The Cost of Article 13

The elephant in the room

The sole purpose of the picture above is to call attention to the elephant in the room which the copyright industry is desperately trying to avoid by focusing the debate about Article 13 on YouTube and YouTube alone. But Article 13 will apply to thousands of online platforms that aren’t YouTube, many of which have nothing to do with music or video in the first place.

The exact size of the 4 segments in the graph doesn’t matter. I will dive into real numbers at the end of this article just to show that I can do my homework but I just want to make these two points:

  1. The dark red collateral damage shouldn’t exist at all and can be eliminated entirely by a simple cosmetic change to Article 13 that will have no impact on the green legitimate claims.
  2. The orange-red collateral damage can be minimized without affecting the green legitimate claims much by changing the overall approach of Article 13.

For the sake of completeness, here’s what I mean by collateral damage:

  • Platforms shutting down or blocking the EU due to compliance costs
  • Compliance costs for platforms where copyright infringement is rare
  • Platforms removing features
  • Blocking of non-infringing content
  • Loss of revenue for creators (smaller platform budget for revenue sharing due to compliance and legal costs, loss of microtransactions from fans and merchandise sales due to overblocking, changes in content recommendation algorithms imposed by copyright industry through Article 13 to discriminate against independent creators)

Collateral damage to online platforms with little to no copyright infringement can be eliminated

Here’s how the draft directive adopted by European Parliament in September defines the scope of Article 13 in Recital 37a (emphasis and links added):

(37a) Certain information society services, as part of their normal use, are designed to give access to the public to copyright protected content or other subject-matter uploaded by their users. The definition of an online content sharing service provider under this Directive shall cover information society service providers one of the main purposes of which is to store and give access to the public or to stream significant amounts of copyright protected content uploaded / made available by its users, and that optimise content, and promote for profit making purposes, including amongst others displaying, tagging, curating, sequencing, the uploaded works or other subject-matter, irrespective of the means used therefor, and therefore act in an active way. As a consequence, they cannot benefit from the liability exemption provided for in Article 14 of Directive 2000/31/EC. The definition of online content sharing service providers under this Directive does not cover microenterprises and small sized enterprises within the meaning of Title I of the Annex to Commission Recommendation 2003/361/EC and service providers that act in a non-commercial purpose capacity such as online encyclopaedia, and providers of online services where the content is uploaded with the authorisation of all right holders concerned, such as educational or scientific repositories. Providers of cloud services for individual use which do not provide direct access to the public, open source software developing platforms, and online market places whose main activity is online retail of physical goods, should not be considered online content sharing service providers within the meaning of this Directive.

A few examples of online platforms other than YouTube that will be subject to Article 13: ResearchGate, Reddit, Kickstarter, Wikia, DeviantArt, Medium, Kongregate and more. Copyright infringement on these platforms is rare but most of the user-uploaded content is still protected by copyright. Some of these companies may qualify as a small enterprise (less than 50 employees and less than €10 million in annual revenue) but that can easily change before the draft directive comes into effect.

Note the exception for platforms “where the content is uploaded with the authorisation of all right holders concerned.” This exception is formulated as “guilty until proven innocent” which makes it useless in practice. But the inverse of this exception (platforms where copyright infringement is widespread) is exactly the scope that would eliminate all the dark red collateral damage without affecting legitimate claims in any way.

“Widespread copyright infringement” could be defined simply in terms of how many takedown notices the online platform had to act upon in the past year. That number would be easy to track for both the platforms and the copyright industry. Companies under the threshold would continue to operate under safe harbor defined in Article 14 of E-commerce Directive. All the other exceptions other than company size would also become redundant.

Remaining collateral damage can be minimized by changing the approach

Here’s the text of Article 13 as adopted by European Parliament in September:

1. Without prejudice to Article 3(1) and (2) of Directive 2001/29/EC, online content sharing service providers perform an act of communication to the public. They shall therefore conclude fair and appropriate licensing agreements with right holders.

2. Licensing agreements which are concluded by online content sharing service providers with right holders for the acts of communication referred to in paragraph 1, shall cover the liability for works uploaded by the users of such online content sharing services in line with the terms and conditions set out in the licensing agreement, provided that such users do not act for commercial purposes.

