Monday, 15 December 2008

The economics of copyright expiry

I plan to write a lot more about this in the coming weeks. But for now I want to respond to Andrew Gowers' and Andy Burnham's debate in the FT.

Reading either article in isolation, you might be convinced. On the one hand by Gowers' assertion that extending copyright creates no economic incentive to create new work, and incurs administrative costs out of proportion with the benefit to the owners. On the other, by Burnham's sympathetic picture of retired vegan musicians losing their sole income and seeing their work abused in foie gras advertisements.

Maybe I'm betraying my inclination in this argument. But despite broadly agreeing with Gowers on this, I do understand the political logic and compassionate aspect of Burnham's position.

Economically it's a tricky issue, and Burnham is actually on the side of economic orthodoxy. Economists tend to consider that property rights are an incentive for people to create, husband and market their assets. They also assume that transaction costs are minor, or can be reduced to the point where they don't matter; so that property is allocated to those who can generate the most value from it.

However, how would you go about tracking down the various owners of a 60-year-old track and negotiating compensation with them in order to use a sample in a club remix? Just imagine the logistics. And then work out what return you would make from the remix. It would never be worth it.

So, contrary to common economic assumptions, the transaction costs in many cases probably outweigh the economic return from using the property. This makes property rights an inefficient way to generate economic value.

The case of publicly owned geographical data is another prominent recent example of this phenomenon. There is a campaign to release Ordnance Survey-owned data into the public domain. The premise is that it could generate up to £1 billion of economic value if available for use without the restrictions applied by Ordnance Survey (which earns only around £100 million under the current ownership rules and business model).

Note the mooted "death of the classical music industry" mentioned at Marginal Revolution. Under this scenario, the vast majority of recordings will never be heard or re-released because digital rights are owned by so many people that it is prohibitive to incur the cost of clearing them.

But it seems that the majority of Andy Burnham's objectives could be achieved without the need to extend copyright. A continued income to older musicians can be provided without restricting individual usage of individual tracks. A reasonable levy on either the sale of certain digital technology, the commercial release or performance of music, or simply a tax-financed fund, would substitute for all royalty revenue that would otherwise be earned in this way.

In order to make a good policy decision we would need to understand the amount of money at stake. I can't imagine we are talking about more than a few million pounds a year - the PPL now collects just under £100 million a year for all recordings, of which the vast majority must be from the last fifty years.

Another figure given by Charlie McCreevy recently is an average of €2,000 per musician per year (I could convert it into pounds but it's a bit of an empty gesture these days). One could imagine that there may be as many as a few thousand session musicians in the UK of the relevant age, but not many more.

There are many economic situations where we give up perfect equity in return for much greater efficiency: a fixed price for all first-class stamps, whether sending 5 miles or 500; publicly funded entry to museums and art galleries; a fixed £25/month cable TV package covering 40 channels, regardless of which ones you watch. In all these cases, the extra cost of administering the exact apportionment of charges would far outweigh the benefits of improved incentives.

It looks to me like recorded music - at least of a certain age - obeys the same rule. I certainly feel there must be a more rigorously demonstrable, less ad hoc formula than "50 years later", and this must apply also to the distribution of money from any fund that's set up (should it be based on the musician's earnings in the 49th year?). Much more to explore on this in future postings.

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