Support for the creative economy

Written evidence submitted by the British Video Association [SCE 052]

The British Video Association  [1] (BVA) welcomes the opportunity to respond to the Inquiry into Support for the Creative Economy. The BVA represents the £2.3 billion video entertainment industry (measured by consumer expenditure) , whose members are drawn fro m film and television companies and independent publishers of video con tent, on DVD and Blu-ray Disc through to digital distr ibution for internet- connected and portable devices . By video we refer to the distribution space between theatrical release and broadcast television.

Audiences spend more than twice as much on video entertainment as they do on going to the cinema. The video entertainment industry is the largest single source of funds for film producers generating on average 47% of revenues and a third of revenues for television series and features , according to a survey carried out by Oxford Economics for the BVA [2] .

Summary

· The UK’s strong and effective copyright system provides the necessary certainty and property rights to attract continued investment in new film and TV production.

· We reject the Hargreaves Review’s conclusion that relaxing copyright law would stimulate net economic growth in the UK on the basis that there is no evidence that incremental GDP (Gross Domestic Product) would follow.

· The recommendation to introduce a blanket private copy exception without remuneration has the greatest potential to undermine the transition to a stronger digital market and would have a far greater impact on video entertainment compared with other creative sectors because it would ignore the unique characteristics of the audiovisual business.

· The failure to implement the DEA has caused continued infringement of rights-owners’ content, which is damaging investment and the potential for growth in the audiovisual sector

· There needs to be greater co-ordination between Government Departments in relation to intellectual property policy, education and enforcement; there is a need for the IP (Intellectual Property) Minister to champion British IP and ensure IP policy is created to sustain the UK’s continued global lead in creativity and audiovisual services.

· Copyright should be viewed as an asset and promoted as a property right that sits at the heart of our successful audiovisual industry; it needs to be included wherever film education is being taught.

The impact on the creative industries of the Independent Hargreaves Review of Intellectual Property and Growth and the Government’s Response to it

1. The UK video entertainment sector is in an exciting but delicate phase of development as the predominantly physical market is transformed by the consumer uptake of new digital services. Responding to the opportunities provided by new digital platforms and higher penetration of faster broadband speeds, many new legal video services have been launched which are meeting audiences’ changing needs and have enhanced the range of access to films, TV programmes and other content available to consumers [3] . This has enabled the video industry broadly to maintain its value, despite the impact of the challenging economic climate on businesses’ finances, consumers’ disposable incomes and increasing competition from new free TV catch-up services which contribute to the decline in the physical market [4] .

2. The Hargreaves Review of IP and in particular the worrying approach towards copyright has been unsettling for the audiovisual sector and a drain on resources. It created unnecessary unease in the relationship between creators and tech companies that provide the digital platforms for distribution to the users of connected devices. Furthermore, it surprised other national governments who look to the UK as defenders of robust copyright laws and has led to worrying developments at EU level where the EC has been encouraged to "modernise" the EU’s approach to intellectual property rights and is considering the re-opening of the EU Copyright Directive.

3. The unsubstantiated assumptions about the positive impact of Hargreaves’ recommendations were widely criticised as unrealistic by industry and the BIS (Business, Innovation and Skills) Committee acknowledged the ‘optimistic’ nature of some of the estimates used to support them [5] , despite having overlooked the BVA’s written evidence, omitted from its report. We were therefore very concerned by the Government’s rapid acceptance of the Review’s proposals and were disappointed that a more vigorous assessment was not carried out prior to the publication of the Copyright Consultation.

4. While we welcomed of some of Hargreaves’ policy proposals, such as the establishment of IP attachés and the recognition that design rights need to be up-graded, we questioned the apparent underlying assumption of the Review, namely that ‘something’ in the intellectual property framework was restricting growth and innovation and therefore needed to be amended. The Review seemed oblivious to the way the market is fulfilling consumer expectations with the myriad of new services already available and dismissed the wealth of evidence provided by the creative industries pointing to the impact on growth of other factors, such as access to finance, employment practices, tax incentives and the scale of the domestic market in ensuring business and economic success.

