The artists resale royalty

Image result for artists resale royaltyCross posted from the Mandarin

It is six years since Australia’s Artist Resale Royalty scheme (ARR) commenced and three years since submissions to its Post Implementation Review (PIR) closed, though the review itself has never been published. However, in the absence of a healthier public commitment to transparency, we can now answer some questions about the scheme.

How much has the ARR helped artists?

Supported, both at its inception and since, largely for its assistance to indigenous artists, the ARR has delivered approximately $1.6 million to indigenous artists, or about $260,000 per year according to Copyright Agency (CAL), which manages the scheme. Over the last six years about 420 non-indigenous artists — about 5% of the total of around 9000 professional non-indigenous Australian visual artists — have received around $2.6 million in royalty payments averaging $430,000 per year.

Of the total number of  individual ARR royalty payments made to date, 41% have been between $50 and $99 (minus the 15% management fee). However, because so many artists commanding the highest prices are dead, 168 estates have received 45% (around $1.9 million) of all ARR’s payments. This compares with government payments to the start-up and administration costs of the ARR of 2.2 million.

Does the scheme generate more benefits than costs?

If this result looks woeful to you, it does to us. Alas it’s just the beginning. The bare facts already reported demonstrate the extraordinary inefficiency of the program. But there’s more. Brian Tucker Accounting, which services many indigenous art trading businesses, offered this in its submission to the Post Implementation Review of the ARR scheme:

“I know more than one gallery that has gone through up to three bookkeepers, and we have actually had to send in a fully qualified accountant to do bookkeeping work, unpicking and correcting entries.”

But the ARR looks worse than merely wasteful. It’s net impact on artists’ total income is probably negative. Because most artists either get nothing from the ARR, or at best get an occasional small payment, it only needs to have a small overall negative impact on artists’ sales for its costs to exceed its benefits.

In 2004, Access Economics was commissioned to model the likely impact of an Artist Resale Royalty. It warned that claims of net benefit to artists were based upon “extremely unrealistic assumptions, in particular the assumption that seller and buyer behaviour would be completely unaffected by the introduction”. Access Economics concluded that those claims were both unhelpful and potentially misleading.

A 5% royalty may not sound like much, but the various intermediaries that make the art world go round live or die not by the absolute prices charged but by the marginbetween purchases (or consignments) and sales. Meanwhile the ARR is calculated on the total sale price.

Consider the practice of John R Walker — co-author of this article. Say his works sell for $10,000 netting him $6000 after the 40% margin for costs. If the ARR was, through buyer nervousness, to cause him to lose just one such sale, he’d need the resale royalties due on $120,000 of future re-sales to recover his losses. This is before accounting, administration and compliance costs which, it seems reasonable to assume, must be at least equal to the amount the copyright collecting society CAL charges to cover its administrative costs which is 15% of the revenue it collects from the royalty.

Falling sales and the ARR

The past six years has seen a huge fall in the value of sales of Australian art particularly indigenous art through Indigenous Art centres — ORIC’s At the Heart of Art report, and Acker and Woodhouse’s The Art Economies Value Chain all show overall drops of around 50% in Art Centers’ sales income. The value of auction sales of indigenous art has dropped by 60-80%.  And the total value of auction sales of all Australian art has also seen significant declines.

There are undoubtedly many factors behind this decline in Australian art sales. On the other hand the ARR seems to have had an appreciable effect. Eminent artist Ben Quilty offered this in his submission to the Post Implementation Review of the ARR:

“I had spoken to some very serious collectors (including one of this country’s biggest collectors of Indigenous Art, who I have asked to submit to this review) and many showed concern that their purchase of an emerging artist’s work could lead to a resale royalty, on top of the resale commission of galleries and auction houses at the point of resale…Purchasers are confused by the possibility of future royalties owed by them and therefore it is reasonable to say that those sales have been directly affected in a negative way.”

Note that artists who judge the ARR to be against their interests have no right to opt-out.

All this has been done with magisterial high-handedness. The ARR was one of the few pieces of regulation for which no Regulatory Impact Statement was done in 2008-09. A post implementation review was conducted in 2013 but it remains hidden away from the public’s prying eyes. It is increasingly obvious that the Ministry for the Arts won’t acknowledge the obvious — that the ARR was a nice idea but, as Access Economics warned was on the cards, never made practical sense. And as CAL boasts about the scheme, and its ever rising revenue, the Ministry for the Arts would prefer we didn’t talk about it — ever.

John R Walker is a practicing visual artist and Nicholas Gruen is the CEO of Lateral Economics.

This entry was posted in Art and Architecture, Economics and public policy, regulation. Bookmark the permalink.

6 Responses to The artists resale royalty

  1. paul frijters says:

    yes, an amazing piece of vandalism on the Australian art scene, which John to his credit tried to fights against with rational arguments and data. A vandalism perpetrated by a small cabal of ministry-aligned insiders who still seem to be there. Even the collapse of the sector has not dislodged them.

    The only thing about the above I disagree with is the idea that it made sense in principle. It never did. In a near-perfect market, it only adds bureaucracy and merely shifts the reward for creating art from now (when an artist needs it) till the the future (when it’s too late), but the fact that the price now will drop as the buyer’s benefits reduce.

    • Nicholas Gruen says:

      Thanks Paul,

      Very good point about when the money is needed – and as a related point, when it is at its most effective as an incentive to create. Fortunately John had an economist co-author the paper with him to pick up that kind of thing. Sadly he was sorely let down by the economist he chose (a possible explanation was that it was done at mates rates).

      On your second point, perhaps our choice of words was poor, or a little ambiguous. By saying it was a “nice idea” and then immediately correcting it to say it “never made practical sense” I meant that it was nice in the terms they first envisaged it – nice without any second round effects. In practice, it seems, there are second round effects.

    • john Walker says:

      Paul
      Nicholas
      The history of this ‘thing’ (in Australia) really goes right back to the late 80s. Its a ‘too long’ story, wont bore you.

      Re “the idea that it made sense in principle” it never did, all sorts of people-not just economists warned – but the coterie who pushed it have “no knowledge of, or sympathy for, commercial realities.” In fact overt hostility to, and ignorance of commercial realities, is something of a badge, a sign of superiority .

    • john Walker says:

      One irony about the story is that the ARR was principly intended to create an “appropriate” level of management fee income, for the ‘Artists collection society’, that was created in the early to mid 90s expressly to “facilitate”, the adoption of the royalty in Australia.

      In the end (thankfully) that collection ‘society’ did not win the tender re the management of the scheme.

      Something that is particularly troubling is, that collection society over the years received quite a bit of government money ,from a number of sources, despite that fact that it was until about 2005-6 actually a Company, buying and selling rights, for profit.

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