VKontakte case puts Russian music piracy into spotlight

VK music service VKontakte allows users to upload and share content

Related Stories

Three major record labels - Sony Music Russia, Universal Music Russia and Warner Music UK - were in court on Monday, suing Russian social media site VKontakte (VK) for "large-scale" music piracy.

Dubbed "Russia's Facebook", VK allows users to upload music and videos but is accused of refusing to strike licensing deals with rights holders.

After months of delays, the case finally went before a judge at the St Petersburg and Leningrad region arbitration court. But this legal battle looks set to be a long one.

Although the labels originally filed separate actions, the court ruled that instead they will be heard as one consolidated case. A series of substantive hearings will begin on 8 September, and is expected to run into October.

Start Quote

VK hurt competitors because they are not paying anyone for anything - you cannot compete with that”

End Quote Frances Moore IFPI

The fact remains that after numerous warnings, the music industry has run out of patience with VK. As well as suing for £1m in damages, the labels want an order requiring VK to implement fingerprinting technology to delete copyrighted works and prevent them from being re-uploaded.

NFMI and IFPI are the local and global industry organisations working with the labels. "VK's music service, unlike others in Russia, is an unlicensed file-sharing service, designed for copyright infringement on a large scale," says Frances Moore, IFPI chief executive.

"We have repeatedly highlighted this problem over a long period of time. We have encouraged VK to cease its infringements and negotiate with record companies to become a licensed service. To date the company has taken no meaningful steps to tackle the problem."

Hurting competitors

VK has over 88 million users in Russia - and 143 million globally. It is the second most popular site in Russia and the 22nd most popular site worldwide.

VK's actions have been defended by founder Pavel Durov, known to support piracy and believe in the freedom of sharing.

Pavel Durov speaking during the Digital Life Design conference (DLD) 24 January 2012 in Munich Pavel Durov launched VKontakte in 2006

There's little doubt that licensed digital music services in Russia, including local players Yandex, Trava and global services iTunes and Deezer, pay a price for the widespread piracy. According to IFPI, growth of licensed digital services in Russia is only $0.50 per capita; the European average is $8.40.

And while recorded music revenues in 2013 totalled 2.2bn Russian roubles ($61m; £36.4m), this figure could be even bigger. Russia has the potential to be a top 10 world market, but is currently ranked outside the top 20 international music markets.

As the largest social network in Russia, VK's unlicensed service is a significant factor in this under-performance.

"VK hurt competitors because they are not paying anyone for anything - you cannot compete with that," says Frances Moore.

International discontent

Start Quote

Part of the problem is that 'piracy' is so entrenched in Russia's consumer culture”

End Quote Joe Karaganis Expert on media piracy

IFPI is not alone in believing that VK is harming the Russian online music industry. In January, the Office of the US Trade Representative (USTR) identified VK as one of the most "notorious markets" for piracy for the fourth consecutive time.

Since 2000, Russia has been a mainstay on the USTR's "Priority Watch List" in its Special 301 Report, backed by industry claims of billions lost by US companies in software, music, and film piracy.

The USTR cannot do anything beyond identifying foreign countries that deny adequate and effective protection of intellectual property rights and seek to negotiate.

But it serves to demonstrate the scale of discontent on the world stage with Russia's lack of action on this issue.

Controversial company

Controversy and VK are never far apart. From offering a job to Edward Snowden, the NSA whistleblower, after he was granted temporary asylum in Russia, to allowing homophobic groups like Occupy Paedophilia to operate on its site. Occupy Paedophilia has been found to use VK to lure gay men to places where they would be attacked.

The lawsuits follow a particularly sensitive time for VK.

Mr Durov left the company and the country in April on acrimonious terms, amid alleged pressure from the site's Kremlin-linked owners after VK's ownership structure changed in 2013.

Mr Durov had previously refused to close down groups on VK organising protest marches against Russian President Vladimir Putin.

Pavel Durov's VK profile page VK has adopted the same colour scheme as Facebook and also allows users to "like" posts and comments

VK does not deny the similarities with Facebook. But the major difference between the two networks is their attitude towards copyright laws.

The music industry has challenged VK before. For instance, its vociferous piracy appetite was targeted in 2004-05 but became expensive and little was achieved.

Russia passed a strict anti-piracy law in August last year, regulating online distribution of films and TV series in Russia. Two other bills have since expanded the law to other types of content, including music, photos, books and software.

