Research on public remuneration of open content based on collective license

Choong Hee Lee
Researcher, Policy Research Team, NHN Corporation, Seongnam-si, Gyeonggi-do, Republic of Korea

Daeho Lee
Postdoctoral student, School of Information Sciences, University of Pittsburgh, Pittsburgh PA, USA

Junseok Hwang
Professor, Technology Management, Economics and Policy Program (TEMEP), College of Engineering, Seoul National University, Seoul, Republic of Korea

Abstract

With the rapid improvement of digital technology, the current copyright regime becomes one of the major hurdles to the innovation of an open knowledge society. This article shows an expansion of consumers' willingness-to-pay (WTP) for global collective licenses (GCLs) over the existing total expense for digital content by conducting the contingent valuation of GCLs. However, to maintain producers' profitability under an agreeable social contract, a proper mechanism to allocate required costs must be supplemented by the concentrated WTP distribution. This suggests that the real value in the free usage of global digital content lies in its potential to become a publicly managed common utility.

Keywords

copyright reform, open content, collective license, alternative compensation system, public subsidy

Article Text

With the rapid improvement of digital technology, the cost to reproduce and distribute information has been greatly reduced. Because of this technological progress, people connected through telecommunication networks can now access and utilize digitized information with almost zero marginal cost. Although the price of a physical commodity in a competitive market naturally converges to the marginal cost of production (Varian 1992), the price of information goods cannot converge to the marginal cost because the producers of information goods cannot be fairly compensated at zero marginal cost. For this reason, information goods need to be managed by a different institution than the one that manages material goods. Information goods management results in the widening adoption of intellectual property-the exclusive rights to created information. Intellectual property is popularly employed for promoting the progress of human knowledge and culture through securing the creators' necessary profitability (Fisher 2001; Gordon and Watt 2003; Landes and Posner 2003).

Copyright and licenses, which are at the heart of the analysis presented in this article, legally grant the exclusive rights for useful human expression to its creators. Copyright provides legal protection of creators' proprietary/economic and moral rights.[1] The exclusive right to copy and distribute after publication is the most important part of proprietary rights, and it secures commercial benefits for authors. However, the current copyright and encryption reinforcement regime has suffered from the illegal digital copy and distribution of copyrighted content (Liebowitz 2006a; Zentner 2006; Choi et al. 2010; Wang and McClung 2011). In an effort to combat massive, illegal, Internet file sharing, copyright holders have tried to enforce copyright laws and sought the reduction of licensees' rights[2] (Thierer 2002; Vaidhyanathan 2003; Einhorn 2004). Contrary to the original intention, enforcement of the copyright would intensify the hardship for legal consumers. Unfairly high prices caused by cross-subsidization of illegal sharers and not an increase in the comparative welfare of the law-abiding consumers would be the outcome. Consequently, by decreasing the benefit from content licenses, the reinforcement of copyright protection has increased consumers' motivation for illegal copying and distribution.[3] Moreover, researchers have warned that strong copyright restrictions will lead to the shrinking of Digital Commons, which has enabled a culture of collective creation and sharing (Benkler 2006; Lessig 2006). Their assertions have been supported by others who have shown the negative technological and legal impacts caused by an increase in the monopolistic power of the copyright (Eisenschitz and Turner 1997; Walter and Hess 2004; Bhattacharjee et al. 2006). In conclusion, illegal sharing of digital content decreases the overall profitability and innovation of the current content industry, but the reinforcement of current copyright laws and protection technologies is expected to generate multifaceted adverse effects for society.

To solve the problems associated with the copyright and encryption-reinforcement model, researchers and organizations have advocated content management systems in which third policy alternatives are employed (Lunney 2001; Netanel 2003; Gervais 2003; Eckersley 2004; Electronic Frontier Foundation 2004; Fisher 2004; Kusek and Leonhard 2005; Travis 2006).[4] These management systems are distinguished by differentiated forms of payment vehicles (taxation, optional subscription, voluntary donation, etc.) and revenue sharing rules (popularity rating, usage metering, professional committee's decision, etc.). In some models, a nongovernmental organization is substituted for the government. Despite their specific differences, these proposals identically support a proposition of applying alternative liability rules to lessen the negative effect of current property rules. The proposed liability rules, which include issuing post hoc compensation or other rewards to authors, are variously named voluntary collective licensing (Electronic Frontier Foundation 2004), alternative compensation system (Fisher 2004), global license,[5] noncommercial use levy (Netanel 2003), and so on. Although having various names and details, they share the core benefit of increasing the freedom of sharing produced content and reducing the monopolistic power of the copyright. Basically, they support collective payment for the bundled rights from digital content and seek to replace current individual licensing contracts with a collective licensing contract between groups of producers and consumers. Accordingly, if an alternative system is substituted for the current content market, copyright holders' incomes will be completely dependent on the shared revenue from a collective license, which will come from content users' payments.

