Yesterday’s post highlighted the recent Access Copyright decision to refuse pay-per-use transactional digital licences (late in the day I received a note that AC appears to have had a change of heart). As I noted in the conclusion, the copyright collective faces an increasingly problematic balance sheet. According to its 2010 annual report, it spent more on itself in the form of administrative costs (including legal fees and board compensation) that it actually dispensed to Canadian authors from its 2010 revenues. Admittedly, these numbers are not easy to find. Indeed, for an organization devoted to collecting licensing revenue and distributing it collective members, the annual report is incredibly vague in providing clear numbers about precisely what gets distributed to Canadian authors.
Despite the obfuscation, the numbers can be teased out from the 2010 annual report with a bit of digging (it is not easy and I am open to corrections and clarifications). [Update: Some comments note 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 below makes it clear that the majority of the 2010 distribution came from the prior balance, not from the 2010 revenues]
Start with the revenue – licensing revenues, including interest income, came in at $33.7 million, a drop of $1 million from the prior year.
The first obvious deduction are the administrative fees, which include salaries, lawyer fees, Copyright Board applications, and director costs. These totaled $8.7 million, an increase of $500,000 from the prior year. Administrative costs therefore comprise one out of every four dollars earned by Access Copyright. By comparison, Copibec, AC’s Quebec counterpart, had an administrative ratio roughly half that at 13 percent last year. AC’s board of director costs are particularly striking since sources say Access Copyright’s 18 directors receive as much as $10,000 per year in director compensation. If true, this is surprising amount for a non-profit (I should be so lucky – my board work on CanLII and CANARIE is strictly voluntary). In any event, after deducting administrative expenses, Access Copyright is left with $25 million to distribute.
Yet the deductions for Canadian authors don’t end there. First, according to information in the Friedland Report, roughly 20 percent of Access Copyright revenues are distributed to foreign reproduction rights organizations (RROs). Access Copyright faces a significant imbalance in this regard – about 5 percent of its revenues come from foreign RROs (for the use of Canadian works elsewhere) but it pays out about 20 percent of its revenues to those same RROs (60 percent of that goes to the U.S.). For last year, that appears to work out to $6.7 million in foreign payouts.
Second, the ongoing legal fight over revenues from K-12 schools means that those licensing revenues above the previous licence are booked as deferred revenue and not distributed. Last year, that deferred revenue was just over $10 million. While the money may eventually be distributed (Access Copyright acknowledges it could be reduced depending on the outcome of the case), the Supreme Court of Canada’s decision to grant leave to appeal means that the legal case is unlikely to conclude until late 2012. Assuming it does conclude with a sizable payment (potentially over $60 million), the vast majority of that sum will go to publishers rather than authors. As discussed further below, publishers already receive about 60 percent of Access Copyright distributions. That number is likely far higher for K-12 copying, the majority of which involves copying portions of textbooks. Since most publishers have the copyright in textbooks (not the original authors), they will receive the bulk of the distribution.
Third, Access Copyright allocates as much as 1.5% of gross licensing revenues toward the Access Copyright Foundation. The Foundation was established in 2009 due to the collective’s own orphan works problem – revenues targeted for unlocatable copyright owners. Last year, $491,000 was allocated to the foundation.
After these three deductions, Access Copyright was left with approximately $7.8 million to distribute last year, less than the $8.7 million it spent on administrative expenses. Note, however, that this covers distributions to both publishers and creators. The Friedland Report estimated in 2007 that there is a 60/40 split – 60 percent to publishers and 40 percent to authors. Assuming the split has remained roughly the same – there is little reason to believe there has been significant change – that leaves Canadian authors with $3.1 million in distributions for 2010 from 2010 licensing revenues. The 2010 annual report indicates that there are 9,778 Canadian creator affiliates. Based on these numbers, the average distribution (before income tax) last year for Canadian authors was just $319. In comparison, the average Canadian author earned $566 from the public lending right last year. Moreover, far more authors generate revenue from the public lending right (17,487) than Access Copyright.
In fact, the numbers are likely even worse for the majority of Access Copyright authors. Last year it shifted to a Payback model which apparently resulted in baseline repertoire payment of $175 per author. Reports indicate that approximately 80 percent of creators received less last year than the year before due to the change in approach.
As noted yesterday, this is not to say that authors are receiving less in aggregate from educational institutions. The growth of site licensing in particular means that far more is being paid by academic institutions to pay for access to content. The difference is that the payments that may ultimately go to authors are going through a different intermediary – database companies – rather than Access Copyright. For example, last year Canadian universities paid three times as much in site licenses through CRKN alone ($100 million) as Access Copyright generated in licensing revenue. More on why the situation is likely to get worse for the collective and what it should consider doing in tomorrow’s post.