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Audio Firm Looks to Russia for Expansion : Music: Local maker of cassette duplicating equipment is tapping into emerging market. But problems, including piracy, stand in the way.

August 01, 1995|MATTHEW HELLER | SPECIAL TO THE TIMES

SUN VALLEY — Jim Williams has sold high-speed audiocassette duplicating machines to record companies around the world, from China to Canada.

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In the process, the president of Gauss / Electro Sound has helped build the Sun Valley-based company into one of the world's leading players in a very specialized and crucial part of the music business. His machines, which cost up to $125,000, are used to mass-produce copies of music cassettes, and they can turn out an entire cassette in as little as seven seconds.

These days, Williams, like many other U. S. businessmen, is eyeing the newly liberated Russian market for expansion. He believes Russia, where new music companies are springing up almost every week, is a bonanza waiting to happen.

"It's a big potential market for us," he said, pointing out that about 270 million music cassettes were sold there in 1994.

But like other Western businessmen, Williams still faces plenty of headaches in Russia. Setting up a meeting with a potential customer, for example, can take weeks of "cold calling" and the shadow of organized crime hangs over the music business. Most serious of all is the problem of piracy in a market virtually unchecked by regulatory controls.

"The biggest fear in this industry is piracy," said Williams. In Russia, "it's just running rampant."

According to some estimates, 70% to 80% of the recordings sold in Russia are bootleg copies. Although Boris Yeltsin's government has passed various laws to protect intellectual properties, enforcement of these laws is still spotty.

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Williams says most Russian audio-pirates use nothing more sophisticated than a cassette deck with a high-speed dubbing function--technological light-years away, in fact, from whatElectro Sound makes.

Gauss / Electro Sound is owned by Mark IV Industries Inc., a $1.7-billion conglomerate in Amherst, N.Y., whose main business is automotive and industrial products marketed under the brand names Dayco and Purolator. But Mark IV also has a sizable audio group. Bob Pabst, president of the audio group, says that Gauss / Electro Sound contributed less than 5% of the group's 1995 $185 million in sales.

Mark IV acquired Gauss in 1987 and Electro Sound three years later. While Electro Sound covers the middle end of the duplication market, starting around $26,000 for a system, its sister company caters to the high end--music companies willing to pay top dollar for equipment that can manufacture hundreds of cassettes per shift without sacrificing sound fidelity.

In a typical duplication system, a digital master recording is stored in a "loop bin," which can include up to one gigabyte of computer memory. The bin converts the data to analog format and transmits it to a blank tape on a high-speed, reel-to-reel recorder called a "slave." Several slaves can be connected to a single bin.

According to Williams, Gauss / Electro Sound's share of the world market is more than 50% and it counts such major record companies as PolyGram, EMI and Sony among its customers. About 85% of sales are exports and it is in emerging overseas markets like Russia that the company is looking for growth. "The niche we're in is very specialized," Williams explained. "We have to view it as a global market."

Since the fall of Communism, several Western music companies have established operations in Eastern Europe. "At least with respect to Europe, only Eastern Europe has any significant potential for growth," said Bob Farrow, president of Concept Design, a professional audio-equipment supplier in Graham, N.C. "Western Europe is saturated." But Russia remains relatively untapped.

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Since the former Soviet Union opened up the economy, Williams has sold equipment to three of the leading music-duplicating companies in Russia. The contrast between business conditions now and before "perestroika," he says, are like "night and day."

That market is particularly attractive because it offers a vast potential music audience crying out for new material. Some 90% of cassettes produced in Russia feature only local music, said Williams, who has a drawer full of such recordings in his office.

In addition, much of the existing duplication equipment for music companies in Russia is out of date, a relic of the Soviet days when the recording industry was monopolized by the government.

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Williams, who is an engineer by training, first went prospecting in Russia in the early 1980s when it was part of the Soviet Union. The results were not encouraging. "With the political situation, the doors were pretty much closed tS. companies," he recalled. "We tried our darndest to get through, but they would barely answer the knock at the door." Even six years ago, "everything was still stymied. No one could make any decisions, you couldn't meet anyone."

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