Jun 172013
 

jon-bandFirms in the copyright-intensive industries frequently complain that copyright infringement causes significant lost sales, lost revenues, lost profits, and lost jobs. However, as has been noted in numerous impartial studies, the actual impact of infringement on individual firms, on industry sectors, and on the U.S. economy as a whole, is extremely difficult to quantify.

In contrast, what can be quantified with relative ease is the performance of firms in the copyright-intensive industries in terms that matter to investors: revenue, profit, and most importantly, profit margin. Furthermore, the performance of firms in the copyright-intensive industries can readily be compared with the performance of firms in other industries.

In this study, we have examined the performance over the past ten years of five leading firms in three copyright-intensive industries: motion pictures, publishing, and software. We then examined the performance of five leading firms in three other industries: construction, transportation, and mining. Finally, we compared the profitability of the firms in these six industries.

We found that the firms in the copyright-intensive industries were significantly more profitable than the firms in the other industries in every period examined. Moreover, in this ten-year period, the copyright-intensive industries’ profit margins on average grew by 3.98%, while the other industries’ profit margins on average decreased by 0.75%.

The high level of profitability of the copyright-intensive industries suggests that the copyright system serves these industries effectively, and that they are not in need of special government assistance in the form of new legislation or law enforcement resources.

Full Report: Profitability of Copyright-Intensive Industries

 

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  4 Responses to “New Study: The Profitability of Copyright-Intensive Industries”

  1. Dear Jonathan
    an interesting study. But I think you mis-identify the key complaint of creative industries around copyright infringement (disclosure: I am CEO of the UK Publishers Association and chair of the Alliance for Intellectual Property).

    Infringement has a big impact on the ability to take a risk on new talent. Declining revenues from already successful writers / artists / etc means that it is more difficult to finance the new, edgier, or slower-to-take hold talent. It forces tougher choices about how many new creators to back. It might well be the case that such activity is profitable, but the wider impact on culture and society is negative. Simply to say, as it were, “you’re still profitable so what’s the problem” is to miss the point.

    Secondly, any such study is inevitably going to look at only those firms which are still in existence and doing well. Well run companies – especially if they are part of global multi-media concerns – will always find a way to profitability. What you cannot see, axiomatically, are the firms no longer out there because they died, been acquired, or never get big enough to count. To some extent, copyright infringement is to blame for their non-presence.

    Finally, creative companies don’t call for governments to do more about copyright enforcement merely because of the impact of infringement on revenue and profitability. I suspect even if every creative company on the planet was a soaraway success they would still expect governments to protect their property rights and ensure that the law was constructed in such a way as to readily allow enforcement of rights. (It’s hard to think of a sector at any point in recent history which has not expected government to help protect rights in this way.) We believe the law should be enforced for its own sake, as well as for the financial consequences of it being infringed.

    As for calling for new legislation: from what I see on a regular basis it is more the US internet giants that agitate for new copyright laws than the companies in your study.

    Kind regards
    Richard

    • Richard: Thanks for your comments. You say that declining revenue from successful artists makes it harder to take new risks. But if profits in the copyright sector are stable or growing, as my report shows, then the opportunity to take risks is no different from in the past. Moreover, with lower distribution costs, the cost of experimentation with new artists should be lower.

      I have no doubt that infringement is one of the many challenges small firms face. On the other hand, as noted above, digital technology in general and the Internet in particular has lowered many costs. The trick is to find a way to adapt to the new environment so that the advantages of digital technology outweigh the disadvantages. Of course, this is easy for me to say — I’m a lawyer, not a businessman.

      I agree that most companies seek government assistance, whether in the form of subsidies, tax breaks, tariffs, protectionist legislation that prevents competition, and government granted monopolies (such as copyright). There is nothing wrong with seeking such protection. Indeed, your obligation to your shareholders arguably demands it. But that doesn’t mean government should provide or expand this corporate welfare unthinkingly.

      Finally, at least in the U.S., it is the rights holders who constantly seek to amend the Copyright Act, not the Internet companies. To be sure, in other countries Internet companies do seek enactment of flexible exceptions like our fair use doctrine (which, like so many of our good ideas, we borrowed from you), but it seems as though some of the most prominent British publishers are fond of fair use as well. See discussion of Reed Elsevier’s assertion of fair use in http://policynotes.arl.org/post/53359448111/great-fair-use-advice-from-reed-elsevier-seriously

  2. Dear Jonathan
    A quick rejoinder, if I may:

    The ability to take risk (thanks to the availability of capital) is an entirely different thing to the appetite to do so. My point is that the bigger content companies’ profitability is driven by safer investment decisions. The riskier decisions have become too unattractive thanks in large part to the fact that copyright infringement is more damaging to a new artist than an already successful one. The diversity of creative culture is as important as its economic health.

    Publishing firms, large and small, are fully embracing the huge benefits of digital technology. One of the most recurrent and pernicious myths in the present debate is that any firm borne prior to 1980 is somehow a sclerotic dinosaur, ripe for extinction in the face of new companies (not your words I know). In fact, the innovation being driven by venerable firms like Pearson, Macmillan, Elsevier and Faber is as dynamic as anything being done by start-ups. The truth is in most cases they are working hand in hand very successfully (for example, Faber and TouchPress). This is not an either-or debate.

    So all are well aware of the need for these advantages to outweigh the disadvantages. Hence the calls for enforcement to be improved to better tackle infringement; and our resistance to the argument that all problems would be solved if only copyright were reformed. The economic theory that says the value “cake” would be bigger for all if only more people could exploit copyright works was tested to destruction by Soviet collectivisation.

    As for fair use, as we argued to the UK IP Review, it may work sufficiently well in the US (although the serial litigation cases suggest it is far from perfectly understood) but it would be a huge error to lift it up and plonk it in the EU or UK. The US has built up a hinterland of jurisprudence in fair use. It would take several decades of expensive and destabilising litigation to approach anything like a settled view over here. The disruption would help no-one. This was the view of very many of our members with trans-Atlantic operations.

    Kind regards
    Richard

  3. Richard: A rejoinder to your rejoinder. With respect to enforcement, the content industries (at least in the U.S.) primarily are seeking to shift the cost of enforcement onto the Internet companies or the government. Thus, they want to reap the benefits of the digital environment but avoid the costs by making someone else bear them. In my view, it is completely inappropriate for government to bear the costs except in cases that involve heath and safety, e.g., counterfeit computer chips. And increasing the liability of the Internet companies will result in a less open, dynamic Internet.

    With respect to fair use, I see no reason why judges in the UK couldn’t look to fair use/fair dealing decisions in the former colonies, including the U.S., Canada, and Singapore. In the very recent past, UK courts have relied on U.S. decisions in software copyright cases, so why should this be any different? Just today the U.S. Intellectual Property Enforcement Coordinator announced that the Copyright Office would be posting on its website fair use decisions, summaries, and interpretations. And through Reed Elsevier’s Lexis-Nexis service, UK judges and attorneys can access 1500 U.S. fair use decisions and 250 Canadian fair dealing decisions.

    Finally, the litigation over fair use typically occurs where people are making new kinds of uses that haven’t previously been considered. If the choice is between not offering a service because it doesn’t fall within a specific exception, or offering the service and potentially defending it in litigation as a fair use, I would think an enterprise would prefer the latter. Reed Elsevier certainly knew that it was risking fair use litigation when it copied 1 million legal briefs into its database, but this obviously was preferable to not offering the service at all because it didn’t fall within a specific exception.

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