7

Written evidence submitted by the Independent Film & Television Alliance (IFTA)

1. Preamble

1.1. The Independent Film & Television Alliance (IFTA) represents the interests of 150 companies in the business of production, financing, distribution and international sales of films and audiovisual works. Based in Los Angeles, IFTA has member companies all over the world, including Asia, Latin America and Europe. The United Kingdom is home to 14 IFTA members, among them some of the most established companies involved in the international financing and distribution of British and international films. Additional information on IFTA and its membership is available as an appendix to this paper.

1.2. IFTA welcomes the opportunity to participate in the BIS Select Committee’s (thereafter "the Committee") Inquiry into the Hargreaves Review [thereafter "the Review"]. As a member of the UK’s Creative Coalition Campaign, we discussed relevant IP issues with Professor Hargreaves and staff at IPO in the past and were amongst the organisations who filed formal comments during the Review process. Our comments in the present paper put more emphasis on the Government’s published response to Hargreaves [thereafter "the Response"]. We hope these can contribute helpfully to the complex enterprise of introducing some changes to UK Copyright law, as is the Government’s stated intention.

1.3. IFTA welcomes the Government’s agreement with the Review’s conclusion that IP is important to growth. We express the hope that Government will not be tempted to experiment with radical reform of existing copyright legislation and will continue to be guided by the principle – as suggested in the introduction to the Response – that "small improvements in the IP system can make an appreciable difference to the UK economy". Reform which weakens copyright protection can only prove detrimental to the global market performance of British cultural production. IFTA welcomes the moderate tone of the Response and especially its endorsement of the Review’s view that "we must not put our hugely important creative industries [../..] at risk by what we do". We express the wish that the Committee will also uphold this principle.

2. Evidence and policy-making

2.1. IFTA supports both the Review’s and the Response’s insistence on substantiated and transparent evidence as the prerequisite for formulating sound policies in the area of IP. We regret, however, a tendency in both papers to vilify so-called "lobbynomics" or the alleged "overabundance of effective lobbying" in relation to the production of evidence. IFTA and allied organisations aim for the highest standard of evidence and do not pursue arguments for law makers and Governments unless these are substantiated by the empirical facts available to us through our access to the microeconomic realities of our members’ creative businesses.

2.2. We note that IPO is scheduled to issue Guidance on what constitutes open and transparent evidence and we look forward to this document being released later this autumn. However, we also believe standards of "quality evidence" must be defined objectively in order to avoid ideological contamination. We urge IPO to consult fully with concerned industrial private sector groups in establishing such standards: We at the business coal face know better than others what issues arise in gathering evidence.

3. Copyright and International policy

3.1. As an export led trade association, IFTA understands how important maturing markets such as Brazil, South Africa, India and China are becoming for audiovisual content companies. We support unreservedly the Review’s recommendation that a special emphasis should be placed on opening up IP market opportunities in these countries, with Government in a strong support role.

3.2. IFTA also believes the UK Government has a unique opportunity to take a leadership role amidst the international IP community in this time of transition and reform. Through successful exports and program-format sales, the UK’s audiovisual content sector is successfully integrated into today’s global marketplace for rights. Its companies need global legal security, with similar principles underpinning licensing contracts throughout the world. The UK’s leadership in the creative industries lends Government important credibility and weight in international fora such as the EU, WIPO or WTO.

4. Digital Copyright Exchange

4.1. IFTA is intrigued by the Digital Copyright Exchange [thereafter "DCE"], a proposal which is at the core of the Review. We also concur with the Government’s view as expressed in the Response that its role in devising and operating the DCE should be that of a facilitator, with the various stakeholders in the market for rights taking the lead. A more hands on approach, establishing the DCE as a direct form of intervention into both the structure and practices of the marketplace for rights, would have sat oddly with Government’s broadly deregulatory philosophy.

4.2. IFTA believes a centralised Exchange will not – in and of itself - create the marketplace for digital rights and, in fact, may distort it, unless clear expectations and appropriate safeguards are built in. As a threshold matter, it is of the utmost importance that any such DCE act only as a neutral "accelerator" and conduit, not a market player in its own right. Transactions should be controlled by individual registrants as actual or moral persons, or by their appointed agent.

