Sunday, February 19, 2006

SELLING AFRICAN KNOWLEDGE: Developing the Market for African Intellectual Property

Author: Dayo Ogunyemi
dayoogunyemi@gmail.com
June 2003



Soft Sell
Does African culture have any value in the international marketplace? Ask Richard Branson (Virgin Records), Chris Blackwell (Island Records) and Clive Calder (Jive Records). Among themselves, they have sold billions of dollars worth of music through record companies built on music from Africa and the Caribbean. These examples demonstrate a simple point – African music, like much of the creative output of Africans, has an economic value in the global marketplace than would expect in light of the inattention it generates locally.

As the NEPAD planning documents point out, Africa has a vast, if underdeveloped, capacity for producing knowledge products. If Africa can improve its ability to develop and exploit this creative output, it can generate significant export income. Drawing from the recent experiences of India and Ireland, some forward-thinkers have focused on Africa’s potential to export software and other information technology products. However, the extent of the economic potential of African knowledge industries becomes much more apparent if one overcomes the natural tendency to look only at technology products. After all, intellectual property (IP) also encompasses music, literature, designs, inventions, trademarks, brands, trade secrets, and medicinal formulas, among others.

Although areas like software development and IT are promising sources of growth, it will require substantial amounts of resources and concerted policy efforts to propel Africa’s output to international significance. In contrast, Africa’s non-technology based IP products like music and literature are more immediate candidates for generating export income because they already have a presence in the global marketplace. After all, from the music of Miriam Makeba, Fela and Youssou N’Dour to the literature of Achebe, Farah, Soyinka and Gordimer, Africans have been creating world-class content for more than four decades.

Yet, African companies account for less than 1% of global music and publishing industries revenues. Africa may have world-class musicians and writers but the knowledge industries that should nurture and sustain them leave much to be desired. If Africans intend to pursue strategies to exploit a broader range of IP assets, we must first analyze the state of Africa’s existing IP industries as well as the factors that have made it difficult to fully capitalize on their economic potential.

State of the Art
A brief look at the music and film industries in two of the largest domestic markets in Africa is instructive. In South Africa, which is easily the most developed media and entertainment market, piracy is a serious problem but is not as pervasive as in other African countries. However, knowledge industries in South Africa have significant structural issues – local artists are at a distinct disadvantage to their foreign counterpoints. For instance, foreign acts account for 75% of the roughly R600 million ($75 million) in annual sales of recorded music in South Africa. Compounding the issue for local musicians, revenues from sales of South African music overseas is anemic. Sales in the US, for instance, probably account for less than R30 million ($3.75 million) – less than 5% of the domestic SA market and an imperceptible portion of the $12 billion US music market. In the film industry, the picture is similar - the domestic theatrical market is dominated by foreign releases while South African films have negligible foreign earnings.

Nigeria provides an interesting contrast. The music market there has been in a shambles for the better part of a decade and a half. Rampant piracy of domestic and international releases alike has discouraged significant long-term investments in the sector and many recording companies have collapsed. The film and video market, however, has grown to be dominated by low-budget domestic releases, much like the case in India, or for that matter, Hollywood in its early days. This is partly because there isn't much of a theatrical exhibition business in Nigeria, unlike South Africa. It is also because entrepreneurs and filmmakers have responded to a pent-up demand for filmed entertainment using affordable new technology (digital video cameras and editing suites). Unfortunately, with both music and film, there are virtually no organized international sales apart from sporadic licensing activity focused on a handful of music stars. There is, however, a booming illicit market in "Nigerian videos" in European, US and other African markets.

Hard Sell?
Clearly, African IP products face a challenging business landscape. Part of the problem is the difficulty of establishing a robust framework for intellectual property (IP) rights in Africa. The other challenge is gaining the business and legal sophistication necessary to penetrate lucrative foreign markets where there are robust IP laws and effective enforcement mechanisms. African businesses have yet to successfully manage these challenges in a way that encourages the efforts of African content creators such as musicians, authors, filmmakers and software developers.

In spite of a looming 2006 deadline for implementing the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) accord, patent, trademark and copyright issues have been low on the list of legislative priorities for many African countries. The additional absence of enforcement capabilities, to the delight of pirates, means that IP protection has been practically non-existent.

