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The Economics Behind Access Copyright

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Thursday May 26, 2011

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.
Comments (31)add comment

Bob said:

...
I believe the math is badly wrong here because AC does distribute K-12 licensing revenue. The deferred element is the additional tariff set by the Copyright Board. My understanding is that about $25 million was distributed. Yes some of it went overseas, but imbalance or not, that flows from what was copied. There isn't an option to keep that money.

Publishers may get a higher share, but this is a matter of contract and, with school textbooks, who did the work.

And fees to directors, from what I've heard, are per diems paid to those who are self-employed. Dr. Geist earns a very high salary from the U of Ottawa. He shouldn't get paid for his volunteer work.
May 26, 2011

Patricia said:

What about indirect payments?
If it's volunteer work, nobody should be paid.

I don't think it's possible to determine how much really goes to authors, though, since we can't be sure that they don't receive some of it indirectly through their publishers, either as a percentage or as payment for the rights.

The amount soaked up just to run AC is egregious enough, and makes for a sounder argument.
May 26, 2011

Degen said:

...
It sounds to me like Access Copyright is carrying the weight for Canada's professional creators in front of the Copyright Board and in legal challenges. That would naturally increase the admin line if you choose to include those extra costs in there (for your own ideological purposes).

BTW - the University of Ottawa's Salaries and Benefits line from its 2007 Annual Report (for some reason, the most recent one they have online)? -- 56.1% (on total revenues of $806.1 million... so, you know, do the math). $182.1 million of U of O's revenues come directly out of student pockets in tuition and fees.

If you add in other "admin" type costs U of O's admin line balloons to 94.1% -- so, yes, let's have a dollars and cents discussion about about both parties in the Access Copyright/ Canadian universities copyright negotiations.
May 26, 2011

Jeff Power said:

I'd rather keep the argument apples to apples
Is there a reason why Quebec's Copibec is so much more efficient? One would think that AC wold be able to cash in...on economies of scale.
May 26, 2011

Bob said:

...
Copibec has, basically, one client
May 26, 2011

Degen said:

...
Jeff,

I am making an apples to apples comparison - the implicit point of concern is administration costs and their effect on burdensome student fees. Considering the settled fact that students and teachers are using AC's repertoire as a core part of their education, it looks to me like whatever part of the AC "cost" that would trickle down to students (and, again, it only trickles down when university administrations refuse to pay it themselves as a cost of doing business) is like a crabapple compared to, say, New York City.

But if you want to stick with Geist's accusation about Access Copyright, perhaps a more "fruitful" question at this point would be why does he have to engage in embarrassing mathematical gymnastics to try and make a point that is simply wrong. As Bob has stated, K-12 revenues were distributed. AC's total distribution to rightsholders in 2010 was $23.3 million. There's nothing vague or obfuscating about that number. I'm looking at it right now on Page 19 of their annual report.

I know financial statements can be a bit mysterious, but one assumes someone doing an authoritative criticism of finances would take the time to read them properly.

May 26, 2011

Canadian Author said:

Writer
AC distributed some bar graphs in November 2010 that showed the number of creators per dollar category, and then the figure of $3.8 million was stated as what writers got.

Yes, last year's small repertoire payment of $612 dropped to the base payback payment of $175 per writer. This is a 71.4% drop in payment and 79.5% of writers got less this year than last.

Writers get about 5% of licensing revenue. That's how bad it is to be a writer. Note that 70% of gross goes to big educational publishers. One of these reputedly got $4million in a recent year. That's more than all the writers combined!
May 26, 2011

Bob said:

...
There has been a myth among some writers from the earliest days that AC was somehow meant to redistribute money in favour of people whose work isn't actually copied. Another myth is that publishers never share AC money with their authors. Most (not all) AC revenue is paid to the copyright owners whose works were reported as being copied. Interesting, although AC critics complain about the burden of reporting, they also complain about how the money is shared. You can't have it both ways. The "big educational publishers" obviously dominate because, well, they're big. And the reporting shows that it's their publications that are being copied.

