The concept of the digital economy

3.2 The Terms of Reference for this Inquiry refer to the ‘importance of the digital economy and the opportunities for innovation leading to national economic and cultural development created by the emergence of new digital technologies’. The ALRC takes this to refer to innovation within Australia and engagement globally in digital opportunities.

3.3 The ‘digital economy’ has been defined by the Australian Government as ‘the global network of economic and social activities that are enabled by information and communications technologies, such as the internet, mobile and sensor networks’.[1] This includes conducting communications, financial transactions, education, entertainment and business using computers, phones and other devices. Australia has made a commitment to becoming a leading digital economy,[2] and faces competition from comparable countries that have also adopted a focus on promoting a local digital economy. ‘Without open access to appropriate categories of information, Australia may not enjoy the potential innovation in the digital economy’.[3]

3.4 Copyright law is an important part of Australia’s digital infrastructure and is relevant to commercial, creative and cultural policy. Some stakeholders pointed out that the ‘digital economy’ is part of the economy generally and not a separate entity. Furthermore, it should be ‘interpreted broadly, to include the contributions made to the Australian economy by formal education, self-education, health services, social services, volunteer work and unpaid domestic work, as well as by commerce, agriculture, mining and industry’.[4]

3.5 Alongside digitisation of copyright material, online activities are a major aspect of the digital economy.

The internet has profoundly altered the delivery of government services, access to education and information, commercial innovation, social interaction and community engagement with culture over the past decade, and continues to evolve at a rapid pace.[5]

In this context, ‘copyright has a profound influence in regulating access to education, culture, social interaction, commercial innovation and the provision of essential government services’.[6]

3.6 The Australian Interactive Media Industry Association (AIMIA) observed that search functions, cloud-based solutions and other digital platforms mean the internet is a major contributor to economic efficiency for Australia in that it provides savings and efficiencies for individuals and businesses, increasing wealth in real terms and driving further economic growth.[7] Stakeholders generally agreed that ‘participation in the digital economy is likely to be a critical source of innovation for Australian firms and consumers’.[8] However, perspectives differ as to the optimum copyright environment to create sufficient incentives for investment and innovation.

3.7 There was some concern that in an assessment of global competitiveness ‘Australia ranked below the OECD average for factors such as technological readiness, business sophistication and innovation’.[9] According to the most recent Department of Innovation, Industry, Science and Research Report, Australia’s investment in ‘intangible innovation capabilities’ is lower than for other OECD countries:[10]

Australia is investing significantly in a national broadband network to lay the foundation of the Australia’s digital economy over the coming decade. Without proactively removing barriers to digital content and service uptake, we risk falling behind the rest of the world when it comes to actually accelerating our transition to the digital economy.[11]

3.8 In announcing a review of copyright law in the EU, a background paper states:

The digital economy has been a major driver of growth in the past two decades ... The emergence of new business models capitalising on the potential of the internet to deliver content represents a challenge and an opportunity for the creative industries, authors and artists as well as the other actors in the digital economy.[12]

The ‘actors’ are identified as content creators and owners, content hosts and social networks, internet service providers and end-users.

3.9 Stakeholders acknowledged the importance, but also the uncertainty of the digital economy as it is not possible to anticipate what new technologies will emerge over coming years and decades. What is clear is that copyright will have direct and indirect impact:

It is therefore imperative that Australia puts in place an intellectual property framework that supports rather than hinders investment in the digital economy and that is sufficiently flexible to provide breathing space for the research and development that is essential to innovation without the need for constant readjustment.[13]

3.10 Some submissions made reference to the fact that students undergoing education and training are highly relevant to developing the digital economy. Copyright law is a significant issue for institutions that are developing our human capital—namely schools, TAFEs and universities.[14] The National Panel for Economic Reform has noted that Australia needs ‘reforms which will drive long-term productivity growth’ and that human capital is the main area of investment to achieve these goals. [15] Box Hill Institute of TAFE submitted that ‘vocational training is at its core a system to encourage and facilitate economic participation’[16] and went so far as to say that the Issues Paper ‘lacked a comprehensive functional analysis of the requirements of a digital economy’ in that it did not have TAFE education vocational training ‘at the centre of the inquiry’s scope’. Although no one sector of the economy should dominate the policy debate, the education sector is a significant stakeholder in this Inquiry.