2a. Member States shall provide that where right holders do not wish to conclude licensing agreements, online content sharing service providers and right holders shall cooperate in good faith in order to ensure that unauthorised protected works or other subject matter are not available on their services. Cooperation between online content service providers and right holders shall not lead to preventing the availability of non-infringing works or other protected subject matter, including those covered by an exception or limitation to copyright.

2b. Members States shall ensure that online content sharing service providers referred to in paragraph 1 put in place effective and expeditious complaints and redress mechanisms that are available to users in case the cooperation referred to in paragraph 2a leads to unjustified removals of their content. Any complaint filed under such mechanisms shall be processed without undue delay and be subject to human review. Right holders shall reasonably justify their decisions to avoid arbitrary dismissal of complaints. Moreover, in accordance with Directive 95/46/EC, Directive 2002/58/EC and the General Data Protection Regulation, the cooperation shall not lead to any identification of individual users nor the processing of their personal data. Member States shall also ensure that users have access to an independent body for the resolution of disputes as well as to a court or another relevant judicial authority to assert the use of an exception or limitation to copyright rules.

3. As of [date of entry into force of this directive], the Commission and the Member States shall organise dialogues between stakeholders to harmonise and to define best practices and issue guidance to ensure the functioning of licensing agreements and on cooperation between online content sharing service providers and right holders for the use of their works or other subject matter within the meaning of this Directive. When defining best practices, special account shall be taken of fundamental rights, the use of exceptions and limitations as well as ensuring that the burden on SMEs remains appropriate and that automated blocking of content is avoided.

Previous versions of Article 13 included provisions that online platforms will be covered by safe harbor defined in Article 14 of E-commerce Directive until a licence agreement is concluded. These provisions are now gone so paragraph 1 eliminates the safe harbor entirely. And since paragraph 2b requires good faith cooperation only if the rightholder doesn’t want to negotiate a licence at all, online platforms will have to negotiate at a metaphorical gunpoint. Or worse, rightholders with a grudge can simply make pretence of trying to negotiate in order to sue the platform into oblivion.

Paragraph 2 specifies that a licence agreement must cover liability of both the platform and its users to the same extent. However, Article 13 doesn’t define any minimum extent of liability that must be covered by the licence agreement. Therefore platforms can be coerced into licence agreements that cover no liability at all.

Now let’s look at what the copyright industry could possibly get through licence negotiations that they can’t get already under current legal framework:

  1. Higher royalties than independent creators
  2. Steal the spotlight away from independent creators (rig any content recommendation algorithms)
  3. Rewrite the platform’s terms of service (in other words, hostile takeover of the whole platform)
  4. Shut out user uploads entirely (turn the Internet into glorified cable TV)

As for higher royalties, I’m fine with that under the condition that the extra money won’t be stolen from other creators on the platform. But there’s a better way to achieve this with less collateral damage and less money wasted on lawyers: A statutory licence that will be negotiated with each online platform separately (taking into account the specifics) by some artists’ association (authorized by the government to manage the statutory licence). This statutory licence would be mandatory for platforms with widespread copyright infringement and optional for everybody else (both platforms and creators).

As for letting the copyright industry steal the spotlight from independent creators: No.

And for those who want to rewrite the terms of service on somebody else’s platform to restrict other creators or completely shut out user uploads, the only words I have are expletives.

That is all I wanted to say. Now I’m going to do the boring homework as I’ve promised at the beginning.

Hard numbers

YouTube

Let’s start with YouTube because the supporters of Article 13 like it so much. According to Google’s most recent transparency report on copyright enforcement, users now upload 400 hours of video every minute. Assuming average video length of 10 minutes, that’s about 1261 million videos per year.

The report doesn’t provide exact numbers of copyright claims through ContentID but this can be estimated from the 7 million videos reported by rightholders themselves which represent 2% of all copyright claims in the past year. That puts the total number of claims in the past year at 350 million (343 million through ContentID, 90% of which were monetized by rightholders rather than blocked). So about 41 million videos were blocked in total.

This means that about 28% of all copyrighted content uploaded in the past year included some content claimed by the copyright industry (transformative use or not). Most of the remaining 72% of new uploads were original, with a small fraction of unclaimed infringing videos. If the average video length is shorter, the percentage will increase in favor of original content.

