Copyright – Use It Or Lose It?

I was browsing in one of the last remaining record stores in Melbourne’s CBD last week, flipping through the secondhand racks for independent vinyl releases of the 70s and 80s. (I was in search of some sounds of the Paisley Underground, if anyone is interested.) The shop owner, who also runs a record label, lamented that there are a whole bunch of out-of-print recordings of that era that he wants to license for reissue in physical format – but in many cases, the rights have since been acquired by major record companies that have no interest in re-releasing this material themselves. Yet, when approached for permission, oftentimes they ask for prohibitive licensing fees, making the venture uneconomic.

The sound of the Paisley Underground (on vinyl, of course) – Image sourced from Discogs.com

The irony is, most times the major labels have no idea what they have in their back catalogues, because the content they own has been scooped up through corporate mergers or is still managed via a series of archaic territorial licensing and distribution deals based on antiquated geo-blocking practices. Plus, understandably, they are usually more interested in flogging their latest product than curating their past.

There’s nothing wrong with content owners wanting to charge licensing fees, but surely they need to be commensurate with the likely rate of return for the licensee (we’re usually talking about a small circulation among enthusiasts, after all). Plus, the original production costs have either been written off, or amortized on the books – so, given there is little to no new cost to the content owner, ANY additional revenue stream would surely be welcome, however modest?

But what about streaming and downloads? Surely all this back catalogue content is available from your nearest digital music platform of choice? Well, actually no. In many cases, “out-of-print” also means “out-of-circulation”. And even if back content is available to stream or download, the aforementioned geo-blocking can mean that rights owners in certain markets may choose not to make the content available in specific countries. (I’ve even had the experience where content I have purchased and downloaded from iTunes Australia is no longer available – probably because the rights have subsequently been acquired by a local distributor who has elected to withdraw it from circulation.)

Of course, copyrights eventually expire or lapse, and unless renewed or otherwise maintained, usually fall into the public domain (but not for many years…..). Again, nothing wrong with affording copyright owners the commercial and financial benefits of their IP. But, should content owners be allowed to sit on their assets, and do nothing with their IP, despite the willingness of potential licensees to generate additional income for them?

In a previous blog, I ventured the idea of a “use it or lose it” concept. This would enable prospective licensees to re-issue content, in return for an appropriate royalty fee or share of revenues, where the copyright owners (and/or their labels, publishers and distributors) no longer make it available – either in certain markets and territories, or in specific formats. To mitigate potential copyright exploitation, copyright owners would be given the opportunity to explain why they have chosen to withhold or withdraw material that had previously been commercially available. There could also be an independent adjudicator to assess these explanations, and to help set an appropriate level of licensing fees and/or royalties.

Meanwhile, on-line sites like Discogs.com provide a welcome marketplace for out-of-print back catalogue!

Next week: Big Data – Panacea or Pandemic?

 

 

 

 

 

 

Whose IP is it anyway?

Why should we claim ownership of our IP? This was the topic up for discussion at the recent Slow School dinner on Collaborative Debating presented by Margaret Hepworth. I won’t reveal how a collaborative debate works (I recommend you sign up the next time Slow School runs this class…), but I do want to share some of the issues and insights that were aired. In particular, the notion that shared knowledge is the basis for greater prosperity.

The use of Creative Commons means knowledge becomes easier to share (Photo by Kristina Alexanderson, image sourced from flickr(

The use of Creative Commons means knowledge becomes easier to share (Photo by
Kristina Alexanderson, image sourced from flickr)

First, the discussion centred on IP issues relating to ideas, content, knowledge, creative concepts and theoretical models. Not surprising, as the participants were all independent professionals, consultants, bloggers, creatives, facilitators, teachers and instructors. So we didn’t address the areas of patents, registered designs or trade marks.

Second, as someone who has worked in the publishing, data and information industries for nearly 30 years, I believe it is essential that authors, artists, academics, musicians, designers, architects, photographers, programmers, etc. should be allowed both to claim copyright in their work, and to derive economic benefit from these assets. However, I also recognize that copyright material may often be created in the course of employment, or under a commercial commission or as part of a collaborative project. In which case, there will be limitations on individual copyright claims.

Third, the increasing use of Open Source and Creative Commons means that developers, authors and end users have more options for how they can share knowledge, access resources and foster collaboration through additive processes and “common good” outcomes. A vital component of these schemes is mutual respect for IP, primarily through acknowledgment and attribution. Equally, an online reputation can be established (or destroyed) according to our own use of others’ material, especially if we are found to be inauthentic.

