Is Copyright Law Economically Relevant?

Is Copyright Law Economically Relevant?

Andrian Lozinski is a JD candidate at Osgoode Hall Law School and currently enrolled in the course Law & Social Change: Law & Music, in Winter 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.

I recently had the opportunity to attend the Global Forum at Canadian Music Week (March 9-13, 2011), held at the Royal York Hotel in downtown Toronto.  The keynote address was given by an American filmmaker and anti-piracy advocate, Ellen Seidler, who described how within 24 hours of the DVD release of her film, it was downloaded by more than 30, 000 users on pirate hosting sites before Ms. Seidler stopped counting.

Although the overt message was that Google and other internet service providers who profit through partnerships with these distributors must be more responsible, Ms. Seidler’s story provides a powerful warning to creators to ignore market forces at their own peril. The inability of analog business models, offering analog material, to compete with digital distribution networks that cater to users who crave digital content is clear.

Combining Ms. Seidler’s story with calls recently in the United States to institute felony charges for illegal web streaming and the heated debate that had occurred in Canada over the proposed Copyright Modernization Act (former Bill C-32) and TPM provisions, the question must be asked: is copyright law relevant in today’s economy?

Copyright law has always been interconnected with the economics of cultural markets. This is reflected in the Supreme Court of Canada’s underlying policy understanding of copyright law in Canada, as the need to balance between promoting the dissemination of creative works while preserving a time-limited reward for the creator (Theberge v. Galerie d’Art due Petit Champlain Inc). However, a disconnect between legal and market forces may arise as a result of the law’s preference for incremental change, while technological innovation may change the shape of an industry overnight.

The analog music business model is reflective of the economics of traditional copyright law. The costs formerly associated with both analog recording and distribution required an enormous amount of capital. To ensure creators could access recording technology and recorded works could be distributed throughout society, entities that could generate the requisite capital were required to acquire the means of production and establish a costly system of distribution through bricks-and-mortar stores. Since transaction costs are dramatically lower for others who copy and distribute the original manifestation, copyright law worked to protect the initial investors from ‘free riders’ in order to preserve the incentive to record and distribute music. This framework resulted in a relatively small number of firms monopolizing a significant portion of the cultural value chain, who were then able to exert a considerable amount of control over creative content and consumer choices.

Rapid advances in computer technology changed the industry by revolutionizing the manner in which music is recorded, distributed, and consumed. Students of market innovation recognize this process as the Schumpeterian notion of ‘creative destruction’ where new technologies increase competition by making archaic business models and firms obsolete. Technology has dramatically lowered transaction costs to an extent that it is now possible for artists to invest in the means of recording themselves. Users are investing directly in the means of distribution through computer hardware and software, digital storage space, and internet service, while building websites and establishing peer-to-peer networks.  User-distribution is not ‘free’ and it can generate value. Google recognizes this, while the music industry remains ignorant by responding with taxation. Surely, growth strategies are rarely found by borrowing public sector ideas.

Current legislative attempts to remedy the disarray in cultural markets, despite acknowledging user rights, overwhelmingly focus on means to restrict or limit the distributive technology at the heart of the creative destruction process. After all, Technological Protective Measures (TPMs) are merely capital-intensive software and hardware products attached to creative works that grant access to users only on certain conditions pre-determined by the content owner. Users and computer scientists argue existing TPMs are not interoperable, portability is extremely limited, and the technology for expressing concepts such as ‘fair use’ in an algorithm is still a distant reality.

In the debate regarding copyright modernization, it is worth assessing whether current attempts reflect the need to regulate cultural markets in a digital age or merely the desire to protect specific historically-entrenched interests. Regardless, it will be imperative to come to terms with this new class of user-distributors for substantive reform to occur. Flourishing cultural economies are dependent on consensual participation of all interested participants. The continued use of the law as a sword against those who challenge historic business models only creates greater animosity amongst users and impedes meaningful discourse as to which business models are possible in the digital era.