Regulatory Impact Statement
Executive summary
The current parallel importing policy allows parallel importing into New Zealand with the exception of a 9 month ban on films from their first release date.
The ban was originally introduced to protect investment in, and promotion of, the New Zealand film industry and the viability of provincial cinemas. Initial concern was that without a 9 month protection period structure of the format release windows for films could result in the cinematic exhibition of films at the same time as their availability in DVD format. It was argued this would have a detrimental impact on the New Zealand film industry.
The preferred option is to retain the 9 month ban on the parallel importation of films from their international release date, and to renew the sunset clause for a period of five years. A ban of this duration would assist in maintaining the economic viability of provincial cinemas. It would also continue to encourage investment in the creation of New Zealand films while not inhibiting cinematic exhibition of movie titles for consumers.
Adequacy statement
The Ministry of Economic Development has reviewed this Regulatory Impact Statement and considers it to be adequate according to the adequacy criteria.
Status quo and Problem
Section 35(3) of the Copyright Act 1994 bans the parallel importation of films for a period of 9 months from their first international release date if their intended use is for commercial purposes. This clause was introduced into the Copyright Act as a sunset clause in 2003 for a period of five years. It was originally introduced as a result of concerns about the impact of parallel importing on the film industry.
If there is no legislative amendment, the 9 month ban on the parallel importation of films will lapse in October 2008.
At present, there is a 3 to 6 month window between cinematic release (usually first release format) and the release in DVD format in the US. Therefore, 3 to 6 months after a film's first theatrical release in the US, the film in DVD format would potentially be available via parallel importing in New Zealand if there were no ban.
This could disrupt the current film format release windows (e.g. cinematic release prior to DVD release) and be potentially detrimental for motion picture exhibitors and DVD sales. Industry argues that this would predominantly affect film festival films as well as middling and marginal films, some of which may not be screened at all. Currently, middling and marginal films are generally released cinematically in New Zealand well after their first international release date. Their screening period varies greatly and can be anywhere between 4 and 12 weeks. Because there are often fewer prints available for these films, some cinemas, especially provincial cinemas, are likely to face competition from DVD rentals and sales. This could affect their ticket sales and economic viability. The number of middling and marginal films exhibited in New Zealand may also be reduced.
Recently, there has been an increase in international involvement in co-production and investment in New Zealand films. This usually results in a film's international release being earlier than its New Zealand cinematic release. Without a 9 month ban on parallel importing of films, there is potential for a number of New Zealand produced films to be available in New Zealand on DVD prior to their cinematic release. This could impact box office takings, or mean that these films are not screened cinematically in New Zealand, with detrimental flow-on affects for investment in the industry as a whole. In particular there would be less funding from the New Zealand Film Commission which provides support for many New Zealand film productions. If the threat of competition from DVDs is seen as a real risk to New Zealand box office takings and discourages investment in New Zealand films, there could be a negative impact on the number of films produced in New Zealand. This could reduce the cinematic expression of New Zealand's cultural identity.
Objectives
This policy aims to achieve an effective balance between consumers' interests in having timely access to films at reasonable prices, and the film creation, distribution and exhibition industries which require adequate economic incentive to continue investment in and promotion of the New Zealand film industry.
Alternative options
Ban on Parallel Importing Films
- Renew section 35(3) of the Copyright Act 1994 and maintain the 9 month ban on the parallel importation of films from their first release date in any format (preferred option).
- Allow section 35(3) to lapse in October 2008 allowing films to be parallel imported into New Zealand as soon as they become available on the international market place.
- Amend section 35(3) by introducing a 6 month ban on the parallel importation of films from their first release date in any format
Allowing the 9 month ban to lapse would not address the concerns previously identified. Without a ban, the parallel importation of some films in DVD format would compete with their cinematic release in New Zealand. This could affect the cinematic release of some films, the viability of provincial cinemas and investment in local film production.
A ban of 6 months would allow adequate time and incentive for cinemas to screen the majority of available films. This option could potentially benefit consumers if theatrical release dates are brought forward. It is possible that there could be more availability of DVD titles at an earlier date and at lower prices. This option does however pose a risk that there would be fewer middling and marginal films released cinematically. This would primarily impact provincial cinemas whose business model relies on the availability of this genre of film.
Neither option meets the objective to encourage investment in, and promotion of, the New Zealand film industry.
Sunset Clause Options
- Renew section 35(5) of the Copyright Act 1994 and thereby reinstate the sunset clause for a period of five years (preferred option).
- Repeal section 35(5).
Repealing the sunset clause is not the preferred option. The ban will not be effective to achieve the desired outcomes once there is widespread uptake of digital technology, as this will make the current format windows redundant. However, analysis indicates that this is at least 5 to 15 years away. If there was no sunset clause, there is a risk that the ban would remain in place subsequent to future changes in technology.
Preferred option
The preferred option is to retain section 35(3) of the Copyright Act 1994 and maintain the 9 month ban on the parallel importation of films from their first release date.
Under this option, there will be very few films that compete with DVD availability in New Zealand during their cinematic release period. This will help to achieve the aims of: maximising the number of middling and marginal films that are released in New Zealand cinematically; ensuring the viability of provincial cinemas; and promoting overall investment in the New Zealand film industry.
A potential cost of this option is that it continues to allow authorised distributors of DVD films potentially up to 6 months of exclusive sales in the New Zealand market and possibly higher initial DVD prices. Cinematic release for certain films in New Zealand could also potentially be delayed so that the cinema can obtain less expensive prints with the knowledge that there will be a number of months until the film is parallel imported in DVD format. The extent to which this would occur is unclear because it appears that cinematic roll-out is currently driven by the number of available prints.
Continuing the five-year sunset clause will help ensure that the ban does not continue in place after the point when the rollout of new digital technology means that it will no longer achieve its objectives.
Implementation and review
It is proposed that legislation be passed to implement the proposal by October 2008. Affected parties will include industry participants in the film industry as well as the New Zealand public. MED officials intend to publish any legislative amendment on the MED website and coordinate with representative groups, notably, the Motion Picture Distributors' Association of New Zealand Incorporated, the New Zealand Motion Picture Exhibitors' Association Inc, the New Zealand Film Commission and the Screen Production and Development Association. The intellectual property awareness programme will also provide a means to inform affected parties of a law update.
The sunset clause will mean that a review of parallel importing in the film industry will need to be completed within 5 years of the Bill being passed to assess the roll-out of digital exhibition technology.
Consultation
In November 2007, Law and Economics Consulting Group Ltd produced a report analysing the impact of the parallel importing regime on the creative industries. In producing the report, LECG contacted the following stakeholders: Screen Directors Guild of New Zealand; New Zealand Software Association; Screen Production and Development Association; Book Publishers Association of New Zealand; New Zealand Film Commission; Recording Industry Association of New Zealand Inc; New Zealand Federation Against Copyright Theft; Motion Picture Distributors' Association of New Zealand Inc; The Warehouse; The importers Institute; Booksellers New Zealand; New Zealand Motion Picture Exhibitors Association; Ministry for Culture and Heritage.
In December 2007, the LECG report was sent to key industry stakeholders for comment with a request for submissions by the end of January 2008. Four submissions were received, all of which were from the film industry.
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