Payback is designed to align a portion of the distribution (the portion for which there isn't enough information to know exactly whose work was copied) with the number of publications for each author, and weighted for date of publication. Yes this resulted in some writers getting less - the writers with fewer and older publications. Tough if you're in that category, but not unfair and I believe in line with what the much-heralded Prof. Friedman recommended.
May 26, 2011

Curious said:

@Canadian Author
The word "reputedly"is interesting. Very, very few people would know how much was paid to any company or individual. $4 million seems unlikely even with the industry consolidation that's left only three large publishers standing - and Pearson is the largest of them - but whatever the amount, only someone who works at AC, or at the lucky company, would know.
May 26, 2011

Jeff Power said:

...
"it only trickles down when university administrations refuse to pay it themselves as a cost of doing business"
And what's their business, who are their clients?
In the end the client always pays.
May 26, 2011

oldguy said:

...
I'm curious, unless the publisher is the copyright holder as well, why would they receive anything at all from a copy made using institution resources?

If the amounts paid to the publishing houses are purely for works for which they hold the copyright, then it is pretty obvious that the authors have effectively been doing "works for hire" anyway, and would probably be just as well off (if not better) working with an Open Access model.

May 26, 2011

Degen said:

...
Maybe if we start talking about the distribution split between writers and publishers at AC, everyone will forget how completely wrong this post is in its math and assertions.

Look, writers often work for publishers - often large educational publishers. They sign contracts for that work, and those contracts contain specific clauses about copyright revenue collection and splits. In many instances, when writers receive a little bit from Access Copyright, they also receive more from their publisher who has collected the AC distribution in the name of all their authors and then done the admin work to split it properly (according to contract details) and send it out to their authors. This is not "work for hire," which is a term much more appropriately applied to the open access model, or the academic publishing model which demands the copyright for a scholar's work in return for very little pay and the hope of a reputation bump.

I am not opposed to writers working open access. I believe in a diversity of models. But whatever the model, terms of contract, rules of copyright law, and principles of collective royalty distribution need to be adhered to, and Access Copyright does all these things meticulously and in good faith.

The Payback system, and a gradual decrease in repertoire payments is the result of AC doing the good hard work of making sure payments are made for actual tracked use. Geist used to criticize the repertoire, even as he now criticizes the AC foundation grants. Now he also criticizes AC for decreasing repertoire payments in the service of greater accuracy.

Clearly, with his fondness for "creative" financial analysis and the shifting targets of his wrath, Geist is determined that AC will never do anything right (in his opinion).

Jeff - I don't know if you will ever be satisfied in this discussion. Yes, students are the clients of education, and yes, likely, costs will be handed down to them; but it's hardly fair to criticize a copyright collective for expecting clients to pay, and then say la di da when much wealthier universities, with far higher admin cost percentages do exactly the same thing. That's nothing but feverish loyalty to an unbending ideology.
May 26, 2011

Jeff Power said:

...
John, you will be satisfied in this discussion?, so glad to hear that. Who's criticizing the a copyright collective for expecting payment? All criticisms leveled seems to be about their business methods and practices. The only thing that justifies payment is someones willingness to pay or not.
There's a big differences between the two(Universities and AC), the admin costs you are speaking of in the University include teachers, which in reality are more product than admin costs. The only product AC has is copyrighted works. If we exclude the teachers what's the real admin costs ratio? Is it as bad as AC's appears?
Probably the ROI on Universities and AC would not hold up to a typical business.
More interestingly it would be nice to see how AC stacks up against other collectives. That's an article I would take great interest in reading.
The wealth of universities is irrelevant, what they are saying is simply that they no longer see the value proposition in what AC is offering.
If any university decides to walk away because of cost or views some aspect of AC's business practices to be problematic then the only one at fault is AC.

May 27, 2011

Degen said:

...
Jeff,

Your question is "Who's criticizing AC for expecting payment?"

Well, here are some quotes:

"AC wants educators and students (i.e. taxpayers) to pay for much stuff and uses that are or should be free, if the law is properly understood and applied."

"AC wants to take $45 per year from each of university students and $35 for each of the college students per [year?]. That’s about $60,000,000 a year for those who keep track of taxpayers’ money"

"Think of all the advanced research chairs or library books that could be bought for these tens of millions of dollars."

all, Howard Knopf (Geist-lite), circa 2010

and, of course:

"Today Canadian universities spend millions in copyright licenses that are arguably unnecessary. This expenditure effectively represents a subsidy to Canadian publishers from taxpayers as well as from students who are facing escalating tuition fees at a time that they can scarcely cover their monthly rent."


