For a country of 16 million people with a GDP under $100 billion, Ecuador spends a lot of time in the US crosshairs for inadequate IP protection. The country has been cited in the US government's Special 301 IP report every year for the past decade, alongside perennials like Russia and China.

Pharmaceutical access has been the sharpest point of conflict with the US, most recently due to Ecuador’s strong stance on compulsory licensing of medicines. But Ecuador’s pirate disc markets also appear regularly in USTR and industry reports. As the copyright industry group IIPA put it in its 2013 Special 301 submission, “The level of piracy in Ecuador worsened in 2012, and pirate music products are being massively sold in shopping malls without any control from police or local authorities.” The story hasn’t changed much since 2003, when the IIPA described “dramatic decreases in IPR enforcement.”

No one expects Ecuador to wage war on the pirate CD or DVD trade. As long as multinationals set prices for CDs, DVDs, and software at US and European levels, legal markets will be small and pirate markets large. In a country where the informal sector contributes over a third of GDP, street enforcement will be costly and unpopular.

But the US does expect the Ecuadorean government to buy into the premises of the US IP agenda by treating weak legal markets as an enforcement problem rather than a pricing problem—that is, Ecuador’s problem, not Hollywood’s. This produces a kabuki aspect to enforcement efforts in Ecuador (and in many middle- and low-income countries, according to this American Assembly piracy report), marked by high-profile but ineffective police campaigns, harsh but rarely applied penalties, and widespread, low-level graft as police and vendors negotiate the terms of day-to-day business.

The question for Ecuador and for many other poor countries, then, is how to break the relationship between poverty, piracy, and high prices. And on this front, Ecuadoreans have gotten creative. Since 2010, Ecuador has experimented with licensing models for DVDs that incorporate, rather than reject, the informal sector. Street vendors, local rightsholders, and the government have begun to work together to address the problems of affordable, legal access to media.

The film boom

The backdrop to these developments is the Ecuadorean government’s efforts to build a domestic film industry. As in other Latin American countries, Ecuador’s film market is tiny and dominated by Hollywood. Throughout the 1990s, only five domestic feature films were produced.

The Ecuadorean film boom began with a small community of breakout filmmakers in the early 2000s—Sebastián Cordero, Camilo Luzuriaga, and Tania Hermida—who began to find success in international festivals. Declining production costs were major enablers of this new work, driven by the adoption of Digital Video, and later, DSLR-based cameras. Víctor Arregui’s well-received Fuera de juego, for example, was recorded with a MiniDV camera on a budget of $4,000.

Then came the establishment of the National Film Council in 2007, which made production grants and co-production arrangements available to local filmmakers for the first time. These financial instruments jumpstarted a wave of new feature and documentary production. Between 2007 and 2012, over 150 films were produced (or co-produced) in Ecuador.

But production doesn’t mean that the movies get shown. Weak distribution is a chronic problem for the domestic industry; at last count, Ecuador had only 225 movie screens, which show almost exclusively Hollywood hits. Even with the much lower costs of Ecuadorean filmmaking, the local film community understands that the production boom needs a corresponding exhibition boom if it is to build audiences.

Here, too, the government has stepped into create markets. In June 2013, the National Assembly established domestic content quotas of 40 percent for the major television networks. As in other countries that have adopted quotas, the goal is not just to strengthen exhibition but also to shift investment from foreign licensing toward domestic production. The downside is that such policies can quickly become constraints. What Ecuadoreans want to watch and what they can produce to fill quota schedules may not always coincide.

But broadcasting is no longer the only distribution channel in Ecuador. Internet penetration is growing rapidly (the World Bank put the number at 35 percent in 2012), but for most Ecuadoreans, high-bandwidth connections are still tomorrow’s technology. Today, the more interesting experiment is the regularization and legalization of the ‘pirate’ vendor networks in the major cities—the other major distribution channel for audio-visual goods.

Here the major innovations are social and political rather than technological. Beginning in 2010, vendor associations began to license domestic movies directly from producers. Many have gone legal with respect to local content. Some have gone further to become investors in film production. These arrangements are still very much a work in progress and have not yet made inroads with the big foreign studios—the Sonys, Paramounts, and Disneys that dominate both legal and illegal markets in Ecuador.


Omaira Moscoso, middle, with the producer Sin otoño, sin primavera in her store.

