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245_11DoesweakercopyrightmeanstrongercreativeindustriesSomelessonsfromChinaLucyMontgomery,QueenslandUniversityofTechnologyandCityUniversityLondonJasonPotts,QueenslandUniversityofTechnologyandCityUniversityLondonAbstractWereviewthetheoryofintellectualproperty(IP)inthecreativeindustries(CI)fromtheevolutionaryeconomicperspectivebasedonevidencefromChina.
WearguethatmanycurrentconfusionsanddysfunctionsaboutIPcanbetracedtothreewidelyoverlookedaspectsofthegrowthofknowledgecontextofIPintheCI:(1)theeffectofglobalization;(2)thedominatingrelativeeconomicvalueofreuseofcreativeoutputovermonopolyincentivestocreateinput;and(3)theevolutionofbusinessmodelsinresponsetoinstitutionalchange.
Weconcludethatasubstantialweakeningofcopyrightwill,intheory,producepositivenetpublicandprivategainduetotheevolutionarydynamicsofallthreedimensions.
Keywords:intellectualproperty,creativeindustries,economicevolution,China1.
IntroductionInthesecondhalfofthetwentiethcentury'corecopyrightindustries'suchasfilmandmusichavebeencloselyassociatedwitharhetoricthatassertsthathighlevelsofcopyrightprotectionarecrucialtotheexistenceofandeconomiccontributionmadebythissectoroftheeconomy(Boyle2004).
However,countervailingviewsaboutthebenefitsofintellectualpropertyprotectionhavelongexistedwithintheliteraturesofbothlawandeconomics.
Thehistoryofintellectualpropertyisoneofcontestationanddebateovertheextenttowhichtheeconomicandsocialinterestsofsocietyareservedbygrantingamonopolyrightto'authors'–individualorinstitutional.
iBoldrinandLevine(2002,2005,2008)arguethatthereisnoeconomicjustificationintheoryorevidencefor2intellectualpropertyor,astheycallit,'intellectualmonopoly'andadvocateitscompleteabolition.
AsimilarlineistakenbyVanSchijndelandSmiers(2005)whoproposearadicalre-formationofthecopyrightsystemthattheyargueissystematicallyfailingthecreativeproducersitisintendedtosupport.
Theyarguethatentirelynewapproachestoownership,creativeproductionanddistributionareneeded.
Inthisarticle,weseektobuttresstheargumentforasignificantweakeningofcopyright.
DrawingonourresearchontheroleofcopyrightinthedevelopmentofChina'siidomesticfilmandmusicindustriesandworkoneconomicmodelsofthecreativeindustries,weexploretheroleofcopyrightfromanopen-systemevolutionaryperspective.
WearguethatwesternIPRtheoryfailstorecognizetheopen-systemnatureofknowledgegrowthinthecreativeindustries(CI).
Furthermore,overlyrestrictiveIPRregimesacttopreventinteractionsbetweencreativeproducersandrestrictaccesstocreativeresourcesthatcanbebuiltupon,reducingoverallgrowtheffectsinthecreativeeconomy.
Thisisparticularlyevidentinadigitalenvironment,wherethereispotentialforcreatorstoquicklydrawuponglobalpoolsofmaterialintheproductionofnewworks.
WebeginwithsomegeneralobservationsabouttheshortcomingsofcurrentapproachestoIP.
WethenexaminethreeimportantaspectsofitsroleinCI:(1)theeffectofglobalization,andspecificallytheInternetandICT;(2)therelativeeconomicvalueofthereuseofcreativeoutputversusmonopolyincentivestocreateinput;and(3)theco-evolutionofbusinessmodelsandinstitutionsinresponsetotechnologicalchange.
WeconcludewithdiscussionofthetheoreticalrelationbetweenIPprotectionandCIinnovation.
2.
IntellectualpropertylawandthecreativeindustriesTheDepartmentforCulture,MediaandSport(DCMS)definesthecreativeindustriesas'thoseindustriesbasedonindividualcreativity,skillandtalentthathavethepotentialtocreatewealthandjobsthroughdevelopingandexploitingintellectualproperty'(DCMS2008).
ManyindustrieswithintheCIdefinitionhavetraditionallybeenregardedas'corecopyrightindustries'–includingfilm,television,musicandpublishing,aswellascomputersoftwareandinteractivegames(AllenConsultingGroup2001).
Itisthus3temptingtoconcludethatstrengtheningtheIPRthatallowcreativegoodsandinformationtobegloballytradedwillhelpstrengthentheCI.
iiiYettheglobalmarketforCIproductsandtheapparentneedforasinglesystemthatmakesthistradepossiblepresentmajorchallenges.
TheseareparticularlyevidentinrelationtotheintroductionofcopyrightlawindevelopingnationssuchasthePRC.
ItiswelldocumentedthatUS-basedcopyrightindustrylobbieshaveinfluencedthecurrentinternationalprotectionframework(Wang2003;Arup2000;Milleretal.
2005).
ThecopyrightlawnowinplaceinthePRCandothernewsignatoriestotheAgreementonTrade-RelatedAspectsofIntellectualPropertyRights(TRIPs)reflectsvaluesandexpectationsestablishedintheUnitedStatesandEurope.
EvenwithintheUnitedStates,copyrightiscriticizedforitsinabilitytodealwithculturaldiversityanditspropensitytopenalizecreativetraditionsthatopenlyembracecopyingasanaturalpartofcreativeinnovation(Vaidhyanathan2003:148).
Westerncopyrightsystemshaveparticular,specificwaysofdealingwiththeseissues–namelyfairuseprovisions.
However,thequestionofhowcomfortablyTRIPs-styleIPlawfitswithindigenousapproachestolearning,creativityandthegrowthofnewknowledgeinChinaremainsopen.
CriticismsofwesternapproachestoIPinthedevelopingworldarealsomadeongroundsofculturalimperialismandIP'spropensitytoprotectestablishedownersandexportersattheexpenseofimportingnationsandbroader'public'interest(DrahosandBraithwaite2002;Mertha2005).
Inanerainwhichcontentandcultureflowglobally,copyrightfacesanalmostimpossibletask.
