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Creativity Finds A Way: Russia's Movie Theater Survives Hollywood Boycott Thanks To Parallel Import

Moscow Cinema Oktyabr© Svetlov Artem, used under Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic

On February 24, 2022, the Russian army invaded Ukraine, pushing the long-brewing conflict into a new horrifying stage and introducing the world to what is already the bloodiest conflict in Europe since WWII. The consequences of Russia’s aggression have echoed much farther than the bombing raids on Ukrainian cities, with Russia being swiftly hit with a series of systematic sanctions from the United States and Ukraine’s European allies. The sanctions have targeted the most strategic areas of Russia’s economy, such as its oil, gas exports, and high-tech imports. Furthermore, the aggression has caused many western companies doing business with Russia to rethink their commitments, with some severing their ties with the country altogether. And while abandoning their regional business has proven difficult for many companies (not in the least because of the hurdles caused by the Russian government), this has nevertheless substantially changed Russian business. The sanctions’ broad coverage, as well as the outflow of the Western businesses and investors, has had a profound effect on the Russian economy, including the sectors not directly affiliated with the war effort, such as the arts and entertainment industries.

While the western world has largely produced a unified effort in refuting Russian warmongering and supporting Ukraine, the reaction from the rest of the world has been sporadic and rather meek. Despite the overwhelming declaratory condemnation of the Russian aggression by the majority of nations, certain key players such as China and India have either refused to outright denounce Russia or remained demonstratively neutral while continuing to do business with Russian companies. A recent study has shown that leveraging Russian support in Asia has allowed Russia to largely bypass the western sanctions and establish an unprecedented level of importing strategic resources and technology, circumventing the sanctions that aimed to block this.

Parallel Import: Russia’s Lifeline To Foreign Goods

Many imported goods arrive in Russia via parallel import, which is a method of procuring desired goods where certain products are bought in one country by a “middle-man” company and are then sold to a different country that could not make the purchase directly. For instance, US companies are prohibited from entering into trade agreements directly with Russian companies concerning certain products and technology. However, Russia continues to import large quantities of tech products produced by American companies (e.g. microchips) through Chinese “middle-man” companies. Interestingly, in April 2022 the Russian Ministry of Industry and Trade issued an order delineating particular types of products permitted to be imported into the country without the corresponding patent-owner's consent, and to which the relevant patent infringement provisions from the Russian Civil Code did not apply. Accordingly, as part of its official response to the Western sanctions, parallel import involving a number of certain products “of strategic importance” has effectively been legitimized by the Russian executive branch. Notably, products produced by Disney, Marvel, DC Comics, and other brands were subsequently added to the list of products eligible for parallel import, although cinematic products (i.e. full feature theatrical releases) were not included.

One of the less obvious industries profoundly affected by the Russian aggression is the movie industry, which by early 2022 was still largely recovering from the Covid-19 pandemic woes. In the last year before the pandemic, 2019, Russia’s movie theater market earned nearly $1 billion, one of the fastest growing markets across Europe. The industry’s recovery post-pandemic was steadfast, showing record numbers in Europe by the end of 2021. Notably, about 70% of Russia’s box office consisted of Hollywood productions, with all ten highest grossing films of the year being imported from the United States.

Upon the descendance of Western sanctions by March 2022, all major Hollywood studios, including Disney, Warner Bros., Paramount, Sony Pictures, and Universal, announced pausing their theatrical releases in Russia, as well as withdrawing their productions from Russian streaming platforms. Nevertheless, Hollywood films have not completely disappeared from the Russian movie screens. While the US studios have stopped licensing their productions to the distributors associated with Russia, the country’s distributors have found several ways to bypass the restrictions and continue to run major Hollywood releases despite the ban. Most of such schemes are done through parallel importation and involve assistance from the aforementioned “middle-man” companies in neighboring allied countries.

With Russia claiming roughly a 5% share of the global box office, Hollywood studios’ decisions are unlikely to substantially disturb the global movie industry. On the other hand, the Russian movie theater industry, traditionally dominated by Hollywood releases, has suffered tremendously. By the industry’s own estimation, nearly half of Russian movie theaters closed permanently during 2022. To combat the rapid decline in attendance due to the lack of Hollywood productions on the big screen, movie theaters have begun to play US-made films without the copyright owners’ consent.

