This paper looks at copyright, which is possibly one of the most controversial policy topics to have been talked about, lobbied and contested by various stakeholders for a very long time. Some would say that the controversy already started at the very beginning of the birth of the world’s first copyright statute and it has never stopped since. Skeptics on both sides of the debate would say that not much has really changed since the genesis of the controversy, as the debate has always come down to two things. The first is the tension between insiders benefiting from the prevailing copyright regime pushing back outsiders – in other words, the innovators who are barred from benefitting from the established status quo and are therefore demanding a change.

1. The tide is
turning
– now is the time to reform copyright for the
digital era

2. Index
Lessons learned from the past 3
Why reform? 6
Those against reform 7
So what’s next? 9
References11
2 the tide is turning

3. Lessons
learned from
the past
Copyright is possibly one of the most controversial
policy topics to have been talked about, lobbied and
contested by various stakeholders for a very long time.
“I’m scared, and so is my industry.
Some would say that the controversy already started at Changing technology today is
the very beginning of the birth of the world’s first
copyright statute and it has never stopped since.
threatening to destroy the value of
Skeptics on both sides of the debate would say that our copyrights and the vitality of the
not much has really changed since the genesis of the
controversy, as the debate has always come down to
music industry. Our nemesis is home
two things. The first is the tension between insiders taping.”
benefiting from the prevailing copyright regime pushing
back outsiders – in other words, the innovators who are
barred from benefitting from the established status quo
and are therefore demanding a change.1
such as: the self-playing piano, FM radio, the recording
“I’m scared, and so is my industry. Changing music industry – including gramophones and cassette
technology today is threatening to destroy the value tapes – cable-TV providers and video cassette
of our copyrights and the vitality of the music recorders. Today, hardly anyone would call these
industry. Our nemesis is home taping.”2 industries or technologies pirates.5
The second part of the debate concerns the icons of In this very brief historical perspective, we can be sure
copyright. These include the creators and the forgotten of at least two things.
masses, such as the users3, typically being taken
advantage of, squeezed in and marginalized in the First, new technologies and innovations have been
copyright revision process when insiders push back on a key industry growth engine for the creative sector,
new innovations by simultaneously expanding their as they have resulted in increased market reach
control in the new domain that embodies the innovation. and consumption opportunities, and introduced
new types of creative products that all contribute to
Younison – Artists, stand up for your rights: “Except for increased consumer spending.6
the exploitation of online music [read digital] – which for Second, the tension between insiders and
the moment represents about 5 percent of the total outsiders has never been – as is typically portrayed
amount of revenue for collecting societies (and for by insiders – about an apocalyptic industry
authors) throughout the EU – the [new] directive collapse, loss of creativity or about intrinsic pirate
[Collective Rights Management Directive] ignores all qualities of new generations of consumers that
our demands and ensures that in the digital era, the must be controlled at all costs.7 In fact, the tension
archaic and opaque redistributions systems are has ultimately been about managing firm level risks
institutionalized”4 associated with shifts in the value chain and
necessary transformation of business models
Of course outsiders, today also labeled as “pirates,” brought about by the introduction of new
have changed over time and have turned into insiders technology and innovation.8
3 the tide is turning

4. “…economists have long had concerns that copyright acknowledged by Niccolò Machiavelli in 1532, who in
has a moral hazard effect on incumbent firms, including his book The Prince stated:
those in the creative industries, by encouraging them to
rely on enforcement of the law rather than adopt new “...there is nothing more difficult to execute, nor more
technologies and business models to deal with new dubious of success, nor more dangerous to administer
technologies.”9 than to introduce a new system of things, for he who
introduces it has all those who profit from the old
This problem of the “moral hazard,” in other words, system as his enemies.”10
insiders resisting innovations, was already observed and
the tide is turning 4

5. “Now the tide is turning. For many
politicians, property rights for media
moguls are taking second place to
attempts to boost growth by making
life easier for technology companies.”
5 the tide is turning