The new deal

We interviewed Santiago Cevallos, chief director of copyright from the Ecuadorean Institute of Intellectual Property (IEPI), and Omaira Moscoso, founder of the Asociación de Comerciantes de Productos Audiovisuales (ASECOPAC), to learn more about the effort. Moscoso told us how the relationship between vendors and the police used to work in Guayaquil, Ecuador’s largest city:

It was pure show. At the end of the year, all the shops would be raided. But the day before [the police] would go to the owners and say: if you give me five thousand dollars, you can take away your CDs and DVDs beforehand. Trucks would arrive during the night, pack up the stock, and leave only old discs and boxes. The next day the police would show up with the mayors, TV cameras, and officials of the Ecuadorean Institute of Intellectual Property (all the money was distributed amongst them). They’d put out the old discs on the street, then they’d bring a tractor to roll over them.
As the National Film Council ramped up in 2010, the Correa government (and new IEPI leadership) began a crackdown on the vendor sector.

"In 2010, we initiated police actions in the two main cities of Ecuador: Quito and Guayaquil," Cevallos said. "The idea was to break with the status quo in which pirate merchants had acquired a patina of legality through recognition by the municipal tax authorities in these cities. Informal sales, i.e., the salesman with blankets on the street, aren’t the problem. The problem is formal sales in markets and shopping centers because their principal and only activity is the commercialization of unauthorized reproductions of works."

This legalization of the shops but not the trade was longstanding. Shops had municipal permits and paid taxes; many of them also sold legal discs. Moscoso was one of these ‘formal’ vendors. After spending 20 years as a filmmaker and television producer, she opened a film shop in 2008. "I realized that there was no place in town where you could find good movies, the movies that don't come from Hollywood," she said.

That was the start of El Coleccionista, one of an estimated 60,000 storefronts in Ecuador that sell copied movies. Soon, El Coleccionista became a place where intellectuals from Guayaquil sought films by Godard, Bresson, Jodorowski, and the like, which Moscoso copied from her personal collection.

"El Coleccionista made ​me realize that, as a state, we were really doing things the wrong way because we were denying people access to culture," she said.

As IEPI began to close shops in 2010, Moscoso started to organize ASECOPAC—an association of street vendors selling audiovisual goods—in an attempt to legalize the market.

The early days were not easy. One day in 2011, 50 police officers showed up at her store to confiscate pirated DVDs. "They wanted to give me a damn lesson," she said. After the raid, she and her husband, David Grijalva, along with other merchants began to develop draft legislation for the "legalization and regulation of the audiovisual market in Ecuador."

"We met with roughly 1,000 traders," she said. "They were already fed up with this situation. Most were saying, 'We want this to be over. We have no problem in paying intellectual property rights, but tell us: How do we pay? Where do we have to go to pay?' The IEPI could not answer these questions. This led me to develop this project."

Moscoso and her partners decided to take the project directly to the president of Ecuador, Rafael Correa.

"We took 3,000 merchants to Quito," she recalled. "We mobilized in buses to deliver the project to the president, because we knew that no midrange official was going to solve anything. And our president is so smart, and we love him, so we went to him and delivered the proposal. When he looked at the draft, he loved the idea. The next day, when we returned to Guayaquil, he sent a letter to my house, in which he indicated that he had given orders to the IEPI and the Ministry of Culture to listen to us."

The plan gained adherents among filmmakers, beginning with Moscoso’s friend, the well-known director Camilo Luzuriaga. Luzuriaga agreed to distribute his movies through the network of shops. The initiative soon attracted other filmmakers and eventually another network of vendors, the Audio and Video Merchants Association (ASAVIP). There are now around 80 national titles licensed through these channels, including major recent films like Hermida’s En el nombre de la hija and Tito Jara’s A tus espaldas.

"As a producer,” Moscoso said, “I had always been aware of the need to respect intellectual property. But 99 percent of my colleagues in the business had no idea what the concept meant. Many of them said to me, 'But I'm not doing anything wrong, I have the bills for the CDs, I pay taxes, I pay the municipality—why are they doing this?' I realized that they didn’t know anything about copyright. None of the traders had opened their shop planning to steal anything from anyone. They were only trying to bring bread home for their families.”

After the intervention of President Correa, the IEPI adopted the licensing program. IEPI positioned itself as an intermediary between vendors, rightsholders, and—importantly—the collective rights management societies that the direct licensing agreements had begun to circumvent. By all accounts, this remains a work in progress.

According to Cevallos, the scheme faced many challenges, including a lack of knowledge of the copyright system and a lack of interest on the part of the traditional rights holder groups in supporting the initiative.

"I can say that the majority of Ecuadorean cinema distributed on DVD through these channels is authorized," he said. "But it has been very difficult to get international rights holders to authorize licenses. Despite that, we are now finalizing the first agreements for foreign audiovisual works and records. We hope to have the same results as with the national cinema."

