Economic issues

The picture of the copyright industry that we outline in the third post of this series has many economic consequences. An important one deals with the economics of mediatisation and its impact on creation or diversity. Another with the role of copyright and related internalisation strategies.

Each copyright industry is now confronted with a change of its ecosystem, which affects both mediatisation and distribution. And which in turn, loops back onto production. This process is uneasy to address in a general way because each industry evolves within its own ecosystem. Moreover, each public figure – artist, author, columnist, sportsman, politician, etc. – behaves like an autonomous brand, generating its own topicality, building its own community on social networks.

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From a microeconomic standpoint, the utility of a copyrighted works can be termed as the sum of the expression and its associated mediatisation. When the mediatisation is subject to network effects, its utility grows with its coverage and with the consumption of the mediatised good. Copyright industries – from the serialized novels published in the newspapers to the Hollywood star-system (Caves, 2000) – have always been confronted with the necessity to generate network effects around brands and branded products. In the analogue world, such network effects were obtained through well-tested strategies combining a release investment calibrated to reach a critical mass and a media reverberation buzzing on the product. And when the buzz was feared to be negative, then the release investment was made to avoid it. (Cf. the case of the Hollywood “ten-ton turkey” release commented by Richard Caves (2000) p.166.)

An open question concerns the achieving of such network effects in digital ecosystems. According to a recent consulting study,

“total global artist income from recorded music in 2013 was $2.8 billion, down from $3.8 billion in 2000 but up slightly on 2012. Meanwhile artists’ share of total income grew from 14% in 2000 to 17% in 2013 (Mulligan, 2014).

But the top 1% artists grasped 77% of this revenue making digital recorded music a “superstar economy”. This suggests that network effects may be more massive but less accessible in digital ecosystems than in analogue ones. Such a trend would favour on the one hand, big incumbent artists whose long lasting presence grants a critical mass (a lower access cost to media), and, on the other, new artists showing extravagance enough to saturate news and social media (Rihanna, Psy, Lady Gaga, Miley Cyrus…). In other words, the competition for network effects in global digital media seems to induce more “winner-takes-all” behaviours than in the analogue walled ecosystems.

The current paradox of digital ecosystems is that works have become accessible through nearly infinite databases but they are less extensively consumed than in the analogue system. Some more empirical evidence is required to validate such hypothesis, but whether true or not it means that the “long tail” theory (Anderson, 2004) is seriously challenged by the economics of mediatisation. In effect, the diversity of creation – when related to effective consumption – relies more on mediatisation economics than on the productivity of search. A key issue both for economists and media is to design mediatisation models that could enhance the notice of niche products.

Mediatisation economics has long been associated with marketing or advertising whose external effects on sales are difficult to quantify. Simply because the utility of the meaningful complement relies on network effects that are as hazardous to predict as the success of creative works. However, more and more consulting firms are now measuring brands digital presence and their apparent valuation by consumers. Such data, if their collection costs are affordable, might be used to model the network effects associated with mediatisation procedures. (According to our experience, the collection of homogeneous data picked up from various digital media sources requires a dedicated task force with a high fixed cost. The specificity of each mediatisation scheme tends to inhibit such an investment.)

Copyright policy implications

Last, but nor least, the growing importance of mediatisation changes the traditional vision of copyright exploitation. While copyright was for long identified as a way to internalise creation efforts, it is also a way to internalise mediatisation strategies. In a media ecosystem, a copyrighted good can be given for free if its consumption increases its media component. This means first, as noticed by various authors, that piracy or counterfeiting can prove socially useful. Not because it provides access to a lower segment of consumers (Watt, 2000). But because it can raise the utility of the good (the media component) and then, generate a higher willingness-to-pay that is collectable where excludability can apply (as already explained by Paul Belleflamme on this blog).

It also means that the previous consent of copyright holders may raise transaction costs preventing them to benefit from mediatisation opportunities. The “notice and take down” procedure applying on digital platforms corresponds to an ex post consent that allows some right holders to better internalise many spontaneous mediatisation efforts. At the cost, of course, of a careful watch of their product mediatisation. The case of the countless parodies posted on YouTube that can be withdrawn on right holders’ request illustrates this trend. Parodies are pieces of the informational complement that add value to the original copyrighted expressions.

