File Sharing More Opportunity Than Burden, Says Speaker At WIPO

The music industry often claims that unauthorised file sharing online is ripping off artists and the economy to the tune of billions of dollars. Although such file-sharing is impacting sales, the losses are grossly overestimated by industry, according to a professor speaking last week at the World Intellectual Property Organization, who also said illegal downloading could prompt untapped markets for complementary products and services.

The speaker addressed the first open seminar of the WIPO Academy on 15 June. The session entitled “IP Management: Copyright in the Digital Age,” had a particular focus on the internet’s influence on production, distribution, and demand for cultural products. The WIPO Academy, which is the educational arm of WIPO, offers courses on all aspects of intellectual property and its management.

The session http://www.wipo.int/academy/en/courses/executive/ipm_seminar_12.html was presented by Felix Oberholzer-Gee, co-chair of the Executive Program: IP and Business Strategy at the Harvard Business School. He also is one of the core professors of the Executive Program of the WIPO Academy.

The history of copyright is moving only in one direction said Oberholzer-Gee: towards stronger rights. However, technological development over the last decade opened the door to unauthorised file sharing and for the first time, as a result, copyright protection became inadvertently much weaker than it ever was, and much weaker than the law intended it to be, he added.

Contrary to “silly industry studies,” he said, file sharing only affects a small fraction of creative works in music. The most exposed work is “the hot thing of the moment.” And the same is true for movies, he said.

The International Federation of the Phonographic Industry’s (IFPI) digital music report 2011 [pdf] states that the industry “is still haemorrhaging revenue as a result of digital piracy.” The report projects 1.2 million jobs “to be lost in the European creative industries due to piracy by 2015,” and a staggering €240 billion of “estimated cumulative lost retail revenues to the European creative industries from piracy from 2008-2015.”

Digital piracy, the report says, “is the single most important factor holding back further development of the legitimate music business.”

Oberholzer-Gee argued, as others have, that a pirated piece of content is not necessarily a lost sale. Massive amounts of transfer of copyrighted material do not translate into the same amount of lost sales, as it does not mean the same amount of material would have been bought and paid.

The decline in sale of copyrighted material may also be the sign of broader lifestyle changes, he said, noting that the decline in music expenditure started before internet came along. Internet also opened a new space for activities that can be direct substitutes for music, he said, adding that young people have many more opportunities to spend money than before, such as on cell phones or video games.

The overall evidence is that in the music industry, piracy explains no more than 20 percent of sales decline, he said, and on movies, piracy has no effect. If a movie is run for free on television, it results in a rise of about 118 per cent in sales of the DVD of that particular movie on Amazon.com, and pirated goods do not change that trend, he added. Since the role of piracy is overstated, he asked, is there a reason to strengthen copyrights?

Market for Complements

A complement is a good or service that increases the revenue for another good, Oberholzer-Gee said, and there is a vast untapped market to be exploited, he said.

There is a need to consider total revenue instead of focusing on CD sales, according to Oberholzer-Gee as when CD sales go down, complements such as concerts, merchandising, or revenue from collecting agencies go up, he said.

Largely untapped, the market for complements should be explored, he said. This market directly benefits from weak copyright. “The lack of a market for complements is a lack of imagination,” he said.

If established artists can generate substantial income through live performances and merchandise, “no major artist to date has been able to build a career on live performance alone,” the IFPI report said.

When radio was invented, Oberholzer-Gee said, “the music industry went into shock.” A few years later, radio was a fantastic complement to music. The same happened when video cassette recorders came into the market, the movie industry was very worried, he said.

Creation by artists comes from intrinsic motivation, which has a “huge role,” he said, citing Wikipedia, which he said is the most successful model for producing an encyclopaedia, and which put all its competitors out of business, with 650,000 contributors, and 11,000 contributors generating about 50 per cent of edits, for free.

“One of biggest mistakes is confusing the need for compensation and the need for compensation for a particular level of activity,” he said, referring to a Pew study on 2,755 musicians and songwriters whose three fourths reported having another job unrelated to music, which was their primary income. In a paper co-published by Oberholzer-Gee and Koleman Strumpf of the University of Kansas, “File sharing and Copyright” [pdf], Oberholzer-Gee said the Pew study showed that 66 percent of the respondents said that less than 20 per cent of their income came from music.

“Concert sales have increased more than music sales have fallen,” according to the paper, and since 2000, the number of recordings produced has more than doubled. “This makes it difficult to argue that weaker copyright protection has had a negative impact on artists’ incentives to be creative,” the authors wrote.