Culture, Media and Sport CommitteeWritten evidence submitted by Entertainment Retailers Association (ERA)

ERA represents every sector of the UK entertainment retailing market, a sector which generated sales of £4,794 million in 2011. Members include specialists (such as HMV and Game), supermarkets (Tesco, Sainsburys), internet retailers (Amazon, play.com), independents (Rough Trade, Spillers, Resident) as well as digital service providers (Google, Spotify, Deezer, 7digital), covering the entire music, video and games markets. ERA members provide the video and music sales data which powers the Official UK Charts and the games data compiled by GfK Chart-Track.

Summary

The debate around the digital economy is polarised between copyright owners and technology providers;

Retailers take a different view reflecting their position as intermediaries between copyright owners and the public;

Whatever can be said about the UK Government’s response to the challenge of the internet, it has certainly been slow;

It took 10 years from the creation of Napster—the first mass channel for unauthorised file-sharing—and the first UK legislative response to internet piracy, the Digital Economy Act (DEA);

It is now more than two years since the passage into law of the DEA and yet effectively nothing has yet happened to clamp down on digital piracy;

Part of the reason for that is the polarised nature of the debate;

The net result however has been the continued “collateral damage” suffered by the retail sector due to piracy with hundreds of store closures and thousands of jobs lost;

ERA calls on the committee to urge government to give greater priority to the problem of internet piracy, by fast-tracking the measures included in the Digital Economy Act and reviewing how Government deals in future with fast-paced technological change.

ERA’s particular interest in the current consultation is focused on the following issue:

The impact on the creative industries of the independent Hargreaves Review of Intellectual Property and Growth, and the Government’s Response to it. The impact of the failure, as yet, to implement the Digital Economy Act, which was intended to strengthen copyright enforcement. The impact of proposals to change copyright law without recourse to primary legislation (under the Enterprise and Regulatory Reform Bill currently before Parliament).

We believe that the debate around the Digital Economy Act became overly polarised between the views of copyright owners on the one hand and technology providers on the other.

One danger of this is that the consumer interest sometimes gets forgotten. Because retailers by definition are in direct contact both with consumers and with copyright owners, they tend to take a slightly different view.

One example is the issue of private copying—for instance format-shifting music from a CD to an MP3 player—where retailers have long argued that there should be a specific copyright exception.

The view of some content owners that an exception is unnecessary since no consumer has ever faced action for format-shifting we believe is misguided, since maintaining anachronistic rules risks bringing copyright laws in general into disrepute.

The view of some other copyright owners that private copying should only be allowed in return for a Continental-style levy (the so-called “iPod tax”) we believe is unrealistic and unfair to consumers.

We believe clear lines need to be drawn which allow consumers to know exactly what they can and cannot do with the content they buy or subscribe to.

The retail view is a pragmatic view.

Internet Piracy

We believe internet piracy has been the biggest single avoidable factor in the decline of retail sales of entertainment, particularly music, over the past decade.

Over that period the value of the combined music, video and games market has gone from a high point of £5,700 million in 2004 to £4,794 million in 2011.

Music sales have gone from £2,111 million in 2001 to £1,066 million last year.

Other factors have clearly been in play—such as the unbundling of albums (the ability to buy one or two tracks as downloads, rather than a whole album). But it remains true that piracy—estimated to account for anywhere between 20% and 50% of the total decline—has been the biggest single avoidable source of that decline.

Sadly Government has not proven itself equal to the task.

The Digital Economy Act

We believe the Digital Economy Act is at best an inadequate response to internet piracy. In the first instance it offers no more than the facility for copyright owners to write letters to infringers.

But inadequate or not, what is most striking is how slow has been the UK Government’s response to the challenge of internet piracy.

The US-based file-sharing—or, more accurately, internet piracy—network Napster began operations in June 1999. It was the first mass market internet piracy network.

Yet the Digital Economy Act, the UK Government’s first and so far only response to the challenge of digital piracy, did not receive Royal Assent until June 2010, more than a decade later.

Further, the letter-writing programme envisaged by the DEA has still not been actioned more than two years after that.

A key reason for that, we believe, is the overly-polarised nature of the debate. Current arguments over who should pay for the administration of the letter-writing programme merely play into the hands of those who now see it as their right to enjoy entertainment for free.

Collateral Damage

Over the decade the entertainment retailing sector has been devastated by falling sales, much accounted for by piracy.

Over that period we have lost:

Musiczone.

Fopp.

Virgin Megastores/Zavvi.

Woolworths.

And literally hundreds of independents.

Many once-significant entertainment retailers such as Boots and WH Smith have withdrawn from the market, in part because piracy has made it unviable.

It is important to note that the victims of this situation have not only been physical retailers.

The UK is lucky to have a relatively vibrant digital entertainment retailing sector, but it is clearly difficult for any business to thrive selling music downloads at 99 pence per song when the same material is available for free at the click of a computer mouse.

How much more vibrant would the UK digital entertainment sector be today if Government had taken more timely and more effective action?

Our Message to the Select Committee

ERA calls on the DCMS Select Committee to draw Government’s attention to the inadequacy of its response to the threat of internet piracy.

A gap of more than a dozen years since the creation of Napster with no effective UK Government response to piracy which is still damaging British businesses and British jobs on a daily basis is simply unacceptable.

We ask the Committee to remind both content and technology companies that their approach to the debate can be self-defeating, and is currently only benefiting lawbreakers.

We urge the Committee to demand that the current measures in the DEA are fast-tracked.

Finally, we ask the committee to consider how Government can ensure that its response to future technological change is both more timely and more effective.

November 2012