stories

The film industry gets creative Russian movie theaters' last-ditch effort to survive Hollywood’s boycott

Source: Meduza

Russia’s movie theater industry is on the brink of collapse. After the country launched its full-scale war against Ukraine, Hollywood’s largest studios were quick to pull out of the market. Russian distributors initially thought they could make up for the lost movies by showing Indian and Latin American films, but filling theater seats has turned out to be harder than they anticipated. Now, the industry is discussing "solutions” such as the parallel import of foreign films, "compulsory licenses" issued by the Russian government, and the “non-contractual use of rights” to new films. Some theaters have already screened the latest Top Gun and Doctor Strange films illegally, and industry experts say illegal showings will only become more common as theaters fight to stay open. Meduza weighs the future of going to the movies in Russia.

What is 'compulsory licensing?'

In April, the Russian authorities started preparing a bill on “compulsory licensing,” which would allow the Russian government to legalize the distribution of movies, TV shows, and music from “unfriendly” countries. If the copyright holder of a piece of media has withdrawn from a contract on grounds other than a contract breach (such as leaving the country after the war’s outbreak), a Russian licensee would be able to request a compulsory license for the copyright holder’s content through a Russian court. If the license was granted and the content distributed, the copyright holder would receive royalties in an account denominated in rubles (in accordance with an executive order signed by Putin on May 27).

Using this procedure, movie theaters would theoretically be able to show movies from major studios like Universal, Disney, Warner Bros., Sony, and Paramount, all of which suspended operations in Russia after the start of Russia’s full-scale invasion of Ukraine. Since February, none of the studios’ new films have been shown legally in Russian theaters or appeared on Russian streaming services.

Under the compulsory licensing scheme, movie theaters would presumably have to obtain their own copies of the films, whether that meant showing bootleg copies of films from the Internet or finding ways to obtain the high-quality digital cinema packages (DCPs) usually used for theater screenings.

What does the industry think of the idea?

“Right now, ‘compulsory licensing’ as it appears in Russian law is a long and complicated process that takes between six months and a year for each film,” said Roman Isayev, head of the Russian branch of Comscore and a board member for the Theater Owners Association. “And six months after a film’s Western release, naturally, the film is no longer relevant.”

The Association is currently discussing another option with the legislative authorities: the “non-contractual” use of films made by companies that have left Russia. This option will only work, said Isayev, if the government legalizes several offenses listed in the Criminal and Administrative Codes as well as changing the procedure for issuing content distribution certificates.

According to Isayev, the State Duma hasn’t yet discussed amending Article 146 of the Russian Criminal Code, which prohibits violating copyright and related rights, nor has it discussed the possibility of allowing theaters to screen films without distribution certificates. “The Culture Ministry has no official position on this issue and hasn’t done anything to help theaters. They’ve given us the impression that movie theaters don’t matter to them. All of the decisions on the national level have been postponed approximately until September, but the theaters won’t survive that long,” he said.

Many Russian theaters, including ones that belong to the country’s largest chains, are on the verge of being forced to start screening films that have not officially been released in Russia, Isayev said. But, he added, it’s worth remembering that the big chains have much higher legal, political, and reputational risks to think about than small independent theaters, and are thus wary of the proposals to allow compulsory licensing and non-contractual screenings.

Another idea being discussed in the film industry, Isayev said, is the creation of an accredited state company that would have a license to work with content from “unfriendly” countries. “The organization could grant itself the rights to films and then transfer them by contract to movie theaters, which would then be operating on better legal ground. The company would handle dubbing, film releases, and advertising campaigns. Whether that kind of company will be created is a big question right now.”

Karina Agadzhanova, managing director of the theater chain Cinema Star, sees compulsory licensing as a “temporary measure” that will be “very useful” to theater companies. Without Hollywood films, she said, it will only take a few more months for Russia’s movie theaters to start closing en masse.

But while movie theaters are mostly in favor of the compulsory licensing idea, Russian streaming services are generally opposed. “Their business is built on different algorithms. They’re given the rights to content for multiple years [and thus continue getting new viewers over years], while for movie theaters, film runs usually last two weeks,” said Roman Isayev.

Igor Mishin, general director of the online video-on-demand platform Kion, called the compulsory licensing plan a “disaster.” If the authorities go through with it, he said, more pirates will get their hands on new movies. If “the top Hollywood content” becomes available everywhere, he said, the Russian film industry will stop developing altogether because of piracy.

Rostelekom content policy director Alexander Kosarim also opposes the idea of compulsory licensing, though he also noted that the contracts for archival releases that were available on Russians streaming services before foreign studios left the market and are currently still available will start expiring by the end of this year — and there will be nothing to replace them with.

Alexey Byrdin, general director of the Internet-Video Association, agreed that Russian online streaming services don’t view the use of compulsory licensing as a real option. “If foreign copyright holders considers the use of their content to be piracy, they still have all of the same leverage to block our applications and systems,” said Byrdin. For streaming companies, he said, that would mean the reversal of 10 years of progress.

Is compulsory licensing already being used in Russia?

Several movie theaters have managed to obtain illicit copies of new Hollywood releases and show them without the studios’ permission. Overall, though, those cases are the exception and not the rule. Theater Owners Association chairman Alexey Voronkov said in a statement to the industry newsletter Film Distributor’s Bulletin that in early June, illegal copies of films were shown in 127 theaters throughout Russia. A St. Petersburg theater called Giant Park, for example, illegally screened Top Gun: Maverick, while a Tomsk theater showed the latest Doctor Strange movie. Theater representatives reported that the screenings were organized by a third party who rented the space, though tickets were only available for purchase at the theaters’ official ticket counters, which indicates otherwise. Voronkov told Film Distributor’s Bulletin that “the wave of unsanctioned screenings of film copies is growing exponentially and will only continue to grow,” and that the theaters were motivated “not by a desire to earn money, but by their need to survive.”

It’s worth noting that the theaters are screening films after they’ve already appeared on streaming services in other countries (and are likely showing the streaming versions on the big screen). That means that not only is the quality of the projection worse, but viewers are also less interested in coming to theaters to see movies, because they can also find the films online.

On June 16, some Russian theaters began screening The Batman, the Russian premiere of which was canceled by Warner Bros. after the start of Russia’s full-scale invasion of Ukraine. In February, many Russian theaters supposedly received duplicated copies of the film on DCP, and the film was issued a distribution certificate. As a result, the film screenings were technically legal, though the country’s largest theaters still chose not to show the movie. The screenings were also held in accordance with the new settlement scheme that allows theaters to pay copyright holders through special ruble-denominated accounts.

But other new Hollywood films haven’t had that kind of licensing arrangement. The Batman made 33 million rubles ($519,000) in its first four weeks. In 2019, Joker, which was initially released in 1,572 theaters, made 1.3 billion rubles ($20.5 million).

According to Roman Isayev, The Batman’s earnings reiterate how much Russian audiences miss seeing major Hollywood films in theaters. At the same time, they indicate how bleak the situation is for theater owners. “Compared to past Hollywood releases, The Batman’s earnings [in Russia] were laughable. The new, unorthodox screening strategies might bring about 20 percent of the money they would have earned in a normal, standard release. In The Batman’s case, it was no more than 10 percent. Without wide-scale advertising campaigns and international release dates, there’s little hope for Russian distributors to make the kind of money they used to."