3.11 The assumption that law reform is required to access the economic opportunities of the digital economy is not endorsed by some stakeholders, who warn of the dangers of disruption to developing business models organically adapting to the emerging environment.[17] It was suggested that ‘content providers have in fact demonstrated an ongoing ability to adapt to changes in technology’ and any reform of copyright law will ‘have a further negative economic effect on publishing’.[18]

3.12 On the other hand, ‘economists have long had concerns that copyright has a moral hazard effect on incumbent firms, including those in the creative industries, by encouraging them to rely on enforcement of the law rather than adopt new technologies and business models to deal with new technologies’.[19]

3.13 The Australian Consumer and Competition Commission (ACCC) submitted that the aim of copyright reform should be the ‘pursuit of economic efficiency’[20] and IP Australia argued that the purpose of copyright law reform is to ‘provide a net social and economic benefit for Australia’.[21]

3.14 A major concern of stakeholders is that reform should be ‘evidence-based’.[22] The ACCC considered it important that the ALRC takes into account available economic evidence when considering reform, as well as stakeholder views and economic rationales for reform.[23]

3.15 APRA/AMCOS submitted that theoretical economic studies of the copyright and related industries are of little value and ‘the only way to assess the impact of copyright law on the digital economy is by examining the available evidence’.[24] The ACCC noted that most of the empirical, rather than theoretical, economic evidence available is focused overseas and relates to particular industries, particularly unauthorised copying in the music industry and that the results can be ‘inconclusive’.[25]

3.16 In the UK, perhaps the main outcome of the Hargreaves Review has been the setting up of the CREATe Centre intended to investigate issues relating to copyright and new business models in the creative economy. A major concern of the Centre is to investigate the question of what constitutes evidence for the purposes of copyright policy.[26]

3.17 In the US, a major report on building evidence for copyright policy in the digital era noted that ‘not all copyright policy questions are amenable to economic analysis. In some cases, it may be possible to determine only the direction of the effect of policy change, not the magnitude’.[27] The Report further noted that copyright policy research can use a variety of methods, including ‘case studies, international and sectoral comparisons, and experiments and surveys’.[28]

3.18 In Australia, the ARC Centre of Excellence for Creative Industries (CCI) focuses on research on the contribution of creative industries and their constituent disciplines to a more dynamic and inclusive innovation system and society. The CCI submission stated that ‘there are substantial costs and inefficiencies for creators associated with current copyright arrangements that adversely affect public access to new and original creative works.’ CCI recommended ‘a broadened concept of “fair use” that permits unlicensed use of copyright material ... in socially beneficial ways’. [29]

3.19 With respect to theoretical research, one submission noted that it is simply too early to tell what the economic effect of the digital environment is for many sectors, particularly creators. Therefore ‘proposals for new exceptions to copyright should be based on clearly identified policy grounds as the economic analysis of the digital environment is contentious’.[30] Pointing to the Hargreaves Report The Arts Law Centre of Australia identified three obstacles to using evidence on the economic impacts of changes to intellectual property regimes:

absence of reliable data from which conclusions can be drawn to guide intellectual property policy; evidence relevant to policy questions involving new technologies or new markets, such as digital communications, is problematic as the characteristics of these markets are not well understood or measured; and the data that is available is held by firms operating these new technologies and the data, when it enters the public domain, cannot be independently verified.[31]

3.20 While many stakeholders urged caution in making changes that may disrupt the emerging digital economy, the ACCC supported ‘a review of the use and extent of copyright across the digital economy to ensure that the benefits continue to exceed the costs’.[32] The ACCC submission applied an economic analysis to the incentives to create and produce copyright material in the digital environment and evaluated economic literature and the presumptions upon which the literature relies. The ACCC concluded that the ‘available literature mainly focuses on the impact of digital technologies on copyright holders and submits that such analysis is incomplete, as the interests of consumers and intermediate users must also be considered’.[33]

3.21 There is some economic evidence regarding the economic contribution of Australia’s copyright industries, notably the PricewaterhouseCoopers (PwC) Report which demonstrates that copyright content industries in 2010−11 generated the equivalent of 6.6% of gross domestic product and employed 8% of the Australian workforce.[34] A report by Lateral Economics takes the approach of looking at the contribution of a wider group of industries described as ‘exceptions industries’ including ‘education and research’. Taking into account the economic contribution of industries using this expanded methodology, in 2009−10 they were responsible for 14% of gross domestic product and employed 21% of Australia’s workforce.[35]

3.22 It is clear that the economic contribution of Australia’s copyright industries is significant. What is contentious is how to increase that contribution to the benefit of copyright owners, users and the community, and what reform, if any, would effect this.