Whileinternationaltradesinculturalandintangiblegoodsnowformanincreasinglyvaluableportionoftheeconomy,theconceptsuponwhichcopyrightrelies–'creativity'and'originality'–aredifficulttotransplantintonewcultural,economic,artistic,socialandtechnologicalcontexts(Alford1995;Liu2006;Mertha2005).
Giventhepowerofnewtechnologiestobreakdownphysicalbarrierspreviouslyassociatedwithcreation,distributionanduse,itisimportanttothusreconsidertheextenttowhichcopyrightisinfacteithernecessaryto,orusefulfor,thedevelopmentofthecreativeindustries.
43.
EconomicsofintellectualpropertyTheeconomicsofIParewellknownandneednotbeoverlyrehearsedhere.
ivThecentralargumentisthatbecausenewideasarenon-rivalrous(Romer2002),underperfectcompetition(priceequalsmarginalcost)equilibriumsupplyiszero.
Acompetitivemarketundersuppliesnewideas(Hirshleifer1971).
Intellectualpropertyaimstorealigntheseincentivesbycreatinganartificialmonopolytoenableproducersofideastocapturemonopolyrentsthatatleastcovertheirfixedcostsofproduction.
Thestandardexampleisnewdrugdevelopment,inwhichfixed(sunk)costsmayruntohundredsofmillionsofdollars.
ThebenefitsofIParethusthepositivesupplyofasociallyvaluablegood(newideas)andthecostsrelatetoinducedmarketdistortions(rents).
Inprinciple,anoptimallevelofIPprotectionbalancesthesecostsandbenefitsatbothmicroandaggregatelevels(GilbertandShapiro1990).
However,theeconomicsofIPhavecomeunderscrutinyinrecentyearsfortworeasons.
ThefirstistherecognitionthatdifferentindustriesandsectorsuseIPindifferentways.
Intellectualpropertyinpharmacology(patents)worksdifferentlytoIPinmusic(copyrights).
Differentkindsofcreativeactivityareassociatedwithsometimesextremedifferencesinfixedcostsaswellasopportunitycosts(Tabarrok2002).
AnotherimportantdifferenceistheextenttowhichdifferentbusinessmodelsmaybeadoptedandrentscreatedwithoutrelianceonIP.
Manyeconomistsviewcopyright(especiallywithinthecreativeindustries)asapuresourceofrentanddistortion,ratherthanasolutiontotheproblemofsupply(Klein,LernerandMurphy2002;Romer2002).
vThesecondreasonrelatestotheargumentsadvancedbyBoldrinandLevine(2002,2005,2008),basedontheworkofLiebowitz(1985).
BoldrinandLevinesuggestthatIPneedstobedistinguishedfromintellectualmonopoly,particularlywithrespecttotherighttocontrolsubsequentuse.
Astheyexplain:Intellectualpropertyhastwocomponents.
Oneistherighttoownandsellideas.
Theotheristherighttocontroltheuseofthoseideasaftersale.
Thefirst,sometimescalledtherightoffirstsale,weviewasessential.
The5second,whichwerefertoasdownstreamlicensing,weviewaseconomicallydangerous.
(BoldrinandLevine2002:209)Theyconcludethatcopyrightis,inmostcircumstances,ahighlyinefficientmechanismforachievingrentcreationforideaproducers.
OuranalysisoftheeffectofcopyrightinthecreativeindustriesinChinasupportsthisview.
Indeed,weshallproposethreefurthereconomicreasonsinsupportofthistheory.
4.
IntellectualpropertyinthecreativeindustriesTheCIserveasausefultestbedfortheoreticaldevelopmentsrelatingtotheroleofIPinaknowledge-basedsocietybecausetheyarerepresentativeofsectorsthataresimultaneously(1)predominantlyglobal;(2)derivingvaluefromtheexploitationandreuseofideasasmuchasfromthecreationofgloballynovelcontentandwork;and(3)arepartoftheattentioneconomy(Lanham2006)andthushighlyflexibleintermsofbusinessmodels.
Thismightseemarathernarrowset,representingsomewherebetweenone-twentiethandone-tenthofalleconomicvaluecreation.
Butitisalsoarapidlyexpandingclassofactivity,growingatabouttwicetherateoftheaggregateeconomy(PottsandCunningham2008).
ThesethreecharacteristicsoftheCIraisequestionsabouthowweunderstandrelationshipsbetweeneconomicsandlawinthecreativeindustries.
DebatesabouttheroleofIPintheCIbringtotheforeanobviousdifficulty,namelythattheverydefinitionofCIreferstointellectualproperty(DCMS1998).
Wethinktheproblemhereisinthedefinitionofcreativeindustries:politicalcaptureandrentseekingassociatedwithstrengtheningofIPlawhavehadasignificanteffectonthewayCIareconceptualized.
Whileitisnotthepurposeofthisarticletoengageindefinitionaldispute,wedobelievethatabetterdefinitionfollowsfromthesetofindustriesinvolvedinsocialnetworkmarkets(Pottsetal.
2008),whichareessentiallyanattentioneconomy,notapropertyeconomy.
64.
1IntellectualpropertyinthecreativeindustriesisaglobalissueWhiletherearemanysectorsofeconomicactivitythatarealmostentirelylocal(e.
g.
infrastructure,education,health),theCIarenot.
ThishasimportantconsequencesfortheeconomicaffectsofIP.
MostcompaniesandconsumersofCIeitherproduce,consumeorboth,inglobalmarkets.
Yet,indoingso,theyaregovernedbynationallaw.
AlthougheffortshavebeenmadetoharmonizeIPregimesglobally,enforcementdependsonnation-basedauthoritiesandinfrastructure(Liu2006).
Thisresultsindifferentialcostsandbenefitsthat,ineffect,makeitmoreprofitable,inthelanguageofgametheory,to'play'cooperatelocallyandto'play'defectglobally.
Intellectualpropertycombinedwithglobaldistancethusresultsina'mixedstrategy'.
Wethinktheequilibriumofthat'game'orstrategysetisuniversalnon-cooperation,meaningthatthedominantstrategyforallplayersinacompetitiveenvironmentistoact'asif'intellectualpropertywaseverywhereweak.
Thetendencytowardsthisequilibriumpointisevidentinthecreativeindustries,whicharealmostbydefinitionservingglobalmarkets(Howkins2001;DeVany2004).
