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s ECONOMIC CONTRIBUTIONS OF THAILAND’S CREATIVE INDUSTRIES Final Report Kenan Institute Asia Fiscal Policy Institute December 2009 EXECUTIVE SUMMARY The Thai government has promoted the concept of the “Creative Economy” as critical to Thailand‟s development. This is seen in the draft of the 11th National Development Plan and in the nine government programs for developing creative industries that are included in the second stimulus package (Thai Kem Kang: Strong Thai). The objective of this focus on the creative economy is to establish Thailand as the creative industrial hub of ASEAN and to increase the share of GDP contributed by creativity from 12% to 20% by the end of 2012. Thailand‟s emphasis on the creative economy is not unique. Countries such as the United Kingdom, Singapore, China and India have launched policies to support creativity and intellectual capital. In this report, the Fiscal Policy Research Institute (FPRI) and the Kenan Institute Asia (K.I.Asia) seek to provide a clearer understanding of the creative industries in Thailand and their contribution, both present and potential, to the overall economy. The report quantifies that contribution through an analysis of the input-output (I-O) tables for the selected industries, outlines the value chains for each of these industries, provides comparative data on creative industries in other countries, assesses the impact of violations of intellectual property rights and offers some initial recommendations for government policy measures to help the government achieve its stated objective of developing a creative economy. Since there is no single definition of creative industries that is universally accepted, we have applied the UK‟s DCMS definition of creative industries as „those requiring creativity, skill, and talent, with potential for wealth and job creation through the exploitation of their intellectual property‟. We have included science and research and development (R&D) in our definition of creative industries as there are major economic gains to be derived from intellectual property stemming from scientific research and increased cooperation between science and industry. Finally, since our analysis is based on an I-O table, the choices of sectors were made consistent with our definition, the classification of the sectors in the I-O table and the availability of data. Accordingly, the creative industries selected for this study are shown below. It is understood, however, that these selected industries account for only a portion of the impact of creativity on the economy. There is at least some contribution due to creativity in almost every industry, but the selected industries are of particular importance, since their contribution can be quantified from the I-O table and the results can be compared with studies undertaken elsewhere using the same definition. Thailand’s creative industries in the present study I-O Code Description of Industry 080 Wooden furniture and fixture 083 Printing and publishing II 088 Drug and Medicine 132 Jewelry and related articles 168 Research1/ 172 Motion picture production 173 Movie theatre 174 Radio, TV, and related services Information Technology2/ - Source: NESDB 1/ The research sector will be discussed as one of enabling factors of Thailand‟s creative industries. 2/ There is no separation of Information Technology in the 180 sector I-O table. However, we included this sector to see its contributions to Thailand‟s economy through the National Statistical Office (NSO) survey data. However, the data seem to be underrepresented. Activity 1: Measuring the economic contributions of Thailand’s creative industries In order to gauge the current economic contributions of Thailand‟s creative industries, we have updated the I-O table from the official NESDB table by using the RAS and Cross Entropy methods to the year 2008. The estimated I-O table of 2008 analysis enabled analysis of three types of economic contributions to Thailand‟s economy: primary impact, secondary impact, and tertiary impact. 1. Primary Impact The primary impact involves the direct and quantifiable contributions of the selected creative industries to the national economy. This includes how much these creative industries directly contribute to GDP, value added and employment. Together with a 2008 survey of the information and communication technology industries, our analysis of the estimated 2008 I-O data show that in 2008, Thailand‟s creative industries contributed THB 1,067,987 million (about USD 32 billion) in sales and more than THB 325,274 million (about USD 9.7 billion) in value added (not including the value added from the IT industry as this value-added data is not available). These industries accounted for 9.53% of total Gross Domestic Product (GDP) with the value added amounting to 2.86% of GDP in 2008. Revenue from the jewelry industry accounted for 4.73% of GDP). Direct Economic Contributions of Thai Creative Industries, 2008 III Employme nt Employm ent/ Total employm ent Value added/ Worker Exports Sales Sales/ GDP Value added (millions of ฿) (percent) (millions of ฿) (percent) (percent) (thousands of person) (percent) (million s of ฿) (millions of ฿) 55,911.10 0.50 29,906.90 0.27 53.5 67.50 0.19 0.44 54,609.70 71,609.10 44,207.80 530,547.01 0.64 0.39 4.73 32,439.20 24,170.50 161,650.62 0.29 0.22 1.44 45.3 54.7 30.5 14.20 31.80 63.00 0.04 0.09 0.17 2.28 0.76 2.57 18,660.00 5,795.71 157,730.65 13,911.00 0.12 5,397.74 0.05 38.8 10.0 0.03 0.54 0.12 Creative industry Wooden furniture and fixtures Printing and publishing Drug and medicine Jewelry and related articles Motion picture production Value added/ Sales* Value added/ GDP Movie theatre Radio, TV, and related services 9,876.45 44,406.00 0.09 0.40 3,200.55 63,552.00 0.03 0.57 32.4 143.1 8.80 234.60 0.02 0.65 0.36 0.27 777.25 0.00 Information technology 297,518.20 2.65 NA NA NA 445.60 1.23 NA 192,079.00 2.86 41.57 875.50 2.42 0.75 429,652.00 Total 1,067,986.91 9.53 325,274.00 Source: Fiscal Policy Research Institute Note: *The value added per sales of non-creative industries is 68.1 percent In 2008, 875,500 workers (or 2.42% of Thailand‟s workforce) were employed in the selected creative industries. The IT industry had the highest employment, accounting for 1.23% of total employment. The jewelry and related articles industry had the largest valueadded contribution to GDP of 0.97%. The creative industries, excluding the IT industry, contributed average value added of THB 750,000 (USD 22,522.5) per worker. The jewelry industry had relatively high value added per worker of approximately THB 2.57 million (USD 77,177.2), while the printing and publishing industry had value added of THB 2.28 million (USD 68,468.5) per worker. This is well above the average value added per worker of THB 309,230 (USD 9,286.2) and nearly triple the THB 786,850 (USD 23,629) value added per worker in manufacturing. In terms of international trade, exports of the selected creative industries totaled THB 429,653 million (USD12.9 billion) in 2008, 7.34 % of total exports, and, according to UNTAD statistics, has been growing steadily (5.1% per year from 2000 to 20005). The main exporting sectors were the IT sector, with exports worth about THB 192,079.32 million (USD 5.77 billion), and the jewelry and related articles sector, with exports worth THB 157,730.65 million (USD 4.73 billion). 2. Secondary Impact The secondary economic impact of Thai creative industries is shown in their indirect contributions. This secondary impact is derived from the multiplier effect resulting from expenditures in the creative industries. This occurs because the creative industries induce production in other industries. An industry‟s multipliers measure the total effects on other industries in the economy for each unit of final demand in that industry. For example, one additional baht of expenditure in the movie theatre industry will induce other industries to create THB 2.14 worth of output and THB 1.50 worth of value added in the overall economy. The movie theatre and radio, TV, and related services industries have particularly high output and value-added multipliers compared to the average output multiplier of 1.63 and the average value-added multiplier of 0.70. The movie theatre industry showed an output multiplier of 2.14 while the radio, TV and related services industry had a multiplier of 1.84. These high multipliers are due to the requirements of these industries for extensive outsourcing and to significant inter-industry dependence. The movie theatre; and radio, TV, and related services industries also stimulate the highest level of additional value added, given one unit increase in final demand. Their respective value-added multipliers are at 1.50 and 0.92. This is due to the high value added generated within the industry, corresponding to the high commercial and mass-market value associated with their products. In contrast, the industries of wooden furniture and fixtures (with a multiplier of 0.38); and research (with a multiplier of 0.46) had the lowest value-added multipliers. For the research industry, one possible explanation is that most of its products are not yet being be sold in the mass market. IV Multipliers of Thai Creative Industries National average 1.63 0.70 Wooden furniture and fixture 1.40 0.38 Printing and publishing 0.62 Drug and medicine 0.59 Jewelry and related articles 1.56 1.59 1.55 0.58 Research 1.47 0.46 Motion picture production 1.62 0.61 Movie theatre 2.14 1.50 Radio, TV, and related services 1.84 0.92 0.00 0.50 VA multiplier 1.00 1.50 2.00 2.50 Output multiplier Source: Fiscal Policy Research Institute 3. Tertiary Impact The tertiary impact involves the direct, but non-quantifiable contributions of the selected creative industries to the national economy. This includes how much the creative industries contribute to industrial invention, innovation and differentiation, leading ultimately to greater economic competitiveness. We assess this impact based on the utilization of creative goods and services in other sectors‟ production. Our analysis of the estimated I-O 2008 indicates that overall manufacturing receives 1.01% of inputs from the creative industries. The petroleum refinery and gas separation plant industry has the highest creativity utilization (1.26%) among major industries. The motor vehicle; and special industrial machinery industries have the second and third highest consumption (0.42% and 0.08%), but these rates are lower than that of the overall utilization. The highest rate of creative utilization is shown in some smaller industries, especially the iron ore (21.36%); and natural chemical and fertilizer (9.10%) industries. It should be noted that creativity utilization is likely to be even higher for several industries once data from the information and technology (ICT) and design industries are available and taken into account as creative industries. This is due to the close interrelationship between the IT industry and most other manufacturing industries and the value-added chain-upgrading potential of the design industry. As a whole, the service sector has a creativity utilization rate of 6.31, much higher than the rate for the manufacturing sector. The utilization rate of the service sector is, however, more varied across sub-sectors. Creative inputs figure most strongly in the hospital (29.63%) and the education (9.40%) industries owing to their extensive usage of patentprotected drugs and medicines in the hospital industry and of printing and publishing and research in education. Some smaller industries also depend extensively on creative inputs, particularly the library and museum industry (24.84%). V The printing and publishing; motion picture production; radio, TV, and related services industries; and drug and medicine industries contribute the greatest creative inputs to other sectors of the economy. These sectors are, therefore, particularly important in helping local producers get a higher domestic and global market share from the higher competitiveness derived from more creative inputs. We have compiled available information on the size and the economic contributions of creative industries for six countries, Australia, Singapore, the United States, China, India, 1 and the Philippines . This information indicates that the rise of creative economies is a key element of development toward developed country status and thus for any given year the level of the economic contribution by creative economies in developed countries is higher than that of developing countries. We found that this is true for both of the developed countries studied, Australia and the United States. Both economies have greater contributions to GDP from the creative industries than the developing countries. Also in terms of share of employment in creative industries to total of employment in a country, both Australia at 3.70% in 1999-2000 and the United States at 8.49% in 2005 have high figures and we believe that more recent figures for Australia‟s figure would show a much higher share. China‟s creative industries‟ contribution to its economy was relatively low at 2.50% of GDP in 2006. However, this appears to be growing rapidly. In terms of labor share, Thailand‟s current figure is slightly higher than that of Singapore 10 years ago. The data indicates that Thailand‟s creative industries are growing faster than the rest of the economy, although they still contribute relatively less than the creative industries in developed countries and the number of jobs created by Thailand‟s creative industries is still quite low. International trade statistics also show a positive trend. Thailand‟s export of creative goods reached nearly USD 13 billion in 2008, ranked 17th, with a world market share of 1.29%, trailing behind only the OECD countries, India and China. The creative industries in Thailand clearly have the potential to become an important growth engine for the Thai exports. Finally, we have compared our indirect contribution results with the calculations of Toh Mun Heng, Andrian Choo, and Terence Ho (2003) for the UK and Singapore economies. Despite some differences in the disaggregation of Thailand‟s I-O table, it is possible to make a number of observations. In movie production, Thailand has comparatively low output multipliers. Unlike the United Kingdom and Singapore cases, Thailand‟s output multiplier is slightly less than the national average. However, Thailand‟s cinema services industry has a higher value-added multiplier than Singapore‟s, but it is less than that of the United Kingdom. Both Thailand and Singapore have value-added multipliers for this industry that are lower than the national average, while the UK‟s figure is higher than the UK national average. This indicates that Thailand‟s creative industries are less creative in terms of adding value than those of the UK. In the publishing and printing sector, all three countries have output multipliers less than their national averages. The United Kingdom had the highest multiplier, followed by Thailand, and Singapore respectively. Nonetheless, Singapore‟s publishing and printing 1 There exists some inconsistency in year of study and definition of creative industries. VI sector had the highest value-added multiplier, which is above the national average. Also, Singapore had the highest overall productivity. Conclusions from Activity 1 In conclusion, our analysis shows that, in 2008, the selected creative industries contributed more than a trillion baht (USD 32 billion) to Thailand‟s economy, nearly 10% of total GDP. The contributions of the jewelry (4.73% of GDP) and IT (2.65% of GDP) industries were particularly high. Value added by these industries, even without the IT industry, for which data was not available, was more than THB 325,274 million (USD 9.7 billion). While total employment in the selected creative industries was only about 2.4% of the workforce, the value added per worker was high, indicating that creative industry jobs were relatively high-paying. The creative industries also contributed significantly to Thailand‟s exports, earning nearly USD 13 billion and placing Thailand among the world‟s top 20 exporters of creative goods. It is also important that these creative exports are growing steadily at more than 5% per year, indicating strong global demand for Thai creative goods. In addition, the creative industries stimulated growth in other parts of the economy, with an average output multiplier greater than the average for the economy. The movie theater industry was particularly impactful, with each baht of expenditure in this sector generating 2.14 baht of output in the rest of the economy. Other industries also depended on inputs from the creative industries, with particularly high impacts on industries such as iron and fertilizer. The largest dependence on the creative industries, however, was seen in the service sector which depended on the creative industries for more than 6% of its inputs. Services such as education and hospitals, however, depended on the creative industries for up to nearly 30% of their inputs. These figures certainly understate the case because utilization data for the IT industry was not available. Clearly, IT is a key input for almost all industry sectors It is clear that the economic contributions of the creative industries are considerable. Compared to other countries studied, however, the multiplier effects are less than they should be. This suggests that Thailand‟s creative industries have less well-developed value chains than those of more developed economies, such as Singapore. Therefore, it is likely that effective efforts to nurture those value chains could accelerate the development of the creative industries and further enhance the contribution of creative industries to the overall economy. Value added ratios that are not much higher than in the rest of the economy indicate that Thailand‟s creative industries depend on creativity that comes from elsewhere and that more support for R&D and creativity are needed to increase value added. Activity 2: Assessing the losses due to IPR infringement Since protection of intellectual property is one of the key factors supporting the growth of creative industries, it is important to assess the impact of IPR infringement on those industries. In this report, we have selected four industry cases to show the severity of the problem in terms of both the static and dynamic effects. These industry cases cover the movie, music, IT, and pharmaceutical industries. VII In order to correctly quantify the losses due to IPR infringement, we have employed the microeconomic analysis framework of the market structures impacted by IPR infringement. Under this framework, the market can be technically disaggregated into two interrelated submarkets: the primary submarket, where genuine goods or perceived-asgenuine goods are sold, and the secondary submarket, where infringing products that do not attempt to deceive the consumers are traded. The effects of IPR infringement also differ according to the type of infringement. In the case of copyright or patent piracy, the secondary submarket can be divided into two sections: those who use pirate goods as substitutes for authentic goods, and those who use pirate goods only if genuine goods are not readily available. In the case of trademark counterfeit, there is always an attempt to deceive the consumer, so there is no secondary submarket. The effect of trademark infringement is straightforward, as the fake goods compete with the authentic goods in the primary market. We applied this framework of analysis to our industry cases by using the data from the Department of Intellectual Property report on Thailand‟s Implementation of Intellectual Property Rights (March 2008-February 2009). It is found that major infringements in the film or movie industry include optical disc piracy, and camcorder piracy. The damage caused by mass unauthorized reproduction and distribution of pirated optical discs or by offering pirated digital materials for download from the Internet, is considerable. Major infringements in the music industry also involve optical disc piracy and unauthorized reproduction and distribution over the Internet. In the IT industry, software piracy is the major type of infringement. As for movies and music, producers of pirated software violate copyright and distribute infringing materials via optical discs and the Internet. Copyright infringements also occur in the other forms of creative works, including cable TV piracy and book piracy. In the pharmaceutical industry, the major infringement is the counterfeiting of drugs. Trademark violations are typically involved in all of these infringements through the copying of labels and unauthorized use of the copyright owner‟s name and trademark. Additionally, the full report summarizes data on IPR infringements in each industry compiled from secondary sources. Information on the piracy rates in the movie and music industries comes from the International Intellectual Property Alliance (IIPA), the piracy rate in the IT industry (software) comes from The Business Software Alliance (BSA), and the rate of counterfeit pharmaceuticals comes from World Health Organization (WHO). We validated the data for Thailand through interviews with the local firms and industry associations. This data was used in conjunction with the industry data from the I-O tables in a set of simulations. Running a simulation based on the assumption of zero IPR infringements in the pharmaceutical sector indicates that completely effective IPR protection would generate potential increased legal revenues of THB 6,631 million. Similarly, a simulation assuming the elimination of camcorder, optical disk and Internet piracy would generate additional legal income of THB 3,756 million for the movie sector. We estimate potential gains of THB 1,807 for the IT industry and THB 1,755 million for the music industry from the elimination of copyright piracy. Therefore, the total direct static effect of failure to stop IPR infringement for these four industries can be estimated at around THB 13,949 million. When we take the multiplier effects on other industries into account, the total estimated loss to the economy is about THB 22,803 million. Moreover, the existence of infringements also has dynamic effects on the rights holders. Deceiving consumers into buying fake or substandard products has an especially VIII severe impact on brand value and firm reputation with customers unhappy with the substandard products switching to other brands or reducing purchases of that type of product from any source. Since consumers in the secondary submarket are well aware that the products they consume are unauthentic, they would still buy the pirated goods if available, but might buy authentic goods had the pirated goods not been available. Piracy also adds a significant degree of uncertainty to any marketing plan because it is difficult for rights holders to anticipate the volume and pricing of competing pirated goods. This makes it difficult for companies to properly anticipate demand for the legal product and therefore set accurate production levels. In an economic downturn, these difficulties can tip companies towards bankruptcy and destroy capital. There are, however, economic studies that suggest that lowerpriced pirated products can help increase the sales of authentic products, Slive and Bernhardt (1998) for example, by expanding public awareness and consumption of the products, especially at the low cost end of the market. The following analysis assesses some of the effects of piracy on particular aspects of the creative industries. 1. Investment In each of the creative industries, IPR infringements affect expected income and the incentives to make new investment, or choices of investment. In the movie industry, movie production companies‟ revenues from movie theaters, and average revenues per movie increased during 2003-2008 while the number of Thai movies produced per year during this period was rather steady. Thus, it might appear that investment in movie production was not significantly affected. However, since piracy clearly reduced expectations of income, it appears to have impacted the investments made by movie production companies. Although there is no industry-wide statistic to show this, we have learned from the interviews with movie makers that many companies have reduced the average cost of movie production in order to reduce their risk of loss due to piracy. This is also the case in the music industry, where piracy has impacted the investment decisions of major music labels, shifting investment to products that are more difficult to pirate. It can be seen from company figures that the share of revenue from selling records, rights, and digital products for the two biggest Thai music labels, GMM Grammy and RS Promotion, has been decreasing. In its 2008 annual report, GMM Grammy acknowledged that consumers have moved toward online digital products. RS Promotion also stated in its 2008 annual report that there has been a shift from physical product sales to digital content with CD, VCD and DVD sales decreasing by 27.9% and online digital business income increasing by 42.9%. The revenue from the live entertainment business of both firms grew at 20% and 16% from 2007 to 2008. The perception in the industry is that revenue from the live entertainment business is safer and more dependable because it cannot be pirated and that digital downloading of music from an authorized company website is somewhat easier to protect from large-scale piracy than the sales of optical discs. In the IT industry, the impact of software piracy on foreign direct investment in Thailand from large software companies appears to be more psychological than to actual losses from piracy and is not likely to change much in the near future. Foreign firms view Thailand mainly as a market for their products rather than a production base and thus they are IX looking for marketing and distribution channels that do not require much investment. The major factor in the reluctance to invest in software research and production in Thailand, according to industry interviews, is more due to the shortage of local IT talent and the language barrier rather than the existence of software piracy. Local Thai software firms, however, do show some concern over piracy, but access to cheap capital, training, IT infrastructure, tax incentives, and government-led market promotion tend to top of their list of desired government support in preference to action against piracy. According to a survey conducted by the National Statistic Office (NSO), only 16% of software firms have sought help on piracy. As a result, it seems clear that piracy alone does not greatly impact the investment decisions of existing Thai software firms. However, for new comers, the negative effect of piracy amplifies the risks in new products. For foreign drug companies, investment in the Thai pharmaceutical industry has been impacted by emotions aroused on both sides over the compulsory licensing scheme under which the Thai Ministry of Public Health authorized the licensing of the production or import of patented medicines by organizations other than the patent holder in an effort to reduce the cost of some medicines. Despite those emotions, however, some positive developments seem to be in the pipeline. There has been progress on an agreement between the Thai Commerce Ministry, PhRMA and the Biotechnology Industry Organization (BIO) to increase the availability of cheaper drugs in the country by encouraging cooperation on research and innovation rather than imposing compulsory licensing. 2. Domestic legitimate market As for the domestic legitimate market, IPR infringement in each industry directly affects the business models of each industry. In the movie industry, it is clear that the movie VCD and DVD business is most severely affected by copyright infringement due to widespread optical disc piracy. The case of Pongsaap Public Company Limited (Pongsaap), for example, clearly demonstrates the negative impact of movie piracy on domestic business. Pongsaap, a major producer and distributor of music and video CDs, DVDs and tapes has suffered a sharp decline in sales and share price since 2006 resulting in losses that continued through 2009. In the second quarter of 2009, for example, the company reported a loss of THB 47.74 million with the net loss margin of 37.14% of total revenues. The company has blamed the competition from pirated CDs and DVDs for its losses and has been forced to sharply cut its production costs and its payments for copyrights. Unlike the physical material distributions business, to which pirated products can substitute for genuine products is much lower in the case of the theater business. The data for Major Cineplex, the biggest theater chain company, shows steady increases in revenue and growth despite the high degree of movie piracy. It appears that pirated movies do not directly compete with the movie theater experience. However, in the long run, it is clear that piracy diverts money away from overall movie industry, thereby undermining production companies‟ incentives to invest in the production of new movies and, consequently, reducing the sales of movie tickets at theaters. The data indicates that piracy also reduces the funds available for movie production and VCD and DVD distribution. Due to competition from cheaper pirated VCDs and DVDs, X production companies and other businesses in the value chain strive to lower their costs of production. For instance, VCD and DVD distributors may switch from hard plastic to soft plastic envelopes to reduce their packaging costs. Production companies may spend less on writers, actors and production and post-production technicians, thereby reducing the quality and international competitiveness of Thai movies. Piracy appears to have played an enormous role in changing the structure of the Thai music business. Improvements in technology and the development of new media platforms have driven a change in consumption behavior through new ways for consumers to be reached by the industry‟s products, both legally and illegally. The sales of recordings, copyrights, and broadcast rights have gone down significantly in recent years as more consumers choose to consume illegal products. The downtrend in sales of physical records means many retailers have closed down. One example is the closing of CD Warehouse, once one of the country‟s biggest music retailers. In contrast, the live entertainment business appears to have benefited from piracy as it increases the public exposure of the artists, and hence their popularity. For Thailand‟s biggest music label, GMM Grammy, the share of total revenue from selling records, rights, and broadcast had been roughly 50% of the total revenue between 2003-2005, but this had declined to only 35% in 2008. Income from live entertainment shows, which had been around 10% of total revenue, increased to 27.5% in 2008. In the IT industry, the impact of piracy on the legitimate domestic market is different for foreign and domestic software firms. Foreign firms appear to deal with piracy more effectively than local Thai firms. Due to their larger market size, foreign firms have more resources to resolve piracy problems. They work with organizations such as the Business Software Alliance (BSA) and the Software and Information Industry Association (SIIA) to reinforce intellectual property protection. Furthermore, foreign firms have introduced innovative business models to negate piracy, such as shifting away from licensing revenue, delivering software-on-demand, and providing free copies with limited features. Leading international software firms raise awareness of the adverse effects of piracy that include financial losses, distraction from new product development, and hidden threats from downloading pirated software. These international firms invest in piracy-protection technology and work with local government to crack down on piracy. Our interviews suggest, however, that Thai software firms are still operating in an old paradigm – depending on licensing fees. Local firms are likely to continue to suffer disproportionate revenue loss from piracy unless the Thai government can provide improved IPR protection and enforcement. Since Thailand‟s pharmaceutical industry is primarily concerned with production, packaging and marketing, it is not involved in much R&D. Therefore, IPR violations do not have a large direct effect on the domestic market structure. However, it may induce international R&D-based pharmaceutical companies to avoid or delay launching new products in Thailand. This reduces the opportunity for technology transfers and development of the domestic industry. 3. Artistic creativity and innovation In terms of artistic creativity, IPR violations in the movie industry appear to have limited immediate effects on creators‟ incentives due to the nature of the compensation system. In Thailand, most script writers, actors and directors are compensated on a lump-sum XI basis. On such a basis, the compensation for their creative efforts does not depend for any particular movie on the revenue of that movie. In the longer run, however, movie company losses due to piracy lead, as noted above, to reductions in the budgets available for movie production, including the payments made to writers, actors and directors. The impact of piracy on the number of movies made also affects the incentives for the creative artists involved as limited growth in the number of movies made and limited profits from successful movies means less competition by production houses to recruit and retain the best talent. In the music industry, the compensation system is more varied and flexible, with many artists compensated according to sales. Therefore, music piracy directly reduces the financial incentive of these creators. However, music downloading and other forms of piracy through the growing number of media platforms appear to some benefit for the music industry in the sense that they have increased the level of consumption of music. This may be helpful for artists signed to smaller, independent labels that do not have as much money as the major labels to pay for radio broadcast or advertisements. Because music piracy distributes music to a wider and more varied set of consumers, it can increase the audiences for live and broadcast shows, from which many musical artists derive their main income. In the long run, however, piracy undermines the incentive to create and invest in new music as the occupations of composer or creator of contents becomes less attractive, and the producers (and investors) of the contents earn less income. Piracy pays the person who makes and sells the pirated copies, not the creator of the content. Piracy means that creators are not getting their fair share of the revenue from the sales of recorded music. In the software industry, piracy in Thailand affects both foreign and international producers‟ creativity and innovation. Although the market size in Thailand is comparatively small, software piracy may affect the incentive of foreign producers to innovate new software that is more beneficial or more suited for Thailand by, for example, being available in the Thai language. Instead, the piracy problem increases the incentive of foreign producers to innovate technology to protect against piracy rather than providing better performance for users. This slows the pace of useful innovation in software development.. IPR infringement in the pharmaceutical industry has an obvious impact on innovation since the pharmaceutical research and development process is complex, lengthy and risky. IPR violations can hinder the development of a productive environment for pharmaceutical innovation, diminish advances in research and jeopardize technology transfer -- all of which harm the domestic industry. 