. Last Updated: 07/27/2016

Soyuz Grows From Pirate to Cop

Seven years ago, they were a bunch of unemployed DJs making unauthorized copies of audio cassettes and selling them from a kiosk. Today, according to experts and competitors, the Soyuz Group is the domestic market's leader in audio and video production.

"Just take a look at any native top 20 list and you'll find five to six artists under contract with Soyuz," said Vladimir Prozprovsky, acting president of the Russian Record Association. "It is unlikely that anyone can compete today with this firm. It is absolutely obvious that in the area of pop they are the leader."

Every month, Soyuz Group churns out nearly 10 Russian audio products, the best of which have production runs of several hundreds of thousands of compact discs and cassettes. In addition, the studio buys the rights to five to seven domestic and foreign films each month and its management boasts of one of the most developed distribution networks in Russia.

Soyuz may have gone legit, but it is still a player in a dangerous field: Last week the director of ZeKo records, one of Soyuz' main competitors on the audio market, was shot at point-blank range by a visitor to his office. He died on the spot.

Artyom Troitsky, a prominent music critic and editor of the Russian edition of Playboy magazine, told The Moscow Times last week that ZeKo and Soyuz have been vying for a deal with the Warner Brothers label from the United States. He said the two companies are the main producers of cassettes on the Russian market, and that most smaller companies go through those two majors for cassette production.

In the early days, Soyuz was a group of former disc jockeys who spent their time making unauthorized recordings of Western and Soviet music. Business took off, and the founders soon found themselves with a small underground shop pirating new foreign records, with their cassettes selling at kiosks located throughout Moscow.

Emerging on the top of the heap from among the ranks of early audio pirates was, it seems, partially a stroke of luck.

One top Soyuz manager, who asked not to be identified, described a discussion he had in his early days at Soyuz with an American from BMG studios. "When [the American] learned of the firm's structure he held his head," he said.

The U.S. industry insider took the time to explain that the majority of the world's large recording companies consist of independent specialized subdivisions -- some do the actual recordings and work with the artists, others distribute audio products, and still others work with video.

Based on that model, Soyuz undertook a division of labor, which quickly had an effect on business. The shop began to supply its network of financially independent sales points with cassettes, and distribution increased. In 1994, the company invested more than $1 million into opening its own factory in Moscow to assemble audio cassettes.

The organizational structure set up several years ago is still, for the most part, in place today. The holding company Soyuz Group consists of more than 50 companies, together employing about 700 people. Those companies include the record factory -- with an output capacity of 800,000 audio cassettes a month -- the companies Soyuz-Audio and Soyuz-Video, about 10 stores in Moscow, and several dozen in the provinces. The company's compact disks are produced abroad, in Stockholm, Sweden.

Part of the company's diversification includes specialized internal divisions; Soyuz has six separate studios, for example, that focus on specific musical directions. Among them, according to Alyona Mikhailova, head of the Soyuz Group's repertoire department, are Electric Records, which handles electronic music, and Master Sound, which produces Russian cabaret music and blatnaya music, a styleoften popular with the mafiosi crowd.

The company's tremendous growth has encouraged the holding's management to put an end to its initial piracy, said the Soyuz manager.

"Two years ago, after we had paid serious money for the rights [to an artist's album] and then the album was stolen, we realized that in pirating someone's product, we are actually stealing from our colleagues," the manager said. According to sources in the industry, artists sometimes asks for royalties of up to $200,000 per album.

"Almost immediately we announced that we were ceasing our piracy," the manager said. A short time later, Soyuz Video also ceased its production and sales of pirated videos, he said.

However, the company's former black-market colleagues are one of the studio's biggest headaches. According to Mikhailova, Soyuz, ZeKo, Polygram and other companies working in the legitimate market are cooperating with police to crack down at "Gorbushka," a popular music fair in Moscow's Bagrationovskaya neighborhood, and other popular black market sites where pirated music is sold.

The Soyuz manager was skeptical about the pirates' chief argument -- that they supply music to customers who are too poor to pay for expensive original cassettes.

"They don't think about the fact that in reality this leads to less money for the musicians, less to put into the actual music, [and so] they do a bad job putting out an album," he said. "In the final analysis, the people get the quality of music they pay for."

However, Soyuz is relying on more than just the power of persuasion and police efforts to root out pirates. One method the company uses is to organize intense advertising campaigns around the release of new albums. Within a short period, sometimes in as little as six weeks, the company distributes an overwhelming part of its inventory. When the pirates are finally able to react, demand has practically disappeared, and the company has already turned to its next project.

But sometimes the very chaos of the Russian market can work in the company's favor, said Natalya Maksimenko, a general director of Soyuz Video.

When entering negotiations with Western partners for rights to new films on the Russian market, Maksimenko said, the company's representative will carry along a pirated copy of the film, purchased beforehand in a pirate kiosk or display. If the Western company refuses to sell the rights to the film at Soyuz' asking price, she said, the representative pulls out the pirated copy to demonstrate that the film has already leaked onto the Russian market before its official release, considerably weakening the suppliers' position.

With Soyuz already occupying a comfortable spot as an industry leader, its primary efforts are now spent in setting up and expanding its distribution network.

"We have already started building showrooms" which will open within the month, said the Soyuz manager. The company's plans include opening shops in major cities throughout Russia. Soyuz has already opened one store on the Arbat, and a second, self-service store will soon open on the same street, in a space previously occupied by Benneton. The company currently has nearly 150 record-outlet projects in varying degrees of completion, the Soyuz manager said.

Soyuz' competitors are loath to offer negative assessments of the company; the large Russian record companies cooperate closely. Asya Kalysina, a press secretary for Polygram, credits Soyuz with the establishment of a well-developed network of dealers, which Polygram uses to distribute its own records as well.

Soyuz representatives said the company does not intend to limit its activities to the music and video businesses. Mikhailova lists sales of blank video tapes among the company's more important directions; Soyuz is already a dealer of Sony, BASF and TDK tapes. Mikhailova said Soyuz plans to begin selling AGFA camera film, and that there are also plans in the works to introduce Soyuz batteries -- as well as Soyuz Vodka, which will feature pictures of Russian performers on each bottle.