3.23 Another Lateral Economics report provides an analysis of the potential efficiency gains and ‘substantial growth to Australia’s economic growth and innovation’ through amending copyright law to be more flexible with respect to exceptions and limitations.[36]

3.24 The ALRC observes that these economic reports have been commissioned by different stakeholders and that the methodology and analysis of the Lateral Economics Reports has been criticised in another report, funded by a stakeholder in this Inquiry.[37]

3.25 However, it is recognised that a number of industries claim that they ‘would not exist, or be much smaller, but for the limitations and exceptions to copyright law’ including ‘Internet publishing and broadcasting, Internet service producers and search engines, data services, computer equipment and components, computer services, telecommunications, and other industry segments’.[38] Indeed, it is suggested that ‘valuable research could build upon initial attempts to quantify the benefits of exceptions and limitations in terms of the economic outputs and welfare effects of those individuals, businesses, educational institutions and other entities that rely on them’.[39]

3.26 Commissioned research on the economic benefits of fair use in copyright law, using Singapore as a case study, found copyright industries to be ‘relatively unaffected’ by the introduction of fair use although significant stimulation of growth in private copying technology occurred.[40]

3.27 Questions about the benefits of statutory licensing are explicitly raised by the Terms of Reference. The benefits and detriments of the current system are heavily contested as between licensees and licensors. For example, the TAFE sector submitted that statutory licensing for TAFE is not economically efficient or streamlined, and does not provide easy access to copyright material.[41] Furthermore, existing current exceptions do not map well onto the dynamic and varied nature of education in the VET sector.[42]

3.28 Other educational licensees have been more blunt, suggesting that ‘Australia’s statutory licences are unsuitable for a digital age and must be repealed’.[43] The ACCC considered that relevant factors in reviewing statutory licences include the transaction costs associated with the licences and the potential for the extent and use of the rights conferred by copyright to restrict competition and create market power.[44]

3.29 Some stakeholders noted that there are ways in which the statutory licensing system could work better, both in terms of the legislative framework and the way the rights are managed in practice.[45] The Australian Society of Authors, while stating that pt VB of the Copyright Act ‘works well for educational institutions and creators’[46] also noted that ‘there could be more transparency in the process – particularly how much money is paid to which publishers and authors’.[47] The Society also submitted that:

the central reasons for some statutory licence schemes should be revisited and reassessed ... these schemes are paying massive amounts of money to foreign publishers of educational materials, with only a small amount trickling to Australian creators. This goes against the original intent.[48]

The Australian Writer’s Guild pointed to the inflexibility of audiovisual statutory licensing and some ‘conflation’ of rights streams and lack of transparency in use of data.[49]

3.30 The digital environment provides an opportunity for greater licensing as markets develop to satisfy consumer needs. Furthermore, markets can be seen as being about ‘fairness and opportunity’ as negotiated between parties, along with a ‘reasonable level of regulation’.[50] Universities Australia submitted that ‘a competitive commercial licensing model’[51] makes it appropriate that copyright legislation should operate to create markets based on the rights given under copyright legislation and determined by agreement between parties, rather than a statutory licence. In similar vein, the proposals relating to the introduction of fair use made in this Discussion Paper are part of the context of developing markets in a digital environment; fair use is not intended to detract from new and emerging markets for copyright material.

3.31 On the aspect of licensing of copyright material more generally, the ACCC submitted that s 51(3) of the Consumer and Competition Act[52] should be repealed, noting that in other jurisdictions such as the United States, intellectual property rights are subject to the same competition laws as all other property rights, without apparent impact on the rights of creators or incentives for production of copyright material:

In order to fully exploit the substantial potential benefits arising in the digital economy, it is important that competition laws are able to complement IP laws, including copyright laws, by preventing anti-competitive conduct associated with copyright usage that is not in the public interest.[53]

3.32 The ALRC is aware of a number of ‘user friendly’[54] licensing arrangements which demonstrate a dynamic market place able to address consumer needs. Rights holders consider this removes the need for government intervention by way of amendments to copyright law, for example, in the form of exceptions allowing greater private copying. It is clear that many licensing practices are pro-competition and pro-consumer, and presumably the application of a general competition test, without the intervention of s 51(3) would pose no problems.