But not everyone has welcomed it. A potential outcome is the blocking of entire domains, even if only one page hosts illegal content.


The VK case highlights the widespread problem of music piracy in Russia.

A cursory trawl of Russian internet forums, questioning the last film or album purchase elicits an unsurprising response - why spend money on something you can get for free?

Income in Russia means a CD or a film costing about $10 is out of reach, so piracy - rarely recognised as that - is an added incentive to use sites like VK.

President Putin on TV at internet cafe President Putin signed an anti-piracy bill into law last year

Joe Karaganis, an expert in media piracy, co-authored a report into media piracy in emerging economies. He says the concept of unauthorised copying as an illegal activity has been slow to emerge in Russia.

"Part of the problem is that 'piracy' is so entrenched in Russia's consumer culture," he explains. "After the fall of the Soviet Union, many western cultural goods were unavailable at any price, much less at prices most Russians could afford.

"As a result, many of the forms of unauthorised copying and collecting that were common in the Soviet era survived and grew, driven by market failure and cheap consumer tech, rather than official censorship."

Consequently, pirated CDs and videos flooded the market.

Mr Karaganis suggests the scale of damages being sought reflects an industry desire for VK to enter into a licensing deal.

"This case is not about an imminent threat to music revenues, but an attempt to create a foundation for the longer term. The damages claimed are miniscule - the labels want to cut a deal, effectively letting VK carry the risk," he says.

A deal would leave the record labels in the driving seat - controlling their releases and artists - and would afford VK the rights in Russia where perhaps they know the market better. So the artist would get more promotion together with a sizeable cash injection for the labels.

Whatever the outcome of the court case, record companies want to develop a thriving licensed music business in Russia. If successful, consumers will have access to music via different licensed channels and formats. And Russia will move ever closer to an open, competitive music market.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories


BBC Business Live


    Bank of Japan Governor Haruhiko Kuroda says Japan is at a "critical moment" in its bid to conquer years of falling prices. "We can say the Japanese economy is now at a critical moment in its process of getting out of deflation," he told reporters in Tokyo. "The (easing) measures this time show the Bank of Japan's unwavering determination to exit deflation."

    07:43: WWI DEBTS

    We've put a call in to the Treasury, asking them to whom the WWI repayments are being made. Do you know anyone who holds National War Bonds (or 4% Consols, as they were called after a refinancing)? Get in touch by emailing bizlive@bbc.co.uk or tweeting @BBCBusiness.

    07:40: SONY SLUMPS

    Another important fact from Sony's results. The company is packing up its smartphone business in China.

    07:35: WWI DEBTS
    South Sea Bubble

    Some of the debt being refinanced by the Treasury dates back to the 18th century, including the "capital stock of the South Sea Company originating in 1711", the collapse of which led to the South Sea Bubble financial crisis of 1720 - depicted by William Hogarth in above print. It's also paying for bonds issued in 1752 and used to finance the Napoleonic and Crimean Wars, the Slavery Abolition Act (1835) and the Irish Distress Loan (1847).

    RBS RESULTS Via Twitter Douglas Fraser Business and economy editor, Scotland

    tweets: "RBS CEO Ross McEwan: "Still have a long list of conduct + litigation issues + much, much more to do to restore customers' trust"

    07:27: WWI DEBTS BBC Radio 4

    Simon Jack on Today says paying off the WWI bonds will allow the chancellor to say he's paying off some of the UK's debt, but its pretty insignificant in terms of the overall debt pile. "It's looks good and sounds good," he says.

    07:23: WWI DEBTS

    The Treasury has announced it is paying off some long-standing debts - dating from WWI, no less. It will redeem £218m of National War Bonds, issued in 1917, with a 5% interest rate. Around £2bn worth of the WWI debt will remain, but the government says it is "looking into the practicalities" of repaying it all.

    07:17: RBS RESULTS

    RBS warns that much more money could be paid out to cover things like the foreign exchange scandal: "Ongoing conduct and regulatory investigations and litigation continue to present challenges" it says, "and are expected to be a material drag on both earnings and capital generation over the coming quarters". It adds that the timing of further settlements or redress "remain uncertain and could be significant".

    07:09: RBS RESULTS

    RBS has set aside £400m to cover potential fines for manipulating foreign exchange markets, and a further £100m to cover more PPI compensation claims.

