Common Myths About the Economic Effect of Copyright Term Extensions for Sound Recordings

Abstract

The Canadian Government recently announced that it is amending the Copyright Act to extend the term of protection for performers and makers of sound recordings from its current 50 years to 70 years. This will bring Canada’s laws more into line with those of more than 60 countries which have protection of 70 years or more, including many of Canada’s major trading partners that have terms of 70 years or more, such as the U.K., Germany, France, Italy, Belgium, Ireland, Australia, Singapore, Mexico (75 years) and the United States (95 years). Some have questioned the economic consequences of such an extension. This report examines and debunks four myths about the likely economic consequences that have been raised by certain copyright users’ advocates following the government’s recent Budget announcement on April 21, 2015. The four (4) myths are as follows:Myth 1: Heavy Costs to Consumers in Royalty Payments. It is claimed that term extension will cost consumers millions of dollars in extra royalties. Myth 2: Royalty Payments Will Be Sent Out of the Country.Myth 3: No Additional Incentive for Creativity. It has been claimed that “[l]ong copyright terms are a poor recipe for compensating creators who generally receive low royalties from their works.”Myth 4: Less Entering the Public Domain. It is claimed that term extension will simply leave Canadians with 20 additional years of no new works entering the public domain. These common mistakes in economic analysis have been revived from the 2005-9 UK and EU debate, and the 2005 Australian debate on term extension. In each of those cases, these arguments were considered and rejected by policy makers in deciding to extend the term of copyright.In this paper, I review the evidence cited in support of each of the above four contentions, using accepted economic methodology and current economic thinking on topics related to copyright term of protection. I find a number of errors undermining the studies which oppose term extension including that they ignore digital piracy; ignore the free rider problem; assume copyright creates a monopoly; assume deadweight costs due to non-rivalry; make modelling errors; and ignore the facts, in particular on what happens to consumer prices. I conclude that term extension is likely to have a net positive economic effect by i) first helping to restore revenues, and the incentive to invest in new copyright goods, which has been adversely affected by the effects of digital piracy; and ii) second enhancing incentives to invest in, market, maintain and enhance existing copyright goods.