Leaving aside the legal definitions of IP and how copyright laws work in practice, the discussion explored the purpose and intention of both authors (as “copyright creators”, narrowly defined) and end users (as “licensees”, broadly defined). There was general agreement that sharing our content is a good thing, because we recognise the wider benefits that this is likely to generate.

But there is a risk: merely acknowledging someone else’s authorship or copyright is not the same as accurately representing it. Obviously, plagiarism and passing off someone else’s ideas as your own are both copyright infringements that can give rise to legal action. Even with the “fair use” provisions of copyright law, a critic or even an acolyte can mis-interpret the content or attribute a meaning that the author did not intend or even anticipate. As one participant noted, “Copyright is not just concerned with what we claim ownership over, but what others may claim as their own.” Not for nothing have we developed “moral rights” in respect to authorship of copyright material.

Although we did not discuss specific issues of copyright remuneration (e.g., through royalties, licensing fees or financial consideration for copyright assignment), there was a proposition that establishing copyright protection can lead to social, intellectual and even economic limitations. The understandable, but often misguided need to protect our copyright (as a form of security) is driven by fear, underpinned by scarcity models. Whereas, a more generous approach to copyright can actually lead to greater shared prosperity, based on the notion of the abundance of ideas and knowledge. And since, as one speaker put it, “there is no such thing as an original concept because all ideas build on previous knowledge”, the inherent value in IP is in how we contribute to its nurturing and propagation.

At the end of the discussion, and reflecting on my own recent experiences with copyright infringement and geo-blocking, I found I had shifted my position – from one that tends to take a more absolute view on copyright ownership, to one that identifies the need for some further modification to the current copyright regime, along the lines of the following:

  • Copyright ownership should not entitle the owner to abuse those rights – if anything, the copyright holder ought to be placed in a position equivalent to a trustee or custodian, to ensure that they act in the best interests of the IP asset itself, not merely their own interests. That should not preclude the owner from being compensated for their work or being allowed to commercialize it, otherwise, why would anyone bother trying to create new ideas or content?
  • Establishing copyright in ideas and creative concepts needs to be supported by a notion of “intent” or “purpose” (a bit like mens rea in criminal law). For example, if the intent is to merely prevent anyone else using or sharing the idea, then any copyright protection might be limited to a much shorter duration than the usual “life of author plus XX years” model.
  • Equally, under a “use it or lose it” provision, if copyright owners (and/or their publishers, distributors and license holders) elect to take their content out of circulation from a market where it had been widely available, then they would need to establish good cause as to why the copyright should not be open to anyone else to use and even commercialize (subject to reasonable royalty arrangements).
  • If we accept that all knowledge is additive, and that the proliferation of collaboration and co-creation is because of the need to share and build on what we and others have already created, how can we ensure the integrity and mutual benefits of open source and creative commons initiatives? One analogy might be found in the use of blockchain technology to foster contribution (adding to and developing an existing idea, concept, model or platform) and to support authentication (to validate each idea extension).

Perhaps what we need is a better IP model that both incentivizes us to share our ideas (rather than rewards us for restricting access to our content), and encourages us to keep contributing to the furtherance of those ideas (because we generate mutual and ongoing benefits from being part of the collective knowledge). I’ve no idea what that model should look like, but surely we can agree on its desirability?

Next week: Finding purpose through self-reflection

Will streaming kill the music industry?

The resurgence in vinyl sales is certainly not enough to save the music business. But will streaming finally cook the goose that once laid Gold Discs?

statistic_id273308_music-album-sales-in-the-us-2007-2014

US album sales (in all formats) are in decline. (Source:  Statista)

What can we learn from the music industry based on the apparent rebound of vinyl sales in recent years? Is streaming doing enough to halt the decline in total music revenue? Will CD’s soon disappear altogether? What future for LPs in a world of “Album Equivalent Sales”, “Track Equivalent Albums” and “Streaming Equivalent Albums”?

Are there parallels here with other content, publishing or entertainment sectors?

Back to Black

Last month the 8th annual Record Store Day was launched with a fanfare of upbeat data for vinyl sales. It was a good news story in an otherwise depressing saga of declining album sales, stagnating revenues, and mixed messages about the impact of digital downloads and streaming services on the music industry.