3.33 Concerns about developing ‘digital ecosystems’ are expressed by the Australian Society of Authors which opposes the ‘loosening’ of copyright as likely to advantage overseas owners and distributors since ‘distribution (of copyright material) is largely in the hands of overseas tech giants and/or e-tailers such as Amazon’.[55] The possibility of creating closed ecosystems through licensing arrangements tied to particular devices would also be open to competition law scrutiny.[56]

3.34 The ACCC noted that there is a lack of economic research regarding the magnitude of transaction costs of licensing in the Australian context, especially regarding these costs in relation to the digital economy.[57] However, the ACCC noted that the ALRC Inquiry may result in the submission of valuable evidence regarding transaction costs and inefficiencies for both creators and users from those who participate in the assignment or licensing of copyright material. ‘Where costs of licensing exceed benefits, this may affect overall production of copyright material especially where users are increasingly creators’. The ACCC considered that such evidence is likely to provide a useful starting point for considering the costs and benefits of potential solutions to any problems associated with high transaction costs.[58]

[1] Department of Broadband, Communications and the Digital Economy, Australia’s Digital Economy: Future Directions (2009).

[2] Ibid, 2. See also K Henry, ‘The Shape of Things to Come: Long Run Forces Affecting the Australian Economy in Coming Decades’ (Address to Queensland University of Technology Business Leaders’ Forum, Brisbane, 22 October 2009), cited in ADA and ALCC, Submission 213.

[3] Department of Broadband, Communications and the Digital Economy, Australia’s Digital Economy: Future Directions (2009), 12.

[4] National Library of Australia, Submission 218.

[5] ADA and ALCC, Submission 213.

[6] Ibid. See also Foxtel, Submission 245, Ericsson, Submission 151.

[7] AIMIA Digital Policy Group, Submission 261. See also AIIA, Submission 211.

[8] Australian Industry Group, Submission 179. Google submitted that ‘Copyright needs to be “future-proofed”, making it more flexible and technology-neutral. This will generate an economic benefit of $600m per annum in Australia’: Google, Submission 217.

[9] World Economic Forum, Global Competitiveness Report 2011-2012 (2011), 94 cited in Australian Industry Group, Submission 179.

[10] Department of Innovation, Industry, Science and Research (DISSR) (2011), Australian Innovation System Report 2011, 3, cited in Australian Industry Group, Submission 179.

[11] Ericsson, Submission 151.

[12] European Commission, Orientation Debate on Content in the Digital Economy (2012) (accessed 20 February 2013).

[13] Universities Australia, Submission 246. See also Google, Submission 217; Powerhouse Museum, Submission 137; Pandora Media Inc, Submission 104.

[14] See Universities Australia, Submission 246; Copyright Advisory Group—Schools, Submission 231; Copyright Advisory Group—TAFE, Submission 230.

[15] Julia Gillard (Prime Minister of Australia), ‘National Panel for Economic Reform—Meeting One—Communiqué’ (Press Release, 29 January 2013) (accessed 30 April 2013).

[16] Box Hill Institute of TAFE, Submission 77.

[17] Pearson Australia/Penguin, Submission 220; iGEA, Submission 192; Australian Film/TV Bodies, Submission 205; Allen&Unwin Book Publishers, Submission 174, Evolution Media Group, Submission 141.

[18] Thomson Reuters, Submission 187. See also Motion Picture Association of America Inc, Submission 197.

[19] R Towse, ‘What We know, What We Don’t Know and What Policy Makers Would Like Us to Know About the Economics of Copyright’ 8(2) Review of Economic Research of Copyright Issues 101, cited in Ericsson, Submission 151. See also ARC Centre of Excellence for Creative Industries and Innovation, Submission 208.

[20] ACCC, Submission 165.

[21] IP Australia, Submission 176.

