Fixing Copyright


Copyrights are good. Without them there's minimal motivation to produce creative content, especially digital content. Without copyrights, we'd have essentially significantly fewer movies, tv shows, music, video games, books, and other types of creative content.

However, as with any legally protected monopoly, there is a significant downside: underproduction. To give an example, if Toy Story is selling for $10, but I'm only willing to pay $8 for it, then I don't get to watch the movie, and I lose out on $8 of benefit that would've been free for Pixar to give me. Multiply this by 300 million people and 100s of media per year, and this comes out to at least billions of dollars of lost consumer surplus.

The opening up of work can yield significant positive effects as well. In particular, the opening up of work can lead to the production of derivative work. For instance, there are over 1 million original fanfiction stories, poems, and plays right now "title": "FanFiction.Net" - and that is without any financial motivation. Admittedly, the works tend to be of lower quality than published stories, but that's at least partly because they can't be legally vetted by an editor and then published.

Lord of the Rings, for instance, was published 63 years ago, and Tolkien himself has been dead for 44 years. However, due to lengthy copyright laws, it will still be protected for 26 more years. Hence, until 2043 "title": "Copyright law of the United States", there is no legal way for people to sell derivative works, no matter how much enjoyment that could bring.

Nerds may argue that unchecked ability to publish derivative works would harm the integrity of the original work, as it would lead to a wealth of contradictions, but this is easily overcome, by having a separate set of rights for "officially sanctioned works" without forbidding the sale of any works.

This argument is especially compelling for old media, for which sales have dwindled to near zero. In these scenarios, the artist/producer is making very little in profit, but has no incentive to free up their work.

I, however, have a brillian plan to make everyone win.

The Proposal

Generally speaking, a new song/movie/etc tend to sell the most copies early one, with progressively fewer copies sold as time goes on. For sake of argument, we could model this as an exponential decay. I believe this decay happens fairly quickly - though the rate of decay depends on the media-form (and, indeed, the work) in question. We'll come back to this later, but for now let's assume (for argument's sake) that movies sell 10% fewer copies each year than the year before.

This means that the producer of the creative work reaps 90% percent of their revenue in the first decade or two years [higher if we account for discounting]. Imagine, then, if we were to offer media artist and companies a choice: we'll reduce copyrights to a dozen years or so, but give you all a 10% tax break. Given the appropriate numbers, they should be indifferent in accepting.

The question, then, becomes how long should copyrights last? The shorter we choose, the larger a tax break we need to give, so this becomes a weighing game. In order to evaluate all this, we need to understand not just our own desires, but some numbers :)

As a brief aside, economists agree, for similar reasons, that research and development should be encouraged with tax breaks "title": "Manufacturing".

Tax Revenue Numbers

First, let's examine how much money the government currently makes by taxing digital media. Arts and cultural production lead to $355 billion in compensation in 2014 "title": "Arts and Cultural Production Satellite Account". In the same year, $1395 billion was raised in income taxes "title": "2014 United States federal budget" out of $14,262 billion for an average tax rate of 9.8%. Assuming artists are taxed at a similar rate to other Americans, eliminating the income tax for artists would lose the federal government roughly $35 billion per year.

I, sadly, can't directly find figures estimating corporate income (profits) from art/cultural production. However, we can estimate it one of three ways. In 2012,

  1. Arts/culture accounted for $1132 billion of GDP "title": "2014 ACPSA Tables" - 7% of GDP "title": "GDP & Personal Income"
  2. Arts/culture accounted for $7487 billion of total output - 26% of total output "title": "2014 ACPSA Tables".
  3. Arts/culture accounted $4725 billion of total value added - 29% of total value added "title": "2014 ACPSA Tables"

[I should note that I'm using the broad definition of arts/culture; the narrower one significantly reduces these estimates. I like being pessimistic in this way.]

In 2012, the federal government collected $242 billion in corporate income taxes "title": "2012 United States federal budget". We can estimate from the above figures that between 7% and 29% of that came from arts/culture, indicating that eliminating those taxes would cost between $17 and $70 billion per year.

Total corporate profits before taxes that year were $2131 billion "title": "GDP & Personal Income" - indicating a federal corporate tax rate of about 11.4%.

It seems weird to give corporations producing art larger tax breaks than artists producing art, so let's tweak our policy to shrink them both equally. This saves us 14% of our corporate revenue, giving us a cost estimate of between $15 and $60 billion in cut corporate taxes.

So, in brief, we have an estimated total cost of between $50 and $95 billion per year in lost tax revenue.

Revenue Decay Rates

The next question we need to answer is how quickly interest in new media/art is lost.

I found it very difficult to get good numbers on this, but I found some bad ones. I looked at six movie's DVD sales provided by the-numbers.com and computed how quickly they decayed over time. I found:

MovieDecay Rate Per Year
The Princess Bride12.5%
Toy Story22.9%
The Lion King44.7%
The Avengers61.2%

While not conclusive, it seems typical movies seem to decay in sales around 40% per year.

We can also look at music. For instance, here are figures for Adele's "25":

As you can see, it sold 82% of its copies within 7 weeks. If anything, it looks like the music business sees significantly faster declines than films.

Works Cited [show]