Economics has a go at copyright

Is copyright a good or a bad thing? Even if it’s worth keeping, is there any point in turning up the heat on illegal file-sharers? Such questions have attracted a fair amount of ideological dogma and rhetoric recently but wouldn’t it be nice if we could answer them scientifically? Can economics help guide copyright policy?

The Strategic Advisory Board for IP Policy (SABIP) has recently published a report on the economics of copyright and digitization. Christian Handke’s report reviews the literature and empirical studies on the economics of copyright and makes recommendations for further research with the objective of informing UK government policy. The report considers a plethora of interesting issues, finds a shortage of empirical research and ultimately suggests two questions to get the ball rolling:

1. How does digital copying affect the supply of copyright works?
2. Does the copyright system entail obstacles to desirable aspects of technological transition?

There appear to be at least three major hurdles in turning economics into copyright law: determining what should be counted as the benefits and costs of copyright and infringement, and deciding their relative weight; getting good data about such a complex and rapidly changing range of human activity and agreeing on how to interpret the data; deciding what policy should follow.

Some of this is down to science; but some of it must surely always be a matter of opinion or taste. For example, some say copyright’s limits on using old material is a cost – you could say it is a benefit (it drives people on to seek original expression). Are mash-ups a wonderful upsurge of grass-roots creativity or a tedious waste of time?

Economic research appears to be sorely needed but may not make uncertainty, risk, judgment and strategy things of the past.

Uncertainty and judgment

Almost all of the empirical studies to date on the economics of copyright have been about the impact of illegal file-sharing on the music industry. They generally show a negative effect, but to varying degrees, some showing no loss of sales – the sort of conclusion that spurs on the sceptics and stokes the debate.

Many of these studies have focussed on falling CD sales, but they would probably have declined over the last decade anyway. However, isn’t it more likely that illegal file-sharing, rather than eating away at CD sales, deprived the music business of potential profits in the burgeoning online music market? Without illegal file-sharing, the music business could plausibly have expected to see unprecedented profits over the last decade. Some of those profits could have been used to seek out new talent, not just tread water. Might consumers have sparked a renaissance, rather than recycling old material?

How to quantify something that might have been? We will now be able to monitor online sales in countries that have introduced tougher anti-piracy laws (e.g. UK, France, Sweden, Taiwan and South Korea): if unauthorized copying is reduced, do legal transactions increase or are they unaffected? According to IFPI statistics, digital music sales in Sweden in 2009 were double those of 2008 and in South Korea digital music sales grew by 53% in the first nine months of 2009.

But (and there is always a ‘but’) online music sales probably would have risen to some degree even if there had not been new laws. Arriving at figures that everyone will agree with seems impossible. But science, after all, never was more than our best guess.

Risk and strategy

Perhaps the trickiest question is what the policy implications of any reliable research results would be. The UK can’t unilaterally abolish copyright or even change its basic rules, which are fixed at European level. Handke says economic studies are unlikely to be much use for fine-tuning policy.

So what’s left? Making it more or less easy to enforce IP rights? Generally the cost of enforcement is borne by copyright right owners – even under the Digital Economy Act they will continue to bear the lion’s share of this cost. So how much money is spent enforcing copyright is ultimately a cost-benefit analysis that is decided by individual businesses. They will make that decision in relation to their own business, not total social welfare. Some companies may remain unenthusiastic about spending their profits in this way.

Gambling money on chasing pirates on the high seas and hoping it will shift public attitudes is not so much the science of money as the art of war.