Business ofcom piracy Regs surveillance & privacy

A look at Hargreaves from the #DEAct perspective – a year too late #DEAPPG

Hargreaves report as applied to the Digital Economy Act

The Hargreaves Report, entitled Digital Opportunity, A Review of Intellectual Property and Growth, has already been extensively covered in a land rush of people wanting to get an early comment out there. The feedback has generally been good though not from all quarters as this response from the Business Software Alliance shows.

It is difficult to provide objective comment on the report without simply been seen to be replicating parts of it as its 130 pages are well written and provide their own concise summary. Also the document took 5 months to compile and a 30 minute read is not going to result in an analysis that would not be bettered by reading the report itself.

It was however interesting to note that the first point brought out by Prof Hargreaves was something I wrote about yesterday following the Nominet Policy Forum which is the need to base policy on evidence:

“Government should ensure that development of the IP System is driven as far as possible by objective evidence.”

“The frequency of major reviews of IP (four in the last six years) indicates the shortcomings of the UK system. In the 1970s, the Banks Review deplored the lack of evidence to support policy judgments, as did the Gowers Review five years ago. Of the 54 recommendations advanced by Gowers, only 25 have been implemented. On copyright issues, lobbying on behalf of rights owners has been more persuasive to Ministers than economic impact assessments”

He specifically highlights the lack of evidence when addressing the problem of online copyright infringement:

“The uncertain and disputed nature of the prevalence data makes it difficult to reach confident conclusions about the impact of copyright piracy on growth. This assessment is complicated further by a number of other relevant points:

  • not all illegal downloads are lost sales – the user may not have paid a higher price for a legal copy absent cheap or free illegal versions;
  • money not spent on legal copies is not lost to the economy – it may be spent on other purchases. This is of no comfort to the sector suffering losses, but the effects across the economy will not necessarily be problematic;
  • even within the industry affected, purchases prompted by experience from an illegal copy (for example, concert tickets or other merchandise) can offset losses; “

“Most experts we spoke with and the literature we reviewed observed that despite significant efforts, it is difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole.”

Hargreaves concluded that the government should not “do nothing” re this particular problem but that Ofcom should urgently go about building an evidence mechanism that will be useful in determining the efficacy of the measures proposed in the Digital Economy Act – because it plainly is not there yet.

To a large extent Hargreaves has performed the due diligence that was not done during the passing of the Digital Economy Act. It is a shame it is a year too late.

You can download the report here – as government sponsored studies go it is one of the better reads.

I have cherry picked more of the report as pertains to the Digital Economy Act here if you want to save yourself the trouble:

“There are other questions to which we would like answers: how bad is piracy in the UK compared with other countries? A number of surveys, including the 2010 Music Matters/Synovate/MidemNet Global Survey, suggest that the UK has comparatively low levels: with illegal file-sharing perhaps below 15 per cent, compared with China, where some estimates suggest a figure approaching 70 per cent. What about the trend? Is online copyright infringement getting better or worse? We simply don’t know with any precision.

Another way of looking at economic impact of copyright infringement is to calculate it with regard to the creative industries, rather than to the whole economy, in order to assess the sectoral point of view. A study conducted for Business Action to Stop Counterfeiting and Piracy (BASCAP) puts a value on losses from piracy equivalent to 1.24 per cent of the contribution that the core copyright industries make to the UK economy We have examined this frequently cited study and found a number of methodological limitations, which together indicate likely overstatement of the extent and impact of piracy. This suggests that the 1.24 per cent figure is also at the upper end of probability.

Where else can we look for evidence of the damage done by piracy and the current enforcement regime? Creative industry sales figures provide a clue. In the UK music industry, though some individual businesses have suffered dramatically from the boom in digital downloads (HMV, the music retailer is an example) music industry revenues overall have continued to grow year on year: to £3.9 billion in 2009, up five per cent on 2008, driven by strong figures from live music, growth in international licensing and some stabilisation in the recorded musc market.