A word of caution about the low dispute figure (less than 1%) though: Most creators on YouTube aren’t eligible for content monetization. If you can’t monetize your video, disputing an invalid monetization claim is a waste of time. Depending on the number of creators eligible for content monetization, up to 30 million undisputed copyright claims through ContentID could still be invalid. And that is without accounting for the fact that by disputing an obviously invalid copyright claim, users still put themselves at disproportionate legal risk.

YouTube’s revenue is not public but analysts estimated that in 2015, the company made about $9 billion in revenue and paid $5 billion in royalties to creators. Older transparency report on copyright enforcement from 2016 states that YouTube has paid $3 billion in royalties to the music industry (cumulative total) and $2 billion in royalties were claimed through ContentID (unclear whether cumulative and how much it overlaps with the previous figure). But I think it’s safe to assume that about $2 billion were paid to independent creators that year and I will count any potential reduction to these royalties due to Article 13 as orange-red collateral damage.

Now the legitimate claims against YouTube. I could simply say here that YouTube is doing everything that’s physically possible to prevent copyright infringement and copyright industry is just asking for the impossible. But I’ll be generous and put the legitimate claims at €1 billion (adjusted for revenue growth since 2015). Any more than that will either force YouTube to block the EU or steal revenue from other creators.

Other legitimate claims

As for legitimate claims against other platforms, there’s obviously Facebook which is much bigger than YouTube with revenue of $40 billion in 2017 but according to Facebook’s transparency report, the social network has received only about 479,000 copyright claims in 2017 and acted on 68% of them. In total, 3.75 million pictures, videos or other pieces of content were removed. Additional 1.53 million pictures, videos and other content were removed on Instagram.

Taking into account the smaller amount of copyright infringement but also significantly higher profits (which means that revenue of other creators won’t be negatively affected), legitimate claims against Facebook could amount to €500 million.

Apart from that, let’s just say that what the remaining platforms with widespread copyright infringement lack in size, they make up for in numbers and lesser ability to deal with copyright infringement. Unfortunately, I couldn’t find any useful statistics about creative and sharing platforms because EU e-commerce initiatives seem to be obsessed only with mail order e-shops. My best guess is that additional legitimate claims against other platforms could amount to €3 billion.

Platforms with little to no copyright infringement

Finally, let’s estimate the size of the dark red collateral damage. Again, lack of statistics on creative and sharing platforms makes this difficult but a working document from European Commission provides some useful data:

The document reports that EU app developers earned €17.5 billion in 2013 and cites estimate of €30 billion for 2015. My estimate is that up to 5% of this revenue (€1.5 billion) could become collateral damage, either due to app store maintainers being forced to overblock or because the apps themselves are tied to a specific platform that will have to shut down.

Another useful figure is the total digital advertising revenue of $170 billion which can be used to estimate total revenue of ad-funded creative and sharing platforms. The vast majority of this revenue goes to the Alphabet conglomerate, Facebook and sites that don’t accept user uploads. 5% or $8.5 billion (€7.5 billion) seems like a reasonable estimate of total revenue of ad-funded platforms within the scope of Article 13 where copyright infringement is rare or non-existent. All of this revenue is potential collateral damage due to platforms shutting down over compliance costs and legal uncertainty.

Finally, a study of EU collaborative economy made for the European Commission estimates that collaborative platforms (such as Uber or AirBnB) have generated a revenue of €26.5 billion in 2016. More specifically, platforms in the accomodation and online skills sectors (total revenue of €12.9 billion) typically show user-uploaded copyrighted works to promote individual service providers. About half of that (€6.5 billion) could become collateral damage due to platforms shutting down over compliance costs.

In total, potential collateral damage from Article 13 to online platforms where copyright infringement is rare or non-existent can be up to €15.5 billion. But this figure does not include microtransactions between fans and individual creators facilitated by creative and sharing platforms and similar sources of revenue.

Update: The collateral damage estimate above relies on a small business exception that was added to Article 13 by the European Parliament in September 2018. This exception was subsequently gutted during trialogue negotiations and we’re now looking at collateral damage upwards of €20 billion.

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Computer scientist, software developer and Pirate Party supporter

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Martin Doucha

Martin Doucha

Computer scientist, software developer and Pirate Party supporter

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