4. Social and cultural values An important aspect of creative works, such as movies, music, games and literature is that it represents and promotes key cultural values of that society. Not only do foreigners learn about Thailand through movies or music, but such works allow Thai people to absorb diverse and complex aspects of Thailand‟s social and cultural values. Therefore, it could be argued that Thai social and cultural values are more accessible to other countries because of the greater ease of access due to pirated movies and illegal downloads. With Internet access, this process of cultural and value exchange, once difficult, is now just a computer click away. Any such benefit, however, is far outweighed by the impact of pirated movies in undermining Thailand‟s social and cultural values and by the discouraging impact piracy has on investment in the production of high-quality Thai movies. XII 5. Public safety Available information indicates that piracy is often a funding source for organized 2 international crime . It is especially attractive for criminal networks because, while the profitability is high, the risk of prosecution is low and can sometimes be further reduced through the bribery of the authorities responsible for enforcing IPR laws and regulations. The proof of this is that the majority of the people in Thailand, including the police and other responsible authorities, know where pirated or counterfeit copies of creative products can be purchased, but the counterfeits continue to be available. The overall extent of organized crime involvement is difficult to document, but from what information is available, it appears that organized crime is heavily involved. The Asian “triads,” groups based primarily in Hong Kong while also active in Taiwan and mainland China, are known to be involved in heroin trafficking from South-East Asia to the United States, prostitution, gambling, money laundering and alien smuggling. They also have been reported to be connected to the selling of pirated DVDs and producing counterfeit pharmaceuticals. Moreover, with the availability of pirated movies, some minors are exposed to movies with inappropriately violent and sexual contents at a relatively young age. This may have implications for the behavior of these young people, their development as adults, and, possibly, other people‟s safety. Software piracy is also connected to computer crime. Key issues include hacking, copyright infringement, child pornography, and information theft. Problems of privacy may arise when confidential information is lost or intercepted illegally. Finally, counterfeit drugs have direct and dangerous effects on people‟s health. The regular use of substandard or counterfeit medicines can lead to treatment failure or drug resistance and thus has serious consequences for consumer health and safety. For example, a study conducted in South-East Asia in 2001 revealed that 38% of 104 samples of antimalarial drugs on sale in pharmacies did not contain any active ingredients and had resulted in a number of preventable deaths. Potentially even more dangerous are the counterfeit drugs that include a small amount of active ingredient in order to make detection more difficult. Drugs with insufficient active ingredients, however, accelerate the development of drug resistant strains of disease. Already the Thai-Cambodia border area has seen the emergence of drug resistant malaria that could potentially develop into a global health threat. Recommendations for development of Thailand’s creative industries Our analysis shows that government support for the creative industries is an important policy direction that can make a significant contribution to Thailand‟s economic development and the needed transition to a more advanced economy that can provide higher per capita income and greater quality of life for the Thai people. In line with this policy, government 2 Information from OECD (2008), The Economic Impact of Counterfeiting and Piracy. OECD Publishing. Chapter 3 and Chapter 5. XIII should strongly support the creation of intellectual property. Creative industries depend on IPR to gain the financial rewards of creativity and provide the investment capital necessary for future development of IP. The government should use the education system and public service advertisements to help people understand the importance of IPR to the Thai economy and therefore support enforcement of IP protection and reduce purchases of pirated or counterfeit products. More detailed policy recommendations are provided for each of the creative industries in the full report, but the general recommendations include the following: Expand the elements supporting creativity already in the draft of the 11th National Development Plan Develop creative industries together with that of knowledge-based industries because knowledge and creativity are interrelated. The government should increase its support for research and development, both through support for public sector education and research institutes and through tax incentives for R&D in the private sector. Private sector firms should implement longer term strategies for product innovation, possibly involving collaboration with universities and research institutes. Increase government efforts, such as those funded by the NESDB, the Ministry of Commerce and the Ministry of Industry, to strengthen creative value chains through a cluster approach. Address weaknesses in the IPR system. The patent registration process, for example, should be supported with improved processes, higher fees for outside assessors and more trained personnel to reduce the time needed to register a patent. IPR should be protected through more effective enforcement including convictions that bring sufficient fines to deter piracy. Improve the ability of the education system to foster creativity so that it produces new knowledge as well as creative people. This must include more effective and betterfunded implementation of the Ministry of Education‟s policy of moving away from rote-based learning to more student-centered and project-based or enquiry-based learning. Include teaching on creativity and intellectual property in the education system. Use public service announcements to create understanding among the public that piracy of creative products is a form of theft and hurts Thailand‟s development. Provide entrepreneurship skills to people in the creative industries. Software engineers, doctors, researchers and artists need the business skills that will enable them to build profitable businesses on the basis of their creativity and technical skills. Support efforts by Thai universities, the Office of Knowledge Management and Development (OKMD) and the National Science and Technology Development Agency (NSTDA) to improve the process for technology licensing and expand R&D efforts. XIV XV Provide a higher level of support for creative SMEs and creative start-up companies through the Office of SME Promotion and the SME Bank as well as venture capitalists and “angel investors”. Implement the “Creative Thailand” policy in a systematic, integrated and understandable manner. Interagency cooperation, especially where regulatory powers overlap, is required. Pursue public-private partnerships to support creative industries, such as the Thailand Animation and Multimedia Awards, the Thailand Animation Film Festival and the Intellectual Property Mart. Strengthen organizations set up specifically to support the creative economy, such as the National Innovation Agency, the Software Industry Promotion Agency (SIPA), the Office of Knowledge Management and Development (OKMD) and the National Science and Technology Development Agency (NSTDA) Attract high-level creative talent to live and work in Thailand. Such talent should include software engineers, designers, film-makers, multi-media professionals, authors, creative entrepreneurs and researchers. Barriers to such talents should be eliminated, especially the difficulties in obtaining Ministry of Labor work permits. Provide international standard telecommunications infrastructure to support creativity in the IT and entertainment industries. Government should make it a high priority to remove the obstacles to implementation of ITC infrastructure such as Wimax and 3G and make the National Telecommunications Commission more effective and efficient to ensure that obstacles and delays do not delay the roll out of future technologies. CONTENTS EXECUTIVE SUMMARY…………………………………………………………......II-XV 1 1.1 INTRODUCTION ..................................................................................................................... 1 Definition of Creative Industries ....................................................................................................... 2 1.2 Creative Industries in Thailand ......................................................................................................... 5 1.2.1 Wooden Furniture and Fixture Industry (I-O code: 080) ...................................................................... 6 1.2.1.1 Market Structure and Value Chain ............................................................................................... 6 1.2.1.2 IP system and the wooden furniture and fixture industry ............................................................. 8 1.2.2 Printing and Publishing Industry (I-O code: 083) ................................................................................. 9 1.2.2.1 Market Structure and Value Chain ............................................................................................... 9 1.2.2.2 IP system and the printing and publishing industry .................................................................... 11 1.2.3 Pharmaceutical Industry (I-O code 088) ............................................................................................. 12 1.2.3.1 Market Structure and Value Chain ............................................................................................. 12 1.2.3.2 IP System and the pharmaceutical industry ................................................................................ 15 1.2.4 Jewelry and related Articles Industries (I-O code: 132) ...................................................................... 16 1.2.4.1 Market Structure and Value Chain ............................................................................................. 16 1.2.4.2 IP System and the jewelry and related article industry ............................................................... 19 1.2.5 Motion Picture Production and Movie Theatres (I-O codes: 172 and 173)......................................... 19 1.2.5.1 Market Structure and Value Chain ............................................................................................. 19 1.2.5.2 IP System and the Motion Picture and Movie Theatres Industries ............................................. 23 1.2.6 Radio and TV and Related Industries (I-O code: 174) ........................................................................ 24 1.2.6.1 Market Structure and Value Chain ............................................................................................. 24 1.2.6.2 IP system and radio, TV, and related services industries ........................................................... 27 1.2.7 Information Technology (IT) Industry ................................................................................................ 27 1.2.7.1 Market Structure and Value Chain ............................................................................................. 28 1.2.7.2 IP System and Information Technology Industry ....................................................................... 30 1.2.8 Research (I-O code: 168) .................................................................................................................... 30 1.2.8.1 Market Structure and Value Chain ............................................................................................. 30 1.2.8.2 IP System and the research industry ........................................................................................... 32 2 LITERATURE REVIEW...................................................................................................... 33 2.1 Creative Industries in Developed Countries .................................................................................... 33 2.1.1 Australia .............................................................................................................................................. 33 2.1.2 Singapore ............................................................................................................................................ 36 2.1.3 United States ....................................................................................................................................... 38 2.2 Creative Industries in Developing Countries .................................................................................. 40 2.2.1 China ................................................................................................................................................... 40 2.2.2 India .................................................................................................................................................... 43 2.2.3 Philippines ........................................................................................................................................... 44 3 METHODOLOGY AND DATA.......................................................................................... 46 3.1 Structure of Thailand’s I-O Table ................................................................................................... 47 3.2 I-O Table Updating Methodologies and Data ................................................................................. 48 4 RESULTS AND DISCUSSIONS ......................................................................................... 51 4.1 Primary Impact................................................................................................................................ 52 4.2 Secondary Impact ............................................................................................................................ 53 4.3 Tertiary Impact................................................................................................................................ 54 4.4 Country comparisons ....................................................................................................................... 56 5 LOSSES DUE TO PIRACY IN THE CREATIVE INDUSTRIES.............................. 61 5.1 Framework of analysis ..................................................................................................................... 61 5.2 Piracy Data and Rate of Substitution .............................................................................................. 67 5.3 Simulation Results ........................................................................................................................... 68 6 6.1 INDUSTRY CASE 1: THE THAI MOVIE INDUSTRY ............................................... 70 Industry Overview ........................................................................................................................... 70 6.2 Assessment of Impact from Piracy .................................................................................................. 74 6.2.1 Piracy Analysis ................................................................................................................................... 74 6.2.2 Effects of piracy on the movie industry .............................................................................................. 75 6.2.2.1 Effect on investment ................................................................................................................... 75 6.2.2.2 Effect on legitimate domestic market ......................................................................................... 78 6.2.2.3 Effect on Artistic Creativity ....................................................................................................... 86 6.2.2.4 Effect on Social and Cultural Values ......................................................................................... 87 6.2.2.5 Effect on Public Safety ............................................................................................................... 87 7 7.1 INDUSTRY CASE 2: MUSIC .............................................................................................. 90 Industry Overview ........................................................................................................................... 90 7.2 Assessment of Impact from Piracy .................................................................................................. 94 7.2.1 Piracy analysis..................................................................................................................................... 94 7.2.2 Effects of piracy on music industry ..................................................................................................... 95 7.2.2.1 Effect on Investment and legitimate domestic market ................................................................ 95 7.2.2.2 Effect on Artistic Creativity ....................................................................................................... 98 7.2.2.3 Effect on Social and Cultural Values ......................................................................................... 99 7.2.2.4 Effect on Public Safety ............................................................................................................... 99 8 INDUSTRY CASE 3: INFORMATION TECHNOLOGY (IT)................................... 99 8.1 Industry Overview ........................................................................................................................... 99 8.2 Assessment of Impact from Piracy ................................................................................................ 106 8.2.1 Piracy analysis................................................................................................................................... 106 8.2.2 Effects of Piracy ................................................................................................................................ 107 8.2.2.1 Effect on Investment ................................................................................................................ 107 8.2.2.2 Effect on Legitimate Domestic Market .................................................................................... 109 8.2.2.3 Effect on Innovation and Artistic Creativity ............................................................................ 110 8.2.2.4 Effect on Social and cultural values ......................................................................................... 111 8.2.2.5 Effect on Public safety.............................................................................................................. 111 9 9.1 INDUSTRY CASE 4: PHARMACEUTICALS ............................................................ 111 Industry Overview ......................................................................................................................... 112 9.2 Assessment of Impact from Piracy ................................................................................................ 120 9.2.1 Piracy analysis................................................................................................................................... 120 9.2.2 Effects of Piracy ................................................................................................................................ 125 9.2.2.1 Effect on investment ................................................................................................................. 125 9.2.2.2 Effect on legitimate domestic market ....................................................................................... 126 9.2.2.3 Effect on innovation ................................................................................................................. 127 9.2.2.4 Effect on public safety .............................................................................................................. 128 10 IMPLICATIONS FOR THAILAND’S DEVELOPMENT .................................... 128 10.1 Policy implications by industry...................................................................................................... 128 10.1.1 Movie and music industries .......................................................................................................... 128 10.1.2 Information technology industries ................................................................................................ 130 10.1.3 Pharmaceutical industries ............................................................................................................. 131 10.2 Policy recommendations for Thailand’s development .................................................................. 134 11 REFERENCES ................................................................................................................. 140 In Thai....................................................................................................................................................... 143 Food and Drug Administration (2007). “The Impacts of Thai-US FTA on Local Generic Drug Industry”, Social Pharmacy Research Unit (SPR), Chulalongkorn University. .......................................................... 143 Ubornrat Siriyuwasak. (2004). Mass Communication Media, Culture and Society, Chulalongkorn University Press 143 International Intellectual Property Alliance http://www.iipa.com/ ............................................................ 144 APPENDIX 1 ................................................................................................................................. 145 APPENDIX 2 ................................................................................................................................. 149 LIST OF TABLES Table 1: Classification of the Creative Industries .......................................................................................... 4 Table 2: Thailand’s creative industries in the present study ......................................................................... 5 Table 3: Manufacturing and sales of the wooden furniture and fixture industry ......................................... 6 Table 4: Exports of the wood and furniture industry .................................................................................... 6 Table 5: Imports of the wood and furniture Industry ................................................................................... 7 Table 6: Numbers of publishers categorized by size ...................................................................................... 9 Table 7: Amount of money spent on books (per head) .................................................................................. 9 Table 8: Numbers of publishers and bookstores in Thailand ...................................................................... 10 Table 9: Numbers of new titles launched in Thailand ................................................................................. 10 Table 10: Book revenue and Gross Domestic Product (GDP) ..................................................................... 10 Table 11: Manufacturing of the pharmaceutical products .......................................................................... 12 Table 12: Sales of the pharmaceutical products .......................................................................................... 13 Table 13: Imports and Exports of the Pharmaceutical Products ................................................................ 13 Table 14: Approved Registration of New Drug and New Generic Drug .................................................... 15 Table 15: Number of Drug Registration by Patented Status ....................................................................... 16 Table 16: Exports value of gem and Jewelry categorizing by countries ...................................................... 18 Table 17: A Number of Thai films in the theatres during 2002 – 2007 ....................................................... 21 Table 18: Revenue from ticket sales by company, 2003 – 2007 ................................................................... 22 Table 19: Number of Branches and Theater for two main theater chain companies ................................. 22 Table 20: Revenue from world exhibition .................................................................................................... 23 Table 21: Arrests for Intellectual Property Rights Violations ..................................................................... 24 Table 22: Advertising Budget categorized by type of media for 2005 and 2006 ......................................... 24 Table 23: Type of program categorized by style and content ...................................................................... 25 Table 24: Major Companies classified by the channel FM owner’s participation in the production process .............................................................................................................................................................. 26 Table 25: Major Companies classified by the channel AM owner’s participation in the production process .............................................................................................................................................................. 26 Table 26: Market Share for Free TV during 2005 – 2006 ........................................................................... 26 Table 27: IT Industry coverage in this study ............................................................................................... 27 Table 28: Market Structure of Thai IT Industry ......................................................................................... 28 Table 29: Percentage of Enterprises by Industry ....................................................................................... 29 Table 30: Thailand’s R&D expenditure in 2003 .......................................................................................... 30 Table 31: Research and Development Expenditure to GDP ........................................................................ 31 Table 32:Export and Import of the Copyright industries in 1995-96 – 1999-2000...................................... 35 Table 33: Direct Economic Contributions of Creative Industries in 2000 1/................................................ 36 Table 34: Secondary Economic Impact of Industries .................................................................................. 37 Table 35: Tertiary Economic Impact of Creative Industries ....................................................................... 38 Table 36: Contribution to U.S. economy (value-added, growth, and employment) .................................... 39 Table 37: Compensation per employee (USD) ............................................................................................. 40 Table 38: Foreign Sales and Export for Selected Industries ........................................................................ 40 Table 39: Creative Clusters in China ........................................................................................................... 41 Table 40: Effect of Including Telecommunication in China’s Creative Industries ..................................... 42 Table 41: The market values of Indian creative goods calculated by UNCTAD since 1996-2005 .............. 44 Table 42: Employment, Selected Industries in Community, Social and Personal Services: 1999, 2001 and 2003 ...................................................................................................................................................... 46 Table 43: Root Mean Square Errors (RMSE) from RAS and CE methods ................................................ 49 Table 44: 2008 input-output table of Thailand (THB thousand million) .................................................... 50 Table 45: Direct Economic Contributions of Thai Creative Industries, 2008 ............................................. 52 Table 46: The Utilization of Creative Products by Major Thai Industries ................................................. 56 Table 47: Creative Industries Comparison among Selected Countries ....................................................... 57 Table 48: Creative goods: Top 20 exporters worldwide, 1996 and 2005 1/ ................................................... 58 Table 49 : Comparisons of Multipliers 1/...................................................................................................... 59 Table 50: The arrests and seizures of intellectual property infringing items produced and sold in Thailand ............................................................................................................................................... 65 Table 51: The arrests and seizures of intellectual property infringing items by the customs officials at borders ................................................................................................................................................. 66 Table 52: Royal Thai Police’s statistics on IPR infringement suppression efforts in 2008 ......................... 66 Table 53: The major areas that IPR has been most violated in 4 industry cases ........................................ 67 Table 54: Counterfeit/piracy rates used in the present study ...................................................................... 67 Table 55: Simulation results in case without any forms of IPR infringements ........................................... 68 Table 56: The static effects of IPR infringements in 4 industry cases on the economy ............................... 69 Table 57: The value of Thai movie industry ................................................................................................ 70 Table 58 Five largest production companies and the number of produced movies during 2003-2008 ....... 71 Table 59: Movie distributors and the number of distributed movies during 2004-2006 ............................. 72 Table 60: Theater companies and the number of branches and theaters .................................................... 73 Table 61: Types of IPR involved in movie industry ..................................................................................... 74 Table 62: The value of Thai movie ............................................................................................................... 75 Table 63: The number of Thai movies shown in theaters during 2002-2008............................................... 76 Table 64: Production companies’ revenues from theaters during 2003-2008 ............................................. 77 Table 65: Production companies’ average revenue of movies shown in theaters during 2003-2008 .......... 77 Table 66: Pongsaap’s revenue structure ...................................................................................................... 81 Table 67: The list of countries included in Sung Wook Ji’s study ............................................................... 82 Table 68: The number of Major Cineplex’s screens (seats) ......................................................................... 84 Table 69: Examples of international organized crimes ................................................................................ 88 Table 70: Movie classification for censorship .............................................................................................. 89 Table 71: Movies classified as Nor 20 .......................................................................................................... 89 Table 72: 2007 global recorded music sales of Thailand compared to 6 major countries ........................... 91 Table 73: Cost structure of creating an album ............................................................................................ 92 Table 74: Type of IPR involved in music industry ...................................................................................... 94 Table 75: Piracy rate and GMM Grammy Revenue structure .................................................................... 95 Table 76: Income structure of two biggest music labels in Thailand........................................................... 96 Table 77: Market Values and Growth of ICT Industry (2006-2009)......................................................... 100 Table 78: Ownership structure of IT companies in Thailand ................................................................... 103 Table 79: Access to investment promotion of IT firms in Thailand .......................................................... 103 Table 80: Number of Hardware patent registered in Thailand by Country of Origin ............................. 104 Table 81: Number of Software copyright registered in Thailand .............................................................. 105 Table 82: Channels of IT goods and services imports in 2007 ................................................................... 105 Table 83: Type of IPR involved in IT industry .......................................................................................... 106 Table 84: Piracy rate in Thailand’s software industry .............................................................................. 107 Table 85: R&D expenditure of Top Software Firms and Its share to Total Sales ..................................... 