5. This view was supported by Oxford Economics’ analysis on behalf of the Alliance for Intellectual Property, the BVA and others of the Impact Assessments that accompanied the IPO’s Copyright Consultation. It highlighted the lack of neutrality and undue consideration given to the arguments in favour of amending existing copyright legislation rather than advocating the status quo in the absence of evidence that incremental GDP would be generated for the UK economy, contrary to the first recommendation of Hargreaves’ Review that policy should be evidence based [6] .

Format Shifting

6. There are at present 36 paid-for and 13 ad-funded TV- and internet-based video streaming, download and VoD (video on demand) services in the UK, not to mention the growing number of TV catch-up services lead by the BBC’s iPlayer, more than in any other European country, many of which do have private copy exceptions accompanied by levies. We see this as evidence that there is no need for a blanket format shifting exception, which could at best only addresses a technical legal issue for CD buyers and would ignore the unique characteristics of the audiovisual sector.

7. At present, for example, there is little consumer expectation of being able to make copies of DVD and Blu-ray Discs, as video entertainment has always been made available subject to copy protection and DVD and Blu-ray Disc packaging displays a "no copying" symbol. The majority of films are only watched once, whether paid for or not, while music tracks are listened to over and over again. We would expect the introduction of a blanket right to a private copy to increase consumer confusion about the law as video buyers would perceive this to have been granted to them regardless of the presence of copyright protection measures on all discs. The EU Copyright Directive makes it illegal to circumvent these technical measures ; therefore the public would not legally be able to exercise this right.

8. In the meantime, an increasing number of discs are sold with a digital copy that gives the buyer an authorised digital file should the user wish to have a copy on a computer or portable device.

9. The launch of UltraViolet, a cross-industry initiative which offers shared portable video entertainment in the cloud, is further evidence that a format shifting exception is not needed. The BVA is preparing the consumer launch of UltraViolet in 2013, enabling DVD and Blu-ray buyers to store a copy in a digital locker so that they can share video content with up to five other people seamlessly and easily across multiple platforms and devices, such as computers, internet-connected TVs, game consoles, smart‐phones and tablets [7] . It is the up-take of these new services that will enable the video entertainment business to manage the transition from a predominantly physical to a truly mixed economy, whilst still generating a sufficient return on investment in film and TV production to help finance the audiovisual industry’s eco-system, even while spending on physical discs continues to decline [8] .

10. At present, however, by far the preferred choice of consumers remains packaged media, both retail and rental, which together accounted for 88% of the total 2011 market value for video. This contrasts greatly with the music industry and illustrates the different ways in which a format shifting exception would affect the various creative sectors; digital sales of music recently outstripped that of CDs, whereas 12% of the £2.3 billion spent on video in 2011 was on digital content, growing to 17% by end Q2 2012 (see chart below).

11. Article 5(2)(b) of the Copyright Directive permits Member States to introduce an exception:

in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly nor indirectly commercial, on condition that the rightholders receive fair compensation which takes account of the application or non-application of technological measures referred to in Article 6 to the work or subject-matter concerned.

12. No economic argument has yet been presented that would justify the financial impact that a format shifting exception would impose on audiovisual rights-holders or the undermining of technological measures that it might entail.

13. The Impact Assessment which accompanied the Consultation on Copyright asserted that such an exception would "create zero harm to copyright owners". This claim was based on a theoretical paper by Prof. H. Varian [9] , who argued that the possibility of copying could actually increase the willingness-to-pay of users, thereby allowing rights holders to charge higher prices for their content [10] .

14. Furthermore, the original Impact Assessment asserted that "market evidence suggests the value of any such copying is already factored in to purchase prices" without indicating what this evidence might be. Between 2003 and 2016 the average price of a DVD will have fallen by 41%, according the IHS Screen Digest, while Blu-ray Disc prices are forecast to drop by nearly 60% to just over £6 (ex VAT) by 2016. These price declines have generated no additional sales. In the video industry physical media does not obey the basic laws of supply and demand.