Coming off a very low base (like, near-extinction levels), the extraordinary sales growth of vinyl (especially in Australia) can be attributed to a combination of factors, although it is difficult to see how any single trend is responsible for this growth:

  • The growing popularity of Record Store Day itself (although it’s not without its problems – see below)
  • Baby boomers buying their record collections all over again
  • Hipster interest in analogue technology
  • Record labels mining their back catalogues
  • Niche market interest among audiophiles, collectors and the cool kids
  • New approaches to packaging vinyl with downloads and other bonus content
  • DJ culture
  • Secondary markets via E-bay and Discogs
  • Retailing switching from megastores to specialist shops

Infographic: Vinyl Comes Back From Near-Extinction (Source: Statista)

Where Is The Money Coming From?

Latest industry data suggests that digital sales (downloads and streaming) are now on a par with physical sales (CD, vinyl and the rest). Overall revenue has stabilised, having fallen from a peak in 1999. And streaming services are enjoying huge growth.

But the true picture is harder to establish:

First, while the IFPI provides global aggregated data, each local industry body (RIAA, BPI, ARIA etc.) likes to tell a different story from its national perspective. So it’s difficult to compare like with like. (For example, while Taylor Swift is supposed to be a worldwide phenomenon, she does not figure at all in the BPI data for 2014…..) One brave soul has tried to compile data for the past 20 years.

Second, because of the changes in distribution and consumption, music sales have to be counted in different ways:

  • Wholesale revenue vs retail sales
  • Physical sales vs digital sales
  • Per unit download sales vs streaming equivalents
  • Product revenues (e.g., album sales) vs licensing revenues (e.g., soundtracks)
  • Subscription fees (e.g., Spotify) vs per download revenue (e.g., iTunes)
  • Advertising income from video streaming vs royalties from broadcasting and soundtracks

Third, when more and more music is accessed via video platforms like YouTube, Vimeo, and Vevo, streaming platforms like Spotify, Pandora and Omny, or apps such as Bandcamp, Soundcloud, Mixcloud and Shazam, “sales” data starts to become less and less relevant. (And some people are still hanging on to the ailing MySpace platform….).

The bottom line is that despite the growth in streaming services, digital sales (in whatever format or media) are not yet enough to compensate for the continued decline in album sales in particular, and music overall:

The peak era of CD sales is over. (Source: Talking New Media)

Record Store Day Woes

The success of Record Store Day has divided opinion as to whether it is actually a “good thing” for the industry. It started as a campaign by independent record labels, distributors and retailers to revive the habit of buying records in-store. Labels produce limited edition and often highly collectible items for the occasion, and there are rules as to how, when and where these releases can be made available to the public.

At first, it really was driven by the independent labels, many of whom brought out interesting product that otherwise wasn’t available, such as label samplers, unreleased material and one-off artist collaborations.

Now, the major labels have jumped on board, meaning the market is flooded with unnecessary re-releases (do we really need Bruce Springsteen‘s ’70s and ’80s albums reissued on vinyl?) drawn from their extensive back catalogues (no need to pay for recording costs or new artwork!).

This means that smaller labels who release new vinyl records on a regular basis (not just once a year) get bumped from the production line, as the major labels exert their purchasing power over the pressing plants.

In addition, some Record Store Day releases are so badly distributed that stores are unlikely to take delivery of the items in time for the event. Or bad decisions lead to over-supply of certain items, which end up in the bargain bins (major labels again especially guilty of this offence).

Some store owners appear reluctant to participate because they feel embarrassed about the prices they may have to charge for many of the limited releases, which get bought by speculative customers, rather than collectors, fans and enthusiasts – a fact borne out by the immediate listings and inflated prices on E-Bay and Discogs….

As one store owner I talked to commented: “Every day should be record store day…”

What Else Does The Data Reveal?

For all the new young pop stars that the industry keeps churning out, there’s nothing like longevity and back catalogue to prop up the sales numbers. For example, Barbara Streisand was in the Top 10 for US album sales (and with new material!), and the likes of Pink Floyd, Led Zeppelin, Miles Davis, Bob Marley and Oasis feature in the top-selling vinyl records. Will Record Store Day 2025 herald the vinyl release of Justin Bieber’s pre-pubescent “demos”?

The decline of album sales has been particularly steep in the genres of Hip-Hop and R&B, while rock and pop continue to dominate the market. Some industry commentators have suggested that music sales are merely “in transition” as consumers switch from buying CD’s and downloading music to subscribing to streaming services. Meanwhile, in the US, country music’s #4 position by overall consumption reflects substantial album sales, as streaming is still a small component for the genre.

