UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 743-vi

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Culture, Media and Sport Committee

Support for the Creative ECONOMY

Tuesday 22 January 2013

Jeremy Silver, Jim Killock and Peter Bradwell

Owen Atkinson, Richard Mollet and Lavinia Carey

Evidence heard in Public Questions 453 - 519

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 22 January 2013

Members present:

Mr John Whittingdale (Chair)

Mr Ben Bradshaw

Angie Bray

Conor Burns

Tracey Crouch

Philip Davies

Paul Farrelly

Mr John Leech

Steve Rotheram

Mr Gerry Sutcliffe

________________

Examination of Witnesses

Witnesses: Jeremy Silver, Chairman of Semetric Limited and Lead Specialist on Creative Industries, Technology Strategy Board, Jim Killock, Executive Director, Open Rights Group, and Peter Bradwell, Policy Director, Open Rights Group, gave evidence.

Q453 Chair: Good morning. This is a further session of the Committee’s inquiry into support for the creative economy. Before I introduce our first witnesses, I put on the record that, as well as being Chairman of this Committee, I chair the All-Party Writers Group, which receives support from ALCS, and the All-Party Group on Intellectual Property, which receives support from the Alliance for Intellectual Property.

For our first panel, can I welcome Jeremy Silver, the Chairman of Semetric Limited and Lead Specialist on Creative Industries for the Technology Strategy Board, Jim Killock, the Executive Director of the Open Rights Group, and Peter Bradwell the Policy Director of Open Rights Group?

Perhaps you would like to begin with a fairly general view of what the principal role of Government is in promoting the creative economy and, in particular, how important you think intellectual property rights are in promoting successful, creative industries. Jeremy?

Jeremy Silver: Good morning, everyone. Thank you, Chairman. I think there is a lot of work that is already going on in Government, as we know, across the creative industries in a variety of different areas and different forms of support, and, as part of my work with the Technology Strategy Board, I am Deputy Chairman of something called the Creative and Digital Founders Round Table, which is a group that Ed Vaizey chairs.

As part of that work, some of what we have been doing is trying to put together in one place all of the different strategies of the various funding bodies that are supporting the creative industries and digital-related activities across the UK, which, interestingly, has not really been done before. We are in the middle of this work, so anything that I say here is subject to whatever the group finally concludes.

One of the things that has been quite interesting is just to try to rationalise all those different activities and try to put them into a list, and it is interesting just to run through that. If you do not mind, I will try to give you a view of that. The first that comes to the surface, and the one that you are already very familiar with, is all about skills and entrepreneurship. That is two parts-one is to some extent about technical skills; the other part is about business skills, and the relationship between business skills and creative industries is interestingly challenging.

The second one is more about access to finance and private investment, and again what we have seen frequently-particularly with small businesses in the creative industries-is how difficult it is to raise finance. The Government has made some steps to help that, in terms of recent developments with the R&D tax credit, widening the relevance of that and there is clearly some more there that could be done.

The other thing that comes up to the surface and we have been doing a lot of work on, is the data about the creative industries and trying to understand, measure and quantify both what we define as being the creative industries and then, when we can agree on a definition, what we can then do in terms of sizing it, understanding levels of employment and so on. There is some work that is going on.

We are working quite closely with DCMS on this, and there will be some further announcements and some publication around that. Nesta recently published a very interesting paper that, if you have not had a chance to look at it, is worth reviewing. It takes a look at a new methodology for trying to size both the economic and the employment impact of the creative industries. So it is something to point you to, and I can refer you if you want to know more about that subsequently.

Obviously, our international competitiveness is something that we are all very active in, and the reputation of the UK as punching above its weight in the creative industries is significant, but there is quite a lot of concern about the extent to which we can sustain that in the environment of new technology and so on, and the extent to which different agencies are able to collaborate well together-so the way in which UKTI and the British Council, for example, complement one another is something to look at.

The other thing that has come up quite a bit within the context of the technology strategy board thinking, in particular, is the transition that the creative industries have gone through from analogue to digital-if I can shorthand it that way-from offline to online. It is not complete by any stretch of the imagination, but in the process of doing that there has been quite a lot of expertise and experience developed, and there is a lot of interest in trying to apply that experience and that expertise to other sectors of the economy-so health or energy or transport, for example.

Certainly, from a technological point of view, a lot of the challenges and issues that are encountered, in terms of data management, for example, and the opportunities that data affords to credit companies, that sort of thing is applicable to other places, as are some of the issues around personal data and personal confidentiality and the tension between, on the one hand, gathering individual personal data to create the economic benefit and, on the other hand, the privacy and the trust issues that arise from that. Again, a significant area that we might shorthand by calling it cross-innovation, if you like-how do you apply innovation from one place to another sector?

The issue that seems to have gone down the agenda a little bit in the last couple of years-probably since the credit crunch-is environmental sustainability. The creative industries have done a lot of work in that area, and that is something that I think has probably been neglected over the last few years. Another area of work that I think is significant-and Creative England is very involved in this-is trying to reconcile the balance between what happens here in London and the rest of the country; there is something of an imbalance there and we have seen attempts to try to respond to that. For example, the BBC moving elements to Salford is an attempt to deal with that, but there is probably more that could be done.

Then, I suppose, the other area is the area of research development and innovation, which is the one that I feel closest to. Again there are interesting challenges here, particularly when we look at the way in which the creative industries work in comparison with some of the more technical or scientific areas, and then thinking about the role of the academic research base in that.

When we think about pharmaceuticals, for example, there is a fairly linear progression of research in universities, in labs, some discovery, some interesting innovation that gets turned into a product that spins off a company that ends up in the commercial world. Actually, in the creative industries we do not have that. We do not have that tradition and we do not have such a clear linear progression, but there is a feeling that, nonetheless, there is tremendous value that comes from innovation in creative industries. But its progress into the market is much less clear cut and much less well understood. Therefore, the role of academia and the role of academic research is something we need to think more about in terms of how we could make better connections, if indeed we think that is the right thing to do. So there is something there.

Finally, and I will shut up after this, obviously, is the IP framework. The challenge there I think is really to do with the balance between what we think of the different elements of the creative industries. We talk about the creative industries as a lump, but they are not and we know very clearly that there are large rights-owning companies that tend to be owned by multinationals and tend to operate at a very high level. We also know that the vast majority of people employed in this country in creative industries are actually employed in small businesses. Small business needs in relation to IP are not necessarily the same as those large rights-owning companies, nor indeed the same as creators.

Perhaps as a final point, I think one of the things that was notable about the Hargreaves report, which I know this Committee spent a lot of time thinking about, is that it specifically did not address the needs and concerns of creators and content originators-if we use that sort of generic term-and that is something that I think, if we want to think more about what additional steps could we take to support the creative industries, is an area in need of greater focus.

Peter Bradwell: I suppose, in the broadest sense, our interest in part comes from an aspiration to see technology improve people’s ability to take a more active role in the cultural and economic life. It should ideally give them tools to be able to do that, whether it is to come up with new ideas and take them to market, or to exploit them or to engage with the cultural conversations around them and so on.

I guess the Government’s role in one respect is to look at how technology has affected the position of creators in some pretty uncertain markets, how it has affected consumer rights and how generally it has affected that ability for people to take a more active role in those things. I see Government’s role as a role of strong leadership-because there are a lot of competing interests in this-to run an open, transparent process to make sure they are listening to all those different perspectives, and to try to understand how to improve creators’ position in that respect.

It is a lot shorter answer than Jeremy’s because he has a much deeper understanding, I guess, of the way that the industry works and we have a slightly narrower focus on the technology side.

Jim Killock: I echo what Peter says. I add that Government has a key role in understanding the area, in developing evidence and is also uniquely placed to see things from a number of angles. One thing this area suffers from is some quite vested interests pushing their agendas, having very clear ideas about what they think is going to benefit their industries, which I think can often be somewhat wrong. It can also be simply self-interested, and I would give two concrete examples of this.

I would say the Digital Economy Act, and copyright enforcement in that area, is a very clear example of industry coming up with a particular solution to the problem they have, promoting it pretty much to the exclusion of other agendas-those being somewhat suppressed in the debate. We have had a big debate in the whole Digital Britain process, which was looking at copyright flexibility. It was looking at ways to encourage the creative industries, but what actually came out of it was an enforcement agenda, because that was the most important element to the groups that were pushing and lobbying at that time. That has been quite a distortion. I think the role of Government here is to step back and say, "Do we have clear evidence of this or is this purely a political drive? Are we responding politically or are we responding as responsible law makers?" I think, in the case of the Digital Economy Act, it was a political response rather than a measured evidence-based response.

One of the things that the Open Rights Group did was ask the Government about the evidence that that was based on, and it was the figure of £400 million for damages in copyright enforcement. We got the DCMS to admit that they had never seen the workings for that figure. It was derived from industry, but the workings for that evidence had never been disclosed to the public.

Two more examples of this, where I think the IP framework goes in the opposite direction to the evidence: one would be term extension, which we are currently passing, copyright term extension from 50 to 70 years. All of the evidence showed that the vast majority of that money was going to go to record companies. It was not going to go to artists, and to the extent that artists might benefit they would benefit best from a model that would simply hand the rights back to the original recording artists. But that is not what we have had. We have had a very limited "use it or lose it" clause, where if the artist is not having the work exploited and the artist understands their rights well enough to claim them back, then they can go through that process to claim them back, but that is not really the same as rights reversion.

A final example of this I think is in the database right, which is an intellectual property right extended to European creators of databases, and anybody who invests in the collection of facts in a database just in Europe can claim an intellectual property right on that collection of facts in a database. This was done to incentivise the creation of database services-some of which will be creative industries, some of which may not be. The fact is that in Europe there are fewer databases created since the creation of the database right, and the places that have the most investment in creation of databases are in the United States, not in Europe. The database right has in fact disincentivised, arguably, the creation of databases in Europe, but there is no political momentum for the removal of that right, despite the evidence going rather in the opposite direction to the existence of the intellectual property right.

So in cases like these, the role of Government is to step back and say, "Are we doing the right thing? Are we just listening to people who essentially want protective rights over their particular business model, whether that is a database or a collection of records that might be about to fall out of copyright and competing products might then emerge, or are we doing this in the best interests of the public?" I would argue a lot of the time that is something that is very hard to judge, and I do not think that policymakers have heard very clear, convincing evidence in those areas but, nevertheless, for political reasons as much as anything, policy has gone in a direction that we would argue has not benefited the public or the taxpayer.

Chair: Thank you. We are going to come on to one or two of those things, particularly the Digital Economy Act, in due course.

Q454 Steve Rotheram: Chairman, you have mentioned copyright, and I wonder if we can ask the panel to tease out what you believe to be the main advantages and disadvantages of copyright, and perhaps if you can give some consideration to being viewed differently online and offline, and in what ways that would impact on copyright.

Jeremy Silver: Shall we go round in order again? When we talk about copyright these days, we tend to talk about two different things. One is the fundamentals of what copyright is actually about, and then we spend a lot of time talking about copyright enforcement and the businesses based on that. I think that is an interesting split that we have to think about. I have not encountered anybody who disputes the fundamentals of the right of someone who creates a piece of work to be recognised, credited and remunerated for that.