6. Why reform?
Over the last two decades, there has been very
significant pressure to strengthen copyright laws in the
digital environment by providing cheaper enforcement “According to a recent study, the
mechanisms and more severe penalties for EU could gain 4 percent GDP by
infringement. However, this enforcement-only-focused
approach failed to recognize or to adequately stimulating the fast development of
distinguish that file-sharing is a symptom of a problem. the digital single market by 2020.”
Instead, the root cause of the problem is the inadequate
availability [supply] of lawful, timely, affordable, and
wide-ranging choices of digital-content offerings, which
is fundamentally a market-supply failure.11
the PM said, because of the risk that the current
“Now the tide is turning. For many politicians, property intellectual property framework might not be sufficiently
rights for media moguls are taking second place to well designed to promote innovation and growth in the
attempts to boost growth by making life easier for UK economy. In the five months we have had to
technology companies.”12 compile the review, we have sought never to lose sight
of David Cameron’s “exam question.” Could it be true
At first glance, the quote from The Economist above that laws designed more than three centuries ago with
seems quite controversial, but is it? What it really says is: the express purpose of creating economic incentives
for innovation by protecting creators’ rights are today
Insiders’ interest in protecting the prevailing system obstructing innovation and economic growth? The
and relying on more enforcement to protect the short answer is: yes.”13
status quo is no longer the No.1 priority. Put simply,
the enforcement-only-focused approach is out of More broadly, there is a growing acceptance among
fashion and even more politically toxic (for example, policy makers that a digital copyright reform is a
think ACTA, SOPA/PIPA). necessity, not an option.14 The socioeconomic benefits
The No.1 priority now is to boost growth by making associated with increased digitization of industries,
it easier for outsiders, such as innovators, to do including creative sectors such as economic growth,
what new technology has always done best for all increased competitiveness and job creation, are too
industries, including the creative industry – namely, great to forgo. In addition, in the current economic
inject growth. climate, the absence of growth also comes with social
and political imperatives.
This new focus on growth and not on a singular
stakeholder interest is the big change in the latest “The cost of non-digital Europe is significant:
copyright-reform debate. This newly gained focus is according to a recent study, the EU could gain 4
especially well captured in the Hargreaves Report from percent GDP by stimulating the fast development of
2011, which states: “When the (UK) prime minister the digital single market by 2020. This corresponds to
(David Cameron) commissioned this review in a gain of almost EUR 500 billion and means that the
November 2010, he did so in terms which some digital single market alone could have an impact similar
considered provocative. The review was needed, to the 1992 internal market program.”15
the tide is turning 6

7. Those against
reform
Those who resist changing the status quo and, always have to contract with an intermediary or
consequently, digital upgrades of copyright to facilitate distributor in order to market their work, and it
the adoption of new technologies and business is the terms of the contract between them that
innovations tend to resort to the following arguments: determine the eventual financial reward to the author...
Research on artists’ total earnings including royalties
the threat to creativity shows that only a small minority earns an amount
the exploitation of creators comparable to national earnings in other occupations
that digitization goes against culture. and only “superstars” make huge amounts. Copyright
produces limited economic rewards to the “ordinary”
Arguments related to technological advancements that professional creator.”18
threaten creativity have a long history. The advent of the
music recording industry threat in 1906 is a good “Copyright should be owned by creators not
example. corporations… It would be good to have music-business
people rather than financiers owning and running music
“…. gramophones (today’s CD and DVD players), companies again. It would be even better to have artists
self-playing pianos and talking machines. The owning their work and entering into partner relationships
technologies threaten to negate the value of sheet with service-providing major and independent record
music and the future of creativity; Composer John companies with all the finance and expertise an artist
Phillip Sousa to the US Congress: “…these machines needs to develop their own business.”19
are going to ruin the artistic development of music…
the vocal chord will be eliminated by process of This is not to say that creativity should not be
evolution, as was the tail of a man when he came from remunerated – on the contrary, it absolutely must. But
the ape…”16 contrary to insiders’ depiction of the remuneration
issue, academic research shows that rewarding
The risk of new technology unfairly exploiting creators creators is much more a contractual arrangement issue
is constructed around creators’ right to fair than a copyright issue. In addition, a digital-copyright
remuneration. Insiders’ call for this argument fails to reform is not at all about weakening creators’ rights – in
recognize the simple fact that most commercial other words, weakening the copyright standard – and it
arrangements today regulate creators’ rewards has even less to do with contractual or employment
contractually. That is, the relation between creators and arrangements.
the economic rights holders (whose business it is to
commercially maximize the creative endeavor) is Digitization is against culture. The claim that digitization
regulated in a contract or an employment agreement is a zero sum game is a construction.20 One cannot
and not by copyright – the latter establishes creators’ simply conclude that digitization of creative sectors
right to be remunerated, but the actual remuneration is is decreasing creators’ incomes, industry revenues
negotiated outside the copyright statute.17 or destroys jobs. In a longitudinal study analyzing
the impact of digitization on the Norwegian music
“Copyright law only stipulates the copyright standard industry between 1999 and 2009, the report authors
and the rights that protect authors. But authors almost concluded that:21
7 the tide is turning

