Professor Friedland (incredible credentials) prepared a report for the Access Copyright collective, that was finalized February 15, 2007. The Board of Directors considered that report and its 20 recommendations. On February 15, 2008, a version of the Board's report was made public, with redactions, pre and post statements to the included Friedland report. The Friedland report itself was revealed with many interjections and comments, potentially distorting its message v. being read on its own.
To this, we were not pleased in having to read this report with these comments combining with the lack of pagination and DRM in the published document, making fair use of this document difficult. For example, the report could not be overtly printed.
To this mixed pleasure, its rare for a private organization to reveal its warts and difficulties in such an open manner. In 2008, post-Enron, this is also the "nice" thing to do and they should be applauded here, in sharing how they themselves see these problems and how they have chosen to fix them, for anyone to second guess to their wits end (a Blog of this may be a wits end!).
Lack of Reciprocity in International Royalty Disbursements: K-12 Group
12% of the revenues gathered by the equivalent US organization, the Copyright Clearinghouse Center, "CCC", are from educational uses, excluding the K-12 group. Access Copyright's Board Report says 77% of the collective's royalty collections in 2005 are from educational uses, with no such exclusion (31% K-12). The fact finder says the US has an educational exemption that we do not have.
A fair question to ask is why does this collective pay the US apparently for this use in Canada, but it does not collect from them for this use in the United States? Are there reciprocal national treatment rights here in the Copyright Act, and if not, should there be an amendment for this, or should the similar exemption of the K-12 sector provided in US law be accomplished here, to balance against the US situation?
Creation of Creator/Publisher Splits ex of Foreign Rights Distributions: the Subpublisher Problem
Effect of Contract Overrides and Prof Friedland
The fact finder, as Prof Friedland is referred to, with no audit trail to follow and a great many assumptions, concludes on what creators may get directly and from publishers indirectly at 40% and the publishers net of these indirect payments at 60%, of the domestic royalties paid. This is stated at page 29 of the Board's report, per the PDF readers' identification (there is no pagination in the fact finders report section of the document).
To Truer Splits: Beyond Friedland
This is clearly a difficult area, as there are foreign subpublishers who may pay domestic publishers monies subject to contract overrides, from their receipts of the foreign reproductive rights organization (RRO), that ultimately is paid to the Canadian creator and publisher. 5% is stated as direct money received by Access Copyright from the RRO's in the overall royalties collected. What else is then received by domestic publishers and creators from this source was otherwise unknown, to date.
However in the opposite direction, from the fact finder discoveries, was that the domestic publisher acting as a subpublisher for a foreign parent, paid amounts to US publishers that exceeded the amounts that Access Copyright paid directly to the US RRO, the CCC, directly. The CCC is indicated as getting 60% of the RRO's payments from Access Copyright, $3.4 million in 2005.
So US publishers and creators get directly via the CCC $3.4 million, and indirectly from their branch plant publishers, "at least" another $3.4 million.
The potential "split," supplementing Prof. Friedlands' calculations on indirect payments:
- Canadian creators, direct and indirect royalties: at least $5.9 million
- Domestic publishers, minus indirect royalties paid: "at most" $5.6 million
- US publishers and creators: more than $6.8 million
- UK and other country publishers indirectly: ?
- Other direct RRO's: $2.3 million
On the foreign payments and receipts, foreign sources are only 5% of royalty revenues, approximately $1.5 million (from $30 million a year in royalties and interest collected). They get at least $9.1 million, 6 times as much as they provide directly, or just about 50% more than the Canadian creator directly and indirectly.
In the related goods that would be subject to reprographic use royalty examinations, Canada imported $2,570,215,000 in books, newspapers and periodicals, in 2005. We exported $609,957,000 according to Statistics Canada, for a trade deficit of such goods at almost $2 Billion (1,960,258,000). Taking the "at least" figure of what is exported indirectly in royalties that was disclosed by the fact finder, less than 1/4 of that would be expected in return from foreign subpublishers from their RRO's receipts using the goods trade as a proxy (for the publication sub licenses including the right to print plus the physical goods).
Estimating those indirect royalties received at around $1,000,000 (if "only" $4,000,000 is paid from Canada indirectly, a figure we 'feel' as low due to the high foreign ownership we suspect but have not recently researched), this additional amount would be available to domestic publishers, for distribution to creators and for their own account, outside the flows from the collective.
Including these indirect royalties received assuming the same 18.8% pass-through to creators, as used by the fact finder:
- Canadian creators: $6.1 million
- Domestic publishers: at most $6.4 million (less "Y" + less ("X" - "more than" $3.4 m))
- US publishers and creators: more than $6.8 million
- UK and other country publishers indirectly: "Y"
- Other direct RRO's: $2.3 million
What if the Publishers were 80% Controlled by Foreign Publishers?
With only 2/3 of revenues distributed, it also means that only a bit more than 1/2 of that is paid to domestic publishers and creators, directly and indirectly. The domestic publishers get to keep much less than the Canadian creators in our analysis from reprographic royalties when factoring in the expected indirect payment and receipt flows, that should be occurring outside the scope of the collective (domestic subpublishers to all foreign publishers, foreign subpublishers to all domestic publishers). This may explain some reticence on changing anything to favour the creator group inside the collective, in spite of what may appear as distributional disparities against the creators within the collective (this is read as a battle lost in the Board Report).
The payments potentially outside the scope of the collective, that Prof Friedland only starts into discovery, appear to make domestic publishers, foreign controlled or not, rather a "grisly" bunch relative to the domestic creator class on closer examination over the spoils here.
If Canada's publishing industry is as dominated by foreign ownership as we suspect but don't know (not in the mind at this time but I am sure I read it somewhere ...), and if a very large share of the royalties collected by domestic publishers are subpublishing in nature and going to foreign parent publishers indirectly (the RRO payments would be independent of any domestic publishing relationship), the Canadian creators clearly would retain much more money than the domestic publishers here.
Example of 80% foreign ownership level with subpublisher agreements between subsidiary and parent publisher:
- Canadian creators: $6.1 million
- Canadian controlled publishers: $2.6 million
- Foreign publishers and creators: $7.3 million
- Other direct RRO's: $5.7 million
This dimension of course adds to the mystique on one very interesting recommendation the Board of Access Copyright rejected: the Independent Directors as recommended by the fact finder.
Part 3, the Most Egregious Finding IMHO
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