"Rather than focusing on their rights, Canadian universities rely heavily on guidelines from Access Copyright and Copibec, the copyright collectives that are the direct beneficiaries of the questionable university copyright licenses."

both, Michael Geist circa 2005.

I am always satisfied with these discussions. I counter wrongness with correct information. That is its own satisfaction.
May 27, 2011

Darryl said:

...
John, it is too bad your correct information does not actually address the comment.

Jeff said "Who's criticizing AC for expecting payment?"

You quoted "AC wants educators and students (i.e. taxpayers) to pay for much stuff and uses THAT ARE OR SHOULD BE FREE"

For your convenience, I've highlighted the qualification in your quote which makes it not applicable to Jeff's statement.

I think if you actually read any of these quotes in context you would see that no one begrudges A-C payment for what they actually deserve. These statements are qualified. It is the payment A-C has no right too, which people resent.


I am so glad that your own poor arguements give you such satisfaction. I would hate to see you go through life unfullfilled as a result of having higher expectations of yourself.
May 27, 2011

Jeff Power said:

@john, pleas pay attention
all those quotes are about fairness of payment not payment itself, If I go to the store I have every right to choose not to pay for Ice Cream i feel is too expensive. If the store doesn't mind it sitting on the shelf neither do I. I don't mind paying if it's it's a reasonable price, which the market will decide not the provider
May 27, 2011

Jeff Power said:

@darryl
Thank you ,well said, it's frustrating dealing with constant bob and weave of John's responses
May 27, 2011

Curious said:

@Jeff
However, what you don't have the right to do is consume the ice-cream and refuse to pay for it
May 27, 2011

Degen said:

...
Have you guys even read the tariff, or the response to the objections? Honestly. Does anyone over here research their arguments? I know Geist doesn't set the best example on that score, but someone, please.

The interim tariff exists because the repertoire IS used (tariffs tend NOT to exist for non-exist things, btw), and the eventual new tariff will exist because the repertoire will continue to be used, despite all this hand-waving and misdirection. Because someone calls the previous licences "arguably unnecessary" does not make them unnecessary.

Anything can be "arguably" anything else.

Wrongness, meet correctness. Of course, you've met here before.

Jeff, I'm sure you and Darryl will be very happy together. Get him to tell you his amusing stories about running for town council and fighting the evil that is Tim Horton's. Solidarity, brothers.

May 27, 2011

Anon-K said:

...
All. What is the job of Access Copyright? It is to distribute the royalties to the copyright owners or their designated agent. For any individual work, the owner may be the original author, it may be their estate, or it may be the publisher.

Using the Friedland Report verbatim is problematic. First of all, it contains a number of assumptions. To say that only 40% of the AC distribution is sent to authors may be accurate. The report does not account for copyright ownership, and therefore that number may in fact be reasonable. Where the publisher owns the copyright (for instance, the full time employed writers of a newspaper), if the author is not the copyright owner, then why should they get any money; their employment contract transfers the ownership of anything they author for the paper or new service to the company. And note that the report does incorporate this publishing industry into its calculations. To say that the writer should get a royalty if they've signed over all rights is akin to stating that a GM or Ford assembly line worker should be paid an amount for every vehicle they worked on that was sold in addition to their regular wages.

The comment "It is the payment A-C has no right too, which people resent" needs to be addressed as well. Amazingly, the tariff application also included measures which would allow much more accurate tariff payments to AC.. This had to do with the recording of what was photocopied, etc... people didn't like this either because of the administrative burden. Well, you can't have your cake and eat it too. If you want to only pay a tariff to AC for what they represent, then you should be prepared to keep the records necessary to account for all of your use of the materiel they represent.
May 28, 2011

Degen said:

...
Do my eyes deceive me, or is someone else here (beside me, Bob, Sandy and, well, the Copyright Board) recognizing the fractured logic of the tariff objections encouraged by Geist?

AC distribution splits are easy to get ahold of, are explained in meticulous detail at every AGM and are, in my opinion, quite fair considering they are the result of long negotiation by the collective partners and represent a genuine effort to get at the actual copyright ownership as represented by contracts and creation.

The tariff application occurred because educational institutions refused to renegotiate licences, and that refusal came about in large part because certain advocates within that community were counseling the use of fair dealing over licensing -- see Geist's Star column in 2005 that I have referenced many times. And yes, as Anon-K says, the tariff is tied to tracked use; and yes, education can't have it both ways, a fact they will discover soon enough.

