Culture, Media and Sport CommitteeWritten evidence submitted by the Department for Business Innovation & Skills

Thank you for giving me the opportunity to answer questions at the Committee’s evidence session on 14 May 2013.

We discussed the Government’s decision to create a limited exception to copyright for private copying, which will allow consumers to make reasonable use of digital equipment to enjoy copies of creative works that they own.

I offered to explain to the Committee the basis for the calculation of the £258.7 million benefit over ten years provided by the Government’s Impact Assessment on private copying. I enclose a copy of that document (Annex A)1 so you and other members of the Committee can see the full details, but I thought It was worth setting out the key points in this letter. I have also enclosed a copy of the Economic Impact of Recommendations from the Hargreaves Review of Intellectual Property and Growth (Annex B)2.

The main monetised benefits discussed in this Impact Assessment come from the creation of new technological markets (devices or digital content services) in the UK, arising from the removal of excess regulation on businesses and consumers.

Digital technologies work by copying. It is important that consumers are able to undertake limited personal copying, which is necessary for the normal use of consumer technologies, where that does not undermine the incentives copyright provides to creators and Investors. At the moment, copyright law prohibits such copying. The Impact Assessment looks at the implications of reducing these legal barriers to reasonable use of consumer technology.

As a result of this measure, innovative technology firms will benefit from reduced licensing and legal costs. However, more significant benefits to the economy and consumers are likely to arise from the new markets created as a result of a reduction in barriers to entry. Risks and costs experienced by innovative firms will be reduced, making the UK a more attractive place to invest in these firms, particularly SMEs.

It is difficult to estimate the size of a new market, especially one for digital technology. The method chosen was to look at markets that already rely on private copying exceptions, and to use these as proxies for the way technology markets are likely to develop following introduction of a new private copying exception in the UK.

Based on this approach, a high estimate was derived by studying development of the mp3 player market over a 10-year period. Assuming a future technology market which is also based on private copying follows a similar trend, and that a UK firm is able to become second-largest player in such a market as a result of the exception gave a high estimate of £57 million per annum.

Our low estimate was derived through similar analysis of the DVR market. Assuming that, over a 10 year period, a UK firm could acquire a similar market share as TiVo currently enjoys in this market (6.5%), gave a low estimate of £5.6 million per annum.

Over 10 years, this gives a low estimate of £46.8 million and high of £470.5 million. An average of these estimates gives a best estimate of £258.7 million.

For consumers, the primary benefit will be legal clarification, as the exception will legalise a practice most consumers believe to be reasonable, and which many already believe is permitted by law. The new law will be seen as more sensible by many, and will help to draw a clear line between reasonable and harmful copying.

Consumers will also benefit from reduced costs, risks and increased market opportunities experienced by technology firms. Lower licensing and other costs will be passed on to consumers, who will no longer have to pay multiple times to use copies they have bought. Consumers will benefit from reduced barriers to market entry and enhanced competition in consumer technology, and the lower prices and greater choice of services that are likely to result from this. However, insufficient data was available to monetise these benefits to consumers in the impact assessment.

When preparing its analysis, the Government listened to feedback from industry. The methodology for assessing market development was refined to take account of additional information supplied by stakeholders, though none proposed a better overall methodology. The range of possible options set out in the initial impact assessment were refined and reduced to the narrowest option, which will have the least impact on copyright owners. The impact assessment also discounts the benefits over the ten-year period. The result that the £258.7 million best estimate is toward the bottom end of the £0.3 billion to £2 billion benefit range estimated by the Hargreaves Review.

Government considers that all benefits, whether to the economy or consumers are important when assessing the impacts of a policy. The proposed exception is much narrower than those of other European countries and simply legitimises practices most consumers already consider reasonable. Further, given that the behaviour is already occurring, the Government estimates that costs to rights holders will be negligible.

I hope that this provides the explanation that you were seeking. I am copying this letter to all Members of the Culture, Media and Sport Select Committee and Ed Vaizey MP.

June 2013