Moscoso described one of the meetings between her vendors' group and the collective rights organizations. "I remember the first meeting where we were told that it would be terrible if the state gave legal status to our association, ASECOPAC, because we were pirates," she said. "If that was allowed, the next morning we would have an association of car thieves or robbers. They called us thieves."

So instead, the vendors went to producers. "We were very lucky. Because I had been a producer for so many years, most of the filmmakers were friends of mine, and they supported me," said Moscoso. "As they began to see that we were selling lots of films, others joined."

The main difference with respect to the conventional market for DVDs is, of course, prices. Vendors needed to sell copies much closer to the pirate prices in order to build a legal market. Many producers were willing to accept price cuts as long as they got better distribution and royalties. Moscoso laid out the business strategy:

We sell the DVDs for $3 and $5, and we pay a dollar to the filmmakers for each copy. We pay them more than Sony and MGM. We pay more than any major film company; Woody Allen makes about 10 to 20 cents. What’s the secret? We do not have what they call “industrial costs.” The film companies eat 90 percent of the cost of the film. For the marketing, for the mansions, for being at the red carpet. We do not spend money on that. We speak directly with the filmmakers, producers, and directors.

Of course we have marketing, but that’s because we are the largest distribution chain in this country. Our distribution chain is bigger than Coca Cola’s. For every hundred of us, there is one local distributor of Coca Cola.
Ultimately, IEPI, like the vendors, sees the program as a way out of the enforcement dilemma. "Ecuadorean citizens consume illegal products for no reasons other than price," said Cevallos. "Often [the vendors] are the only means of access to these kinds of content. We’re also giving people engaged in the commercial sale of unauthorized products an opportunity to convert to a completely legal model. We’re doing so because they are, without doubt, the biggest distribution channel in the country."

The IEPI's Chief of Copyright, Santiago Cevallos, is sitting next to Moscoso in the middle.
Asecopac Ecuador
Expansion

Moscoso is optimistic about the agreement. "Now there are no illegal copies of domestic products available," she said. "We have legalized over 80 titles in two years. I think that in Latin America, Ecuador is the country with the most original films paying royalties, and we are in the process of legalizing international films."

Ecuador isn’t the first country to have tried direct, low-cost licensing to vendors. Bolivian vendors in La Paz attempted a similar arrangement in 2006. That agreement fell apart as collective rights management organizations pushed back against legalized "piracy" and as vendors outside the program undercut the new pricing.

But the Ecuador experiment has some advantages Bolivia didn’t, beginning with a much larger domestic film culture among both producers and consumers. Ecuador is an "absolutely cinephilic" country, Moscoso said. “The first popular business in a neighborhood used to be a general store, followed by a pharmacy and a bakery. Now, the general store comes first, but the second store sells movies.”

The combination of wider distribution and lower pricing has also begun to influence practices of financing. "Right now, traders are becoming investors," Moscoso said. "Large retailers are becoming producers, distributors are making movies, and thus they don’t depend only on the state to produce films. Here, making a movie used to be like climbing the Everest in flip-flops and a T-shirt. You had to be lucky if you wanted to show your movie in the cinema. You had to have contacts or come from a family with a good social position. If you didn’t have any of that, you’d be happy if you managed to get your film shown once at a cultural center. But now you have the option to sell it in markets and shopping centers, where it will continue to sell."

Moscoso is currently planning the next stages of the initiative, which will include direct licensing of films from Colombia and Argentina and the sale of inexpensive books. "We also distribute free software, and we are trying to enter the video game market with some local developers who are developing games for PlayStation," she said.

She continued:

We stick to the principle that the discs have to be accessible. Our DVDs were initially priced at $6 dollars per unit, then dropped to $5. Soon you will be able to buy them for $3. Why the lower prices? Because of the number of DVDs being sold now. Before, maybe you only sold 8,000 DVDs of a major title in a year. Now, you can sell 45,000 units of a single title in thirty days. Here in Ecuador there are two days each week when traders go to the market and buy their discs. In Guayaquil alone, five million copies can be sold in that period. Our strategy is to sell a lot of discs at discount prices.
It’s easy to imagine other Latin American filmmakers signing up since many of them face similar problems with weak distribution. It’s much harder to imagine the Hollywood studios doing so. They may not like the old status quo of token enforcement and high piracy, but a successful challenge to their global pricing power could be much costlier.

In the end, Ecuador's vendors and its government are trying to do something that very few developing countries have been able to do: fix the anemic market for media goods. The goal, according to Moscoso, is "a market with affordable costs for people. Access is not just an idea. Access means that people can buy it."