The pervasive piracy that persists in many African countries presents a number of challenges to the growth and development of local knowledge industries. Although solutions to these challenges are often couched in purely legal terms, there are various business strategies from pricing to promotions that could help to address them. The legal issues are easy enough to outline. To begin, IP rights must be well-defined within a framework that protects local knowledge industries. Then, because legal rights do not enforce themselves, these rights have to be enforced. In addition to lawsuits, enforcement requires the physical policing of pirate activities. Even in developed economies, policing can be a daunting task, as the persistence of counterfeiting centers in downtown New York demonstrates.

Unfortunately, most of the focus on strengthening IP rights in Africa has been on protecting the foreign holders of IP rights being used in Africa – pharmaceutical patents, copyrighted computer software, books and music. Already, valid concerns have been raised about the restrictions that the WTO’s TRIPS accord will place on intra-African trade in generic pharmaceuticals. Health advocates like Medilinks’ Dr. John Ssemakula Kiwanuka argue that IP rules that might be appropriate for developed economies could place further stress on public health systems that are already overburdened. Yet, the proponents of the agenda to strengthen IP laws for the benefit of trade partners argue that implementing an IP regime that safeguards Microsoft, Madonna and Mickey Mouse will also benefit African IP creators.

That assertion misses the point. As a strengthened legal framework will require costly enforcement to be effective, the inquiry should be whether stronger IP protection would increase revenues to local knowledge industry sufficiently to offset the cost of legislation and enforcement. Even if that question can be answered in the affirmative, for many African countries such a project would be a huge mis-prioritization of scarce resources considering the pressing health and education needs of their citizenry. Moreover, there is a straightforward economic dimension to domestic markets – the majority of African consumers simply cannot afford to pay international market prices for IP products. In South Africa, for example, that reality is reflected by the fact that albums of local musicians are priced substantially lower than foreign music. In the short to medium term, an outward focused knowledge economy strategy is more critical than strengthening IP regimes because the economic opportunity from foreign markets dwarfs the value of the domestic markets.

Outward Bound
This external focus could also reverse the unfortunate results that can occur when an entire industry is dependent on the efforts of a few large, usually multinational, players that dominate domestic markets in Africa. Take the case of African literature. With three Nobel laureates within the short span of five years, Africa appeared to be coming into its own in the 1980s. Then, as African economies deteriorated in the early 1990s, Heinemann, then the largest publisher of African fiction, severely curtailed the activities of its African Writers Series, drastically reducing the continent’s literary profile. Since then, the largest western purveyor of African literature, the UK-based African Book Collective, has only been able to generate less than half a million pounds in annual revenues for its 74 publisher members in Africa. If smaller African publishers had effective access to foreign markets, it is unlikely that such an extreme regression would have occurred after Heinemann’s cutbacks.

The immediate growth opportunities from IP export lie in reorganizing and revitalizing African cultural products like music and literature that already have markets, however modest, in the West. These western markets are several orders of magnitude larger than African markets – for instance, North America, Europe and Japan collectively account for over 75% of global music sales by value. With a focused strategy and some capital, African products could make further inroads in these global markets. The experience gained in those arenas could then be extended to other African cultural products that have not had a significant market abroad - artwork, film, theater, dance, fashion as well as products like medicine and software.

One strategic advantage of this sort of export growth is that IP products, unlike others, face no significant trade barriers. Compared to Africa’s traditional export base of raw agricultural products and minerals, the market for IP products is much more open. This is partly because music, films, medicinal formulas and fashion designs can be commercially exploited in new markets without any physical products having to change hands, thus avoiding red tape from customs and freight expenses. In fact, some African news, entertainment and database products are currently delivered to western audiences via the Internet.

In addition, the exchange rate and purchasing power disparities between western and African markets mean that content owners can get a much higher economic return from foreign markets than from domestic markets. For example, a Bongo Maffin CD that sells in South Africa for R50 could sell in the UK for GBP15 (R195 at current exchange rates). Even after sharing revenue with UK-based distribution and marketing partners, an astute business person could make up to four times as much net income from each UK sales as a sale in South Africa.

Countering Culture Vultures
For Africa to benefit from these overseas opportunities, Africans must lose any naïveté about how IP rights are managed and exploited in developed economies. Historically, African content creators have had a lack of awareness about the international market value of their IP creations as well as the complexities of copyright and contract law that govern their trade. This has meant that more sophisticated international operators have been able to cheaply or surreptitiously acquire and control critical rights in areas as diverse as medicinal formulas and music. Other African IP assets like folklore, traditional medical remedies and traditional symbols and designs are regularly “discovered” by western visitors who then assert that the communities that created these knowledge assets have no property claims to them, only to turn around and introduce them into western markets as proprietary IP assets.