The major advantage of this institutional change is the removal of social cost from monopolistic price-conditional access and usage.[6] Prefixed fees for bundled rights of content usage can eliminate the artificial restrictions on licensees' utilization of digital content. In addition, this kind of collective license is able to minimize the absorbed social welfare by select intermediaries, such as publishers, broadcasters, and content portals, by increasing fair competition based on equal accessibility to content. Furthermore, newly created content intermediaries can focus on value-added content provision and syndication services because the importance of licensing relationships with individual authors decreases. The resulting diversification of the distribution channels of digital content is expected to reduce the social cost from transactions and encourage the direct connection between creators and consumers.

Most of the objections to these alternative approaches come from skepticism about the competency of the entrusted organization (or information system) to distribute the license fee and income vis-à-vis the current system based on market and property rules (Liebowitz 2006b). The opponents of a collective license, citing impracticality and risk, have doubted the efficiency and transparency of public remuneration and levy for producers and consumers. Their argument has also been the solid foundation of supporting parties who wish to increase the private ownership of public goods.

Despite the fierce debates around the proposals for a collective license, most of them have not been evaluated by the general public, who will be greatly affected by changes to the current system. Even though reform cannot be achieved without massive public support, proposals have been mostly debated by a few academic researchers and activists. In addition, objective data with which to analyze the benefit and cost of copyright reform is lacking, and the dearth of information has been the main obstacle in balancing contradictory issues raised in debates concerning the proposals.

The survey offered to residents of Korea for this research was an attempt to assess the individual opinions of consumers about the alternative institutions. The survey result provides quantitative data to start the benefit-cost analysis of reforming the current content-managing institution. The data was obtained by measuring the willingness-to-pay (WTP) for a global collective license (GCL).[7] The result shows statistically significant social welfare improvement after applying the collective license, with proper mandates for all the authors and consumers. However, the results also illustrate that even if the collective license expands the aggregated net benefit of consumer and producer groups, obtaining the consent of the majority of consumers is difficult without appropriate cost-sharing rules.[8] In addition, the responses under the assumption of applying perfect copy protection reveal that the current prevalence of piracy increases the difficulty by lowering consumers' WTP for digital content.

The remainder of the article is organized as follows. The detailed information provided to the respondents is described in Section 2. Section 3 is an analysis of the survey results that measures the additional benefit and acceptance rates of two types of collective licenses. The article is concluded in Section 4 with a brief summary and final remarks.

[1] This internationally accepted concept was first reflected in the 1886 Berne Convention for the Protection of Literary and Artistic Works.

[2] According to Päällysaho & Kuusisto (2011), for instance, knowledge-intensive companies prefer informal protection practices such as secrecy, publishing, restricted access to information to formal and legal methods.

[3] Varian (2005) pointed to the potential social welfare loss from enforcing copyright and reducing consumers' freedom without a limit-pricing strategy in the presence of copying.

[4] For a literature review, see Masur (2011).

[5] The proposal to make file sharing legal, in exchange for a fee on broadband Internet subscriptions that would fund artists and authors, was debated in France in 2005 and was eventually defeated (Wikipedia, 2009).

[6] Landes and Posner (1989) presented four major social costs originated from copyright: restricted consumers' access, hindrance of second-generation creations, rent-seeking resource allocation, and transaction costs from copy protection and enforcement.

[7] GCL defines the compulsory/statutory license for all kinds of digital content.

[8] The hardship in achieving the social agreement increases the necessary legalization cost of collective license based on liability rules, and it decreases the merit of the collective rules compared to the current copyright systems.

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