And those vinyl sales numbers? They’re simply a blip on the chart and largely driven by avid fans willing to shell out for deluxe editions….

The future is streaming?

Apple and others certainly believe (or hope) that streaming will save the music industry. Having demolished the market for CDs, iTunes is in a battle for its own survival among competing streaming services, where Apple itself is about to lead the charge having acquired the Beats platform.

But others are not so sure, predicting that streaming is already in decline, along with download sales:

First, the streaming platforms are yet to make a profit. Part of this is due to the cost of content that has to be licensed from the record labels and artists. Part is also due to the cost of acquiring customers, even if this can be done via social media, because the decline in music buying has been so abrupt, so the industry may be permanently damaged that streaming cannot bring back paying customers.

Second, even though streaming may overtake downloads by next year, there’s still nothing certain that teen pop fans (the target audience) will pay $7.99 – $9.99 per month to listen to music via so-called “freemium” services. Evidence suggests that consumers are happy with the free services, even if they have to put up with ads.

Third, while I agree that the freemium model is a fixture in the digital economy, the problem with Spotify et al is that they are not growing the market for music, but simply cannibalising it by displacing existing platforms (commercial radio, digital downloads, physical sales), while being tied to third-party distribution channels (the internet) and devices (smart phones, tablets and computers).

Anyway, subscription-based music streaming is nothing new, and was first launched over 100 years ago (and thanks to Mark Brend’s “The Sound of Tomorrow”, I learned that Mark Twain was the first subscriber).

If the “old” record companies are charging streaming services too much to license their content, then the streaming services should just find other sources – there’s plenty out there – but then, just like the major record labels, they are not really interested in music, only in shifting product and promoting “artists” (even if they are still figuring out how to make digital pay). The record labels don’t help themselves with their reliance on back catalogue, and their archaic territorial licensing practices either – forcing customers to circumvent geo-blocking barriers (legally or otherwise…).

Unfortunately, file sharing, illegal downloads and “free” streaming have meant customers don’t feel compelled to pay for digital music content. Personally, I prefer to curate my own listening, and not let someone else dictate what I hear, even if the service “knows” my preferences…

And the moral of the story is…?

More distribution platforms, more formats and more content may not be enough to save ailing industries, whether it’s music or television, newspapers or movies. These businesses will have to learn to live with lower margins and/or smaller market shares. The quality of a home-made movie uploaded onto YouTube may not be anywhere near that of a Hollywood blockbuster, but if cat videos are what grab punters’ attention (and by default, pull in the advertisers), the studios may have to find alternative strategies. And if music fans prefer to use free streaming services, the industry has to do a better job of producing content that consumers may be willing to pay for.

Ironically, in publishing, one sector that has been written off ever since the arrival of CD-ROM’s and the internet, teen consumers are still happily buying and reading print editions, alongside e-books. More so than other content industries, publishing has rapidly adapted to the new user-defined model: aspiring authors find it easier to self-publish (e.g., via Tablo and dedicated crowdfunding platforms such as Pubslush and Unbound); they can easily connect with an audience (especially in the realm of fan fiction); and a platform like Wattpad allows writers to test material before they commit to formal publication, and lets readers vote for what they’d like to read more of.

Next week: Making connections between founders and investors

 

 

 

Taxing the Intangibles – coming soon to a screen near you!

No sooner had Netflix launched in Australia than Treasurer Joe Hockey announced the imposition of GST on “intangibles” purchased from overseas vendors. The Treasurer has also indicated that the GST-free threshold for on-line imports will be lowered from the current $1,000. Dubbed the “Netflix tax”, Australian consumers should now expect to pay more for their digital content such as video, music, software and e-books, even though on most evidence, we are already charged more for comparable products than in other markets.

Geo-blocking is already an obstacle for Australian consumers…

Backdrop

We all know why the Treasurer has proposed this scheme: the Government has to make up for declining tax receipts, and appease the States who are squabbling over the allocation of GST revenue between them. Plus the current Senate inquiry into corporate tax avoidance by companies like Apple, Google and Microsoft (who divert locally sourced income to offshore entities to reduce their income tax liability in Australia) is driving the public and political agenda on global tax minimization schemes (which are nothing new, of course).*

But it’s not as simple as slapping an extra 10% on the price of a movie download, even though GST is a relatively easy and cost-effective way of generating tax revenue. For one thing, there is little consistency in how vendors currently sell their digital products in Australia. Secondly, geo-blocking is already an obstacle for Australian consumers, leading to the sort of content piracy infringement that will now make local ISP’s and their subscribers more vulnerable to legal action, following the recent “Dallas Buyers Club” court ruling. Thirdly, local retailers who have long campaigned to have the GST-free threshold removed or lowered fail to acknowledge why customers prefer to shop from overseas vendors.