108 Table 86: Need for Government Supports of Thai firms in IT Industry ................................................... 109 Table 87: Number of Enterprises categorized by R&D (Technology Improvement, Products Improvement, New Products Development and Demand for Aid in R&D) (percentage) ................. 110 Table 88: Total sales of pharmaceutical products by segment .................................................................. 113 Table 89:Thailand - Generic drug’s cost composition ............................................................................... 116 Table 90: Top 10 Pharmaceutical Corporations ........................................................................................ 118 Table 91: Average household monthly expenditures: by region, 2006 ...................................................... 119 Table 92: Type of IPR involved in the pharmaceutical industry ............................................................... 119 Table 93: Recent examples of counterfeit medicines internationally ........................................................ 123 Table 94: The recent cases on counterfeiting of pharmaceuticals in Thailand ......................................... 123 Table 95: Thailand’s profile on counterfeit medicines (2005-2007) .......................................................... 124 Table 96: Nine projects under creative economy policy carried out by the OKMD ................................. 135 Table 97: Thailand’s creative industries in the present study (detailed) ................................................... 145 LIST OF FIGURES Figure 1: Thai wooden furniture and fixture industry value chain ............................................................... 8 Figure 2: Thai printing and publishing industry value chain...................................................................... 11 Figure 3: Thai Pharmaceutical Industry Structure and Value Chain ......................................................... 14 Figure 4: Thailand’s Export Structure for jewelry and related article in 2007 .......................................... 17 Figure 5: Thai Precious stones and Jewelry Industry Value Chain ............................................................ 18 Figure 6: Export’s value of gem and Jewelry since 2005-2009 .................................................................... 19 Figure 7: Value Chain of Thai Film Industries ............................................................................................ 20 Figure 8: Motion Picture Production Industry Value Chain ....................................................................... 20 Figure 9: Movie theatre industry value chain .............................................................................................. 22 Figure 10: Market share of films categorized by country in 2008 ............................................................... 23 Figure 11: Radio, TV and Related Services Industries Value Chain .......................................................... 25 Figure 12: Thai Information Technology (IT) Industry Value Chain ......................................................... 29 Figure 13: Thai Research Industry Value Chain ......................................................................................... 32 Figure 14: The Relative of the 3 copyright clusters (1999 – 2000) ............................................................... 33 Figure 15: Copyright Industries’ Value Added Contribution as a Percentage of GDP .............................. 34 Figure 16: Each Segment’s share of Australia’s Creative Workforce ......................................................... 35 Figure 17: Copyright Industries in the US Economy in 2004 ...................................................................... 39 Figure 18: Accumulated number of Creative Cluster in 12 Cities in China ............................................... 41 Figure 19: Philippine Creative Industry ...................................................................................................... 44 Figure 20: Philippine export performance of selected craft product, 1997 to 2001 .................................... 45 Figure 21: Revenues from motion picture, radio, TV and other entertainment activities 1999, 2001 and 2003 ...................................................................................................................................................... 45 Figure 22: Revenues from library & archives, museums, and other cultural activities – 1999, 2001 and 2003 (unit: Billion PHP) ....................................................................................................................... 46 Figure 23: Structure of 2008 input-output table of Thailand ...................................................................... 47 Figure 24: Multipliers of Thai Creative Industries ...................................................................................... 53 Figure 25: Analytical framework of losses from piracy assessment ............................................................ 62 Figure 26: Static and dynamic effects of piracy of the right holders ........................................................... 64 Figure 27: Thailand’s movie piracy rate ...................................................................................................... 74 Figure 28: The number of Thai movies and the movie industry’s piracy rate ............................................ 76 Figure 29: Production companies’ total revenue and the movie industry’s piracy rate ............................. 78 Figure 30: The accumulated number of VCD/DVD players in Thailand .................................................... 79 Figure 31: Estimated price of a DVD player and estimated price of a VCD player in Thailand ................ 80 Figure 32: Pongsaap’s value of copyrights, revenues on sales and services, total revenues, and profits (losses) .................................................................................................................................................. 81 Figure 33: Production companies’ total average revenue per movie and the movie industry’s piracy rate .............................................................................................................................................................. 83 Figure 34: Major Cineplex’s revenue and cost of cinema business ............................................................. 84 Figure 35: Major Cineplex’s revenue and the movie piracy rate ................................................................ 85 Figure 36: Value chain of Thailand’s music industry .................................................................................. 93 Figure 37: GMM Grammy’s revenue from 2003-2007 ................................................................................ 97 Figure 38: GMM Grammy’s average revenue between 2003-2005 and 2005-2007 ..................................... 98 Figure 39: Computer hardware value chain .............................................................................................. 100 Figure 40: Software and service sector value chain ................................................................................... 101 Figure 41: Classification of IT industry ..................................................................................................... 102 Figure 42: Number and shared of labor IT industry ................................................................................. 104 Figure 43: Thailand’s domestic production and import value of generic drug ......................................... 114 Figure 44: Thailand’s exports value of generic drug ................................................................................. 114 Figure 45: World’s Global Value Chain (GVC) of Pharmaceutical Industry ........................................... 115 Figure 46: Thailand’s Value Chain of Pharmaceutical Industry .............................................................. 116 Figure 47: pharmaceutical industry’s structure ........................................................................................ 117 Figure 48: Ownership of Pharmaceutical corporations in Thailand (2009) .............................................. 118 igure 49: Thailand’s Definition of counterfeit medical product ................................................................ 121 Figure 50: Pharmaceutical sales and the counterfeit (CFT) problem by regions ...................................... 122 Figure 51: Drug discovery and development process ................................................................................ 126 Figure 52: Key characteristics of the successful use of IP to promote innovation..................................... 127 Figure 53: Thailand’s economic structure development status ................................................................ 134 Figure 54: Thailand’s development strategy ............................................................................................. 137 Abbreviations and Acronyms AM ASEAN BOI BSA CD CL CBD CFT CEP CE DPF DCMS DVD FPRI FOB FTA FM GPO GDP IGP ICT IT I-O Table IP IPR IFPMA IFPI IIPA IMPACT MOPH MNCs NECTEC NTB OKMD OD OECD OBM ODM OEM PDA PhRMA Amplitude Modulation Association of Southeast Asian Nations Board of Investment in Thailand Business Software Alliance. Compact Disc Compulsory Licenses Convention on Biological Diversity Counterfeit Creative Economy Program Cross Entropy Defense Pharmaceutical Factory Department of Culture, Media and Sport of the United Kingdom Digital Video Disc Fiscal Policy Research Institute Free On Board Free Trade Agreement frequency modulation Government Pharmaceutical Organization Gross Domestic Product Industry Gross Product Information and communication technologies Information Technology Input-Output Table Intellectual Property Intellectual Property Rights International Federation of Pharmaceutical Manufacturers & Associations International Federation of the Phonographic Industry International Intellectual Property Alliance International Medical Products Anti-Counterfeiting Taskforce by World Health Organization Ministry of Public Health Multi-national corporations National Electronics and Computer Technology Center non-tariff barriers Office of Knowledge Management and Development Optical Disc Organization for Economic Co-operation and Development Original Brand Manufacturers Original Design Manufacturers Original Equipment Manufacturers Personal Digital Assistant Pharmaceutical Research and Manufacturers of America PReMA PHP PUBAT RMB R&D RMSE SGD NSTDA TV THB TDRI ECOTEC Pharmaceutical Research and Manufactures Association Philippine peso Publishers and Booksellers Association of Thailand Renminbi, Chinese Yuan Research and Development Root Mean Square Errors Singapore Dollar Technology Development Agency Television Thai Baht Thailand Development Research Institute the Economic and Cyber-Crime Division, Central Investigation Bureau, the Royal Thai Police FDA The Food and Drug Administration INTERPOL The International Criminal Police Organization MICT the Ministry of Information and Communication Technology NESBD The National Economic and Social Development Board NRCT The National Research Council of Thailand NSO The National Statistical Office SMEs the Small and Medium-sized Enterprises UK the United Kingdom TRIPS Trade-Related Aspect of Intellectual Property Rights UN Comtrade United Nations Commodity Trade Statistics Database UNCTAD United Nations Conference on Trade and Development UNESCO United Nations Educational, Scientific and Cultural Organization US United State USD US Dollar VA Value-added VCD Video Compact Disc VCR videocassette recorder WIPO World Intellectual Property Organization WTO World Trade Organization 1 Introduction The concepts of the „Creative Economy‟ and „Creative Industries‟3 are emerging development paradigms that underscore the importance of creativity and intellectual capital in economic development. While the “Creative Economy” concept includes a broad view of the role of creativity in the economy, the idea of “Creative Industries” focuses on those industries that require high levels of creativity for success. These concepts span economics, business, culture, and technology. This focus on creativity represents a shift from the traditional classifications of manufacturing and services towards more multidisciplinary groupings. Many countries, both developed and developing, are using these concepts to promote the burgeoning creative industries.4 For example, in the United Kingdom, the Department of Culture, Media and Sport (DCMS) established the Creative Economy Program (CEP) to develop and implement a Government strategy for its creative industries. Another example is the Singaporean Ministry of Information, Communications and the Arts‟ Creative Industries Development Strategy program that aims to develop the Creative Industries as a key engine of economic growth. The Thai government has promoted the concept of the “Creative Economy” as critical to Thailand‟s development. This is seen in the draft of the 11th National Development Plan and in the nine government programs for developing creative industries that are included in the second stimulus package (Thai Kem Kang: Strong Thai). The objective of the gover‟ment's focus on the creative economy is to establish Thailand as the creative industrial hub of ASEAN and to increase the share of GDP contributed by creativity from 12% to 20% by the end of 2012.5 Promoting creative industries and supporting a more creative economy are seen as the keys to Thailand‟s efforts to move beyond low and middle-level manufacturing and agriculture towards higher-value-added activities. Such higher-valueadded business will allow higher wages while maintaining Thailand cost competitiveness and increasing its economic clout in the region. According to the World Bank, moving up the value-added ladder is critical for Thailand to avoid the “middle-income trap” that could stall growth, depress income and affect quality of life. Prime Minister Abhisit Vejjajiva underlined the importance of this focus on the creativity in his speech at the opening of “Five Year OKMD Sanook Kid Settakij Sangsan” on 12 July 2009. He said: “…The future of Thailand’s economy depends on her value-added capacity through minimizing the use of natural resources. Thailand’s future is about its efficiency in utilizing the knowledge, talents, management as well as her creativity to add and modify what we already have. Such is a process of dynamic development which will strengthen Thailand’s economy. The most important thing is that it is sustainable development. Development based on this principle is a dynamic, strong, and sustainable process...” 3 The terms „Creative Industries‟ and „Creative Economy‟ are different. Creative industries refer to those industries that are based on individual creativity, skill and talent, with the potential to create wealth and jobs through developing intellectual property. Under the creative economy concept, a creative perspective can be also applied to almost everything in the economy, such as the conventional manufacturing and conventional service, town planning, and urban transport, etc. Still, the creative industries are at the heart of the creative economy. 4 In Section 2, we have reviewed the examples of creative industries in 6 countries: Australia, Singapore, US, China, India, and Philippines. 5 This figure based on the different definition and source of data using in the present Report. 1| Nine Programs and the Realization of Creative Economy The Thai government has announced the establishment of a “Creative Thailand Committee” chaired by the prime minister with the objective of formulating and overseeing policies based on the Creative Economy concept to support creative economic activities. The government has a plan to develop the capability to produce unique goods and services able to compete in world markets. This plan relies on the creation of value added from people‟s intelligence and continuous learning under the policy framework of the Creative Economy. The Office of Knowledge Management and Development, under the direction of the government, has begun to move forward on nine programs to support the vision of the Creative Economy throughout 2010. It is therefore important to have a clearer understanding of the creative industries in Thailand and their contribution both present and potential to the Creative Economy concept and to the overall economy. This paper attempts to quantify that contribution through an analysis of the input-output (I/O) tables for the selected industries, outline the value chains for each of these industries, provide comparative data on creative industries in other countries, assess the impact of violations of intellectual property and offer some initial recommendations for government policy improvement that will help the government achieve its stated objective of developing a creative economy. 1.1 Definition of Creative Industries While a number of countries are actively promoting their creative industries, there is no single definition of creative industries that is universally accepted. UNCTAD (2008) has summarized recent four models or definitions that attempt to provide a systematic understanding of the structural characteristics of the creative industries as follows. Model 1: UK DCMS Model This model is rooted in the United Kingdom policy to make its economy more creative in the late 1990s. In this model, creative industries are defined as „those requiring creativity, skill, and talent, with potential for wealth and job creation through the exploitation of their intellectual property‟. Model 2: Symbolic Texts Model This model explains that cultural industries arise from the critical-cultural industries tradition. The processes by which the culture of a society is formed and transmitted are portrayed in the model via the industrial production, dissemination and consumption of symbolic texts or messages, which are conveyed by means of media such as film, broadcasting, and the press. Model 3: Concentric Circles Model This model is based on the proposition that it is the cultural values of cultural goods that give these creative industries their most distinguishing characteristics. The model asserts that creative ideas originate in the core creative arts in the form of sound, text and image and that these ideas and influences diffuse outwards through a series of layers or “concentric circles”, with the proportion of cultural to commercial content decreasing as one moves further outwards from the centre. 2| Model 4: WIPO copyright model This model is based on industries involved directly or indirectly in the creation, manufacture, production, broadcast and distribution of copyrighted works. Furthermore, UNCTAD (2008) has also defined the creative industries, which is called here as Model 5 as follows: Model 5: UNCTAD Model In this model, creative industries are those involved in the creation, production or distribution of goods and services that use creativity and intellectual capital as primary inputs. The creative industries constitute a set of knowledge-based activities, focused on but not limited to arts, potentially generating revenues from trade and intellectual property rights. They comprise tangible products and intangible intellectual or artistic services with creative content, economic value and market objectives. They range from traditional arts and crafts, publishing, music, and visual and performing arts to more technology-intensive and service-oriented activities such as film, television and radio broadcasting, new media and design. Moreover, creative industries are at the cross-roads of artisan, services and industrial sectors that now constitute a dynamic new sector in world trade. UNCTAD calls the creative economy “an evolving concept based on creative assets” and says it can foster “income generation, job creation and export earnings.” Table 1 below lists the industries considered “creative” in each of the five models. There are still ongoing debates about the scope of creative industries, and none of above definitions is wrong. In this paper, we use the definition of Model 1: UK DCMS Model that is used in the United Kingdom and Singapore6. Additionally, we have included science and research and development (R&D) in our definition of creative industries as there are major economic gains to be derived from intellectual property stemming from scientific research and increased cooperation between science and industry. 6 Toh Mun Heng, Andrian Choo, and Terence Ho (2003), Economic Contributions of Singapore‟s Creative Industries, Economics Division, Ministry of Trade and Industry, Singapore. 3| Table 1: Classification of the Creative Industries 1. UK DCMS model 2. Symbolic texts model 3. Concentric circles model Advertising Architecture Art and antiques market Crafts Design Fashion Film and video Music Performing arts Publishing Software Television and radio Video and computer games Core cultural industries Advertising Film Internet Music Publishing Television and radio Video and computer games Peripheral cultural industries Creative arts Borderline cultural industries Consumer electronics Fashion Software Sport Core creative arts Literature Music Performing arts Visual arts Other core cultural industries Film Museums and libraries Wider cultural industries Heritage services Publishing Sound recording Television and radio Video and computer games Related industries Advertising Architecture Design Fashion Source: UNCTAD (2008) 4| 4. WIPO copyright Model Core copyright industries Advertising Collecting societies Film and video Music Performing arts Publishing Software Television and radio Visual and graphic art Interdependent copyright industries Blank recording material Consumer electronics Musical instruments Paper Photocopiers, photographic equipment Partial copyright industries Architecture Clothing, footwear Design Fashion Household goods Toys 5. UNCTAD Model Heritage – Traditional cultural expressions: arts and crafts, festivals and celebrations; and – Cultural sites: archaeological sites, museums, libraries, exhibitions, etc. Arts -Visual arts: painting, sculpture, photography and antiques; and – Performing arts: live music, theatre, dance, opera, circus, Puppetry, etc. Media – Publishing and printed media: books, press and other publications; and – Audiovisuals: film, television, radio and other broadcasting. Functional creations – Design: interior, graphic, fashion, jewellery, toys; – New media: software, video games, and digitalized creative content; – Creative services: architectural, advertising, cultural and recreational, creative research and development (R&D), digital and other related creative services. 1.2 Creative Industries in Thailand Since our analysis will be based on an Input-Output table (I/O table), the choices of sectors must be consistent with both our selected definition in Section 1.1 as well as the classification of the sectors in the I/O table and the availability of data. Accordingly, the creative industries selected for this study are shown in Table 2 and a more detailed breakdown of these sectors is shown in the Appendix. Table 2: Thailand‟s creative industries in the present study I-O Code Description of Industry 080 Wooden furniture and fixture 083 Printing and publishing 088 Drug and Medicine 132 Jewelry and related articles 168 Research1/ 172 Motion picture production 173 Movie theatre 174 Radio, TV, and related services - Information Technology2/ Source: NESDB 1/ The research sector will be discussed as one of enabling factors of Thailand‟s creative industries. 2/ There is no separation of Information Technology in the 180 sector I-O table. However, we included this sector to see its contributions to Thailand‟s economy through the National Statistical Office (NSO) survey data. However, the data seem to be underrepresented. The present report is divided into two parts according to the main activities involved in the study. Part I covers Activity 1: Measuring the economic contributions of Thailand‟s creative industries. The structure of this Part is as follows. The remainder of this Section (Subsection 1.2) provides an overview of Thailand‟s creative industries. Section 2 reviews the creative industries of six example developed and developing countries. Section 3 presents analysis of the estimated 2008 version of the Input-Output table, including descriptions of the data and methodologies used. The economic contributions of Thailand‟s creative industries are discussed in Section 4. Part II of this Report presents the findings from Activity 2: Assess the loss due to IPR infringement in four industry cases. Section 5 provides the framework of analysis and the monetary effects of IPR infringement. In the remainder of this part we present a more indepth study of four industry cases to examine the broader effects of IPR infringement. Information on the movie, music, Information Technology (IT), and pharmaceutical industries are presented in Sections 6, 7, 8, 9 respectively. Section 10 then reviews implications for Thailand‟s development and offers some recommendations for improvement. 5| 1.2.1 Wooden Furniture and Fixture Industry (I-O code: 080) 1.2.1.1 Market Structure and Value Chain In 2008, the production of the wooden furniture and fixture industry was approximately 10.06 million pieces, a decrease of 39.76% from the previous year. The recent financial crisis in the United States led to global economic recession and shrinking purchasing power, especially in Thailand‟s major export markets such as the United States, Japan, and the United Kingdom. However, domestic sales of the wooden furniture and fixture industry in 2008 reached approximately 3.35 million pieces, an increase of 39.58% from the previous year due to growth in the high-end market. Demand also increased because of a series of housing and furniture fairs and the government stimulus package boosting the real estate sector. Table 3: Manufacturing and sales of the wooden furniture and fixture industry Unit: million pieces 2006 2007 2008e1/ Manufacturing Domestic sales 18.46 3.73 16.70 2.40 10.06 3.35 Source: IT center, Office of Industrial Economics Note: 1/ estimated data Exports of the wooden furniture and fixture industry in 2008 totaled 1,109.39 million US dollars, a decrease of 3.55% from the previous year apparently due to the economic downturn in major export markets, such as the United Kingdom, Japan and the United States. The export of transformed wooden products grew at the rate of 4.32%. The determinant of such growth is an expansion of the alternative markets such as Australia, ASEAN, South Asia and, Middle East. Table 4: Exports of the wood and furniture industry Industry 1. the wooden and fixture 2. the wooden product 3. the transformed wooden Total 2006 2007 1,198.69 364.86 697.32 2,160.87 1,150.16 379.58 807.37 2,337.11 Unit: Million USD 2008e1/ 1,109.39 357.44 971.41 2,438.24 Source: Ministry of Commerce Note: /1 estimated data In 2008, imports of wood and wooden products were worth 679.15 million USD, an increase of 11.23% from the previous year. The major import was the wooden materials, which are mostly the solid wood including logs and the wooden products. Logs were imported from Myanmar and Malaysia, while the wooden products and the transformed wooden products came from Malaysia, Laos and, the United States. 6| Table 5: Imports of the wood and furniture Industry Unit: Million USD 2008e1/ Industry 2006 2007 1. logs 2. the transformed wooden products 3. fiber woods 4. other wooden product 110.76 374.97 96.34 90.94 356.27 113.39 124.52 370.15 126.42 45.13 49.99 58.06 627.20 610.59 679.15 Total Source: Ministry of Commerce Note: /1 estimated data Thailand‟s wooden furniture and fixture industry has shown steady growth for both exports and domestic consumption. Thailand has advantages due to easier availability of tropical hardwoods and wood from rubber plantations as well as high-quality skilled labor. Growth of the Thai real estate sector has driven domestic demand. International demand for Thai furniture has been driven by cost advantages coupled with the ability of Thai manufacturers to meet international product quality standards. The Thai furniture industry includes both small, craft-based firms and large volume producers. Mass producing furniture became a viable manufacturing strategy with the development of flat-pack or ready-to-assemble furniture. This innovation led firms to design, manufacture, and ship products in large quantities. Firms which mass produce furniture tend to supply products for the low to medium-price markets. At the same time Thai solid wood furniture manufacturers have retained important niche market segments for high-end, expensive and design-led products. The value chain of this industry can be described as in Figure 1 below. Manufacturers can be categorized into three groups; 7| original equipment manufacturers (OEM), which produce using the customers‟ designs and specifications for sale under the customers‟ brand, original design manufacturers (ODM), which have internal design capability for sale under the customers‟ brand and, original brand manufacturers (OBM), which have all the capabilities needed, from design to manufacturing, for sale under their own brand. Figure 1: Thai wooden furniture and fixture industry value chain Trademark Invention Patent IPR Product Design Patent Position Forestry Machinery , Seeds, Water Sawmills Production Chemicals, Machinery, Logistic, Quality Unilab, OLIC) Design, Machinery, Logistic, Quality, Paint and adhesive, etc. Healthcare) Distribution Channels Marketing and Sales Domestic wholesale, Foreign wholesale, Domestic retail, Foreign retail , OLIC, US summit, Pacific Healthcare 1.2.1.2 IP system and the wooden furniture and fixture industry ) Source: UNIDO (2003) In the above value chain, design is one of the most important functions needed to upgrade products and increase value added. Many innovative technologies are involved in production. Both of these functions require creativity that is, in turn, related to the intellectual property (IP) system. The protection of IP in the design process is typically sought through the patent system. A patent is a set of exclusive rights granted by a government to an inventor for a limited period of time in exchange for a public disclosure of the invention concerned. Under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights, patents should be available in WTO member states for all inventions, in all fields of technology, and protection available should be available for at least 20 years. The invention must be new and useful or industrially applicable. The right granted to a patentee in most countries is the exclusive right to prevent others from making, using, selling, or distributing the patented invention without permission. However, some other types of intellectual property rights are referred to as patents in some jurisdictions, such as industrial design rights that are called design patents in some places, including Thailand. A design patent right is a type of intellectual property right that protects the visual design of objects. A design patent protects such design elements as a shape, configuration or composition of pattern or color, or a combination of pattern and color in three dimensional forms. A design patent can be a two- or three-dimensional pattern used to make a product, 8| industrial commodity or handicraft. An invention patent generally involves the process of production that can style elements, structure or mechanism of the product, and the manufacturing processes involved. The scope of invention patents covers the improvement of products as well as the creation of new products. For original brand manufacturers (OBM), IP protection can also be extended to trademarks. A trademark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify to consumers that the products or services with the trademark originate from a unique source, and to distinguish its products or services from those of other entities. A trademark is a type of intellectual property, and typically includes a name, design, word, phrase, logo, symbol or image. The owner of a registered trademark may sue for trademark infringement to prevent unauthorized use of that trademark. Registration is not required, but an unregistered mark may be protectable only within the geographical area where it has been used or in geographical areas into which it may be reasonably expected to expand. Businesses typically use their trademarks to add value to their products or services. 