4.3. Further, the DCE proposal itself may well rest on a fundamental misconception as to how content is financed, marketed and distributed. Simply put, the concept and functions of DCE may be incompatible with the structure in the market for rights which supports Independent film. While a major Hollywood studio film is based on a hundred per cent financing of production costs by the studio against an outright upstream purchase of all worldwide rights in all media, the Independent film (and increasingly, high-value TV drama) is entirely dependent upon the producer being able to ‘pre-sell’ rights to specific countries and specific media against financial commitments which will allow the film to go into production. In this model, the ultimate revenues depend on being able to hand-select distributors by territory and media who have the ability to maximize revenues from this particular, unique title and who, in many cases, are positioned to share the risk of production.  As a straightforward marketplace for buying and selling rights to completed films, the DCE simply would not address the financing, distribution or the marketing needs of the independents. At best, the DCE could be envisaged, perhaps, as a tertiary platform to make inroads into smaller markets once primary and secondary revenue streams would have been secured through standard distribution deals.

4.4. IFTA concurs with the observation that the transactional costs involved in licensing content to new audiovisual platforms place many independents at a competitive disadvantage. The majority of buyers in this new universe prefer to license high volumes of content (and known "blockbusters"), both because of the nature of their business and because it keeps transaction costs manageable. Independents who directly manage small catalogues of rights cannot benefit from this packaging effect and emergent platforms often cite unit transaction costs as an obstacle to purchasing independent titles. However, IFTA observes that there are a number of business possibilities that may emerge to alleviate the issue of transaction costs as revenues of digital services increase and distributors emerge at a local level (backed-up by real performance metrics), who will be in a position to advance royalties against revenues from these rights as well as against traditional distribution.  Therefore, while DCE might play a role for certain rights holders or as a short-term vehicle for licensing older library titles, there is a huge risk that – if not carefully crafted -- it will create a new, rigid regime that will prevent those important business models from emerging at all.

4.5. Finally, IFTA agrees with the Response where it suggests that, if pursued, the DCE should be "compelling" not "compulsory" and that its success ultimately must rest on its "commercial attractiveness". One concern we have had with the Review was the suggestion that strong disincentives not to register content rights with DCE should be built-in. These measures would discredit the DCE, undermine the development of a cooperative culture between stakeholders and inevitably raise competition concerns. We are encouraged by the tone of the Response in this respect.

5. Cross-border licensing

5.1. IFTA notes the statement in the Response welcoming the European Commission’s initiative in proposing a cross-border licensing framework. The EU’s approach in this area contains ideas which, if implemented, may hinder rather than stimulate the growth of online audiovisual distribution in Europe. We therefore also welcome the Government’s intention to work with both the EU and UK interests to develop proposals that are "compatible with current effective licensing models" (Response, p6). In exploring these issues with Government, the Committee is urged to take the following observations into account:

· the territoriality of rights is well adapted to the EU’s great variety of cultures and languages – each film or TV program needs a bespoke release strategy and marketing campaign in order to attract an audience in each unique culture or language area

§ simply making films and other content available on an EU-wide basis does not – in and of itself – create a new market. In addition to barriers such as costs of dubbing, subtitling, and digital format transfers, low demand for non-domestic content, will not be overcome by enabling European consumers to access any platform from anywhere

§ weakening the territoriality of rights would – at this stage – create severe financing problems for Independent film, TV programming and other content. UK independent films are reliant on the ability to pre-sell exclusive territorial rights, against financial commitments which allow the film to go into production, and to use the process to establish a film’s distribution network.

5.2. IFTA urges the Committee to press Government not to confuse the ends with the means in its engagement with the EU’s plans for cross-border licensing. We believe the principles outlined in the Response in relation to the Digital Copyright Exchange, could serve as sound guidelines in the approach to a possible EU-wide scheme: it should be supplemental, not substitutive; stakeholders should be free to register or pursue alternative routes to market; sellers, not civil servants, should set rates; and incentive to join should ultimately be the commercial attractiveness of the scheme.

6. Orphan works

6.1. IFTA is aware that Government’s action on the orphan works’ front will be developed against the background of a proposed EU directive on orphan works and hope the UK will use its influence to ensure that a sound, balanced and realistic approach prevails in the EU context.