15. The Government recently recognised the potential for economic stimulus when it introduced new tax incentives for high-end television drama and animation. Hargreaves’ recommendations to amend UK copyright law are incompatible with the DCMS support for our sector. The widely shared goal of innovation, growth and jobs should stiffen our Government’s resolve to enable the UK creative industries’ to maintain their competitive advantage, to which it is looking for economic recovery. The BVA very much hopes that when the new IP Minister has reviewed the arguments against a blanket private copy exception this proposal will be amended.

The impact of the failure, as yet, to implement the Digital Economy Act, which was intended to strengthen copyright enforcement

16. We acknowledge that the implementation of the Digital Economy Act was significantly delayed by judicial review, but it is a major cause of concern that the current timetable does not see copyright infringement notices being issued until 2014.

17. These notices, which will offer consumers advice on how to prevent future infringement and direct them towards legitimate sources of content, are expected to curb the impact of copyright theft on the video entertainment sector and create a level playing field for legal services.

18. The impact of the delay in implementation is the continued infringement of rights-owners’ content through peer to peer (P2P) file-sharing, which is cannibalising revenues and the potential for growth in the online market. Digital copyright theft is estimated to have cost the audiovisual industry £272 million in 2011, up 45% on the £188 million lost in 2010, while the loss due to sales of fake DVDs fell more than 60%. The overall cost of all copyright infringement was estimated at £0.511 billion in 2011. The 2012 wave of our tracking study is about to commence.

19. As viewing habits increasingly move online, the share of digital infringement and its cost to industry is also increasing.

20. We are therefore working with Government and Ofcom to ensure that the notice sending system is implemented as quickly and efficiently as possible to minimise further financial losses.

Volume of illicit activity over the last 12 months (Film and TV – among all adults) [11]

The impact of proposals to change copyright law without recourse to primary legislation (under the Enterprise and Regulatory Reform Bill currently before Parliament)

21. Given our initial concern with the broad and rather loose language used in the original drafting of Clause 57, we were pleased that the Government chose to re-draft it and provide more clarification as to its scope and purpose.

22. However, we remain concerned that the Government might seek to ‘bundle’ future changes to copyright exceptions into a single SI, thereby preventing proper Parliamentary consideration of policies that could potentially have significant negative consequences for rights-holders. In order for proposed amendments to be given the specific scrutiny they deserve, they must be introduced in separate SIs and be accompanied by individual impact assessments.

Barriers to growth in the creative industries-such as difficulties in accessing private finance-and the ways in which Government policy should address them.

23. As detailed above, piracy and regulatory uncertainty reduces investors’ confidence of being able to generate revenue through video exploitation in the UK, which makes obtaining funds for the production of film and television content more difficult. Tackling IP theft would increase creators’ and investors’ financial returns and enable more money to be pumped back into the production of new content. It would also increase the Government’s tax receipts. The Government should maintain the UK’s strong copyright framework and facilitate the availability of venture capital and also access to finance through the growing interest in crowd-funding, so that British companies can raise the investment that will allow them to maintain ownership of their IP, and thus retain the value of creativity to the UK.

24. The BVA welcomes the recommendations from the All Party IP Group in its recent report on the Role of Government in Promoting and Protecting Intellectual Property, in which it urges the IP Minister to take on the role of IP champion. The recommendation that senior officials and Ministers at BIS take a greater role in ensuring other departments consult them when developing policies that affect IP will remove the disconnect which has led to inconsistencies in policy development and an incomplete appreciation of the contribution copyright-based industries make to the UK economy.

The importance of "clusters" and "hubs" in facilitating innovation and growth in the creative sector. Whether there is too much focus on hubs at the expense of encouraging a greater geographical spread of companies through effective universal communication

25. Examples of like-minded people and industries coming together and feeding off each other’s creativity to form hotbeds of tech and creative innovation, such as in Shoreditch and Soho, demonstrates an important way in which innovation and growth in the creative sector is generated. The success of ‘clusters’ or ‘hubs’ such as these encourages other areas of the country to develop their respective creative economies, such as in Birmingham and Manchester.