Russia’s President Issues Order Permitting Unilateral Performance Of Licensing Agreements

In May 2022, Russia’s President issued an order allowing Russian movie distribution chains with existing contracts with Hollywood studios to keep showing the films even after the US studio had unilaterally suspended the license. The Executive Order instructed the Russian distributors to deposit the Hollywood studios’ box office proceeds into a specially created ruble account in a Russian bank, with the copyright holders being able to withdraw the money—under the condition they obtain permission from Russia's Commission on Control of Foreign Investment first.

Russian Film Distributors Turn To Parallel Import For Pirated Hollywood Movies

Another issue arises with digital cinema packages (“DCP”). A DCP copy of a movie is a copy of sufficiently high quality to permit running on wide screens (i.e. in cinemas). To obtain DCP copies of newer releases, Russian distributors were forced to employ parallel importers and purchase the copies from its so-called allied nations acting as “middle-men”—primarily from Kazakhstan. Notably, despite intense lobbying by the movie industry, the Russian government held back in completely removing criminal and administrative liability for unauthorized running of copyright material. While some theater chains opted to risk liability rather than shut down and sold tickets to Hollywood productions outright, others employed trickery and offered US releases as a “free” bonus preview for purchasing a ticket to a legally licensed short feature or a documentary. After watching the “main show,” often an obscure and little-known short feature or documentary, moviegoers are then offered to stay for a “bonus” Hollywood full feature film. For instance, thanks to the “bonus feature scheme,” Russians enjoyed the big screen premiere of James Cameron’s Avatar: Way of Water (2022), purchasing tickets to a Russian short feature, with the nearly three-hour long Avatar sequel shown as a “free bonus preview” afterwards. The Russian government has remained willfully ignorant to the film distribution chains’ schemes, leaving the matter of survival to the industry itself.

Perhaps the most illustrative example of the impending crisis occurred when Warner Bros. pulled Batman (2022) from the Russian big screens last minute. Although, by that point some Russian theater chains had already acquired a DCP copy of the film, and about a third of the theaters decided to still run the film despite the copyright owners’ ban. Russia is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, which prescribes the same protection to be provided to foreign works of art that would be enjoyed by the domestic works under the country’s applicable law. Accordingly, Warner Bros. could potentially file suit against the violating distributors. However, the studios are presumably wary of having to sue in Russian court; furthermore, should the court even grant the judgment, it would prove virtually impossible to enforce with the US sanctions largely prohibiting American companies from receiving money from Russia.

Despite The Government’s Official Rhetoric, Russians Hope To Continue Enjoying Hollywood Box Office Hits

While the Russian government assures that Hollywood productions are non-essential and the domestic movie industry can adequately cover film demand, Russian moviegoers are still longing for the return of the big Hollywood productions. In 2022, despite some surprising domestic successes like the last Christmas’ box office hit Cheburashka (2023), five of the top ten grossing movies in Russia were still Hollywood productions. This is further evidenced when considering that even though the Russian audience was largely unable to see this summer’s Barbie (2023) on the big screens, fans have embraced the online trend associated with the film’s pink theme on social media. And while Hollywood studios have reportedly discovered the parallel import scheme employed to obtain DCP copies of their productions through Kazakhstan, some cinema chains still choose to run the film on the big screen.

Russia’s box office has recently risen back to its pre-pandemic levels and continues to grow. And while most experts agree that there is no end to the hostilities in sight (at least not with the current Russian leadership still in charge), the Russians are clearly not willing to sever their cultural ties with the West completely. Despite the major Hollywood studios’ clear public unwillingness to begin licensing their content in Russia, certain European and American distribution companies have reportedly resumed their negotiations with the Russian film distributors behind closed doors. This trend of foreign, particularly western, companies publicly denouncing Russia but privately continuing their business in the region can be traced across the entire economic spectrum, with only a relatively small minority of ventures leaving the country for good. Thus, until and unless the Russian movie theater industry becomes fully autonomous, or no “middle-man” partner company is willing to engage in business with Russia is left, Russian viewers will get to enjoy major Hollywood productions via parallel import of pirated copies and other shady practices.

*The views expressed in this article do not represent the views of Santa Clara University.


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