Statutory Review of the Copyright Act: My Testimony Before the House of Commons Standing Committee on Canadian Heritage

On Dec 4, I appeared before the House of Commons Standing Committee on Canadian Heritage, as part of the statutory review of the Copyright Act and its study on remuneration models for artists and creative industries. Here is my written testimony:

Good morning. My name is Ariel Katz. I am a law professor at the University of Toronto, where I hold the Innovation Chair Electronic Commerce. I am grateful for the opportunity to appear before you today.

In my comments today, I would like to focus on some of the ways in which copyright contributes to or detract from the remuneration of artists and creators.  

The idea that copyright is necessary for allowing creators to reap financial rewards from their creation runs deep in our current legal and policy thinking since copyright arrived at the scene 310 years ago.

Since the first copyright act, the Statute of Anne of 1709, almost every major copyright reform was based on the notion and promise that copyright will guarantee authors the ability to get remunerated for their works.

For 300 years, the benefit of authors has been the banner that publishers and producers have carried when demanding ever-increasing powers to legally control creative works. They would recruit authors and creators to appear before legislators, describe their economic hardship, and support the publishers’ demands for more rights and stronger tools to enforce them.

This strategy has been enormously successful. As a result, copyright has expanded in almost every dimension: subject matter that could be protected by copyright, the term of the copyright and its geographical scope, the type of activities that constitute infringement, and enforcement tools and remedies.

And yet, the vast majority of artists and creators seem to be earning very little from their creations.

Last Saturday, for example, Michael Enright on the CBC, cited a recent survey by the Writers’ Union of Canada finding that the average Canadian writer makes only $9,380 a year and the incomes are falling fast. And once again, not-strong-enough-copyright is to blame, and “make copyright great again” is the recommended remedy.

But after 300 years of asking “are we there yet?” and finding that we aren’t, maybe it’s time to acknowledge that the weakness of copyright is not the problem and stronger copyright isn’t the solution. In fact, we should even start asking whether the ever-expansion of copyright is part of the problem.

Now, don’t get me wrong. Copyright is a very effective legal tool for collecting rents from the use of creative work, and the stronger, broader, and longer copyright is, the more effective ability to extract greater rents becomes. And indeed, copyright makes some corporations, their shareholders, senior executives, and a relatively few superstar artists super rich. That’s why they lobby so hard to protect and enhance it, and that is why they have the ability to out-lobby almost everyone else.

But if our goal is not to further enrich the rich, but to ensure adequate remuneration for the “average” creator, then maybe it’s time to acknowledge that the strategy of “more copyright” has been a spectacular failure.

(I note in brackets that from an economic perspective, it’s better to think about the “marginal” creator, not “average”. That is, the creator for whom the level of remuneration would make a change).

So why has the promise that more copyright will benefit creator has never been fulfilled?

One possible answer is that we’re not there yet (in terms of remunerating creators) because copyright is still not strong enough, but we’ll get there if we made it even stronger. In some abstract theoretical way, this is a plausible answer, but it’s unlikely going to be the correct one.

Is there a copyright “there” that could allow not just a tiny few, but a large majority of creator to earn a decent living from their writing, and what would it look like?

Consider the finding of the Writers’ Union survey. Access Copyright and the Writers’ Union cite these numbers to support their demands for preventing educational institutions from relying on fair dealing and in their efforts to make it mandatory on educational institutions to pay licence fees once tariffs are approved by the Copyright Board, despite the Supreme Court’s ruling that such tariffs aren’t mandatory.

Let’s assume that our goal is to allow professional writers to make a living off their writing. According to Stats Canada, the median household income is approx. $70,000.[1] Obviously, an annual income of $9,000 is far too low. What would we have to do, in terms of copyright, if we wanted to only quadruple this $9,000 figure, so that writers would earn only half the median income?

Suppose we went along with Access Copyright’s proposal, abolished fair dealing and made tariff mandatory for educational institutions.  We don’t need to spend time on exact calculation to figure out that if we wanted to use this instrument to significantly increase the income of authors we would have to impose on educational institutions what is effectively an “education tax” that would quickly bankrupt them.

Moreover, the way copyright works, even imposing such financial burden on educators for the benefit of authors was sustainable, using this copyright mechanism to improve the payment for the low-earning writer would simultaneously provide a much greater remuneration to the already-rich.

Let me provide a simple back-of-the-envelope calculation to illustrate the point. Access Copyright has approximately 12,000 creator (i.e., authors, not publishers) affiliates.[2] Suppose our goal is to quadruple the average income of those creators from the current $9,000 to $36,000, about half the median household income. That would require generating additional income of $27,000 to each of those creators, or $324 million in total.[3]

But Access Copyright’s Canadian creator affiliates are not its only beneficiaries. In fact, only a quarter of what it distributes goes to Canadian authors, while the rest is distributed to Canadian publishers (which include many subsidiaries of foreign publishers) and foreign copyright collectives. Therefore, to distribute $324 million to Canadian writers while maintaining the same distribution ratio, Access Copyright would also have to distribute three times that amount (i.e., $1 billion) to publishers, Canadian including many foreign ones.

So here’s a simple inconvenient truth. Using copyright and collective licensing to improve the earning of Canadian creators would simultaneously confer a much larger benefit on foreign publishers. These, by the way, include multinational publishers such as Elsevier, whose CEO earned more than $19 million last year. [4]

And of course, the money would have to come from somewhere, e.g., from students, or taxpayers, or from other expenses that would have to be cut. Which points to the fact that using copyright to improve the earning of the Canadian creators entails a massive transfer of money from the public to the super rich and from Canadian tax payers to the shareholders of foreign publishers.[5]

The upshot is that using copyright is an ineffective and highly inefficient way for raising the income of Canadian creators. It will impose an enormous burden on the Canadian public and would mainly benefit a handful of already-rich creators and the shareholders and executives of (mostly foreign) producers and publishers. If we have the political will and power, using various programs to directly and indirectly benefit Canadian creators (e.g., through various grants and subsidies) could benefit them much more at a significantly lower cost to the public.