Where I think we struggle is because of the power of the internet, and because copyright legislation is essentially based on the ability to enforce the right of reproduction-the right of other people to make a copy of that work. All of the discussions that we have had over the last 10 years about this have all been about how we control the illegal copying. The difficulty is that the internet is a copying machine; that is what the internet does. It is a living, breathing copying machine, which in its every move and every gesture makes copies of things. Most of that may not end up being accessible to people because it is internal within the infrastructure, but it is the essence of it.

That is one piece. The other piece is that digital technology-so not just the internet but more broadly what digital technology has done-has made it extremely difficult to prevent copying; I would argue that ultimately it is actually impossible. The only way to prevent something from being copied is to prevent its being available at all. So there is a fundamental at the very root of our legislation that is unenforceable. That creates this incredible tension, because it is not that it is totally unenforceable, it is not that we cannot, in different contexts in different places, create some technical measures that make it difficult but, ultimately, it is impossible.

As a result, the implications are that, fundamentally, at some point copyright legislation and how it is enforced needs to be addressed. I also understand that I have never come across a politician who has had the appetite to grasp a nettle as thorny as that one, and so what we end up with is something that says, "Look, we live in a real world. We can still enforce up to a point. Enforcement is still useful because it reminds the public of what they should do and keeps the honest people honest" and that is a strategy worth pursuing. But what we end up with is negotiating around exemptions to copyright law.

To me, that is where we end up in a situation that becomes more and more complicated and less and less easy to understand. Lawyers become very wealthy and successful on the back of it, but unfortunately it does not necessarily serve-I do not believe in the long term-the interests of either the rights owners or consumers. So I think there is a fundamental challenge there and equally I feel very reluctant to accept, but I do accept reluctantly, that it is unlikely that we are going to see real political reform. But I do think that is needed.

Peter Bradwell: In thinking about copyright and what it is, I remember reading an article by Graham Smith, who is a lawyer at Bird & Bird. In talking about the Hargreaves review, he discussed two different conceptions of copyright. I think the analogy might have just appealed to me because I was hungry at the time, but he talks about a cake being either a perfectly circular cake from which you cut slices out and take away from, in talking about all copyright, or it is an imperfectly shaped cake and the shape of which you talk about and debate and decide upon. I think the point he was trying to make-and it suddenly strikes me that it is a less perfect analogy than I thought at the time-was that this is a right when you are articulating what rights creators have, when they get remunerated and the limits to copyright. That is a question of political debate. It is a question about public debate. There are limits to copyright. There is a property right. There is a duration limit. There are already exceptions in European law and so on. The reasons for those are something that we have to talk about.

The reason why the internet is so interesting, as Jeremy said, is that it is a big copying machine, I guess. Now copyright touches on all of our lives, from reading the news to sharing tweets to just browsing and linking, sharing information in a way that it did not used to before. So it obviously touches our lives in ways it didn’t, and where technology is interesting is that it makes us ask, "Is the law that used to work still fit? What does technology make possible that we could not do before? What of those things are desirable or undesirable, and how should we amend the law to fix that?"

That is why copyright is such a heated public debate and why it is a legitimate public debate to be had and, I guess, why talking about those changes is not just an attack on copyright but a reconsideration of what is acceptable and not acceptable and how you keep to the core purpose of what copyright is.

Jim Killock: Yes. The other thing I would add is that consumer perceptions of what copyright is for, and where and how it should behave, have also changed, as have business perceptions. It has not all been a one-way street. It is not just the case that consumers have gained more rights and are able to do more with copyright goods. In legal terms they are often able to do less. For instance, if you buy a book from Amazon in hardcopy you can resell it. If you buy the digital copy you cannot. If you want to pass on your collection of digital books or MP3s in your will you cannot, whereas obviously the physical products you could.

That happens because essentially digital goods are not really sold. They are licensed and the licensing of the digital goods is usually for your life. It is effectively life-long rental rather than actually a sale. I think that puts consumers at a disadvantage in many ways. The second-hand markets are gone and transfer to your siblings is gone, so you have lost some of those rights. At the same time, consumers gain new expectations. For instance, if you have bought a DVD collection and you know that your kids are going to scratch them, the natural instinct that you have is to back them up. There are restrictions placed on that and you cannot actually, without breaking the law in some way, backup your DVD collection. For many people that would be an extremely hard thing to do.

The fact of the matter is the copying is prevented but the user expectation is to back up. In the same way, the user expectation for your CDs is to format shift them, put them on your computer, put them on your iPad and so on. So that is where this exceptions debate comes in from a consumer’s perspective. Also, from a social perspective, people now do do mash-ups. They do expect to be able to parody their favourite television programmes and post those sorts of things on to YouTube. Again, the Government has to ask where the limits of acceptability are, whether rights holders have an exclusive veto on what happens to their work in the future, or whether these creative engagements are something that society should allow. For all those reasons, I think there is quite a debate.

The other aspect to think about is that copyright, because it touches so much material, anything that is created, in some areas this is very counterproductive, and a few examples would be, for instance, parliamentary publishing. Parliament has made an effort to relinquish by licence a lot of the restrictions that it would have over publishing, and says to the world that parliamentary transcripts can be re-circulated and re-published. Now the copyright position would be that the public could not do that, so in this sort of area Parliament has taken the opposite view to the default copyright position. Similarly with, say, the open access publishing debate for academia, the information that can fuel the creative industries, can fuel all kinds of industries and knowledge-restriction is not always the best way.

I am not saying that is how everything works; I am merely saying that, in some circumstances, the default copyright restriction model is not always the way that works best. So, again, Government has to think quite carefully where and how intellectual property is applied and developed.

Q455 Steve Rotheram: You teased out more disadvantages than advantages on that particular section, but are there any online activities that you think should be treated differently from offline activities, the counterpart, and what, if anything, do you believe gives people the right-as you described it-to illegally copy or to steal other people’s property, including their intellectual property?

Peter Bradwell: I am sorry, could you repeat the first part of the question that I did not quite catch?

Steve Rotheram: The first one is about the online activities treated differently from the offline.

Peter Bradwell: I do not think I suggested that people have a right to steal or to illegally copy things, and I would not want to say that. On the first part of the question, about what the differences are between online and offline legal situations, I think there is a myth that online life is a sort of unregulated Wild West and there are a number of examples that demonstrate that is not necessarily the case.

For example, if you look at the prosecutions around the use of social media, you can see a situation where the law is being applied, and pretty strictly as well, and it leads to jail sentences and so on. Or you look at, for example, Richard O’Dwyer is the easiest, possibly trite, example of where the law is being applied to the way people behave online. That is not to say it is working perfectly, it cannot be fixed.

As I said in the previous question, I think you have to look at how well the law is working now, what new sorts of activity or behaviour are possible, what we might want to change or not. That does not mean saying that people taking stuff without paying for it is right, or that stealing is acceptable and so on. I think you need to look at how the law is working and whether it is working properly or not.

Q456 Steve Rotheram: You did say that there were limits to copyright, so can you explain how the two things would be different?

Peter Bradwell: There are limits to copyright already, is what I was saying. There is a duration limit, so it lasts life-plus. There are limits set out in the exceptions defined under European law, for example. I think my point was that it is not a right that is absolute, which lasts forever and that there are no exceptions to. I think the point is: what are those exceptions? What is the duration? Why do we have that duration? Are there other areas where permissions might not be the right way to go? I think that is the debate, not is it always okay for somebody to take something without asking? That is a slightly different point.

Q457 Steve Rotheram: Jeremy, you mentioned that you thought that some of the disadvantages of copyright are that it is pretty much unenforceable.

Jeremy Silver: No, I did not say that is a disadvantage of copyright; I said it was a disadvantage of the law that just depended on controlling copyright by the reproduction right. That is a different point. I do not know if I am making myself clear about that. The law basically says that, as a creator or owner of a right, you should be able to control who else has the right to copy. What I was saying was the problem is that technologically that is very hard to enforce-as we know, because we have had so much debate and so much effort in this whole debate around enforcement.

To go back to your earlier question, one of the things that we know about the internet is that it is international, it is global. This creates a lot of confusion in the minds of consumers, in terms of the kinds of things that they encounter and the places where they discover-obviously, there is an awful lot of American influence online, in terms of applications and so on, and the law in America is different from the law in the UK as regards private copying, for example.

The refrain that we have all joined in is that we need to find ways of educating the consumer more; we need to find ways of clarifying to the consumer what is and what is not acceptable. But over and above that, we also have to look at the balance of whether enforcement of copyrights, particularly at consumer level, has been the right approach. Generally, the experience of the music industry, for example, has been that they have stopped doing that. They found that suing their own consumers, which they did very extensively in the US and here in the UK, was not an effective commercial strategy in the end. Whether or not that should be an effective political objective is a slightly different question, I suppose.

In the end, we have to accept that consumer behaviour is what it is. We can influence it up to a point but, at some point, we also have to acknowledge that it is there and people do what they do because technology enables it. Somehow or other we have to respond to that, and we have to find where the commercial opportunity is. In the end, what this is all about is economic growth. What we want is to try to find opportunities for people who are creative to make their living out of it and for people to be able to grow the economy based on that.

It may turn out that actually encouraging innovation and encouraging new ways of doing things-as we are starting to see happen-is going to be a more effective contribution to the economy than trying to spend a very large amount of time and money trying to close things down. That is really a game of what I used to call Whack-a-Mole: you hit it down in one place and it pops up somewhere else.

Q458 Steve Rotheram: To clarify that area then, what you are basically saying is that to expend that amount of money and energy on trying to do those things is not something that you would support.

Jeremy Silver: I think it is absolutely right that rights-owning businesses need to continue to communicate to their consumers that that kind of behaviour is not acceptable. That is entirely understandable. It is about the carrot and the stick but it is also about the balance.

Q459 Steve Rotheram: Trying to change the culture rather than enforcing?

Jeremy Silver: Yes. That is the way I feel.

Jim Killock: I think that is right. The other thing to remember here is that we have very few, if any, examples of the stick approach functioning properly. HADOPI is about to be abandoned in France because it was found to be expensive and counter-productive. In the UK we have not managed to get the Digital Economy Act to function at all. What we do have, however, is plenty of examples of services being introduced, attracting consumers, successful advertising campaigns that are a type of education, I would argue, and all of that leading to growth in digital revenues and in some cases, arguably, reductions in infringement.

The point here is that if something is easy, better and attractive then consumers will pay. There is a sort of myth that was peddled during the Digital Economy Act debate, and very frequently elsewhere, that consumers are divided into a type of consumer who will not pay or is so used to infringing that they are lost to the industry, and then there are good consumers who do pay. The evidence does not suggest this; it suggests that they are by and large the same people. The people doing the infringement are often also the people who are paying money to the industry. That makes enforcement strategies that are punitive difficult, but it also makes enforcement strategies that are about attracting consumers into paying rather easy, because those people are already paying. They are already prepared to pay money, to invest in the artist but just experience new services. That is why they can succeed.