[22] Combined Newspapers and Magazines Copyright Committee, Submission 238; AFL, Submission 232; Cricket Australia, Submission 228; News Limited, Submission 224; Australian Copyright Council, Submission 219; Screenrights, Submission 215; Newspaper Works, Submission 203.

[23] ACCC, Submission 165.

[24] APRA/AMCOS, Submission 247.

[25] ACCC, Submission 165.

[26] M Kretschmer and R Towse, What Constitutes Evidence for Copyright Policy? (2013).

[27] Board on Science, Technology and Economic Policy, Copyright in the Digital Era: Building Evidence for Policy (2013), 2.

[28] Ibid, 2.

[29] ARC Centre of Excellence for Creative Industries and Innovation, Submission 208. The CCI also considers that development of a digital exchange would assist in reducing transaction costs associated with legal re-use of copyright materials.

[30] Arts Law Centre of Australia, Submission 171

[31] Ibid, citing I Hargreaves, Digital Opportunity: A Review of Intellectual Property and Growth (2011).

[32] ACCC, Submission 165.

[33] Ibid.

[34] PricewaterhouseCoopers, The Economic Contribution of Australia’s Copyright Industries 1996–97–2010–11 (2012), prepared for Australian Copyright Council, 4.

[35] Lateral Economics, Exceptional Industries: The Economic Contribution of Australian Industries Relying on Limitations and Exceptions to Copyright (2012), prepared for the Australian Digital Alliance, 6. See favourable comments on this research in eBay, Submission 93.

[36] Lateral Economics, Excepting the Future: Internet Intermediary Activities and the Case for Flexible Copyright Exceptions and Extended Safe Harbour Provisions (2012), prepared for Australian Digital Alliance, 2.

[37] G Barker, Estimating the Economic Effects of Fair Use and other Copyright Exceptions: A Critique of Recent Research in Australia, US, Europe and Singapore (2012), Centre for Law and Economics Ltd. Funded by Village Roadshow. WIPO is recognising the need to quantify the contribution of ‘non core’ copyright industries including interdependent and support industries, World Intellectual Property Organization, WIPO Studies on the Economic Contribution of the Copyright Industries (2012).

[38] Board on Science, Technology and Economic Policy, Copyright in the Digital Era: Building Evidence for Policy (2013).

[39] Ibid, 42.

[40] R Ghafele and B Gibert, The Economic Value of Fair Use in Copyright Law: Counterfactual Impact Analysis of Fair Use Policy On Private Copying Technology and Copyright Markets in Singapore (2012), prepared for Google, accessed 9 April 2013.

[41] Copyright Advisory Group—TAFE, Submission 230. See also Universities Australia, Submission 246, but see Screenrights, Submission 215; Copyright Agency/Viscopy, Submission 249.

[42] Copyright Advisory Group—TAFE, Submission 230.

[43] Copyright Advisory Group—Schools, Submission 231. See also Universities Australia, Submission 246.

[44] ACCC, Submission 165.

[45] Copyright Agency/Viscopy, Submission 287.

[46] Australian Society of Authors, Submission 169.

[47] Ibid; see also ALAA, Submission 129.

[48] Australian Society of Authors, Submission 169.

[49] Australian Writers’ Guild & Australian Writers’ Guild Authorship Collecting Society, Submission 265.

[50] R Murdoch, ‘Markets Radiate Morality’, The Weekend Australian, April 6-7 2013, 19.

[51] Universities Australia, Submission 293.

[52]Competition and Consumer Act 2010 (Cth) s 51(3) provides a limited exception for certain licence conditions from some competition provisions of the Act.

[53] ACCC, Submission 165. This recommendation was made previously by the Intellectual Property and Competition Review Committee, Review of Intellectual Property Legislation under the Competition Principles Agreement (2000) and is discussed further in Ch 17.

[54] iGEA, Submission 192.

[55] Australian Society of Authors, Submission 169.

[56] M Bales, Smash the Machine: Digital Monopolies Have You Trapped (2013) The Conversation <http://theconversation.edu.au> at 27 February 2013.

[57] See discussion of possible economic evidence in assessing copyright law in Board on Science, Technology and Economic Policy, Copyright in the Digital Era: Building Evidence for Policy (2013).

[58] ACCC, Submission 165.