The previous consent rule should then apply but with lenience. A too stringent behaviour would prevent right holders from valuable media externalities. Conversely, take down notices corresponding to an effective internalisation decision of the right holder should involve the responsibility of the noticed intermediary. This is the point where copyright enforcement now meets tort law (Lefort, 2013).

More generally, the dissemination of copyrighted works is anything but natural. Following the B&M premise, the utility of copyrighted expressions relies on a media complement produced through publishing and progressive dissemination. Such complement carries network effects and, thanks to its contextual dimension, allows right holders to gain from economies of scale in publishing other works. This point is clearly underestimated by the economic literature. It explains why the Copyright Term Extension Act (CTEA, 1998) has been mocked by so many conventional economists while supported only by a few copyright experts (Liebowitz and Margolis, 2004): the loss of property rights on the Mickey Mouse cartoons would have, no doubt, spoilt the Disney brand and its ability to mediatise new works. Hence, the economics of mediatisation deserve more research and quantitative analysis. It should also promote a better coordination between trademark and copyright law.

Media ecosystems

The term ecosystem is primarily used in biology do designate a community of living organisms (plants, animals and microbes) in conjunction with the non-living components of their environment (things like air, water and mineral soil), interacting as a system (Wikipedia). These biotic and abiotic components are regarded as linked together through nutrient cycles and energy flows. Willis (1997) traces back the history of the concept and its adaptation to the description of natural systems. Ecosystems are defined by the network of interactions among organisms, and among organisms and their environment. They can be of any size but usually encompass specific, limited spaces.

By analogy, a business ecosystem applies to a community of economic agents interacting for the balance of all, in a framework favourable to externalities (Teece, 2007).

A business ecosystem finds its roots in the idea of value networks and can be seen as a group of companies, which simultaneously create value by combining their skills and assets. Business ecosystems create value for a participant only when the participant is not capable to of commercializing a product or service relying on its own competences. (Clarysse, Wright, Bruneel, Mahajan, 2014, p.1164)

The concept of ecosystem differs from the one of industry, market or sector, because it relies on the prevalence of external effects. Quite frequently, the externalities come from private or informal information exchanges – on individuals, organizations or institutions – that decrease transaction costs and favour various forms of business clustering. Such kinds of ecosystems could be called “transactional” since most of the externalities come from the impact on transaction costs of circulating knowledge, informal relations and institutional information.

Similarly, one can consider that a communicating society runs like a biotope in which public messages are received and re-emitted by media. Media interaction participates in society coordination although media are not systematically linked together by formal or contractual relations. As such ecosystem contributes to the production of a “favourable notice”, the participants rely on it to commercialize their products. Quite often, “the skills and assets” that are shared by media deal with trademarks or talent names equivalent to “brands” that provide a meaningful context to goods or expressions (Bomsel, 2013). The mediatisation of people, firms or goods proceeds from ecosystems dedicated to specific products. One can distinguish the ecosystem of books, the one of the news, of scientific papers, of plastic arts, of music, of cinema, of sports, etc. But there is also a media ecosystem for fashion, luxury goods, cosmetics, automobile, food, drugs, etc. While transactional ecosystems decrease transaction costs between the participants, media ecosystems produce the public image – the informational complement – of business or institutional agents and their related products.

Digital technologies are bringing new media in all ecosystems: online newspapers and magazines, blogs, science portals, audio and video platforms, social networks… The echoing of the news, for instance, can follow many new routes and reach consumers faster and wider than could the pre-digital media. Moreover, the connection between advertising or mediatising a product and its actual purchase by a customer can be internalised through online procedures: an html link will transform a viewer into a purchaser, an audio or video platform teases for free until the viewer decides to pay for a service. As a consequence, the borders between mediatisation and sales tend to blur. This trend affects the economic means used to internalise the externalities of the media ecosystem. This is particularly sensitive in all the copyright industries that produce expressions to be distributed in a dematerialised form.

The mediatisation of copyrighted expressions

Copyrighted expressions are informational goods that have to be mediatised. An inspired poem or a scientific theorem posted on an anonymous blog will remain unnoticed. The release of a novel, of a scientific article, of a music tune, of a movie or a TV series, of a sports event, follows a symbolic route constituting a publishing protocol. The public image of a movie disclosed at the Festival de Cannes will differ from the one of a blockbuster presented in a Hollywood showy opening, and even more from a B movie released straight on DVD. The mediatisation of copyrighted expressions adds meaning and value to the works. It is achieved through a media ecosystem providing a direct and indirect echo to the works.