8. creation (28 percent more artists) and increased artists’
incomes (up 66 percent). We can also identify strong
“Per-capita inflation-adjusted annual positive effects of digitization for other companies
outside the music industry, such as The Economist22,
artist income had increased by Hulu23 and Amazon24 . However, it should be said that
66%
digitization is not a one-way street that is either positive
” or negative. It is rather about how companies deal with
digital transformation. Finally, on a more general note,
an OECD review of the impact of technology on jobs
found that:
“… technological progress has been accompanied not
only by higher output and productivity but also by
total annual industry revenues grew from higher overall employment.”25
NOK 1.4 billion (EUR 190 million) to NOK 1.9 billion
(EUR 255 million), which is a rise of 36 percent Each of the arguments above has been around for
the number of artists increased by 28 percent decades, some of them for a century. Old habits are
per-capita inflation-adjusted annual artist income truly hard to break. But, as indicated above, the tide has
had increased by 66 percent. finally turned and the time has come to learn from the
past – to avoid making the same mistakes all over again
We can see that the impact of digitization has not only and escaping manufactured facts. The time is ripe for
delivered industry growth but also resulted in job more facts-based copyright reforms.
the tide is turning 8

9. So what’s next?
Share of digital revenues of total
sector revenues 2001 – Europe
50%
45%
40%
35%
30%
25%
20%
15% 15%
10%
A vital link exists between copyright and the degree of lawful digital content on the increased uptake
5%
2%
1%
availability of lawful digital content.26 The degree to of digital public services constitutes a new fundamental
0% 0%
which copyright exhibits the capacity to stimulate the consideration thatSubscription TV Commercial TV Home video
Cinema
puts copyright’s ability to stimulate
availability of legal (licensed and exempt) digital- digital transformation29 into a new perspective.
content services is important for many reasons.
Displacing illegal access with legal digital services
presupposes the availability of a legal digital
alternative. In addition, the growth of legal services Digital readiness
e-skills, e-awareness, ICT equipment
drives revenues, profits and job creation.
Consumer benefits from digital services, such as
time, place, device shifting and personalization are Digital infrastructure Digital content services
in high demand and valued by a continuously
Penetration, coverage, bandwidth harmonization, large markets, innovation
growing number of consumers.27
Conventional distribution methods in creative
industries are increasingly falling behind average
business norms and consumer expectations in a Use of digital services
number of customer dimensions: e-government, e-commerce, ERP, e-health, e-learning
›› timeliness, due to windowing
›› availability, 24/7: think physical distribution, such
as the cinema Economic impact
›› mass-personalization: appointment-based
viewing, such as linear TV and fixed dates/times,
Figure 1: Factors influencing the economic impact of digitizations
and Source: Copenhagen Economics Stockholm, January 2012
›› limits of physical point of service delivery:
number of points, location of points and physical
limitations (screens, seats, shelf space) such as
physical locations of DVD stores and cinemas,
resulting in limited consumption opportunities,
exclusion and higher consumer transaction
costs.
Public-interest synergistic effect (see figure 1):
the availability of lawful digital-content services
incentivizes a vast share of the consumer market to
adopt higher broadband speed services28 on which
other essential digital public services (e-work,
e-education, e-health and e-government) can be
delivered at low or no incremental distribution cost. In
other words, this catalytic effect of the availability of
9 the tide is turning

