Assessing the Economic Impact of Copyright Reform in the Area of Technology-Enhanced Learning

6. Facilitating the Showing of Films and Videos

6.1 Providing an Exception for the Showing of Films and Videos

Section 29.5 of the Copyright Act, which provides an exception for certain types of performances done “on the premises of educational institutions”, does not extend to films and videos. This part of the report considers the impact of expanding Section 29.5 to include the showing of films and videos by non–profit educational institutions.

Benefits of Providing an Exception for the Showing of Films and Videos

(1) The Reduction in the Costs of Creating New Works

Including an exception for films and videos may facilitate certain types of creative endeavor within educational institutions, but it would not expand the free material that is available for writers to draw on. The obligation of writers to obtain licences for source material and the fees they pay for this material would not be affected.

(2) The Reduction in the Payments to Foreigners

Licence fees paid by schools, colleges and universities for the public performance rights to foreign–produced films constitute part of the annual payments Canada makes for imports of film and broadcasting services.³⁴ In 1999/2000, foreign productions (for which licence fees had to be paid to foreign copyright holders) accounted for 87% of the $965.6 million in revenues from distribution of films and videos within Canada. Separate data are not available for educational distributors, but the “non–theatrical” category that includes education (along with works for governments and private companies) generated $19.5 million in domestic revenues in 1999/2000. Although Canadian films were a more important factor in this category, foreign productions still accounted for 74% of distribution revenues.

Payments for performance rights to foreign productions would be higher were it not for the site licensing agreements discussed in Section 4. These have reduced university costs for in–class performance of feature films, where the degree of foreign content is especially high.³⁵ Although an amendment extending the educational exception in the Act to the showing of films and videos would not substantially reduce the overall value of Canada’s film and broadcasting service imports, it would yield some modest annual savings.

(3) Savings in Transactions Costs

As noted in Section 4, films and videos have presented among the least problems for media officers charged with clearing rights. The most significant difficulties have related to the securing of rights for broadcast and or the digitalization of films and film clips, but these costs would not be affected unless the exception extended to showings for distance education students. Introducing an exception into the Act for “on premise” showings would address the difficulties media officers occasionally experience in tracking down rightsholders for older material that is no longer in distribution. The exception would also provide a solution to the problems institutions encounter in gaining clearance for the showing of film segments or clips. However, since a small number of distributors handle most film and video rights and licensing negotiations are not a significant and time–consuming activity, the savings in transactions costs are likely to be small.

(4) Increase in Consumer Surplus

Film and video costs affect institutions differently. Video costs come out of the budget of the library or media centre at some institutions and are the responsibility of individual departments at others. In some instances, film studies departments supplement the library budget to ensure adequate funding for film and video acquisitions. The acquisition of requested videos along with required performance rights is not a problem for universities with centralized purchasing and relatively well–financed media centers, although there still may be resistance to purchasing costly videos that would have few showings. In other cases, limited departmental budgets have required that a lid be placed on the amount that could be spent on specific videos, as well as on the number of videos that could be used in individual courses. Departmental budget constraints may prevent the showing of feature films that are not covered by an institution’s site licence and specialty documentaries with a significant price tag.

Introducing an exception into the Act would allow instructors that have been subject to budgetary constraints to use more film and video material in their courses. There would be a welfare gain represented by the difference between the low costs of making the required copies and instructors’ valuation of the contribution of the new materials to the quality of their courses. In addition, some institutions may be encouraged to offer new courses that take advantage of the easing in the requirements for the use of films and videos. Students would thereby benefit from the opportunity to choose from among an increased range of course offerings. An amendment excepting film and video showings would likely have a smaller incremental impact than the amendments discussed in Section 5.1 above, which pertain to activities with a very low base level of activity. However, since the introduction of an exception to allow the showing and film and videos would affect full–time students, the overall gain in consumer surplus should be larger than the benefits from amendments that would only apply to distance education.

Costs of Providing an Exception for the Showing of Films and Videos

The costs of an exception depend, first, on how it impacts on the returns to creators and, second, on how the reduced returns affect incentives to engage in creative work. While a certain level of copyright protection is needed to generate the incentives for creative activity, the impact of incremental additions in protection above this base level is less clear. As Sterk (1996) points out, even if additional protection does affect returns, it may have little effect once returns to creative activity have become high relative to returns in other pursuits and most of the people who could be induced to engage in creative activity have already done so.

The main impact of an exemption for film showings would be to reduce the royalty fees Canadian educational institutions pay to distributors of U.S. films and videos. For foreign feature film companies, however, royalty payments from Canadian educational distributors are clearly a very minor source of revenue. Indeed, the overall Canadian market only serves as a supplementary source of revenue for foreign, primarily U.S., film companies, which depend on home market sales to recover the costs of production.³⁶ The Canadian market for films and videos, which represents about 6% to 8% of the U.S. market, is too small to influence the investment and production decisions of U.S. feature film companies.

U.S. productions dominate every segment of the Canadian market, including the educational film and video market. Educational sales can be important for U.S. producers of documentaries and special–interest films, but here as well, the small Canadian market is not likely to figure significantly in the decisions of creators or investors. Specialty filmmakers tend to direct their activities towards the international market for their niche product. Cost recovery is likely to depend on the film’s success in the U.S. and major European markets. An amendment to Canada’s copyright law would be unlikely to significantly affect returns or influence the incentives for production.

