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The Tide is Turning


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This paper looks at copyright, which is possibly one of the most controversial policy topics to have been talked about, lobbied and contested by various stakeholders for a very long time.

Some would say that the controversy already started at the very beginning of the birth of the world’s first copyright statute and it has never stopped since.

Skeptics on both sides of the debate would say that not much has really changed since the genesis of the controversy, as the debate has always come down to two things. The first is the tension between insiders benefiting from the prevailing copyright regime pushing back outsiders – in other words, the innovators who are barred from benefitting from the established status quo and are therefore demanding a change.

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The Tide is Turning

  1. 1. The tide isturning– now is the time to reform copyright for thedigital era
  2. 2. Index Lessons learned from the past 3 Why reform? 6 Those against reform 7 So what’s next? 9 References112  the tide is turning
  3. 3. Lessonslearned fromthe pastCopyright is possibly one of the most controversialpolicy topics to have been talked about, lobbied andcontested by various stakeholders for a very long time. “I’m scared, and so is my industry.Some would say that the controversy already started at Changing technology today isthe very beginning of the birth of the world’s firstcopyright statute and it has never stopped since. threatening to destroy the value ofSkeptics on both sides of the debate would say that our copyrights and the vitality of thenot much has really changed since the genesis of thecontroversy, as the debate has always come down to music industry. Our nemesis is hometwo things. The first is the tension between insiders taping.”benefiting from the prevailing copyright regime pushingback outsiders – in other words, the innovators who arebarred from benefitting from the established status quoand are therefore demanding a change.1 such as: the self-playing piano, FM radio, the recording“I’m scared, and so is my industry. Changing music industry – including gramophones and cassettetechnology today is threatening to destroy the value tapes – cable-TV providers and video cassetteof our copyrights and the vitality of the music recorders. Today, hardly anyone would call theseindustry. Our nemesis is home taping.”2 industries or technologies pirates.5The second part of the debate concerns the icons of In this very brief historical perspective, we can be surecopyright. These include the creators and the forgotten of at least two things.masses, such as the users3, typically being takenadvantage of, squeezed in and marginalized in the First, new technologies and innovations have beencopyright revision process when insiders push back on a key industry growth engine for the creative sector,new innovations by simultaneously expanding their as they have resulted in increased market reachcontrol in the new domain that embodies the innovation. and consumption opportunities, and introduced new types of creative products that all contribute toYounison – Artists, stand up for your rights: “Except for increased consumer spending.6the exploitation of online music [read digital] – which for Second, the tension between insiders andthe moment represents about 5 percent of the total outsiders has never been – as is typically portrayedamount of revenue for collecting societies (and for by insiders – about an apocalyptic industryauthors) throughout the EU – the [new] directive collapse, loss of creativity or about intrinsic pirate[Collective Rights Management Directive] ignores all qualities of new generations of consumers thatour demands and ensures that in the digital era, the must be controlled at all costs.7 In fact, the tensionarchaic and opaque redistributions systems are has ultimately been about managing firm level risksinstitutionalized”4 associated with shifts in the value chain and necessary transformation of business modelsOf course outsiders, today also labeled as “pirates,” brought about by the introduction of newhave changed over time and have turned into insiders technology and innovation.83 the tide is turning
  4. 4. “…economists have long had concerns that copyright acknowledged by Niccolò Machiavelli in 1532, who inhas a moral hazard effect on incumbent firms, including his book The Prince stated:those in the creative industries, by encouraging them torely on enforcement of the law rather than adopt new “...there is nothing more difficult to execute, nor moretechnologies and business models to deal with new dubious of success, nor more dangerous to administertechnologies.”9 than to introduce a new system of things, for he who introduces it has all those who profit from the oldThis problem of the “moral hazard,” in other words, system as his enemies.”10insiders resisting innovations, was already observed and the tide is turning  4