10. The degree of availability of lawful digital content Share of digital revenues of total
services is also a measure of the degree of the digital sector revenues 2001 – Europe
transformation of creative sectors. An evidence-based 50%
approach to measure the degree of digital transition in 45%
creative industries – and therefore the prevailing 40%
copyright regime’s capacity to stimulate digitization – is 35%
to relate the share of digital revenues to total (digital 30%
and non-digital) revenues, thereby avoiding the pitfalls 25%
of blunt measures such as merely counting30 the 20%
number of digital services. Regrettably, as shown in 15%
15%
Figure 2, we can only conclude that the digital
10%
transformation of creative sectors in Europe is
5%
underdeveloped, and this disturbing situation should 0% 1% 2%
0%
be one of the key considerations to be taken into
Cinema Subscription TV Commercial TV Home video
account in future digital copyright reforms.
Figure 2: Digital creative transition in Europe 2011
Recognizing the underdeveloped digital state of Source: PWC global entertainment outlook 2011-2015
European creative sectors, the obvious question is
what policy outcomes should a digital copyright reform
deliver? In other words, what’s next? Ericsson has
identified some key copyright regime31-related
barriers32 hindering the digital transformation, in other “There is no doubt about the
Digital readiness
importance of the copyright law and
e-skills, e-awareness, ICT equipment
words, the key root causes of the market-supply failure
of lawful digital content. These are:
the incentives it creates for certain
1. the deliberate limited availability of lawful digital Digital infrastructure behavior, and therefore the
market Digital content services
Penetration, coverage, bandwidth harmonization, large markets, innovation
content – in other words, windowing33
2. the high degree of technology specificity of licensing conducts.”
copyright, licensing and exceptions34
3. unreasonable transaction costs (licensing effort,
the inefficiency of the levies system) that make
digital content offerings to consumers
Use of digital services
unnecessarily expensive.35 and licensing conduct,e-commerce, ERP, e-health, e-learning dictate the
e-government, and they therefore
pace of transformation in the lawful digital creative
There is no doubt about the importance of the market. Removing or mitigating these barriers in
copyright law and the incentives it creates for certain prevailing copyright regimes is the defining basis for
market behavior, and therefore the licensing any progressive digital copyright reform.
Economic impact
conducts. The three types of barriers mentioned above
are the key determinants of prevailing market behavior Bring on the digital transformation!
the tide is turning 10

