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Why The Situation Is Likely to Get Worse for Access Copyright (But Not Necessarily for Authors)

My first two posts on Access Copyright this week focused on its decision to stop pay-per-use digital licensing in the wake of the Copyright Board’s interim tariff and the economics behind the copyright collective. This post explains why the situation is going to get worse and offers (admittedly unsolicited) advice about what to do about it (all three posts available as a single PDF).

The Access Copyright’s Board response to the Friedland Report is one of the few public sources that breaks down its revenue and distribution (though it is no longer posted online). In 2005, its licensing revenue came from the following sources:

Universities and Colleges 46 percent
K – 12 Schools 31 percent
Government 14 percent
Foreign Reproduction Rights Organizations (RROs) 5 percent
Corporate 4 percent

The percentages may have changed slightly, but there is every reason to believe they are fairly similar today. In the Access Copyright application for an interim tariff, it told the Board that “almost 50 percent” of its licensing revenue comes from universities and colleges.

The obvious problem is that Access Copyright is dependent on education for roughly 75 percent of its revenues. In the years ahead, much of this is likely to disappear. I’ve already argued that universities and colleges will increasingly walk away from Access Copyright as they pursue other licensing approaches for their materials (universities are spending over $100 million a year on site licenses via CRKN alone). 

My guess is that the K-12 sector will start to do the same once the current legal dispute before the Supreme Court of Canada is resolved. The K-12 sector may cut a $60 million cheque when the case is done, but that will serve as a wake-up call for the significant costs associated with current system (in the same way that the Access Copyright demand for a $45 per student tariff woke up Canadian universities). As the popularity of Open Educational Resources grow (and students make greater use of laptops and tablets in class), Canadian schools will shift their spending to open materials that can be used and adapted without annual per student charges. Note that Canadian creators will benefit from this course development spending in a manner that today they do not.

The Access Copyright problem involves more than just dependence on the education sector, however. The problem is exacerbated by the fact that its repertoire is available from other sources. Consider the distribution by genre data it provided in the Friedland Report. In 2006, the top five genres were as follows:

Text (education) 33.39 percent
Trade 33.11 percent
Journals 17.03 percent
Magazines 5.46 percent
Newspapers 5.01 percent

To understand the Access Copyright problem is to recognize that the bottom three genres, which in 2006 constituted 27.5 percent of its distributions, will fall to a few percentage points sooner rather than later. Virtually every Canadian university and college already subscribes to electronic access to most journals, magazines, and newspapers (in fact, many of the journals are now open access). In other words, these works are still being licensed by universities and colleges, but not through Access Copyright. This represents a significant decrease in the value of the Access Copyright repertoire to these institutions, since they get the same materials in a more flexible, accessible, and economic manner from other sources. The same is often true for corporate clients who access these materials through commercial databases.

The educational text category is also likely to decline in the coming years as universities and colleges move toward electronic casebooks that do not rely on the Access Copyright licence and K-12 schools begin to develop open educational resources to serve their needs. Note that colleges will also move toward OERs, particularly given the U.S. investment of $2 billion over the next four years in new free and open materials for colleges.

What should Access Copyright do?  I’d propose four steps.

First, it must become much more efficient as its administrative costs are far higher than other similarly placed collectives. When other collectives are able to run at half the administrative burden, there is surely much that can be done.

Second, the Access Copyright board, with 18 members (nine representing publishers and nine representing creators) is far too big for an organization of its size. The Friedland Report recommending cutting back to 13 (four publisher, four creator, four independent, and the executive director). That recommendation was rejected by the board. I think that even 13 is too big. Nine board members is fine – three publisher, three creator, and three independent. A crucial element is the need for independent directors as it is stunning to see a board of this size comprised exclusively of directly interested parties. Moreover, board compensation should be slashed – a $500 honorarium for each board meeting is plenty for a non-profit, not the current rates that may run as high as $10,000 annually per board member.

Third, rather than rejecting pay-per-use licensing for education (it is still unclear what approach AC is taking), it should be shifting toward it. Its distribution model has long been a source of controversy since much of it relies on membership, not actual copying. Payback starts to change that in terms of distributions, but at a significant cost to the majority of Access Copyright members. Moreover, as discussed above, its repertoire offers less and less to its most important customer segment. Pay-per-use transactions offer a potential competitive advantage (publisher and education relationships, economies of scale that a publisher or author alone won’t have) and the chance to shift more of its business to the corporate world. This would move the organization toward the U.S. Copyright Clearance Center model, which does not rely on domestic education licensing for a significant portion of its revenues.

Fourth, it must become more transparent. Transparency was the top issue raised by the Friedland Report, yet a review of the most recent annual report shows that the organization still does not plainly disclose who gets what. In fact, compare the Access Copyright approach with the Public Lending Right Commission release, which opens its report with specific reference to how much was collected, how many authors received money, and the average distribution. Its website then delves into further detail on its financial distributions.