The problem that the industry has had is that it is very cautious about which models are going to work, and which it is prepared to license, and when the best time to move into digital is. Some industries have done that very poorly. The music industry in the early 2000s was a classic example of this. Consumers wanted to move into digital. The industry was not so keen, and did not really know how to do it, was not sure how to succeed and what would make the most money, and it delayed for nearly a decade.

On the other hand, the book industry pushed by Amazon-and perhaps the advent of the Kindle and so on-has done a rather good job of transitioning. I am sure they will tell you that they have problems with infringement, but I think it is also very clear that the paying customers buying books are now moving over to digital quite successfully. So it is hard to say that there is a single answer. As I say, the examples that seem to work in enforcement seem to be much, much more about carrot than stick.

Q460 Conor Burns: Can I go back to the first answer that you, Jeremy, gave in answer to Steve? We have become very familiar in recent weeks with all the challenges and the issues, and we are hearing repeatedly the same sort of messages. You said-talking about copyright and the current law-that this is something that needs to be grasped. You also spoke about politicians not being particularly willing to grapple with it. There is great eloquence coming forward from you and others who have sat there before you in previous weeks, about the nature of the problem. Can you tell us what in your view-I accept there will be several views on this, but in your view what does the law look like after it has been grasped and politicians have grappled with it?

Jeremy Silver: I am not a law maker, so I am not sure that I have a complete answer to this. It does seem to me, though, that we are seeing increasing public appetite for new services. Just to make the connection in a sense between what Steve was asking and in answer to your question, my company Semetric-Musicmetric is the product-did a piece of research recently with Spotify in which we looked at the state of the Dutch music market at the point when Spotify was introduced to it, in relation to the amount of file sharing that was going on then. What we found was that as Spotify launched it looks as if we certainly stopped the increase in file sharing, and we may even have decreased it. I am happy to share the data with you. That is hard data rather than just anecdotal evidence, so we can get that to you.

The thing that sits behind that is about new services. In a sense, I am not saying anything different than what we said before, except that it seems to me that there is always a hesitation about licensing something new. If you ask someone to license something they haven’t seen before they are not going to want to do it. Economically, we are getting to the point where we are recognising that we perhaps ought to put a bit more pressure. I do not think that necessarily means compulsory licensing. I do not think that it has to go that way, but I think something that encourages more innovation and something that looks at the law and says, "The value is going to be derived from more people’s exposure to this content, this work, or whatever it is", and that is where the effort should go and not into trying to stop people having access to it. Somehow or other, we need to factor that in.

I am not the one who can frame that from a legislative point of view, and I would not profess to be, but it seems to me there is a fundamental shift in premise there. The premise at the moment is, "This is mine; you cannot have it unless you pay for it." What we now know is, "Actually, you can and there is nothing I can do about it." So let us frame something that acknowledges that new reality and uses that as its starting point, which I think puts some focus back on what happens the moment you make something available. So that step that you take as a creator or as a rights owner of putting something, releasing it into the world, is the moment when revenue needs to come and the law needs to take a slightly different view on it.

Q461 Conor Burns: Your view is that the pace of technology change is so vast and so quick now, that the way we have hitherto looked at legislation is always going to be behind the curve?

Jeremy Silver: Unfortunately that is the nature of the beast, as we know. The problem that we have had over the last 20 years is that the level of change has been so rapid and so continual. There are those who are starting to say that the level of change is slowing and that the level of technological innovation is not going to continue at quite the pace that we have seen it at. At the same time, we are seeing digital services and media content businesses starting to generate real, meaningful revenues that are sustainable from the market, without those punitive steps necessarily being taken. I think there is cause for some optimism there, but it does not mean that we do not need to address that fundamental point.

Q462 Mr Leech: Mr Silver, I want to bring up something that you said earlier. I do not want to put words in your mouth, but I think you said that perhaps the difference between why people might think it is okay to take something off online for free instead of paying for it is that it is much easier to do that than it is to perhaps pinch something from a shop. Is that-

Jeremy Silver: That is a bit literal. I think what I-

Mr Leech: That is my interpretation.

Jeremy Silver: That is fair enough, and I am sorry if I did not make myself very clear. We could do lots of studies of individual psychology on this, but the reality of what we have is-and lots of us are saying this-we have a generation of kids for whom that is just what they do. Whatever the ethics of it are they do not see it that way. That is just the reality. I do not think it is necessarily for me to take a view about that. You and I may both feel that it is completely immoral, that it is totally illegal. The reality is that is what is happening out there. I think we have to confront that reality and, whatever our moral and ethical feelings are about it, we have to accept that that is now very widespread consumer behaviour.

Q463 Mr Leech: The point I am trying to get to is why people feel that. Is it because it is easy and accessible or is it because they do not actually ever think they are going to get caught? Or is it that they do not think they are committing a crime?

Jeremy Silver: Those are all potentially contributing reasons, aren’t they? As I say, I am not a psychologist and I am not inside the brain of that large swathe of the population that is doing that. As I said before, I think the work that rights-owning companies have done to continue to demonstrate the moral hazard of that behaviour is right, is appropriate and absolutely what they should do. It has some effect but it does seem as if, from the purely economic perspective, a more effective strategy seems to be to run services that are really attractive, really easy to use that people are just going to use and take up and then they will abandon that illegal behaviour.

Q464 Mr Leech: But surely, without knowing why it is that people are doing it, and what the cause of that is, we as decision makers and law makers are not able to come up with the right policy to tackle that. For instance, I think it is probably easier for me to pinch a CD. It would be easier for me to go into a supermarket or HMV or whatever and pinch a CD than to go online and download something illegally, because I would not know how to go on and download something illegally. I would not do that, and there are many reasons why I would not do that. Firstly, I do not think it is the right thing to do, and secondly, I think I am going to get caught or I am worried about getting caught. So surely we need to get to the nub of why people do it. What is the cause of people’s attitude that this is something they can do? Otherwise we cannot then legislate as to what the solution is.

Jeremy Silver: I suppose my view is there are lots of contributing factors. You listed a number of them. The fact is that for a 14-year-old kid it is extremely easy to do. They feel that it is not a property theft because it does not produce scarcity. They know that if they take it, it is still there for everybody else to take. They do not feel that they are depriving anyone of revenue. There are lots of points and plenty of better people than I have made those.

I suppose the point I am making is in the end what is from a business perspective-I would view this from a very pragmatic point of view-which is to say, "What actions and what measures can we take that are going to produce the most economic benefit that will, in the end, give benefit back to the creators, and to the economy and benefit to the consumer?" Striking that balance in the appropriate way is the right one. It is not that I want to be amoral about it, but I think that in a sense, in terms of trying to frame a way forward, one can do that from an economic perspective slightly more easily than perhaps getting caught up in some of these more emotive issues.

Peter Bradwell: Can I just mention the Ofcom research that was published a couple of months ago now? It is really useful. It was part of their responsibilities to monitor this activity and it does give some really interesting and useful results. They mention the caveats around self-reporting and people describing their own behaviour and so on, but it does go into some detail about the reasons people give for infringing. It also gives a bit of a reality check around the scale of this sort of behaviour, and I think it starts to help us ask questions about what we mean by "infringement". There are lots of different types of it. There is peer-to-peer infringement, there is sending a file to a mate, there is putting an MP3 on a music blog, some of which will be more or less damaging, some of which will have different effects than other effects.

When we talk about needing to understand exactly what types of behaviour we are thinking about, the Ofcom research is really useful. For example, the percentage of people, all the internet users over 12 who say they infringe copyright was, I think, 8%. For film it was something like 6%. I think it rises to about 16% for people who have consumed content online.

That sort of research is really useful. They are going to keep doing it more regularly so we can track it, and I think it does give a reality check around the scale of the problem, the nature of the problem, what types of infringement we are talking about, which should help us unpack the term a little bit because it does not mean one type of thing.

Q465 Mr Leech: My understanding is that the vast majority of infringements of copyright are by people who generally spend more money on buying things than other people do. I am right in thinking that?

Peter Bradwell: That research also suggests that. There has been other research previously that suggested similar things.

Q466 Mr Leech: In terms of tackling the issue, is the issue about not tackling those people but tackling the people that are then making money out of it?

Peter Bradwell: I think that is right. It seems much more sensible to-I think the term has been coined-follow the money, and where people are offering services from which they make a lot of money, which is clearly infringing, that is a more sensible strategy from my perspective. When you talk about that, and you think DCMS are holding discussions about advertising, networks, payment servers and so on, the question really becomes about due process. Who is alleging that site is infringing? Who is making a decision that it actually is? Is there redress if the wrong sorts of decisions are made and so on? But I think that is the right strategy.

Q467 Mr Sutcliffe: Apologies for missing the early part of the session, due to a constituency issue that I had to deal with.

Going back to the here and now, what is happening, the Government announced just before December on their consultation around copyright exceptions. What in your view are the main arguments in favour of introducing a private copying exception to copyright? What are the advantages and what do you see as the people on either side of the argument?

Jeremy Silver: Private copying exception. To me this is simply a measure that almost everybody acknowledges just allows the law to catch up with the reality of individual behaviour. I do not think it is seen, even by some of the more hardcore rights-owning bodies, to be a particularly controversial one. It seems to be a point that they have acknowledged and accepted.

Q468 Mr Sutcliffe: I am quite concerned that legislation is normally through primary legislation, but the Government are proposing that secondary legislation would take care of the exceptions. That could cause a potential problem.

Jeremy Silver: Yes. That is a broader question about the way in which exceptions work, and I think you may not have been here earlier on when I made a brief comment about that. There is a challenge for us in the process of arriving at what the amendments and what the detail of the law ends up being, and that is to do with the fact that when you sit down and you present the draft to the community, there is an enormous set of different sorts of constituencies all of whom have all sorts of interests.

As we know, something like copyright in particular is it is highly complicated and it is very specific to particular sub-segments. For example, in the current proposals that are going through around orphan works, I believe there is an exception that has been put in specifically for photographers. There is a structural process problem that I would love to see us try to resolve. I am reasonably intelligent, but I find it extremely difficult when I go and look at the account of the marshalled list of amendments to the law, to then have to get the original, to then have to put the two things side by side and then try to figure out what the consequence of every single one of those amendments might be.

I would love to see us arrive at a better process. I am sure that legislators in all sorts of other areas would probably say, "Oh, well, it’s just as complicated in other places as well", but it does strike me that, particularly in copyright, it is so much about fine tuning and that there are so many specific needs among all these individual players that might be different from one another. The law ends up being a very blunt instrument and I think we could do better. I would love to see us improve the actual process by which that amendment, debate and consultation take place.

Q469 Mr Sutcliffe: In your written evidence you talk about "A legitimate transformative reuse of copyright works". Can you give an example of what that is?

Jeremy Silver: Is that a phrase that I used?

Mr Sutcliffe: It is a phrase I am interested in because it certainly was in the written evidence.