11. REFERENCES
1. Jessica Litman, Digital Copyright, 2006 and Tim Wu “Copyright’s 19. http://thefac.org/fac-statement-copyrights-should-be-owned-by-creators-
Communication Policy” 1043 Mich. L. Rev.278, 313 (2004). rather-than-corporations/
2. Stanley M. Gortikov, President of the Recording Industry Association of 20. Vaidhyanathan, 2001, 2004 quoted in Currah, Andrew (2007) “Hollywood,
America (RIAA), explained in hearings before a House Committee on April the Internet and the World: A Geography of Disruptive Innovation,” Industry
14, 1982. Innovation, 14: 4, 359-384. Please note also that the displacement effect
of piracy is a symptom of the supply failure of lawful digital content and as
3. European Consumers’ Organization, BEUC IPR Strategy: http://www.
such is not to be confused with digitization effect. See also Jakarta Globe,
copyright4creativity.eu/foswiki/pub/Public/Resources/BEUC_IPR_Strategy.
The Smart Way to Fight Content Piracy, January 6, 2012. Ericsson Consum-
pdf and http://theartistnetwork.ws/why-artists-are-angered-by-eu-
erLab, TV and Video Changing the Game, 2012. Ericsson,
copyright-directive/
Copyright enforcement in the Networked Society, 2011.
4. http://www.younison.eu/news/read/44
21. The Norwegian Music Industry in Age of Digitalization, Bjerke Sorbro,
5. Jessica Litman, Digital Copyright, 2006 and Tim Wu “Copyright’s BI Norwegian School of Management, Oslo 2010. Golden times for record
Communication Policy” 1043 Mich. L. Rev.278, 313 (2004). companies. It’s raining money over record companies again. Sales contin-
ued to grow substantially over last year, and the increase is the new digital
6. The Internet and the Mass Media, Kung, Picard, Towse, 2008. services. http://www.svd.se/naringsliv/nyheter/sverige/gyllene-tider-for-
7. Vaidhyanathan, 2001, 2004 quoted in Currah, Andrew (2007) “Hollywood, skivbolagen_7837552.svd
the Internet and the World: A Geography of Disruptive Innovation,” Industry 22. See also Economist Presentation: http://www.slideshare.net/emmaturner/
Innovation, 14: 4, 359-384 lean-back-media-the-shock-of-the-old.
8. Ruth Towse, “What we know, what we don’t know and what policy 23. Hulu: 2012 Revenue Up 65 Percent: http://techcrunch.com/2012/12/17/
makers would like us to know about the economics of copyright”, Review hulu-2012-revenue-up-65-percent-to-695m-3m-paying-customers-
of Economic Research on Copyright Issues, 2011, vol. 8(2), pp.101-120 and 430-content-partners/
Harvard Business Review File-Sharing and Copyright, Felix Oberholzer-Gee
and Koleman Strumpf, May 2009. 24. Amazon, Annual Meeting June 2011, http://phx.corporate-ir.net/phoenix.
zhtml?c=97664p=irol-presentations
9. Ruth Towse, “What we know, what we don’t know and what policy makers
would like us to know about the economics of copyright”, Review of 25. The OECD Jobs Study; Facts Analysis, Strategies 1994.
Economic Research on Copyright Issues, 2011, vol. 8(2), pp.108-9.
26. In this context, digital refers to a number of attributes, such as online, on-
10. Niccolò Machiavelli, The Prince, New York, Dover Publication, 1992. demand, the portability of content across borders, personalization, device/
time/place, and shifting.
11. Jakarta Globe, The Smart Way to Fight Content Piracy, January 6, 2012.
Ericsson ConsumerLab, TV and Video Changing the Game, 2012. Ericsson, 27. See Ericsson Consumerlab: TV Video – Changing the Game: http://www.
Copyright enforcement in the Networked Society, 2011. ericsson.com/news/121024-tv-video-changing-the-game_244159017_c?cat
egoryFilter=reports_1270673222_ctagsFilter=ConsumerLab
12. The Economist: “Letting the baby dance, New copyright rules for the digital
age,” Sep 1, 2012. 28. For more information, see: http://www.epc.eu/dsm/ and New Zealand’s
Commerce Commission Demand Study: http://www.comcom.govt.nz/
13. Digital Opportunity, A Review of Intellectual Property and Growth, media-releases/detail/2012/commerce-commission-releases-final-issue-
independent report by Professor Ian Hargreaves, May 2011. paper-on-high-speed-broadband-demand-side-study/
14. Commission agrees way forward for modernizing copyright in the digital 29. More information on the economic impact of digitization, see: The Econo-
economy: http://europa.eu/rapid/press-release_MEMO-12-950_en.htm mist – Growth through digitization requires more than faster broadband
15. MMonti report, a New Strategy for the Single Market, p. 44, May 2010. connections: http://www.economist.com/node/21556221 and BoozCo;
http://www.booz.com/global/home/what_we_think/digitization For more
16. Arguments before the US Commission on Patents of the S H.R, Conjointly information about digital transformation, see: MIT Centre for Digital Busi-
on the Bills S 6330 and H.R. 19, 853 to Amend and Consolidate the Acts ness: http://digital.mit.edu/index.html and Cap Gemini Digital Transforma-
Respecting Copyright 1906. tion Conversations: http://digitaltransformationconversations.com/tag/
17. Recognizing that some countries, especially in Europe and contrarily to the mit%E2%80%99s-center-for-digital-business/
US, do not allow the bulk transfer of all of the economic rights to a pro- 30. A mere count of digital services does not recognize important factors
ducer, thus guaranteeing that the author will have access to an independent to assess the level of success of a digital service. These factors include:
cash flow usually managed by a collective rights-management organization. timely availability, the range and depth of titles available, business models
18. Ruth Towse, “What we know, what we don’t know and what policy makers (subscription, transaction or advertising), the ability to time/format/device
would like us to know about the economics of copyright”, Review of shift content, payment methods (credit card, prepaid), ease of use and
Economic Research on Copyright Issues, 2011, vol. 8(2), pp.101-120 affordable price points. Please note that a revenue-based approach is less
appropriate for public-TV-service providers whose revenues are based on
11 the tide is turning

