Mutualised schemes for the funding of and reward to creative activities

Posted on

Nota for English speaking-readers: the notion of a mutualised scheme is less familiar in English than in Latin languages (in part because of the use of “mutual” for companies). We use this expression for schemes where every potential user contributes equally to the funding of a global ecosystem of activities.

Two imperatives

  1. Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.
  2. Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.

Universal Declaration of Human Rights (1948), art. 27

The text that follows addresses two issues that have been up to now excluded form the official debates on culture and the Internet:

  1. How can it be made possible for all to freely exchange on a non-profit basis the digital representations of published works [1]?
  2. What can we put in place to fund creative activities and reward their success?

Let’s first see why these questions are legitimate and why they must be addressed together.

The interest of a positive organisation of non-market exchanges of digital representation of works

Simply asking the first question is considered heretical by some copyright theologists. But why would it be per se harmful for each person to be able to transmit or make available a cultural production without looking for profit? Why would this contribution to the dissemination of culture be harmful to culture itself? Let’s assume that these activities no longer take place “under siege”, hunted by private police groups (often using emans that courts have judged illegal, both in Europe and in the US). Let’s imagine that their authors are no longer given unflattering names, that the information space is no longer polluted by fakes injected in the name of P2P warfare. Let’s imagine that the non-market sharing of digital representations of published works is recognised as a legitimate activity.

Of course, things would change compared to the present situation. The new element would not lie in the existence of file sharing, that is presently described as massive. Of course, its scale would grow. But the truly new element would lie in the ability of its practitioners to develop ethics, good practice and tools and intermediaries to support them. Turning non-market exchanges to a legitimate activity would lead to a much wider and more diverse attention to works. The diversity of works that can reach a significant audience would be increased.

Non-market activities

Non-market means here “with no financial transactions or profit associated with the activities themselves, and no associated transaction costs (authorization, control, surveillance)”. For an explanation of the cultural value of non-market activities in the information domain, and more generally of indirect coupling with information activities and the economy, see Yochai Benkler’s Wealth of Networks. “Non-market” is more precise than “with a zero (free of charge) marginal cost” : accessing works within a catalog on the basis of a paid-for subscription is not “non-market” even though the marginal cost of accessing one work may be zero. However, providing means to non-market activities can be a market activity, for instance for added-value intermediaries. The case of content hosting sites funded by advertising probably deserves a specific treatment: their users activities are non-market, but when they sell these users’ attention time to advertisers, the sites become, for this part of their activity, commercial distributors.

Non-market does not mean “administrated by a bureaucracy”. On the contrary, non-market information activities represent a new step towards fulfilling the promises of the market economy in terms of an efficient allocation of resources. Markets, despites their irreplaceable value in many domains, struggle to fulfill these promises, because of the constraints of their concrete organisation: inequality of information and power, control on distribution channels, interdependcy of products and technology. The lowering of transaction and coordination costs in non-market activities make them a new production model, beyond state/administrations and markets/firms and contracts. Non-market activities are not “outside the economy”: providing means to information exchanges represents a twice bigger share of developed countries GDP in comparison to sales of information (including information sales within services, advertising based intermediation and selling information carriers) [2].

Why would a legalised file sharing develop good properties? When file sharing is clandestine, it uses predominantly technology that favours fast flows of information, such as Bit Torrent for instance. This is adapted to quickly disseminating contents of high visibility. Thus, when kept illegitimate, file sharing tends to replicate the pattern of extremely strong concentration of attention to a limited number of works typical of centralised publishing models. In contrast, if one can count on time, on accumulating accessible contents, it becomes interesting for users to share rare contents: one can have a credible expectation of getting in return rare contents from others. Is this a purely theoretical view? Not at all, it is an everyday fact in domains such as the open Web, music information communities, listener archives of public and grassroot radio, and more generally rare and orphan works.

The need for society-wide schemes for the funding of and reward to creative activities

Of course, an increased and officialised file sharing does not ensure by itself an adequate funding to and reward of creation. If the aim were to simply keep the present level of funding of artists and truly added-value intermediaries (which is insufficient), one could imagine to simply recognise the legitimacy of file sharing [3]. However we face a must greater challenge. In the information era, cultural activitiés develop to an unprecedented scale, precisely because they develop in the non-market sphere. This means that societies must be able to fund the conditions of existence of a domain whose perimeter is much extended, while some existing mechanisms are diminished in their capacity to contribute to this funding. The sale of physical carriers will remain – whatever many commentators say a significant activity: in a world of abundance and perpetual mutation of information, one needs carriers of works that preserve them in a stable form. But the volume of this activity will inevitably decrease in comparison to times when information and works were accessible only on carriers. We need new funding mechanisms, able to grow with cultural and artistic activities and to contribute to the recognition of quality within the corresponding productions.