CIfirms,evensmallones,areoften'bornglobal':whetherinproduction,marketsorboth.
Whilethisprovidesopportunitiesforvaluecreationinproductioncollaborationandspecialization,alongwiththegeneralbenefitsoflargemarkets,italsoimmediatelyinvolvesproblemsindealingwithIPprotectioninfar-awayplaceswhereseekingenforcementmaybeprohibitivelycomplexorexpensive.
Thusalthoughfirmsmaybenominallyoperatinglocallyundereffective(low-cost)IPlaws,intheirglobalmarketsthisisnotagiven.
Rationalitythereforedictatesa(Nashequilibrium)strategyofbehavingasiftheywereoperatingeverywhereinthehigh-cost(weak)IPworld.
ThisgivesrisetoacuriouseconomicpropertyoftheinteractionbetweenIPlaw,globalmarketsandbusinessstrategy,namelythatthepresenceofstrong,effectiveandefficientIPlawmaynotbenefitthecreativeindustries.
ThisisbecausestrongandeffectiveIPlawonlymattersifitislikethateverywhere,i.
e.
globally.
Acorollaryisthatdistancecosts,whetherspatial,culturalorpolitical,intermsofcostsoftransactionsandenforcementofpropertyrightswillbenegligible.
Lawmovesslowlyandtakestimetoharmonizetoaglobalequilibrium;forthemostpart,itisincontinuousdisequilibrium.
Therefore,totheextentthattheCIaremostlyglobal,andthatglobalIPlawismostlyindisequilibrium7(suchthat'distancecosts'remainnon-negligible),thenwewouldexpectthatthedominantstrategyforCIfirmstoplayisthe'high-cost'IPstrategy:orientingbusinessmodelsandconsumptionbehaviours'asif'IPwaseverywhereweak.
Thatis,evenwhenIPislocallystrong,inaglobalmarket,producersmaystillrationallychoosestrategies'asif'IPwereweak.
StrongIPwillthusinducedistortionsthatonlybenefitincumbentsandsimultaneouslypenalizenewentrants.
4.
2IncentivesforcreativityandvaluefromreuseThecreativeindustrieshighlightnotjusttheeconomicvalueofcreativityandorigination,butalsothesignificanteconomicvaluecreatedbythereuseofideasandcontent.
WesuggestthattheCIarenotsomuchdealingwithnewideas,butwithparticularinstantiationsofnewideasandtheirreuse.
Copyrightthereforeimpactsdirectlyonthepotentialforeconomicactivityinthecreativeindustries.
Intheeconomicsofideasandtheinformation,growthandmarkettheoryitisbasedupon,thefocusisonideasperseratherthanthecopyrightedwork.
Yet,copyrightlawexplicitlyfocusesonworks,notideas(Deazley2006:112).
So,intheeconomicmodel,itistheidea-connectionthatisthesourceofvalue(DopferandPotts2008),whereasinthelegalmodel,itistheinstantiationoftheidea.
Theeconomicmodelleadstofocusonhowtoconstructincentivestocreatenewideas.
Thelegalmodelseekstoimplementthese,andtodosobyconnectingittocultural,socialandpoliticalstatesandprocesses.
However,thereisalsoa'third'option,whichfollowstheconjecturethatthenoveltycreationaspectmightnotbethemostimportantpart.
Itmaynotbethereuseoftheidea,butthereuseoftheparticularinstantiationoftheideathathasthegreatestsocialandeconomicvalue.
ItisofcoursethecasethatIPlawaimstoconfrontthisreuseofinstantiationsaspectbyforcing(market-negotiated)rentsonsuchproductionsituations.
However,thisisamarketmodelofreuseinproduction(asafactorinput)orreuseinconsumption(asutility),butnotofreuseininnovation,orofreuseinwhichproductionisbydefinitionnoveltyas,forexample,incontentproduction.
Thisisanimportantandmuchoverlookeddistinctionthatishighlightedinthecreativeindustries,whichwhile8certainlyproducingvaluebybeingcreativeintheclassicsenseofproducingnewideasandthusnovelty,alsoproducesubstantialvaluethroughthereuseofcontentintonewmediums,messagesandformats.
IPwasdesignedtoincentivizevaluecreationdrivenbyoriginationandtoprotecttheresultant'property'.
Itwasneverdesignedtofostervaluecreationbyreuse(apointalsoemphasisedbyBoldrinandLevine(2002)).
YetthevaluecreatedintheCIissignificantlycomposedof,ifnotdominatedby,valuecreationinreuse.
Theoriginalvaluecreationmodelleadstoanexclusivefocusontheincentivestoproducenewideas.
TheeconomicsofIPisthereindefinedintermsofthetrade-offbetweencreatingincentivestointroducenewideasasagainsttheefficiencylossduetothecreationofanartificialmonopoly.
Thissituationarisesbecauseideasarenon-rivalrousgoods(Romer2002)withpositiveandsometimesveryhighfixedcostsandlowmarginalcosts.
Thus,underperfectcompetition(priceequalsmarginalcost),equilibriumsupplyiszero.
Yettheproductionofnewideasalwaysgeneratesanetsocialbenefitduetothespill-overeffectsoftheseideas.
Thisclassic'marketfailure'argumentisthenresolvedinoneoftwoways:(1)publicfundingoftheproductionofideas;or(2)thecreationofartificialimperfectcompetitionintheformofatemporarymonopolytoenabletheideaproducertorecoup,throughmonopolyrents,thefixedcostofproduction.
Intellectualpropertyisobviouslythelatterpath,andwidelyfavouredoveroption(1)becauseitpreservesmarketincentives.
MosteconomistsacceptthisasthefullandproperanalysisofIPinrelationtonewideas.
Thereuseissueissimplyaderivativeconceptthatimpliesresolutionthroughtheexistenceofasecondarymarket.
IPlawfollowstheeconomistsonthisandintervenesonlytocreatearaftofpossibleexceptions.
Itisourview,however,thattheCIeffectivelydemonstratetheimplicationsoftheoppositeofthismodel,namelyofaworldinwhichmosteconomicvaluecomesfromreuse,whichcanoccurinmanydifferentways,andoverwhichmanydifferentbusinessmodelsmayapply.
