Focus: CD pirates sweep in from the steppes

THE COLONEL, a professor of geopolitics in a Russian military college, was savouring a victory. Before him lay several thick stacks of freshly printed documents covering English history from the druids to mad King George III. Precisely the sort of material he was seeking for his students, Moscow's future soldiers.

Better still, he explained, this was not the work of the authors of Soviet textbooks, but excerpts from the Encyclopaedia Britannica. And he had acquired it for less than the price of a pint of bitter in an English pub.

The colonel delved among his shelves, eager to show off his secret to a foreigner, and emerged brandishing a box of CDs bearing the encyclopaedia's name. To an untrained eye, the box looked genuine, complete with the warning against unauthorised duplication. Nothing about the product betrayed the truth: that it was the work of pirates sold on the Russian black market for 50 roubles - pounds 1.30.

Had he not bought an illegal version, the colonel explained, his students would have had to do without this particular history lesson, remaining in ignorance of the origins of Stonehenge or of King George's conviction that he was a poached egg. Neither the colonel nor his college could have afforded the legal product. According to prices quoted on the Internet this week, an Encyclopaedia Britannica CD set costs some pounds 60, not far off the colonel's monthly salary. "I had no choice," he said, "it was pirate or nothing."

This case is, overwhelmingly, the rule rather than the exception in much of the world. CD manufacturers say piracy is running amok, and the results are filtering back into western markets, including Britain. So numerous are pirated CDs in Russia that finding legally produced stocks - be they music or computer programs - can be difficult. Yet you can buy pirated CDs of John Lennon, filched from EMI Records, or the Encarta World Atlas for a tenth of the usual western retail price in almost every Moscow market place, and metro underpass.

The latest research commissioned by the software industry's two leading trade associations - the Business Software Alliance (BSA) and the Software & Information Industry Association (SIIA) - paints the picture in stark colours. It says that some $11bn (pounds 7bn) in revenue was lost to the industry worldwide in 1998 due to piracy (although it is hard to see how you accurately measure this as uncertainty abounds over how much legitimate produce would be sold in low-income economies if the pirates were closed down).

The same report for the two trade bodies - which represent big hitters like Adobe, Attachmate, Autodesk, Corel, Lotus Development, Macromedia, Microsoft, Novell, Symantec, Visio and more - found that more than a third of software installed in businesses around the world during the past year was, in effect, stolen.

And now a new villain is emerging, a new piracy blackspot to add to the global list of offenders traditionally led by Hong Kong, Taiwan and China. Until a year or two ago, when it succumbed to international pressure and clamped down, Bulgaria was the pariah of eastern Europe, its biggest producer of pirate CDs. Their product was so good that some Chinese pirates printed "Made in Bulgaria" on their own shoddier work.

But now the odds are that the colonel's encyclopaedia came from Ukraine. Western manufacturers say that over the past two years the impoverished republic has begun churning out tens of millions of CDs, becoming Europe's fastest growing pirate industry. Some of the same illicit operations, chased out of Bulgaria, have set up shop there.

The problem with CD piracy is that it has become relatively inexpensive, and hugely profitable. Gone are the days when it was a complex surgical operation, requiring white hats, dust covers and a doctorate in computer science. Pirates can acquire optical disc "replication" machines for $500,000 - less, if secondhand - on which they can comfortably knock out some five million CDs a year with a couple of staff in a room the size of a garage.

Given the huge returns, and the likelihood that the only form of tax the pirates usually pay is bribes to officials, the outlay is small. And legitimate manufacturers admit that, though the after-sales service is non-existent (try taking back a duff CD to a Ukrainian market stall) and the artwork can be shoddy, the quality is high. These are digital clones rather than copies.

According to the International Federation of the Phonographic Industry ( IFPI), which represents 1,400 record producers and distributors worldwide, this helps explain why piracy is rapidly becoming a major illegal trade, heavily penetrated by organised crime.

It has become the domain of ruthless professional criminals. The federation, which has headquarters in London's Regent Street, has first-hand experience of this in the field. It closed an office in China because of death threats against its staff, and had representatives beaten up in Taiwan. "These are very unsavoury people," said its chairman, Jay Berman.

The IFPI has been at the fore of the battle to stop pirates ripping off the works and pocketing the profits of others, tirelessly lobbying the US State Department, the European Union and other international organisations to pressure the offending nations to step into line. Two years ago it set up a team of 20 investigators under Iain Grant, a Scot who used to be a chief superintendent in charge of narcotics investigation in the Hong Kong police. "These are not `mom and pop' operators"," he says. "These are organised groups, who know that there are billions of dollars at stake."

Last week Ukraine found itself in the IFPI's crosshairs. On the eve of Friday's EU-Ukraine summit in Kiev, the IFPI bombarded newsrooms with the announcement that it has raised the issue with the EU trade commissioner, Hans Van den Broek. It said Ukraine has an estimated annual production capacity of 70 million optical discs (including CD-Roms and video CDs), more than twice the estimated legitimate demand in the whole of central and eastern Europe. Ninety five per cent of all international repertoire recorded there is, it claimed, pirated.

Worse - and this strikes to the core of the music and software industries' concerns - millions of Ukrainian-made pirate CDs are being illicitly exported. Robbie Williams, Roxette, Cher, Elton John, George Michael and Pavarotti are among those whose filched works have been found in containers heading for markets in the EU and eastern Europe.

At their peak, the Bulgarian pirates were sending 1 million CDs every month to Russia alone; IFPI officials believe that piracy in Ukraine is approaching that scale, and will get much bigger if nothing is done. "It's killing our marketplace elsewhere"," said Mr Berman, "Fundamentally, this is an export business."

Laws are generally clearer and better enforced in western Europe and the US but the pirates are also penetrating these markets. Through its covert export network, pirated Ukrainian product is going to Italy, Poland, Finland and beyond. "Enough product gets into car boot sales and markets in Britain to make us concerned"," said Mr Grant, IFPI's head of enforcement.

So what is to be done? When it launched its latest assault in Ukraine, the IFPI called for copyright protection, tougher penalties, greater police powers, and CD plant licensing regulations. The software and entertainment industry can - and surely will - go on churning out vague statistics about billions of dollars in lost revenues and thousands of lost jobs. It can help police forces to net the occasional stash of pirate CDs, fund training, and offer advice. But the key task if piracy is to be contained (for it will never be wiped out) is to persuade governments that it is in their own interests to act - for example, by linking it to access to international loans, or to entry to the EU or the World Trade Organisation. That's how the Bulgarians were persuaded to clean up their act.

Ukraine, which is keen to develop closer ties with the West, is now feeling the heat. The pirates of eastern Europe may soon be on the move again.

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