Is this such a break with the past? Since the cultural domain has emerged as a specific field, the funding of creation and the reward to creators has always been through a variety of mechanisms. Indirect mechanisms has always dominated in comparison to those resting on the sales of individual cultural goods or proprietary rights [4]. These indirect mechanisms exhibit themselves a wide variety: personal activities of tha artist (work for hire, concerts), remuneration for side activities (teaching) or statutes, sponsorship, government orders, … and many mutualised mechanisms such as legal licenses, distribution of the product of fees on carriers for private copying, for instance.

After this introduction, one should at least feel reinsured on one point: the earth will not open up beneath our feet if we start thinking about a society-wide mutualised scheme for funding creation associated with a positive organisation of free non-market exchanges of digital representations of works.

Mutualised funding vs. B2B licenses: a choice of models

Large publishing companies and some rights management societies call everyday for new mechanisms: universal surveillance, automated threats and sanctions, compulsory communication in favour of their presently preferred business models. In parallel, a new model has appeared in part of their offers and communication: catalog licensing to ISPs. Some analysts described it as a reappearance of the global licensing scheme temporarily adopted by the French Parliament in December 2005. This comparison neglects a fundamental difference.

Mutualised funding schemes have one common point: they set in parallel a flat-rate fee and use rights for individuals. In other terms, a legal license is given to individuals for certain acts, the fee contributing to the overall ecosystem of creation [5]. In the present legal terms, it may be necessary to consider the fee as ensuring that authors do not face an unjustified prejudice and that the normal exploitation of the work [6] is not compromised. In political philosophy terms, one will see the fees as a contribution to a common interest that includes those of authors and artists, in accordance with article 27 of the Universal Declaration of Human Rights.

In contrast, in B2B (business to business) licensing to ISPs, the publishing groups would provide the Internet service providers with a license in exchange for the payment of a per subscriber fee. In the worse versions of this model, it would just exempt ISPs from the obligation (which the majors lobby in parallel to establish) to monitor usage of their subscribers or impose/advice them to use filtering software. In other terms, users could still be prosecuted, but the liability of ISPs could no longer be invoked. In less extreme models, users would be authorised to download works included in the licensor’s catalog. Instead of setting a general positive right for users, there would be a case by case transfer of rights for the ISPs to let users access licensors’ catalogs. Large publishing groups would retain control on the offer and hold a strong contractual power on ISPs. Experience shows that in such a situation one can at best hope to get an oligopoly and most likely a segmented market between subscriptions giving access to various catalogs. In such a situation, authors and consumers would be “the turkeys of the stuffing” as we say in France despite our ignorance of Thanksgiving. The scarcity of the offer of the majors and the concentration of promotion on a few titles would reign.

There is no reason to exclude such a model from the options submitted to a public debate. But for the quality of this debate, it is necessary to differentiate it clearly from mutualised funding (or global licensing, if one prefers) models. These models are characterised by the creation of a positive right for users to freely exchange without profit the digital representations of works that have been published.

The fundamental parameters of a mutualised funding scheme

Putting in place a new type of mutualised funding scheme associated with the free non-market exchange of digital works can not be an object of improvisation. It calls for an in-depth debate between stakeholders, experts and the public. Many options exist for the type of mechanism and its parameters. Some authors have proposed mechanisms such as competitive intermediaries where each individual would assign the amount of a fee to an intermediary that would then redistribute it. Intermediaries would compete on their posted policies. Such approaches can be very interesting for managing orphan priorities in medical R&D or as a complementary mechanism in the cultural or media domains. But when the matter is to accompany such an important transition than the creation of a free non-market creative works exchange sphere, a general redistribution mechanism based on usage [7] of works is preferable. Such a mechanism is based on the individual preferences of each individual for individual works, leaving with the public the fundamental choices. But it provides a global framework and authorises a global governance debate. Our analysis thus situates itself in the frame of such a scheme. In introduction to future debates, it proposes a few thoughts on its fundamental parameters.

Works included in the scheme

A first choice regards which works will be included in the scheme (that is works that will benefit from the redistribution of the collected fee and whose non-market exchange will be officially freed). A possibility is to include every work that has been the object of a dissemination to the public (under a free license or under proprietary reservations, free of charge or paying). At the other extreme one can imagine that every creator or copyright holder would be free to include or not a work in the mechanism. This last choice would severely limit the interest of the scheme that lies in its simplicity and legal certainty for users. Some limits frame the choice:

  • The scheme must not harm the freedom of authors to decide when they make a work public for the first time: its application can be automatic when a work has been public, but never before! It can be interesting to consider that giving access to the members of an information community (accessible through a subscription, with a protected access) does not make a work public in the sense of including it in the scheme. This approach will permit the separated development of commercial models for information communities that evaluate works before publishing them (or not). The delineation of this situation requires some specific work.
  • If one lets authors or copyright holders free to insert or not works in the scheme, it must be obvious that a refusal implies renunciation to the benefit of the redistribution of funds. Conversely, disseminating a work under a free (for non-commercial use) license opens by nature a right to the redistribution.
  • Finally, a mutualised funding scheme is meaningful only if ones goes back to the normal enforcement of copyright/author rights: a posteriori judicial decision on possible infringements. No a priori technical obligation (DRM, filtering) can be imposed in the full information infrastructure in order to accommodate the models of those who refuse the benefit of the mutualised funding scheme.