Thecreativeindustriesthusillustrateseveralkeypoints.
First,creativityisnotinshortsupply;itisnotincentiveconstrainedunderperfectcompetition.
Thestandardmarketfailuremodelarguesthatunderperfectcompetition,9sunkfixedcostsofproductionandlowmarginalcostsofreplication,weshouldexpecttoseezeroorlowcreativesupply.
Weshouldexpecttoobserveapositivecorrelationbetweenstrengthofintellectualpropertyandcreativesupply.
Yetwhilethatmaybethecaseinsomeindustries(e.
g.
pharmaceuticals,nanotechnology,etc.
),itismanifestlynotthecaseintheCI.
viInfacttheproblemiseffectivelytheopposite:namely,anover-supplyofcreativeinput,notbecauseof,butinspiteofIPanddue,rather,totheshiftingopportunitycostsofcreativebehaviourasincomesriseandthetoolsforcreativeproductionbecomemass-adoptedconsumergoodsratherthanspecializedindustrialcapital(Towse2001).
Second,theeconomicvalueofanovelideaisutterlydominatedbyreusethroughdiffusionandadaptation.
Itisexceedinglyrare(outsideofpharmacologyandbiotechnology)foranovelideatobecompleteatfirstinstantiationandnotthensubjecttoongoingadaptationandfurthermodificationthroughsubsequentdevelopmenttonewcontextsandnewapplications.
Pureunadulterateddiffusionisuncommon,andsoondisappearsasthetimescaleofanalysisisextended.
Thecreativeindustriesareparticularexemplarsofthisgeneralprincipleofthegrowthofknowledgebecausetheyexhibitthisprincipleonveryshortaswellaslongtimescales.
Third,therearebothprivateandpublicgainstoreuse.
Theprivategainsaccruetotheproductionofcommunicationinwhichtheidentityoftheoriginalsourceisitselfasourceofvalueduetothesocialnetworkprominenceoftheselectedinstanceofreuse.
Theclassicacademicexampleofreuseisreferencedquotation,whichisaparadigmaticmodelofthevalueofreuseinanativesocialandculturalcontext.
Explicitlawsareunnecessarytoenforcethisintellectualproperty.
Reusethusfunctionspubliclyasaprivategood,andviceversa.
Fourth,therearediversityandentrepreneurshipargumentstoreuse.
Onthefaceofit,reusewouldseemtorepresentaspeciesofreplicationthatdynamicallyconsideredwoulddrivestandardizationtowardsuniformityasreusepredominateswithincreasingreturns.
Yetrealityisdifferentbecauseeachinstanceofreuseoccurswithinindividualmindsoragentsthathaveparticular,andoftenunique,systemsofotherideasthatthereusedideawillbecombinedwith.
Thenetresultisthatreuseofaparticularidea-10actualizationwillinteractwithextantvarietyin'hosts'soastoproduceincreasedvariety.
Andwiththatcomesexplorationofentrepreneurialopportunityspace,whichissimultaneouslyaprivateandpublicgood.
Examplesofthisincreativeindustries,fromjazzmusictoYouTube,arealmostdefinitional.
Fifth,reuse'feeds-forward'intootherindustriesasaformofknowledgespill-over.
Thisargumentisstrongestinthegeneralsenseofflowofideasfromonedomaintoanother(e.
g.
fromideasaboutchemistry,anditsindustries,toideasaboutbiology,anditsindustries).
Butitcanalsooccurinthecontextofinstantiatedcontentanditsindustrialflowsor,asoften,transmogrifications.
Thiscanbeautocatalytic,aswhenvisualartisusedinvisualart,aswellasbeingexocatalytic,tocoinaterm,aswhencontentinonedomainisreusedinanother,aswhenvisualartisusedinadvertising,orwhenmusicisusedinperformance.
Thecreativeindustries,whilebeingasautocatalyticasanyindustry,inthesensethatitscurrenttechnologiesandmarketsshapethedevelopmentofitsfuturetechnologiesandmarkets,areunusuallydominatedbyexocatalyticreactionsinwhichcontiguousdevelopmentsacrossindustriesandmarketsareasimportant,ifnotmoreimportant,thanpastpathswithinindustriesandmarkets.
Reusethusgeneratesanew,andasyetunanalysed,kindofeconomicandsocioculturaldynamicintheformofincreasingreturnsthroughsuchexocatalyticreactions.
Indeed,withrespecttotheinfusionofculturalcontentintoeconomicproduction,thismaywellbetheprimarymechanismunderlyingthegrowtheffectsofthecreativeindustries(PottsandCunningham2008).
Sixth,thereareconsumerco-creationargumentstoreusethatalsoassociatewithculture,identityandsituatedknowledgearguments(Pottsetal.
2008).
Openinnovationandproductionmodelsrelyon,andindeedexploit,thereuseofknowledgeandindoingsoexplorethespaceofpossiblebusinessmodelspremisedonsuchassumptions.
Somepracticalreusesolutionstotherestrictivenatureofcopyrightinadigitalenvironmenthavealreadybeenfound–notablytheGeneralPublicLicence(GPL)andCreativeCommons(CC).
Yeteffortstoharmonizethecreativeandcollaborativepotentialofnewtechnologieswithexistingcopyrightframeworksdonotsolvethebroaderproblemsassociatedwiththeframeworkitself.
Theabilitytoeasilybuildonthecreativeworksofothersandtodrawonaglobalpoolofcontent(bothinstancesofreuse),ispotentiallythemostpowerfulbenefitoftheInternetforcreativeworkersandindustries.
Movements11suchasCCprovideopportunitiesforcreatorstomake,shareandremixworkslegallythroughtheapplicationofeasy-to-understandlicencesandmetadatathatensuresthatthetermsuponwhichaworkcanbeusedareeasilyidentified.