  5. 5. “Now the tide is turning. For many politicians, property rights for media moguls are taking second place to attempts to boost growth by making life easier for technology companies.”5 the tide is turning
  6. 6. Why reform?Over the last two decades, there has been verysignificant pressure to strengthen copyright laws in thedigital environment by providing cheaper enforcement “According to a recent study, themechanisms and more severe penalties for EU could gain 4 percent GDP byinfringement. However, this enforcement-only-focusedapproach failed to recognize or to adequately stimulating the fast development ofdistinguish that file-sharing is a symptom of a problem. the digital single market by 2020.”Instead, the root cause of the problem is the inadequateavailability [supply] of lawful, timely, affordable, andwide-ranging choices of digital-content offerings, whichis fundamentally a market-supply failure.11 the PM said, because of the risk that the current“Now the tide is turning. For many politicians, property intellectual property framework might not be sufficientlyrights for media moguls are taking second place to well designed to promote innovation and growth in theattempts to boost growth by making life easier for UK economy. In the five months we have had totechnology companies.”12 compile the review, we have sought never to lose sight of David Cameron’s “exam question.” Could it be trueAt first glance, the quote from The Economist above that laws designed more than three centuries ago withseems quite controversial, but is it? What it really says is: the express purpose of creating economic incentives for innovation by protecting creators’ rights are today Insiders’ interest in protecting the prevailing system obstructing innovation and economic growth? The and relying on more enforcement to protect the short answer is: yes.”13 status quo is no longer the No.1 priority. Put simply, the enforcement-only-focused approach is out of More broadly, there is a growing acceptance among fashion and even more politically toxic (for example, policy makers that a digital copyright reform is a think ACTA, SOPA/PIPA). necessity, not an option.14 The socioeconomic benefits The No.1 priority now is to boost growth by making associated with increased digitization of industries, it easier for outsiders, such as innovators, to do including creative sectors such as economic growth, what new technology has always done best for all increased competitiveness and job creation, are too industries, including the creative industry – namely, great to forgo. In addition, in the current economic inject growth. climate, the absence of growth also comes with social and political imperatives.This new focus on growth and not on a singularstakeholder interest is the big change in the latest “The cost of non-digital Europe is significant:copyright-reform debate. This newly gained focus is according to a recent study, the EU could gain 4especially well captured in the Hargreaves Report from percent GDP by stimulating the fast development of2011, which states: “When the (UK) prime minister the digital single market by 2020. This corresponds to(David Cameron) commissioned this review in a gain of almost EUR 500 billion and means that theNovember 2010, he did so in terms which some digital single market alone could have an impact similarconsidered provocative. The review was needed, to the 1992 internal market program.”15 the tide is turning  6
  7. 7. Those againstreformThose who resist changing the status quo and, always have to contract with an intermediary orconsequently, digital upgrades of copyright to facilitate distributor in order to market their work, and itthe adoption of new technologies and business is the terms of the contract between them thatinnovations tend to resort to the following arguments: determine the eventual financial reward to the author... Research on artists’ total earnings including royalties the threat to creativity shows that only a small minority earns an amount the exploitation of creators comparable to national earnings in other occupations that digitization goes against culture. and only “superstars” make huge amounts. Copyright produces limited economic rewards to the “ordinary”Arguments related to technological advancements that professional creator.”18threaten creativity have a long history. The advent of themusic recording industry threat in 1906 is a good “Copyright should be owned by creators notexample. corporations… It would be good to have music-business people rather than financiers owning and running music“…. gramophones (today’s CD and DVD players), companies again. It would be even better to have artistsself-playing pianos and talking machines. The owning their work and entering into partner relationshipstechnologies threaten to negate the value of sheet with service-providing major and independent recordmusic and the future of creativity; Composer John companies with all the finance and expertise an artistPhillip Sousa to the US Congress: “…these machines needs to develop their own business.”19are going to ruin the artistic development of music…the vocal chord will be eliminated by process of This is not to say that creativity should not beevolution, as was the tail of a man when he came from remunerated – on the contrary, it absolutely must. Butthe ape…”16 contrary to insiders’ depiction of the remuneration issue, academic research shows that rewardingThe risk of new technology unfairly exploiting creators creators is much more a contractual arrangement issueis constructed around creators’ right to fair than a copyright issue. In addition, a digital-copyrightremuneration. Insiders’ call for this argument fails to reform is not at all about weakening creators’ rights – inrecognize the simple fact that most commercial other words, weakening the copyright standard – and itarrangements today regulate creators’ rewards has even less to do with contractual or employmentcontractually. That is, the relation between creators and arrangements.the economic rights holders (whose business it is tocommercially maximize the creative endeavor) is Digitization is against culture. The claim that digitizationregulated in a contract or an employment agreement is a zero sum game is a construction.20 One cannotand not by copyright – the latter establishes creators’ simply conclude that digitization of creative sectorsright to be remunerated, but the actual remuneration is is decreasing creators’ incomes, industry revenuesnegotiated outside the copyright statute.17 or destroys jobs. In a longitudinal study analyzing the impact of digitization on the Norwegian music“Copyright law only stipulates the copyright standard industry between 1999 and 2009, the report authorsand the rights that protect authors. But authors almost concluded that:217 the tide is turning
  8. 8. creation (28 percent more artists) and increased artists’ incomes (up 66 percent). We can also identify strong“Per-capita inflation-adjusted annual positive effects of digitization for other companies outside the music industry, such as The Economist22,artist income had increased by Hulu23 and Amazon24 . However, it should be said that66% digitization is not a one-way street that is either positive ” or negative. It is rather about how companies deal with digital transformation. Finally, on a more general note, an OECD review of the impact of technology on jobs found that: “… technological progress has been accompanied not only by higher output and productivity but also by total annual industry revenues grew from higher overall employment.”25 NOK 1.4 billion (EUR 190 million) to NOK 1.9 billion (EUR 255 million), which is a rise of 36 percent Each of the arguments above has been around for the number of artists increased by 28 percent decades, some of them for a century. Old habits are per-capita inflation-adjusted annual artist income truly hard to break. But, as indicated above, the tide has had increased by 66 percent. finally turned and the time has come to learn from the past – to avoid making the same mistakes all over againWe can see that the impact of digitization has not only and escaping manufactured facts. The time is ripe fordelivered industry growth but also resulted in job more facts-based copyright reforms. the tide is turning  8
  9. 9. So what’s next? Share of digital revenues of total sector revenues 2001 – Europe 50% 45% 40% 35% 30% 25% 20% 15% 15% 10%A vital link exists between copyright and the degree of lawful digital content on the increased uptake 5% 2% 1%availability of lawful digital content.26 The degree to of digital public services constitutes a new fundamental 0% 0%which copyright exhibits the capacity to stimulate the consideration thatSubscription TV Commercial TV Home video Cinema puts copyright’s ability to stimulateavailability of legal (licensed and exempt) digital- digital transformation29 into a new perspective.content services is important for many reasons. Displacing illegal access with legal digital services presupposes the availability of a legal digital alternative. In addition, the growth of legal services Digital readiness