For example, an American visitor to Nigeria in the early 1970s learnt from a master artisan techniques for making traditional Igbo udu pot drums. On his return to the US, he trademarked the name "Udu" and began producing so-called "enhanced" udu drums for sale to US percussionists. He even managed to get “his” udu drums added to a prestigious US museum collection. In another situation, a western “author” of a book of “African stories” for children acknowledged that a Nigerian exchange student shared these “traditional stories from his homeland” with her but registered the copyright in the book in her name only.

It is bad enough that African authors, artisans and musicians as individuals are often uninformed (to be fair, the same can be said of many of their western counterparts) about the business and legal framework within which their creations are commercially exploited. Unfortunately, the local businesses that acquire these creations can also be shockingly shortsighted or ignorant about the potential of these works in foreign markets.

In 1939, Solomon Linda, a South African songwriter, recorded a song called “Mbube” for which he was paid the princely sum of ten shillings by Eric Gallo, the Italian owner of one of South Africa’s first record labels. In the early 1950s, The Weavers, an American music group remade “Mbube” as “Wimoweh”. Although Gallo registered a US copyright for “Mbube” in 1952, he inexplicably traded it for the right to administer “Wimoweh” in South Africa, a much smaller market. The song was remade again as “The Lion Sleeps Tonight”, generating millions of dollars in revenues from numerous adaptations and uses, including Disney’s smash hit “The Lion King”. The songwriter, Solomon Linda, died practically penniless and only a dispute between rival American music publishers over royalty splits finally led to an arbitration ruling in 1992 that established Linda’s rights to a significant royalty share. Currently, Linda’s heirs, with the assistance of Gallo Record’s current management, are struggling to collect back royalties.

These cautionary stories show that much work is needed to raise awareness about how to safeguard economic and cultural interests through IP laws and contracts. This must be done domestically and internationally to develop the underserved market for African cultural and intellectual property products.

Brave New Markets
Still, the key to successfully addressing western markets is not simply maintaining equitable control of rights. Even after rights have been safeguarded, they still have to be translated into revenue. This requires gaining a comprehensive understanding of foreign markets. It also means committing the resources necessary to secure the marketing and distribution means with which to compete in those marketplaces. This has been a difficult task for African knowledge industries. Their inability to assess the market place and develop effective market-entry strategies has been a large part of the reason for their lack of success in the international market.

What could help is a collaborative approach that applies lessons learned from knowledge industry players who have succeeded in foreign markets. For instance, Arthur Nwankwo, a Nigerian publisher, has created a detailed analysis of economic opportunities for African publishers in foreign markets. His analysis could provide a starting point for African film and music companies also looking at entering these markets. Also, record labels or software publishers can learn from the successes and challenges of the African Book Collective, the African publishing industry’s collaborative approach towards addressing foreign markets. Opportunities also exist to coordinate the activities of a range of private sector, governmental and NGO players to share best practices for entering foreign markets.

As far as domestic IP protection, governments must take a leading role in developing the framework but this must be in consultation with local knowledge industry players. It would be worse to have an IP rights agenda defined solely by western players than to have weak enforcement. In fact, these strategies should be a NEPAD priority as there is a need to coordinate practices across the continent as the 2006 date for implementing the WIPO TRIPS accord draws closer.

Since many of the early opportunities in IP exports are in media and entertainment, African businesspersons and governments must change the mindset that dismisses these cultural products as frivolities. If knowledge products like music and literature can be successfully transformed into export earnings, there will be more of an experience and resource base with which to develop outward-focused exploitation strategies for other IP products like pharmaceuticals and software that may require greater technological and capital inputs.

A successful effort to surmount these business and legal challenges could reverse Africa's status as a net-importer of IP products and establish a booming export market in IP products that would provide a much-needed boost to Africa's economic growth prospects. Just as importantly, it would have the added benefit of highlighting the cultural and scientific offerings Africa has to offer to the world and thus reversing the perception of Africa as merely a dumping ground of consumers and primary producers.

Thursday, September 02, 2004

"New Front: Recording of Digital Broadcasts" or "Warmed-over cold soup"*?

The Washington Post reports:
"Technologies that let people record satellite and Internet radio broadcasts digitally are opening a new front in the recording industry's war on music piracy. Until recently, the music industry focused its efforts on the widespread sharing of music files online. But a proliferation of software that make recording radio streams a breeze now has recording companies worried."