    Via Twitter Joel Hills, business editor at ITV News

    tweets: "Treasury to repay £218m of war debt + look at 'redeeming the entirety of...£2bn of outstanding First World War debts, in due course'."

    07:05: RBS RESULTS

    RBS also confirms it plans to keep its Irish subsidiary, Ulster Bank. There had been speculation that the company was seeking a buyer for the division.

    RBS RESULTS 07:02: Breaking News

    RBS reports pre-tax profits of £1.27bn for the three months to the end of September. It has also set aside £780m for litigation costs, including costs related to the foreign exchange rate scandal still being investigated by regulators.

    06:57: DONUTS BBC Radio 4

    Dunkin' Donuts is back in the UK after a 20-year break, Today reports, with five outlets opened this year. The chief executive Nigel Travis tells Simon Jack that its donuts are an "affordable indulgence". He says they offer things like low-fat ice cream and coffees for those who don't want the high-calorie stuff, but most people don't go for it.

    06:52: SONY SLUMPS

    Despite a whopping net loss, there's one bright spot for Sony: Sales of gaming devices are up 83% compared to last year, driven by the popularity of the PS4 console.

    06:46: SONY SLUMPS

    Amid all the jubilancy on the Asian markets, one Japanese company continues to have a rough ride. Sony reported a net loss of 136bn yen (£800m) for for the past quarter, up from a loss of 19.6bn yen (£110m) in the same period last year. The struggling electronic giant says this was largely down to an "impairment of goodwill" in its mobile communications division - that is a decline in the value of intangible assets, such as brand recognition, reputation and intellectual property.


    Martin Shulz, a Japan analyst from Fujitsu Research, tells World Business Report that "Abenomics" - the economic policies of prime minister Shinzo Abe - isn't working. "Abenomics is in trouble, the economy isn't improving enough," he says.

    06:40: RBS BBC Radio 4

    Simon Jack's back presenting the news on the Today programme this morning, looking ahead to the RBS results later. Filippo Alloatti from Hermes Investment Management says the bank will probably announce more money set aside to cover PPI claims plus something like £300m-350m to cover fines or expenses relating to the foreign exchange trading scandal.

    06:24: HALLOWEEN BBC World News
    Rico Hizon

    The Live Page's favourite business reporter Rico Hizon is sporting a black-on-black jacket and shirt combo with an orange tie this morning to celebrate Halloween. "Nothing is spooking the markets", he quipped on Radio 5 Live earlier.

    06:22: ASIAN MARKETS

    The markets in Japan have now closed, and investors are grinning from ear-to-ear.

    • The Nikkei 225 index surged 4.9% to 16427.06 (highest since November 2007)
    • In Hong Kong, the Hang Seng rose 1.2%, ending at 23990.24

    Stocks in mainland China, India and South East Asia are also up.


    Here is how the yen reacted to the news from the Bank of Japan - down against the dollar to a six-year low.

    06:07: JAPAN BOOSTS STIMULUS Radio 5 live

    The Bank of Japan's decision is an attempt to "recharge a fragile economic recovery" and it seems like Prime Minister Shinzo Abe "is getting desperate", our very own Rico Hizon tells Wake Up to Money. He adds that the move "weakened the Japanese Yen against the US Dollar to a level not seen for six years".

    Bank of Japan

    This will give you a sense of how surprising the Bank of Japan's decision to pump more money into the economy was. Bloomberg reports that only three of the 32 economists it had surveyed expected the Bank to ramp up its stimulus programme. In its statement, the BoJ says it was worried about "downward pressure on prices" - or lacklustre inflation, to you and me.

    06:00: Edwin Lane Business reporter, BBC News

    We're also looking forward to results from Royal Bank of Scotland at 07:00. In May the bank - still 80% owned by us taxpayers - reported profits of £1.6bn, but warned of a tough year ahead. Get in touch with us on bizlivepage@bbc.co.uk or tweet us @BBCBusiness. You email it, we'll publish it. Probably.

    06:00: Joe Miller Business Reporter

    Good morning. The Bank of Japan has unexpectedly announced a boost to its monetary stimulus programme, in an effort to revive the country's flagging economy. The decision caused Asian markets to soar, with the Nikkei reaching a 7-year high. More on that, and the rest of the morning's business headlines, to follow.



From BBC Capital


  • Francis Rossi, co-founder of band Status QuoHARDtalk Watch

    Status Quo's Francis Rossi explains how alcohol led him to take cocaine

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.