SHAKESPEARE’S FORTUNE How copyright has failed authors and why it matters A thesis submitted for the degree of Doctor of Philosophy at the Australian National University By David Court Crawford School of Public Policy Australian National University December 2013 STATEMENT OF ORIGINALITY This is my original work except where cited. In chapters five and six I present results of a survey of screen producers. I chaired the group which designed the survey and I commissioned the online survey company Bergent Research to carry out the survey. Other members of the group were John Berenyi, Dr Allan Cameron, Simon Molloy and Professor Deb Verhoeven. A second iteration of the survey was led by Dr Mark Ryan at Queensland University of Technology. In chapter five I also report findings from an experiment called Box Office Prophecy, which I conceived and carried out with Professor Charles Plott at California Institute of Technology and, in a later iteration, Dr Jordi McKenzie at University of Sydney. David Compton Court © David Court 2013 The above statement is made in accordance with ANU sub-rule 15(2). ! 2 ABSTRACT Shakespeare’s Fortune How copyright has failed authors and why it matters A key policy rationale for the system of copyright is to give authors an incentive to create new works. But what if actual financial returns to authors were very poor — so poor that no rational agent could be expected to respond to the incentive? In this thesis I present data from a large sample of Australian films showing that returns are consistently poor even for ‘hit’ films. Data from other countries confirms the finding and there is evidence that returns from other forms of copyright asset such as literary works are also poor. The thesis explores how this situation can have persisted for so long without the system breaking down or eliciting strong protests from authors. Drawing on a survey of Australian film producers, I confirm anecdotal evidence that authors are driven by non-financial considerations as well as financial incentives. The Hollywood studios have evolved sophisticated business practices that take advantage of these non-financial motivations. In this they are following the example of London’s booksellers of the early 18th century. Does it matter that authors earn low returns from their copyright assets? I identify two classes of author for whom poor returns present a real obstacle to authoring — authors whose work requires independence (such as dissidents) and authors who do not have access to patronage or other forms of subsidy to offset the poor returns from copyright (such as authors from the ‘third world’). Finally, I consider possible reforms to copyright that might improve returns to authors and examine the public policy case for pursuing these reforms. ! 3 CONTENTS Acknowledgments 5 1. Introduction 7 PART ONE: EVIDENCE 2. Australia decides to have a film industry 27 3. How it all turned out 39 4. What is going on here? 51 5. The Hollywood model 65 6. The view from the ground 89 PART TWO: POLICY 7. Big, old, robust and bent: the copyright system 99 8. A copyright counterfactual: authorship without exclusivity 125 9. Copyright’s walking stick: the subsidy system 155 PART THREE: ARGUMENT 10. The case for reform 171 11. The case for copyright as it is 195 12. Conclusion 213 Epilogue: Shakespeare’s fortune 217 References 223 Notes 237 ! 4 ACKNOWLEDGEMENTS This thesis has been a long time in development and I have incurred many debts. I would like to thank in particular my supervisors Bruce Chapman, Peter Drahos, Don Lamberton, John Uhr and Glenn Withers. Their persistence encouraged mine. I have gained an education from them — ways of researching and thinking new to me — and I am profoundly grateful. I worked with a number of people on specific lines of inquiry and research, among them John Berenyi, Barry Burgan, Allan Cameron, Stuart Cunningham, Michael Fraser, Gabiann Marin, Jordi McKenzie, Simon Molloy, Lyn Norfor, Charles Plott, George Raftopulos, Mark Ryan and Deb Verhoeven. I am very grateful for their help, advice and collaboration. I am also grateful to Andrea Buck, Bob Connolly, Mary Gibson, Sandra Levy, Hazel Moir and Rae de Teliga, who gave me invaluable feedback on the draft text. In the very early stages of my research, before it became a thesis, I received financial assistance from the Australia Council for the Arts, the Australian Film Commission (now Screen Australia) and the New South Wales Film & Television Office (now Screen NSW). I thank them for that early support. I thank also the Australian Film Television & Radio School and in particular my graduate students there. Working with them proved to me the circular virtue of teaching what you research and researching what you teach. Finally I thank my wife Nicole Mitchell and my daughters Agatha Court and Ellen Court for their love and patience. David Court December 2013 ! 