1.2.2 Printing and Publishing Industry (I-O code: 083) 1.2.2.1 Market Structure and Value Chain The printing and publishing industry has developed steadily in support of economic and social development with particularly important roles in the areas of education, entertainment and information and knowledge dissemination. The main factor in the industry‟s most recent growth was the opening of bookstores in 2007 and 2008, especially in convenience stores. The value of trade book sales in 2007 was around 18 billion baht, of which 88% was obtained from the sales of 110 large and medium-sized publishing houses. The rest of trade sales were generated by 381 small-size publishers who were registered members of the Publishers and Booksellers Association of Thailand (PUBAT) Table 6: Numbers of publishers categorized by size Category Large Publishing House1/ Medium Publishing House2/ Small Publishing House3/ Total 2003 2004 2005 Unit: houses 2006 2007 20 44 310 374 25 54 354 433 30 65 380 475 36 61 395 492 40 70 381 491 Source: PUBAT Note: 1/ revenue more than THB 100 million 2/ revenue more than THB 30 million 3/ revenue less than THB 30 million In 2007, about 955 new titles were launched per month. Surveys indicate that, on average, Thais read only two books for pleasure and spend about 285 baht on books per year. Table 7: Amount of money spent on books (per head) Category Book expense/year Source: PUBAT 9| 2003 2004 2005 2006 Unit: THB 2007 166.42 210.55 239.78 259.93 285.54 There was a steady increase in the number of publishers and bookstores in Thailand during 2003–2007. The overall growth rate of publishers was 31.2% and of bookstores was 182% over the five years. The introduction of “Book Smile” in 7-11 chain stores in 2007 contributed significantly to the dramatic increase in that year. Table 8: Numbers of publishers and bookstores in Thailand Category 2003 2004 2005 2006 2007 Publisher Bookstores Total 374 678 1,052 433 759 1.192 475 848 1,323 492 955 1,447 491 1,913 2,404 Source: PUBAT Table 9: Numbers of new titles launched in Thailand Category 2003 2004 2005 2006 Unit: titles 2007 New titles/year New titles/day New titles/publisher/year 10,108 27.70 27.02 11,103 30.40 25.64 11,651 31.90 24.53 11,201 30.80 22.83 11,455 31.40 23.33 Source: PUBAT In comparison with Thailand‟s GDP, the size of the book business in Thailand is small, but it appears relatively immune to the ups and downs of the economy. The important factors influencing the book business in Thailand seem to be the government‟s education policy, authors‟ creativity, efficient book business management and networking in the book business. The value chain of the printing and publishing industry is shown in Figure 2 below. . Table 10: Book revenue and Gross Domestic Product (GDP) Category Book revenue GDP Book revenue/GDP Source: PUBAT 10 | 2003 10,500 5,928,975 0.17 2004 2005 2006 13,100 15,000 16,900 6,503,488 7,107,962 7,716,225 0.20 0.21 0.22 Unit: THB 2007 18,000 8,485,200 0.21 Figure 2: Thai printing and publishing industry value chain IPR Copyright Position Content Creation Creativity Production R&D, Machinery, Logistic, Quality, Printing technology Distribution Channels Wholesale, Retail, Logistic Marketing and Sales Internet, Publishing, etc. Source: Fiscal Policy Research Institute 1.2.2.2 IP system and the printing and publishing industry In the publishing industry, especially the book industry, the business process is closely related to copyright. Copyright is a form of intellectual property protection that gives the author of an original work exclusive rights over that work for a particular time period, including its publication, distribution and adaptation. After that period, the work enters the public domain. Copyright applies to the expression of an idea or information that is substantive and discrete and accessible through a medium. Some jurisdictions also recognize the "moral rights" of the creator of a work, such as the right to be credited for the work. Copyright may provide protection to a wide range of creative, intellectual, scientific, or artistic forms, or "works". Different jurisdictions have somewhat different rules, but copyrighted works typically include novels, plays, poems, articles, theses, reports, musical composition, audio recordings, dances, paintings, drawings, sculpture, photographs, and software. Copyright has been standardized internationally, including in Thailand, to last 50 years after the authors‟ death. In some countries, copyright owners must go through required formalities to establish copyright, but most, including Thailand, recognize copyright in any completed work, without formal registration. Generally, copyright is enforced as a civil matter, though some jurisdictions do apply criminal sanctions. However, in the case that the work was created by several authors, the protection continues to subsist until the 50 years after the death of the last surviving co-author. But if every co-author died before the publication of the work, the copyright protection is provided for a period of fifty years after the first publication. In Thailand, the provisions on infringement of copyright in the Copyright Act B.E. 2537, cover reproduction or adaptation, communication to the public, letting of the original or 11 | copies, re-broadcasting, selling, distributing and importing the copyrighted work. However, there are exceptions from copyright infringement. Copyright-related action that is not an exploitation of the work and does not any render negative impact on the copyright owner is not considered an infringement of copyright. Such actions include personal use, use as questions in an examination as well as for not-for-profit research, teaching, studying, commenting, criticizing and reporting as long as there is an acknowledgement of the copyright ownership of the work. In 2008, research showed that Thailand has become one of the few pirate book exporters in the world. Shipments of high-quality, pirated versions of academic and professional books from Thailand have been seized. Domestically, illegal photocopying, along with unauthorized translations, adaptations and compilations has a significant role in the educational market. The International Intellectual Property Alliance estimated that losses due to book piracy in Thailand amounted to about 37 million USD in 2008, making Thailand the eighth leading book copyright violator in the world. IIPA and the publishers have urged government initiatives to achieve a reduction in the level of piracy, but would like to have input prior to the launch of any initiatives, given the important interests at stake for copyright owners in general and publishers in particular. 1.2.3 Pharmaceutical Industry (I-O code 088) 1.2.3.1 Market Structure and Value Chain In 2008, the pharmaceutical industry manufactured 25,184.5 tons of product, a decrease of 2.2% from the previous year. Sales totaled 24,480.5 tons of products, a decrease from the previous year of 1.1%. The costs of making pharmaceutical products increased because of cost factors such as materials and transportation. Consequently, some manufacturing moved to lower cost countries, such as Indonesia. Table 11: Manufacturing of the pharmaceutical products Type of Product Pill Potion Capsule Injection Tincture Cream Powder Total 2006 5,452.7 13,007.7 570.5 409.5 122.5 2,082.8 3,821.3 25,467.0 Source: IT center, Office of Industrial Economics 12 | 2007 5,823.0 12,471.4 652.9 431.6 117.7 2,343.4 3,906.6 25,746.6 Unit: Tons 2008e 5,820.6 12,572.2 746.8 506.3 108.8 2,076.0 3,353.8 25,184.5 Table 12: Sales of the pharmaceutical products Type of Product Pill Potion Capsule Injection Tincture Cream Powder Total Unit: Tons 2008 1/ 2006 2007 5,256.5 14,927.4 668.9 310.2 122.9 2,140.5 466.0 23,892.4 5,617.4 15,348.7 771.2 309.4 115.5 2,071.5 514.5 24,748.2 5,735.2 15,319.3 782.4 347.9 108.6 1,707.4 479.7 24,480.5 Source: IT center, Office of Industrial Economics 1/ Estimated data Imports of pharmaceutical products in 2008 reached 33,481 million baht, an increase of 21.3% from the previous year. The major origins of Thai pharmaceutical imports were France, the United States, Germany, Switzerland and, the United Kingdom. Together these countries accounted for 45% of total imports. Most of the imported products were higher-end patented pharmaceuticals that cannot be produced domestically. Double-digit growth of pharmaceutical imports was caused by a national health campaign and the growth of private hospitals. Exports of pharmaceutical products in 2008 were worth 5,446.8 million baht, up 12.1% from the previous year. The major export destinations for Thai pharmaceutical exports were Vietnam, Myanmar, Cambodia, Malaysia, Hong Kong and Philippines. This group of countries represented approximately 70% of total exports. The highest growth export market was the Philippines because Thai entrepreneurs found it relatively easier to register their pharmaceutical products there. However, Thai entrepreneurs have further to go to upgrade product standards to the international level and to be able to compete with producers in Malaysia and Singapore. Table 13: Imports and Exports of the Pharmaceutical Products Unit: millions THB Imports Exports Source: Customs 1/ Note: Estimated 2006 2007 20081/ 26,239.7 4,340.7 27,604.5 4,860.1 33,481.0 5,446.8 Generally, drug manufacturers in Thailand can be classified into four groups: Multi-national corporations (MNCs) that produce active ingredients and create pharmaceutical formulations. Thai-owned companies that primarily focus on producing pharmaceutical formulations and, to a lesser extent, on manufacturing active ingredients. Government agencies, the Government Pharmaceutical Organization (GPO) and the Defense Pharmaceutical Factory (DPF), which primarily prepare pharmaceutical formulations for the public medical establishment. However, the GPO still has the benefits of the government‟s former regulation of the 13 | pharmaceutical market and continues to hold a near monopoly over supplies to the public sector. According to regulation, public hospitals are legally obliged to purchase 80 percent of their pharmaceuticals from the GPO and only 20 percent from the private organizations. The pharmaceutical industry in Thailand is mostly involved in formulating active ingredients and manufacturing generic products. The number of local manufacturing companies is limited, thus Thailand relies on imports. The domestic pharmaceutical industry does not undertake much R&D, largely because neighboring countries, such as Singapore offers companies stronger incentives and better protection of intellectual property. Figure 3: Thai Pharmaceutical Industry Structure and Value Chain Thai Pharmaceutical Industry Private enterprises Government enterprises Government Pharmaceutical Office (GPO) IPR CBD, Invention Patent Defense Pharmaceutical Factory (DPF) Compulsory licensing Local companies Multi-national companies Trademark Position R&D Production Distribution Channels Marketing and Sales GPO, MNCs (Diethelm, ZuelligPhar ma, OLIC, US summit, Pacific Healthcare) MNCs (Diethelm, Pharmalink, OLIC, Innovex / Quintiles) Main players University , MNCs GPO, MNCs (Boots, Takeda, Otsuka, Unilab, OLIC) Source: Fiscal Policy Research Institute and Teera Chakajnarodom (2006) 14 | , OLIC, US summit, Pacific Healthcar e) Consumption 1.2.3.2 IP System and the pharmaceutical industry Thailand has signed the 1992 Convention on Biological Diversity (CBD) under which the country is obliged to give communities and individuals‟ ownership rights to indigenous plant species that are later exploited for commercial purposes. Thailand has been a CBD 7 party by ratification since January, 2004 . Thailand has a National Biodiversity Strategy and produces the National Biodiversity Reports in accordance with the convention. Thailand has also signed the World Trade Organization‟s agreement on the TradeRelated Aspect of Intellectual Property Rights, commonly known as TRIPS. The agreement is supposed to protect the rights to pharmaceutical processes and products. However, one provision in TRIPS, for the use of the patented products without authorization of the patent holder, permits countries in a health crisis situation to use compulsory licensing to prevent the exclusive rights conferred by the patent from making the product too costly. As permitted by TRIPS, recent Thai government policy has sought to lower the price of medicines through compulsory licensing, which allows the government to override a patent to meet public health needs, especially of the underprivileged who cannot afford expensive pharmaceuticals. Implementation of compulsory licensing in Thailand has aroused considerable controversy, with major pharmaceutical companies protesting Thailand‟s use of this provision in TRIPS. Table 14: Approved Registration of New Drug and New Generic Drug Unit: Number of registration Year New Drug New Generic Drug Total 2001 2002 2003 2004 2005 2006 29 27 32 27 24 28 5 12 8 22 12 17 34 39 40 49 36 45 Source: The Impact of Thai-US FTA on Local Generic Drug Industry (2007) From the number of the approved registrations of new drugs and new generic drugs, it can be concluded that the utilization of patents for pharmaceuticals is inefficient. The rate of the new pharmaceutical innovations registered through the patent process is quite low. It is presumed that the main determinants are the complications and inconvenience of the Thai patent system. 7 http://www.cbd.int/countries/?country=th 15 | Table 15: Number of Drug Registration by Patented Status Year Patented Classifieds 2001 2002 2003 2004 2005 2006 1 3 2 1 0 0 2 1 4 1 0 2 Under Consideration 0 1 1 1 0 0 No Information1/ 31 34 33 46 36 43 Total 34 39 40 49 36 45 Source: The Impact of Thai-US FTA on Local Generic Drug Industry (2007) Note: 1/ Not under consideration yet. However, when invention patents expire, trademarks come into play, providing value by supporting a brand and protecting the brand owner. Because consumers tend drugs from a trusted brand, trademarks can create enormous benefits to pharmaceutical companies who own those medicines. 1.2.4 Jewelry and related Articles Industries (I-O code: 132) The jewelry industry has generated significant income from exports because of the Thai industry‟s skills in jewelry design, gem cutting and glyptography. The export value of jewelry is about 8,270.07 million US$ or 277.874 billion baht8. Some 80% of the companies in the gem and jewelry industry are the small and medium-sized enterprises (SMEs). About 48,800 workers are employed in these companies9. According to Thailand‟s NESDB I-O table, Jewelry and Related Articles are defined as precious stones, diamonds, pearls, articles of jewelry and parts thereof, articles of silver, articles of gold, articles of other precious metals, limitation jewelry, synthetic precious stones, unwrought gold and other articles of precious metals. Gems constitute the largest share of the exports of Thailand‟s jewelry and related articles sector (see Figure 4). The value chain is shown in Figure 5. 1.2.4.1 Market Structure and Value Chain Gems constitute the largest share of the exports of Thailand‟s jewelry and related articles sector (see Figure 4). The value chain is shown in Figure 5. 8 9 Information and communication technology centre with corporation of the customs department, Ministry of Commerce. The Office of Industrial Economics 16 | Figure 4: Thailand‟s Export Structure for jewelry and related article in 2007 Source: Department of Export Promotion. Due the depletion of indigenous raw materials, most raw materials are now imported. Therefore, Thailand has had to focus on its capabilities in gem cutting, jewelry setting and jewelry design in order to maintain sales to both domestic and foreign markets. Currently, the Thai domestic market accounts for roughly 20% of Thailand‟s gem and jewelry production with the rest being exported. The major export markets are Hong Kong, Australia, Switzerland, the United States, and Belgium and the value of these markets has grown significantly over the past three years as shown in Table 16. 17 | Figure 5: Thai Precious stones and Jewelry Industry Value Chain Trademark Trade secret IPR Position Mining Selecting and Gem cutting Precious stone (i.e. Diamond, color stones, pearl, precious metal) Sawing, Bruting (shape roughly) and cutting Patent Jewelry Manufacturing Distributing Design, Logistic, Quality, Domestic market (20%), foreign market (80%) Marketing and Sales Source: Fiscal Policy Research Institute Table 16: Exports value of gem and Jewelry categorizing by countries No. 1. 2. 3. 4. 5. 6. Country Hong Kong Australia Switzerland U.S.A Belgium Other Total Value: Million USD 2006 2007 370.88 897.70 286.61 603.50 208.90 581.97 938.83 1,026.81 270.25 269.73 1592.82 2002.04 3,668.29 5,381.75 2008 1,527.37 1,431.64 1,258.97 1,075.96 316.96 2659.17 8,270.07 Source: Information and communication technology centre with corporation of the customs department, Ministry of Commerce 18 | Figure 6: Export‟s value of gem and Jewelry since 2005-2009 Source: Department of Export Promotion. Thailand has been famous for gem cutting for a long time and has become a global center for trading gems and jewelry. The lack of research and development (R&D) in the industry, however, does not bode well for the future, especially since Thailand does not have a competitive edge in wages for low and medium-skilled workers compared to neighboring countries. 1.2.4.2 IP System and the jewelry and related article industry The gem and jewelry industry is considered particularly creative in that articles need creativity in both the pattern of gem cutting and the ornament design. In this regard, IP rights have become more important in supporting this industry. In comparison to mass-produced, machine-made products, it is much more difficult to produce high-quality counterfeits of jewelry due to demanding skill requirements. So, while good designs can still be copied, it is somewhat easier to limit the number of copies that a counterfeiter can make. Also, trade secrets play an important role in the gem selection and stone treatment processes. 1.2.5 Motion Picture Production and Movie Theatres (I-O codes: 172 and 173) 1.2.5.1 Market Structure and Value Chain Because there is a close relationship between the motion picture production industry and the movie theatre business, this review considers both industries concurrently. We describe the industry value chain and information such as the market share of Thai movies and Hollywood movies, the number of movies in the theatres per year and the types of movies shown. 19 | From Figure 7, it can be seen that the Thai movie industry has three main parts: production, distribution and marketing, and exhibition. In the other words, the movie value chain begins with a film-script and ends with the audience experience. More details are shown below. Figure 7: Value Chain of Thai Film Industries Pre-production, Distribution Production, And Post-production Marketing Motion Picture Production Theater Consumption by Channel Audiences both at home and in Other theaters Channels Movie Theaters Source: Adapted Eliashberg et al. (2006) Motion Picture Production Figure 8: Motion Picture Production Industry Value Chain Copyright IPR Trademark Pre-production Production Content Creation Film Post-production Position Film Plotting, Scriptwriting, Audition etc. Sound Mix production Dressing, lighting, timing, acting etc. Source: Fiscal Policy Research Institute 20 | Film editing The background music of a film Distributing & Exhibiting Theatre, CDs, DVDs, Generally, movie production requires time, talent, creativity and cooperation with many partners in order to be successful. Although, there are several differences in details, production also has three main parts: pre-production, production, and post-production. Pre-production This first part prepares for actual movie production. It begins with a movie concept, usually embodied in a film-script, which then moves to budgeting and financing, casting, finding locations and hiring the production crew. The key roles in this first part are: scriptwriter, director, producer, financier, distributor, actors and actresses. Production In this part, the movie concept is converted to sound and images on film. Key roles are director, producer, cinematographer, actors, actresses, set-makers, special effects experts, camera operators, lighting experts, costume designers, stunt persons and many others who all must work cohesively together. Post-production Before the film will be shown in the theater, the last part of the process has to be completed. Key roles are director, editor, special effects experts, composer, musician and sound expert. During 2002 – 2007, five companies took the major share of motion picture production in Thailand: i) Sahamongkol Film, ii) R.S. iii) GTH, iv) Five Star and v) Pranakorn Film as shown below. Table 17 demonstrates that the Thai motion picture industry is an oligopoly. Table 17: A Number of Thai films in the theatres during 2002 – 2007 Company Sahamongkol film R.S. GTH Five Star Pranakorn Film Total Big 5 Others Total 2002 2003 7 14 1 6 0 1 6 5 1 2 15 28 (68.1%) (58.3%) 7 22 20 48 2004 12 5 3 1 1 26 (57.7 %) 19 45 2005 14 5 3 3 4 27 (71.0%) 11 38 2006 18 5 6 2 4 36 (81.8 %) 8 44 2007 15 4 6 2 7 34 (73.9 %) 12 46 Source: Entertain Magazine 2003-2007 and http://www.pantip.com/cafe/chalermthai/release/release-2008.html The revenues of the five major production companies are shown in Table 18 Sahamongkol Film generated the highest revenues, with over THB 500 million per year in both 2005 and 2006. 21 | Table 18: Revenue from ticket sales by company, 2003 – 2007 Unit: Million THB Company 2003 2004 2005 2006 Sahamongkol film 265.0 266.0 558.6 509.9 R.S. 133.5 106.5 137.9 195.1 GTH 137.6 225.8 132.0 287.0 Five Star 48.3 34.2 30.7 21.5 Pranakorn Film 22.0 12.0 174.7 63.3 Total Big 5 606.40 644.5 1,102.4 1,161.5 (58.3%) (57.7 %) (71.0 %) (81.8 %) Others 20 19 11 8 Total 48 45 38 44 Source: Entertain Magazine 2003-2007 Movie Theatre (Exhibitions) With the development of entertainment technologies, are no longer limited to distribution to theaters. The value chain of movie theatre industry is shown in Figure 9. Other distribution channels have become popular including VCDs, DVDs (both sales and rental), cable TV and free-to-air TV. Meanwhile, the downloading of movies from the Internet is not available, but this channel also appears to be growing. The point is that the various distribution and exhibition technologies each bring with them new challenges to the protection of the intellectual property in movie production. Figure 9: Movie theatre industry value chain IPR Copyrights Position Location Capital city Designing & Constructing Cinema selecting Audience Exhibition Architecture, interior decoration, chair etc. Source: Fiscal Policy Research Institute Table 19: Number of Branches and Theater for two main theater chain companies Company Major Cineplex Plc, S.F. Cinema city Co, Ltd. Name of Theater Chain Major Cineplex, EGV, Paragon Cineplex and Esplanade Cineplex S.F. Cinema City, S.F. World Cinema and S.F.X. Cinema Total Sources: Annual Report No.56-1 by year 2008 22 | No. Branches No. Theaters 34 235 Max No. Seats 58,850 11 90 NA 46 325 NA Most of Thailand‟s theaters belong to two companies. The first is Major Cineplex public company and the second is S.F. Cinema City Company limited. In its annual report, Major Cineplex reported a net profit in 2008 of 626.35 million baht. The most popular movies distributed around the world have originated from Hollywood. The relative market share of Thai and Hollywood films is in Figure 10. It confirms that most of the movies watched in Thailand still come from Hollywood and earn 62% of total revenue Figure 10: Market share of films categorized by country in 2008 Source: Entertain Magazine 2005-2007 There are few Thai movies that can be exhibited in foreign countries. Two exceptions were the action films, “Ongbak” and “Tom Yum Kung,” which received revenues of USD 46.647 million from distribution outside of Thailand. Table 20: Revenue from world exhibition Movie‟s Name Ongbak Tom Yum Kung Total Revenue (USD) 20,112,926 26.534,545 46,647,471 Source: Box Office Mojo. (http://www.boxofficemojo.com/movies/?id=ongbak.htm) 1.2.5.2 IP System and the Motion Picture and Movie Theatres Industries Most intellectual property piracy in the motion picture production and movie theater industry comes in the process of distribution in which the piracy is in terms of copyright violation. Table 21 below shows statistics on suppression of Intellectual Property Rights violations. 23 | Table 21: Arrests for Intellectual Property Rights Violations Number of arrests under copyright act B.E. 2537 2001 2002 2003 2004 2005 2006 2007 Total 2,515 3,363 4,142 5,179 5,647 6,459 4,614 31,919 Source: Department of Intellectual property Much research has shown that piracy in the movie industry is due to ineffective law enforcement. Statistics from the department of intellectual property show that arrests for IPR violations had increased over the six years. However, it is hard to identity precisely what the causes of increasing number of arrests are. 1.2.6 Radio and TV and Related Industries (I-O code: 174) 10 1.2.6.1 Market Structure and Value Chain Radio and television constitute a large part of Thailand‟s service sector. The relative size of these media industries can be determined by the size of advertisement budget spent for each medium. It appears that total advertising spending in 2005 and 2006 were 85,602 and 89,840 million baht respectively. Advertising on television made up the majority of all advertising, as shown in Table 22. Table 22: Advertising Budget categorized by type of media for 2005 and 2006 Type of Media 1. TV 2. Newspaper 3. Radio 4. Magazine 5. Theatre 6. Other Total 2006 Million (percent) THB 53,296 59.32 15,432 17.18 6,588 7.33 6,140 6.83 2,404 2.68 5,980 6.66 89,840 100.00 2005 Million (percent) THB 50.020 58.43 16,248 18.98 6,329 7.47 6,148 7.18 1,443 1.69 6,794 6.25 85,602 100.00 Change (percent) 6.55 -5.02 3.07 -0.13 66.60 11.75 4.95 Source: Nielsen Media Research (Thailand) Ltd. 11 The value chain of the radio and television industry is shown in Figure 11. Producers create programs to be broadcast on radio or television. The audience watches the programs along with advertisements and purchases advertised goods. The producers use this income to pay the broadcaster or rights owner for the advertisement. The broadcaster then uses the advertisement revenues to cover for the production expenses of the program. 10 This sector in the I-O table includes music industry. We will discuss here the radio and TV and related industries, and then music industry in Section 7. 11 Nielsen Media Research (Thailand) Ltd., (2550) “Advertising Valued for Radio and TV” (in Thai) 24 | Figure 11: Radio, TV and Related Services Industries Value Chain Copyright IPR Production Broadcasting Position Content Creation Program Documentary, Education, Entertainment etc. Radio station , online broadcasting TV stations/ Cable/Satellite TV Audience Advertising Radio station , online broadcasting TV stations/ Cable/Satellite TV Source: Fiscal Policy Research Institute The creative part of this industry has the task of creating and realizing program concepts and determines the content of the program for the producers. Types of programs are categorized by style and contents in Table 23. Table 23: Type of program categorized by style and content News and Documentary Program Imaginative Media or Entertainment Program Audience Participation and Expert Program Advertising Program - News, News Talk, News Critics - Documentary - Soap Opera - Phone in - Goods Advertising - Comedy - Education Media - Movie - Discussion and Opinion - Consumer Protection - Conversation - Cartoon - Services Advertising - Services Advertising - Campaign for Social Work - Description - Game Show Educational Entertainment Music and Song Sports Source: Ubornrat (2547)12 12 Ubornrat Siriyuwasak (2547). Mass Communication Media, Culture and Society, Chulalongkorn University Press. (in Thai). 25 | Presently, there are at least three types of radio business, classified by the channel owner‟s participation in the production process as follows: 1. The radio programs and all expenditures are produced and paid for by channel owner. 2. Channel owner gives a full concession to firms for producing contents. 3. Channel owner gives a partial concession to jointly produce contents. From the report of the government public relations department, it is found that there are three major companies renting FM as shown in Table 24. Table 24: Major Companies classified by the channel FM owner‟s participation in the production process Company 1. GMM Media Plc. 2. BEC World Plc. 3. R.S. Promotion Number of FM Channels 6 4 3 Source: TDRI (2002) The amplitude modulation (AM) channels are mostly rented by three major companies as shown in Table 25. Table 25: Major Companies classified by the channel AM owner‟s participation in the production process Company 1. R.K. Media Advertising Ltd. 2. Sila Marketing Ltd. 3. Fatima Broadcasting International Ltd. Number of AM Channels 12 12 8 Source: TDRI (2002) Free-to-air television in Thailand comprises six channels. During 2005-2006 free television has been dominated by Channel 7 and Channel 3 with the two capturing almost 50% of total market share. Table 26: Market Share for Free TV during 2005 – 2006 Station Channel 3 Channel 5 Channel 7 Modern Nine TV Channel 11 ITV 2005 22 % 16 % 28 % 14 % 3% 17 % Source: Nielsen Media Research (Thailand) Ltd. 26 | 2006 21 % 16 % 28 % 14 % 3% 18 % 1.2.6.2 IP system and radio, TV, and related services industries New technologies are playing an important role in the radio and TV industries. These new technologies, such as the Internet, cable television and optical discs allow additional impacts or externalities beyond the original radio or TV broadcast that pays for the production. The positive impact comes with the production companies ability to earn additional income from these new technology channels. The negative external impact comes from illegal production and sales of discs or bootlegging signals from cable TV. Another type of piracy is recording and distributing radio or TV programs without permission of the content owner. The music industry suffers from the same problem. Since CDs and tapes remain a key method of content distribution, the piracy problems in the music industry are similar to those of CDs or DVDs in the movie industry. 1.2.7 Information Technology (IT) Industry Generally, information technology (IT) is defined as the process, system or tools related to managing electronic data for analysis or decision making. As computer technology has developed, the definition of information technology has expanded along with the capabilities of computer software and hardware. The National Statistical Office (NSO) under the Ministry of Information and Communication Technology (MICT) has defined ICT industry to cover hardware, software, IT services, and telecommunication services. As this study will focus on IT industry only, we have defined IT industry to cover hardware, software, and IT services only. Table 27: IT Industry coverage in this study Hardware IT Hardware PC (Desktop/laptop) Personal Digital Assistant (PDA) Server/Workstation Monitor Printers Data storages Other peripherals Telecommunication equipment Data communication equipment Telecommunication infrastructure equipment Mobile phone Software Packaged software Operating system including embedded) Programming tools Utilities Applications Others Outsourced software development Computer programming World wide web page design Others IT Service Hardware and system consultancy Training and education service Data processing Database activities Supporting services (such as maintenance) Renting of computers Source: Adapted from NSO‟s 2008 Survey on Information and Communication Technology Industry 27 | 1.2.7.1 Market Structure and Value Chain In Thailand, the market structure of the IT industry is as shown in Table 28. From 2005-2008, domestic consumption was less than exports. In the domestic market, major production is hardware, 89.66% of total market value in 2008, followed by software, 4.84 %, and IT services, 5.49% respectively. The market structure of Thailand‟s IT industry, therefore, is at present rather focused on hardware items. The main importers of Thai hardware goods are the US, Laos, and Japan. The figures below show that the great majority of Thai-produced software is for the domestic market. Figure 12 exhibits a simplified value chain of the industry. Table 28: Market Structure of Thai IT Industry Unit: Million THB Domestic Market 2005 2006 2007 2008E Total Hardware Software IT services Total Hardware Sales 93,411.38 72,847.06 8,965.83 11,598.49 211,993.06 195,352.22 Share 100 77.99 9.60 12.42 Sales 108,666.32 89,671.47 4,459.62 14,535.23 Share 100 82.52 4.10 13.38 Sales 96,266.77 74,825.93 11,194.38 10,246.46 Share 100 77.73 11.63 10.64 Sales 105,438.91 94,540.67 5,108.25 5,789.99 Share 100 89.66 4.84 5.49 Source: NSO (2008) 28 | Exports Software 119.29 IT services 16,521.55 100 92.15 0.06 7.79 193,829.36 192,962.73 544.07 322.56 100 99.55 0.28 0.17 216,845.40 190,774.47 146.35 25,924.58 100 87.98 0.07 11.95 192,079.32 191,872.43 175.73 31.16 100 99.89 0.09 0.02 Figure 12: Thai Information Technology (IT) Industry Value Chain Thai Information Technology Industries Hardware - Domestic Invention Patent Software - Domestic IT Services - Domestic Entrepreneurs Entrepreneurs Entrepreneurs - Joint Venture - Joint Venture - Joint Venture Product design Patent Trademark IPR Copyright Position Creation Innovation R&D Content creators Manufacturing Distributing Marketing and Sales Design, assembly line, quality, logistic etc. Domestic and Foreign Markets Advertising, exhibiting etc. Purchaser/ consumer Source: Fiscal Policy Research Institute Table 29: Percentage of Enterprises by Industry Industry 1. Computer Hardware 2. Computer Software 3. IT Services Total Percentage 73.77 3.09 23.14 100 Source: NSO (2008) Table 29 shows the percentage of enterprises categorized by industry. It shows that most enterprises are in the computer hardware industry, while IT Services are in second place and software enterprises are relatively few. 29 | 1.2.7.2 IP System and Information Technology Industry In Thailand, the IT industry has engaged in various forms of IPRs, ranging from copyright to patent. However, copyright is the most dominant form of IPR since Thai companies have been more successful in developing intellectual property in the form of software, rather than in hardware or industrial processes. Most of the hardware manufactured in Thailand uses patents based on intellectual property originating outside of Thailand. Creativity and innovation in the IT industry, whether hardware or software, is undoubtedly dependent on the ease and effectiveness of registering and protecting IPR. It follows therefore that strengthening the IPR regime in Thailand would boost the IT industry. A report issued by the Business Software Alliance13 in 2008 found that the economic and cyber crime division of Royal Thai Police had arrested a number of operators involved in software piracy. Despite the arrests, losses due to piracy are estimated to be around 100 million baht per year. Some foreign copyright holders believe that the low level of fines for copyright infringement provide insufficient deterrent. The relatively small fines means that copyright owners often find themselves forced to agree to out-of-court settlements. This, however, means that the pirates can quickly resume business and consider the settlements or fines as a relatively minor cost of operation. 