Actually, this development is not altogether novel. Music fans have long used a variety of software programs to capture audio streams from internet broadcasts and other sources played through their computers. Plus, the recording industry set it sights on the webcasting industry early on (despite the generally pitiful quality) and effectively pulled a *DAT* maneuver on it. It'd be nice if the media actually connected the dots between past and "new" fronts in the Music Wars. But I digress.

The TimeTrax vendor, Maclean, argues that his software "simply record[s] music off the analog XM signal." WP doesn't clarify whether the XM signal is indeed analog or if TimeTrax simply captures the inevitable analog output (as human ears are "analog devices", "digital audio" has to be converted to analog sound waves if it is to be heard by human beings).

This distinction could be crucial, depending on how you read the Audio Home Recording Act of 1992. However, the WP article further states, without clarifying whether the captured streams began as digital broadcasts or not (they probably did start out digital): "Steven Marks, general counsel for the Recording Industry Association of America...distinguished between the manual recording of radio done for decades on a cassette player and the systematic, mass recording of digital radio broadcasts. "What we're concerned about are programs that essentially transform what are intended to be performances of music into a music library for somebody," Marks said."

Marks' dubious "distinction" aside (it's okay that the RIAA is concerned, otherwise we'd have to do a post-Hilary Rosen pulse check), what does the law say? Under one interpretation of AHRA, the actions of TimeTrax users would almost certainly not constitute infringing acts. As the recording ends up on the computer hard drive (and computers are not digital recording devices under AHRA), it would also appear that TimeTrax itself, like the XM PCR receiver, could not be considered an infringing device. What a pickle for the recording industry. Since they lost the *Diamond Rio case*, this wouldn't seem like a promising battle to fight. RIAA major label hint - music needs to be ubiquitous, focus on ways to *add value* to a music fan's experience and maybe you wouldn't have to seek increasingly *desperate mergers*.

Thanks to N-N for drawing my attention to this article.

* A favorite metaphor since I heard it delivered in a lilting Bajan accent by the opposition leader in response to an early 2000s (singles?/zeros?) budget speech in Barbados.

Wednesday, September 01, 2004

FBI Raids Movie file-sharers

Apparently, the FBI has found time and resources between fighting terrorists and protecting GOP delegates at the RNC in NYC to launch a raid on movie file-sharers.

The Washington Post reports : “After a months-long sting operation, FBI agents raided residences in Texas, Wisconsin and New York where people were suspected of operating "hubs" of file-sharers that were part of a system called the Underground Network" [sounds almost like a Fela reference] but “no arrests were made…and no charges have been filed.”


Uhh, okay…way to go on the “months-long sting op,” real law enforcement confidence booster there.

On a more serious note, the WP reports: “it's the first time that the Justice Department has gotten in on the entertainment industry's attempts to crack down on the thriving trade of pirated music, movies and software on the Internet.” [Not entirely accurate, the FBI were involved in the LaMacchia case, which highlighted a "loophole" that prompted the "No Electronic Theft Act" and subsequent downward spiral into a misguided and increasingly tortured alphabet-soup of copyright legislation.]

If you were hiding in a rock in the Kyber Pass, you may have missed the *federal appeal court ruling* that basically said that P2P services can’t be held liable for copyright infringement by their users. Now might be a good time to repeat Nine Things the Music Industry should note” .

Wednesday, August 25, 2004

Nine things the record industry should note about the future of music

Nine things the record industry should note about the future of music

2003.

1. It’s the pricing, stupid.

Okay, it isn’t just the pricing. Fans also want choice and convenience. They want real choice in the artists, albums and songs they can purchase, they want the ability to purchase just the 3 or 4 songs on modern pop albums that really catch their interest, they want the convenience of getting their choice in multiple formats to play on any device they own.

2. The Genie is out of the Bottle. Advice – let it go.

No amount of prayer, pleading or policing will make downloading music go away. Bullying, creating scapegoats, scare mongering and engaging in hi-tech vigilantism will not win you friends or customers. Instead of suing college students and other music fans, try offering them an online music product that will command their attention and money.

3. DRM is DOA

There’s a fundamental reason why digital rights management (DRM) will not solve the record industry’s woes – the human ear is an analog device. Every ‘digital’ recording must be converted into analog sound waves to be perceived by human beings. If it can be heard, it can be re-digitized at high quality sans any DRM.