5 ! 6 1. Introduction You can make a killing in the theatre, but not a living. — Robert Anderson1 (c1954) For surely it is time that the effect of discouragement upon the mind of the artist should be measured. — Virginia Woolf (1928) This thesis is about the economic status of creative work. It is an investigation of the viability of authorship in any medium but particularly writing and filmmaking and more particularly the work of authors who are dissident or independent. Because the viability of authorship rests on the set of rights called copyright, it is largely about the copyright system and the markets and practices that have co-evolved with that system. It is also about the social attitudes the system embodies. There is not a lot written about copyright from the viewpoint of authors. Most people believe without reflection that copyright is good for authors. A frequent question in the copyright literature is whether it might be too good, too beneficent. My purpose here is to shake that belief — shake it hard — and having shaken it, bring into focus the implications of a copyright system that is not good for authors. These go right to the heart of the intellectual enterprise of authorship, not just the financial aspect. There is more at stake here than just money. I bring to this study a long involvement in the film industry, an industry founded on copyright. In the mid-1980s I was appointed policy adviser at the Australian Film Commission and in that capacity was closely involved in the creation of the Australian Film Finance Corporation, a government-owned investment agency (discussed in chapter 2). Not long after I launched a newsletter, Entertainment Business Review, and became a director of a licensed dealer in film securities and later of a film investment company, Content Capital Ltd. In these capacities I was ! 7 involved in financing a number of films, among them John Weiley’s Antarctica, Baz Luhrmann’s Strictly Ballroom, Dean Cavell’s The Wiggles Movie, Jerzy Domaradski’s Lilian’s Story, Bruce Beresford’s Sydney, Story of a City, Robert Connolly’s The Bank and Don Featherstone’s The One Percenters. In 2005 I was appointed founding director of the Centre for Screen Business at the Australian Film Television & Radio School, a role in which I have combined teaching with research into the screen industries. More recently, with filmmaker Sir Peter Jackson, I undertook a review of the New Zealand Film Commission for the New Zealand Government. In all of these roles the viability of filmmaking has been a pressing concern. To understand the copyright system, it is not enough to study the legislation and case law. We need economic data. I therefore begin this investigation with a profit-and-loss report on 158 Australian films produced between 1988 and 2002 — a rare window into the financial machinery of the film industry. From this data set (and drawing on other, comparable data from the UK and the US) I build a profile of the risks and rewards of copyright, considered as an asset class. With this empirical grounding we may then venture into the copyright literature and see how it squares with the lived reality of authorship. Copyright is not a settled thing intellectually. There is no consensus about either its meaning or purpose, despite three centuries of statute and case law. It is a contested idea. At one extreme it has been described as ‘an obnoxious combination of medieval institutions’, without merit, fit only for scrapping (Boldrin & Levine 2008, p244). At the other it is a solution ‘protecting the rights of all who make something of value with their minds, their passion and their unique creative vision’ (Motion Picture Association of America 2011a). In between is every kind of opinion. The long shelves of commentary are crammed with disputes, many of them still hot. Is copyright a kind of property, as its membership of the genus ! 8 ‘intellectual property’ implies? Or should it be viewed as a privilege, specially granted by the state?2 If it’s property then it sits with free markets and the rule of law, a bastion of capitalism, safe. If it’s privilege then perhaps its age counts against it — an anachronism in this digital era? The arguments swirl about. The most basic questions remain in dispute. Is copyright really an author’s right? Certainly the official language of copyright would suggest so, with its recurrent references to authorship and the creative act.3 But some scholars say it is more like a publisher’s right in the way it works commercially and in its origins. One school of thought goes further and questions the very idea of authorship. Following French philosopher Michel Foucault they recast the author as ‘a certain functional principle… by which one impedes the free circulation, the free manipulation, the free composition, decomposition and recomposition of fiction’ (Foucault 1984, p119).