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Cablegate: Style Records--Pioneering Russian Music Industry's

VZCZCXRO3055
PP RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHMO #5351/01 3131503
ZNR UUUUU ZZH
P 091503Z NOV 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5175
INFO RUEHXQ/ALL EUROPEAN UNION POST COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUEHKV/AMEMBASSY KYIV 0182
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 MOSCOW 005351

SIPDIS

SIPDIS

STATE PLS PASS USTR SDONNELLY, JGROVES, SMCCOY, PBURKHEAD
NSC FOR MWARLICK
DOC FOR JBROUGHER, MEDWARDS, AND JTHOMPSON

E.O. 12958: N/A
TAGS: ETRD KIPR RS
SUBJECT: STYLE RECORDS--PIONEERING RUSSIAN MUSIC INDUSTRY'S
FIGHT AGAINST PIRACY


-------
Summary
-------

1. (SBU) As high piracy rates and changing business models
increasingly challenge the traditional way the music industry
conducts business in Russia, a prominent Russian recording
company, Style Records, is using market incentives and
diversification to ensure its future survival. While taking
the lead to press for greater GOR enforcement action against
piracy, the company is simultaneously pursuing civil action
against pirates in Russian court. End Summary.

2. (U) Econ M/C and Econoff met on October 30 with Oleg
Lobov, General Director of Russian recording label Style
Records (the fourth largest in Russia), to discuss Russian
music industry trends and IPR issues. As the chairman of the
National Federation of Phonogram Producers (NFPP), the local
sister-organization to the International Federation of
Phonogram Industries (IFPI), Lobov also provided an overview
of the Russian recording industry's coordinated anti-piracy
strategy.

-------------------------------
Diversification Key to Success
-------------------------------

3. (SBU) Lobov, fresh from a business trip to Europe, was
the picture of a confident, Western-oriented business
executive looking to diversify his company. Acknowledging
that the music industry is undergoing major Internet-induced
restructuring, Lobov told Econ M/C that he and his business
partners plan to invest actively in retail shops, movie
companies, and Internet portals in the next three years to
ensure the long-term growth of the company. Style Records
has also partnered with Billboard magazine to launch its
Russian version, and hopes to put together the Billboard
Music Awards show in Russian in the next year or so.

4. (SBU) Lobov said that part of that strategy is not only to
cater to Russian-speaking consumers in Russia and the CIS
countries (with expansion plans in Ukraine in particular),
but also to produce English-language albums by Russian
artists for the U.S., European, and Japanese markets. As he
put it, &Western majors do not need the Russian market to
survive, but Russian record companies absolutely need the
Western markets.8 One of the European trip's purposes was
to promote arguably the hottest singer under the Style
Records label, Sergey Lazarev who joins the growing rank of
Russian pop stars who consider English-language songs a
necessary part of the formula for success.

5. (SBU) One of Style Records, most successful
diversification projects to date is Nastroyenie, a chain of
multimedia stores selling legitimate CDs and DVDs. Launched
in 2005, Nastroyenie currently has about 100 branches in
Moscow and 20 in St. Petersburg, with plans to open 22 in
Samara by the end of the year. Its business model, according
to Lobov, is to respond to consumer needs for clean, nice
shops, relatively low prices, and good customer service. By
locating stores at easily accessible places such as in
shopping centers, near metro stations, and on street corners,
Nastroyenie/Style Records hopes to lure shoppers away from
pirate stands by offering a better shopping experience at
slight higher, but still reasonable, prices. (N.B. The
strategy seems to be working. When Econoff and Econ FSN
visited one of Nastroyenie,s flagship stores one Monday
afternoon, they found the place fairly humming with shoppers
browsing the aisles and trying out video games at game
consoles.)

---------------------------------------
Industry Acting to Shut Down Pirates
---------------------------------------

6. (SBU) Lobov told us that there are now fewer pirate shops
in Moscow due to stepped up law enforcement activities, but
across Russia, the situation remains problematic with pirated
music CDs accounting for a high percentage of sales.
However, as supermarkets and large chain stores increasingly
start to carry legitimate optical disk products, the
situation is likely to improve further. At the same time,
Internet piracy is a growing concern, especially among
younger consumers.

MOSCOW 00005351 002 OF 002

7. (SBU) Lobov said the Russian music industry, through
NFPP, is attacking piracy in a coordinated three-pronged
approach: 1) working with the Russian government, rights
holders, and other governments to affect change in IPR
legislation and improve law enforcement efforts; 2) changing
mind sets about piracy, both the pirates, and the
consumers,, through ad campaigns and industry promotional
events; and 3) taking civil action against pirates to send
the message that the industry will no longer tolerate their
activities.

8. (SBU) In that regard, Lobov said NFPP has been active in
pressing for needed amendments to Part IV of the Civil Code,
which will come into force as Russia's overarching civil IPR
legislation on January 1. In addition, the leading Russian
recording studios, including Style Records, Gala Records,
Universal, and Sony BMG, have jointly sued in arbitrage court
five Russian pirate websites: jetune.ru; mp3grad.ru;
mp3search.ru; mp3spy.ru; and mp3plus.ru. This coordinated
action follows the April, 2007 court victory by Style Records
and Gala Records against pirate website delit.ru, as well as
Style Records, victory against rogue collective management
society FAIR.

-------
Comment
-------

8. (SBU) Oleg Lobov belongs to a young, modern generation of
Russian business executives who firmly believe that Russian
economic interests are tied to international markets.
Moreover, he is an adherent of the formal, rules-based
economic activity found in the West and has taken on a
leadership role in fighting IPR piracy in Russia through
market incentives and industry-initiated legal actions.
While law enforcement action is indispensable in the fight
against IPR violations, it is likely the market-based
industry initiatives that will have a more lasting effect on
the piracy problem in Russia. End Comment.
BURNS

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