# propositional writing

# We Must Acknowledge The Costs Of Copyright

Philip Dorrell, 22 January 2012

Copyright is often advocated based on its benefits.

But it also has costs.

It is not good enough to say: "the benefits are so great, we don't even have to think about the costs".

- Copyright is an aspect of public policy, both national and international. Therefore copyright should be subject to cost/benefit analysis. Which includes an analysis of the costs.

  When governments make decisions, we normally expect them to consider both the benefits and the costs of different choices that can be made.

  For example, if your country proposes going to war, you would expect your government to do more than consider the benefits of winning the war. You would expect the government to acknowledge the costs, including:

  - financial costs of weaponry and supplies
  - destruction of property caused by use of weaponry
  - deaths of military personnel
  - deaths of civilians

  With copyright, this isn't happening. Decisions are being made, in countries around the world, and especially in the USA.

  But instead of a considered cost/benefit analysis, what we get is: "Copyright is such a good thing, it is under threat, we must do whatever it takes to make it work".

- Copyright advocates do not acknowledge the costs of copyright.

  At least they fail to acknowledge the two costs I am listing below.

  They might go as far as refuting arguments against copyright where those arguments are partly based on those costs. But they won't go as far as actually acknowledging the costs.

- WIPO does not acknowledge the costs of copyright.

  At least not on their website. As far as I can tell.

  Certainly there is no mention of the costs of copyright on this page, this page, this document, this page, this page or this page.

  On the last of those pages they tell us:

  > Examples of recently developed forms of copyright licensing include the Creative Commons (CC) system and Open Source Software (OSS), which rather than representing renunciation or abandonment of copyright are actually new ways of exercising the rights provided under copyright and a form of distribution that relies upon the copyright owner's exclusive rights.

  This is as near as WIPO gets to publicly acknowledging that copyright may have costs, i.e. they acknowledge the existence of copyright licensing where copyright holders have specifically chosen to license their content for free distribution.

  Which, very, very indirectly, amounts to an acknowledgement that copyright has costs.

  As WIPO claims, authors licensing content under Creative Commons and Open Source licenses may not be renouncing copyright. But, those authors are renouncing the rights that copyright gives them, i.e. the right to disallow copying the licensed content.

  And, most of the time, the reason those authors renounce such rights is because they wish to maximise the value of their copyrighted content, by allowing free distribution, and in many cases, authorizing the free creation and redistribution of derived works, which further adds to the potential value of the original content.

  What this has to do with the costs of copyright, is that allowing free distribution maximises value of content, precisely because it eliminates monopoly inefficiency, which, as I explain below, is one of the two major costs of copyright.

- There are two major costs of copyright: monopoly inefficiency and loss of digital freedoms.

  Monopoly inefficiency is a cost of copyright which reduces the value of content, by preventing the consumption or use of content by consumers who would be willing to pay more than the marginal cost of producing copies, but who are not willing to pay the price set by the copyright-holder.

  Loss of digital freedoms is a cost of copyright enforcement – and copyright doesn't really mean anything if it isn't enforced, so a cost of copyright enforcement is a cost of copyright.

  Loss of digital freedoms reduces the value of all digital data, whether or not it is licensed for free distribution, and it reduces the value of all digital technology, because if we are less free to do stuff with digital data and digital technology, then that digital data and digital technology is of less value to us.

- 1. Monopoly inefficiency: copyright creates monopolies, and monopolies are inefficient, that is, they waste value.

  This can be explained by a simple example:

  - An author creates some content.
  - The author is able to manufacture copies of the content for 1 cent each.
  - The author decides to sell copies of the content for $10 each.
  - All possible uses of the content which would have value less then $10 but more than 1 cent are lost.

  The $9.99 difference between these two prices is the so-called monopoly rent.

  In the copyright-based model of production, the content producer has to charge a monopoly rent in order to recover costs of producing the original content and, hopefully, make a profit on top of that.

  Here is an example of a monopoly inefficiency calculation:

  - The content costs 1 cent per copy to distribute.
  - 1,000,000 consumers will buy the content at $10.
  - The average value to those 1,000,000 consumers of the content is $15.
  - So there is a $5,000,000 economic surplus. (This is the net benefit of the copyrighted content to those consumers who buy it for $10 per copy.)
  - Another 1,000,000 consumers would have bought the content at $4. Subtracting the 1 cent distribution cost, that's $3.99.
  - There is a $3,990,000 loss due to monopoly inefficiency, because those consumers never buy the content (that is, ($4.00 - 0.01) × 1000000 = $3990000).

  I could also include an analysis of the costs of piracy here, however that amounts to calculating the benefit of copyright, which although obviously relevant to the overall copyright "debate", is beyond the specific scope of this manifesto (which is just about the costs).

- 2. Loss of digital freedoms: copyright enforcement is incompatible with digital freedoms.

  Copyright enforcement requires the prohibition of something that is actually incredibly easy to do, that is, to copy digital data from one computer system to another computer system.

