Sanchez-Graells and Santaló (2007)
|Sanchez-Graells and Santaló (2007)|
|Title:||Economic Analysis of Private Copy Remuneration|
|Author(s):||Sanchez-Graells, A., Santaló, J.|
|Citation:||Sanchez-Graells, A., & Santaló, J. (2007). Economic Analysis of Private Copy Remuneration.|
|Link(s):||Definitive , Open Access|
|Key Related Studies:|
|About the Data|
|Data Description:||The study draws on industry-generated secondary data from a number of sectors.|
|Data Type:||Secondary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||Yes|
|Government or policy study?:||No|
|Time Period(s) of Collection:|
The present Study focuses on the economic rationale and effects of the private copy remuneration (or PCR) system, by virtue of which consumers pay the holders of Intellectual Property Rights (IPR) a given amount in consideration of the private copying of their works. The scope of the Study is limited to the economic aspects of PCR and, consequently, legal, political, cultural, and other facets of the phenomenon are only incidentally referred to.
This Study is not comparative, in the sense that it does not analyse alternative legal systems and, particularly, no argument is intended – either expressly or implicitly – to compare IPR systems based on fair use doctrines (such as the one currently enforced in the United States) with those that are based on legal private copying exceptions (such as those in place in most European Union countries). The Study focuses only on private copy exception-based systems. It does briefly compare systems of private copy exceptions with and without remuneration, but the conclusions reached cannot be automatically transplanted to any comparison between fair use-based and private copy exception-based legal systems.
This Study focuses on the effects of PCR on the music sector. Notwithstanding this relatively narrow focus, the conclusions reached are applicable to a significant extent to all types of IPR-protected works (such as audiovisual or literary), with some adjustments to tackle certain peculiarities of the several types of intellectual and creative works. However, for the sake of simplicity and clarity, all the examples and data provided in the Study refer exclusively to music.
The Study is limited to the setting and collection aspects of PCR, as well as its effects on incentives to creation of intellectual works. The collective administration of PCR, its distribution amongst right holders, and its use as a source of financing for cultural and social activities also lie outside the scope of the Study. Each of these topics might merit a separate report. Therefore, the Study assumes that PCR is efficiently distributed by the collective management societies to each rights holder according to a proper estimation of the number of copies made of her/his works.
Similarly, the Study does not analyse the potential benefits to society that may derive from the cultural activities that are financed with a share of the PCR collected in different Member States.
From a purely economic perspective, it must be stressed that the Study is implicitly based on certain assumptions that inevitably condition its content and its lines of reasoning, which are derived from economic theory and which will be out of question in the present Study. First, it is assumed that intellectual property rights are a part of the basic property rights on which developed economies have their foundations. Second, it is assumed that generating incentives for the creation of IPR-protected goods is a key role of economic regulation. Finally, it is also assumed that IPR-protected contents are a significant driver of economic growth for all societies and, particularly, for the Information Society.
Finally, this Study does not intend to forecast precisely any future market or sector sales or penetration rates, nor does it intend to predict the exact total PCR collection by countries or products. Instead, based on sound assumptions regarding market conditions, the Study tries to assess the relative efficiency of the current system and to illustrate the potential quantitative importance of certain effects that are usually neglected in the ongoing debate about the PCR system.
Main Results of the Study
The main findings of this study are as follows:
- Technological changes have affected the traditional structure of Intellectual Property …but have not altered their economic rationale.
- Indeed, IPR are generally found in need for an adaptation to the new digital environment if they are to continue bringing significant advantages in the Information Society. Changes on the previous design of IPR infrastructure of rights, remuneration schemes and protection devices may be required. But digitalisation has not generated a situation in which IPR shall be completely erased, nor shall new mechanisms to promote and protect cultural and creative activities be created from scratch.
- IPR institutions and regulations are intended to generate economic incentives for creating information goods that otherwise would not be produced in amounts optimal for society as a whole. In general, these regulations grant creators exclusive control over their works, except for copies made within the user’s “private sphere.” And most IPR regulations have also attempted to compensate the authors for this limitation of their control, through private copy remuneration (or PCR), a fee charged on the acquisition of devices and carriers that allow private copying.
- The system of private copy exception plus PCR, further than enhancing consumer welfare through increased freedom to use IPR protected goods, reduces the aggregate transaction and enforcement costs of the IPR infrastructure and, consequently, increases social welfare. PCR re- establishes the economic equilibrium between producers and consumers of IPR protected goods and establishes a fairer distribution of the costs and benefits of the IPR system.
- Digitalisation requires an adaptation of the system of Intellectual Property Rights… with major implications for the development of the Information Society.
- Creation of IPR-protected goods is one of the most significant drivers of economic growth for advanced economies. In 2003, the turnover of the cultural and creative sector in Europe amounted to € 654.3 billion, 2.6% of Europe’s GDP. The sector’s accumulated growth in the period 1999 – 2003 was 12.3%. And this is not a European peculiarity.
- The complementarity between Intellectual Property and Consumer Electronics is fundamental... but currently altered by the lack of adjustment of the IPR system to the digital environment. The development of this “bundle” of complementary industries has recently displayed opposing trends that run against economic intuition. In Western Europe, the digital consumer electronics segment of the ICT industry has grown dramatically, while the music industry has been continually losing revenues. The gap between CE sales growth (+ 114%) and music industry revenues decrease (-17%) multiplied at least by three during the period 2002 – 2005.
- The ‘digital adaptation’ of the PCR system should reverse the unbalanced development of IPR and CE industries... and will generate positive effects on total welfare and economic growth.
- Any economic analysis of the impact of the PCR charges needs to take into account the positive effect, both for the CE and the ICT industries, of more and better content for digital devices. From a purely static point of view, each 1 euro collected under the PCR system causes a decrease in welfare for consumers and producers of 1.08 euros – which is far from the 2:1 proportion previously reported and indicates a very moderate short-term effect of PCR on total welfare, of around 8%.
- ￼We also find that the incentives put in place by the PCR system should translate into an increase in the stock of music titles of around 1.5 percent in a period of 25 years. This increase would in turn compensate for the short-term negative effects on the joint welfare of consumers and producers of CE products, increasing total welfare by around 2.8 percent in a period of 25 years, although most of the positive effects would already be in place after a period of 5 years.
- In sum, the economic impact of the PCR system is not negative and could increase total welfare.
Policy Implications as Stated By Author
The study has the following policy implications as stated by the authors:
"The ‘digital adaptation’ should follow four basic principles. Full monitoring of the use of information goods is economically unfeasible and socially undesirable. But some of the underlying economic principles of full monitoring device can be defined and used to evaluate alternative systems:
- Remuneration of right holders should be a function of the social value of their work
- Information, transaction, and enforcement costs of the system should be minimised
- Who copies more should pay more
- Distortions and spillovers on the economy should be minimised"