For some media, putting in place a mutualised funding scheme redistributed on the basis of the usage of works is not sufficient to ensure the existence of some functions necessary to creation. This can be the case for instance for media where producing a work is costly and requires a complex organisation: film, audiovisual production, and for other reasons, video games. The Attali committee (put in place in France by the Presidency and asked to make proposals for “unleashing growth”) has wisely suggested to complement the mutualised funding scheme it recommends with specific renewed support schemes for the production of works in these media.

The amount of the fee

In the French 2005 global licensing version, paying the fee and getting the associated rights was optional. This weakened the proposal for two reasons: the collected sums were not predictible with certainty and the existence of internet users choosing not to enter in the scheme could be used as a pretext to argue a continued need for DRMs. The first point led at the time to all kinds of fanciful statements on the insufficience of the collected sums. A compulsory (for all broadband Internet subscribers) fee seems thus to be the only credible choice. In practice, if the freedom of non-market exchange of digital works is confirmed, it will establish itself as a distribution mechanism that is so much superior to others there will hardly be many Internet users abstaining from using it. A social adjustment of the fee according to household income (in order to avoid creating a further digital divide) must of course be considered. Those who argue an increased risk of igital divide should nonetheless have been moved to speak earlier, for instance when the European Commission refuse to include broadband Internet in the definition of universal service.

One of the parameters that needs to be discussed is the initial amount of the fee. Some reference points can be given for a future debate that must also take in account distribution of the collected sums by media. The distribution of the private copying levies and more generally the governance of collective management have given rise to much criticism. Squaring the Net will soon publish an article dedicated to the needed reforms in this matter. However, the private copying levies redistribution also provides some interesting inspiration, in particular the principle of distribution in 4 fourths [8] (authors, perfomers, producers et added-value intermediaries [9], support to creation and dissemination).

The present amount of author rights income associated to end-consumer sales of cultural goods and services

In France, the yearly amount of author rights and neighbouring rights for end-consumer sales is approximately 700 millions euros, of which 400 millions for books (sources : Chiffres clés 2008, DEPS, French Ministère de la Culture and its specific studies on the economy of author rights for various sectors [10]). For music, moving image, and multimedia, less than 20% of the overall yearly 1200 million euros collected by management societies concern end-user sales. The rest comes form radio and TV licensing, the public performance of recorded music, commercial performing arts anriad va more generally licensing to commercial distributors [11]. However, this rate is variable accross sectors.

An estimate of the initial value of the fee (as a starting point for a future negotiation) could be based on aiming at a global collected fee (adding the private copying levies if they are maintained) representing twice the amount of rights paid to authors and performers for direct sales or licenses to individual end-users (sound and video recordings, paid-for downloads, multimedia publishing, books) that risk to be negatively affected by the development of free non-market exchanges. In other terms, one would guarantee authors that despite the possible substitution of non-market exchanges to sales and licenses of digital works to end users, the total amount of funding that is redistributed to them would at least not decrease. The multiplication by 2 is for the two other fourths distributed to producers, publishers and added-value intermediaries.

Some will argue that only part of the income from rights that has served as a basis for our reasoning risk being negatively impacted by free non-market exchanges. They will stress the positive synergy between non-commercial exchanges and otehr activities that are source of income from author rights / copyright (some sales of carriers, performing arts, etc.). They will note that the book sector is – for the time-being not the first concerned by possible losses of income when it represents more than half of today’s rights income distributed to authors for sales and licenses to individual end-users. On the contrary, others will estimate that it is the full amount of individual end-user sales and licenses rights income that must be taken in account, if only to allow for a growth of the funding of and reward to creation. In this last case, it would be necessary to collect 1240 millions euros per year (700 millions euros multiplied by 2, less 160 millions d’euros of present private copying levies). If one esteems that only half of the present rights risk being affected, only 540 millions euros would have to be collected. The amount of the fee would thus be set to a figure ranging from 3 to 7 € per month for each household presently having broadband Internet access. Whatever is the outcome of the debate on setting the amount of the fee and its possible social adjustment based on income, the feasibility and economical acceptability of the scheme is not at doubt.