Access Copyright’s annual report runs 31 pages and never discloses this information in a clear, transparent manner.  For example, some have noted that the annual report includes a specific distribution number as page 19 states that the distribution for 2010 was $23.3 million. Unfortunately, that figure does not disclose how much of the 2010 revenues were distributed. The 2010 distribution drew from both 2010 provision for royalties for distribution ($24 million) and the balance entering the year, which stood at $29.5 million. The analysis in yesterday’s post makes it clear that the majority of the 2010 distribution came from the prior balance, not from the 2010 revenues. Clear disclosure is surely in the interests of all associated with the collective.

I conclude by noting that Access Copyright’s problems are not necessarily an author problem. Authors will still be paid to create OERs (that is what the $2 billion is for in the U.S.) and receive growing licensing revenues from electronic access subscriptions on campuses. In other instances, their work will be freely available consistent with their open access licensing choices. Moreover, the U.S. experience demonstrates there are significant licensing opportunities in the corporate market. The reality is that this is an Access Copyright problem as it spends far too much relative to what it earns, has failed to address persistent transparency concerns, and it effectively faces a more competitive market with other intermediaries who are offering a more compelling product to its most important customers.

15 Comments

  1. GEIST LIES!
    Blah blah blah. MG makes bad articles. Yadda yadda.

    There, I got that out of the way, now for the real commenta!

  2. Rubber baby buggy whips …
    This is not just a AC problem, large distribution systems and the businesses that operate them have had to adapt quickly to a technological revolution. The internet has been around for a little while but it has been the last decade that has seen a huge shift from physical to digital media.

    While the content itself has not fundamentally changed, the medium has brought both advantages and challenges. What was once a distribution system based on scarcity, has changed to an infinitely reproducible model operating at little to no cost.

    This has upset the ratio of value as it pertains to media. Now the content has the bulk of the value as the costs of the medium approaches zero. What was once a matter of printing books, carving vinyl, pressing CDs is now a stream of electrons. Retail spaces have diminished or disappeared and the significant costs of physical inventory management are now replaced with a hard drive. Where does this leave the incumbent businesses? Some adapt [Netflix] to the changing marketplace but others [Blockbuster], like a large ship trying to make a sharp turn, find themselves at a disadvantage.

    It is not just the individual businesses that fail but in some cases whole industries, and the professional organizations that represent them, have missed the boat completely. To some degree this is due to short sightedness coupled with an aversion to change what has worked for them for so long, but the recent shifts have occurred at such a rapid pace that it can not be all blamed on greed or self interest.

    AC falls into this category as they try to move from the old copyright paradigms into the new digital age, who uses photocopiers anymore? Competition has increased in the form of databases and even government funded initiatives to develop open source materials that will replace a significant portion of their catalog.

    Their biggest misstep, and failure to adapt, was the significant increase in licencing fees they recently applied for at the copyright board. Instead of recognizing the above factors they tried to lock in an increase that did not represent their actual value, at least in the opinion of those who would be paying the fees. I understand that this was a bargaining procedure, where the copyright board actually looks the proposal and adjusts it accordingly, but to start from such an excessive position was a move that has apparently backfired.

    I do not wish AC ill will, I’m sure there are some hard working people there who are dedicated to seeing creators appropriately compensated, but it is the creators that this is all about after all and I hope that whomever ends up overseeing their compensations will be able to do so both efficiently and effectively.

  3. PLR
    The PLR website really doesn’t tell you much – the average, and the maximum. That’s about it.

  4. Crockett,

    I guess from your first comment we are to understand you believe criticism of Geist only comes from trolls, and that you in fact don’t care that Geist is flat-out wrong in his facts. This is an excellent foundation for all that good-faith discussion you’re always encouraging.

    I’m glad Dr. Geist finally made it to page 19 of the AC annual report. I suggest next time he wants to make a project of attacking an institution, he finish all his reading first. I’m sure he expects the same due-diligence of his students. Or, maybe not.

    As for predicting the future, I’m excited by Dr. Geist’s prognostication that students are going to make greater use of laptops and tablets in class. Did anyone else see that coming?

    And since Geist must be right that “Canadian schools will shift their spending to open materials that can be used and adapted without annual per student charges,” I guess we just have to wait for the inevitable drop in tuition and student fees.

    Happy day!

    What a liability mess is being dropped on university administrations and on individual, good-hearted teachers and their students by this kind of nonsense analysis and advocacy. I just hope, when other people have done the heavy lifting to clean this up, we don’t all forget who did the littering, and for what short-sighted, career-boosting reasons.

  5. Crockett says:

    Goin’ on up …
    @Degen “Crockett, I guess from your first comment we are to understand you believe criticism of Geist only comes from trolls”

    The first comment was not mine John, you know I believe everyone has a right to an opinion and to be heard. Contrary to your insinuations I do not think Geist is infallible, nor do I agree with all he postulates, but I do wonder how you have divined that his advocacy is in actuality an attempt to climb the ladder to where?

  6. John,
    How did you determine that Crockett made the first comment?

  7. Chris Brand says:

    So…
    Access Copyright is just another redundant intermediary, and everyone else will be better off after they disappear.