This is about to become a bloody mess, all based on terrible legal advice given, in my opinion, to advance a theory. Really quite shameful.
May 28, 2011

Darryl said:

...
"...and the eventual new tariff will exist because the repertoire will continue to be used"

Unless of course it isn't used because institutions believe the cost and inconvenience simply is not worth it, and therefore find other ways to acquire the content they need. In that case the tariff may exist but will be applicable to few or none, which harkens back to that age old question, "If a tariff is imposed in the forest an no one is around to pay it, does it make any profit?"


"Jeff, I'm sure you and Darryl will be very happy together. Get him to tell you his amusing stories about running for town council and fighting the evil that is Tim Horton's. Solidarity, brothers."

I had a great time running for council. It was fun and I met a lot of interesting people, I would strongly encourage anyone with even a marginal inclination to try it at least once.

As for "the evil that is Tim Horton's", I just returned from a scout camp and this sounds like it could be a really good campfire ghost story. I'd be happy to tell it to Jeff but I'm afraid you may need to tell it to me first. Please?!!? I'm on pins and needles with anticipation. Oh, one question. Will you let me tell it to the scouts too or will you make me pay royalties for the privilege?

http://law2.umkc.edu/faculty/projects/ftrials/communications/ASCAP.html
May 29, 2011

Kyle said:

copyright
A lot depends on the amount and purpose of usage of content
May 30, 2011

Faith said:

...
yeah small usage is allowed

http://www.leatherfads.com/
May 30, 2011

Jeff Power said:

@degen
"Jeff, I'm sure you and Darryl will be very happy together. Get him to tell you his amusing stories about running for town council and fighting the evil that is Tim Horton's. Solidarity, brothers."
That's good stuff John, keep this solid material coming it.
May 30, 2011

Darryl said:

...
"Well, you can't have your cake and eat it too. If you want to only pay a tariff to AC for what they represent, then you should be prepared to keep the records necessary to account for all of your use of the materiel they represent. "

Interesting that Anon-K does not make the same demand of A-C. While I agree that institutions can not fairly demand that they only pay for what they use AND be free of any burden to record that usage, why should A-C be able to demand a blanket $45 / student unrelated to usage AND insist that the institutions record their usage as well?
May 30, 2011

Patricia said:

...
The record-keeping AC wants reverses the onus of proof -- essentially claiming that a large proportion of what universities copy (and save electronically, email to others, etc.) are things that AC hold the rights to, and that universities have to prove otherwise by showing AC everything they do.

Meanwhile, since most documents I save and send electronically are written by me (and are often works in progress), such snooping just might break my copyright instead, especially under the "all copies made require payment" argument that AC promotes.
May 30, 2011

Anon-K said:

@Darryl, Patricia
The AC tariff provides a blanket license to copy. While I don't necessarily agree with the record keeping that they are demanding, keep in mind that this record keeping would allow them, if they so choose, to better direct the royalties paid out to the copyright owners to better reflect the actual amount of copying done on those works. For instance, if work X is copied 100x more often than work Y, shouldn't the royalty paid to the copyright holder of X be 100 times that paid to the holder of Y? Without such record keeping, the payouts can be made only on the basis of estimates and assumptions.

One would think that if you want the copyright holder to get the royalty they deserve based on the amount their work is copied (to get their due), you would welcome this level of recording.

Note that I am not saying that AC will in fact use it for this purpose. It is also great marketing information that can be sold to the publishers for them to tailor the texts that they offer.
May 30, 2011

Darryl said:

@Anon-K
Agreed, but there would be less record keeping involved if they only tracked copies which required royalty payments and paid on a per copy basis. With the possibility of paying less to A-C (with less admin work to boot) they could then use the difference to buy more stuff outside A-C repertoire.

Instead A-C is asking for more record keeping then they should, and not giving them the option of paying for content piece meal. If instituted, this would greatly increase the power of A-C's position by providing a strong disincentive for going outside of their catalogue.
May 30, 2011

euniceoverton said:

Thanks for the information
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. http://www.kamagrafx.com/
April 12, 2013

sam said:

thanks
A lot depends on the amount and purpose of usage of content.
http://www.saileshmahimtura.com/
April 18, 2014

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