WhileCClicencesassistamateurcreatorsinassertingtheirrighttodecidethetermsonwhichtheirworkisused,theydolittletolessentheseparationbetweencreativeresourcesgeneratedbyamateursandthecommercialpotentialthatentrepreneursandthebusinesscommunityareinterestedin.
viiAmoreradicalreformulationofcopyrighttoallowreuseofcontentbybothamateursandcommerciallyfocusedcreativeentrepreneurswouldthusseemtobeapotentiallyvaluableadvance.
viiiWhattheseargumentsamounttoisthenotionthatthereuseofideasistheoverwhelminglydominantsourceofvaluecreationofideas,andthatwhilethereisofcoursenoreuseofanideawithouttheinitialcreationoftheidea,anylegaloreconomicargumentaboutthevalueofnewideasneedstoplainlyrecognizethatthisvalueisnotinstantaneouslycreatedatthepointoforiginationbutaccruesthroughtheongoingprocessofadoptionandadaptation(DopferandPotts2008),aprocessthatcreatesthevalueoftheideathroughitscatalyticeffectinreuseoverandaboveitsgerminaleffectinorigination.
4.
3BusinessmodelsadapttolegalsystemsOurthirdpointisthatbusinessmodelsadapttolegalandotherinstitutionalsystems.
ExploringthemechanismsthatareallowingcreativeindustriestoemergeinnationswithweakcopyrightsystemswillthusbevitaltounderstandingtheroleofIPinthecontextsofglobalizationandnewdigitalpotentials.
ixPreliminaryexaminationofthemusicindustryinChinasuggeststhatbusinessmodelsandindustrystructuresdoevolvetofittheenvironmentwithinwhichtheymustfunction.
Althoughbusinessmodelsandlegalsystemsco-evolve,legislativereformoftentakesdecades,whilebusinessmodelsandindustrystructuresregularlyrespondmuchfaster.
ThePRCprovidesanexcellentcomparativeperspectiveforscholarshopingtobetterunderstandthisprocess.
Althoughmediacontrolandcensorshipremainimportantfactors,commercializationoftheculturalsector,rapidadoptionofnewtechnologiesandlowlevelsofcopyrightenforcementare12resultinginnovelapproachestothecommercializationofcontent.
Inordertosucceed,businessesinChinaaredevelopingstrategiesforoperatinginacontextofveryhighlevelsofcopyrightviolation.
xWeadvancethisasafurtherargumentthatIPmaymatterlesstoCIdevelopmentthanpreviouslyassumedbecause,asChinahighlights,businessmodelsareverygoodatadaptingtothelegal,socialandtechnologicalcontextswithinwhichmoneymightbemade.
Asnewtechnologiesandglobalizationincreaselevelsofconnectivityamongbothconsumersandcreators,approachesdevelopinginChinamaywellturnouttobeatthevanguardofcontentmonetizationinadigitalage.
Inturn,businessmodelsthathaveevolvedunderstrongIPregimesmaynowbeatastrategicdisadvantageinaglobalenvironment.
ChinathusoffersanexemplaryopportunitytostudytherelationshipbetweenIPandthegrowthofCI.
ThedifficultiesassociatedwithattemptingtocontrolunauthorisedcopyinganddistributionofmusicinChinaareplayinganimportantroleinthegrowthofa'musicindustry'inwhichrecordlabelslicensingcopyrightinmusicrecordingsarebynomeansdominantplayers.
Labelsarebeingforcedtorelyonartistmanagementandadvertisingtogeneraterevenueandroyaltiesfromthesaleofphysicalcopiesofmusicplayarelativelysmallroleinmusic-relatedincome.
Controlofphysicalinfrastructuresfortheefficientdistributionofmusicandmusic-relatedservices,suchasmobilephonenetworks,areemergingasthemostimportantfactorinanabilitytoestablishadominantpositionwithintheindustry.
Technologicalchangeisexogenous,continuousandunpredictable.
Yetbusinessmodelsareendogenous,discreteandmanageable,althoughalwaysexperimentalatsomefrontier.
Thisiswhybusinessmodelsadapttoexogenouseventssuchasnewtechnology,whichoftenhappensfast,aswellastonewlaw,whichoftenhappensslowly,insimilarways(Beinhocker2006).
Businessmodelsareaformof(social)technologywidelyoverlookedbothbyeconomistsandlegaltheorists.
YetthisdynamicispreciselythevariablethatmakeseveryparticularconfigurationofIPRinstitutionsoptimalundersomeconditions.
Itiswidelyassumedthat'themarket'executesthisfunction,whichitdoes,butitistheadaptationofbusinessmodelsthatisthemarketdynamicthatproducesthis13result.
Withoutbusinessmodeladaptation,inotherwords,itreallywouldbethecasethatdifferentIPlawsmattered.
Yetwithbusinessmodeladaptation,theconversefollows:IPlawsdonotmatterifbusinessmodelscanchangefaster,moreeffectivelyandmoreefficientlythanlegislation.
Compare,then,thedevelopmentofbusinessmodelsintheUnitedStatesandChinawithinthesameindustry.
IntheearlydaysofrecordedmusicintheUnitedStateshighlyspecializedequipmentwasrequiredtoturnsoundsintophysicalproductsthatcouldbesoldinamassmarket.
Makingmultiplecopiesrequiredhardwarethatwasnotwidelyavailable,andsotheproductionanddistributionofmusic'products'–physicalcopiesofrecordings–couldgenerallybecontrolledandmonitored(Gronowetal.
1999).
Thecreationof'neighbouringrights'–whichallowedlabelstoownthecopyrightinsoundrecordingtheyhadcommissioned(Laing2002:185)createdcommercialopportunitiesforbusinesseswillingtoinvestintheproductionandpromotionofmusicthatcouldbesoldtoamassmarket:recordlabels.
Thedominantbusinessmodelintherecordedmusicindustryinthesecondhalfofthetwentiethcenturywasbasedaroundrecordlabelsprovidingartistswithaccesstorecordingequipment,massproductionanddistributionchannels,marketingandpromotionservices,andremuneratingthemonaroyaltybasis.
Artistsreceivedincome(andstilldo)onaroyaltybasis.
Twofactorswerecriticaltotheemergenceofthisindustrystructure:theexistenceofassignablecopyrightsinsoundrecordings(Laing2002:185)andphysicaltechnologiesthatmadecontrolledmassproductionanddistributionofmusicpossible(Bettig1996).
Althoughdevelopmentsinphysicaltechnology,suchascassettetapesandrecorders,presentedchallengestotheindustry'sabilitytocontrolcopying,thesechangesoccurredaftermarkets,industrystructures,professionalorganizationsandgroupcollectioninfrastructureshadbecomeestablished.