6.2. Works presumed orphaned have been a headline issue in the national and international debates on copyright since the advent of digital reproduction technologies. There appears to be a consensus that the magnitude of the problem justifies legislative intervention. IFTA is concerned that no evidence has been produced to support the need for legislation where audio-visual is concerned. Nor, to our knowledge, has there been any initiative to look at a code of practice or other forms of stakeholder-led voluntary approaches as a possible alternative to a legislative or regulatory approach. IFTA urges the Committee to request that Government ensures that the planning of future policy is based on solid and verifiable evidence.

6.7. On the specific issue of diligent search criteria, IFTA is concerned that the language of the Review’s recommendations could be interpreted as meaning that the Digital Copyright Exchange would be deemed the only necessary port of call for satisfying diligent search. IFTA believes it should be made clear that the DCE would be only one of several authoritative sources that must be consulted in satisfying these criteria.

7. Role of collecting societies

7.1. Government’s plan to publish minimum standards for voluntary codes early next year is helpful and we look forward to providing further comments on the content of this proposal.

7.2. Self-regulation or co-regulation have proven their usefulness and efficiency in other areas in the past and we agree with Government’s positive assessment of the voluntary codes of conduct promulgated by the music industry, under the arbitrating role of the BCC. We also accept that a more robust co-regulatory approach may yield more effective standards across the board.

7.3. While collective management of rights has its role to play in the rights’ licensing economy in circumstances where a free contractual approach based on individual negotiation over terms would not be practicable, we note that the instances favouring collective management for audiovisual product are far more limited than has been the case in music (e.g. cable retransmission). IFTA believes Government should not be tempted to associate copyright reform with a widening of collective management as a means of regulating rights transactions in the online universe.

8. Exceptions

8.1. IFTA is concerned that both the Review and the Response support the introduction of a broad exceptions regime to enable format shifting and private copying.

8.2. We regret that little effort to differentiate the potential impact of format-shifting on different sectors of the creative industries is reflected in either the Review or the Response. We reiterate that Independent film financing is reliant on licensing rights to specific uses, platforms and markets (e.g. DVD, Blu-ray, VoD) as a means of financing production. A blanket format shifting exception may affect value in those different segments of the film exploitation cycle, and produce a negative impact on the financing of new films. We urge the Committee to request Government to conduct a closer impact assessment of the introduction of such an exception on the audiovisual sector. We further believe Government should give serious consideration to exempt certain sectors from this exception.

9. Enforcement

9.1. IFTA strongly agrees with the Government’s observation that there is no clear cut causality between the limited online offer of strong legitimate content (as alleged but not substantiated by the Review) and widespread digital theft. We suggest that the argument that one fosters the other is rhetorical: no industry in the world may successfully compete with piracy as a business model offering illegal content for free.

9.2. The proposal that Ofcom should establish benchmarks and data on trends in online copyright infringement is useful. The Government’s IP Crime Strategy document has also come to our attention and we will be providing comments and suggestions on this paper at a later stage.

9.3. We welcome references in the Response to Government’s commitment to fully implement the DEA’s measures to combat peer-to-peer infringement. In particular, we welcome the proposed introduction of a £20 fee for consumers filing appeals, as a measure to discourage vexatious or futile appeals designed to paralyse the mechanism.

9.4. We note the Government’s decision not to implement the site blocking provisions of the DEA, following formal advice from Ofcom. We also welcome the Government’s stated intention to "continue to explore the issues raised by Ofcom’s report and [../..] do more work on what other measures can be pursued to tackle online copyright infringement". IFTA believes strongly that unless the issue of piracy perpetrated by websites offering pirated content is tackled forcefully, there will be a huge gap in the UK’s deployment to contain online piracy. IFTA would welcome a robust statement from Government to the effect that it intends to continue to examine limited site blocking as a possible addition to the anti-piracy arsenal.

9.5. Finally, we are alarmed, by the premise in the Response that if the enforcement of rights is deemed either "uneconomic or unreasonable," the relevant rights should necessarily be attenuated through limited exceptions. The justification presented in the Response is that not to do so would dilute respect for legitimate enforcement. We beg to differ: introduction of exceptions and limitations just as easily creates confusion about the scope of the creators’ exclusive rights and disdain for laws that may be characterized as unduly detailed and circumstantial. Furthermore, notions such as "uneconomic" or "unreasonable" are subject to considerable ideological and political inflexions and may fail to factor fully the need to maintain strong incentives to creativity and enterprise. We are concerned about this approach leading to a general drift towards resorting to statutory exceptions each time enforcement appears to present challenges.

5 September 2011