Distribution per media and evolution of the fee

If the private copying levies can provide us with some inspiration on the redistribution among types of actors, it is hardly a good example regarding their distribution by media and even more its evolution in time. These levies have strongly increased, without any indication the the activities that justify them (private copying) have grown in the same proportion. The distribution by media of the collected sums also seem to results form compromises disconnected from the real usage.

A distribution by sectors and evolution of a fee associated with the freedom for non-market exchange between individuals of digital works should be based on a more serious and verifiable mechanism. Which basis is to be used? The volume of exchanged data is not representative since it favours the media that are bandwidth consuming in comparison to more “concentrated” media. The true measure lies in the real usage of individuals, in particular the time budgets devoted to produce and access various forms of contents. For the detailed distribution of collected sums to beneficiaries, it is neither needed nor necessary to survey in detail individual usage (see coming article justifying the absence of need for such an observation for a just distribution, notably for small beneficiaries). In contrast, detailed usage surveys based on samples, in order to better know the time devoted to various contents and activities would much enrich the knowledge of cultural activities. These surveys would provide an objective basis for decisions regarding the evolution of the amount of the fee and its distribution by media/sectors, taking in account the specificities mentioned above. This basis would form the starting point for a negotiation (submitted to a public debate).

More in a coming article

Squaring the Net will be back in a coming article for an in-depth discussion of:

  • non-intrusive measures of the usage of works,
  • distribution keys for turning these measures in figures to be distributed to beneficiairies,
  • the governance of the corresponding decisions and more generally of collective management.

[1] For a definition of “published” and the link between this status and society-wide funding schemes, see the core parameters.
[2] Source : statistical data compiled for the study on the economic impact of open source software on innnovation and competitiveness of the ICT sector in Europe, pages 123-126 (study coordinated by UNU-MERIT for the European Commission, Enterprise and Industry DG).
[3] There is debate on the present effects of file sharing. Some describe it as an hemorraghe draining cultural creation’s blood. Others stresss that studies show that an increased file sharing does not harm the profit from works and even less the artists’ income, except possibly for a very small minority of best-sellers. This debate is here to stay. For music, the majors react to their unability to impose a model based on selling or renting limited use rights by reducing the offer and further concentrating promotion on a small number of titles. This has allowed them to maintain or even increase their profitability, but at the expense of a reduced overall market and reduced artist income. This reduction is for a part compensated by the enlarged offer from independant labels and individuals. However, the absence of an indirect financial return mechanism and the fact that they depend on the majors for distribution fragilises their activity. Rather than waiting for a conclusion of a debate on what is presently occuring (which is clearly unsatisfactory), wouldn’t it be better to discuss what could be a good solution?
[4] Even in this last domain, rencentMême dans ce dernier domaine, les différentes studies on the economy of author rights conducted by the Prospective and Statistics division of the French Ministry of Culture showed that the share of creators income coming from proportional rights is in constant diminution (lump sums paid as advances on rights playing the role of a disguised “work for hire”).
[5] Some confusion has arised since stockholders of rights started to state that teh fees collected (f.i. for private copying) were not constitutive of any rights for those who pay them directly or indirectly. According to this interpretation the fees would only be a compensation for illegal and harmful acts that were not completely possible to eradicate. When there remain some ability to independent reasoning in norm setting circles, such an interpretation is met with a big laugh.
[6] One must expect some debate on the interpretation of this formula in the coming years. Some will try to accredit the idea that “normal exploitation of the work” means any specific business model that can come to the mind of the copyright holder. If one were to admit such an interpretation, all the legal licensing mechanisms that were put in place in history and that contribute an essential part of authors and artists’ rights-related income would be illegal. To judge whether the “normal exploitation of the work” is compromised, one will thus have to go back to the “moral and material interests” of persons active in “scientific, literary and artistic production”, as the UHDR invites us.
[7] In a coming article on the measuring the basis for redistribution and the keys to be used for its redistribution, we will elaborate on the notion of usage of a work in non-market exchanges : it encompasses access, redistribution and other factors.
[8] In practice, for the private copying levies, this rule was adapted tovarious situations. For sound, authors receive 37.5 % and performers and producers 18.75 % each. For media where performer functions do not exist, the distribution is 37.5% each to authors and producers, etc.
[9] One will note the inclusion of added-value intermediaries in addition to producers and publishers. In the information exchange sphere, roles are redistributed.
[10] DEPS’ report of the economy of author rights in the book industry mentions a figure of 470 million euros of rights, but less than 400 million are actually paid to authors, the rest being paid to other publishers.
[11] Some commentators are afraid that the development of the Internet and of a free non-commercial exchange sphere could lower the income from commercial TV licensing. They fear that this could unbalance the economy of film production. This fear is legitimate, but it can only be addressed by putting in place specific and renewed schemes for audio-visual/film production. One must praise the the Club of 13 for its recent proposals towards freeing film production from its excessive reliance on television.