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Piracy Challenges US-Russia Diplomacy

Beth Knobel has been CBS News' Moscow bureau chief for the past seven years.
It's one of the thorniest issues in U.S.-Russian relations: piracy of movies, compact disks, computer software, and other American products.

In Russia, you can buy Hollywood blockbusters just a day or two after they're released in the United States. And you can purchase unlicensed computer software for a fraction of its retail price.

American officials have lobbied the Russians to take real steps to fight counterfeiting, even holding up trade talks over the problem. Russia is seeking American permission to join the World Trade Organization, but the talks have gotten stuck on three main issues: agriculture, banking, and piracy.

"We do see the Russian government, slowly but surely, really paying attention and addressing the issues," says Dominique Winther, spokesperson for the Coalition for Property Rights (CIPR), an industry group based in Moscow. "But, unfortunately, it's not as fast as everybody wishes it to be."

This issue doesn't just affect Russia. Pirates export counterfeit goods from Russia to Europe, America, and other countries, draining billions of dollars from American companies.

These companies include ones like Walt Disney, which will be premiering its new "Pirates of the Caribbean" sequel in Russia on Thursday. That's about the same time that the pirate copies of the pirate movie will hit the streets.

Moreover, the knockoffs coming from Russia are so sophisticated that it's hard to tell they're pirated. Many of the films have holograms and official-looking packages, just like the real thing.

Many of these are actually what Russians call "rag copies" — movies shot right off the screen in an American theater, and then put onto CDs. Sometimes on these recordings, you can actually see the heads of theatergoers as they walk in or out of the theater while the movie is being taped.

Yet there is a small but growing number of Russian businesses that do observe property rights, like Yanga, Russia's first legal on-line music seller, which will pay royalties to artists. It's teamed up with an American online music seller called The Orchard to offer Russians hundreds of thousands of songs by independent label. And they're sold at a price most Russians can afford — just 7.99 rubles, or about 30 cents, apiece.

"We're targeting the new Russian middle class" says Yanga's founder, Alexander Kuznetsov. "People are prepared to spend more to know that the music they're buying is legal."

Kuznetsov is hoping his company will reap financial benefits from taking on the pirates. Most Western record companies don't sell MP3 versions of their songs online in Russia because there have not been any sites until now that do pay royalties. If Yanga can convince these major labels to let the site sell their songs legally in Russia, the sales would total millions of dollars per year.

Still, plenty of Russians just want to buy on the cheap. And as long as there are buyers, the Russian government's crackdown on piracy will go only so far.

By Beth Knobel