Should Internet Users Pay a Piracy Levy To Ensure Creators Get Paid?

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Cultural figures including Academy Award winner Olivia Colman are proposing a new initiative to ensure that artists get paid when people download content to devices including mobiles, tablets and PCs without permission. The Smart Fund is proposing a new levy of up to 3% to be paid by all device buyers in the UK but is this a fair solution for the majority who actually pay for content?

The Smart FundMore than two decades after going mainstream, the problem of illegal downloading is not going to go away overnight. Indeed, it may not go away at all.

Over the years there have been dozens of initiatives to try and reduce the flow but by far the most effective has been to make content available to consumers at a fair price. The success of services like Spotify and Netflix are a testament to that but there are other ideas too, ones that approach things from a different direction.

The Smart Fund

This week “100 leading cultural figures” including Academy Award winner Olivia Colman published an open letter in The Times (paywall) calling for the creation of a so-called “Smart Fund” to help generate up to £300m per year to support the UK creative sectors.

“The Smart Fund is proposed as a collaboration between creators and performers, technology companies and the Government. It provides a direct way for tech manufacturers to invest in, grow, empower, and enrich the cultural DNA of our society, by supporting the creativity for which the UK is globally renowned,” The Smart Fund’s proposal reads.

“It would work by placing a small one-off levy on the sale of mobiles, laptops, PCs and devices that are built to allow people to store and download creative content, solving the problem that creators are not recompensed for the use of their work.”

TorrentFreak contacted The Smart Fund who told us that this “is an entirely separate issue to piracy” but then went on to explain a mechanism that sounds tailor-made to compensate for losses that the creative industries attribute to piracy.

“At the moment the works of thousands of artists, writers, musicians, performers and film-makers, are copied and stored on devices like smartphones, which breaches their copyright. These rights are often not enforced and the creators aren’t remunerated. The Smart Fund provides a mechanism to fix this across the creative sector,” the group explained.

Benefits of the Proposal

If we leave potential problems and criticisms out of the equation for a moment, The Smart Fund does appear to have some admirable goals.

Those who could benefit from the cash injection include performers at festivals and art galleries, for example, with The Smart Fund noting that it would be able to support young people while helping to “level up” those in disadvantaged areas.

This sounds all very well in theory but in practice, things are unlikely to be so straightforward.

Levy or Just Another Tax?

Given that The Smart Fund is proposing a 1% to 3% levy on sales of all devices that are download-capable, we put it to The Smart Fund that they may have failed to mention the most important people in the equation – the people who will buy those devices, i.e the general public.

Isn’t this just a tax by another name that will eventually have to be paid by consumers?

“The Smart Fund is not a tax, as a tax would be paid to government. Instead, The Smart Fund will pay creators and performers directly through transparent and fair means. It is a way for tech to invest in and enable creativity for everyone,” The Smart Fund says.

“There is no reason why the cost of a smartphone, tablet or any other device should increase with the Smart Fund. As set out in the report ‘Private Copying Global Study 2020’ by CISAC, the International Confederation of Societies of Authors and Composers, schemes like the Smart Fund exist in 44 countries and there is no evidence to show that consumers in these countries pay more for their devices.”

The Smart Fund’s approach is that manufacturers of download-capable Internet devices will pay the 1% to 3% levy and the cost of the levy won’t be passed on to consumers. Unfortunately, that’s not how businesses tend to work. Everything is passed on to consumers where possible since they are the ones actually buying the devices.

With that usually being the case, there’s the pressing question of whether a levy should be imposed on consumers whether they like it or not and, crucially, whether a levy should be paid by people regardless of their consumption habits.

The fundamental issue is that illegal downloading relates only to a relatively small proportion of device buyers. Unfortunately, there is no practical way to only extract a levy from people who are pirating content, so everyone must foot the bill. That raises more issues.

Per Device Tax is Fundamentally Unfair

The stated aim of the scheme is to place a levy on every mobile phone, tablet and PC sale but it won’t necessarily stop there. Indeed, The Smart Fund wants a surcharge placed on all devices that are able to download and store content from the Internet, which in some households could stretch to a large number of devices.

Then there’s the not-insignificant issue of the majority of homes that already pay for legal services and do not download anything illegally. Not only will they have to pay for Spotify, Netflix, Prime, and Apple Music – all of which necessarily have to pay money to creators – they will be forced to pick up the bill for people who are paying nothing too.

Again, for balance, The Smart Fund says that tech companies won’t have to pass on the cost of the levy to consumers. Make of that what you will but £300m isn’t going to come out of thin air.

Private Copying Freedoms Are Restricted in the UK

The Smart Fund quite rightly points out that there are schemes in dozens of countries that generate funds via blank media, MP3 playing devices, and computers, for example. The funds raised from those levies are pumped back into the creative industries but there is often something for the consumer too – a private copying exception, i.e the freedom to format-shift owned copyrighted works without breaking the law.

In the UK, such an exception was introduced in 2014 but following legal action by several music industry groups, which challenged the government’s decision to bring in an exception without a levy, in 2015 the High Court quashed the regulations and the exception.

While illegal downloading was never part of the equation (users must permanently own the content they wish to copy), the end result today is that UK citizens cannot even make MP3 tracks from CDs they actually own without breaking the law. Fast forward six years, and there are now calls for a levy (ostensibly to recoup piracy losses for good causes) but without an accompanying private copying exception being part of the package.

Presuming That a Levy is a Good Idea, Where Does The Money Go?

If we take The Smart Fund at face value, it does seem to want to put its proposed £300 million to good use. Providing funding to disadvantaged areas and those less well off are certainly admirable goals and there’s no doubt that society as a whole could benefit from a well-managed, well-considered scheme. But with £300 million in the pot, how long before big business starts circling?

There’s no question that when it comes to illegal downloading, the music and movies sectors are those most affected in terms of volume and value. The big question then is whether the most affected companies will swoop in to claim what is ‘theirs’? In music, just a handful of major labels control more than 90% of the market – will they allow millions of pounds to be distributed to other industries or will they want their ‘fair share’?

We put this to The Smart Fund who told us that project is not mainly for music content at all.

“The Smart Fund will be available for all creators and performers, from artists to actors, to musicians and dancers and more. The people set to benefit from this most are the many creators who struggle to secure fair payment for their work,” the group explains.

“The levy schemes in 44 other countries provide a template that the UK can build on to ensure the best outcome for the Smart Fund. Organizations like DACS, PRS for Music, ALCS, BECS and Directors UK already distribute royalties to hundreds of thousands of creators efficiently and transparently. This would be made even easier if technology companies partner with us and utilize their data.”

The Smart Fund project can be found here

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