Something about compact-disc manufacturing in Ukraine just doesn’t add up.
The country has 10 production lines, with the combined capacity to produce 70 million CDs every year – that’s twice as much as the estimated market demand for compact discs in Central and Eastern Europe.
But estimates of the Ukrainian market demand vary from 3 million to 12 million Ukrainian-made discs per year (another 500,000 discs are imported). Kiosks around the capital are stocked with the latest releases from artists the world over, and copies of games and business software can be picked up for a fraction of the price that they cost in the West. So what’s going on here?
The simple answer is piracy – on a massive scale. But as is usual in Ukraine, the real situation is a good deal more complex than it looks at first glance.
After crackdowns in China and Bulgaria dented CD piracy in those countries, Ukraine is said to have become the world’s number one pirate CD producer.
According to one industry watchdog – the International Federation of the Phonographic Industry (IFPI) – 90 percent to 95 percent of the CDs sold in Ukraine are pirated, some 30 percent of Ukrainian artists’ works are bootleg copies, and only 5 percent of Russian CDs and 2 percent of Western CDs are fully licensed and legal copies.
And according to the Intellectual Property Alliance, a copyright guardian, in 1998 alone recording companies lost more than $126 million because of Ukrainian piracy.
In April, Ukraine was placed on the U.S. government’s list of countries with high rates of intellectual property theft. And in June, the IFPI complained to the European Commission, the executive body of the European Union, about increasing CD piracy in Ukraine.
But in spite of vocal complaints from the international community, the government still seems to be doing little to combat the production and trade of pirated CDs.
There are almost no instances of a recorded work being licensed by a Western recording company for CD production in Ukraine, and the state does not require that CD producers present such licenses anyway. All that a -D producer here needs to legally (under Ukrainian law) produce CDs is an ‘attestation’ – a document that permits the sale of individual recorded works. The Hr 510 attestation, available from the State Agency for Trade, permits a CD producer or retailer to sell any number of copies of a single recorded work.
‘Paradoxically, this was an optimal solution to the problem for the state,’ said Volodyslav Chernetsky, salesman at music retailer Karavan CD. ‘This isn’t smuggling, producers pay [for the attestation] and, in a way, they’re national producers. This is the ugly side of the ‘buy Ukrainian’ campaign.’
But interpretation of the figures also depends on who you’re talking to.
State officials downplay the role of the Ukrainian pirates. According to the head of Ukraine’s Association of Copyright Users, Volodymyr Kryzhanivsky, 30 million to 40 million CDs are produced in Ukraine every year, while Russia alone produces more than 90 million discs and has an annual production capacity of 200 million CDs.
‘Ukraine’s share of worldwide CD production is 0.45 percent,’ Kryzhanivsky said. ‘That means one in every 222 CDs made is Ukrainian. Even if every Ukrainian CD were a pirate copy (which isn’t the case) and the average worldwide piracy level were 30 percent, Ukraine’s output of pirated CDs would account for no more than 1.5 percent of the worldwide total.’
What is one to make of these conflicting figures? Is piracy here as bad as the West says it is, or as rare as the government would have us believe?
‘The truth is somewhere in the middle,’ said Oleksy Humenchuk, director of Lorien law firm. ‘Those who are interested in the change of status quo on the Ukrainian audio market name high figures, and those who want to preserve the status quo name low ones.’
Those wanting to prosecute the pirates won’t find any help in Ukraine’s law books, however. The criminal code outlaws plagiarism, but the pirates aren’t pretending to be Abba or Alla Pugacheva. The civil code theoretically outlaws intellectual property theft, but this sphere of the law is new to most of Ukraine’s judges, legal expertise is expensive, and court hearings could drag on for months, if not years.
So no foreign recording company has pursued a piracy case in the courts, understanding that winning a single court case against one pirate operation would be an expensive and probably futile exercise.
And some industry experts here say the West’s crusade against Ukrainian piracy is prompted not by the need to protect artists’ intellectual property rights, but by foreign CD producers’ fear of competition from Ukrainian producers.
One of the industry’s best kept secrets is that a CD costs only around $1.50 to actually produce. Add in royalties, marketing and distribution, and the costs rise to about $10, while the discs retail for $12-$20 in the United States and sometimes more in Western Europe. Ukrainian-made CDs cost even less to produce, and sell for around $2 each. Western record companies dispute that claim.
‘These are groundless accusations,’ said a Universal Music Company representative, who declined to be named. ‘On the contrary, we want our positions [individual recordings by artists] to be legally produced.’ Rostok Records [a Ukrainian recording company] has already produced several items under license from us.’
Since the western recording companies lack the resources to fight piracy here, they are pressuring the Ukrainian government to tackle the problem. Unfortunately, the government has a poor track record in fighting piracy.
The last crackdown on the pirates came in January 1998, when Ukraine’s police swept the streets clear of CD traders. The measure was short lived though – Ukraine’s Supreme Court of Arbitration ruled that the government crackdown was itself illegal, and the CD kiosks and street stalls reappeared with, if anything, an even wider selection of cheap and obviously pirated discs.
Disincentives to the pirates are also minimal. Even if state checks reveal that a CD producer does not possess an attestation for a recorded work, the producer is liable only for a small fine, and the discs will not be confiscated.
On the face of it, tracking down and shutting down pirate CD producers should not be an impossible task. To produce CDs, makers need technologically advanced production lines, regular electricity supplies, qualified production technicians and a supply of polycarbonate – the material used to make CDs. Polycarbonate is produced by only a few firms worldwide, and thus it is relatively easy to trace supply lines. In short, CD production is a sophisticated business which is difficult to take ‘underground.’
The polycarbonate trail leads to legitimate CD producers like Kyiv’s Bolidisk and Mashel, but industry experts say it’s difficult to prove these producers are the source of the pirated discs.
‘It’s hard to prove that a CD belongs to a specific producer unless you caught him red-handed,’ Humenchuk said.
Further complicating the situation, Russian and Chinese pirated CDs cross Ukraine on their way to markets in Central and Eastern Europe. Regardless of their country of origin, these discs are often considered ‘Ukrainian pirate copies’ in the countries in which they are finally sold.
Since no impetus to combat piracy is coming from within Ukraine, the government can expect more pressure from abroad to fight CD fraud. Failure to crack down on the pirates could further diminish Ukraine’s remote chance of eventually joining the European Union and complicate its entry to the World Trade Organization. Just as Bulgaria and China were forced by external pressure to crack down on their pirate CD industries, Ukraine will soon find itself under similar pressure, experts predict. But meanwhile, its business as ususal for the pirates.