1.2.8 Research (I-O code: 168) Research industry is viewed as enabling factors for creative industries. It is the heart of development of other industries as well. 1.2.8.1 Market Structure and Value Chain Research and development expenditures of Thailand14 steadily increased during 1999 – 2003 -- 0.12% and 0.22% of GDP in 1999 and 2001 respectively. In 2003, Thailand‟s research and development expenditures totaled THB 15,499.2 million, about 0.26% of GDP. This R&D expenditure rate was lower than the target of 0.4% of GDP cited in the 6th National Research Policy and Strategy (2002 – 2006). It is also lower than key regional economic competitors such as South Korea (2.64%), Singapore (2.25%), Australia (1.7%), China (1.44%) and Malaysia (0.69%).Thailand‟s R&D expenditure in 2003 can be separated into three types: public sector, private sector and others. The proportion of private to public R&D expenditures was 0.8:1. The major obstacles to private sector investment in R&D are the high risk of R&D failure and ineffective tax benefits Table 30: Thailand‟s R&D expenditure in 2003 Unit: Million THB Public sector Private sector Other Total 7,364.6 5,927.5 2,207.1 15,499.2 Source: NRCT (2008) 13 BSA is the Business Software Alliance. The information of the software piracy reported in http://www.bsa.org/NewsandEvents 14 The National Research Council of Thailand (NRCT) 30 | R&D expenditures in 2003 also can also be separated into fundamental research -- 19 %, applied research -- 46% and experiments -- 35%. These percentages contrast with the desired proportions set in the 6th national research policy and strategy (2002 – 2006), which were research – 30 %, applied researches – 20% and experiments -- 50%. Compared to other countries in Asia, the expenditures on research and development in Thailand were quite low as seen from Table 31. Table 31: Research and Development Expenditure to GDP Unit: Percentage China Hong Kong Japan Malaysia South Korea Singapore Thailand 2003 1.1 0.7 3.2 2.6 2.1 0.3 2004 1.2 0.7 3.2 0.6 2.8 2.2 0.3 2005 1.3 3.3 3 2.4 - 2006 1.4 3.4 3.2 2.4 - Source :UNESCO Institute for Statistics, UNESCO Thailand‟s human resources in R&D are composed of three types: researchers – who typically have advanced degrees and author research papers, research assistants – who have technical degrees and work with researchers, but do not typically author papers, and research supporters – who provide technical support services. Thailand is working to upgrade both the quality and quantity of R&D human resources to meet the growing need. R&D human resources grew considerably from 1999 to 2003 during which the ratios of R&D human resources to 10,000 people were 2.44 3.87 and 6.72 in 1999, 2001, and 2003 respectively. Despite this growth, the ratio of researchers to 10,000 people was only 2.87 in 2003 -- lower than the desired rate in the 6th National Research Policy and Strategies (2002 – 2006) which was 3.5 to 10,000 people. 31 | Figure 13: Thai Research Industry Value Chain IPR Copyright, Invention Patent, Design Patent Trade Secret Invention Patent, Design Patent Invention Patent, Product Design Patent Trademark Position R&D Experiment & Pilot Research Institute, Authors, Inventors, Researchers Universities, Research Institute, Authors, Inventors, Researchers Production Research Institute, Authors, Inventors, Researchers Distribution Channels Marketing and Sales Publishers, Wholesale, Retail, Logistic Marketing Research Source: Fiscal Policy Research Institute 1.2.8.2 IP System and the research industry In the research industry, almost every link in the value chain is related to intellectual property. In the R&D process, patents are available for inventions in all fields of technology, while copyright is a form of intellectual property right for authors of original works, research papers and reports in any field deserve copyright. Trade secrets typically play an important role in the early stages of research before a copyrighted paper or a patentable invention has been created. Trade secret owner use contracts for employees that forbid release of information and provide incentives for successful research. Tight security at research installations is another means for maintaining research secrecy. Both experiments and pilot production involve invention patents and design patents. Finally, in the marketing and sales process, trademarks come into play. A trusted brand with a well-known trademark can create enormous value-added. The number of patent registrations in Thailand fell from 2002, when there were 2,466 registrations, to only 1,322 registrations15in 2005, a decrease of 54%. Worse, the number of patents registered by Thai nationals was only 505 items or 38% of total registrations in 2005. As for research publications, Thailand was ranked the 7th out of 20 Asian countries with 2,79516 articles published in 2005. Although the number of research publications in Thailand has increased steadily, it is still far behind Japan, China, South Korea, and Taiwan. 15 16 NRCT (2008) NRCT (2008) 32 | 2 Literature Review International trade in creative goods and services has expanded significantly in recent years. According to the United Nations Commodity Trade Statistics Database (UN Comtrade), the value of world exports of creative goods and services was USD 424.4 billion in 2005, which was 3.4% of total world trade and nearly double the total trade value of USD 227.4 billion for such goods and services in 1996. From 2000-2005, international trade in creative goods and services grew at an average annual rate of 8.7% (year-on-year). This increasing trend is indicative of the development of creative industries in various countries. In this section, we present an overview of creative industries from both developed countries (including Australia, Singapore and the United States) and developing countries (including China, India, and Philippines). 2.1 Creative Industries in Developed Countries 2.1.1 Australia 17 Australia‟s copyright industries can be classified into three clusters, namely core copyright industries, partial copyright industries, and copyright distribution industries. The core copyright industries encompass those industries that create copyright works as their primary products. The partial copyright industries are those in which only a portion of the products is associated with the creation of copyright works, while the copyright distribution industries distribute copyright materials to businesses and consumers. In 1999 – 2000 Australia‟s copyright industries contributed USD19.2 billion to the industry gross product (IGP), equivalent to 3.3 % of Australia‟s GDP. The share of core industries, partial industries, and distribution industries in the entire copyright industries are about 51 %, 25% and 24% respectively. Figure 14: The Relative of the 3 copyright clusters (1999 – 2000) Source: IBISWorld 17 By definition of WIPO 33 | The value-added contribution of Australia‟s copyright industries has increased dramatically in Australian economy. Over the period 1996–97 to 1999–2000 the copyright industries grew at an average annual growth rate of 5.7%. This growth significantly exceeded the average annual growth rate of the total economy over the same period (4.85% per year). Figure 15: Copyright Industries‟ Value Added Contribution as a Percentage of GDP Source: IBISWorld and Guldberg, H. H. (1994) In August 2007, 3.7% of Australia‟s workforces18 (or 345,000 people) were employed in copyright industries. This is comparable to employment levels in other sectors such as government administration and defense, and personal and other services. Employment in the copyright industries was higher than the average growth of overall employment. It grew from around 312,000 in 1995–96 to nearly 345,000 in 1999–2000, representing an average annual growth rate of 2.7 %, compared with the 2% average annual growth of overall employment. There were about 155,000 creative businesses at the end of April 2006. The software development and interactive content segment accounts for 31% of the Creative Workforce, which is lower than its share of the number of creative businesses (40 percent). Architecture, design and visual arts represented 26% of the creative workforce and 35% of creative businesses. Writing, publishing and print media is the third largest segment in employment terms with 18% of employment, a considerably higher proportion than the segment‟s 3% share on the basis of the number of businesses. The advertising and marketing segment accounts for 10% of both creative employment and creative Businesses. The two smallest segments are film, television and radio with 8% of employment and music and performing Arts with 7% share of the total creative workforce. 18 Figures are based on employment at the time of the 2001 Australian Census which is the most recent data available as of August 2007. 34 | Figure 16: Each Segment‟s share of Australia‟s Creative Workforce Source: ARC Centre of Excellence for Creative Industries & Innovation (CCI) Australia continues to remain a net importer of copyright, with imports significantly higher than exports. However considering the growth rate of exports and imports in, it is shown that the growth rate of export continued to outstrip the growth rate of imports over the period 1995-96 – 1999-2000. Table 32:Export and Import of the Copyright industries in 1995-96 – 1999-2000 Year Core Export Partial Distribute Total Core Unit: Million USD Import Partial Distribute Total 1995-96 582 293 4 879 2,048 629 13 2,690 1996-97 618 319 7 944 1,998 642 14 2,654 1997-98 659 321 10 990 2,421 680 17 3,118 1998-99 783 302 13 1,098 2,713 690 20 3,423 1999-2000 Growth rate 1995-96 / 1999-2000 ( percent) 839 342 16 1,197 2,645 749 23 3,417 44.16 16.72 300.00 36.18 29.15 19.08 76.92 27.03 Source: IBISWorld and Australia Bureau of Statistics Australia‟s economy is now built on banks, financial services, telecommunications, and food retailers. These industries are heavily dependent on intellectual property for their creation, growth and ongoing sustainability. Australia‟s IP regime provides the property rights system necessary for intangible goods to be traded in the economy. Despite popularly being recognized as benefiting large companies, registered rights (patents, trademarks and industrial designs) are heavily used by small and medium enterprises and individual 35 | innovators to protect their property rights. They use IP for protection of their ideas, but also because it assists them in licensing their ideas for commercialization. Moreover Australia‟s IP regime also plays a vital role in securing government, domestic, industrial and foreign research and development funding. International surveys show that protection of IP is one of the primary factors when deciding where to locate research and development activities. And the benefits of R&D underwrite both the manufacturing and services sectors. And last but not least, the most importantly, the available data suggests that the IP system is well utilized by innovators. A well utilized system suggests that it is well integrated in Australia‟s economic fabric. Moreover the available data suggests that IP-dependent industries contribute significantly as a share of and to the Australian economy. 2.1.2 Singapore In Singapore, the “creative cluster” is defined as “those industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property”. This cluster is fuelled by ideas at the intersection of the arts, business and technology. It leverages the multidimensional creativity of individuals – artistic creativity, entrepreneurship and technological innovation – to create new economic value which contributes to the economy directly and indirectly. The economic impact of the fine arts in this study‟s scope can be separated into three levels: the primary, the secondary, and the tertiary economic impact. The primary economic impact of the creative industries is reflected in their direct contributions to GDP as well as employment, as shown in Table 33. Table 33: Direct Economic Contributions of Creative Industries in 2000 1/ Creative Industry IT and software services Advertising Broadcasting media Publishing industries Interior, graphics and fashion design Architectural services Art/Antique trade, crafts Performing arts Cinema services Photography Industrial design All creative industries All distribution industries Total Value-added (VA) (Million SGD) 1,137 510 229 283 187 Employment (number) VA/worker (SGD) Export (Million SGD) 14,290 5,584 3,747 4,972 4,863 79,661 91,332 61,116 56,919 38,865 312 85 25* 68 NA. 433 36 71 53 27 12 2,977 2,022 4,999 7,185 1,945 2,003 938 1,137 186 46,850 31,868 78,718 60,264 18,509 35,447 56,503 23,747 64,516 63,543 59,264 61,740 45 0.5 NA. NA.* NA. NA. 536 3,129 3,665 Source: Singapore Department of Statistics 1/ Exports for cinema services are subsumed under figures for broadcasting media in Singapore‟s Trade Classification. 36 | The secondary economic impact refers to spin-offs resulting from expenditures on creative industries. This is because the creative industries induce production in other industries as they purchase goods and services for their own production. Such multiplier effects can be traced through an input-output (I–O) table. The industry‟s output multiplier and value-added (VA) multiplier measure the total production and value-added in the economy induced by one additional unit of final demand in the industry. For instance, one additional dollar spent in the advertising industry will result in S$1.63 worth of production output and S$0.48 of value-added in the entire economy. Furthermore, it can be concluded that an industry‟s productivity is the value-added of the economy-wide output induced by one unit of final demand, and is computed as the ratio of the VA multiplier to the output multiplier. Table 34: Secondary Economic Impact of Industries Industry Publishing and printing IT and software services Broadcasting media and Performing arts Cinema services Architectural services Advertising Manufacturing average Services average National average Output multiplier 1.33 1.27 1.68 VA multiplier 0.72 0.61 0.62 Overall productivity 0.54 0.48 0.37 1.78 1.66 1.63 1.41 1.49 1.43 0.55 0.70 0.48 0.49 0.75 0.58 0.31 0.42 0.30 0.35 0.50 0.40 Source: Ministry of Trade and Industry, Singapore I-O table (1995) The economic value of the creative industries could multiply when they are adopted and commercialized by other services and manufacturing industries. A tertiary economic impact could arise from considering creative industries as upstream economic activities that provide inputs to other industries in the economy. Hence they constitute a major source of competitive advantage for the economy, especially in a knowledge-based economy where products and services are both knowledge-intensive and technology-intensive. The tertiary economic impact can be assessed by the utilization of creative goods and services in other sectors. A sector is known to possess economic competitiveness from the creative industries if creative goods and services are extensively used by the sector. On average, each sector of the Singapore economy acquires 0.32% of its inputs from each of the other 154 IO sectors in the economy. Compared to this average, the share of creative products in the inputs used by major industries in their production is substantial. 37 | Table 35: Tertiary Economic Impact of Creative Industries User Industry Overall manufacturing Chemicals & chemical products Electronics Machinery & equipment Transport equipment Construction Overall services Wholesale & retail trade Hotels & restaurants Transport Communications Financial services Business services Tourism Education Healthcare Creativity Utilization (Input from local creative industries as percent of total inputs) 0.79 2.32 0.63 0.90 1.22 9.96 6.11 6.42 2.91 1.57 6.88 5.97 6.89 2.42 9.70 3.55 Source: Ministry of Trade and Industry, Singapore I-O table (1995) 2.1.3 United States American copyright industries can be divided into four groups: core, partial, distribution, and copyright-related. The core industries are those industries whose primary purpose is to create, produce, distribute or exhibit copyright materials. These industries include newspapers, books and periodicals, motion pictures, recorded music, music publishing, radio and television broadcasting, and business and entertainment software. Partial copyright industries are industries where only some aspects or portions of the products can be qualified for copyright protection. These industries range from fabric to jewelry and from furniture to toys and games. The third group, non-dedicated support industries, includes industries that distribute both copyright and non-copyright protected materials to business and consumers. These industries include transportation services, telecommunications and wholesale and retail trade. The fourth group involves interdependent industries that produce, manufacture, and sell equipment, whose function is primarily to facilitate the creation, production, or use of works of copyrighted matter. They are manufacturers, wholesalers and retailers of CD players, TV sets, VCRs, personal computers and usage dependent products including blank recording material and certain categories of paper. The value-added of copyright industries in the US economy in 2004 can be summarized as below. 38 | Figure 17: Copyright Industries in the US Economy in 2004 Source: International Intellectual Property Alliance, IIPA (2006) It can be seen that the U.S. copyright industries have consistently outperformed the rest of the U.S. economy in terms of their real annual growth rates and their contributions to the overall growth of the U.S. economy. These industries also command a large share of U.S. gross domestic product and they employ millions of U.S. workers. Table 36: Contribution to U.S. economy (value-added, growth, and employment) 2004 Value-added (Billion USD) Total U.S. GDP 11,734.30 Core copyright industries 760.49 Core share of U.S. GDP 6.48 % Total copyright industries 1,300.77 Total share of U.S. GDP 11.09 % Contribution to real U.S. annual growth Core copyright industries 13.75 % Ratio: growth to share 2.12 Total copyright industries 25.36 % Ratio: growth to share 2.29 Employment (Thousands) Total U.S. employment 131,435.00 Core copyright industries 5,344.00 Core share of U.S. 4.07 % Total copyright industries 11,206.60 Total share of U.S. 8.53 % Source: IIPA (2006) 39 | 2005 12,487.10 819.06 6.56 % 1,388.13 11.12 % 12.96 % 2.00 23.78 % 2.14 133,463.00 5,380.40 4.03 %t 11,325.70 8.49 % In addition, the compensation paid to U.S. workers in the copyright industries consistently and substantially exceeds the average compensation level paid to U.S. workers as a whole. Finally, the copyright industries continue to play an increasingly prominent role in the growth of U.S. exports. Table 37: Compensation per employee (USD) Average U.S. compensation Core copyright industries Ratio: Core to U.S. Total copyright industries Ratio: Total to U.S. Source: IIPA (2006) 2004 2005 48,136 66,997 1.39 60,621 1.26 49,828 69,839 1.40 66,727 1.26 Table 38: Foreign Sales and Export for Selected Industries Unit: Billion USD 2004 2005 Selected core copyright industries Chemicals and related product (not including medical and pharmaceutical products) Medical and pharmaceutical products Motor vehicles, parts, and accessories Aircraft and associated equipment Primary and fabricated metal products Food and live animals Source: IIPA (2006) 106.23 23.98 1110.82 25.95 23.98 67.64 42.09 41.98 45.48 25.95 76.26 49.79 50.72 48.29 The intellectual property (IP) generated by U.S. companies is critical to America‟s prosperity and leadership in the global economy. America‟s IP-intensive industries employ nearly 18 million workers, account for more than 50% of all U.S. exports, and represent 40% of the country‟s growth (Department of Commerce). Moreover U.S. intellectual property is worth $5 - 5.5 trillion US dollars (U.S. Chamber of Commerce). 2.2 Creative Industries in Developing Countries 2.2.1 China The Chinese government has focused on the new era of creative industries and the development of a “knowledge-based society” in its development plans since 2006. The number of creative clusters in China has explosively jumped from some 50 clusters to more than 200 clusters in only three years19 as shown in Figure 18. 19 Xiaodong Fu and Hanlu Xu (2009), The origin of explosive development of creative industries in china, presented in Regional studies association annual conference 2009. 40 | Figure 18: Accumulated number of Creative Cluster in 12 Cities in China20 Source: Xiaodong Fu and Hanlu Xu (2009) The rapid growth rate of creative industries is most marked in the coastal area, especially Shanghai, and Beijing. Other parts of China are gradually developing creative industries. As shows in Figure 18, there are 219 creative industries clusters in China, including 75 clusters in Shanghai and 21 clusters in Beijing. These areas account for 34.25% and 9.59% of the total number of creative clusters respectively. Surprisingly, the Chinese government has not officially provided a classification on creative industries. Zhang (2007)21 had attempted to classify the creative industries clusters as shown in Table 39. Table 39: Creative Clusters in China 1) 2) Legal Services 3) Publishing 4) 7) 10) 13) Gardening, Display Arts & Porcelain Metal Arts Lacquer Arts Flower Painting Arts Natural Fiber Knitting 5) 8) 11) 14) Consultancy & Surveying Advertising IPR Services Tourism Organization 6) 9) 12) 15) 16) Embroidery 17) Other Business Services 18) 19) Carpets 20) 21) 22) Jewellery & Related 23) 25) 28) Other arts & crafts Telecommunication 26) 29) 31) Internet Info Services 32) Engineering Research & Development Agriculture Sciences & Development Medical Research & Experiment Engineering Technology & Planning Other Professional Services 34) Broadcasting & TV transfer Satellite Transfer Services Computer Systems Services 35) Intermediary for Technology 36) Radio Broadcast TV Broadcast Film Music & Video Production Artistic Creation & Performance Arts & Performing Arts Sites Archaeology Relics & Protection Museum Community Cultural Activities Culture & Arts Brokerage Other Culture and Arts 38) 41) Other Scientific Services Tourism Site & Management 39) 42) Sports Organization Sports Sites 37) 40) 20 24) 27) 30) 33) These cities are Beijing, Shanghai, Nanjing, Tianjin, Shijiazhuang, Qingdao, Guangzhou, Changsha, Shenzhen, Chongqing, Chengdu and Hangzhou. 21 Zhang, J. (2007). Development of Creative Industries in China, Beijing, China‟s Economy Publishing. 41 | 43) 46) 49) 52) 55) Data Processing Other Computing Services Public Software Other Software Business & Management Consultancy Source: Zhang, J. (2007) 44) 47) 50) 53) 56) Haircutting & Beauty Saloon Wedding Services Photography & Film Development Other Education Newspaper 45) 48) 51) Other Sports Indoor Entertainment Scheme Parks 54) 57) Leisure & Exercises Other Entertainment Zhen Yi (2008)22 has estimated that in 2006 the economic contribution of creative industries achieved 512 billion Yuan (£34 billion) of value added and grew 17% from 2005 (Tuo, 2008)23. Internationally, China‟s export of core creative/cultural products amounted to 9.6 billion USD (£4.8 billion) in 2006 (Hu, 2006 sited in Zhen Ye, 2008) 24. In the same year, China‟s BOP from cultural services export increased by 20% to 2.7 billion (£1.4 billion) (ibid). Despite rapid growth in creative sectors over the past few years, the share of creative industries to China‟s GDP is merely 2.5 %, far from that of developed countries such as Britain (10 percent). Table 40: Effect of Including Telecommunication in China‟s Creative Industries Total main business revenue from creative industries (100 Million RMB) Total creative employment (Million persons) Total profit for creative industries (100 Million RMB) Total net asset for creative industries (100 Million RMB) Excluding Including Telecom. Telecom. 12,830.80 18,286.24 Increase after inclusion (%) 30 1,529.3 2,434.8 45 t 1,946.22 3,476.75 45 11,778.49 25,852.95 54 Source: Zhen Ye. (2008) Table 40 shows how the impact of creative industries changes when we change the definition of creative industries. If we adopted the US definition25, which includes the telecommunication sector, the effect of the inclusion dramatically alters the figures for business revenue, employment, profit and net asset of creative industries. Still, it is debatable whether the telecommunication should be included as a creative industry. Only parts of the telecommunication are relevant, for example, text and multimedia messages, ringtone, games, digital contents, and software. Nevertheless, the total net asset for creative industries (excluding Telecommunication) is still highly valued, RMB 1,177,849 Million or USD 172,505.409 22 Zhen Ye. (2008). “China‟s creative industries: clusters and performances”. A working paper submitted to the annual conference of the Chinese Economist Association. 23 Tou, Z, (Jan 2008).”The Speech from the Deputy Director of Culture Market Division, Ministry of Culture”. The Fifth New Year Forum of International Cultural Industries China 2008. Beijing: Peking University. 24 Hu, J. (Jan 2008) “The Speech from the Director of Trade in Services Division, Ministry of Commerce. The Fifth New Year Forum of International Cultural Industries China 2008. Beijing: Peking University. 25 UK definition does not count telecommunication as a creative industry. 42 | million. The value added shown in the above Table indicates the significance of the creative industries in China 2.2.2 India India also has realized that promotion of creative industries can be a key strategy to alleviate poverty (Sharada Ramanathan, 2008) 26. The driving engines of India have been the four metropolitan regions: Bombay (Mumbai), Delhi, Calcutta (Kolkatta) and Madras (Cennai). Bombay is the financial capital of India, which contributes 3% of the country‟s GDP. Nearly one-third of the country‟s foreign trade, in terms of value, and a similar proportion of India‟s software exports originate from Bombay. Bangalore is now home to subsidiaries of IT multinationals such as Texas Instruments, Motorola and DELL, Phillips Software, HP Global and others27. Because computer software and telecommunication are related directly to the creative economy, it is clear that India has been successful in supporting its creative industries. Indian creative industries such as entertainment, education, edutainment and infotainment are all likely to grow. The film industry alone has contributed 22% of the entertainment revenues. Indian films, especially the mainstream Hindi film industry, or "Bollywood", dominate other entertainment segments such as music and live entertainment as well as television where popular films and film-based programs attract the highest number of viewers28. According to a recent study, the Indian entertainment industry is expected to more than double in size over the next five years – from the current level of $4.3 billion to $9.4 billion. Due to a change in behavior of the Indian consumers and an increase in the number of advertising media, advertising spending in India is set to reach USD 3,832 million by 2008. According to a study by Rakesh Basant (2004), the Indian government has implemented significant modifications in the country‟s Intellectual Property (IP) regime try. This has major implications for sectors such as the pharmaceutical, chemical, biotechnology and information technology (IT) related sectors. The study found that large IT and high-end niche area firms are pursuing IP-based growth strategies. Seeking IP protection in Western nations has led them to perceive restrictive IP regimes more positively. Survey data shows that an average IT firm in India also perceives IP protection as an important mechanism, but access to markets and relevant complementary assets continue to be seen as more important for profitability. According to the UNCTAD definition, a creative economy can be categorized into 2 major groups, i) creative goods ii) services including creative industries29. The value of India‟s exports and imports of services goods and creative services are shown in Table 41. 26 Sharada Ramanathan (2008) “Creative Economy as a Development Strategy – The Indian Perspective”. sited in Ana Carla Fonseca Reis .(2008). Editor. “Creative Economy: as a Development Strategy: a view of developing countries”. 27 Remeeta Garewai. (2005). “Creative Economy in the Developing World – the Developed and the Developing City”. AICP 41st ISoCaRP Congress 2005. 28 The confederation of Indian Industry (CII) URL: http://www.cii.in/ 29 Creative goods is Audio and Crafts, Audiovisuals, Design, Mjusic (CDs, tapes), New Media, Publishing, Visual Arts. Creative of services are calculated based on IMF Balance of Payments Statistics 43 | Table 41: The market values of Indian creative goods calculated by UNCTAD since 19962005 Unit: Million USD Export f.o.b. in million of USD Import c.i.f. in million of USD 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2,382 2,633 2,932 3,043 3,591 3,358 3,619 5,365 7,022 8,155 551 702 722 783 998 1,085 1,340 1,130 1,328 1,638 Source: United Nations Conference on Trade and Development (UNCTAD) http://www.unctad.org/creativeeconomy 2.2.3 Philippines Recently, the Philippines government has concentrated on supporting the creative industries. The government set the direction of the development of creative industries in 2006 because it realized that these industries will be a growth engine for Philippines in the future30. Moreover, the government sponsored various seminars such as “Nurturing Creativity: The 1st Philippines Creative Industry Forum”, “Philippines Ethnic Patterns: A Design Sourcebook”, “Angono Creative Hub, Creative Philippines Exhibit during Manila F.A.M.E. International” and “Reach through Regional Partners on Creative Industry” 31. These efforts led to a category mapping of Philippine Creative Industries as shown in Figure 19. Figure 19: Philippine Creative Industry 32 Source: Third Creative Industries Consultation Workshop by CII (2008) 30 The State of Philippine Competitiveness 2006: The Creative Industries – Interplay of Art, Business and Innovation. December 2006. 31 Rhea Matute. (2008). “The Creative Economy: Nurturing a Philippines Agenda”. presented in the 1st Creative Industries Initiatives (CII) workshop Forum. 32 These cities are Beijing, Shanghai, Nanjing, Tianjin, Shijiazhuang, Qingdao, Guangzhou, Changsha, Shenzhen, Chongqing, Chengdu and Hangzhou. 44 | Figure 20: Philippine export performance of selected craft product, 1997 to 2001 Philippine export performance of selected craft products, 1997 to 2001 (FOB Value in Thousand USD) 1,6717,94 Source: The Institute for Labor Studies33 Figure 20 shows data on the economic contribution of the Philippine creative industries. Total exports of craft products such as basketwork, holiday decors, fine jewelry, costume jewelry, decorative ceramics and furniture accounted for a total FOB value of $2.96 billion USD with the furniture sector contributing the bulk of exports. Figure 21: Revenues from motion picture, radio, TV and other entertainment activities 1999, 2001 and 2003 unit: Billion PHP Revenues from Motion Picture, Radio, TV and Other Entertainment Entertainment Activities – 1999, 2001 & 2003 (in billion pesos) Source: The Institute for Labor Studies, the Phillipines34 Figure 21 shows data on that total revenue from the motion picture, radio, television and other entertainment activates was around 29.1 billion pesos or $619.42 million USD in 33 “The Philippine Creative Industries: Nurturing Potentials for Employment Generation Prepared by the Institute for Labor Studies as Think Paper for the Creative Industries Sectoral Workshop, Manila. 34 “The Philippine Creative Industries: Nurturing Potentials for Employment Generation Prepared by the Institute for Labor Studies as Think Paper for the Creative Industries Sectoral Workshop, Manila. 45 | 2003 while income for service related to libraries and archives, museums and other cultural activities was around 271.4 million pesos or $5.84 million USD from Figure 22. Figure 22: Revenues from library & archives, museums, and other cultural activities – 1999, 2001 and 2003 (unit: Billion PHP) Revenues from Library & Archives, Museums, and Other Cultural Activities – 1999, 2001 & 2003 (in Million PHP) Source: The Institute for Labor Studies35 Employment in motion picture, radio, TV and other entertainment activities was an annual average of 46,373 workers for the years 1999, 2001 and 2003.or about 21% of average total employment in community, social and personal service establishments as shown in Table 42. Table 42: Employment, Selected Industries in Community, Social and Personal Services: 1999, 2001 and 2003 Industry Motion Pictures, Radio, TV etc. 1999 36,581 2001 35,452 2003 37,086 Source: The Institute for Labor Studies, the Phillipines 3 Methodology and Data In this Section, we will present the methodology and data used to quantitatively measure the economic contribution of Thailand‟s creative industries. This measurement is based on the 2008 input-output (I-O) table of Thailand. This description of methodology and data is organized into three parts. The first explains the structure of Thailand‟s I-O table and provides an example of the 2008 I-O table of Thailand. Since the I-O table of Thailand is generally published every five years and the most updated one is for the year 2000, the second part reviews some commonly used approaches for updating the I-O table and presents a way to update it by using a RAS approach. Finally, the third part explains the data used in this study. 35 “The Philippine Creative Industries: Nurturing Potentials for Employment Generation Prepared by the Institute for Labor Studies as Think Paper for the Creative Industries Sectoral Workshop, Manila. 46 | 3.1 Structure of Thailand’s I-O Table An input-output (I-O) table focuses on the interrelationships among industries in an economy with respect to the production and uses of their products and the products imported from abroad (United Nations, 1999). It shows how the output of one industry is used as an input to other individual industries and displays these inter-industry linkages in the form of a matrix. A given input is usually specified in the column of an industry and its outputs are specified in its corresponding row. This format, therefore, shows how each industry depends on all others in the economy both as customer of their outputs and as supplier of their inputs. Each column of the I-O table indicates the monetary value of an industry‟s inputs and each row reports the monetary value of an industry‟s outputs. Figure 23 shows the structure of the 2008 input-output table of Thailand. The economy is typically viewed with each industrial sector registered across the top as a consuming sector and down the side as a supplying sector. In this table, imports are treated as non-competitive imports rather than as competitive imports.36 The method of noncompetitive imports is used by many countries. It will provide basic information for the I-O table (United Nation, 1999). The main implication of the treatment of non-competitive imports is to capture a degree of import contents of intermediate and final demands. In this approach, the intermediate and final demand flows [the square box (A) and (B)] refer only to payments for domestic goods. Imports are viewed as another input that is not produced in the economy. Instead of a column, imports thus appear as a row together with payments for factors of production and indirect taxes. Figure 23: Structure of 2008 input-output table of Thailand Output distribution Input structure Industrial sector (1-180) Non-competitive imports Value added (Primary inputs) (201-204) Total Industrial sector (1-180) Intermediate consumption of domestic products (A) Intermediate consumption of non-competitive imports (C) Primary input demand (E) Total expenditure Final demand (301-306) Final demand for domestic products (B) Final demand for noncompetitive imports (D) Total Total domestic supply Source: Fiscal Policy Research Institute 36 In the use table, imports are usually classified into two types: competitive and non-competitive imports. Competitive imports include imported products that are also being produced by the domestic economy. Noncompetitive imports include products that are either not producible or not yet produced in the country. 