Assuch,theindustrywasgenerallyabletorespondinasystematicwayandincrementaldevelopmentsinanaloguetechnologiesofcopyingdidlittletodisruptitsoverallstructure(Frith2004).
xiInChina,ontheotherhand,technologiesformassreproductionandconsumptionofrecordedmusicbecameavailableintheabsenceofcopyrightlaw,anorganizeddomesticmusicindustryorclearlegitimatechannelsforthedistributionofmostforeigncontent.
ThesetechnologiesalsobecameavailableasChinawastransitioningfroma14plannedeconomytoamarketsystem.
Highlevelsofdemandforpopularmusic,combinedwithreadilyavailabletechnologiesformassreproductionandconsumptionandanabsenceoflegitimatedistributionchannelscontributedsignificantlytotheriseofablackmarketinmusicproductsandhighlysophisticatedillegaldistributionnetworks(deKloet2002).
xiiTheInternet,personalcomputersandcheapMP3playershavecompoundedthedifficultiesassociatedwithcontrollingdistribution:technologiesthatarechallengingapproachestothecontrolandmonetizationofcontentglobally.
xiiiIthasbeenestimatedthatmostmusicdownloadedfromtheInternetontopersonalcomputersorportabledevicessuchasMP3playersoccurswithoutpermissionfromorpaymenttocopyrightowners(Daniel2007;Music2.
02008).
Asdemandevolves,sodoessupply.
NotonlyarenewtechnologiesbeingadoptedwithenormousspeedacrossChina,theyarebeingembracedfastestbygroupstraditionallyconsideredmostlikelytopayformusic.
Young,educatedcity-dwellerswithrelativelyhighdisposableincomesarenowthegroupmostlikelytohaveaccesstobroadbandInternetconnections,MP3playersandnext-generationmobiledevices(Kuo31October2007interview;CNNIC2008).
AlthoughthestructuresthatdefineChina'scommercialmusicindustryarestillcrystallizing,itisalreadypossibletoseeimportantdifferencesbetweenthewayithasfunctionedintheWestandthewaythatitisfunctioninginChina.
TheChinesegovernmenthasbeenreluctanttoabandonculturalpoliciesthatplaceheavyemphasisonthepedagogicalandpoliticalroleofculturalactivities,oftentothedetrimentoffirmsoperatingintheemergingculturalindustries.
xivInspiteofthis,opportunitiesforcommerciallydrivenculturalindustriesareincreasing(Liao2006).
Baranovitch(2003)arguesthattheChinesegovernment'smonopolycontrolofbroadcastmedia,combinedwithubiquitouspiracy,hasensuredthatthestatehasbeenabletomaintainenormouspoweroverthedevelopmentofthedomesticmusicindustry.
Lowlevelsofcopyrightenforcementhavemeantthatmusicianshavebeenunabletosurviveonalbumroyalties.
Instead,theyhavebeenforcedtorelyonconcertsandpersonalappearancesforalargeportionoftheirincome.
Becausegovernmentapprovalisrequiredforlargeconcerts,andthestatecontinuestodominatethebroadcastmedia,China'sauthoritieshavebeenabletoexerciseenormouscontrolovermasspublicityandincome-generatingopportunitiesformusicians.
Althoughalternativematerial–someofit15dealingwithpoliticallysensitivetopics–isavailableinChina,itsmassimpacthasbeenlimitedbyalackofaccesstopromotionalchannels(Baranovitch2003:271).
However,whilepoliticalsensitivitiesarestillafactor,xvpeoplearemakingandconsumingmusicwidely,andbusinessesarefindingwaystogenerateincomearoundtheseactivities.
PoliciesoriginallyintendedtocontrolheterodoxcontentinChinahavehadanotherimportantimpact.
Itisarguablethattheyhavecreatedbarrierstothelegitimatedomesticmarketforforeigncontentproducers,increasingincentivesfortheproductionofdomesticcontentandreducedforeigncompetition.
Inordertoreleaseanalbum,domesticartistsrequirea'publishingnumber',whichcanonlybeobtainedthroughalicensedpublishingcompany.
Foreigncompaniescannotobtainapublishinglicence,andsotheyhavenochoicebuttocollaboratewithaChinesepartnerinordertodistributemusic.
Foreignalbumsmustapplyforpre-releasecensorshipbytheMinistryofCulture–aprocessthattakessignificantlylongerthansimplyapplyingforapublishingnumberfromalicenseddistributor(Zhao,9August2005interview).
In2005,HuayiMusicnotedthatthishadbeenafactorintheirdecisiontoconcentrateonlocalmusic(Zhao,9August2005interview).
Therecanbelittledoubtthatpoliciesostensiblyintendedtopreventheterodoxcontentfrombeingdistributedarehavingmoreimpactonthecommercialviabilityofsomeformsofcontentthanonthepopulation'sabilitytoobtainunapprovedmaterial.
As'piracy'figuresattest,unauthorizeddistributionremainsthebiggestsourceofpopularmusic.
However,withinthelegitimatemarket,domesticartistsaremakingthegreatestheadway.
Itisestimatedthatinternationalartistsstillaccountforlessthan10percentoftheoveralldigitalrevenueofmajorlabelsoperatinginChina(Daniel2007).
ThisisanobvioussourceoffrustrationforinternationalrecordlabelexecutivesandthegovernmentsofnationssuchastheUnitedStates,whichpossessestablishedcopyrightexportindustries.
xviButthesuccessofChina'sdomesticmusicindustrywithinitsownmarketmightalsobeviewedasanencouragingsignbythosewhohadfearedthattheexpansionofwestern-styleintellectualpropertysystemswouldhaveanegativeimpactonthedomesticculturalindustriesofdevelopingcountries,re-enforcingtheglobaldominanceofestablishedculturalexporters(DrahosandBraithwaite2002;Arup2000).
16WhyhavetheexperienceandaccumulatedcontentownedbymajorinternationalrecordlabelscountedforsolittleinChinaCulturalpoliciesthatfavourlocalcontenthaveundoubtedlyplayedanimportantrole.
However,businessmodelsthatrelyheavilyonpublicperformanceandpersonalappearances,andwhichareunlikelytoproducerevenueonalargescalefromthesaleofphysicalunits,providelimitedopportunitiesforinternationallabelshopingtobreakintotheChinesemarket.