Goods & Services Tax

GST (similar to VAT in Europe) is a simple consumption tax. It applies to the sale or supply of most items (except things like fresh food and health services) at a flat rate of 10%.

Even better, the Government and the tax authorities rely on businesses to collect, report and remit GST receipts, making it relatively cheap to administer (when compared to other taxes) via the Business Activity Statement process managed by the Australian Taxation Office.

The GST is a key topic of the current review of the tax system – likely to result in a higher rate (or different rates), and/or broader application to items not currently included.

Vendor Inconsistency

In principle, I don’t have a problem in paying GST on digital items I buy from overseas vendors – but there is so much inconsistency that there is a risk of consumers having to pay two lots of sales tax.

For example, every iTunes receipt issued by Apple Pty Ltd (an Australian entity) states that the sale amount already includes GST – in which case, Apple should be remitting that component to the ATO, and no need for a price increase.

However, Adobe chooses to invoice me from Ireland, and as such no GST (or VAT) is applied, but I am charged forex fees, even though the invoice amount is expressed in Australian dollars, because my bank treats this as a foreign transaction.

Meanwhile, although some UK vendors I buy from direct do not apply GST/VAT on my orders (Amazon UK included), others do – meaning I risk having to pay both the GST and VAT. As a further sign of vendor inconsistency, Amazon’s US store does not appear to deduct US sales tax for foreign customers; neither the UK or US Amazon stores sell music downloads to Australian customers; and Amazon’s Australian store only sells e-books and apps.

Geo-blocking

The decision in the “Dallas Buyers Club” IP infringement case brought by Voltage Films, has again drawn attention to Australia’s poor reputation for copyright piracy as evidenced by the number and frequency of illegal downloads.

Some journalists have commented that distributors often delay the local release of imported content (for various reasons) although this was not seen as a justification for piracy (and quite rightly so).

While foreign films are frequently released later in Australia, it’s interesting that TV (even free to air channels) has woken up to this, and now broadcasters rush to fast-track imported shows to keep audiences happy.

It’s also interesting to note that the Productivity Commission, as part of its competition policy review of IP laws, has suggested that if local rights holders and distributors choose not to exercise their commercial rights, under a “use it or lose it” model, third-party distributors would be able to step in. This also has the potential to undermine the archaic industry practice of geo-blocking, whereby sales of music, film and TV content (physical and digital) are restricted by territory.

Local retailers and distributors need to lift their game

Does the absence of GST really encourage consumers to buy from offshore retailers? I would beg to differ.

Local rights holders often do not bother to make content and products available in Australia. And local retailers won’t usually stock products if they are not readily available from wholesalers or distributors.

I recently had to contact an overseas artist, the UK record label and its Australian distributor several times to make their music available online in Australia. The local distributor had not bothered to release the content, even though they had the rights, but geo-blocking prevented me from accessing it legally from overseas suppliers.

It’s the combination of inadequate local distribution, non-availability, higher prices and lacklustre service that encourages Australian consumers to buy from overseas, even if that means circumventing geo-blocking. In many cases, I doubt the addition of GST will be a serious deterrent to online overseas shopping.

In my own case, I once found that the local branches of a global retail brand chose not to stock the item I wanted, and their US parent geo-blocked me from ordering on-line. So I resorted to buying in the “grey” or parallel imports market, from an offshore vendor willing to ship direct to Australia. It was still cheaper, even after shipping costs, and even if GST had been added (I probably paid US sales tax on the transaction anyway), than if I had bought from a local retailer (assuming they bothered to stock the item).

Hopefully, this debate on GST and the Productivity Commission’s review of competition policy will finally give local retailers an incentive to do a better job of serving their customers.

* The debate on corporate tax minimization might want to look at where “value” is created, and where the revenue is booked, that gives rise to a tax on the resulting profits. For me, the retail value of intangibles such as digital products is created when someone pays to download them, at the point of sale – i.e., in the consumer’s geographic location.  Although the vendor may argue that the IP is owned by an offshore entity to whom they must pay royalties, the individual download itself does not have any standalone value, until it is accessed by the consumer. Even a high rate of royalty repatriation could not be more than the retail price, so logic might suggest that local profits should be taxed accordingly.

Next week: What can we learn from the music industry?