The price of art: a case study

This paper discusses a dispute heard in Britain in 1992 by the Copyright Tribunal concerning royalty rates for compositions used on records, and sets out a framework for analysing such problems, which can be summarized as follows. A recording requires inputs of at least three kinds — the original composition, the artist and the manufacturing process. Customers' willingness to pay then determines its market value. Each of the three contributing parties has alternative uses to which the relevant productive inputs can be put, and this determines a floor on the payment which is made to them. A residual — if any — is then available for distribution. The issue then becomes one of equitable division, and various approaches justified on ethical principles or behavioural observations are available for determining that division.The key issue in determining a ‘just’ or ‘equitable’ royalty rate is whether the royalty is to be seen as a cost to the record company, to be accounted for before profits are derived, or rather as a share in profits. Our argument is that they should be considered to be both; that in arriving at a rate there should be a cost component, added to which should be a revenue component.