Moreover, even if a completely hack-proof DRM scheme could be developed, every CD currently in circulation would still provide would-be infringers with pristine masters.

4. Technology doesn’t ‘steal’ music. Dissatisfied music fans ‘steal’ music.

Make no mistake. Every person you denounce as a “thief” is a music enthusiast and potential customer. Piracy is largely a symptom of consumer dissatisfaction with industry offerings. And it is not just an online problem. As long as CDs are priced exorbitantly, the incentive for piracy – online and physical – will persist. It’s laughably easy and cheap to “manufacture” bootlegs – whether in virtual copies or otherwise.

BTW, the proper term is copyright infringement. Calling it ‘theft’ might satisfy your sense of moral outrage but it won’t bring you any closer to solving your problem.

5. Artists and their rights matter.

On the issue of moral outrage, you should do unto artists as you would have their fans do unto you. Part of the ambivalence that music fans have about downloading music for “free” is the sense that record labels rip off the artists anyway. If fans truly understood the extent of unfairness with which you treat the majority of their idols, that ambivalence would harden into downright hostility.

The answer? Play fair. That means no more 7-album deals, bogus royalty reductions, excessive recoupables, controlled composition clauses, domain name hi-jacking, etc. Treat the talent as valued partners; Hollywood and the professional sports reluctantly did that decades ago and are thriving today.

6. Technology isn’t the enemy, it’s a potential ally.

P2P, MP3, AAC, as threatening as technology must seem to you, it can help create some win-win solutions. Think catalogs and indie music for example. If you eliminated access to the fewer than 50 multi-platinum albums a year that the industry salivates over, it wouldn’t make a dent in the demand for music online because people care for a lot more than the current pop flavor of the day.

The fact is that the current major label dominated system doesn’t do a good job of marketing and distributing current non-pop and catalog material – to the continuing frustration of artists and fans alike. There is a tremendous opportunity here to leverage catalog materials in new and exciting ways. But don’t forget to play fair with artists and fans. Paying mechanical royalties of 2 cents per sale to songwriters on classic songs sold in 2003 is simply unconscionable. Charging consumers an arm and a leg for music that has generated profits for decades is also verboten.

7. Don’t meter music. Make music ubiquitous!

The key to success with music online is in making music more easily and widely available, not locking it up and metering its use. You must increase, not reduce, access to music.

The last thing you should be doing is devising ways to prevent people from listening to music. Apart from the fact that it is an impossible task (see point#3 – DRM is DOA - above), you’re competing with films, video games, books, television, and other forms of entertainment for people’s leisure time. Viewed properly, your task is to gain as large a share of the 24 hours in a day with compelling, convenient and affordably priced content that the consumer values and will pay for.

The only way to make online music ubiquitous and profitable is in collaboration with technology partners, especially broadband ISPs and consumer electronics players. But don’t forget rule #1!

8. It’s bigger than the music industry.

First, artists – the creators without whom there truly is no content – have not been adequately represented in the little that has passed for debate about the future of music and copyright. Next, the changes that the record labels and the movie studios are fomenting affect a lot more than copyright but extend to freedom of speech, privacy and other civil liberties. With all due respect, the global information society cannot afford to have the music industry in the driver’s seat on these critical issues.

Already, the RIAA and MPAA’s litigiousness and bullying is having a chilling effect in academia. Further, it adversely affects the economic interests of the telecommunications, computer hardware, software and consumer electronics industries whose hundreds of billions of dollars in revenues dwarf the record industry’s $12 billion.

9. You must prove your relevance. How? By reinventing the recording industry.

In the past decade or so, the minimum cost required to create the two essential music business assets – copyrights in music compositions and sound recordings – has dropped remarkably, thanks to new recording technology. Yet, neither musicians (your suppliers) nor music fans (your customers) have benefited economically from this change because the old industry with its bloated economic infrastructure is fossilized. Way too much is spent on promotion and marketing, to the main benefit of radio and Viacom’s music video properties.

Technology has also undone CDs and other physical media as containers and de facto units of trade. This means that unlike CDs, introducing audio DVDs will not create windfall revenues. In fact, you can no longer lock people into paying for music they don’t want – regardless of the medium. If the album is to remain relevant as a format, it has to represent compelling value to the consumer.

If there is any single lesson to take away from the success of the MP3 format, it is that convenience, choice and affordability trump sound quality for the modern music fan. Give the people what they want!

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