Copyrighted expressions differ from other goods by the fact that, being non-rival, they can be mediatised through free consumption. Thanks to external effects, the supply of free copyrighted works can be financed by ads paid by other firms, by authors (gold open access reviews), or by other contents bundled on a publishing platform. Digitization, which extends the non-rivalness thanks to the dematerialisation of the supports, increases the potential of mediatisation through free consumption. Hence, the coexistence of free and pay content – news, music, video, scientific articles, sports, etc. – on the same digital platforms, tends to narrow the gap between mediatisation and distribution.

In effect, a media ecosystem reflects a state of the technology. Let’s take the case of music. Under the phonographic period, music was taped on records and mediatised through record sleeves, radios, concerts, magazines, video clips and record shops. The radios had to notice the release of the records and to start the buzz. Competition between record producers gave even rise to the payola system – a bribe to disc jockeys in order to get aired – that was depicted by Ronald Coase (1979) as a hidden publicity. Concert tours were keeping the topicality of the artists. Magazines were feeding fans with stories related to music performers. At the end of the chain, record shops were the ultimate media displaying the sleeves and their assortment in racks. In this ecosystem, most of the relations between copyright holders and media were internalised by formal arrangements. The production and sales of records was shaping the ecosystem. Broadcasters were paying license fees while getting paid through publicity. Showcase and tour operators were hiring performers as to sell tickets and drinks. For the most popular artists, record producers invested in video clips and TV ads. Distributors were rewarded on record sales. Only a few players (magazines, talk-shows, variety-shows) benefitted from informal cross-externalities.

With digitization, the phonographic ecosystem gets supplemented both on the media and the distribution side. On the media side, streaming platforms and social networks can create and amplify a buzz that was formerly produced by showcases and radios. The online press will link a music review to a playlist that is just one-click from the reader. TV promotion is re-focussed on ads and talent shows whose viewers argue on social networks. On the distribution side, music downloads and, increasingly, streaming services substitute to CD sales.

A key pattern of this trend is the convergence of mediatisation and distribution. Streaming platforms deliver both mediatisation – through free access service and discovery or thematic apps – and distribution. On such platforms, a subscriber can share his playlists with his social network’s friends. Thus, a listener can become a disc jockey, now called a curator, getting followers for his selection service. On video platforms, amateurs can post video parodies that will increase the popularity of the original. Right holders can either accept or refuse such parodies and even, for a commercial use, license performers their music publishing rights. In other words, with the continuous surge and rollout of new media, the music ecosystem gets denser and denser making the internalisation strategies more open and flexible than in the past.

What happens with music also happens with books, scientific articles, news, sports, cinema, TV series… Each copyright industry – characterised by the production and the publishing of specific expressions – is confronted with the surge of new media that change its former ecosystem. For a while, this change has been perceived as a dematerialisation arousing competition or cannibalisation between distribution channels. This view was suggested by the vertical design of the industry resulting from the copyright transaction chain and the distribution of material supports.

Actually, the change is far more sophisticated. The newness of the digital ecosystems is that mediatisation gets blurred with distribution. In other words, digitization makes copyrighted works distribution a particular case of mediatisation. This already existed when, for instance, radio stations had to pay license fees to mediatise music. But with digital ecosystems, such practises are widespread and continuously expanding. This in turn, makes internalisation – copyright exploitation – an iterative process adapting to new media, new practises, requiring new contracts and new pricing schemes.

The last post of this series examines economic issues and policy implications related to media ecosystems.

Le 16 octobre 2007, via ce qu’on appelle un « deal memo », la société On My Own, qui détenait les droits de distribution du film, avait cédé à TF1 International (aujourd’hui TF1 Droits Audiovisuels) le droit exclusif d’exploiter et de distribuer « Miracle at Santa Anna » dans le monde entier, à l’exception des Etats-Unis, du Canada et de l’Italie. En contrepartie, TF1 International s’était engagée à verser une avance de 11 millions de dollars à On My Own.

