foreign currency at a rate of exchange that is currently about 30 rubles to the U.S. dollar. At that rate, however, it is hard to see how U.S. distributors could turn a large profit: Filling Time-Warner’s proposed 4,000-seat theater at 3 rubles per ticket would only bring in the equivalent of $400. It would take a long time to recoup the $28-million investment.

If the problems of piracy and profit repatriation can be solved, the Soviet film market presents rich pickings for U.S. distributors. According to market data compiled by Scantech, a Soviet-Canadian joint venture, U.S. films already dominate the bootleg video market here. Of 500 titles the firm surveyed, all but a few were American, with adventure films, thrillers and drama making up the bulk (339) of the offerings.

Scantech is currently surveying video kiosks to find out which films are the most popular with Soviet viewers, and hopes to begin selling the data this summer. It expects to sell the information mainly to bootleggers.