Summary of event launching reports into 'Changing Business Models in the Creative Industries' and 'Private Copying and Fair Compensation'.
How should copyright policy support the growth of the creative industries?
Has the shift from analogue to digital business models altered what creative businesses need from the intellectual property system?
And is there any scope for a system that compensates creators when their work gets copied?
These were the big questions at last night’s (19 October 2011) Intellectual Property Office event, hosted by the Big Innovation Centre, and they prompted a vociferous and much-needed debate.
The event saw the launch of two major new reports commissioned by the Intellectual Property Office as part of a wider programme of research which seeks to understand the role of intellectual property in the UK economy. Both reports looked at how the copyright system supports the creative industries, but came at the question from distinctly different angles.
Changing Business Models in the Creative Industries: Nicola Searle
Nicola Searle, of Abertay University, presented her research on Changing Business Models in the Creative Industries. Based on six in-depth case studies (two each from the television, computer game and music industries), Nicola’s research highlights the asymmetric way in which digitisation has affected different parts of the creative industries. While the music industry has found it difficult to develop viable online business models, the web has created major opportunities for businesses in areas such as television and computer games. Based on these case studies, it appears that firms that are able to adapt their business models, and offer a range of services built around the user, fare better than firms that focus primarily on creating content.
At the same time, Nicola’s research concluded that intellectual property was not an over-riding concern for her case study businesses, although she acknowledged that it remained an important part of the jigsaw. Equally important for the case organisations was to recognise and adapt to the pace of change in business models, and the increasingly important role of digital intermediaries and content aggregators.
The ensuing panel discussion, expertly chaired by Exeter University’s Charlotte Waelde, lent further anecdotal support to Nicola’s conclusions. Sandy Duncan, CEO of YoYo Games (one of Nicola’s case studies), raised eyebrows by declaring that he was ‘relaxed’ about the nearly 4 million illegal downloads of his company’s Game-Maker product. When quizzed on this point from the floor, Sandy explained that he saw these ‘customers’ as an opportunity, not a threat, and that throwing copyright law at them was counter-productive. Meanwhile Paul Thompson of Lovefilm argued that the UK’s copyright system broadly works, and should be shielded from any radical changes. He did, however, point out that a more unified market for licensing across different countries would bring significant benefits, a theme that re-surfaced in the second half of the discussion.
Private copying and fair compensation: Martin Kretschmer
By contrast with Nicola’s wide-ranging research on business models, Martin Kretschmer of Bournemouth University had a much more direct target with his research. His paper lifts the lid on copyright levies across Europe (LINK TO BE ADDED), providing what he describes as the first independent study into the complex and opaque systems through which most EU countries seek to compensate creators for private copying of their work. This copyright levy system involves a tax on products that can be used for copying (from printers to MP3 players), but it is applied differently in every country.
Martin’s collection of evidence (much of it painstakingly gathered) casts a fairly damning verdict on the copyright levy system across Europe. First, the levy only provides a tiny amount of revenue to creators (less than 1% of income for each of the artists Martin sampled). Second, the different charges levied in different countries make very little difference to market prices, suggesting that producers (not the consumers who do the copying) bear the brunt of the charge. And third, Martin concludes that the levy system is “deeply irrational” in economic terms.
Martin suggested that a narrowly conceived “format shifting and personal use” exception could be introduced without compensation. However, consumers should also be able to buy a wider licence that allows them to download, modify and pass on copyright material in a non-commercial context (this would function both as fair compensation and facilitate new digital services).
On the panel, James Waterworth of Nokia agreed forcefully with Martin on the economic irrationality of the copyright levy system, claiming that it is destined to collapse.. The system is so opaque, he argued, and so unevenly applied in different countries, that it creates chaos for businesses, particularly manufacturers of affected devices. Meanwhile, PRS for Music’s Will Page challenged Martin’s research. He suggested that the research took too narrow and vague a view of the market, and missed out on any dynamic effects, which made it difficult to assess how the levy was really working. He contended that the research cast very little light on whether such a system would be of value in the UK.
Panellist Benjamin Reid of the Big Innovation Centre offered a different perspective on the debate. While he agreed with the evidence Martin has presented against Europe’s existing copyright levy system, he argued that other, better designed systems for rewarding creators might be more appropriate. Drawing on a recent Big Innovation Centre publication, he floated the idea of a Digital License Fee, which would allocate revenue to content creators according to how much users valued them.
Reflections on the debate
The challenge posed by the debate is clear, and it was neatly captured by Big Innovation Centre Director Birgitte Andersen in her introductory comments. We need a system that allows the creative industries to grow and move into new markets, while ensuring that creative industries can secure revenues from their work, regardless of the distribution of rights, industry structures, or whether content is paid for or free and compensated in other ways. In her view policy makers, industry and researchers must step back and reconceptualise the role of finance in the cultural and creative industries, and open-mindedly re-think how the new business models can incentivise and reward the cultural generators, catalysts, entrepreneurs and venture capitalists in the creative spheres, but also create value to the consumers and users of the cultural and creative industries.
On the evidence of this debate, it is not clear exactly what role intellectual property policy should have in achieving this.
The shift in business models in response to the digital economy has thrown up both opportunities and challenges for firms. In rough terms, it appears that companies which combine creative content with interactive services tend to benefit from digitisation, but pure content providers are potentially threatened. This unevenness creates a dilemma for the copyright system: in some sectors (such as computer games) copyright exceptions seem to promote innovation and growth, while it was claimed that in others (especially music) they appear to drain revenues away from creators. If we are to maintain a copyright system that operates uniformly across all types of creative content, it is a challenge to reconcile these two priorities.
Meanwhile, the debate around the copyright levy system threw up some interesting questions about whether there could be a different, market-based system that diverted revenue towards creative content providers. The problems with the current EU system seem clear enough, but it may be possible to design a different, more intelligent system with new web-based technologies that have become available. This line of inquiry may provide a solution that can reconcile the needs of both users and creators, and promote innovation and investment in the creative industries. It is clear that the practical challenges to such a system are immense, but further exploration is surely merited; and promoting further discussion was exactly the aim that IPO Chief Economist Tony Clayton has set out at the start of the event.
Published: 20 October 2011