Mais, un an plus tard, alors que le long-métrage réalisé par Spike Lee était sorti depuis septembre 2008 sur les écrans américains, la carrière européenne de « Miracle at Santa Anna » était toujours au point mort, et cela à cause de la branche de distribution de TF1.

En effet, TF1 D.A. avait suspendu l’exploitation du film et avait renoncé unilatéralement à sa distribution. La chaîne française, officiellement, estimait que la version qu’on lui proposait n’était pas conforme à ce qu’on lui avait promis. En réalité, il se pourrait bien que TF1 ait été refroidie par une polémique qui avait pris naissance en Italie où Spike Lee était accusé d’avoir pris trop de liberté avec la vérité historique et craignait que la même polémique voie le jour en France. Les critiques mitigées à l’égard du film avaient certainement achevé de convaincre la chaîne de se désister à la dernière minute.

Devant le refus de TF1 D.A. d’honorer ses engagements, la société On My Own lui avait logiquement demandé de verser les 11 millions de dollars dus comme il était prévu dans le contrat. Au lieu de s’exécuter, TF1 avait engagé une action en justice pour résilier l’accord de distribution et réclamer une indemnisation pour préjudice.

Début 2009, excédé et persuadé d’être la victime d’une forme de censure abusive, Spike Lee, épaulé par On My Own, a décidé d’attaquer la filiale de TF1 qui a renoncé à distribuer le film et l’a assignée devant le Tribunal de grande instance de Paris.

Le litige, après quatre longues années, a trouvé un dénouement. Dans un jugement rendu le 21 juin 2011, la 3^e chambre civile du Tribunal de grande instance de Paris a donné raison au célèbre réalisateur américain et à la société On My Own et a estimé que TF1 D.A. « avait manqué à ses obligations contractuelles et ne pouvait valablement refuser la livraison du film ». Par contre, le TGI de Paris a énoncé qu’« aucun manquement contractuel ne pouvait être invoqué à l’encontre de la société On my Own ». Il y a donc eu résiliation du « deal memo » aux torts exclusifs de TF1 D.A.

Entre préjudices moral et financier, TF1 D.A. a été lourdement condamnée à verser aux parties adverses quelque 32 millions d’euros, qui se divisent comme suit, et à faire état de cette condamnation dans la presse :

- 20 millions d’euros à la société On My Own au titre des dommages et intérêts en réparation du préjudice financier subi ;

-  Un million d’euros à On My Own à titre de dommage moral ;

-  Plus d’un million et demi d’euros à Spike Lee (1,7 M) pour préjudice moral, « privé du bénéfice de l’exploitation de son œuvre sur des territoires majeurs (…) et (qui) voit sa réputation entachée » ;

-  200 000 euros à James Mc Bride, auteur du livre éponyme qui a inspiré le film, également co-scénariste du long-métrage ;

-  9 millions d’euros à BNP Paribas (correspondant à la somme de 11 millions de dollars prévue initialement au contrat, assortie des intérêts).

Si le groupe de TF1 a indiqué qu’il envisageait de faire appel, tant en raison des fondements de cette décision que du niveau des dommages et intérêts alloués, il n’est pas sûr que cela aboutisse. C’est en tous cas au tour de TF1 de compter sur un miracle…

Pierre Crucifix

Sources :

-  http://www.lefigaro.fr/flash-eco/2011/07/06/97002-20110706FILWWW00386-tf1-condamnee-a-payer-32-m-eur.php

-   http://www.lepost.fr/article/2011/07/06/2542323_miracle-a-santa-anna-de-spike-lee-tf1-condamne.html

-   http://www.lexpress.fr/actualites/1/actualite/exclusif-afp-tf1-severement-condamnee-pour-n-avoir-pas-distribue-un-film-de-spike-lee_1009745.html?actu=1

-   http://www.purepeople.com/article/miracle-a-santa-anna-spike-lee-remporte-enfin-son-bras-de-fer-contre-tf1_a83197/1

-   http://www.commeaucinema.com/afp/exclusif-afp-tf1-condamnee-a-payer-32-m-eur-pour-n-avoir-pas-distribue-un-film-de-spik,215978

-   http://www.20minutes.fr/ledirect/754933/tf1-condamnee-payer-32-millions-euros-spike-lee