  In the long run, if it is at all possible to win the "war on piracy", it will be necessary to take away all of our digital freedoms. Hopefully this will be so unacceptable to the general public that it won't happen. But if it does happen, perhaps because the general public don't understand some of the technicalities involved, the cost, in terms of suppressed technologies and lost opportunities, will be immense.

  I will give an example based on the effects that copyright enforcement has on websites that enable the uploading, promotion, distribution and downloading of user-generated content. Any such website depends on the freedoms to do those things, that is: the freedom to upload digital content, the freedom to promote digital content, the freedom to distribute digital content, the freedom to download digital content. And of course, the freedom to run a website that enables other people to do all those things.

  All of those freedoms threaten copyright enforcement, because uploading, promoting, distributing and downloading are what you need to do when you are pirating commercial copyrighted content.

  To prevent piracy, either user-generated content websites must be closed down altogether, or they must be held responsible for ensuring that they do not facilitate piracy. (Even so-called "safe-harbour" provisions, which attempt to minimise the responsibility that websites have for policing the actions of their users, still impose some costs on those websites.)

  Either way, copyright adds substantial costs to the business of running a user-generated content website, even if their is no specific intention to profit from piracy.

  - Suppose that a user-generated content website is used by 2,000,000,000 users.
  - Suppose that each user generates on average one item of content which is of some value to an average 1% of other users.
  - Suppose that the average value of this content to those users who give it any value at all is 2 cents, and the cost to distribute one item of content to one user is 1 cent.
  - Assume that due to the costs of compliance with legislation which ensures the enforcement of copyright, the user-generated content website has to charge 10 cents for each item of content downloaded, which means that most of the users of the site consider that most of the content on the site is no longer worth downloading.
  - Given these assumptions, the total loss of value, per user, will be 20,000,000 × 1 cent, i.e. $200,000 per user.
- Technological advances in the last few decades have reduced the cost of copying digital data from one computer system to another to an amount so low that for most purposes it is effectively zero.

  For example, here in New Zealand, data rates on home broadband plans are about the equivalent of US$1.20 per gigabyte, at least for international connections. For television and movies that is still something; for anything else, i.e. music, software, books or pictures, it is indistinguishable from zero.

- The ability to create and distribute copies for "free" increases the monopoly inefficiency of copyright.

  One way to measure monopoly inefficiency is to consider what percentage is added to the marginal cost of production to get the fixed monopoly price.

  If an item with a marginal cost of production of $8 has a monopoly price of $10, then this percentage is 25%.

  If we consider a copy of copyrighted content priced at $10.00 with a marginal cost of 1 cent per copy, then the percentage is 99,900%, which is a very large percentage. This would appear to describe such an extreme level of possible waste, that we would wonder why anyone would consider such waste desirable. In other words, to achieve a 99,900% markup, the seller of the content is foregoing the opportunity to create copies with a value of anything less than 999 times the cost of production, such as only 998 times the cost of production.

  As the cost of producing and distributing copies approaches zero, this factor approaches infinity, implying an almost infinite level of waste.

  We should not necessarily conclude that copyright-holders are being "greedy", since they are just doing what they system expects and requires them to do. (99,900% markup might seem extreme, but of course in absolute terms it's only $9.99 per copy sold, which may or may not cover the author's cost of production.)

  It's not the copyright holders that we need to hold accountable, it's the copyright system itself.

- Improvements in technology which make it possible to create and distribute copies for "free" increase the copyright cost due to loss of digital freedoms.

  That is, the more things there are we can do because we can make and distribute free copies of anything, the more copyright costs us if it prevents us from being able to do those things.

- You won't find any of the above explained on the WIPO website.

  Technology has given us an amazing gift – the ability to copy and distribute digital data at near-zero cost. Copyright tells us that we must turn that gift down, because it interferes with the successful enforcement of copyright.

  Since WIPO never acknowledge the costs of copyright, they cannot acknowledge that technological advances have perversely increased the cost of copyright. The most they can say is things like:

  > In this regard, digital technology is greatly impacting on the territorial and temporal framework for copyright licensing. Moreover, a number of new licensing practices are emerging in the new technological environment. The proliferation of new licensing practices appears to reflect the development of collaborative creativity and a new, more dynamic position of the user in the network environment. Each user is now, thanks to readily available digital technologies and media hardware and software, a potential consumer, producer, creator and distributor of creative work. While licensing is finely tuned for the analog world, the digital environment has changed the way in which copyright content is marketed, distributed, delivered and consumed, and this has had significant consequences for the upstream and downstream processes of rights clearance.

  That is, a whole lot of waffle that ignores the whole question of how we should make the most of the fact that copying and distribution of digital content now costs zero, but which still gives the impression that WIPO are "up with the play" and "with it" when it comes to all the benefits of modern digital technology.

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This manifesto is a Propositional Manifesto. It is licensed under the Creative Commons Attribution-ShareAlike license.