Economic Functions of Collecting Societies - Collective Rights Management in the Light of Transaction Cost - and Information Economics

Together with cultural and social tasks collective management organizations (CMOs) fulfil important economic functions: They ensure the economic participation resulting from the use of works for the sake of authors and right holders when the latter cannot individually manage their rights for practical reasons or because of prohibitively high transaction costs. Thus, CMOs aim at facilitating legal access to the use of copyrighted works (ideally by setting up one stop shops) by reducing users' search and information costs. This basic economic rationale for the existence of CMOs is increasingly put into question. Not only members of the exploiting industry doubt whether transaction costs are in fact reduced by a legally defined system of collective rights management. In the face of inspiring new technological means, many see the future in a possibly more efficient rights coordination: individual rights management by means of digital rights management (DRM). The pertinent issue is whether enhanced possibilities of reducing transaction costs by means of DRM will eventually redundantise CMOs from an economic point of view. What economic functions of CMOs will persist in the digital era? What challenges do they have to meet in order to survive? Methodologically, these questions are treated by dint of transaction cost and information economics. The scientific interest of the paper regards the general question of what economic functions CMOs fulfil. On the basis of different categories of transaction costs which arise, the reduction of transaction costs by CMOs, i.e. the main argument in favour of collective rights management, shall be analysed in detail and also in comparison to individual rights management by DRM. Whereas many academic works on CMOs are prone to emphasize the rationale of collective rights management from the licensors' perspective (authors and rights holders) the paper rather focuses on the licensees' search and information costs. This approach seems promising insofar as these specific transaction costs will most probably gain in importance in the digital environment. With regard to the second methodological approach, an additional economic function of CMOs can be qualitatively explained by information economics. Cross-subsidizing of economically less successful right holders may lead to the notion of CMOs as insurance entities. Since they do not know whether their repertoire will be accepted on the market, risk-averse right holders join CMOs in order to reduce their individual risk of economic failure. In this sense, CMOs can be seen as organizations which provide uninformed authors and/ or right holders with protection vis-a-vis the powerful content industry.