Kremlin Said to Be Considering Takeover of Collection Societies as Sector Scrambles

Andrey Rudakov/Bloomberg via Getty Images
The skyscrapers of the Moscow International Business Center in Russia photographed on Oct. 28, 2014. 

A jailed director, new organizations to compete with and a clash between existing members has the country's collection societies in turmoil.

As Russia's royalty collecting sector is in disarray following top-level shakeups and a leader embroiled in controversy over allegations of real estate fraud, the Kremlin is revisiting the idea of taking over this corner of the country's music business.

The near-future fate of the RAO, Russia's sole state-appointed authors' rights collection society, remains uncertain. (For information on the RAO's function and responsibilities, the World Intellectual Property Organization has an excellent backgrounder.)

The idea of government control over the sector was discussed this week during a meeting at the Ministry of Economic Development, the business newspaper Vedomosti reports, citing anonymous sources present at the meeting. Culture minister Vladimir Medinsky was later quoted by the TASS news agency as saying that the industry "needs reform."

"International experience shows that collecting is better implemented by a public society rather than by the government," an RAO spokesperson counter. "If the government steps in, authors' community's control over royalty collection and distribution will be lost."

Vedomosti's report quotes Andrei Krichevsky, general director of RSP, which oversees collection of a one-percent tax on imports of devices that can be used for copying content, as saying that government involvement won't lead to increased authors rights payments, but rather an attempt "to usurp control over more finances."

Meanwhile, the government has a good pretext for stepping in, as the collecting industry is sinking deeper into a state of confusion.

RAO general director Sergei Fedotov has been in jail for over two months on suspicion of allegedly funneling 500 million ($7.7 million) out of the organization in a series of dubious real estate deals. Last December, the troubled director had proposed a series of drastic reforms for the industry. "To improve the situation with authors' fees collection, we need to make order inside our organization first," Fedotov told Billboard at the time.

In late August, the RAO's council elected a new president, Igor Matviyenko, and expelled four members, who went on to hold what they called "RAO's extraordinary conference." At that conference, music rights holders, dissatisfied with RAO, voted to replace Fedotov with Maxim Dmitriyev, general director of First Music Publisher. RAO's management, however, insists the conference was illegitimate, and the organization's spokesman claimed RAO will prove so in court.

Incidentally, two weeks earlier ROAS, another collection society, was founded in the country -- and headed by Dmitriyev. The new organization will look to position itself as an alternative to RAO.

Given the turmoil, government involvement might be justified, sources in the music industry say.

"The government's involvement isn't always bad," a senior executive who asked not to be named, tells Billboard. "For instance, state accreditation for collecting societies has worked well."

"If the government could come up with a workable and transparent system for copyright royalty collection, that would only be positive," that source continues. "But the government's stepping in would mean that people in the Russian music industry are just unable to reach compromise."

In 2015, RAO collected 4.5 billion rubles ($68 million), RSP 2.2 billion rubles ($33.3 million) and VOIS, which deals with neighboring rights, 1.05 billion rubles ($16 million).