e-skills, e-awareness, ICT equipment drives revenues, profits and job creation. Consumer benefits from digital services, such as time, place, device shifting and personalization are Digital infrastructure Digital content services in high demand and valued by a continuously Penetration, coverage, bandwidth harmonization, large markets, innovation growing number of consumers.27 Conventional distribution methods in creative industries are increasingly falling behind average business norms and consumer expectations in a Use of digital services number of customer dimensions: e-government, e-commerce, ERP, e-health, e-learning ›› timeliness, due to windowing ›› availability, 24/7: think physical distribution, such as the cinema Economic impact ›› mass-personalization: appointment-based viewing, such as linear TV and fixed dates/times, Figure 1: Factors influencing the economic impact of digitizations and Source: Copenhagen Economics Stockholm, January 2012 ›› limits of physical point of service delivery: number of points, location of points and physical limitations (screens, seats, shelf space) such as physical locations of DVD stores and cinemas, resulting in limited consumption opportunities, exclusion and higher consumer transaction costs. Public-interest synergistic effect (see figure 1):the availability of lawful digital-content servicesincentivizes a vast share of the consumer market toadopt higher broadband speed services28 on whichother essential digital public services (e-work,e-education, e-health and e-government) can bedelivered at low or no incremental distribution cost. Inother words, this catalytic effect of the availability of9 the tide is turning
  10. 10. The degree of availability of lawful digital content Share of digital revenues of totalservices is also a measure of the degree of the digital sector revenues 2001 – Europetransformation of creative sectors. An evidence-based 50%approach to measure the degree of digital transition in 45%creative industries – and therefore the prevailing 40%copyright regime’s capacity to stimulate digitization – is 35%to relate the share of digital revenues to total (digital 30%and non-digital) revenues, thereby avoiding the pitfalls 25%of blunt measures such as merely counting30 the 20%number of digital services. Regrettably, as shown in 15% 15%Figure 2, we can only conclude that the digital 10%transformation of creative sectors in Europe is 5%underdeveloped, and this disturbing situation should 0% 1% 2% 0%be one of the key considerations to be taken into Cinema Subscription TV Commercial TV Home videoaccount in future digital copyright reforms. Figure 2: Digital creative transition in Europe 2011Recognizing the underdeveloped digital state of Source: PWC global entertainment outlook 2011-2015European creative sectors, the obvious question iswhat policy outcomes should a digital copyright reformdeliver? In other words, what’s next? Ericsson hasidentified some key copyright regime31-relatedbarriers32 hindering the digital transformation, in other “There is no doubt about the Digital readiness importance of the copyright law and e-skills, e-awareness, ICT equipmentwords, the key root causes of the market-supply failureof lawful digital content. These are: the incentives it creates for certain1. the deliberate limited availability of lawful digital Digital infrastructure behavior, and therefore the market Digital content services Penetration, coverage, bandwidth harmonization, large markets, innovation content – in other words, windowing332. the high degree of technology specificity of licensing conducts.” copyright, licensing and exceptions343. unreasonable transaction costs (licensing effort, the inefficiency of the levies system) that make digital content offerings to consumers Use of digital services unnecessarily expensive.35 and licensing conduct,e-commerce, ERP, e-health, e-learning dictate the e-government, and they therefore pace of transformation in the lawful digital creativeThere is no doubt about the importance of the market. Removing or mitigating these barriers incopyright law and the incentives it creates for certain prevailing copyright regimes is the defining basis formarket behavior, and therefore the licensing any progressive digital copyright reform. Economic impactconducts. The three types of barriers mentioned aboveare the key determinants of prevailing market behavior Bring on the digital transformation! the tide is turning  10