Jeremy Silver: Could you repeat the phrase, "A legitimate-"

Mr Sutcliffe: "A legitimate transformative reuse-"

Chair: It is your description, isn’t it, Mr Bradwell?

Peter Bradwell: It sounds like it is mine.

Mr Sutcliffe: What is it?

Jeremy Silver: I will let them answer; it is their phrase.

Peter Bradwell: I would imagine-without knowing that submission by rote-that we were probably talking about parody in that context. So what we are talking about there is people using, for example, YouTube. They have been able to grab a clip from YouTube, create something new out of it, either by cutting bits out or adding new bits in, making a new version that somehow mocks or jokes about the content of the original, and where people are doing that to entertain a community of their friends, for example. I think that is legitimate. It is not really hurting anybody, but currently it is not permitted under copyright if you are using copyrighted works. We would see that sort of activity as legitimate. There was a programme called-

Q470 Mr Sutcliffe: What is the difference between that and then somebody recording a song for a wedding video, where there is a clear identity of who owns the song?

Peter Bradwell: Are you talking about re-recording an existing song-covering it for a wedding video?

Mr Sutcliffe: Yes.

Peter Bradwell: Okay. So one is transformative, I guess, and it involves making something new out of the previous material. The other is making a cover version of a previous song. I think in the way that the Government plan to implement parody they are doing it as a fair dealing exemption, which means there are tests as to whether it is considered a fair use of the original material, which I think covers some of the concerns about whether it is going to undermine licensing, because whether a licence is available is going to be one of the considerations about whether it is fair or not, and it should also take account of the problems around reputational damage and so on. That is why I think the way that the exception looks like is going to be framed as reasonably cautious and careful.

Jim Killock: There is another example of that, which got a little bit lost in the current consultation, which was in Gowers. The Gowers review identified the idea of sampling, what they called de minimis samplings-say, taking small sections of a song, or whatever, and recycling that in the way that rap artists traditionally have but frankly now happens all the time in music. Their argument was that as long as it was extremely small samples, then that should be permitted by law because it is not really affecting the value of the original. But current practice in UK and US law is to insist on licensing for that kind of transformative use. So there is a case for that as well but that has not entered into the current Hargreaves review.

Q471 Chair: Jeremy Silver said that the exception proposal was pretty uncontroversial. What the rights owners argue is that the copying of material on to hardware-or, indeed, on to a cloud up there-is something that financially benefits the manufacturers of hardware, or indeed the people who own the cloud, and they should make some recognition of the fact that they are basically building a business on the back of the works of creators, and that there should be some kind of licensing or payment. You will have heard those arguments. How do you react to them? Do you see any validity in them?

Jim Killock: Have people already paid for the work or not? If they have already paid for the work and the companies have already been rewarded then I do not think there is a case for ongoing rental, no matter where you store your own personal files.

Jeremy Silver: For example, I think the music companies are in licensing conversations with cloud services providers and that seems to me to be sensible and appropriate.

Q472 Chair: You think there should be some kind of licence payment by the cloud operator?

Jeremy Silver: If they can prove that the cloud operators are making some financial benefit out of providing a service that is specific to a piece of music that they own, then I think that is a negotiation that they should pursue and, as far as I know, that is what they are pursuing and there is a licence there. It depends on the nature of what the service that has been provided actually is, so the licence conversations I think are mostly around things like the match service that iTunes runs, where essentially it avoids having to upload a file by identifying what it is and then simply saying, "Well, it is here already". So those things seem to me to make sense.

The reason I said it was uncontroversial is that I agree that there is some discussion around cloud services; other than that, though, there seems to be general recognition that people have been ripping their CDs to MP3 players with permission. The iTunes licence, I believe, is one that has been sanctioned by the record companies, and clearly the largest source of digital revenue for record companies comes from iTunes currently, although there may be some other services that are starting to pick up and contribute as well.

I do not think that is something that is doing anything other than trying to keep pace and bring the law up-to-speed with what consumers are doing. It also, of course, puts us in harmony with what is going on in the US. Obviously, there has been a lot of consumer confusion about the fact that the US has had that right to private copying for a long time, since the Digital Millennium Copyright Act 2000. We are some decade out-of-step, so it would be a useful thing to bring us up-to-speed.

Peter Bradwell: I have one direct comment. I would echo that it is a very reasonable step. I think the way that the exceptions proposals from the Government have tried to deal with that is to say that where a cloud service offers something value added, and that would not be undermined by this exception, so they propose that this would mean where there are already negotiations to make these licensing deals that would not be undermined by this exception. That is certainly the idea behind the way that this exception has been proposed.

Q473 Chair: You are pretty happy with that?

Peter Bradwell: It seems reasonable to me, yes.

Q474 Paul Farrelly: We are going to hear from the associations next. Is it fair to say that the Open Rights Group is not greatly enamoured of the activities of trade associations in the sector and the collecting societies?

Jim Killock: They have a job to do. They have legitimate interests to represent and that is fair enough. I think the problem is the way that policy evolves. This is a very technical area. The problems are going to affect businesses directly, and it is quite hard for politicians and policymakers at a senior level to separate the wheat from the chaff. Plus, I think copyright traditionally has been very much left to trade associations to suggest the kinds of reforms that are needed.

It has been an area where it has not attracted large public intervention, because copyright has been essentially something for broadcasters, publishers and record companies, but, as we are seeing now, copyright is something that affects the regulation of the internet. It affects the way that we use all kinds of information and all kinds of goods that we buy, from our computers through to our phones. So suddenly there is a lot more interest from the public in what the effects are, and the effects can be potentially quite devastating for consumers and people trying to engage with their everyday lives, and that makes it much more controversial. I think it has taken time for politicians to adjust to that new scenario and, at the same time, I think the trade associations have not woken up to their ability to create a political storm. I think you have a couple of examples of that: the UK’s Digital Economy Act was one of those, ACTA was another.

Trade associations were pretty convinced that ACTA, the international treaty, was opposed by people because it was going to stop file sharing, and this was file sharers who were trying to oppose an international treaty to protect intellectual property rights. But the truth was that the people objecting were concerned about free speech, about the regulation of the internet and about their ability to use technologies to engage with politics and society. They felt that there was an attack on those things in the anti-counterfeiting trade agreement, so what I think happened there, when you hear the trade associations describe what happened in ACTA they say, "Well, you know, there was a lot of internet activists who did not know what they were talking about" and this was an attack on intellectual property and they quite often made the argument that if ACTA was allowed to die that this would be a blow for intellectual property across the globe.

I do not think that stands up to any rigorous analysis, and the people who started that dialogue on ACTA-people like Michael Geist, a Canadian professor, they were organisations like ourselves, EFF, Electronic Frontier Foundation in America-these are organisations that support intellectual property. Michael Geist is an intellectual property professor, but they are people who also recognise that there are significant questions and balances to be struck and when trade associations make agreements, essentially with states, and promote policies in relatively narrow scenarios, the public gets cut out and policy goes awry. That is where I think we have an adjustment to make. There is now a very significant public interest in these issues for very real reasons that go much beyond questions around file sharing, which I am sure will go away sooner or later.

That is where the problem lies and I do not blame trade associations for not wanting to face up to that-that is their concern-but I think as both the public and politicians we all have to say, "Well, there is some responsibility that is needed here and people have to step up in their game and they have to understand that these public interest concerns need to be represented". Hargreaves is a good step in that regard because it has asked some serious questions about where exceptions lie and where the consumer, the public and the economic interests lie in this debate. But obviously this is not a single step here; we are going to have a very long debate around these issues, I think.

Q475 Paul Farrelly: Clearly, the creative industry is very important to the British economy. Taking a wider picture, do you think the activities of some of the associations with whom you have locked horns are-in the way they are standing up for the members’ self-interest-holding back the creative economy and doing it damage?

Jim Killock: I do think that. I certainly think that the focus on enforcement is counter-productive when it is framed as purely a question of changing consumer behaviour through punishment, when so much parliamentary time is spent on something like the Digital Economy Act and so much policy work is done by people like Ofcom with so little result. That does beg some very serious questions about whether they are getting the strategy right.

But I am not in the industry. The Open Rights Group does represent many small creators as well as consumers but we are not attempting to make a bid to run the music industry or to tell them how to do their business or to save a film or anyone else. You can observe from outside and just wonder why they do not open up a bit and think a bit more widely, but ultimately it is not our job to tell them how to run their businesses.

Q476 Paul Farrelly: Just a quick view from the panel on a fresh approach to copyright and loosening things up-what are your views of the proposals for the digital copyright exchange, as they are coming forward?

Jeremy Silver: I think the broad idea of a digital copyright exchange is absolutely right. The more that we can produce automated licensing and the more we can produce a friction-free commercial environment in which a much larger number of service providers can very rapidly access large quantities of content for different uses, the better.

I think that the current efforts in this area are in danger of being smothered by their own legacy. The biggest problem they are all trying to grapple with is the paucity and bad quality of the data in their existing databases, whereas it seems to me the appropriate thing to do would be to create a new model, a new digital copyright exchange that did not try to tackle the legacy problems and then encourage people to put new digital rights into that. We would get a much faster uptake and a much quicker demonstration of the value of a digital copyright exchange if we took that approach.

I have engaged with Richard Hooper on that subject a few times and we will see where we get to.

Peter Bradwell: The moves towards looking at what problems there were around licensing are very positive. I was very impressed with the approach that the team took and the way that they drilled down on what exactly the problems were. They built a reasonable consensus. It seems they brought lots of people together to work on the issues in a practical way and are making reasonable progress. That can only be a good thing, especially where it improves the situation around licensing, which is one of the issues of copyright legislation-is it too complex, as Hooper describes, the high-volume, low-value transactions that I think are at the core of what he is trying to do.

Q477 Mr Bradshaw: Mr Killock, earlier you challenged the £400 million figure that was put on the damage done to our creative industries in Britain by copyright theft. What is the figure you put on it?

Jim Killock: We are a small organisation; I do not think we have an ability to simply come up with figures. What I would ask is why is it that the methodology behind that £400 million has not been made public and why was it acceptable for the Labour Government of the day to accept that figure into the impact assessment without being shown the workings?

Mr Bradshaw: I believe that the Bill had all-party support.

Jim Killock: It did not, actually.

Mr Bradshaw: It had cross-party support in this House.

Jim Killock: It had cross-party support from the Labour and Conservative Front Benches, yes, but it did not have all-party support.

Q478 Mr Bradshaw: But you are very happy to put a specific figure on the number of letters you think will be issued in the first year of the Digital Economy Act being enacted. You say that 2.33 million letters-that is a very precise figure-are likely to be issued in the first year. What evidence do you base that on?

Jim Killock: Peter is probably a better person to go through those figures but that is basically how the economic model works from Ofcom, so you basically pay a huge amount of money to send one letter and then not very much money to send the next batch of letters. The economics of the Ofcom scheme incentivise a very large volume of letters to be sent.

Q479 Mr Bradshaw: I thought Mr Bradwell in his evidence earlier said that he thought the estimated number of people who were infringing copyright was massively exaggerated.