For Canadian film productions, as well, commercial success depends on international sales. Canada’s film industry has been responding to the economic incentives to market their products internationally and, over the 1990s, exports of Canadian film and audio–visual products increased seven–fold. By 1999/2000, exports accounted for over 40% of the production revenue of Canadian film and audio–visual producers and over 50% of the revenue Canadian producers derived from the sales of television and feature film rights.³⁷ Educational sales compromise a very small component of an overall domestic market that is declining in importance as a source of revenue for Canadian film companies. A profile of the Canadian industry found that, in 2000–01, for those film and television productions that qualify for the Canadian Film or Video Production Tax Credit (CAVCO), 12% of financing came from distributors, including Canadian companies distributing Canadian productions outside Canada.³⁸ Public performance fees paid by Canadian educational institutions made only a small contribution to the distributor revenues that are the source of these payments.

For CAVCO–certified documentaries, which presumably derive more of their funding from educational sales than general films, only 5% of revenues came from distributor financing in 2000–01. The main source of financing was government grants. While some Canadian documentary makers may be attracted by the possible returns from developing a product with international appeal, many are taking advantage of the availability of government support to create films that are not commercially viable. In neither of these cases, are the revenues from educational licences likely to appreciably affect incentives.

A different situation applies to films and videos created expressly for the educational market. Canadian producers of video and audio–visual materials for the educational sector earned revenues of $4.1 million in 1999–2000.³⁹ There would be little incentive for these producers to continue to develop material for the Canadian market if they were covered by the proposed exception. If an amendment were introduced to include film and video performances under the exceptions in Section 29.5 of the Act, it would be appropriate to exclude educational films, including non–Canadian productions that are entitled to national treatment.

6.2 Extending the Premises of the Classroom with Respect to Films and Videos

Under this proposal, the definition of the classroom would be expanded so that once an educational institutional had obtained rights for the performance of films and videos these would apply to all showings, including those to distant education students. While schools and universities would still be required to obtain public performance rights to show films and videos, they would be excepted from the need to license “electronic rights”, including reproduction and telecommunication to the public. Below we consider the benefits and costs of this option compared to the current situation in which no exceptions are available for the showing of films and videos.

Benefits of Extending the Classroom for Film and Video Showings

The most important benefits from extending the definition of the classroom for film and video showings is likely to come from the gains in consumer surplus as video use increases. As discussed earlier, institutions have been discouraged from using films and videos in televised and on–line distant education courses because of the costs, along in some cases with the difficulties, of clearing the required rights. The proposed reform would eliminate the social loss that has resulted because current policies have created a disincentive for the use of films and videos in some situations where they can be a significant aid to learning. With an extension of the definition of the classroom, schools and universities would be encouraged to be incorporate documentaries and films for which they have site licences in their distance education courses. While distance education students would gain access to new learning materials, classroom students would also benefit as instructors take advantage of the increased opportunity to incorporate films and video content in courses delivered simultaneously to students on and off campus. The benefits of the proposed amendment are likely to increase in future years as more locations gain access to high–speed broadband, thereby eliminating the network constraints on the use of film and video content in computer–based distance learning courses.

The beneficial impacts of a reform extending the definition of the classroom for film and video showings would be reduced if it leads to an increase in the fees distributors charge educational institutions for public performance rights. But while distributors may attempt to raise fees to reflect the greater value of public performance rights to educational institutions, such increases are likely to be limited. Educational demand for films and videos is characterized by significant price–sensitivity. It would not be in the interests of rightsholders to establish fees that might jeopardize sales and reduce the overall revenue they derive from the educational market. The emphasis in recent negotiations has, on the contrary, been on arrangements, such as site licensing agreements, that encourage the use of films and videos by educational institutions.

Costs of Extending the Classroom for Film and Video Showings

The factors that were identified in Section 6.1 as limiting the costs of changes in the law applying to films and videos apply to measures to extend the definition of the classroom for film and video showings. An exception to facilitate film and video use in distance education courses would have less impact on rightsholders’ revenues than the exception discussed in 6.1, which pertained to all film and video showings on institutional premises. In both cases, however, the impact on creative incentives would be negligible for all films except educational videos. Provided that videos produced expressly for educational use are excluded, there is no reason for concern about the costs of extending the definition of the classroom for film and video showings. With this measure, as with the measure to include film and videos showings on educational premises among the exceptions in Section 29.5 of the Act, net economic impacts are likely to be positive and significant.

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34 In 1998, Canadian payments for the import of film and broadcasting services of all types amounted to $986.9 million.

35 Non–Canadian movies accounted for 97% of revenues from domestic distribution in 1999/2000. A similarly high degree of foreign content presumably characterizes feature film use in the educational sector.

36 This is discussed in Acheson and Maule (1999)

37 From Statistics Canada, The Daily, July 22, 2002

38 The Department of Canadian Heritage et al., The Canadian Film and Television Production Industry: Profile 2002.

39 Based on data made available by Statistics Canada.