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Sunday, 9 September 2012

Starting a Collecting Society

Last week, I had the pleasure of witnessing the birth of a collecting society in the Gambia.  Contrary to my previously held assumptions, collecting societies aren't delivered by storks or the result of divine intervention.  Instead, collecting societies are forged through the agreement and input of a variety of stakeholders.  The trip raised a lot of questions, so let's look at the economics of collecting societies and consider what this means for the new Gambian society.

Workshop with NCAC
In the Gambia, copyright law was first written in 1915 and remained unaltered until 2004.  The 2004 act expanded copyright protection from books and publications to musical, artistic and literary work among other things.  The Gambia National Centre for Arts and Culture (NCAC) is responsible for administering copyright.  The new act also set out the framework for the Gambia collecting society.  Other countries in Africa have also been setting up collecting societies and readers can find all things African and IP on the Afro-IP blog

Collecting societies, or as they are sometimes known as, copyright collecting societies (CCS) or collective management societies (CMS), are organisations that manage the rights of many holders.  The standard economic argument in favour of collecting societies is that, given the high transaction costs of managing rights, collective management is efficient.  Think of how difficult it would be for each musician to collect a small amount from every hairdressers in the world playing the musician's music.  Somehow, I don't see Lady Gaga doing Pay This Way tours.  By working with a larger repertoire of rights, collecting societies benefit from the economies of scale that make licensing these rights efficient.  This function is important as it allows copyright holders to receive remuneration from the array of copyright users.

Economists Towse and Handke discuss this, "Transaction costs are particularly problematic where copyrighted works have a relatively small value to many users. Such a constellation requires many transactions and sometimes transactions costs might even exceed the market price for a licence to use a copyrighted work."  In this situation, collecting societies serve a vital role in the current marketplace.  Towse and Handke further point out that collecting societies are likely natural monopolies as a single society will have lower costs than multiple, smaller societies.  Given the small size of the Gambia, the rights holders there are planning a single society for all creative sectors as it is unlikely that many, smaller societies would be economically viable. 

No monopsony for cat treats
Towse and Handke also point to an interesting quirk in the UK history of collecting societies.  As the BBC held a monopoly on radio until the 1970s, the market essentially had only one buyer of music performing rights. This is a monopsony situation where there is a single buyer.  Given that the collection society for performing rights PRS has a natural monopoly, the market for a long time was an unusual combination of both a monopoly and a monopsony - this is known as a bilateral monopoly.  This will be the case in other markets as, for example, in the Gambia, which has only one national television station.

The economics at play within a collecting society are also of interest.  Each collecting society must negotiate amongst its diverse members on fees, practices and royalties.  Towse and Handke point out that less established members will want looser enforcement practices in the interests of increasing the distribution and promotion of the works.  More established members may benefit from discriminating against newer members.  Kretschmer, Klimis and Wallis note that European "collecting societies have been threatened with a withdrawal of repertoire in order to obtain better terms."  They also argue that the differing incentives of members make collecting societies "extremely fragile constructions."

An interesting prediction is that Digital Rights Management (DRM) could spell the end of collecting societies (there is even a book with such a title.)  Digital technologies and the internet are good at lowering transaction costs and making transactions too expensive in the analogue world, feasible.  However, consumers typically don't like DRM and, so far, DRM does not appear to be replacing collecting societies.  Yet, as one music industry employee interviewed by Kretschmer et al argued in 1999, "10 years from now, the music industry will look essentially the same."  If this has proven not to be true for the rest of the industry, what does the future hold for collecting societies?  And what will this mean for new societies like the Gambian one? 

Finally, a quick kat-tip to Kingsley Egbuonu of Afro-IP and Tim Katlic (feline friendly surname!) of oAfrica for their wealth of information on the Gambia and Africa.  

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