Peter Bradwell: I did not say it was massively exaggerated; I said it is useful to look at the evidence that we have available to us. The most recent of that is Ofcom. They have done a fairly big survey of consumers, which has given some interesting results, which is not inconsistent with-

Q480 Mr Bradshaw: But your organisation is perfectly happy to put a very precise figure on the number of letters you think would be issued as a result of the Digital Economy Act, but you are not happy to give an estimate of the enormous damage that copyright theft is doing to our creative industries.

Peter Bradwell: If that figure is about the number of letters sent under the scheme-

Mr Bradshaw: It is in your evidence.

Peter Bradwell: -it will have been taken from the Ofcom impact assessments.

Mr Bradshaw: It is in your evidence.

Peter Bradwell: But I am just saying where it came from; I do not make it up. It is either a quote from the Ofcom-

Mr Bradshaw: It is in your evidence to this Committee.

Peter Bradwell: I heard you the first time.

Q481 Mr Bradshaw: The point I am making is that you are happy to use that figure, but you will not even put an estimate on the damage you think copyright theft does to our creative industries.

Peter Bradwell: I am afraid I have lost the clarity of your question.

Q482 Mr Bradshaw: Having challenged the great amount of work that went into the Digital Britain White Paper, before this Committee, Mr Killock would not say what his estimate of the damage of copyright theft is. Are you prepared to put a figure on it?

Peter Bradwell: I am neither an economist nor do I have the resources to carry out such a study. What I would expect, as I think Jim said, of a Government is to examine the problem they are trying to address properly, to look at the best available evidence, do that critically to analyse what the problem is properly and to come up with the best possible solutions to the problem they have identified. That is something that absolutely failed to happen with the Digital Economy Act. The impact assessment just quotes figures uncritically. The figure that is quoted about the number of letters is taken from an Ofcom estimate of the number of letters that we sent.

Q483 Mr Bradshaw: If we accept that this is the number of letters does that not show that there is a huge problem of copyright theft out there?

Jim Killock: There certainly is a lot of copyright infringement taking place. The value of that is much harder to measure. There is a question around whether an individual act of copyright infringement equals a lost sale, for instance. If it is not equal to a lost sale are we are talking about revenue damage; what are we talking about? It is also difficult to know what people’s behaviour is. Some people are apparently downloading huge amounts of files. Are they even listening to these files? I doubt it. What kind of damage is that doing if somebody downloads 30,000 songs and listens to 10? Is that damage worth £30,000 or £10? There is a whole bunch of problems in this when you are trying to understand the level of-

Q484 Chair: Why would anybody download 30,000 songs and only listen to 10 of them?

Jim Killock: Obsessive behaviour, it is easy to do. You hear of people doing this sort of thing and the studies show that sometimes you do get people doing this kind of thing.

I am just saying it is very difficult to know precisely what the damage is. Add to the fact that the people who are infringing copyright are also paying for goods; it is difficult then to know how much is displaced sales or what exactly. That is why it is very important for the Government to get its own evidence together. Again the Hargreaves review identified this. The Government before was also trying to attempt to do this. There is this need to establish figures that the Government can rely on for itself, that is the critical piece here, and then to understand some of the other questions around what-

Q485 Mr Bradshaw: Do either of you accept that there is a relationship between the strength of Britain’s creative industries and robust copyright laws?

Peter Bradwell: Yes.

Jeremy Silver: Yes

Q486 Mr Bradshaw: Mr Killock, in your evidence earlier you said that consumer perceptions on copyright had changed. What do you think drives consumer perceptions about the law and its enforcement?

Jim Killock: Firstly, there is a question about morality; there is a question of right and wrong that is in people’s minds. Secondly, there is a question of what is convenient, what is easy, what seems reasonable. In the copyright arena, I do not think that there is a widespread notion that copyright is bust or wrong. I think there is a general acceptance that artists should be paid and there need to be mechanisms for that, and it is a good idea for people to be paid for the work that they do.

Again, the studies that exist seem to show that, so even when people are infringing copyright there is a sort of duality perhaps around many of the attitudes of people doing that. I think that is one of the reasons why-

Q487 Mr Bradshaw: You do not think organisations like yours that argue that people should be able to expect to get something free without being punished, without something substantial, without proper enforcement, has itself helped drive consumer perception?

Jim Killock: I do not think we have ever argued any of those things. Where do we say that?

Q488 Mr Bradshaw: In your evidence, you also suggest that the Digital Economy Act will constrain the roll-out of public wifi. What is your evidence for that?

Jim Killock: We have had a very long discussion with Ofcom about this and they and the Government’s Ministers have recognised that there is a problem to be dealt with here. Essentially, the Digital Economy Act only recognises two categories of people. It recognises consumers, that is to say subscribers, and it recognises internet service providers, so either you are BT, Virgin or Sky and you are providing internet services or you are a consumer.

Unfortunately many small businesses, particularly hotels-and many others, even libraries, but certainly hotels, cafés and so on-are neither ISPs nor consumers, so trying to decide if they should be receiving letters if copyright infringement takes place on their premises has been a very difficult nut to crack. As I understand it, and Peter may fill us in a bit more on this, the problem has essentially been pushed back to ISPs in the current draft code so that ISPs will have to tell cafés or businesses that are running wifi that if they receive these letters, as long as they certify that they are a communications service provider under European law in the British Communications Act, then Joe Bloggs’s café can ignore the letters.

This whole problem could have been solved simply by saying, if we have a class of people who are business operators as opposed to subscribers, or internet service providers-if you like they are business subscribers-that they do not have to receive these notifications.

Q489 Mr Bradshaw: Do you believe in any sanction for digital theft?

Jim Killock: We do. In fact, we have even been the beneficiaries of donations from the Daily Mail as a result of their copyright infringement. We received a donation of £1,000 off an individual-the wife of one of our advisors-whose work was taken from Flickr and published on the Daily Mail without her permission, and she had been very explicit with the Daily Mail about not giving her permission. As a result, she extracted £1,000 for the Open Rights Group in a donation. So we are in fact the beneficiaries of copyright enforcement.

Q490 Mr Bradshaw: Do you accept that the incentive for the industry to develop legitimate forms of downloading is seriously weakened if there is no proper enforcement and sanction against those who download illegally?

Jim Killock: The problem is how do you enforce this system in a fair manner and I think what the Digital Economy Act has shown is that trying to enforce directly is likely to be extremely unfair. It is likely to get the wrong people and it is likely to-

Q491 Mr Bradshaw: It has not been enacted yet.

Jim Killock: No, indeed.

Q492 Mr Bradshaw: So how can you tell?

Jim Killock: Maybe we look at HADOPI, for instance.

Peter Bradwell: We looked at that. The issue with the Digital Economy Act is how you identify the right people and so on and there is a serious problem about the evidence that is gatherable and whether it is accurate or not. Ideally, that sort of thing would have been considered before a law was passed but unfortunately it was not, and that is why there are so many issues with it.

Chair: I think we should probably move on to our next panel, as time is pressing on. Can I thank all three of you?

Witnesses: Owen Atkinson, Chief Executive Officer, Authors’ Licensing & Collecting Society Limited (ALCS), Richard Mollet, Chief Executive, Publishers Association and Chair, Alliance for Intellect Property, and Lavinia Carey, Director General, British Video Association, gave evidence.

Q493 Chair: Can I welcome for our second session this morning Owen Atkinson, the Chief Executive of ALCS, Richard Mollet, the Chief Executive of the Publishers Association, and Lavinia Carey, the Director-General of the British Video Association? Paul Farrelly is going to start.

Paul Farrelly: I had a lengthy exchange with Ian Hargreaves about what has become known in some quarters as his "Google review". The Alliance, of which you are a member, has said in its evidence: "Overall, it has been difficult to overcome the feeling that the Government is more interested in creating policy which will be of benefit to US based global tech companies than that which is fundamental to UK creators and businesses." What makes you say that?

Richard Mollet: As Chair of the Alliance, maybe I will answer that. I think there is a view that certainly not just Google but American tech companies’ perspective on copyright has become the frame of reference for a lot of policy making in this area.

Here is one example. In 2007, a lawyer called Jonathan Band wrote an article for a US law paper, before Google, wherein he said that it was no accident that search engines had started in the US because the British and European jurisdictions had a hostile copyright environment. You fast-forward three years and a very similar sentiment is being echoed by the Government in announcing the Hargreaves review-this idea that copyright is holding up the development of search engines and other ICT companies. You see it echoed in Modernising Copyright, which was the IPO publication of December 2012 wherein they said evidence is mounting that copyright is holding up the development of ICT businesses-not, you will note, the wider economy, but just ICT businesses.

I think it is when we see phrases like that echoing down the years it does give rise to this perception that perhaps that view of copyright-that Google legitimately promote, and there is no decrying them doing that; they see it as inimical to their business-has become the frame of reference and the way IPO think about copyright. It allows documents to come out that say that copyright is a form of regulation, as was said in 2011. Whereas I think the perspective of rights holders is that copyright is not a form of regulation; it is a property right that has limitations on it and it is that that drives the creative economy. It allows creators to be rewarded, companies who invest in them to be incentivised, and allows the whole successful ecosystem of our creative industries to work. So we would rather IPO perhaps not have that one perspective of copyright but to listen more to the view that we put forward.

I think in modernising copyright, despite what I just said about that phrase, some of the exceptions that have now been proposed do show some signs of having listened to the creative industries. What we have is a narrower set of reforms. A lot of us will still need to see the detail and not everything is perfect, but I think there is something there that we are more comfortable with.

Q494 Paul Farrelly: Through their powerful and very well-funded lobbying activities, they have not only been chipping away at people’s rights; they have effectively stolen the language as well.

Richard Mollet: They have a frame of reference on copyright, which I do not decry them for having, and they have a legitimate role in lobbying for that, as we and the creative industries have a legitimate role for lobbying the other way. From the previous witnesses you heard this appeal for Government to have a more balanced view. I disagree with the idea that trade associations have made all the running on this, if only Government listened to somebody else, because I can say from our perspective in the Alliance, it certainly does not feel like that. I think we are in a dialogue with IPO where we know there are very powerful voices the other side of the debate and we just wish for Government to hold the ring between those competing voices rather than, as sometimes seems to be the case, to uncritically buy one side of the analysis without testing it.

Q495 Paul Farrelly: That comes neatly on to the supplementary. What main ways would you advise a Committee like this to advise the Government as to how it might redress the balance?

Lavinia Carey: From the evidence that you have just heard and previous sessions with Ian Hargreaves and others, there seems to be a feeling that we have had it all our own way, nothing is happening and our eyes and ears are closed to progress. The reality, however, is that we have formed commercial relationships with tech companies in order to deliver content to British audiences, whatever type of content that is, and the proliferation of digital services in this country is testament to the fact that copyright is not broken, that it is working, and all these services have developed and have been growing for some years.

But the debate sounds like we are just sticking our heads in the sand and nothing has changed whereas the world has changed massively and even in the audiovisual industry itself, which is one part of the Alliance membership, we have seen a 49% increase just in one year on the amount of money the public spend on video services online. I think the reality is not matched by the rhetoric that you hear from some people.