In the much bigger publishing market, figures from the Publishers Association, show that book sales have also grown or maintained their net value between 2004 and 2009. The video sector too has managed to maintain unit sales, but struggled somewhat to sustain value in the last two to three years. All of this in spite of recession in Europe and North America.

Copyright supports economic growth through incentivising creation of new works. How does piracy affect this incentive function? Here, US research suggests that while file sharing may have displaced music sales, it has not weakened the incentive to create new works. Other research found no evidence that changes since the launch of the original Napster file sharing site in 1999/2000 have affected the quantity of new recorded music or artists coming to market.

However some of the responses to the Call for Evidence reported some indications of weakened of incentives to invest in creation.

The BPI estimates that British record companies invest around £370m in A&R and marketing and promotion every year – approximately 10% of the global total. A significant decline in sales has a very profound effect on new talent development – in other words, it is reducing record companies’ ability to fund new artists and invest in careers… Across five years for which data is available… the total number of breakthrough acts in the UK was the lowest in 2010, with only 17 British acts reaching the 100,000 sales threshold for the first time. This follows two consecutive years where the total was much higher at 26 each year… The BPI collects data on A&R investment and has found that spend has fallen in each of the past three years for which data is available; from more than £250m in 2006 to £201m in 2009 – a decline of 20% over four years.- BPI submission

“The greatest barrier to growth in the creative industries is copyright infringement on the Internet … deterring investment in new content.” Motion Picture Association submission

“Spain, historically one of the strongest export markets for films, provides a sobering example… whereas producers used to count on Spanish distributors‘ minimum guarantee financing to cover up to 10% of a proposed film budget, advance distribution commitments today are rarely above 3-5% at best. This is the direct reaction to rampant online piracy…” Independent Film & Television Alliance submission

What conclusions can we draw from these wildly differing perspectives? Certainly that many creative businesses are experiencing turbulence, which translates into fears about the further, future impact of copyright infringement on sales, profitability and sources of investment. However, at the level of the whole economy or even at the level of whole creative business sectors, the measured impacts to date are not as stark as is sometimes suggested by the language used to describe them. That said, copyright infringement is a stubborn fact of the digital landscape which might well get worse and which justifies serious government effort in identifying the right mix of measures to address it.

What Impact Might Stronger Enforcement Measures Have?
Although online infringement of copyright and the measures used to combat it are well established phenomena, there is relatively little research evaluating the impact of specific approaches. A recent exception is a 400 page study by the US Social Science Research Council (SSRC)16 which reviews available evidence on what works and what does not in relation to addressing what they term “media piracy” (the term covers the making of both physical and non-physical copies).

The project looked at music, film and software piracy in emerging economies and at international and local enforcement efforts to address it. Despite the report’s focus on piracy in emerging economies (which it sees as a major threat to the interests of copyright owners in the most advanced economies) it also pulls together empirical evidence on enforcement in the developed world, including in the US.

The report argues that investment to date in stronger enforcement has not significantly reduced piracy. For example, it suggests that since the era of the free and illegal file sharing operation of Napster in 1999, when P2P sharing first took off, rights holders have brought legal actions against many P2P sites and have generally succeeded in shutting them down. But this is a short term effect. Looking at the approximately 27,000 Recording Industry of America Association (RIAA) legal cases brought against P2P users between 2003 and 2008, a Pew Internet and American Life Project survey, conducted just after the first RIAA announcement, showed a 50 per cent drop in the percentage of users acknowledging use of P2P services, from 29 per cent to 14 per cent. However, by 2005 this number had reverted to 24 per cent.

Hargreaves does recognise that we should not “do nothing” He recommends the Government should pursue an integrated approach based upon enforcement, education and, crucially, measures to strengthen and grow legitimate markets in copyright and other IP protected fields.

Specifically he wants a body of evidence to be built up so that “when the enforcement regime set out in the DEA becomes operational next year its impact should be carefully monitored and compared with experience in other countries, in order to provide the insight needed to adjust enforcement mechanisms as market conditions evolve.”

This is urgent and Ofcom should not wait until then to establish its benchmarks and begin building data on trends.

Trefor Davies

By Trefor Davies

Liver of life, father of four, CTO of, writer, poet,

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