Thank you very much for the invitation.
Conflict exists between creators and users. Obviously, creators want to benefit from the value their creations generate for users. Users want to minimize payment for such inputs in order to channel savings towards other means of reaching their goals, their objectives or their mission. We have two particular examples before us: replacing copyright payments with scholarships or other services for students, or investments in broadcasting facilities in smaller communities or markets.
Is this a standard conflict between buyers and sellers? The answer is yes and no, and I will explain why. As I am an economist, I am going to talk about what economic efficiency or optimality tells us about this conflict.
Copyrighted works have two characteristics. First, they are information goods, or assets—I'm going to say that—which means that once produced or fixed, their use or consumption does not destroy such goods or assets. They remain available now and in the future for consumption by other people. That would be different from the standard public goods, which have to be produced every year, things like national defence or public security, for instance.
The second point is on digital technologies. What exactly they have changed in the world of copyright is that they have reduced to zero or almost zero the cost of reproducing and disseminating copyrighted works—whether they are music or books—and therefore, maximal dissemination becomes possible. Digitization challenges the delicate balance of creators' and users' rights. The excludability level favoured by copyright may have become too severe for the digital world, hence the conflict we're facing today.
Economists have been studying this type of problem for many decades and analytical solutions do exist.
An optimal solution when allocating resources would be to have the price set at zero for this type of good or asset. That way, the goods could be distributed to the maximum extent possible. However, we then have a problem: how to compensate creators within such a system.
Economists have studied solutions such as limited distribution, whereby distribution would not be optimal and the price would be set higher than zero in order to ensure fair compensation for rights holders, while still trying to distribute the products as much as possible with some possible tinkering between the two solutions.
In order to put this or these types of solution into practice, we have to know the value of the product in question. What is the competitive market value of the works that are protected given that they are information goods or assets and that digital technologies have changed the commercial domain, making it nearly impossible to have a competitive market or to even sell those goods commercially?
How can we solve this problem that I have called, in one of my publications, the Gordian knot of today's corporate world?
We can arrive at a solution through four key changes.
First, move away from the current circular heuristics in favour of direct inferences of competitive market value from the behaviour and choices of users. This can be done. It is not done today. We say that we're going to set up the rates today at that level because two years ago or four years ago we did that. Therefore, we're constrained by those decisions.
Rights holders are significantly shortchanged by the current Copyright Act provisions, including exceptions of many kinds, and the way they are implemented. The undercompensation of creators, as compared to the competitive market benchmarks, is a significant impediment to a more efficient and vibrant economy. The undercompensation totals several hundred million dollars per year in Canada.
Secondly, we have to avoid stigmatizing creators, who are seen to be opposing the digital economy and maximum distribution of works through exceptions, including fair use.
Who, from apart the creators, should pay for these public policies?
Here's a first example.
In 2012, the government passed regulations to exclude microSD and similar cards from the definition of “audio recording medium”, thereby preventing the Copyright Board from setting a levy on such cards to compensate rights holders.
Here is the government's justification, and I've quoted a governmental publication:
Such a levy would increase the costs to manufacturers and importers of these cards, resulting in these costs indirectly being passed on to retailers and consumers.
... thereby negatively impacting e-commerce businesses and Canada's participation in the digital economy.
You will see that I added [sic] at the end of the quote, by which I mean that such thinking could very well bring Canada back to the Stone Age.
Here is the third policy.
Bring to the table all major groups of beneficiaries and make them jointly and severally responsible or liable to ensure the proper, fair, equitable and competitive compensation of creators. It can be done. There's a long list of economic publications showing how this can be done, and why it should be done.
Fourthly, the current sequential determination of royalties makes it difficult to implement significant adjustment and reforms.
A little earlier, I stated that when we decide on an amount for royalties or set tariffs, we have to abide by what was decided last year or two years ago in a similar field. We should set up a system to allow all decisions to be taken jointly and concurrently so that we can better adapt to changing technologies.
Given that time is whizzing by, I won't be able to talk about the main difficulties in setting copyright tariffs, but I will just say the following:
the level playing field or technological neutrality principle, the competitive market value or balance principle, the socio-economic efficiency principle, and the separation principle. The last one says that it is neither necessary nor optimal that primary users' royalty payments be equal to the competitive market compensation of creators. Commercial radio doesn't mean that what they should be paying is what the authors and composers and performers should receive in terms of compensation.
The economics of cultural public policy are really the elephant in the room, alongside rights holders and users. In education, there is a difference between what consumers, i.e. parents and students, pay and what the providers of educational services and content, i.e. teachers, professionals and support personnel, receive.
In health care, there is a difference between what consumers or patients pay and what the providers of health care services such as doctors, nurses, and professional and support staff receive as compensation.
We can also make this type of distinction in the cultural sector.
I believe this is a fundamental aspect of the reform that we should aspire to.
Rather than talking to you about it, I will conclude by inviting you to read some publications in which I've set out ideas that could help you in your work on copyright reform.
Thank you.