Q496 Paul Farrelly: So back to the question. What are the main things the Government can do to redress the balance?

Richard Mollet: One very specific thing, which we are almost like a broken record in asking for, is more rigorous impact assessments when Google, the Publishers Association or the Alliance go to Government with evidence that is subject to rigorous scrutiny by Government. I think what seems to have happened in recent iterations of copyright policy is that those impact assessments just have not had that rigour. From the Hargreaves review, as he said to the Committee, a lot of the evidence was not quantified. When you drove into the report there are lots of gaps in the analysis. It is a little bit better with the latest situation, but not that much better, so I think there should be a better focus on that.

The Strategic Advisory Board in IP, which was one of the things that was set up after Gowers, might have provided that; that has been abolished but that might have been one area where this could have happened.

Owen Atkinson: There is a sort of dynamic tension between organisations like Google that are very successful with their technology but are predicated on content and content of creators throughout all our sectors. There needs to be a partnership and balance, and this is about supporting creative industries, but it takes time for creative industries to come up with structured solutions that give access to the market with quality product, ease of access and pricing. I think we have seen that in music. I think music is a success story in this. My kids these days use licensed legal services because the pricing is right, the repertoire is there and there is a feel-good factor about doing something and making sure that the creators, the authors, get a benefit from it.

The problem is that technology companies do not want to wait; it is very fast moving. So your question about what Government can do to support is trying to find a balance and find a dialogue as well between the content creators, the creative industries, and the technology industries to get that partnership working again in balance, in tandem, because what we all want is access to content through legal structured systems where everyone benefits. The last thing we want is rampant piracy or a perception that things are not working.

Lavinia Carey: If I could add to that. I do not think copyright is the answer to everything. As I have already said, that is just one element and it does not seem to be broken. I would say that the Government, in helping the creative industries and to grow their creative economy, should be looking at infrastructure, should be looking at finance, should be looking at access to better education, should be helping education and should be contributing to the dialogue so that the public do understand what copyright is.

We do have evidence from research that has been done that the people know when they are infringing or not, mostly, and the Government could be helping in making it clearer. So even with the suggestions that have been taken on board by the Government to change copyright, which is fraught with difficulty if it is wrongly drafted, I think the Government has to make it very clear what is permitted and what is not going to be permitted by these new exceptions.

But there is a much bigger picture that the Government is not, in this particular review, looking at. I think it behoves them and the DCMS and the IP and BIS to work together to look at those bigger pieces and to ensure that the IP sits at the heart of some sort of strategy for the creative economy.

Q497 Paul Farrelly: On behalf of writers and authors, how would you categorise the relationship at the moment with behemoths such as Google? In terms of striking deals with them and making them see reason, would you say a modus vivendi has been reached or do you still feel prostrate in front of a steamroller?

Owen Atkinson: I think that is quite a difficult question to answer. Our organisation is 88,000 members. I think the views of behemoths like Google would spread across the whole spectrum, but Google are a very powerful player and of course each one of those writers these days is a mini industry in themselves and they need to find access to market, they need to find ways to raise their profile, their brand-working in partnership as well of course with publishers, with producers about getting their content to market through as many channels as possible.

The difficulty is that our members are a small voice, and you have the likes of Google who, we saw, digitised something like 60 million books, and are still digitising, as far I understand, without asking any permission at all. We could say, "What a wonderful thing to do", except this is the livelihoods of tens of thousands of people in the UK, all of whom have those works’ content, all of whom actually do not have redress, as we speak. So I am not sure I can answer your question.

Paul Farrelly: I think you probably have. The fact that they are doing it regardless suggests the modus operandi has not been reached yet.

Owen Atkinson: There are steps that have been taken. I think the IT small claims court is a very positive step forward, and one that will offer some forms of redress on much smaller scales, but there is a huge challenge.

Q498 Paul Farrelly: The Germans, I understand, are implementing a law that takes it a step further, to make using people’s work without copyright permission an actionable civil offence. Is that something we should examine?

Lavinia Carey: I think the laws that exist on the statute books here are fine, if they could be enforced. I would utterly refute the claim that the Digital Economy Act is unfair to consumers and punishes them. It absolutely does not. The first step is to send out letters explaining to people that their IP addresses are being used for infringing activity. There is no punishment attached to that at all.

Q499 Paul Farrelly: Richard, in the Alliance’s evidence, it says, "On many policy issues, Google in particular is opposed to measures which would support the UK’s creative businesses". Can you give us some examples of what measures it is opposing?

Richard Mollet: Yes. We saw Google’s voice raised against the implementation of the Digital Economy Act. Not vociferously, but I think they were part of the lobby that were opposed to that. As Lavinia has just said, all of us in the creative industries see the DEA as a massively important bit of legislation, not because it is enforcement legislation, but because it is educative, because it will send a very clear message to people who might be infringing that-and they should not-and they are illegal services. That would be one example. Also, as I said earlier, they have a different view to copyright from the creative industries. Fine that they do, but we sometimes find ourselves-at a policy level-in an unfortunately slightly adversarial mode, although the personal relations are good.

I should say, to echo Owen’s point, that at an operational level, the licensing that is going on between publishers, record labels, film makers and everybody, and companies like Google and Amazon and Apple, show that this digital economy in creative content can work. Of course there is tension there. These are two sides doing a deal, and they want a better deal than we might always be prepared to give, but it does show, despite what one can sometimes hear, "It’s the digital age. Copyright is broken. We’d better do something else or else the economy is not going to work." It is not the case. We have real world, real time examples of digital economy working. Sometimes one hears a rather academic view that we had better tear it up and start again. But the business world is getting on with it.

Q500 Paul Farrelly: With your Publishers Association hat on, can I just quote to you again? You said, "The Government should maintain a sceptical approach to those who seek to undermine the UK creative sector for their own commercial or even ideological elements". Do these companies like Google have any more ideology behind them than profit maximisation and tax minimisation?

Richard Mollet: No. There are two groups who lobby on copyright. One group do it for commercial ends. As I said, fair play to them and carry on. There is another group who even set up political parties to campaign against copyright and those would be the ideologues I was referring to there. Sometimes they make common cause. Often, they do not. What I am saying is that there is a strong lobby in some European countries that is at parliamentary level, where there are people who have an ideological view that copyright is old hat, we should do away with it and we need something new. Thankfully, to date, both the British Government and, it seems, the British electorate, have been impervious to that idea.

Paul Farrelly: Are you talking about the Pirate Party?

Richard Mollet: I am.

Q501 Chair: You talked about the need for more rigorous analysis. You will have heard the previous witnesses questioning the claim about the amount of money being lost through piracy. Equally, you will have heard us pressing Ian Hargreaves to justify some of the figures in his report about the potential benefits that might exist from, for instance, introducing copyright exceptions. First of all, can you give us your assessment of how much damage is being done by piracy-how you calculate that and whether it is a robust figure?

Richard Mollet: It is a little bit water under the bridge. I have to cast my own mind back four years ago, when I was working with the BPI, where we did do some very detailed research on forgone revenue from online copyright infringement, which forms part of the £400 million figure. Our figure was £180 million. It was very robust and it was not based on, "One illegal download is a lost sale". There was consumer research in there, asking people, "How much of that would you have bought otherwise? Are you really being honest about your infringing activity?"-all the caveats you would want to put.

I sat down with the Department official and went through it with them-I can tell you, we did not get a free pass or an easy ride on that. It was very robustly analysed. It is the best that was out there. As previous witnesses have said, all Government can hope to do is work with the best that is out there, and that at the time was the best that was out there. I know the BPI still stand by that evidence now.

Lavinia Carey: As does the British Video Association for audiovisual piracy. Our number was £272 million. What Peter Bradwell was referring to was the fact that in the drafting of that documentation there was an error, which came from the IPO-it was transcribed wrongly and they did not question it. They just quoted an out of date piece of information.

I have taken the ORG through our research methodology. It is perfectly transparent, and it has been explained to the IPO and the DCMS. There is absolutely nothing that is concealed about the methodology, and we all make a big allowance for people who say, "Actually, I would not ever have watched that thing or bought that thing if I hadn’t got it illegally", and that is a significant number of people. It is 40% of people who are absolutely discounted, so you do not count the whole black market, absolutely not.

Q502 Mr Bradshaw: Is £272 million the figure that you put on the total, or just the video?

Lavinia Carey: Just our sector, yes.

Mr Bradshaw: That would imply that £400 million is a gross underestimate?

Lavinia Carey: It does sound like it, but then-

Mr Bradshaw: That was just based on the film plus music figure?

Lavinia Carey: Yes.

Richard Mollet: I think the Ofcom counter-analysis that has been done is very good and very welcome, and confirms a lot of things that the industry think, both about the scale and the topography of this issue. Long may that continue! I think Ofcom are now under a duty to do that.

Q503 Chair: I do not want to paraphrase Jeremy Silver too much, but his message was, "The internet is a copying machine. There is not a lot you can do about this. You are going to have to find a different way of making money."

Richard Mollet: It is sort of what we are doing. It was a bit of a counsel of despair. The interesting thing about the internet is that it is not so much a copying machine as a distribution machine. You can do something, but if the creative industries had just sat back and said, "Do you know what? All we are going to do about the internet is enforcement. All we are going to do is stop people copying and stop people distributing," that would have been ridiculous and we would all be out of business, but of course that is not what the industry did. Certainly, publishing has been putting things-academic journals have been online since the mid-90s. We have seen e-book sales grow 366% last year, and film and music and computer games.

Everybody has a similar story to tell, because we did not just say, "Oh my God, it’s the internet", but we found ways of licensing companies-licensing Amazon and Google and whoever else to put services into consumers’ hands, which funnily enough, consumers love. Our argument back to IPO is to say, "If you modernise copyright in the wrong way and you remove our ability to do some of that licensing, you are imperilling the business, so step gently because you are stepping on our licensing models". On the enforcement side, we say, "If you do not do any enforcement, you will not allow these new business models to grow, because they are competing with illegal free". It is very difficult to do that, so we need to keep the pressure on enforcement so that these nascent business models can thrive.

Lavinia Carey: The primary reason why young people say they make illegal use of online content is because it is free. That is the number one reason they give, but I would say that Jim Killock is right to say that the audiovisual sector and some other sectors are cautious about what is licensed, and cautious about what they do. Because if you are not pursuing a commercial opportunity, you can throw the baby out with the bathwater.

Contrary to what is thought, I do not think any of our digital services are making any money at all. They are producing revenues, but they are not making any profit. They are managing to survive because of the ecosystem that exists, and because of what is propping them up. If you just look at say, Apple iTunes, it is the Apple devices that are making the money for that company, not the iTunes sales. We have to tread carefully.

We do have to license where there is a commercial opportunity, and that is the way we are trying to reach as many people as possible-how we grow audiences online. But you can’t just rush headlong into an unknown, uncharted water and expect not to lose your shirt, particularly in the audiovisual sector. As we all know, the film industry is a very risky business and the finance model is very delicately balanced, and it is going to change over time. It is not going to be everything 100% available from day one. But a lot of stuff is available, and all the titles that were released last year that you can think of, practically, on film, are available on digital services for people to access, if that is the way they want to do it.

