Russia's Economic Downturn Spells Controversy for Smaller Industries -- Like Royalty Collection

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Red Square in Moscow, Russia. 

In a faltering economy, it would seem nearly everything is ripe for the picking.

As Russia's economy stagnates under pressure of falling oil prices and the international sanctions imposed on it following the annexation of Crimea in 2014, a relatively small piece of the country's financial landscape -- that of royalty and authors' rights collection -- has transformed into a microcosmic battlefield between private and government interests. Over the last few months, this battle has included criminal investigations, a series of lawsuits and accusations of "media pressure."

As its current management tries to maintain control over the embattled RAO -- Russia's sole state-approved collection society for authors' rights -- a group of private individuals are trying to take it over. The government, meanwhile, is looking to wrest control of all collection management.

The segment seems to be too small to trigger such a dramatic tug of war. Last year RAO collected ₽4.5 billion ($71.5 million). RSP, responsible for collecting a one-percent tax on imports of electronic devices that can be used for copying content, took in ₽2.2 billion ($35 million). VOIS, which deals with neighboring rights, collected ₽1 billion ($16 million).

The segments aggregate value of ₽7.7 billion ($122.5 million) is insignificant in the grand scheme of Russia's GDP, which reached $1.2 trillion in 2015. However, the current state of the economy means even relative economic scraps are worth fighting for.

"In a time of crisis, even 7.7 billion rubles is a desirable piece of pie... especially when oil prices are low," says Anatoly Semyonov, Russia's ombudsman for intellectual property.

In late June, RAO's general director Sergei Fedotov was arrested on suspicion of funneling money out of the organization and still remains jailed.

This past August a new collecting society, ROAS, was formed by a group of rights holders dissatisfied with RAO and who promised to operate in a more transparent and efficient manner. Maxim Dmitriyev, head of First Music Publisher, was appointed its general director.

Then, as if to double down on the dysfunction, an "alternative" RAO conference was held some weeks after Dmitriyev's ROAS appointment which installed him as the general director of RAO as well, replacing Fedotov. ROAS has not been heard from since.

Last week, independent Russian newspaper Novaya Gazeta published an investigative report, alleging that two groups of private interests, represented by Fedotov and Dmitriyev, are leading the fight for RAO from behind a curtain.

Meanwhile, some observers say neither of the two men can legitimately hold the position.

"The discussion of who is the legitimate general director of RAO, Fedotov or Dmitriyev, is basically meaningless," Semyonov tells Billboard. "Neither can legitimately take the position because of conflicts of interest -- both have purchased large copyright portfolios."

It is now up to the courts to decide which will lead the -- again, economically modest -- RAO. Meanwhile, in a surprise move, Alexander Klevitsky, the RAO vice president who filed a lawsuit questioning the outcome of the 'alternative' conference which installed Dmitriyev, withdrew his suit in late October.

Despite that blow, RAO's management has stressed that it is determined to prove the illegitimacy of the 'alternative' conference.

"Our position is unchanged," a spokesperson for RAO tells Billboard. "We still consider that conference illegal." The spokesperson declined to comment on the withdrawal of the lawsuit. "Our legal department keeps working on the issue," they added, hinting that new lawsuits are likely to be filed.

The government has its own options for putting an end to the standoff -- if it goes ahead with a proposal floated over the last few months under which copyright royalty collection would be managed by a state-run agency.

In mid-October, Russia’s first deputy prime minister Igor Shuvalov was meant to head a meeting over the future of the royalty collection in Russia, but cancelled it at last minute, reportedly over media pressure. Recent reports say the meeting is still planned.

The music industry largely opposes the idea of government control over collections, though some support the change.

According to Nikolai Duksin, general director of the National Registry of Intellectual Property, the government should oversee royalty collection to guarantee transparency and efficiency. "The government would make sure that money won't be funneled out of a collecting society or transferred to a bank that would soon fold," he says.

One very important issue is frequently forgotten amidst this outsized drama. As of 2013, under the conditions of Russia's World Trade Organization entry, the country was meant to radically reform copyright collections, Semyonov tells Billboard. Under the conditions Russia agreed to, copyright royalty collection should be conducted only based on direct licensing between rights holders and collection societies, as supposed to the current practice wherein RAO et al. are responsible for collecting all royalties.

According to Semyonov, another issue that put the current collection system at odds with the WTO agreement is that only private individuals can be members of collecting societies, not companies.

"It doesn't matter if the government collects royalties, or an accredited non-government organization," says Semyonov. "As long as the system is not strictly based on contracts with rights holders, it will remain illegitimate" because of those contridictions to the WTO rules.