FewestablishedwesternartistsarewillingtodevotelargeamountsoftimetoconcertsandadvertisingwithinChina–whichisrarelyviewedasacoremarket.
Opportunitiesforconcertsaresubjecttocensorshipandcontrol,xviiand,inanycase,mostcontractssignedbyartistswithmajorinternationallabelsdonotincludeartistmanagementorconcertrevenue.
EvenforChinesemusiciansandlabels,publicappearancescanbedifficulttomanageandpresentscalabilityproblems(Zhao2005).
ThissituationhasprovidedChinesebusinesseswithanadvantage.
Whilemajorinternationallabelshavebeenunwillingtoinvestheavilyinthepromotionofinternationalartistsinamarketwherereturnscannotbeguaranteed,localartistsandlabelshavebeendevelopingbusinessstrategiescapableofgeneratingincomeinspiteofpoliticalsensitivitiesandveryhighlevelsofpiracy.
Onestrategyhasbeentorelyonpersonalappearancesbyartists,whichcannotbereplicated.
Asaresult,thereislessemphasisonproducingpopularalbumsandmoreemphasisongainingpopularityandprofilethroughsinglehitsthatleadtolucrativeproductendorsementandliveappearanceorperformancedeals(Wang,2August2005interview).
However,evenforChineselabels,relyingonpersonalappearanceandadvertisingrevenuepresentspracticalproblems,includinglimitedscalabilityandcontinuingsensitivityoverlargepopularmusicevents(ChinaMusicRadar2008).
Furthermore,advertisingandpersonalappearancesaredifficulttoreconcilewiththe'longtail'approach,which,inothermarkets,allowsbackcataloguestocontinuegeneratingrevenueforlabelsandartistslongaftertheartisthasbeeneclipsedbythelatesttrend.
ThedistributionofmusictomobiledevicesisquicklybecomingoneofthemostsignificantsitesofeconomicactivityassociatedwithmusicinChina(Yao2007).
JustasanaloguetechnologiesallowedalimitednumberoffirmsinEuropeandtheUnitedStatestocontrolthephysicalproductionandmassdistributionofmusicformuchofthe17twentiethcentury,mobilenetworksmakeitpossibleforafewkeyplayerstocontroldistributionofcontenttomobiledevices.
xviiiInothermarkets,recordlabelsemergedasthemostpowerfulgroupinthewesternrecordedmusicindustry,controllingaccesstocapital,productionofphysicalmusicproductsanddistributionchannels.
InChina,mobileoperatorsareontracktoplayasimilarrole.
Mobiledistributionhastheaddedadvantageofprovidingaccesstonewconsumergroups:lowerincomedemographicsandyoungpeoplelivingoutside'first-tier'cities–reportedtobeamongthehighestspendersonCDsandaudio-cassettes(StMauriceandWu2006).
RatherthanfallingvictimtogloballydominantexportersofIP,China'sdomesticmusicindustryissuccessfullybuildingamarketforlocalcontent,usingthelegaciesofcensorshipandculturalcontroltoitsadvantage.
Theresultisadynamicindustrythatisactivelyexploringthepotentialofnewmarkets.
However,wenotethattheexistenceofaformalcopyrightlawthatallowscreatorstolicensetheirworkstorecordlabelsandmobileoperatorsisplayingaroleinthedevelopmentofthemobilemusicmarket.
Theimportanceofatechnologicalmeansofcontrollingaccesstocontentandcollectingmicro-paymentsforuseseemsequallyobviousinChina,andmayprovideimportantlessonsforlegalandculturaltheoristseagertoseesuccessfulapproachestocommercializationofculturethatdonotrelyonmonopolystructures(Montgomery2005,2007).
Allrentseekingthusinvolves,insomewayorother,thetacitpresumptionthatbusinessmodelsareparametric,likelaw.
Thisisofcoursenolesstrueinthecreativeindustriesasinotherindustries.
Yetthecreativeindustriespresentmuchclearerexamplesoftherejectionofthisassumptionbecause,simply,theydoitsooften.
Instead,oncewerecognizethatbusinessmodelsarenotparametersaboutwhichlawseekstoformandsolidify,butrathercontinuallyadaptivetechnologiesthattakeparticularstructuresoflawasaspectsofthebusinessenvironment,wearriveatamuchclearerperspectiveontherelationofintellectualpropertytoeconomicsystems:namelyeconomicsystemsalwaysadapttolegalsystems.
Inconsequence,IPlawdoesnotreallymatter;yetforagivenIPlaw,whatmattersiswhoismostadaptedtoitsweakestversions.
AndthathasbeenwiththecentrallessonofourcasestudyofChina'screativeindustries.
Strongcompetitiveadvantagethusflowsfromweak,notstrong,IPenvironments.
185.
ConclusionGiventwoenvironments–aweakIPregimeandastrongIPregime–wehavearguedthattheweakIPregimeisevolutionarilysuperior,inthatitadvancesoperationalvalueover:(1)theprospectsofglobalvalueadded;(2)overtheincentivetoreuseideas;and(3)businessmodeladaptation.
Ourargument,illustratedbyacasestudyonChina'screativeindustries,isthataweakIPregimecanactasacompetitivestrength,bothforproducersandconsumers.
OurmodelofglobalizationthusemphasizedthestrategicimplicationsofothernationsnothavingthesamehighstandardsofIPprotectionandefficacyofuse.
Ourmodelofreusesoughttoemphasizetheeconomicvalueofincentivestoreuseascomparedwiththeeconomicincentivestocreation.
WearguedthatinthecreativeindustriesthereusevalueofnotjustideasbutinstantiationsisbothpubliclyandprivatelymuchlargerthanthepotentiallossofnoveltycreationthroughweakerIPregimes(asartificialmonopoly).
WethenarguedthatbusinessmodelsadaptfasterthaninstitutionsofIP,andthatthisorderingdeterminesdynamicoutcomes.
Ineffect,anyIPregimewillappearoptimalundersomeadaptedsetofbusinessmodels.
Inthiscase,theargumentforoptimalitymustfavourweaker,i.
e.
lessconstraining,IPregimes.