Owen Atkinson: There are very cogent comments coming forward, but an optimistic view, if you like-the internet is a copying machine, it is a distribution mechanism, whichever way we look at it. What a great opportunity, if we can build these licence-structured systems.

The one great thing about the UK is that we are a nation of creators and we export. Pound for pound, GDP, we are as good as anyone, if not better than anyone, in the world. The internet gives us a fantastic channel if we can support copyright, if we can support creativity. It is one that is emerging, I think.

As Lavinia says, money is not being made at the minute. But I am an optimist. I do believe this will be very profitable in the future, and very profitable for UK PLC if we can put the framework in place that enables industry. Take reprography, part of my small sector. In the time that copyright has been discussed within Government-Gowers; I think David Lammy had a review; all the way through Hargreaves-we have moved from paper copying to scanning to digital copying to licensing websites. We have a fantastic resource with the BBC iPlayer, ITV, Channel 4 on Demand, which is being used more and more. These are just developing, they are growing, and we should continue to support business finding licensing solutions. That is what I think Government is here for-to help business create licensing and create income back for UK PLC. Then you are doing your job.

Q504 Mr Leech: I would like to bring you back to the calculation of the cost to the industry. It is never going to be an exact science, and some people, if the figures don’t suit, will dispute the cost; if the figures do suit, they will support it. Did the calculation take into consideration the potential cost to the economy of people who are currently buying lots of content, but then accessing lots of free content as well? There is only so much money you can spend on videos or music, whatever it is. Did it take into consideration the potential loss of revenue from the things that they would not buy if they were buying stuff that they were getting for free?

Richard Mollet: Absolutely it did. Yes. I have to cast my mind back, but this was an analysis of forgone revenue, calculated upon the propensity of a group of self-confessed infringers, if you like-both to confess but also to say, "I normally spend X on music, but this month I’ve spent 70% of that because I have been able to acquire that illegally, and yes, I would have bought that otherwise". The figure gets smaller and smaller once you ask people, "Would you really have bought that?" This was very granular, qualitative, consumer survey evidence.

Q505 Mr Leech: As far as you are concerned, the evidence is pretty robust, but do we have any robust evidence of the value of copyright to the economy?

Richard Mollet: We do. There is the brute fact of, from the publishing point of view, the £4.5 billion worth of revenue. The members of the Alliance for Intellectual Property have £36 billion worth of revenue; 40% of our revenue is earned overseas. We can throw figures around in terms of the revenue, the profits, the millions of jobs and so on. I think that that is a pretty brute fact of the value of intellectual property to the economy, and a percentage of that is imperilled if there is a lot of infringement.

I would not personally want to get too caught up on debating the size and scale of infringement, other than we know, to quote another witness, "it is a big number and it is positive". I think our message, I hope, to this Committee is that the value of the creative industries lies in the stuff that we make and export and produce and deliver to consumers. We need something to be done about enforcement, but the big story for us is where the growth is, because again, counter to what you may hear, trade associations are not in this for the enforcement. It is a small part of what we do. We spend most of our time trying to help small and medium-sized enterprises get to grips with the economy, getting access to skills, access to finance, access to international markets. That is really where the action is as far as we are concerned.

Q506 Mr Leech: Is copyright adapting to the digital economy?

Lavinia Carey: Yes, absolutely. There are interesting debates about collective licensing, about territoriality. We are asking our members to what extent they are doing cross-border licensing, where that is possible. We are getting some very interesting feedback from members to show that, where there is a commercial opportunity, licensing across borders, reaching markets where perhaps it is not viable to do a television deal, but maybe a digital platform is more viable.

The notion that creators do not want to reach the widest possible audience is a bit farcical. Certainly, the people who are licensed to exploit those, to try to generate revenues for creators and for distributors, look at every possible opportunity. It is not in their commercial interest to fail to do that. That is where people are looking at all opportunities within the digital arena, and to say that we do not need enforcement in this sector because you cannot control what people are doing is to say you do not need to bother to enforce speeding or something, because everybody does it and it is too easy. Whatever the industry is, you need a level of balance, but the incentive is there for people to innovate and they are innovating, and the evidence is there for all to see.

Q507 Mr Leech: Is industry doing enough to make sure that the value to the economy that you have established is going to be protected for the future?

Lavinia Carey: We would like to see more being done to help with finance, and to make sure that the internet-certainly for the audiovisual sector; we do need superfast broadband. We need to be universally available, so that you can exploit that and get to the audiences universally. At the moment, you get very high speeds in certain conurbations. We cannot reach the whole country. I know there is an argument about whether or not the Government should be focusing on universal broadband, or whether it should be superfast broadband to fewer people, but the fact is that for the audiovisual sector you do need superfast broadband for the digital services to work satisfactorily-less so for other sectors where the file sizes are much smaller.

Richard Mollet: In terms of whether the industry is doing enough, it is hard to know what perfect looks like. But if we use international comparisons as some sort of guide, as you heard earlier the music industry has more digital services from the UK than any other country in the world. The publishing sector has the fastest growing e-book market in Europe. You look at indications like that and say we are not doing too badly. We could always do more, I dare say, but I do think we are on the right course, and I do not think it is right when people say, "If only we radically reformed copyright, then everybody would be doing so much better". That proposition at least needs some evidence behind it, which we have not seen.

Lavinia Carey: Were you thinking of something in particular?

Q508 Mr Leech: Not specifically, but what I was interested to get at is, clearly you want protection, but how much protection do you want, when you consider the law of diminishing returns? Because I can understand your desire to chase enforcement on people who are making money out of infringement of copyright, but given that-you have not disputed this-the people who are most likely to access stuff for free are the same people who are actually keeping the industry going, on the whole-

Lavinia Carey: We are not focusing any enforcement effort on individuals at all. We are going for people who run sites. We are going for people who make a lot of money.

Mr Leech: You are not going for individuals?

Lavinia Carey: No.

Q509 Mr Leech: Where would you draw the line between not going for John Smith, but going for some big organisation that is making a packet out of infringement?

Richard Mollet: You go for John Smith where they are running a criminal enterprise.

Lavinia Carey: Yes.

Richard Mollet: Everybody, all rights holders do that. Where we find individuals who are, from their own home, running topsites or running servers, or running mail order businesses where people email, and they get sent a CD with infringing content on it, and they are making money from it. That is a criminal enterprise and we take enforcement actions with the police and the criminal authorities, and we tend to get successful prosecutions. There is a very clear, shining line there, I think.

When it comes to individuals, as I said earlier, the Digital Economy Act is the solution there, because what it does is write to them and invites them to stop doing what they are doing. It is a very effective mechanism, and contrary to what is being said today and at other times, HADOPI in France has shown remarkable success at that. Some 98% of people who received their third letter stopped infringing. That is a successful-

Lavinia Carey: They are not winding it up, by the way, unless President Hollande has a special line into-the last I heard they were keeping HADOPI, because it works.

Q510 Mr Bradshaw: Do you want to challenge any other evidence that we heard from the earlier witnesses while you are at it?

Richard Mollet: To be honest, Mr Bradshaw, no. We spend a lot of time playing ping pong with Open Rights Group. As I said earlier, we have a very positive story to tell about the value of creative industries in this country. If the Government listened to our side of the argument a little more when it looked at copyright reform, to weigh up what it had heard from the other way and to be more engaging in its reform programme, we would be in an even better position.

Q511 Mr Bradshaw: You do not want to identify any other glaring factual errors that were presented to us in their evidence?

Richard Mollet: There was one. It was not from earlier, but this Committee has been told that copyright law has not been reformed since the creation of the internet. The 1988 Act came some five or six years after the introduction of the worldwide web to Britain, and the 2001 regulations that we all operate under make direct reference to internet service providers. I say that not just as a cheap scoring point, but it speaks to your point, Mr Leech. Is copyright keeping up with digital technology? Yes, and the law is amended in incremental ways as we go along, as it has done since 1710. This idea that copyright policy is somehow back in the statute of Anne and meanwhile we have BlackBerries is not the reality at all.

Lavinia Carey: Could I answer that question?

Mr Leech: I still have a BlackBerry and I rather like it.

Richard Mollet: So do I.

Lavinia Carey: I am sorry. To talk about the individual, what our industries generally decided to do some years ago was to use targeted consumer awareness and educational campaigns to try to influence behaviour change rather than target them with legal action. That is seen to be quite effective.

In our sector, the audiovisual sector, the most recent campaigns that we have been running have been shown through research, through modelling, to have constrained the growth of infringement by four to five percentage points. If you would like more information about that, I am happy to provide it. We do not think there is one solution to these things. We think that innovation and new services and education, with some enforcement against site owners and service providers where necessary, is part of a bigger picture. We think that if the Government would look at the infrastructure and the finance and the other areas, and education, just generally pro-IT education, we would be in a better place.

Q512 Mr Leech: One last question, on the cost to the industry from infringement. What proportion of that is the John Smiths that I have been talking about who do it for individual use, and what proportion is from people who are making money out of it?

Richard Mollet: To come back to the £400 million figure we were talking about earlier, that is the identified losses and forgone revenue from individuals downloading from peer-to-peer sites. In that case, they are not John Smiths doing criminal activity. They are ordinary consumers who are deciding to infringe.

Mr Leech: You cannot put a figure on the-

Richard Mollet: We can, but to be honest I have never aggregated them. When we make the decision whether to go after an individual, we will know, in that case, clearly what percentage or what amount of our material is being sold.

There has to be a threshold for a number of reasons. The cost-benefit analysis for us, in terms of bringing the case; in terms of the police, who under the Proceeds of Crime Act can recover some of the seized assets, and there is a calculation for them; and to meet that criminal threshold there has to be a certain amount of money going into the guy’s pocket. When you see people running topsites and they are driving around their local communities in very expensive cars, and we can see that their assets are £50,000 to £100,000 from this activity a year, they tend to be-there is no hard and fast figure-the sort of people that look liable for criminal prosecution.

Q513 Paul Farrelly: I wanted to come in while figures were being bandied around. The Government claims that the benefits of its proposals to change copyright are estimated at £500 million in 10 years, with an extra £290 million of additional benefits over each year. Do you recognise and agree with those figures, and if so, to whose benefit is most of it accruing?

Richard Mollet: The Hargreaves study, which I think those figures are from, is worth drilling into. I am sure you have it, or will. The large percentage of presumed benefit from the Hargreaves review was attributed to the Copenhagen report, which is footnoted. The Copenhagen report is a very extensive study done in the European Union that said, if you do a whole load of things to your economy, from digitally skilling your workforce, to teaching ICT in schools, to doing all sorts of things-oh, and having a more flexible copyright regime-then the benefit to your economy could be something like 0.8%. What the Hargreaves assessment seems to have done is taken that 0.8% and said, "We’ll have a bit of that". But of course, they were applying it just to that one policy idea, IP reform, and saying, "We can get all of the benefits that Copenhagen talks about, just by doing this bit". So it was a very selective use of the evidence.