So why has copyright been a failure for most creators? Why doesn’t the great wealth that it creates to some publishers and media companies trickle down to creators, even though the creators are the first owners and the supposed beneficiaries of copyright?

The answer is that while “more copyright” increases the ability of those who commercialize content to extract rents from the paying public, how much of it trickles down to authors is not so much a function of the strength of copyright, as it is a function of the competitive structure of the industry and the relative bargaining power of creators vis-à-vis producers.

While competition among content providers (producers, publishers) reduces the rents they can collect from users and thus could reduce the rents they could share with authors, competition among content providers forces them to produce more and better works. In order to do that, they need to attract more and better creators. Therefore, greater competition among producers forces them to compete more vigorously over talent. To attract the best creators, they must offer them greater remuneration and better related conditions.

Unfortunately, there are some reasons why copyright has historically not allowed authors to earn much from their writings, and why strengthening copyright isn’t likely to change that.

Moreover, it is also possible that the “more copyright” recipe makes things even worse. Let me explain.

Copyright law generally makes the creator the first owner of the copyright, yet most creators cannot efficiently commercialize their works, and need to rely on various intermediaries who has the knowledge, capital, and ability to exploit economies of scale and scope. Therefore, authors need to enter contracts with producers and their relative bargaining power will be the primary determinant of their remuneration.

While competition among content providers (producers, publishers) reduces the rents they can collect from users and thus could reduce the rents they could share with authors, competition among content providers forces them to produce more and better works. In order to do that, they need to attract more and better creators. Therefore, greater competition among producers forces them to compete more vigorously over talent. To attract the best creators, they must offer them greater remuneration and better related conditions. The less intensive competition among content providers is, the greater the rents they will be able to collect from users and keep them to themselves without sharing them with creators. By contrast, more competition among content providers benefits both users and creators.

For several reasons, not all of which are yet fully understood by economists, creative industries tend to be highly concentrated, while the market for creative talent is highly competitive. A common characteristic of may creative industries is the abundant supply of creative talent (or, at the risk of alienating our friends from the Conservative Party but in the hope of appealing to our friends from the NDP, a phenomenon reminiscent of Karl Marx’s concept of “reserve army or labour”).

Not only there is abundant supply of creative talent, but creative people like to create and are eager to create, and because competition among them is fierce, but competition among producers is much more limited, creators are inherently in an inferior bargaining position vis-à-vis producers. They often are required to sign away their copyright and transfer them to the publisher, and agree to rather exploitative terms.

To make things worse, there are often serious information asymmetries between creators and publishers. Publishers are knowledgeable and professional, while creators aren’t.

Is there anything we can do about that?

Unfortunately, we can’t do much to restrict the supply of creative talent, unless we resort to extremely repressive or regressive measures (e.g., if we abolished public education and returned to a mostly illiterate society, we would decrease the amount of authors).

We may also not be able to completely eliminate concentration at the producer/publisher side, but we could take some steps to reduce it. Importantly, we should acknowledge that copyright itself is one of the contributors to that concentration and that “more copyright” contributes to higher concentration. I’ll be happy to talk about that more later.

Lastly, we could take some steps to improve the bargaining power or creators vis-à-vis producers/publishers:

• One way to do it is to improve the tools that exist under the status of the artist legislation, the federal one and the one from Quebec. These tools could improve the bargaining power of creators vis-à-vis producers and also reduce some of the information asymmetries.
• Another is to empower creators through education and advocacy, which is something that “Authors Alliance”, an organization that I’m one of its founding members, is doing.
• Yet another way is to consider reforms such as rights reversion, though such proposals need to be thought through very carefully because they might lead to many unintended consequences.
• We could use federal and provincial budgets to provide greater direct and indirect assistance to creators.
• What we should not do is expand the role and powers of copyright collectives. Copyright collectives primarily benefit big producers, and they ultimately hurt creators rather than help them. I could talk much more about that if I had the time, but I will be happy to elaborate if you’re interested.

I look forward to your questions.

[1] Statistics Canada Government of Canada, “The Daily — Household income in Canada: Key results from the 2016 Census”, (13 September 2017), online: <https://www150.statcan.gc.ca/n1/daily-quotidien/170913/dq170913a-eng.htm>.

[2] According to its 2017 Annual Report, Access Copyright has 12,674 creator affiliates, which includes not only writers, but also visual artists. See Access Copyright Annual Report 2017.

[3] Which is ten times the amount the Access Copyright has collected prior to the beginning of the decline in 2012. According to its 2011 Annual Report, it collected $32 million licence fees in 2010 and nearly $29 million in 2011.

[4] “This little-known Swedish CEO is the 5th best paid executive on London’s FTSE 100”, (8 January 2018), online: <https://nordic.businessinsider.com/this-swedish-ceo-ranked-as-the-5th-best-paid-executive-of-londons-ftse-100–/>.

[5] In a recent book, Glynn Lunney makes a similar point about how ineffective and inefficient copyright is as a mechanism for rewarding the marginal creators. He estimates that to generate one dollar in additional incentives for the marginal work, copyright must also generate $66,666.67 in rents for the copyright owners of the most popular work, see Glynn Lunney, Copyright’s Excess: Money and Music in the US Recording Industry (Cambridge, United Kingdom ; New York, NY: Cambridge University Press, 2018) at 24.