AdaptationofbusinessmodelsthusmitigatesmanyoftheargumentsforstrongerorparticularIPregimes.
Weconcludethatthecreativeindustriesareaspecialbutillustrativecase,becausetheirkeyproperties–inrelationtoglobalcontext,knowledgereuseandadaptivebusinessmodels–arepropertiesthatarelikelytobecomemorecommonthroughouttheeconomy,notlesscommon.
Ourtentativeconclusionisthatthecreativeindustriesintheory,asillustratedwithsupportingevidencefromChina,havefarlessrelianceonintellectualpropertythanhithertoassumed.
Forempiricalreasons,werejectthehypothesisthatstrongerIPisthepathwaytoeconomicgrowth.
Instead,wearguethatweakerIPisamuch-overlookedsourceofevolutionarydevelopment.
NoteAnearlierversionofthisarticlewaspresentedat'TheCreativeIndustriesandIntellectualProperty'conference,22–23May2008,BirkbeckCollege,UniversityofLondon.
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ListofinterviewsChillout,J.
(3August2005),Manager/Producer,NewbeesMusicProductionCompany,interviewwithLucyMontgomery,Beijing.
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24Zhao,D.
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Contributors'detailsLucyMontgomeryisapost-doctoralresearchfellowintheARCFederationFellowshipprogramattheARCCentreofExcellenceforCreativeIndustriesandInnovation,QueenslandUniversityofTechnologyandanhonoraryvisitingresearchfellowatCityUniversityLondon.
E-mail:lucy.
montgomery@qut.
edu.
auSheiscurrentlybasedatCityUniversityLondon,NorthamptonSquare,LondonEC1V0HB.
JasonPottsisanevolutionaryeconomistattheARCCentreofExcellenceforCreativeIndustriesandInnovation,QueenslandUniversityofTechnologyandanhonoraryvisitingseniorresearchfellowatCityUniversityLondon.
E-mail:j.
potts@qut.
edu.
auJasoniscurrentlylocatedatQueenslandUniversityofTechnology,CreativeIndustriesPrecinct,Z1-515MuskAve,KelvinGrove,Brisbane4059.
iAnexcellentdiscussionofthishistorycanbefoundinDeazley(2006).
iiInthispaper'China'referstothePeople'sRepublicofChina(PRC).
iiiWang(2003),forexample,arguesthatcopyrightiscrucialtotheproperfunctioningoftheglobalinformationeconomy,andpiracyisthesinglegreatestthreattoindustriesthatrelyoncopyright.
TheoppositecaseitputbyRaustialaandSprigman(2006).
ivAnexcellentsurveycanbefoundinDixonandGreenhalgh(2002).
vItisnoteworthythataparalleldebateisoccurringwiththestudyoftheeconomicsof'open-source'productionandinnovation(seeLernerandTirole2002).
viTherecordingindustryisaperfectexampleofthisphenomenon.
Inspiteofthefactthatitisroutinelyacceptedthatatleast90percentofartistssignedtomajorlabelswillnotgenerateaprofitfromalbums,thereremainsanamplesupplyofpopularmusichopefuls.
SeeJones(2002).
viiPresently,alargeproportionofCCuserschoosetoapplynon-commerciallicencestotheirwork(CreativeCommons2008).
ForcritiquesofCCnon-commerciallicencesseeMoller(2005)andHanckock(2006).
viiiLessigalsoarguesforamoreradicalreformulationofcopyright,andsuggestsCCasasolutioncapableoffunctioningwithincurrentlaws.
ixAusefulcomparisonisbetweenChinaatpresentandGermanyinthenineteenthcentury(BoldrinandLevine2008),bothofwhichexhibitedweakIPregimes,yetwereheavyadoptersandimportersofIP(bothlegallyandillegally).
xSearchengines,web-basedcompaniesofalldescriptions,ISPs,advertisingfirmsanddistributorsof'pirate'materialinhard-mediaformatsinthePRChavecomeundersustainedattackforprofiting,eitherdirectlyorindirectly,fromcopyright'theft'.
However,wesuggestthatawell-balanceddebateabouttheeconomiccostsandbenefitsofacopyrightsystemmustreasonablytakeintoaccountoverallgrowtheffectsandemergingbusinessmodelsassociatedwiththeuseofcontent,legallyorotherwise.
xiDigitaltechnologiesandtheInternethavehadamuchgreaterimpactontheindustry.
Peer-to-peerfilesharinghasallowedconsumerstocircumventcentralizeddistributionmodels,challengingcopyrightowners'abilitytocontrolandmonitorcopyinganddistribution.
25xiiIthasbeenestimatedthatlevelsofcopyrightviolationremainashighas95percent(MPAA2004;Ke,17May2005interview;Chillout,3August2005interview;Xu,14June2005interview).
xiiiIn2007,2.
9millionMP3playersweresoldinChina(CCID2008).
xivTheimpactofrestrictiveculturalpoliciesisnotlimitedtothemusicindustry.
Itisalsofeltinfilm,televisionandbookpublishing.
xvAccordingtoJadeWang,DeputyChannelDirectorofEasyFM–amusicprogrammebroadcastbyChinaRadioInternational,althoughastate-drivenmusicsectorstillexists,itislargelydistinctfromthecommerciallydrivenpopularmusicindustry(Wang,2August2005interview).
xviTheUSgovernmenthasrepeatedlycondemnedChinaforitsfailuretobetterenforcecopyright.
See,forexample,2005Special301Report(UnitedStatesTradeRepresentative2005).
xviiTheWesternmediawidelyreportedthe17July2008announcementbytheMinistryofCulturethatthepoliticalbackgroundsofforeignperformerswouldbechecked,andthosedeemedathreattoChina'ssovereigntywouldbebanned.
SeeCoonan(2008).
xviiiAccordingtoKaiserKuo,foundingmemberofTangDynasty,oftencreditedwithbeingthecountry'sfirstheavymetalband:'[Labels]haveaverydifferentjobhere.
Theirjobnowneedstobeentirelyfocusedondigitalandtheyshouldbelookingtowardfullsongmobiledownloads'(Kuo,31October2007interview).
Searchengines–groupswhoalsocontrolakeychannellingpointinadigitalenvironment–arealsoflexingtheirmusclesinChina(Zhang2007).

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