26. While the Government can’t force geographical spread of such ‘hubs’, it can encourage new growth by facilitating access to finance for creative businesses. We therefore welcome policies such as the Film Tax Relief, which should increase inward investment and further the long-term expansion we have seen in the core UK film industry.

Ways to establish a string skills base to support the creative economy, including the role of further and higher education in this

27. The BVA has long argued for the importance of media literacy being promoted more actively in further and higher education and this should incorporate an understanding of the importance of copyright.

28. A survey recently published by the NUS, the IPO and the Intellectual Property Awareness Network (IPAN) shows that while 80% of students believe knowledge of intellectual property is important, most think they do not know enough about it and want to see intellectual property teaching integrated into their courses [12] .

As David Willetts, Minister for Universities and Science said when welcoming the findings of the report:

"It is vital that we have an IP literate workforce to meet the challenges of a rapidly changing workplace. I believe the key to success is to garner support from professional bodies responsible for accrediting courses, as well as university and industry and to use that support to bring about changes to the curriculum."

29. It is especially important that intellectual property rights in relation to film are included in the syllabi of courses where film is being taught. A proper understanding of the way intellectual property rights generate the finance behind film production would be a valuable component of any course by exploring the need for commercial viability as well as creativity in the interests of economic sustainability.

30. The £28 million investment of lottery funds in film education, as outlined in Film Forever - the BFI’s five-year plan [13] , presents the perfect vehicle for teaching young people who are interested in a pursuing career in the film industry about the importance of copyright as an asset, not a regulation. We urge the Government to ensure that the BFI (British Film Institute) upholds its commitment to work closely with strategic partners, such as Skillset, the National Film and Television School, Creative Scotland, Film Agency Wales and Northern Ireland Screen, to ensure that its education programme has a truly UK-wide reach.

November 2012


[1] www.bva.org.uk/

[2] Ready to Face the Future , accessed at www.bva.org.uk/news-press-releases/video-revenues-are-lifeblood-uk-film-and-tv-industry

[3] See page 16 of the BVA’s latest report ( www.bva.org.uk/files/u1/BVA-Report_ReadyToFaceTheFuture_final_1_.pdf— up to date on publication) and the new portal for all legal services, The Content Map, which goes live on 6 November 2012 (www.thecontentmap.com)

[4] Total consumer spend on video entertainment in 2011 was £2.3 billion, a decline of just 2.3% on 2010. Digital rental values increased by 10% and digital retail values increased by 28% over this period, helping to offset a drop in the value of the physical retail market from £1.84 billion to £1.75 billion.

[5] The Business, Innovation and Skills Committee’s First Report of Session 2012-13, The Hargreaves Review of Intellectual Property: Where next?, p. 6

[6] www.publications.parliament.uk/pa/cm201213/cmselect/cmbis/579/57904.htm

[7] www.uvvu.com/what-is-uv.php

[8] We have seen increasing consumer uptake of legal digital services and digital’s share of the video market grew by 41% to the end of Q2 2012, according to IHS Screen Digest figures. However, the relatively low up take of EST (34% EST / 66% VOD) means this growth doesn’t fully replace physical market value

[9] Varian HA, 2005, Copying and Copyright , Journal of Economic Perspectives 19(2): 121-138

[10] “If willingness to pay for the right to copy exceeds the reduction in sales, the seller will increase profit by allowing that right.”

[11] Research by IPSOS for BVA 2011 annual tracking study

[12] www.nus.org.uk/PageFiles/12238/2012_NUS_IPO_IPAN_Student_Attitudes_to_Intellectectual_Property.pdf

[13] http://futureplan.bfi.org.uk/launch.aspx?pbid=62b10d3a-080b-4234-93d6-5fffb70b4509

Prepared 17th November 2012