    In that quote, John, he says “*shift* their spending”. A shift isn’t a reduction. Surely educators will still need course material, and authors will still need to be paid to produce it. The two differences would be (1) a one-off payment rather than ongoing royalties, and (2) money going directly to the author(s) rather than AC taking their cut.

  8. Jeff Power says:

    “I guess from your first comment we are to understand you believe criticism of Geist only comes from trolls, and that you in fact don’t care that Geist is flat-out wrong in his facts. This is an excellent foundation for all that good-faith discussion you’re always encouraging. ”
    I guess those rules don’t apply to you and keep you from making unfounded accusations.
    Keep undermining your own arguments, it’s what you’re best at.

  9. Anonymous says:

    The Truth
    You can’t trust secondary institutions dedicated to learning. You can trust Access Copyright.

  10. Degen, I saw a lot of ad homonym but you didn’t really refute any of Geist’s points, much less back up any of your own points. That makes you a troll, thereby proving Crockett’s point…you just sort of say he’s stupid and wrong but you don’t offer any evidence on either point.

    I second Crockett’s point. How exactly is Geist climbing a ladder? I would imagine more of the high paying corporations are copyright maximalists than not (assuming they have an opinion on the matter).

  11. Sorry Jesse …
    Once again I need to point out that the first post was not placed by me, that is not my style. I prefer to editorialize rather that criticize ūüėČ

  12. …”As for predicting the future, I’m excited by Dr. Geist’s prognostication that students are going to make greater use of laptops and tablets in class. Did anyone else see that coming?”

    I realize that you were being sarcastic, but I don’t think you realize how flat and limiting your sarcasm shows you to be. Think a little bigger John, no a LOT bigger.

    Students will be in a “classroom” of their own making, spanning the globe. They will be choosing from a “curriculum” that spans multiple institutions, again spanning the globe. The material they draw on will also be sourced on a global basis, from individual authors and (perhaps) from a selection of collectives, even new sources not yet apparent. They will be interacting in a “community”, using streams of bits in a much richer fashion than what we do here.

    If you have been paying any attention at all, you would realize that the disruption of the “education institution models” is coming soon enough, with the “napsters” of that sea change already popping up.
    Rather than ignore or fight those changes, the institutions are planning how they will adapt to them. They don’t have the final “picture” any more than anyone else does, but that doesn’t mean they can’t identify impediments to that change, and work to mitigate them.

    Note that Dr Geist has supplied some unsolicited advice along with his appraisal(s). You can choose to look at that appraisal and advice in a paranoid fashion, or you could look at it as the starting point in a harsh self appraisal of organizational readiness for changes yet to come. Geist is likely wrong in some of the details of his analysis, even he admits clear data is hard to come by. But the overall picture, and the advice, appears to be relatively sound.

    Yes, I know that his appraisal and advice would have domino effects all through the structure and downstream relationships of AC. That doesn’t invalidate it, it just makes the task for AC harder. The domino after that will involve the publishing houses’ relationships with the writers and creators. And so on.

  13. Marchetto says:

    Tilting at legal windmills
    Another point worth making is that the millions AC has spent on lawyers has not resulted in much success so far: some mom-and-pop copy shops near universities, but little of substantial benefit to authors.

  14. exactly how ?
    “…Note that Canadian creators will benefit from this course development spending in a manner that today they do not.”

    Exaxtcly HOW will cdn creators benefit? Where will this new and enlarged money come from? Who will pay it? How will it be distributed?

  15. exactly how ?
    I don’t think anyone can cay *exactly* how it will all work out, any more than you can say *exactly* what the shape and usage patterns of tools used to develop that material will look like. Or *exactly* what devices will be used, the icons and software and such. Or *exactly* how much storage and connectivity devices will have. Or *exactly* how many students an educator will have in each class, or *exactly* where they will be located across the globe. The trend and direction is visible in the crystal ball of the future, but that is all.
    Creators can help define some of the details of that future, but cannot deny the trends or directions. The whole educational *system* will be adapting to a new paradigm, not just the creators’ contributions.

    If you take some clues from what we see now, you can extrapolate some possibilities. EG:
    – Work for hire with Open Access or similar, with ongoing arrangements for annual updates.
    – Database extraction and usage with direct per use payments.
    – Liaison between advanced research facilities (EG: CERN) and educational journals.
    – Individual contracts between authors/developers and a specific curriculum.

    Keep in mind that administration overhead is one of the things that diminishes to negligible with advanced technology. Any course material that can be digitized, will be. Once digitized, it can be dynamically updated, perhaps as much as daily, with a change log of everything that has changed over time. New material or findings or interpretations can/will be added or changed as quickly as they happen. The whole *system* will be much more dynamic, fluid, current, and global, than what it is today.
    Picture the *functions* (not the content) of twitter, facebook, wikipedia, skype video, google news, and youtube, rolled together into an educational “system”. Throw in upcoming technologies like cheap 3D object “printing”. Some might see these as trivial, others see these as examples of technology use, as “tools” for non-trivial processes and interactions.

    Nobody can possibly give you the “details” of all these changes, but anyone that takes even a cursory look knows it’s coming.