47 | Based on the treatment of non-competitive imports, the values in the square box (A) represent intermediate consumption only of domestic products, i.e., uses of domestic products as inputs in the production process. The values in the box (B) characterize final demand only for domestic products as well. The final demand has various elements, including household and government consumption, gross capital formation and exports, and each element is considered as a single column vector. For the values of intermediate and final consumption of non-competitive imports, they are shown separately from the consumption of domestic products and represented in the box (C) and (D), respectively. The values in the box (E) represent amounts of value added referred to as primary inputs. Value added also has several elements including wage and salaries, operating surplus and depreciation. Indirect taxes less subsidy are added in order to obtain total value added at market prices (rather than at factor cost). Each element is considered as a single row vector. In summary, Figure 23 shows that domestic and imported inputs are separately consumed in the intermediate demand matrix and in final demand expenditure. The sum of total consumption for a domestic product in each row is the domestic supply of a particular product. Similarly, the sum of total consumption for imported products in the row of noncompetitive imports is the imported supply. The sum in each column is equal to the expenditures for a particular product. This input-output structure is eventually shown to obtain the balance between input and output, that is, between total expenditure and total domestic supply 3.2 I-O Table Updating Methodologies and Data In this study we mainly use an I-O table to measure economic contributions of Thailand‟s creative industries. The official I-O table is released every five years or more depending on Thailand‟s NESDB. Currently, the latest official I-O table is for the year 2000. In order to study the contribution of creative industries in Thailand more accurately, we have updated the I-O table to year 2008. The methodology is as follows. 1) We compile the value added data, the demand side data, and the imports and exports data for the year 2008 from NESDB to construct the value added bloc (rows 201-204) and demand sided bloc (columns 301-306). 2) For input structure (A) for the year 2008, we use the official input structure of the official I-O table year 2000 to be multiplied by row sums of the each sector. Now we will get an unbalanced input structure matrix A. To balance or update the coefficients in the input structure matrix A, we employ two widely-used up methodologies37: RAS RAS method is used when new information on the matrix row and column sums becomes available as in our case where rows and columns with data for 2008 are known. The new matrix coefficients are estimated by using the iterative adjustment procedure. This method is widely used to update I-O tables and SAM. Despite its 37 See Folana, Ismael, Andre Lemelin, and John Cockburn (2002) for more technical discussions of balancing or updating methodologies. 48 | simplicity, RAS method suffers from its main disadvantage: a lack of economic foundation. The Cross Entropy The cross-entropy method originated from information theory (Shannon, 1948). The estimation procedure is to minimize the Kullback-Leibler (1951) crossentropy measure of the distance between the new and the prior estimated probabilities. That is to find a new input structure matrix A of 2008, closed to an existing input structure matrix A of 2000 by minimizing the cross-entropy distance between them, with respect to all constraints. Table 43: Root Mean Square Errors (RMSE) from RAS and CE methods Method RMSE of Coefficients RAS 3.495105055 Cross Entropy 3.495105175 Source: Fiscal Policy Research Institute RSME of Flows 452031946.6 452030604.7 Table 43 demonstrates the root mean square errors (RMSE) of the balanced matrices from RAS and CE methods compared to the initial input structure matrix of year 2000. Both RMSE of coefficients and flows are almost identical between the balanced matrices from RAS and CE methods. Our results are consistent with other studies. Both methods can be mathematically proved to be the same.38 We have chosen the input structure balanced matrix from CE method as RMSE of flows is slightly smaller and we will focus more on flows at this stage. We use a new input structure matrix and other blocs then balance again to constitute the 2008 I-O table. Table 444 represents the miniature 2008 I-O model of the Thailand. 38 McDougall, Robert A. (1999), Entropy Theory and RAS are Friends, Purdue Libraries. 49 | Table 44: 2008 input-output table of Thailand (THB thousand million) Intermediate consumption of domestic product Agriculture Manufacturing Services and others Sum (1-3) Private consumption Gov Consumption Final demand Gross fixed Change capital in formation stock Exports Total final demand Total domestic supply (4) + (10) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Agriculture 1 110.5 869.8 87.0 1,067.3 350.3 1.5 0.0 19.8 56.7 428.3 1,495.6 Manufacturing 2 252.5 3,018.8 1,782.8 5,054.2 2,130.5 179.0 1,326.5 811.7 5,685.7 10,133 15,187.6 Services and others Sum (1-3) Non-competitive imports Total demand (4)+(5) 3 4 117.8 480.8 1,847.3 5,735.9 1,799.9 3,669.8 3,765.1 9,886.6 2,705.6 5,186.5 943.1 1,123.6 1,160.1 2,486.6 87.3 918.7 1,288.1 7,030.4 6,184.2 16,745 9,949.2 26,632.5 5 69.4 5,030.5 436.6 5,536.6 527.0 0.6 641.2 - - 1,168.9 6 550.3 10,766.4 4,106.4 15,423.1 Wages and salaries 7 241.3 1,138.7 1,864.6 3,244.6 Operating surplus 8 637.1 2,016.4 2,771.5 5,425.0 Depreciation Indirect taxes less subsidy Sum (7-10) Total expenditure (6)+(11) 9 65.7 654.0 824.6 1,544.4 10 11 1.3 945.4 612.1 4,421.2 382.0 5,842.8 995.4 11,209.3 12 1,495.6 15,187.6 9,949.2 26,632.5 Source: FPRI Estimates 50 | 4 Results and Discussions This Section aims to measure the economic contributions of Thai creative industries in a manner that includes the direct contributions of the industries as well as their indirect contributions to related and supporting sectors (upstream and downstream sectors). The objective is to assess for key stakeholders, particularly government policy makers, the extent to which Thailand has creative industries with large economic contributions and whether Thailand could be capable of creating even more value if the IP systems were improved and IP is better protected. As in Economic Contributions of Singapore’s Creative Industries (Ministry of Trade and Industry, Government of Singapore, 2005), this part will analyze the primary, secondary and tertiary economic impacts of Thai creative industries based on a similar framework. The explanation of these three impacts is as follows: 1) The primary impact involves the direct and quantifiable contributions of the selected creative industries to the national economy. This concerns how much these creative industries directly contribute to GDP, value added, employment and so on. 2) The secondary impact is related to the indirect and quantifiable contributions of the creative industries to the national economy. This secondary impact is due to the multiplier effect in the creative industries. It is the total effect on either output or value added, given an increase in one unit of output of a particular industry. 3) The tertiary impact involves the direct, but non-quantifiable contributions of the selected creative industries to the national economy. This concerns how much the creative industries generate industrial invention, innovation and differentiation, leading ultimately to greater economic competitiveness. We assess this impact based on the utilization of creative goods and services in other sectors‟ production. These various economic impacts will be estimated by using the estimated 180-sector input-output table of Thailand, 2008. As discussed in Section 3.1, an input-output table represents the interrelationship among industrial sectors in an economy and provides a snapshot of a country‟s economic structure. Hence, the input-output table is a powerful tool for estimations of a particular industry‟s direct contributions to various macroeconomic indicators (the primary impact) and of the utilization of creative products by industry (the tertiary impact). A number of extensions of the input-output table also make it a useful tool for policy analysis. For example, one can use the Leontief inverse to calculate “multipliers” providing a sense of the full potential impact of a particular creative industry, including an induced production in other industries (the secondary impact). The results of the primary, secondary and tertiary impacts of Thai creative industries can be shown as follows: 51 | 4.1 Primary Impact The primary economic impact is traced through the estimated 2008 input-output table of Thailand and a 2008 survey of information and communication technology industries. This impact concerns the direct economic contributions of Thai creative industries, including their contributions to sales, sales/GDP, value added, value added/GDP, employment, employment/total employment, value added/ worker, and exports. The data is shown in Table 45Error! Reference source not found.. Table 45: Direct Economic Contributions of Thai Creative Industries, 2008 Value added/ Sales* Employme nt Employ ment/ Total employ ment Sales Sales/ GDP Value added Value added/ GDP (Million THB)) (percent) (Million THB) (percent) (percent) (thousands of person) 0.27 53.5 0.29 0.22 1.44 Creative industry Wooden furniture and 55,911.1 0.50 29,906.9 fixture Printing and publishing 71,609.1 0.64 32,439.2 Drug and medicine 44,207.8 0.39 24,170.5 Jewelry and related 530,547.01 4.73 161,650.62 articles Motion picture production 13,911.0 0.12 5,397.74 Movie theatre 9,876.45 0.09 3,200.55 Radio, TV, and related 44,406.0 0.40 63,552.0 services Information technology 297,518.2 2.65 NA (IT) Total 1,067,986.91 9.53 325,274 Source: Fiscal Policy Research Institute Note: *The value added per sales of non-creative industries is 68.1 percent Value added/ Worker Exports (percent) (Million THB) (Million THB) 67.5 0.19 0.44 54,609.7 45.3 54.7 30.5 14.2 31.8 63.0 0.04 0.09 0.17 2.28 0.76 2.57 18,660.0 5,795.71 157,730.65 0.05 0.03 0.57 38.8 32.4 143.1 10.0 8.8 234.6 0.03 0.02 0.65 0.54 0.36 0.27 0.12 777.25 0.00 NA NA 445.6 1.23 NA 192,079. 2.86 41.57 875.5 2.42 0.75 429,652 In 2008, Thailand‟s creative industries contributed THB 1,067.987 million in sales and more than THB 325,274 million in value added (not including the value added from the IT industry as this value added data is not available). These accounted for 9.53% and 2.86% of Gross Domestic Product (GDP) in 2008, respectively. The jewelry and related articles industry was the major constituent of both sales (4.73% of GDP) and value added% (1.44% of GDP). In 2008, 875,500 workers (or 2.42% of Thailand‟s workforce) were employed in the creative industries. The IT industry was the industry with the highest employment, accounting for 1.23% of total employment. The jewelry and related articles industry had the largest value added per GDP of 0.97%. The creative industries, excluding the IT industry, contributed average value added of THB 750,000 per worker. The jewelry industry had relatively high value added per worker of approximately THB 2.57 million, while the printing and publishing industry had value added of 52 | THB 2.28 million per worker. This is well above the average value added per worker of THB 309,230 and nearly triple the THB 786,850 value added per worker in manufacturing. In terms of international trade, exports of the selected creative industries totaled THB 429,653 million in 2008, 7.34% of total exports, and, according to UNTAD statistics, has been growing steadily (at 5.1% per year from 2000 to 2005). The main exporting sectors were the IT sector, with exports worth about THB 192,079.32 million, and the jewelry and related articles sector, with exports worth THB 157,730.65 million. 4.2 Secondary Impact The secondary impact of creative industries is reflected in their indirect contributions. This impact is derived from the multiplier effect resulting from expenditures in the creative industries. This occurs because the creative industries induce production in other industries. For example, an increase in the final demand for 1,000 baht will cause the industry of wooden furniture and fixture to produce 1,000 baht worth of wooden furniture and fixture. Moreover, 1,000 baht worth of wooden furniture and fixture will require inputs from other industries (i.e., from saw mills and wooden construction materials; paper and paper board product; and so on) worth an additional baht 400 and for and addition baht 380 in value added to be created. An industry‟s output/value added multipliers measure the total effects on production/ value added in the economy, given an increase in one unit of final demand in that industry. For example, one additional baht of expenditure in the movie theatre industry will bring about ฿2.14 worth of output and 1.50 worth of value added in the overall economy. Figure 24: Multipliers of Thai Creative Industries National average 1.63 0.70 Wooden furniture and fixture 1.40 0.38 Printing and publishing 0.62 Drug and medicine 0.59 Jewelry and related articles 0.58 Research 1.56 1.59 1.55 1.47 0.46 Motion picture production 1.62 0.61 Movie theatre 2.14 1.50 Radio, TV, and related services 1.84 0.92 0.00 0.50 1.00 VA multiplier 1.50 2.00 Output multipliers Source: Calculation 1/ Here there is no multiplier for the IT industry as data are in other sectors in the I-O table. 53 | 2.50 Compared to the national average of output and value added multipliers at 1.63 and 0.70, respectively, the industries of wooden furniture and fixture; printing and publishing; drugs and medicine; jewelry and related articles; research; and motion picture production have lower output multipliers as well as lower value-added multipliers. On the other hand, the industries of movie theatre; and radio, TV, and related services have higher output and value added multipliers. The lowest and second lowest output multipliers belong to the industries of wooden furniture and fixture; and research at 1.40 and 1.47, respectively. This is because most of their inputs are supplied from within these industries. In contrast, the highest and second highest output multipliers belong to the industries of movie theatre; and radio, TV, and related services at 2.14 and 1.84, respectively, since these industries require the extensive outsourcing and interindustry dependence of production. The movie theatre industry depends intensively on the industries of motion picture production; other manufactured goods; and petroleum refinery and gas separation plants, while the radio, TV, and related services industry depends intensively on the post and telecommunication; motion picture production; and unclassified industries. The movie theatre; and radio, TV, and related services industries also stimulate the highest level of additional value added, given one unit increase in final demand. Their respective value added multipliers are at 1.50 and 0.92. This is due to the high value added generated within the industry, corresponding to the high commercial and mass-market value associated with their products. In contrast, the industries of wooden furniture and fixtures (with a multiplier of 0.38); and research (with a multiplier of 0.46) had the lowest value added multipliers. For the research industry, one possible explanation is that most of its products could not be sold in the mass market. 4.3 Tertiary Impact Creative industries create unique knowledge, intellectual property, content, and design that previously did not exist. They exclude, and contrast with, industries that derive value by relocating ownership of pre-existing know-how, by making a commoditized goods and services, and by maintaining or enhancing what already exists. The economic value of the creations from the creative industries contributes to industrial invention, innovation and differentiation and greater economic competitiveness when any industry has become increasingly automated and process-driven. We use a framework similar to that used in Economic Contributions of Singapore’s Creative Industries (Ministry of Trade and Industry, Government of Singapore, 2003), to investigate the tertiary economic impact through the utilization of creative products in the production of other sectors. The literature hypothesizes that a sector which uses creative goods extensively will gain greater economic competitiveness. The utilization of creative goods and services by major Thai industries is shown in Table 46. In this table, there are two different values of the utilization of each industry. This is resulted from two different definitions of local creative industries: those including and those 54 | excluding the drug and medicine, and research industries. However, the next three paragraphs will show only the results in the case of the local creative industries defined as those including the drug and medicine, and research industries. Comparison of the two cases, then, will be made. Table 46 indicates that an overall manufacturing utilizes 1.01% of their inputs from the creative industries. The petroleum refinery and gas separation plant industry has the highest creativity utilization (1.26 percent) among major industries. The motor vehicle; and special industrial machinery industries have the second and third highest consumption (0.42% and 0.08 percent), but these rates are lower than that of the overall utilization. The highest rate of creative utilization is shown in some smaller industries, especially the iron ore (21.36 percent); and natural chemical and fertilizer (9.10 percent) industries. It should be noted that creativity utilization is expected to be higher for several industries once data from the information and technology (ICT) and design industries are available and taken into account as creative industries. This is due to the close interrelationship between the IT industry and most other manufacturing industries and the value added chain-upgrading potential of the design industry. As a whole, the service sector has a creativity utilization rate of 6.31, much higher than the rate of the manufacturing sector. The utilization rate of the service sector is, however, more varied across sub-sectors in comparison to the manufacturing sector. Creative inputs figure most strongly in the hospital (29.63 percent) and the education (9.40 percent) industries owing to their extensive usage of patent-protected drugs and medicines in the hospital industry and of printing and publishing and research in education. Some smaller industries also extensively utilize creative inputs, particularly the library and museum industry (24.84 percent). Among all eight selected creative industries, the printing and publishing; motion picture production; radio, TV, and related services industries; and drug and medicine contribute the major creative inputs across all sectors. They account, on average, for 0.64 %, 0.49 %, 0.43 %, and 0.30% of total intermediate input consumption in all sectors, respectively. These sectors are, therefore, particularly important in helping local producers get a higher domestic and global market share from the higher competitiveness derived from more creative inputs. Compared to the utilization rate of local creative industries defined as those excluding the drug and medicine, and the research industry, the rate in the industries of office equipment and machinery; motor vehicles; wearing apparel; road freight transport; education; real-estate and hospitals are significantly lower. Particularly, the rate in the hospital industry substantially falls from 29.63 to 0.84 due to a large proportion of the utilization of drug and medicine input. 55 | Table 46: The Utilization of Creative Products by Major Thai Industries User industry Overall Manufacturing Petroleum refinery and gas separation plant Office equipment and machinery Motor vehicles Petroleum products Wearing apparel Special industrial machinery Creativity utilization (Inputs from local creative industries as percent of total inputs) Local creative Local creative industries industries including the excluding the drug and drug and medicine, and medicine, and research research industries1 industries2 1.01 0.80 1.26 1.04 0.08 0.04 0.42 0.05 0.02 0.19 0.22 0.05 0.01 0.19 0.004 0.004 0.08 0.08 Construction 0.32 0.31 Overall Services Wholesale trade Retail trade Restaurant and drinking place 6.31 1.41 2.99 0.15 0.15 9.40 0.09 1.72 0.22 0.45 5.46 1.41 2.99 0.14 0.09 8.85 0.08 1.66 0.14 0.43 0.43 0.42 0.67 29.63 0.67 0.84 Canning and preserving fish and seafood Electrical industrial machinery and appliances Road freight transport Education Air transport Banking service Real-estate Post and telecommunication Route and non-route of road passenger transport Hotels and lodging places Hospitals Source: Fiscal Policy Research Institute 4.4 Country comparisons Since there is still ongoing debate on the definition of creative industries, to our knowledge a systematic comparison of creative industry economic contributions among countries does not yet exist. One exception is the Creative Economy report for 2008 produced by UNCTAD. This report, however, focuses only on international trade, which will be discussed later. 56 | We have compiled available information on the size and the economic contributions of creative industries for six countries from our case studies. It must be realized that there exists some inconsistency in year of study and definition of creative industries. Despite these deficiencies, the comparisons we have produced should help to shed some light on Thailand‟s development path. Our key assumption is that the rise of creative economies is a key element of development toward developed country status and thus for any given year the level of the economic contribution by creative economies in developed countries is higher than that of developing countries. Table 47 concludes the key results of the country examples and our results on Thailand‟s creative industries. Table 47: Creative Industries Comparison among Selected Countries Share of Creative Industries to GDP Share of employment to total employment Definition of creative industries 1. Australia 3.30 % 3.70 % Model 4 19902000 2. The US 11.12 % 8.49 % Model 4 2005 1.China 2.50 % NA2/ China's definition 2006 2.Singapore 5.67 % 2.2 % Model 1 2000 3.1.Thailand/3 9.53 % 2.42% Model 1 + Pharmaceutical 2008 3.2. Thailand 9.13 % 2.33 % Model 1 2008 Countries1/ Developed countries Developing countries Year Source: Fiscal Policy Research Institute 1/. We do not include India and Philippines here because the data is not available. 2/ N.A. is data not available 3/ We separated Thailand‟s results into 2 cases: 3.1 is the case of which definition is defined in this study, and 3.2 is for the case of the same definition of Singapore‟s study for comparison purposes. In understanding this data, it is important to take the differing periods for each of the countries. Unfortunately, it was not possible to find studies using data from the same years for all of the countries. The data for Australia and Singapore is particularly old. Despite this problem, it is possible to make a couple of comparisons. Both of the developed countries studied, Australia and the United States have greater creative industries‟ share in GDP than the developing countries (more recent figures from Australia would certainly be much higher) Singapore‟s high 57 | per capita GDP could classify it as a developed country. Also in terms of share of employment in creative industries to total of employment in a country, both Australia at 3.70% in 1999-2000 and the United States at 8.49% in 2005 have high figures. China‟s creative industries‟ contribution to its economy is relative low at 2.50% of GDP in 2006. However, this is expected to grow rapidly. While almost 10 years ago, the share of Singapore‟s creative industries was 5.67% of GDP, while the current share of Thailand‟s creative industries to GDP of 9.53 %, and about 61% higher when the definitions are the same. Nevertheless, we expected the number of Singapore is growing within these 10 years. In terms of labor share, Thailand‟s current figures are slightly higher than that of Singapore‟s figure 10 years ago. This indicates that Thailand‟s creative industries development is burgeoning although still follow those in developed countries and the number of jobs created by Thailand‟s creative industries is still quite low. The current international trade statistics in Table 48 tells the positive trend in international trade. Thailand‟s export of creative goods reached nearly USD 13 billion in 2008, ranked 17th, with a world market share of 1.29%, trailing behind only the OECD countries, India and China. The creative industries in Thailand clearly have the potential to become an important growth engine for Thai exports. Table 48: Creative goods: Top 20 exporters worldwide, 1996 and 20051/ Rank 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 58 | Exporter China Italy Hong Kong United States Germany United Kingdom France Canada Belgium2/ Spain India Netherlands Switzerland Japan Turkey Austria Thailand3/ Mexico Poland Denmark Market Growth Value Share Rate ( millions of USD) Rank (percent) (percent) 2005 1996 1996 2005 2005 61,360 18,428 3 17.6 18.3 28,008 23,654 2 5.9 8.3 27,677 24,391 1 0.8 8.2 25,544 17,529 4 3.6 7.6 24,763 13,976 5 14.2 7.4 19,030 12,439 6 9.8 5.7 17,706 12,368 7 8.6 5.3 11,377 9,312 8 1.7 3.4 9,343 2.8 9,138 5,988 9 8.1 2.7 8,155 2,382 16 21.1 2.4 7,250 5,235 10 9.7 2.2 6,053 4,501 11 9.1 1.8 5,547 3,618 12 1.8 1.7 5,081 1,763 20 18.3 1.5 4,883 2,355 17 11.1 1.5 4,323 5.1 1.3 4,271 2,693 15 0.5 1.3 4,215 1,602 21 18.2 1.3 3,449 2,341 19 8.5 1 Source: UNCTAD. 1/ These figures are based on the definition of Model 5 by UNCTAD. 2/ Belgium and Luxembourg reported trade figures jointly from 1996 to 2001 and separately after 2002; 3/Trade figures for creative goods from Thailand were available only after 1999. In this study, as explained below, we measured the contributions of creative industries to the economy in two ways: direct effects and indirect effects through multipliers. In our country examples, since only the Singapore study provides the indirect effect analysis, we will compare those results to ours. Table 49 : Comparisons of Multipliers 1/ Output Multipliers National Average Media and Performi ng Arts Cinema Services/ 4 VA Multipliers Overall Productivity2/ UK Singapore Thai UK S’pore Thai UK S’pore Thai 1.80 1.43 1.63 0.86 0.58 0.70 0.48 0.41 0.43 1.82 1.68 NA/3 0.88 0.62 NA 0.48 0.37 NA 1.82 1.78 1.62 0.88 0.55 0.61 0.48 0.31 0.38 Advertisi 1.67 1.63 NA 0.94 0.48 NA 0.56 0.29 NA ng Architect ural 1.56 1.66 NA 0.95 0.70 NA 0.61 0.42 NA Services IT and Software 1.54 1.27 NA 0.88 0.61 NA 0.57 0.48 NA Services Publishi ng and 1.70 1.33 1.56 0.83 0.72 0.62 0.49 0.54 0.40 Printing Sources :Fiscal Policy Research Institute and Toh Mun Heng, Andrian Choo, and Terence Ho (2003), 1/ We present multipliers and overall productivity of Thailand‟s creative industries that are similar to industry in Singapore and the UK 2/ Overall Productivity is calculated by VA multiplier/ Output multiplier 3/ Data not available 4/ Cinema service is compared to Motion Picture Production in the case of Thailand Fortunately, the analysis in Toh Mun Heng, Andrian Choo, and Terence Ho (2003) also provides a comparison between Singapore and the United Kingdom (Using the I-O table of 1995), so we can compare all three countries. However, the disaggregation of Thailand‟s I-O table is different from others. Therefore, only the cinema services and publishing and printing industries can be compared across the three countries. 59 | To begin with cinema services (motion picture production in the case of Thailand), Thailand has the lowest output multipliers. Unlike the United Kingdom and Singapore cases, Thailand‟s output multiplier is slightly less than the national average. However, Thailand‟s cinema services industry has a higher value added multiplier than Singapore‟s, but it is still less than that of the United Kingdom. Both Thailand and Singapore have value added multipliers for this industry that are lower than the national average, while the UK‟s figure is higher than the UK national average. Lastly, the overall productivity of the UK cinema services industry is the highest at 0.48 and equal to the national average. In 2008, Thailand‟s overall productivity was higher than that of Singapore in 1995. Secondly, in the publishing and printing sector, all three countries have output multipliers less than their national averages. The United Kingdom had the highest multiplier, followed by Thailand, and Singapore respectively. Nonetheless, Singapore‟s publishing and printing sector has the highest value added multiplier, which is above the national average. Also, Singapore has the highest overall productivity. In conclusion, our analysis shows that in 2008 the selected creative industries contributed more than a trillion baht (USD 32 billion) to Thailand‟s economy, nearly 10% of total GDP. The contributions of the jewelry (4.73% of GDP) and IT (2.65% of GDP) industries were particularly high. Value added by these industries, even without the IT industry, for which data was not available, was more than THB 325,274 million (USD 9.7 billion). While total employment in the selected creative industries was only about 2.4% of the workforce, the value added per worker was high, indicating that creative industry jobs were relatively high-paying. The creative industries also contributed significantly to Thailand‟s exports, earning nearly USD 13 billion and placing Thailand among the world‟s top 20 exporters of creative goods. It is also important that these creative exports are growing steadily at more than 5% per year, indicating strong global demand for Thai creative goods. In addition, the creative industries stimulated growth in other parts of the economy, with an average output multiplier greater than the average for the economy. The movie theater industry was particularly impactful, with each baht of expenditure in this sector generating 2.14 baht of output in the rest of the economy. Other industries also depended on inputs from the creative industries, with particularly high impacts on industries such as iron and fertilizer. The largest dependence on the creative industries, however, was seen in the service sector which depended on the creative industries for more than 6% of its inputs. Services such as education and hospitals, however, depended on the creative industries for up to nearly 30% of their inputs. These figures certainly understate the case because utilization data for the IT industry was not available. Clearly, IT is a key input for almost all industry sectors It is clear that the economic contributions of the creative industries are considerable. Compared to other countries studied, however, the multiplier effects are less than they should be. This suggests that Thailand‟s creative industries have less well-developed value chains than those of more developed economies, such as Singapore. Therefore, it is likely that effective efforts to nurture those value chains could accelerate the development of the creative industries and further enhance the contribution of creative industries to the overall economy. 60 | 5 Losses due to Piracy in the Creative Industries In Activity 2 of this project, we will examine the losses due to piracy in the creative industries and their implications for Thailand‟s development by simulation analysis. This will show the monetary cost of piracy in the sense that legitimate companies would have benefitted had piracy not occurred. We have selected four industries that seem most seriously affected piracy: Movie, Music, IT, and Pharmaceutical industries. In-depth studies of these four key creative industries show that the effects of piracy are not be limited to monetary value. 5.1 Framework of analysis In this Section, we present an analysis of the effect of piracy on legitimate firms. The analysis will begin from the micro level assessment of losses due to piracy and then consider the effects that are economy-wide. The micro level analysis will be beneficial in that it will draw the distinction between market structures of different products. This will help the estimation of losses to be more accurate than general one-to-one assessment, which assumes the perfect substitution between authentic and infringing sales. We have applied the conceptual analytical framework used by the OECD in 2008 to our study cases, which are discussed below. Market structure where genuine and counterfeit/pirated goods compete Producers, both rights holders and counterfeiters or pirates, and consumers are the market actors here. The rights holders can be divided into two main groups: holders of trademark, and holders of copyrights and patents. Generally the rights holders are the legitimate suppliers of genuine products. While trademarks help the products or goods to be easily identified and indicate their authenticity, copyrights and patents provide the rights holders with the sole right to extract the benefit from the works, which can be creative works, such as music, movies, images or literature, and technological and scientific inventions, which can be embodied in a product or process. Counterfeiters and pirates are those who violate intellectual property rights without permission. Trademark infringements are usually motivated solely by the opportunity to make profits. Copyright and patent infringement, however, might also be done by individuals who seek to save money on copyright-protected products. The consumers in the markets can be of three types. First, consumers who will buy only legitimate products. Their reasons might be that they deem counterfeited products not safe for their health or social well-being, or that they value the product because of its authenticity. The second type is those who will buy a counterfeit or pirated product, even though they know it is not authentic, under certain conditions. For example, if the price of the infringed product in the market is much lower than the original, these consumers may buy the infringed one even if it often has lower quality. Finally, there are also consumers that are apathetic to the IPR status of the products. These consumers are more likely to buy copyright-infringing products. This is because these infringements are highly legalistic and technical in nature. 