12. licenses or state-budget contributions; comparing the number of hours of
digital programming with the total hours of programming would be more
appropriate in this case.
31. The term copyright regime refers to: copyright law, the licensing practice,
the balancing of exclusive rights, in other words, exceptions and the induced
business conduct of economic rights holders.
32. Other non-copyright-specific barriers also limit digital transformation and
must be addressed by other reforms/initiatives. These barriers include: dif-
ferentiated VAT regimes discriminating digital versus physical formats; film
state aid rules discriminating digital distribution; audiovisual and broadcast
regulation; and windowing laws, such as those in France and Portugal. For
content-access barriers, see World Intellectual Property Organization, Twen-
tieth Session, Geneva, June 21-24, 2011: http://www.wipo.int/edocs/mdocs/
copyright/en/sccr_20/sccr_20_2_rev.pdf See also Intellectual Property and
Innovation: A Framework for 21st Century Growth and Jobs: http://www.
lisboncouncil.net/publication/publication/84-intellectual-property-and-
innovation-a-framework-for-21st-century-growth-and-jobs-.html
33. See for example: http://www.guardian.co.uk/film/2010/feb/17/european-
cinemas-boycott-alice-in-wonderland; http://www.guardian.co.uk/technol-
ogy/2011/nov/22/movie-fans-piracy-online; and: http://blogg.kritiker.se/
sa-bra-utbud-har-netflix-och-viaplay-svart-pa-vitt/
See also Wired Magazine: http://www.wired.com/threatlevel/2013/01/block-
buster-movie-piracy/?cid=5253254 Ericsson is not advocating that a creator
should not be able to freely exercise their right to, exhaust their right to, nor
advocating that there must be a condition for the creator to create competi-
tion in their own exclusive right. However, once a creator has made the free
choice to exhaust their right, competition concerns may arise when a licens-
ing arrangement harms competition among entities that would have been
actual or likely potential competitors in a relevant market in the absence of
the license. A restraint in a licensing arrangement may harm competition, for
example, if it facilitates market division or price-fixing. In addition, license
restrictions with respect to one market may harm competition in another
market by anticompetitive foreclosing access to the digital/online versus
physical (cinema) market.
34. For example: “...the first sale principle of the original of a work or copies
thereof by the right-holder or with his consent in the community, exhausts
the right to control the release in the community of a work incorporated in
a tangible tool.” This wording limits the principle of exhaustion to tangible
goods only, excluding online services and intangible goods that incorpo-
rate digital content. It is paradoxical, however, that in a legislative measure
devoted to the online context, the only purpose of market integration was
confined to the offline context.” EU Study, Legal Analysis of a Single Market
for the Information Society, page 137. Draft Report, October 2009. For more
general information about a technology-specific approach in a converg-
ing environment, see The Recasting of Copyright Related Rights for the
Knowledge Economy, IVIR 2006.
35. See for example: Economic Impact of Copyright for Cable Operators in
Europe, identifying high transaction costs resulting from the necessary
negotiation of copyrights for various content formats (for example, analog,
digital, pay, on-demand) with numerous parties, available at:
http://www.cableeurope.eu/uploads/2006%2005%2009%20Solon%20
Study%20Final.pdf
the tide is turning 12

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