HC 743 Support for the creative economy

Supplementary written evidence submitted by the Publishers Association [SCE 013a]

1. Further to the written evidence which The Publishers Association ('The PA') has submitted to the Inquiry and further to my oral evidence session on 22 January, I thought it may be helpful to provide further detail on the issue of the robustness of the economic evidence and analysis in the Hargreaves Review for Intellectual Property.

2. This question has been the subject of debate in a number of the oral evidence sessions, including my own and that of Ian Hargreaves. Although the report is getting on for being two years old, it is right that the underpinning economic evidence remains the subject of scrutiny. First, because the anticipated impact on economic growth of the proposed reforms was and remains the principal underlying rationale for the policy. If this principle were to be suspect, or at the least not proven, it would call into question a large part of the Modernising Copyright agenda. Secondly, the need for better economic evidence was one of the primary recommendations in the Report itself. The evidence provided by creative industries was derided as "lobbynomics". Aside from the rich irony of this critique given the threadbare economic calculations in the Report, it does highlight the importance of having robust, rigorous and peer-reviewed economic assessments.

3. That said, The PA is not wholly opposed to any and all proposals to reform copyright and licensing as being taken forward by the Intellectual Property Office. Many of the recommendations will ensure that copyright is better aligned with the technologies now available to creators and consumers. However, the broad thrust of ever-further erosion of the underlying copyright framework is still visible in the Modernising Copyright document; but as this paper suggests, it has an extremely questionable underpinning.

The Hargreaves Position

4. The Hargreaves Review claimed that its recommendations would lead to an increase in UK GDP ranging from 0.3% to 0.6% (£5bn to £8bn) by 2020. The Government’s response to the Review endorsed this assessment. It also purported that recommendations would cut deadweight costs by over £750m. This analysis is set out in detail in "Support Document EE: Economic Impact of Recommendations" of the Hargreaves Review.

5. Document EE itself notes that there is a "high degree of uncertainty" in its analysis, particularly with regards to growth impacts. Of the 22 recommendations made by Hargreaves no assessment of growth impact is made with respect to 14 of them; no assessment of cost saving is made in respect of 11 of them. The proposals for text and data analytics exception and exception for new technologies are most conspicuous for not being subject to analysis-with the term "not quantified" being used. And yet despite these mis-givings, the growth assessment has been routinely subsequently quoted by Hargreaves, such as in The Lisbon Council "Intellectual Property and Innovation report" of September 2012 in which he cites the £5bn-£8bn growth assessment without qualification. [1]

6. The single biggest growth effect of any of the recommendations is the £2.2 bn which is accounted for by the recommendation to create a Digital Copyright Exchange. Document EE’s assessment of this proposal (in the section on Copyright Licensing) draws heavily upon the Copenhagen Economics Study "Economic Impact of Digital Single Market".

7. This report was published in March 2010 by the European Policy Centre. The report assesses the economic impact of creating a digital single market (DSM) in Europe, and concludes that the EU risks falling behind global competitors such as the US, Japan and South Korea, where digitalisation is already seen to be increasing productivity.

8. It argues that the EU economy could gain 4% GDP by stimulating a DSM, however, it currently lacks the foundations for doing this, namely:

· Insufficient e-skills;

· Insufficient infrastructure (broadband) provision;

· Different enforcement of rules, regulations and standards;

· A lack of policy attention;

· Legal barriers such as privacy & data protection, content & copyright, liability of online intermediaries; e-payments, electronic contracts; net neutrality; spam; cybercrime; dispute resolution; and self regulation.

9. The Copenhagen Study goes on to make clear that a number of policy outcomes would need to be achieved, including improvements in areas such as skills, e-commerce, consumer trust, changes in productivity and employment, cultural differences within the EU, and changes in the working practices of the public sector, if a DSM is to be created and the benefits to the EU economy fully realised.

10. The IP licensing regime is simply one small part of this (indeed research quoted in the study sees "content and copyright" as sixth out of 13 barriers to growth, with no specific reference to licensing, which is the main point of the proposed Digital Copyright Exchange).

11. So, having looked at what the Copenhagen Report actually says, what does Hargreaves make of it? Supporting Document EE says "Taking the four per cent increase in GDP through productivity and induced ICT investment, which the Copenhagen Economics Study expects from better market infrastructure, we assume (conservatively) that the impact of market infrastructure provided by a digital copyright exchange applies only to the four per cent of the economy which is copyright intensive. By 2020, on this basis, up to an additional £2.2 billion could be provided to UK GDP by a digital copyright exchange."

12. Hence, we can see that the most important element of the Hargreaves assessment is based on the mis-application of the growth impact of a wide range of policy measures, to just one single measure, copyright, which was at best a peripheral focus of the Copenhagen study. Hargreaves asserts that the benefits of the full range of policy proposals could be gained by just implementing one of them. Hargreaves draws a totally imaginary line between the policy and economic outcome, and the reasoning cannot bear the weight of the conclusion placed upon it.

13. With regard to publishing, Document EE makes two further heroic assumptions. First, it imagines that cross-border licensing in the EU would enable European publishers to emulate the US market, thus triggering growth of 30% (thereby completely ignoring the enormous cultural, linguistic and economic factors which so utterly distinguish the two areas); and secondly, it applies this estimate of 30% increase in licensing activity to the £1bn figure of export sales. But there is no earthly reason to imagine that improving licensing systems could ever lead to an uplift of this scale. This dyscalcula is then fed into another growth estimate for the creative industries of £0.6bn-again grossly (and erroneously) overstating the supposed beneficial impact of the policy.

14. The third biggest growth assessment (£2bn) is made with regards to the proposal for a private copying exception. Again, the level of heroism in the claims being made argues the need for a more dispassionate assessment. This figure appears to be predicated on nothing more scientific than the assumption that a private copying exception would enable the creation of new products and markets "up to half the size of the iPod market over the last decade, this could grow the economy by up to £2bn per annum.. .".

15. There are some clear omissions from this analysis, the most glaring of which is why it would be UK firms and companies which would exploit this new opportunity and not the "technology giants" already active in the sector, or indeed innovative firms from elsewhere in the world. And why would it be 50% of the iPod market-there is no basis whatsoever for making such a highly optimistic claim. (And predicating an assessment of an iconic product, unique in recent history for its seamless interface between hardware and software is highly dubious. It is rather like using the Mona Lisa as the basis for potential artwork revenues.)

16. Also, the Hargreaves assessment takes no account whatsoever of the foregone growth opportunities of licensing markets which operate successfully within the current copyright framework, although the Impact Assessment does at least mention their existence.

17. The impact assessment accompanying the Government's Copyright Consultation adopts these assumptions and adds other, equally faulty ones. For example, it states that "market evidence suggests the value of copying is already factored into purchase prices". There is no such evidence as it applied to published content

18. I hope the Committee finds this analysis of some use.

February 2013

[1] www.lisboncouncil.net

Prepared 27th February 2013