61 | From the characteristics of producers and consumers discussed above, in the case of trademark, copyright, and patent infringements, we can technically disaggregate the market into two interrelated submarkets. 1. Primary Submarket: this submarket is of genuine goods, or perceived-as-genuine goods. The rights holders sell authentic goods, while counterfeiters sell goods that can deceive consumers into believing that the goods are authentic. 2. Secondary Submarket: in this submarket, infringing products that do not attempt to deceive the consumers are traded. Consumers in this submarket know they are buying pirated products. This is because, unlike consumers in the primary submarket who are willing to buy only authentic products, these consumers view the pirated products as acceptable substitutes for the authentic ones. Also, under certain conditions, such as when the infringing products are offered at a much lower price, consumers in the primary submarket can become consumers in the secondary submarket. Figure 25 illustrates the effects of counterfeits or piracy in more detail. Figure 25: Analytical framework of losses from piracy assessment price q# D’orig quantity Source: Adapted from OECD (2008) In the above Figure, the horizontal axis is quantity, and the vertical axis is the price of a product. In the primary submarket, the demand for authentic goods is depicted by line Dorig. The legitimate producers set price at p* and the quantity sold is q*. The counterfeit products that can deceive consumers in this submarket will directly affect the demands for authentic goods, shifting the demands curve Dorig downward to D’orig. If the price does not change, the quantity of the authentic goods sold will reduce to q#. 62 | In the case where consumers know the (pirated) goods are not legitimate, there will be no incentive for consumers to buy an unauthentic product at price p*. However, when the price of infringing goods is lower, its demand will increase. The demand for infringing products is depicted by the curve D’. The increase in demands for infringing products can also be categorized into two parts. The first is the demand of the consumers in the primary submarket who switched to infringing products, as they view them as substitutes. This portion is depicted by the curve D” Secondly, the demand for infringing products rise because of their lower price. This demand would not exist had the infringing products been unavailable. For example, if the price of infringing products is at p’, the total quantity demanded for them will be q’, which as explained, can be divided into two parts. The first part is q’’ and the rest is the demand that would not exist had the infringing products not available, q’’- q’. The former is directly the loss occurring to the rights holders in the sense that the demand for authentic products decreases, with the demand curve shifting downward to Dactual. As we can see, q’’ = q*- q** Static and dynamic effects of piracy Figure 26 illustrates the summary of the static effects of infringements in comparison with their dynamic effects. As previously discussed, the rights holders will lose their revenue either from the deceiving products in the primary submarket (A) and the substitutes in the secondary submarket (B). Therefore, static net loss equals sum of these losses (A+B). Losses to the rights holders can be both sales volume reduction and price pressure. 63 | Figure 26: Static and dynamic effects of piracy of the right holders Static effects Deception Secondary submarket A Primary submarket B C (no deception) D New primary submarket Dynamic effects Expected Actual deception deception A’ D’ B’ Secondary submarket (no deception) Primary submarket C’ Source: Fiscal Policy Research Institute, adapted from OECD (2008) Moreover, the presence of infringements also has dynamic effects on the rights holders. The effects of the deceptive products will also pose significant negative results for legitimate business in the long run. Deceiving consumers into buying fake or substandard products has an especially severe impact on brand value and firm reputation. One of the most obvious examples is fake pharmaceutical products. In this case, consumers are unaware that drugs they have been taking are not authentic, and think that these drugs are from legitimate firms. When these products are not effective or have dangerous effects, consumers will no longer trust the pharmaceutical firms. Also, if the deceptive products are widespread (because of the asymmetric information in the market) consumers will tend to reduce their trust in the product that has been copied or pirated. Even though the actual number of infringing products is low, the expectation of consumers as to how much of the product in the market is counterfeit can be higher than the actual fact, A becoming A’. However, this is not the case for the secondary submarket. Since consumers in the secondary submarket are well aware that the products they consume are fake, in the long run they still buy the pirated products if available, and might buy an authentic one had the pirated products not been available. However, they still have negative effects as well on the sales of the rights holders‟ product. On the one hand, piracy will make the 64 | marketing plan more difficult if not impossible. It is obvious that an unsuccessful marketing plan will eventually affect the sales of the rights holders‟ products. On the other hand, some economic studies suggest that lower-priced pirated products can help increase the sales of the authentic products in the long run, Slive and Bernhardt (1998) for example. Also, in Section 6.6.2 page 74, we have given an example of studies that argue some types of piracy might help the development of legitimate firms. For example pirated software copies could expand public awareness and consumption of the software products. Another example is that the pirated CDs might help small music labels to promote their songs and increase total revenue as they use the artists‟ popularity to earn revenue from live performances. From Figure 26 the area D’ can be bigger, smaller than, or even equal to the original value, area D. Another uncertainty is that when the value of the primary submarket changes D’, there are possibilities that the area B’ can be larger, smaller than or equal to the original area B’. For example, even if the primary submarket expands due to the widespread availability of the infringed products, the additional numbers of sales might not be offset with the number of sales of unauthentic products. In other words, we cannot derive an exact relationship between (D’-D) and (A’+B’). Since the dynamic effects happen in the long run and are difficult to measure, this Section will attempt to first gauge the static losses due to piracy in our industry cases: movies, music, information technology (IT), and pharmaceuticals. A more in-depth study on the selected industries will then be presented that includes both static and dynamic effects. Applications to the industry cases In order to accurately assess losses due to piracy, we must correctly identify the nature of the infringements. Therefore, we first briefly review the current situation in Thailand. The latest report of the Department of Intellectual Property on Thailand‟s Implementation on Intellectual Property Rights (March 2008-February 2009) suggests that the number of domestic cases of IPR violations has decreased over the past three years, but the average number of confiscated items per case has been increasing. The figures in the report suggest that, although the number of cases may be decreasing, the scale of infringing operations has been increasing. It is not clear why this is the case. See Table 50 below. Table 50: The arrests and seizures of intellectual property infringing items produced and sold in Thailand Year Arrest Cases Confiscated items 2008 (Jan.-Nov.) 2007 2006 5,328 7,118 9,575 3,197,865 3,746,036 2,823,588 Average Confiscated items per case 600.12 526.28 294.89 Source: Department of Intellectual Property Table 51 indicates that fewer cases and items were seized by the customs officers in 2008 than domestic officers. The figures seem to have been increasing recently, although the average 65 | confiscated items per case has reduced. This might be because that the customs officers are stricter in the recent year. Table 51: The arrests and seizures of intellectual property infringing items by the customs officials at borders Year Arrest Cases Confiscated items Average Confiscated items per case 2008 (Jan.-Nov.) 2007 2006 521 628 222 1,299,024 1,332,319 826,607 2,493.33 2,121.53 3,723.45 Source: Department of Intellectual Property It is reported that during January – November 2008, 6,672 intellectual property rights infringement cases were filed. Most cases involved the copyright infringements and trademark counterfeiting activities (2,626 and 3,952 cases respectively). Table 52 shows the statistics for 2008. It was also reported that more than 1,000,000 pieces of counterfeit pharmaceuticals were seized by the Food and Drug Administration in January 2009. For more detailed data for counterfeit pharmaceuticals, please see Section 9 below. Table 52: Royal Thai Police‟s statistics on IPR infringement suppression efforts in 2008 Types of cases Copyright infringements Trademark infringements Others Total Number of cases Items sized Estimated Value (THB) 130 200 22 352 172,441 63,748 68,758 304,947 118,059,030 20,261,300 20,200 138,340,530 Source: Department of Intellectual Property Major infringements in the film or movie industry include optical disc piracy, and camcorder piracy. The damage caused by mass unauthorized reproduction and distribution of pirated optical discs, which reportedly are produced in neighboring countries, or over the Internet, is considerable. Major infringements in the music industry are also optical disc piracy and unauthorized reproduction and distribution over the Internet. In the IT industry, software piracy is the major type of infringement. These pirate software producers have violated copyrighted content. Other copyright infringements occur in the other forms of creative works including cable TV piracy and book piracy. However, the major infringement in the pharmaceutical industry is the counterfeiting of pharmaceuticals. Although trademarks can also be copied so that the label of the disc or the inlay is made to resemble the original as close as possible and thereby deceive the public, this is quite small in number and therefore negligible in our assessment of losses. 66 | Table 53: The major areas that IPR has been most violated in 4 industry cases Industry The primary submarket (Trademark) Movie Music IT Pharmaceutical Counterfeit Source: Fiscal Policy Research Institute The secondary submarket Patents Copyrights Optical disc and Internet piracy Optical disc and Internet piracy Software and Internet piracy drugs Table 53 shows the major areas in which IPR has been most violated in four industries: movies, music, IT, and pharmaceuticals. For the first three industries, we will focus on the violation of copyrights. In other words, in Thailand the infringement of IPR in these industries is assumed to occur only in the secondary submarket. For the pharmaceutical industry, we will focus on the infringement taking place in the primary submarket, the counterfeits. 5.2 Piracy Data and Rate of Substitution Another important factor in the assessment of the effects of IPR infringements‟ is the counterfeit and piracy data. We have compiled the data below based on secondary sources as in Table 54. As these data are from the international institutes, we also need to validate the data with the local firms or associations. Table 54: Counterfeit/piracy rates used in the present study Industry Motion pictures 1/ Music records 2/ Software 1/ Pharmaceuticals 1/ 2008 NA 65% 76% NA 2007 NA 50% 78% 15% 2006 NA 50% 80% NA 2005 62% 45% 80% NA 2004 60% 45% 78% NA Sources: 1/ IIPA (2009) 2/ IIPA (2009) 3; BSA (2008) 4/ WHO (2007) In our company interviews, most companies agreed with 2008 figures. For motion pictures and pharmaceutical sectors, the interviewed firms expected the figures to remain roughly unchanged from the last available data. However, the data that seems to raise questions is the data on the rate of substitution between authentic goods and pirated goods. As mentioned previously, an increase in demand for pirated copies is not limited to consumers who prefer authentic goods. The lower-priced pirated data also create demand that would be zero had no cheaper pirated good been available. A survey 67 | by the Research Center of Bangkok University shows that the reasons for buying counterfeit or pirated products are: 1) lower price (48.6% ), 2) the convenience, easier to buy (26.4%), 3) quality, when it is almost as good as the authentic goods (15.7%), however, 7.3% were not aware that the product was not authentic. Although this survey gives some idea of why people buy pirate goods, there is no direct interpretation of the rate of substitution. To our knowledge, there is no existing study in Thailand on the rate of substitution. The figure that we have found in the existing literature is a survey in England cited in OECD (2008). The rate is 45 %, which will be applied to three industry cases directly related to infringements in the secondary submarket: pirated movies, music, and software. Perfect substitute (one-to-one) is assumed in the case of pharmaceuticals where infringements occurred. 5.3 Simulation Results In our simulation, we have specified the sales in the primary submarket to be consistent with definition of the rate of counterfeit/piracy in Table 54. Firstly, for the movie industry, we have used the data from the estimated I-O table of the year 2008. Secondly, for the music industry, since the disaggregated I-O table does not provide data for this industry specifically. Therefore, we have used the data from expert interviews instead39. Along with IT, we use only the software data from National Statistics Office. Finally, the data for the pharmaceutical industry are from the estimated I-O table of the year 2008. Table 55: Simulation results in case without any forms of IPR infringements Unit: Million THB Industry Movie Music IT Pharmaceutical Sales of Counterfeit Sales of the the rate primary primary submarket submarket (legitimate (percent) if there is no sales ) counterfeits 13,911.00 6,000.00 5,283.98 44,207.80 0 0 0 15 13,911.00 6,000.00 5,283.98 50838.97 Piracy rate (percent) 60 65 76 0 Sales of Rate of Sales of the the substitutability primary secondary between submarket market infringing products and If there is authentic ones no piracy (percent) 8346.6 45 17,666.97 3900 45 7,755.00 4015.8248 45 7,091.10 0 0 0 Source: Fiscal Policy Research Institute Table 55 shows the results of the simulation. The movie industry had sales to the legitimate market of around THB 13,911 million. Since we assume no trademark infringement, the sales of secondary market (pirated goods) is THB 8,347 million. However, since the rate of substitution between infringing product and authentic product is just 45 %, total sales into the 39 From Mr. Sutthisak Prasatkrarukarn‟s (secretary to the Thailand Music Industry Association) interview in Daily News under the headline “Music Industry claims 2 billion Baht loss of revenue from piracy,” 30 th January 2008 68 | primary submarket if there had been no piracy is estimated at THB 17,668 million. Notice that this figure differs from the sum of sales of the primary and secondary submarket. This is because a part of the demand in secondary market increases if and only if the fake goods are available. Similarly, in the music and IT sectors we also assume a zero counterfeit rate. In other words, there is no IPR infringement in the primary market. Thus the sales to the legitimate market are THB 6,000 million for music and THB 5,284 million for IT (software). However, if we assume there is no piracy in these markets, the legitimate sales would become THB 7,755 million and 7,091 in the music and IT (software) respectively. Therefore the losses due to piracy are estimated at THB 1,755 million for the music industry and THB 1,807 million for the IT (software) industry. For the pharmaceutical industry, since the infringement is mostly done in the form of trademark infringement, we can analyze straightforwardly (the one-to-one) relationship between the actual legitimate sales and the piracy rate. In this case, the legitimate sales if there were no counterfeit drugs would be higher than actual legitimate sales by 15 %, or THB 50,839 million. We can now compare the static effect of piracy. We define losses due to piracy as the difference between legitimate sales and legitimate sales without IPR infringements or our simulation case. Table 56 below summarizes the static effects of IPR infringements in the four industry cases on the economy. Table 56: The static effects of IPR infringements in 4 industry cases on the economy Movie Music IT Pharmaceutical Total Direct effects on economy (Mil. THB) -3,755.97 -1,755.00 -1,807.12 -6,631.17 -13,949.26 Multipliers1/ 1.62 1.63 1.84 1.59 Multiplier effects (Mil.THB) -6,084.7 -3,229.2 -2,945.6 -10,543.6 -22,803.0 Source: Fiscal Policy Research Institute 1/ Since the I-O table does not have IT as a sector, we do not have multipliers here. Instead we use the average multipliers of all 180 sectors in the economy. Counterfeit drugs affect the pharmaceutical sector directly with losses of THB 6,631 million, while the effects of camcorder and optical disk and Internet piracy cost the movie sector THB 3,756 million. The IT and Music sectors both have direct losses from copyright piracy of THB 1,807 and THB 1,755 million respectively. Finally the total direct static effect of IPR infringement is around THB 13,949 million. When we take the multiplier effect into account, the total loss to the economy is about THB 22,803 million. 69 | In this section we have discussed the simulation to show the direct static effects of IPR infringement. However, the damage from IPR infringement is not limited to these direct effects. Section 6-9 will discuss other effects which are difficult to measure. The effects of IPR infringement on 1) investment, 2) domestic legitimate market, 3) artistic creativity and innovation, 4) social and cultural values, and 5) public safety will be analyzed. 6 Industry case 1: The Thai Movie Industry 6.1 Industry Overview Definition and Scope of Industry The movie industry involves the production of motion pictures primarily for display in theaters. However, these movies may also be distributed on optical discs, downloaded from the Internet or broadcast on television. The industry covers a wide range of activities both before and after a movie is in the theaters. These activities range from creating a story, casting actors and actresses, hiring production crews and setting the team, distributing the movies to audiences through theaters and other mechanisms, selling of the movie‟s copyright, and utilizing any part of the movie such as the name and licensed characters for other companies‟ business-related activities. Thailand„s movie industry value was estimated at THB 3,164 million in 2008. Table 57: The value of Thai movie industry Unit: Million THB Categories 2002 2003 2004 2005 2006 2007 2008 Thai Movies 650 920 840 1,100 1,112 1,654 1,170 2,100 2,200 2,400 1,880 1,772 1,857 1,849 Others 200 212 176 120 257 98 145 Total 2,950 3,332 3,416 3,100 3,141 3,609 3,164 Hollywood Movies Source: R.S. Public Company Limited‟s Annual Reports 2003-2008 Market Structure and Industry Value Chain Figure 7,Figure 8andFigure 9 on page 22, show the value chain of Thailand‟s movie industry and Figure 10 shows the market structure. According to its value chain, the structure of the movie industry consists of three main components: production, distribution and marketing, and consumption. The making of a movie begins with the story writing. A production company may develop its own story or an independent writer may sell her or his story to the company. Generally, the production company oversees the overall process of the movie production through its executive producer, funds the production budget, controls other related expenditures, and distributes the final product to theatres and other sources. While the copyright of the movie is 70 | owned by the production company, the task of making the movie generally rests on a movieshooting company, which is contracted by the production company. The movie-shooting company selects the film director, team members, actors, and locations, performs coordinating tasks, and shoots the movie. The compensation for the movie-shooting company may be paid on either a lump sum or an activity basis. This procedure is the dominant form of the movie production and the production process usually takes several months to a year. After the production process ends and before the movie can be released to the general audience, the movie has to go through a post production process, which involves many complicated and sophisticated procedures. The film is edited with added or substituted pictures and sound effects, and finally it is reviewed by the Film Censorship Board. A film laboratory is then contracted to convert a negative film to a positive one so that the film can be shown in theatres, and duplicates of the film can be made. Technicolor (Thailand), Siam Film Development, and Kantana Laboratories are the only three companies in Thailand which provide laboratory services to production companies. Table 58 Five largest production companies and the number of produced movies during 2003-2008 Companies Sahamongkolfilm RS Film GMM Tai Hub Five Star Production Phranakornfilm Other Companies Total 2003 14 6 1 5 2 20 48 2004 12 5 3 5 1 19 45 2005 14 5 3 1 4 11 38 2006 18 5 6 3 4 8 44 2007 12 5 5 4 7 11 44 2008 15 4 5 2 7 15 48 Source: 1) 2003,2004,2005,2006, and 2007 Entertainment Magazine, Extra Edition 2) GMM‟s 2008, 2009 reports on analytical meetings In the movie industry, large-scale and small-scale companies can be determined by the extent of the involvement of the production company in the value chain. Large-scale companies may handle most of the processes in the value chain themselves while smaller companies may only be involved in the process of making their movies and sell copyrights of the movies to other VCD- AND DVD-distributing companies. GMM Tai Hub is an example of a large-scale company which is involved in the entire value chain from a story writing to the production of the movie to the distribution of VCDs and DVDs. Generally, foreign producers do not invest in the production of a Thai movie, but they are involved in the industry through their foreign movies and their distributors. As mentioned, Columbia Tristar Buena Vista Film (Thailand), Fox Warner (Thailand), and United International Picture (UIP) are the three largest foreign-movie distributors in Thailand. These distributors oversee financial interests of the foreign production companies for the entire value chain process. The distribution and marketing consists of the distribution and sales of the movie‟s copyright for use in other business-related activities. The compensation which the production company receives from theatres depends on their agreement. However, generally, if the theatres are located in Bangkok, the revenue from sales of theatrical tickets is split rather equally between 71 | theaters and production companies, although a flat rate may apply if the theatres are located in other provinces. After the film leaves the theatres, the copyright of the movie may be sold to VCD- and DVD-producing companies, a Cable TV provider, or a Public-access television station. Besides the distribution of Thai movies, there is a group of companies whose business activity is to distribute foreign movies in Thailand. There are two types of distributors operating in this foreign film-distributing business: dependent and independent distributors. A dependent distributor is a branch of foreign production company in Thailand and only distributes movies of its production company. Today, there are only three American companies distributing American movies of major production companies, collectively called “the major group.” First, Columbia Tristar Buena Vista Film (Thailand) distributes movies of Columbia Pictures, TriStar Pictures, Sony Picture Studios, and Walt Disney Pictures. Second, Fox Warner (Thailand) distributes movies of 20th Century Fox and Warner Brothers. Third, United International Picture (UIP) is a distributor of movies produced by Metro-Goldwyn-Mayer (MGM), United Artists (UA), Paramount Pictures, DreamWorks, and The Working Title, an English production company. Unlike dependent distributors, an independent distributor independently chooses its films which are mainly imported from the United States and other Asian countries such as Korea, Japan, and Hong Kong. Examples of independent distributors in Thailand are J-Bics Film, Sahamongkol Film International, M Picture, and Box Office Entertainment. Table 59: Movie distributors and the number of distributed movies during 2004-2006 Distributor 2004 2005 2006 Fox Warner Columbia Tristar Buena Vista Film UIP Sahamongkolfilm Box Office M Picture J-Bics Other Distributors Total 25 25 16 53 8 4 61 192 22 22 15 54 30 17 19 179 24 18 19 48 27 47 41 31 255 Source: Entertainment Extra Magazine 2005-2007 Another source of revenue for the production company is the utilization of any part of the film in other companies‟ business-related activities. This use may include the name of the movies, the licensed characters, or the songs for advertising and/or other commercial purposes. 72 | Type of Products Major Cineplex Group and SF Cinema City are the only two main companies in Thailand in the movie theatre business. Together these two companies own 550 theatres in 67 locations covering 12 provinces of Thailand. After the movie leaves the theatres, the movie will be exhibited through other sources which include VCDs, DVDs, a cable television, or public-access television. This latter source of exhibition is very important to Thai production firms since a substantial part of their revenues comes from this source. Consequently, some production companies do not sell their copyrighted material to other distributing companies, but establish their own department which is solely responsible for producing and distributing their movies in the form of VCDs and DVDs to movie-selling and renting stores. Some of the companies in the movie-distributing business are Pongsaap, J-Bics Film, United Home Entertainment, VCD Entertainment, and VES Entertainment. Table 60: Theater companies and the number of branches and theaters Theater Name Number of branches Number of theatres Major Cineplex* Major Cineplex, EGV, Paragon Cineplex, and Esplanade Cineplex 35 344 SF Cinema City** SF Cinema City, SF World Cinema, and SFX Cinema 32 206 Company Source: Major Cineplex Group‟s 2008 annual report (56-I)* http://en.wikipedia.org/wiki/List_of_cinemas_in_Thailand (7 December 2009)** 40 Type of IPR involved Table 61 below exhibits the related intellectual property rights in the activities in movie industry: Every activity in movie industry is protected by the copyrights, which enable the producers and distributors to benefit from the created works. In addition to copyrights, the distribution channel of physical materials such as VCDs and DVDs is also related to another intellectual property: trademark. The trademark will help consumers to differentiate works of different producers or distributors. 40 The definitions of these types of IPR in Thailand are given in Appendix 2 73 | Table 61: Types of IPR involved in movie industry Copyrights Patent Product design patent Invention patent Trademark Petty patent Movie Content Production X Distribution X Theaters X Physical copies X Cable/public X televisions Source: Fiscal Policy Research Institute 6.2 Trade secret Geographical indications X Assessment of Impact from Piracy 6.2.1 Piracy Analysis Magnitude Figure 27 below shows Thailand‟s movie piracy rate during 1995-2005. The piracy rate in Thailand fluctuated within a range of 50-70% during 1995-2005. The rate was at 50% in 1997 and 1998, and then increased to 55% in 1999, 60% in 2000, and 65% in 2001. The problem of piracy in the movie industry was the most widespread in Thailand in 2002, with a rate of 70%. With the exception of 2002, the rate was stable around 60-65% from 2000-2005. Figure 27: Thailand‟s movie piracy rate Source: IIPA (2009) 74 | Because movie piracy is widespread in Thailand, pirated VCDs and DVDs can be bought freely from small entrepreneurs in public places such as department stores and pedestrian walkways. The representative firms we have interviewed confirmed that every Thai movie, whether famous or not, is copied immediately after it‟s first time exhibition in the cinema. This suggests the severity of the problem of camcorder piracy. Also, in some cases, piracy involves a criminal organization. Consequently, the problem of movie piracy in Thailand is very complex and the enforcement of existing laws is often ineffective. Types of Infringement Copyright infringement in the movie industry is in the form of pirated movie DVDs and VCDs and illegal downloads of movies. The pirated VCDs and DVDs are available for sales in the public place such as some department stores and pedestrian paths in many areas such as along Silom Road in Bangkok. The prices of pirated VCDs and DVDs are much lower than those of legal VCDs and DVDs, and the differences can range from 50% to 70%. Also, pirated movies can be downloaded from the Internet with the aid of Peer-to-Peer networks and other file sharing programs. Movies can be downloaded through the Internet at no cost, and this illegal method is becoming more popular among teenagers and young adults. Moreover, trademark infringement in the form of using the label or trademark of movie production houses on the cover of infringed products is also widespread. 6.2.2 Effects of piracy on the movie industry 6.2.2.1 Effect on investment The data on Thailand‟s theatrical movie industry are very limited, with most sets of data being available only from 2002-2008. Table 62 shows the value of the Thai movie industry from 2002-2008. Despite enjoying moderate growth in the 2000s, the industry experienced turbulence in 2005 and 2008. The value of Thailand‟s movie industry has been about 2.95-3.6 billion baht from 2002 to the present. During this period, the movie industry experienced a drop in its value in 2005 and 2008, with a drop from 3.41 billion in 2004 to 3.10 billion in 2005, and from 3.61 billion in 2007 to 3.16 billion in 2008. Table 62: The value of Thai movie Unit: Million THB Categories 2002 2003 2004 2005 2006 2007 2008 Thai Movies 650 920 840 1,100 1,112 1,654 1,170 Hollywood Movies 2,100 2,200 2,400 1,880 1,772 1,857 1,849 Others 200 212 176 120 257 98 145 Total 2,950 3,332 3,416 3,100 3,141 3,609 3,164 Source: R.S. Public Company Limited‟s 2003, 2004, 2005, 2006, 2007, and 2008 Annual Reports Generally, the revenue from sales of theatrical tickets is split rather equally between theaters and production companies, and is the main source of income for both theaters and production companies. As a result, the impact of movie piracy on the theatrical business and on the production companies are very similar. Table 63 shows the number of Thai movies shown in 75 | theaters during 2002-2008. Figure 28 compares the number of theatrical movies to the piracy rate during 2003-2005. From the graph, the opposite movement between the number of theatrical movies and the piracy rate can be observed most clearly in 2005. However, this does not in and of itself provide sufficient evidence of causality that the piracy rate actually affects the number of theatrical movies. It must be recognized that other factors may have concurrently influenced this apparent connection. Table 63: The number of Thai movies shown in theaters during 2002-2008 Companies Sahamongkolfilm RS Film GMM Tai Hub Five Star Production Phranakornfilm Other Companies Total 2003 14 6 1 5 2 20 48 2004 12 5 3 5 1 19 45 2005 14 5 3 1 4 11 38 2006 18 5 6 3 4 8 44 2007 12 5 5 4 7 11 44 2008 15 4 5 2 7 15 48 Source: 1) 2003,2004,2005,2006, and 2007 Entertainment Magazine, Extra Edition 2) GMM‟s 2008, 2009 reports on analytical meetings * Figure 28: The number of Thai movies and the movie industry‟s piracy rate Source: 1) 2003, 2004, 2005, and 2006 Entertainment Magazine, Extra Edition* 2) IIPA (2009)** Table 64 shows production companies‟ revenues from movie theaters, and Table 65 shows production companies‟ average revenues per movie during 2003-2008. During this period, the total revenue of all the companies decreased in 2004 and 2008. The decrease in total revenue in 2008 may have resulted from a very large increase in total revenue in 2007. In 2007, the total revenue increased from 1.16 billion in 2006 to 1.69 billion baht. Generally, the total revenue is 76 | about 1 billion baht each year. In terms of average revenue per movie, there were drops in the average revenue per movie in 2004, 2006, and 2008. Figure 29 compares production companies‟ total revenue and the movie piracy rate during 2003-2005. From the graph, no correlation between total revenue and piracy rate is exhibited.. Thus, the investment in movie production might not be significantly affected. Nevertheless, thanks to the fact that movie companies have to spread the risk because each individual movie will not make a profit, the number of movies is still stable as shown in Table 63. However, piracy has reduced the expected income, and thereby the absolute investment of movie production companies. Although there is no statistic to show this, we have learned from interviews with movie makers that some companies have reduced the average cost of movie production in order to reduce the risk of loss. This could hurt the quality of Thai movies in general and tends to limit the type of movies made to the most profitable genres. Table 64: Production companies‟ revenues from theaters during 2003-2008 Production Company Sahamongkolfilm RS Film GMM Tai Hub Five Star Production Phranakornfilm Other Companies Total 2002 627.3 2003 265.00 133.50 137.60 48.30 22.00 304.40 910.80 2004 266.00 106.50 225.80 34.20 12.00 153.10 797.60 2005 558.60 137.90 132.00 30.70 174.70 68.50 1102.40 2006 2007* 509.90 390.55 195.10 231.32 287.00 257.34 21.50 80.98 63.30 119.71 84.70 615.94 1161.50 1695.84 2008* 392.50 79.72 247.74 85.56 128.26 206.67 1140.45 Source: 1) The 2002, 2003,2004,2005,2006, and 2007 Entertainment Magazine, Extra Edition 2) GMM‟s 2008, 2009 reports on analytical meetings* Table 65: Production companies‟ average revenue of movies shown in theaters during 2003-2008 Companies Sahamongkolfilm RS Film GMM Tai Hub Five Star Production Phranakornfilm Other Companies Average Revenue 2002 28.51 2003 18.93 22.25 137.60 9.66 11.00 15.22 18.98 2004 22.17 21.30 75.27 6.84 12.00 8.06 17.72 2005 39.90 27.58 44.00 30.70 43.68 6.23 29.01 2006 28.33 39.02 47.83 7.17 15.83 10.59 26.40 2007* 21.70 46.26 42.89 26.99 29.93 76.99 38.54 2008* 32.71 15.94 49.55 21.39 18.32 18.79 25.92 Source: 1) Calculated from the 2003,2004,2005,2006, and 2007 Entertainment Magazine, Extra Edition 2) Calculated from GMM‟s 2008, 2009 reports on analytical meetings* 77 | Figure 29: Production companies‟ total revenue and the movie industry‟s piracy rate Source: 1) 2003, 2004, 2005, and 2006 Entertainment Magazine, Extra Edition* 2) IIPA** 6.2.2.2 Effect on legitimate domestic market The effects of movie piracy on the legitimate domestic market are focused on the distribution channels. The distributors of physical copies, such as VCDs and DVDs, have been directly affected. The exhibition channels, like theatrical businesses seem to be less affected. The most affected: legitimate optical discs business Selling movie VCDs and DVDs represents a part of business in the movie industry that appears to be negatively affected by piracy. Legitimate movie VCDs and DVDs do not necessarily provide the movie audience with benefits which are clearly different from those of illegitimate VCDs and DVDS. The quality of theatre exhibition ofl movies, by providing a larger screen or premium sound, is far greater than that of a pirated movie VCDs or DVDs. Legitimate movie VCDs or DVDs, in contrast, do not enjoy a comparable edge over the pirated ones. While the quality of legitimate movie VCDs or DVDs is not, in general, significantly, different from that of pirated VCDs or DVDs, their prices are. While a legitimate movie VCD or DVD allows consumers to watch the same movie several times over, this unique aspect is also offered by a pirated movie VCD and DVD. It comes as no surprise therefore that the case of Pongsaap Public Company Limited (Pongsaap) reveals the presence of the negative impact of movie piracy on Thailand„s domestic business. Pongsaab is one of the leading companies in the movie VCD and DVD business, and its case is a good example of how piracy adversely affects this business. 