Another problem with the Hargreaves analysis, done not by Hargreaves but by his economists, was around format shifting, where there was a £2 billion benefit to be accrued to the economy. The report said, "It is okay, because this is already factored into the cost of material". When an e-book is sold, the publisher is not thinking, "We know somebody is going to do some format shifting of that". I do not think it is the case with the music industry either. So this was a highly hypothetical benefit, which then got plugged into the figure, and we are starting to talk about big numbers now. It is all challengeable, I think.

Mr Leech: Not necessarily reliable?

Lavinia Carey: In fact, we did commission a review of that by Oxford Economics and they looked at some of these impact assessments and drew attention to where there were complete voids of evidence or information to support them.

Owen Atkinson: I looked at maybe one of the impact assessments, which was one that looked at education, and education exceptions that were being proposed. What was interesting there was that the impact assessment said that while there would be benefits, the costs would be zero. For our membership of 88,000 writers the cost would be quite significant, because they would lose out on something like £20 million, which comes in from that sector.

There is always a danger of a domino effect of looking at things in isolation. That is quite dangerous, because we also commissioned some independent research from PricewaterhouseCoopers that looked at the ecosystem that exists, that sort of relationship between authors and publishers and the income they make, and what small changes would actually make. In respect of even small changes, in terms of the secondary income that they collect, what PricewaterhouseCoopers came out with was it could have quite a large effect on the incentives for writers to keep on writing, keep on creating. As I have said, we are very good at what we do and we export around the world probably better than anyone. There are dangers, as I say, of domino, knock-on effects of making large changes. So when you look at the impact and you look at the benefits, I would say there needs to be more research into the costs.

Q514 Paul Farrelly: The Chair did drill into this £2 billion figure, which seems to have rather crumbled in a puff of puffery. At the end I remember Ian Hargreaves saying, "Well, whatever it is", basically, "no one is arguing that it is not in a positive direction". You might offer a different view on that?

Owen Atkinson: Well, it might be positive.

Lavinia Carey: Well, I don’t know about that. I mean, just look at our sector, which currently has seen declines in consumer spending from £3 billion about five years ago to the current spend of £2.3 billion. That includes digital platforms. We are certainly projecting losses; even though the business is shifting towards digital platforms, we are seeing losses in revenues and in consumer spending over the next five years and in value terms. That is going faster in a downward direction than the number of transactions. So the volume will not be dropping like that, but the value is dropping.

This is definitely as a result of technology and changes in how our content is distributed. I would say that that is probably mirrored in other areas because the price that you can ask for online is definitely less than the price you can ask for a physical item, whatever that creative sector is. That in itself does not matter so long as the costs also fall. You have to be able to make a return on your investment, otherwise films and television programmes will not be made.

Q515 Paul Farrelly: E-books are costing more than printed, are they not?

Richard Mollet: No, generally not. No, the price is very much a fraction of the printed price. My critique would not be so much of Hargreaves; he was one individual who did a six-month review. He reported to Government and was not necessarily tasked with coming up with detailed economic analysis. The critique then must be of Government and of IPO in taking that report, ingesting it, not then subjecting those figures to a bit more analysis. It has been too easy for those of us who look at the report to critique it, and if we are able to do it, perhaps IPO might have been able to as well. So let us have a more rigorous assessment, proper impact assessments, no blank boxes or "not quantified" or fingers in the wind-proper engagement with the industry, and then there will be a better cost-benefit analysis and policy can proceed. We just have not had that.

Lavinia Carey: That might go back to the very first question, which is: why did we think maybe Google was behind this? I think that unfortunately Professor Hargreaves did say that we were all guilty of lobby-nomics and we had had it all our own way. So I think the IPO has taken the view that they are not going to listen anymore to our side of the story, and that is really why I think some of the things we have been saying over the last couple of years have been completely ignored.

Q516 Paul Farrelly: Well, Chair, while we are on the impact of copyright exceptions and the proposed new regime, I think the general flavour of the previous panel, Ian Hargreaves and other people is that these proposals are modest-they are not very controversial, they are in some cases just catching up with reality. In the package, are there, firstly, any proposals which are seriously detrimental? Secondly, I think in your evidence the ALCS made a point about one exception that was not covered by Hargreaves, which is involving writers and script writers and the retransmission by cable of broadcast signals. Perhaps if you could say something specifically on that as well.

Owen Atkinson: On the whole, the Government in general has taken a very careful approach with exceptions and has listened to the arguments. There were some very large concerns in particular, some of the exceptions I have mentioned-education is coming up-but what appears to me is an approach that is looking at things de minimis, so very modest. But in principle there are dangers with exceptions, because when things come into legislation they are locked in stone.

The great thing about industry is industry does move; it spots opportunities and it moves with technology, it moves with the times and it talks to consumers and can hear what consumers want and adapt as well, adapt in licence. With regard to cable retransmission, I suppose it is a point that the world is moving towards electronic set-top boxes. It is moving towards push technology whereby you do not necessarily watch what is actually on. You start to look at streaming; you start to look at opportunities. I would say this is all about added value.

One of the dangers is not recognising that that value should benefit all, if you like. It benefits consumers; it needs to find a way also to make sure it benefits rights holders. So for exceptions in particular, I would always sound a note of caution. It has to be de minimis. Where licences can cover, industry can react. I say in principle that that is by far always a better solution.

Lavinia Carey: Obviously, they need to be really careful to comply with the regulations. The difficulty is going to be in the detail. There are EU directives that have a bearing on all this and there are the TRIPS agreement and Berne Convention. The IPO needs to be extremely careful. Thank heavens that we do have this opportunity now to discuss with the IPO officials how the exceptions will be drafted. The devil is in the detail, and if they do get it wrong it could have unintended consequences.

I think one of the most important things the Government does is to make very clear what the end user will be able to do as a result of this, and that where there are technical protection measures, for example on DVDs and Blu-ray discs or on other content, you will not be able to circumvent it. You will not be able to exercise a copying exception. Therefore they have to make it really clear where you can benefit so that it does not increase consumer confusion, which was what Hargreaves was trying to reduce.

Richard Mollet: It has become quite easy for some people to mischaracterise creative industries as being against copyright reform. It just is not true. You look at, say, orphan works, which is quite a radical proposal-that is something that rights holders have been advocating to happen and it is good that that is now in the Bill. There are other things, from modernising copyright, to allowing libraries to make digital archives for preservation, to allowing schools to allow works to be copied for use on whiteboards that I think are obvious reforms. They were good ideas when Andrew Gowers came up with them; they were good ideas when Hargreaves did.

Then I think there are a few bad ideas in there, or those, as we have discussed, without sufficient evidential backing behind them, like on parody. Is there really an economic case to create a new loophole in copyright for parody and format shifting as we have discussed? Then some which are potentially ugly, as Owen has referred to, around photocopying of education material, which allows people to do things which currently they need a licence for. It is going to hit author’s incomes, and it is going to hit publisher’s investments. In the package as a whole, we can all see things we like and dislike, but it is not the case, as can be characterised, that creative industries stick their feet in the ground and say, "No more reform".

Owen Atkinson: Another sort of caution. As I say, exceptions when they come in tend to stay there for a long time. It is quite difficult to find parliamentary time to review and come up with primary legislation to change. I support the very detailed process being undertaken in the review of copyright.

I want to comment on one exception-the public lending right exception, which came in back in the late 1970s. What we saw then was that it was very prescriptive, and it dealt with certain types of books in certain types of buildings that were being lent out to the public. There was legislation, I believe, put into the statutes in the Digital Economy Act that looked at extending that-in particular to certain areas like audio-books and e-books. But e-books is a nascent area and there are a lot of challenges. But we know from the Public Lending Right office that there are something like 10 million loans of audio-books every year in the UK. We know that libraries charge for these, but we also know that the rights holders-the authors, the publishers-do not see a penny. That is the danger of exceptions, but there is legislation on that that could be enacted. It is not a significant cost; as I have said, small positive changes can have big impacts back to the creators. If there is one thing you may wish to consider, it is looking at what is on your books.

Q517 Chair: I want to follow up Paul’s question and the initial alarm, which was pretty widespread among creative industries when Hargreaves came out. Now you have seen the Government’s proposals for exceptions, obviously, yes, you want to discuss the detail, but essentially you are much less concerned. Is that fair?

Richard Mollet: I think that is fair, Chair, yes. There is less alarm, but the devil is in the detail and we need to know what they mean by certain terms. We need to know better on definition. Also we have seen as the Enterprise and Regulatory Reform Bill is going through Parliament, when proposals become real with legislative language.

The IPO has been open to having discussions about what definitions are in there and how things are going to work. As we saw with clause 66 in the ERR, the Government can rewrite its own clause to bring clarity which pretty much every rights holder in the country thought was needed. We can have the dialogue. If we are less concerned, it might be because we have seen this chink of light of it, and that you can have a sensible conversation about it.

Q518 Chair: On the more general point, which I think has come out in your evidence, about the priority given to intellectual property, we are now on our third Minister in the space of 12 weeks. Do you think that is an indicator that this is not taken seriously enough or are you confident that the new Minister is going to pick up the baton and run with it?

Richard Mollet: Yes, as we have met the new Minister and I am hoping he will. Not to have a conversation about individuals, but it does not speak well of a policy area that there can be quite such rapid turnaround. It does inevitably mean that it must be difficult for any new Minister to get a grip on what, as these discussions show, is a really complicated area.

I think there is a strong argument for a Minister with intellectual property responsibility to have a greater tie into DCMS, which is the sponsoring Department for the creative industries; it is a silo of a silo, if you like, at the moment. It is in the IPO, in BIS, it tends to be a junior ministerial appointment-not always, but it tends to be. Could it not be a shared ministerial responsibility between BIS and DCMS, just to elevate it so that it wasn’t quite so tucked away in Whitehall?

Lavinia Carey: The difficulty of having such a short spell in that period of office is really illustrated by the last Minister who was there for about four months. At the end of it, he had seen through this announcement and still had not really taken on board the difference between the sectors and how they operate differently. That was characterised by his last message to me, which was, "Oh, you will find life on the iPod is fine". We are not the music sector and we do not behave in the same way. The recommendation that the All-Party Group came out with, which was perhaps to have a director general of the IPO who would tie in more readily with policy making, was very good. It would be nice to see the Government looking at that recommendation and exploring ways of bringing it about.

Owen Atkinson: IP is a very complex area and I am sure it takes a lot of time for a Minister to get fully up to speed-not with just the issues, but with the underlying challenges that we all face. It seems to me that perhaps there needs to be some sort of emphasis here because you mentioned there had been three Ministers within the past 12 weeks. Even before then I think it was Lord Triesman, Baroness Young, David Lammy. I very much hope that the new Minister will get up to speed very quickly and we look forward to working with them. At the same time, we feel to a certain extent that we are going around in circles on these issues.

Q519 Chair: Ben, do you want to talk about the DEA at all?

Mr Bradshaw: No.

Chair: You are content with that. In that case, we have come to the end. Can I thank the three of you very much?

Prepared 1st February 2013