  11. 11. REFERENCES1. Jessica Litman, Digital Copyright, 2006 and Tim Wu “Copyright’s 19. Communication Policy” 1043 Mich. L. Rev.278, 313 (2004). rather-than-corporations/2. Stanley M. Gortikov, President of the Recording Industry Association of 20. Vaidhyanathan, 2001, 2004 quoted in Currah, Andrew (2007) “Hollywood, America (RIAA), explained in hearings before a House Committee on April the Internet and the World: A Geography of Disruptive Innovation,” Industry 14, 1982. Innovation, 14: 4, 359-384. Please note also that the displacement effect of piracy is a symptom of the supply failure of lawful digital content and as3. European Consumers’ Organization, BEUC IPR Strategy: http://www. such is not to be confused with digitization effect. See also Jakarta Globe, The Smart Way to Fight Content Piracy, January 6, 2012. Ericsson Consum- pdf and erLab, TV and Video Changing the Game, 2012. Ericsson, copyright-directive/ Copyright enforcement in the Networked Society, 2011.4. 21. The Norwegian Music Industry in Age of Digitalization, Bjerke Sorbro,5. Jessica Litman, Digital Copyright, 2006 and Tim Wu “Copyright’s BI Norwegian School of Management, Oslo 2010. Golden times for record Communication Policy” 1043 Mich. L. Rev.278, 313 (2004). companies. It’s raining money over record companies again. Sales contin- ued to grow substantially over last year, and the increase is the new digital6. The Internet and the Mass Media, Kung, Picard, Towse, 2008. services. Vaidhyanathan, 2001, 2004 quoted in Currah, Andrew (2007) “Hollywood, skivbolagen_7837552.svd the Internet and the World: A Geography of Disruptive Innovation,” Industry 22. See also Economist Presentation: Innovation, 14: 4, 359-384 lean-back-media-the-shock-of-the-old.8. Ruth Towse, “What we know, what we don’t know and what policy 23. Hulu: 2012 Revenue Up 65 Percent: makers would like us to know about the economics of copyright”, Review hulu-2012-revenue-up-65-percent-to-695m-3m-paying-customers- of Economic Research on Copyright Issues, 2011, vol. 8(2), pp.101-120 and 430-content-partners/ Harvard Business Review File-Sharing and Copyright, Felix Oberholzer-Gee and Koleman Strumpf, May 2009. 24. Amazon, Annual Meeting June 2011, zhtml?c=97664p=irol-presentations9. Ruth Towse, “What we know, what we don’t know and what policy makers would like us to know about the economics of copyright”, Review of 25. The OECD Jobs Study; Facts Analysis, Strategies 1994. Economic Research on Copyright Issues, 2011, vol. 8(2), pp.108-9. 26. In this context, digital refers to a number of attributes, such as online, on-10. Niccolò Machiavelli, The Prince, New York, Dover Publication, 1992. demand, the portability of content across borders, personalization, device/ time/place, and shifting.11. Jakarta Globe, The Smart Way to Fight Content Piracy, January 6, 2012. Ericsson ConsumerLab, TV and Video Changing the Game, 2012. Ericsson, 27. See Ericsson Consumerlab: TV Video – Changing the Game: http://www. Copyright enforcement in the Networked Society, 2011. egoryFilter=reports_1270673222_ctagsFilter=ConsumerLab12. The Economist: “Letting the baby dance, New copyright rules for the digital age,” Sep 1, 2012. 28. For more information, see: and New Zealand’s Commerce Commission Demand Study: Digital Opportunity, A Review of Intellectual Property and Growth, media-releases/detail/2012/commerce-commission-releases-final-issue- independent report by Professor Ian Hargreaves, May 2011. paper-on-high-speed-broadband-demand-side-study/14. Commission agrees way forward for modernizing copyright in the digital 29. More information on the economic impact of digitization, see: The Econo- economy: mist – Growth through digitization requires more than faster broadband15. MMonti report, a New Strategy for the Single Market, p. 44, May 2010. connections: and BoozCo; For more16. Arguments before the US Commission on Patents of the S H.R, Conjointly information about digital transformation, see: MIT Centre for Digital Busi- on the Bills S 6330 and H.R. 19, 853 to Amend and Consolidate the Acts ness: and Cap Gemini Digital Transforma- Respecting Copyright 1906. tion Conversations: Recognizing that some countries, especially in Europe and contrarily to the mit%E2%80%99s-center-for-digital-business/ US, do not allow the bulk transfer of all of the economic rights to a pro- 30. A mere count of digital services does not recognize important factors ducer, thus guaranteeing that the author will have access to an independent to assess the level of success of a digital service. These factors include: cash flow usually managed by a collective rights-management organization. timely availability, the range and depth of titles available, business models18. Ruth Towse, “What we know, what we don’t know and what policy makers (subscription, transaction or advertising), the ability to time/format/device would like us to know about the economics of copyright”, Review of shift content, payment methods (credit card, prepaid), ease of use and Economic Research on Copyright Issues, 2011, vol. 8(2), pp.101-120 affordable price points. Please note that a revenue-based approach is less appropriate for public-TV-service providers whose revenues are based on11 the tide is turning
