An Australian artist's perspective on UK extended collective licensing

A month has passed since the Enterprise and Regulatory Reform (ERR) Act received Royal Assent.

Its copyright provisions - in particular: orphan works and extended collective licensing (ECL) - have attracted a good deal of controversy, both on the blogosphere (here and here) and in the real world.

When you speak of the ERR Act, it is doubtful whether there is room for Japanese writer Haruki Murakami's observation that “If you look at things from a distance, most anything looks beautiful”. Indeed, while this Kat is happy to host an Australian perspective on the ECL system envisaged by the ERR Act, she is not sure that this sees it as particularly beautiful.

Katfriend John R Walker, an Australian professional artist exhibiting for more than 30 years, offers an analysis on what the ECL system might mean – among other things - to collective rights management in the UK. Here's what John has to say:

In 2006 Britain introduced an Artist Resale Royalty [ARR] scheme. This scheme involved a radical re-writing of the normal understanding of exclusive individual rights. Under the UK scheme usage of this right is compulsory and collective management of the right is also compulsory. Further, rightsholders have no rights over the terms of usage of the right; in fact, the only thing that rightsholders have is a right to remuneration. 

Britain’s ARR scheme can be seen as a prototype of much wider reaching changes to the meaning of copyright currently being discussed in the UK.

In 2009-10, Australia implemented an Artist Resale Royalty scheme that was initially modelled on the UK’s ARR scheme. 

In January 2013, Senator Gary Humphries placed questions on notice to the relevant Australian Federal Arts Minister, seeking details about the operations of the Australian ARR. The answers supplied reveal some serious structural problems that are inherent to the scheme’s origins in the UK compulsory, collective management model.

A busy (and clueless) Bruno while
trying to get a clue about
royalty payment schemes 

The kernel of the nine questions was Question 8: 

If the scheme can deliver the smallest individual artist royalty payment at $50, with a 10 per cent administration fee of $5, why does the scheme charge an administration fee of $1 000 to deliver an individual royalty payment of $10 000? 

For constitutional and legislative reasons, Australia’s ARR does not involve compulsory, collective management, and therefore the large cross-subsidy outlined in Question 8 is not compulsory.

The Australian experience of ARR has revealed just how large a cross-subsidy of uneconomic management costs is intrinsic to the UK’s compulsory, collective management model. The answers to Senator Humphries questions have revealed that much - in fact most - of the royalty payments made to date are well below the economic-to-collect-and-deliver threshold and therefore the scheme’s viability rests almost entirely upon over-charging on the delivery of the top 20% of royalty payments so as to subsidise the costs of the large amounts of economically unviable work being done by management. 

The following information is from a recent letter that I sent to Senator Humphries, where I provided analysis and assessment of the information provided by the Arts Minister to the Senator’s questions:

“The answers provided to my initial series of questions show that of the approximately 5,000 royalty payments to December 2012:

·         the bottom 2,000 royalty payments totalled $115,379 - an average value of $55 each;

·         the middle, approximately 2,400 royalty payments, had a total value of $396,964 - an average value of about $164 each; and

·         the top 600 royalty payments had a total value of $296,772 - an average value of  $495 each.

The average transaction cost of the scheme is given as $30 which equates to the transaction levy (@%10) on a $300 royalty payment.

Most of the scheme’s transactions are well below the current economic-to-collect-and- distribute threshold. Many of the royalty payments (2,000 or 40%) were of an average value of just $55 each and it is likely that the median value for individual royalty payments will be found to be around $100 (or less).  

Therefore about half of the scheme’s transactions are generating transaction fees that are one third or less of the average transaction cost of $30 (average transaction costs dropping to $10 or less is not likely, unless the scheme is redesigned).

Of the top half of individual royalty payments, many would be between $150 to $300 each. Therefore many of the scheme’s remaining transactions are generating transaction fees that at best break even with the average transaction cost of $30.

Currently the scheme’s chances of long-term viability rest on the large cross-subsidy, that is intrinsic to the scheme’s service ‘fee’ structure, growing to the point that it can largely underwrite the costs of most of the work done by the scheme. For good constitutional and legislative reasons this cross-subsidy is voluntary for artist right-holders.The long-term viability of ARR is questionable.”

In conclusion, compulsory collective management and /or quasi-compulsory - such as ECL - management, intrinsically create a need for large cross-subsidies. In the case of ARR, there is no justification at all for compulsory cross-subsidy. In the case of some of the proposals currently being discussed in the UK, the question becomes: 

Why should any genuine member collection society take on the large costs of administering thousands of small royalty payments for people who are not members of that society?

In fact, normally, if a management of a members’ society did so, it could be justly accused of being unprofessional by wasting money on non-members (in its submission to the copyright consultation in 2012, the ACLS details its concerns about the costs to members and dubious benefits of taking on an ECL type scheme)

Waiting for his royalty
payment (and some food)

In Australia, it is likely that the next government will move to make the Australian ARR a voluntary, opt-in collective management scheme. Doing this will do much to contain the scheme’s current potential for reverse economies of scale. And, voluntary collective management is almost always more effective and efficient than mandated collective management.

One of Australia’s most respected copyright law experts, Shane Simpson, in a detailed report Review of Australian Copyright Collecting Agencies (1995), stated the following about proposals for compulsory collective management, 

“experience shows that statutory licences drafted without appropriate industry consultation are often unworkable and voluntary licences are required to replace them.” 

Simpson then went on to discuss ECL as a proposal. He found against the notion because, as he observed, 

“It is an important characteristic of voluntary licensing schemes that participation be voluntary.”

Many thanks John for this thorough analysis! Merpel wonders whether there are any IPKat readers who feel more optimistic about the UK ECL system and its implementing regulations ...