  12. 12. licenses or state-budget contributions; comparing the number of hours of digital programming with the total hours of programming would be more appropriate in this case.31. The term copyright regime refers to: copyright law, the licensing practice, the balancing of exclusive rights, in other words, exceptions and the induced business conduct of economic rights holders.32. Other non-copyright-specific barriers also limit digital transformation and must be addressed by other reforms/initiatives. These barriers include: dif- ferentiated VAT regimes discriminating digital versus physical formats; film state aid rules discriminating digital distribution; audiovisual and broadcast regulation; and windowing laws, such as those in France and Portugal. For content-access barriers, see World Intellectual Property Organization, Twen- tieth Session, Geneva, June 21-24, 2011: copyright/en/sccr_20/sccr_20_2_rev.pdf See also Intellectual Property and Innovation: A Framework for 21st Century Growth and Jobs: http://www. innovation-a-framework-for-21st-century-growth-and-jobs-.html33. See for example: cinemas-boycott-alice-in-wonderland; ogy/2011/nov/22/movie-fans-piracy-online; and: sa-bra-utbud-har-netflix-och-viaplay-svart-pa-vitt/ See also Wired Magazine: buster-movie-piracy/?cid=5253254 Ericsson is not advocating that a creator should not be able to freely exercise their right to, exhaust their right to, nor advocating that there must be a condition for the creator to create competi- tion in their own exclusive right. However, once a creator has made the free choice to exhaust their right, competition concerns may arise when a licens- ing arrangement harms competition among entities that would have been actual or likely potential competitors in a relevant market in the absence of the license. A restraint in a licensing arrangement may harm competition, for example, if it facilitates market division or price-fixing. In addition, license restrictions with respect to one market may harm competition in another market by anticompetitive foreclosing access to the digital/online versus physical (cinema) market.34. For example: “...the first sale principle of the original of a work or copies thereof by the right-holder or with his consent in the community, exhausts the right to control the release in the community of a work incorporated in a tangible tool.” This wording limits the principle of exhaustion to tangible goods only, excluding online services and intangible goods that incorpo- rate digital content. It is paradoxical, however, that in a legislative measure devoted to the online context, the only purpose of market integration was confined to the offline context.” EU Study, Legal Analysis of a Single Market for the Information Society, page 137. Draft Report, October 2009. For more general information about a technology-specific approach in a converg- ing environment, see The Recasting of Copyright Related Rights for the Knowledge Economy, IVIR 2006.35. See for example: Economic Impact of Copyright for Cable Operators in Europe, identifying high transaction costs resulting from the necessary negotiation of copyrights for various content formats (for example, analog, digital, pay, on-demand) with numerous parties, available at: Study%20Final.pdf the tide is turning  12
  13. 13. Ericsson is the world’s leading provider of communicationstechnology and services. We are enabling the Networked Societywith efficient real-time solutions that allow us all to study, work andlive our lives more freely, in sustainable societies around the world.Our offering comprises services, software and infrastructure withinInformation and Communications Technology for telecom operatorsand other industries. Today more than 40 percent of the world’smobile traffic goes through Ericsson networks and we supportcustomers’ networks servicing more than 2.5 billion subscribers.We operate in 180 countries and employ more than 100,000 people.Founded in 1876, Ericsson is headquartered in Stockholm, Sweden.In 2011 the company had revenues of SEK 226.9 billion (USD35.0 billion). Ericsson is listed on NASDAQ OMX, Stockholm andNASDAQ, New York stock exchanges.The content of this document is subject to revision withoutnotice due to continued progress in methodology, design andmanufacturing. Ericsson shall have no liability for any error ordamage of any kind resulting from the use of this documentEricsson ABSE-126 25 Stockholm, SwedenTelephone +46 10 719 00 00Fax +46 8 18 40 85 LME-13:000402 Uen, Rev © Ericsson AB 2013