78 | Piracy may also force companies to cut the budgets available for movie production and VCD and DVD distribution. Also, while production companies may not be affected by the piracy in term of the companies‟ revenue, movie piracy affects them psychologically. Due to cheaper pirated VCDs and DVDs, production companies and other businesses in the value chain try to strive to lower their cost of production. For instance, VCD and DVD distributors may switch from hard plastic to soft plastic envelopes to reduce their packaging costs. In the process, consumers that are apathetic to IPR status may well benefit from the lower prices of VCDs and DVDs. Figure 30 shows the accumulated number of VCD/DVD players in Thailand during 20002008. Figure 31 shows the estimated price of a DVD player and the estimated price of a VCD player during 2000-2008. It can be seen that there have been strong increases in the number of VCD and DVD players, which are complementary products to movie VCDs and DVDs . The number of VCDs and DVDs players together increased from 0.65 million players in 2000 to more than 16.5 million in 2008. The estimated price of a DVD player decreased significantly from 16,643 baht in 2000 to 1,662 baht in 2008. Also, the estimated price of a VCD player significantly decreased from 4,545 baht in 2000 to 1,000 baht in 2008. Intuitively, all these circumstances should have enhanced the growth of sales of movie VCDs and DVDs. However, the case of Pongsaap demonstrates the opposite, largely due to the impact of piracy. Figure 30: The accumulated number of VCD/DVD players in Thailand Source: GFK Marketing Service Thailand 79 | Figure 31: Estimated price of a DVD player and estimated price of a VCD player in Thailand Source: GFK Marketing Service Thailand Figure 32 shows Pongsaap‟s total revenue, profit, and loss during 2002-2008. Pongsaap‟s revenue began declining in 2005 and it experienced losses in 2006. Table 66 shows Pongsaap‟s reasons for the decrease in its revenue from its wholesale business as well as its renting and sales of copyrighted products. Beginning in 2006, Pongsaap was hardly able to sell its VCDs and DVDs to other distributors in the market. Another important aspect pointed out by Table 66 is that the VCD- and DVD-renting business also experienced continued turbulence from 2005 onward. Revenue from the renting and sales of copyrights for renting business decreased from 144.13 million baht in 2005 to 47.6 million baht in 2006. In 2008, Pongsaap received only about 10.7 million baht in revenue from the renting and sales of copyrights for renting business. This demonstrates that the VCD- and DVD-renting business, which should have also benefited from an increase in the number of VCD and DVD players, does not benefit. The phenomenon of losses of Pongsaap appears counter-intuitive as one would have expected the company to benefit from an increase in the number of VCDs and DVDs players. The likely explanation for Pongsaap‟s losses is that an increase in the number of VCDs and DVDs players, as complementary products to movie VCDs and DVDs, encouraged the growth of pirated movie VCDs and DVDs rather than the sales of legitimate VCDs and DVDs or the renting business. 80 | Figure 32: Pongsaap‟s value of copyrights, revenues on sales and services, total revenues, and profits (losses) Source: Pongsaap‟s 2004, 2005, 2006, 2007, and 2008 annual reports Table 66: Pongsaap‟s revenue structure Unit: Millions THB Revenue Structure Home Entertainment Products - Wholesale - Retail Renting, Sales of Copyrights for renting, and other services Others Total 2002 829.00 2003 2004 2005 2006 1,361.52 1,458.19 1,616.84 1,073.28 2007 2008 659.35 609.87 286.00 543.00 680.64 680.89 684.62 773.57 901.94 714.9 369.5 703.78 103.62 555.73 117.32 492.55 80.00 89.9 81.36 144.13 47.6 23.24 10.7 2.00 912.00 4.68 1,456.1 29.06 711.65 48.13 668.7 7.47 5.03 40.91 1,547.02 1,766.00 1,161.79 Source: Pongsaab‟s 2004, 2005, 2006, 2007, and 2008 annual reports Theatrical business: the survival? Public opinion on how piracy affects the movie industry has been divided. However, contrary to conventional belief, the impact of piracy on the theatrical movie industry has been perceived positively among scholars. “Piracy Impact on the Theatrical Movie Industry” by Sung Wook Ji (2007) is one of the academic papers which suggest the net positive impact of piracy on the industry. Sung Wook Ji hypothesizes that piracy has both positive and negative impacts on the legitimate sales of movie products. On the one hand, piracy decreases legitimate sales, because illegitimate and cheaper options are now available to the public. As a result, the 81 | legitimate sales of movie tickets decrease, because fewer people go to see movies at theaters. On the other hand, piracy also enhances positive network externalities and diffusion of information, thereby increasing the number of consumers and the value of legitimate sales of movie tickets. Sung Wook Ji used a set of theatrical movie and piracy rate data for 20 countries from 1999 to 2004 including those for Thailand. He concluded that the theatrical movie industry may benefit in the short term from the greater impact of positive network externalities and diffusion of information. Sung Wook Ji explained this phenomenon as the effect of “word-of-mouth 41 communication. ” He explained that because time is limited, people must make quick decisions on how they want to spend their time and what movies they want to watch. In order to maximize the benefits from their time spent and watch the movies that they enjoy the most, they use the information from the people who have already seen the movies they are considering watching. These people who diffuse information to other people may have either watched the movie legally or illegally. Consequently, if the information passing to those who are considering watching a movie is positive, the effect of “word-of-month communication” increases the legitimate sales of movie‟s tickets. Other explanations for positive impacts are as follows: 1) Movie files are large. Illegally copying movie files is thus time-consuming and difficult. 2) The quality of a theatrical movie and that of a pirated movie VCD or DVD is significantly different; a theater offers consumers premium sound and a large screen. 3) Watching movies is time-consuming. VCDs and DVDs may allow consumers to watch the same movie several times. However, consumers generally prefer watching several movies rather than the same movie several times. As a result, the advantage of owning a VCD or DVD, which allows consumers to watch the movie several times, is not significant. Table 67: The list of countries included in Sung Wook Ji‟s study 1. Argentina 2. India 5. Chile 6. Indonesia 9. China 10. Israel 13. Columbia 14. Italy 17. Hungary 18. Malaysia Source: Sung Wook Ji (2007) 41 3. Mexico 7. Philippines 11. Poland 15. Romania 19. Russia 4. South Korea 8. Taiwan 12. Thailand 16. Turkey 20. Venezuela The explanation under this theory, however, is quite weak as it ignores the possible adverse effects of word-ofmouth communication. 82 | Figure 33: Production companies‟ total average revenue per movie and the movie industry‟s piracy rate Source: 1) 2003, 2004, 2005, and 2006 Entertainment Magazine, Extra Edition* 2) International Intellectual Property Alliance** Figure 34 shows Major Cineplex‟s revenue and cost of cinema business. The data include revenue from ticket sales and all other sources of revenue such as membership fees and sales of food and drinks. Major Cineplex is the largest company specializing in the theatrical business in Thailand. Hence, Major Cineplex„s data should reflect rather accurately the picture of the impact of piracy on companies in the theatrical business. Major Cineplex‟s revenue from its cinema business increased continuously from 0.83 billion Baht in 2001 to 2.81 billion baht in 2007. The revenue then dropped to 2.45 billion baht in 2008. However, during the past decade, Major Cineplex operated profitably every year, even in 2008, reflecting the growth trend of the theatrical business in Thailand. Table 68 also shows that Major Cineplex increased its investment in the industry during 2004-2008 by increasing the number of movie theaters, movie screens, and seats. From 2004 to 2008 the number of seats increased from 56,064 to 84,450 seats, representing a growth rate of 50.63% over 4 years. Figure 35 shows no relationship between Major Cineplex„s revenue and the rate of movie piracy during 2001-2005. 83 | Figure 34: Major Cineplex’s revenue and cost of cinema business Source: Major Cineplex‟s 2004, 2005, 2006, 2007, and 2008 annual reports Table 68: The number of Major Cineplex‟s screens (seats) Branches Branch under Major Cineplex Branch under EGV Paragon Cineplex Esplanade Cineplex Total 2004 135 (34,200) 99 (21,864) 234 (56,064) 2005 162 (39,900) 96 (19,600) 258 (59,500) 2006 173 (43,000) 87 (19,000) 16 (4,500) 12 (2,700) 288 (69,200) Source: Major Cineplex‟s 2004, 2005, 2006, 2007, and 2008 annual reports 84 | 2007 206 (50,700) 82 (18,400) 16 (4,600) 12 (2,800) 316 (76,500) 2008 235 (58,850) 81 (18,200) 16 (4,600) 12 (2,800) 344 (84,450) Figure 35: Major Cineplex’s revenue and the movie piracy rate Source: 1) Major Cineplex‟s 2004, 2005, and 2006 reports* 2) IIPA(2009)* 42 In summary, according to the available data , it seems that those in the movie VCD and DVD business are the business group most affected by piracy. This is because it is competing directly with the widespread optical disc piracy. Unlike in the physical material distribution business, the ability of pirated products to substitute for the experience provided by the theatre business is very low. The data for Major Cineplex, the biggest theater chain company, shows steady increases in revenue and growth despite the high degree of movie piracy. It appears that pirated movies do not directly compete with the movie theater experience. However, in the long run, it is clear that piracy diverts money away from overall movie industry, thereby undermining production companies‟ incentives to invest in the production of new movies and, consequently, reducing the sales of movie tickets at theaters. The data indicates that piracy also reduces the funds available for movie production and VCD and DVD distribution. Also, while production companies may not be greatly affected by piracy in term of the companies‟ revenue, movie piracy affects them and also those in the industry psychologically. Due to cheaper pirated VCDs and DVDs, the production companies and other businesses in the value chain strive to lower their cost of production. For instance, VCD and DVD distributors may switch from hard plastic to soft plastic envelopes to reduce their packaging costs. Production companies may spend less on writers, actors and production and post-production technicians, thereby reducing the quality and competitiveness of Thai movie production. 42 Using the data of occupancy rate of each theater, for example, is more appropriate for assessing the effects on theatrical business. However, such data are not available. 85 | 6.2.2.3 Effect on Artistic Creativity In order to investigate how piracy affects artistic creativity in the movie industry, two factors are assumed to influence creativity: compensation and artistic expression. The intuitive rationale behind this assumption is based on a typical movie writer‟s goal in her or his profession. If the writer‟s goal is compensation for his written story, the piracy, which may lower her or his income, may affect the writer psychologically and, consequently, lead to his deteriorating creativity. On the other hand, if the writer‟s goal is to express ideas, put forth statements, or exhibit artistic abilities, how the piracy affects the writer‟s creativity then depends on the extent to which the piracy opens the door of opportunity to achieving such goal Generally, a movie writer‟s compensation can be either on a lump-sum basis, a percentof-revenue basis, or a combination of both. In Thailand, script writers are mostly compensated on the lump-sum basis. Figure 33 above reveals production companies‟ average revenue per movie and the movie industry‟s piracy rate. It can be seen there that production companies‟ average revenue per movie had a positive correlation with the piracy rate during 2002-2005. If the writer‟s compensation is on the percent-of-revenue basis, the writer‟s compensation then increased during 2004-2005. At the same time, the piracy rate increased in 2005 as well. The reverse also held true during 2002-2003. The compensation decreased in 2003 from 2002 as well as the piracy rate. And the compensation and the piracy rate remained relatively stable during 2003-2004. While this may not provide strong evidence that piracy actually increases the writer‟s compensation during 2002-2005, it indicates that based on the percent-of-revenue basis, the piracy rate did not decrease or at least did not have a significantly negative effect on the writer‟s immediate compensation. Hence, based on the percentage basis and the available information, the conventional perception that piracy negatively affects creativity is arguable. A script writer‟s total compensation does not depend on the revenue of the movies that the writer wrote, but the number of movies in theaters and the financial position of the production companies contracting him or her. Unlike in the music industry, script writers are usually unknown to the general audience, giving them less bargaining power. In the music industry, famous content creators, such as song writers, singers and composers, are usually known to the public. Thus, these creators have more bargaining power than those in movie industry. Table 63 above shows the number of Thai movies in theaters during 2003-2005. It can be seen there that the number of Thai movies in theaters stayed relatively stable at around 44-48 movies during 2003-2008. The only year with a relative low number of movies was in 2003, with 38 Thai movies shown in theaters. On the lump-sum basis, given that the number of writers in the industry was relatively stable during the period, the compensation given to movie writers was relatively stable during 2003-2008, except for that of 2005. Figure 28 above shows the number of Thai movies and the movie industry‟s piracy rate. This shows that, while the piracy rate increased from 60 to 62% from 2004 to 2005, the number of Thai movies decreased from 45 to 38 during the same interval. However, this correlation is not strong. If the piracy rate did cause the number of Thai movies to decrease in 2005, the piracy decreased the writers‟ compensation and thus may well have negatively affected creativity. This suggests a possibility that, if piracy is very widespread to the point where production companies decide to lower their investment in the production of movies, creativity will be adversely affected. Due to limited 86 | piracy rate data, it is not clear if the drop in the number of Thai movies in 2005 was caused by piracy. However, from Table 63above, it can be seen that the number of movies was relatively stable during 2003-2008. Hence, given that the number of writers in the industry was also relative stable, writers‟ creativity was indifferent to piracy during the period. Movies also allow writers to express ideas, put forth statements, and exhibit inner, artistic abilities. Under this assumption, piracy would enhance writers‟ artistic creativity (assuming they have no financial motivations). With pirated movie products and the existence of the Internet, more groups of people gain access to once-inaccessible movies. In the short run, this could mean that Thai movies become more available to people in other countries and to those with low purchasing power. In the long run, however, piracy threatens the ability of Thai producers to raise the quality and quantity of Thai movies. 6.2.2.4 Effect on Social and Cultural Values An important aspect of creative works, such as movies, music, games and literature is that it represents and promotes key cultural values of that society. Not only do foreigners learn about Thailand through movies or music, but such works allow Thai people to absorb diverse and complex aspects of Thailand‟s social and cultural values. For instance, Thai people from the central plain of Thailand can learn about the northern culture or learn how to behave appropriately while travelling to the southern region through movies. Young Thais can learn about their ancestors and Thai society in the past through movies. In this aspect, movies are a vehicle for cultural exchange which helps preserve and promote Thailand‟s social and cultural values Piracy may not affect Thailand‟s social and cultural value directly. However, it could be argued that Thai social and cultural values are more accessible to other countries because of the greater ease of access due to pirated movies and illegal downloads. With Internet access, this process of cultural and value exchange, once difficult, is now just a computer click away. And, with the availability of programs such as peer-to-peer networks, movies from different countries are transferred, and different cultures and values move across borders in a matter of seconds. Piracy may well undermine Thailand‟s social and cultural value if the Thai people are overexposed to foreign movies. But the other side of the coin is that seeing different cultures might help Thai people realize more clearly what values they have. And, with the availability of pirated movie VCDs and DVDS and illegal movie downloads, the rate of exposure is accelerated. Overall, however, it is clear that the negative effects of piracy, especially the effect of reducing production budgets available for quality movie making, far outweigh possible positive effects. 6.2.2.5 Effect on Public Safety Criminal organization Piracy is often a funding source for organized international crime. Organized crime has been defined internationally (by the United Nations, 2006) as a group of three or more persons who work together over a period of time to commit one or more serious crimes in order to obtain a financial or other material benefit. Counterfeiting and piracy however, are illegal activities but 87 | are not, in most instances, considered serious crimes. They are attractive areas for criminal networks because, while the profitability is high, the risk of prosecution is low and can sometimes be further reduced through the bribery of the authorities responsible for enforcing IPR laws and regulations. The proof of this fact is that the majority of the people in Thailand, including the police and other responsible authorities, know where pirated or counterfeit copies of creative products can be purchased, but the counterfeits continue to be available. The overall extent of organized crime involvement is difficult to document, but, from available information, it appears that organized crime is heavily involved and that the groups involved are based in many areas of the world, including Thailand. The Asian “triads,” groups based primarily in Hong Kong while also active in Taiwan and mainland China, are known to be involved in heroin trafficking from South-East Asia to the United States, prostitution, gambling, money laundering and alien smuggling. They also have been reported to be connected to the selling of pirated DVDs in London. Examples of links of organized crime to counterfeiting and piracy are shown below. Table 69: Examples of international organized crimes Groups Asian triads Irish groups Israeli group with Russian origins Italian and Eastern European gangs Russian mafia Activity Sale of pirated DVDs in London Children‟s toys, batteries, power tools and veterinary drugs in Northern Ireland Sale of counterfeit products in Japan Importation of pirated CDs into Italy Sales of pirated CDs in London Source: OECD (2008) In Thailand, a black list containing the names of the dominant figures in pirated products has been created. The names of 41 security officials (police and soldiers) involved were also released into the public, showing direct connections between corrupted law enforcement officials and piracy. Censorship and Thai society According to the 1930 Film Act, companies operating a movie theater business are required to submit all films that they plan to show to the Film Censorship Board for review. The Film Censorship Board classifies movies into seven categories which are limited to audiences in certain age group. Table 70 shows the seven classifications for censorship and their description. The classification of Nor20- (Rate 6) is of interest in terms of how piracy undermines public and social safety. Movies classified as Rate 6 are restricted for people under 20 years of age because of their sexually or violently inappropriate contents. Foreign movies classified as Rate 6 are listed in Table 71 and, under the 2008 Film Act, no one younger than 20 years of age is allowed to watch these movies in theaters or buy legal VCDs and DVDs from stores such as Pongsaap‟s. 88 | However, due to the easy availability of pirated movie VCDs and DVDs and illegal downloads, the enforcement of the 2008 Film Act is rendered ineffective. Minors under 20 years of age can get access to movies classified as Rate 6 and Rate 7. With the availability of movie piracy, some minors are exposed to sexually and violently inappropriate contents at a relatively young age. This may have implications for the behavior of these young people, their development as adults, and, possibly, other people‟s safety. Nevertheless, censorship also has negative effects on creativity as well and has been criticized as an ineffective measure. Table 70: Movie classification for censorship Classification Sor (Rate 1) Thor (Rate 2) Nor 13+ (Rate 3) Nor 15+ (Rate 4) Nor 18+ (Rate 5) Nor 20- (Rate 6) Rate 7 Description educational films people are encouraged to see films suitable for the general audience Advisory: films suitable for those over 13 Advisory: films suitable for those over 15 Advisory: films suitable for those over 18 films restricted for persons under 20, age limits enforced by cinemas films banned from being screened in the Kingdom. Source: http://www.majorcineplex.com/thai-movie-ratings.php Table 71: Movies classified as Nor 20 Movie My Wife Got Married Portrait of A Beauty ER REY The Last House Ang Kapit Ni Mrs. Montero Miss March The Hills Run Red The Forbidden Legend Sex & Chopsticks I, II Sundome Country of Origin Korea Korea America America Philippines America America Hong Kong Japan Source: The Office of the Film Censorship Board Movie piracy, while illegal and unfair, has both positive and negative impacts on the movie industry. While it undermines the legal VCDs and DVDs business, it enhances diffusion of information and helps people decide on the choice of movies they would enjoy spending their limited time the most, thereby increasing production companies‟ and theaters‟ revenues. While piracy may encourage some movie writers through wider distribution, the major impact is to undermine financial returns and therefore limit the incentive for quality and creativity. To a limited extent easier availability of Thai movies helps spread Thai social and cultural values internationally but, at the same time, undermines those values domestically. It weakens Thai laws and exposes minors to sexually and violently inappropriate contents. The effect of piracy has two facets. With the Internet and the difficulty of controlling the sale of pirated movie 89 | products, the elimination of piracy in the movie industry is nearly impossible. Therefore policy should focus on the enforcement of the existing laws to limit the piracy rate to the minimum possible. A lower rate of piracy would enhance the growth of the movie industry, reduce the losses in the VCD and DVD business, encourage creativity, limit the exposure of the Thai society to foreign influences, preserve Thai social and cultural values, and prevent minors from being exposed to inappropriate contents. 7 Industry case 2: Music 7.1 Industry Overview Definition and Scope of Industry The music industry creates and sells compositions, recordings, and performances of music. The industry encompasses the activity of many music-related businesses and organizations ranging from a composer writing lyrics of a song, a publishing company collecting fees from an advertising company that uses its client‟s song, to a concert event organizer and his backstage crew. The Thai music market is estimated to be worth THB 6,000 million in 2008 with Thai music owning roughly 80% of the market share and international music owning the remaining 20%. Thai music itself can be classified into modern Thai and folk. The local music market is mostly tied to only a few major record labels such as GMM Grammy, RS Ltd Promotion, Small Room etc. Other than creating economic value, the music industry also plays an important role in creating social value as the industry helps to endorse traditional Thai culture through its various products. Based on the IFPI‟s Recorded Music Sales yearly report, Thailand‟s recorded music retail value was about USD 65.4 million in 2007, which is approximately THB 2,258 million using the 2007 average exchange rate. Recorded music sales suffered a decline of 17.9% in annual growth, 4.45% more than the top six‟s average of 12.85% decline. Thailand‟s value of purchase of recorded music per person in 2007 was only USD 1 compared to an average of USD 30 per person in the top six music countries. This shows that Thailand‟s music industry is so underdeveloped that while almost everyone in Thailand consumes music of some sort, the population is only paying just a little over 30 baht on average to the creators of that music. 90 | Table 72: 2007 global recorded music sales of Thailand compared to 6 major countries Music Videos Retail Value Singles (Mil.) CDs (Mil.) DVDs (Mil) VHS Cassettes (Mil) USD (Mil) U.S.A 3.3 511.1 26.6 0.9 7,985.6 Japan 57.6 176.5 17.1 0.2 4,174.0 7,985.6 491,553. 1 U.K 11.3 139 5.2 - 2,696.4 1,348.2 Germany 10.6 111.3 9.1 - 2,142.2 1,563.8 France 7.9 62.6 4.9 - 1,471.0 1,073.9 Australia 2.6 33.8 4.5 0.001 564.8 677.7 Thailand Global Retail Value - 6.2 8.1 - 65.4 2,258.0 Country Local Currency (Mil) Local Currency Value of Purchase per Person (USD) (Mil) GDP Per Capita in 2008 (USD) -19.9% 26.3 303.8 47,440 -6.0% 32.8 127.3 34,116 -18.2% 44.3 60.9 36,358 -3.7% 26.0 82.4 35,539 -19.2% 22.9 64.1 34,205 -12.7% 27.4 20.6 36,918 -17.3% 1.0 65.5 8,239 Annual Growth Units 16.1% 10.4% 17.0% -3.7% 19.5% 10.4% 17.9% Population 25,258. 40 Source: IFPI‟s recorded music sales (2009), IMF (2008) Market Structure and Industry value chain The value chain of the music industry can be divided into four parts, and the structure of the industry is as shown in Figure 36 below. In summary, the main activities of the Thai companies in the music industry involve putting the human resources together to create music contents, using various media to promote the contents, and then selling the contents through various channels. For international record labels, the business either involves importing copies to be sold in Thailand (EMI, Warner Music and Universal Music Group) or producing a master copy and having the subsidiary in Thailand produce copies locally to be sold (Sony BMG Music, Thailand). The value chain in detail is described below 1. Resource recruitment - The process is the coming together of the human resources – such as, the artists, producers, managers, and content makers. This involves searching for new talent, selecting and creating artists. There are many ways possible – such as, listening to demonstrations, auditions, and hosting various competitions. The obvious examples of searching for artists by hosting competition would be “The Star” competition and the “True Academy Fantasia”. 2. Production - This is the part where the content is created. Once the resources have come together, either with or without the record label, the producer (and possibly the record label) makes the decision on the genre and which artists to use, the composer creates the lyrics and tune, and the master copy or the “content” is created. The process of creating the master from the lyrics and tunes involves sound arrangers, musicians, singers, and sound engineers. The composers in Thailand can be subdivided into two groups, those that earn monthly income from their employers (the 91 | record labels), and those that are freelancers. The majority of composers in Thailand belong to the latter category. In the music industry, large-scale and small-scale companies can be determined by the extent of the involvement of the company in the value chain. Large-scale companies may handle all the processes in the value chain themselves while smaller companies operate only in parts of the chain. For example, GMM Grammy, Thailand‟s biggest record label is involved in all parts of the value chain while a much smaller company may only put the resources together to produce a master copy, hire other companies to look after the copyrights, promote and sell the content then share the revenues according to the contracts signed. The cost structure of creating a single album is shown in Table 733 below. Table 73: Cost structure of creating an album Process Producing Master Promotion Distribution Percentage of Total Cost 10 60-70 20-30 Source: interview with producers Foreign producers‟ involvement usually starts in the second part of the value chain. They either produce a master copy and have the subsidiary in Thailand promote the artist and produce copies locally to be sold (Sony BMG Music) or sell the rights managed by a publishing company to a local record label or company (known as sales representatives), then have that company do the rest of the processes in the value chain. Thai record labels also operate this process when exporting the products. Some sales representatives choose to import copies and not produce them locally, which would mean a higher cost of production per unit. 3. Promotion - The success or failure of an album is largely determined by the record labels‟ ability to secure exposure through various media and then to sell the contents through various products. The promotion process concerns the publicizing of the artists and their songs. It can be divided into two parts: above-the-line and below-theline promotion. Above-the-line promotion includes using the media – such as television, printed media, radio, and websites – in which there are often some expenses involved if the media used is not a subsidiary of the record label. Belowthe-line promotion involves all other promotion – such as, getting the artists involved in different campaigns, concerts, and other events. Trademarks can be involved where logos of companies are used to promote the products. For large record labels, the promotion process is often over half of the total cost of the record. 4. Sale of content - The last part of the music industry‟s value chain involves selling the contents created in the previous parts through various products. 92 | Figure 36: Value chain of Thailand‟s music industry Source: Fiscal Policy Research Institute Type of Products The products of the industry include physical43 and digital copies of the album through wholesale; physical retail and online retail; show business such as performing in concerts and other events; and selling the “artists” by using their popularity as presenters of various products. Songs can also be sold through mobile downloads. Buyers of the content in this part can be divided into two subgroups: business-to-consumer (B2C) and business-to-business (B2B). B2C involves all the products described above excluding the selling of the artists‟ popularity. B2B is the signing of sponsorship deals for the artists where artists will perform in a concert hosted by the sponsor and not the competitor or advertise the products through commercial advertisement in various media. Type of IPR involved Table 74 below exhibits the related intellectual property rights in the activities in the music industry: Every activity in the music industry is protected by copyrights, which enable the creators and distributors to benefit from their creations. The creator(s) of the content owns the 43 Physical products include box sets and any other merchandise related to the artists. 93 | copyrights to the songs. The copyrights to a song cover three parts: the lyrics, the melody, and the composition. The owner of the copyrights have the rights to copy, modify, broadcast, sell, and give control over of the rights to a second party. It is often the case that record labels purchase the total rights to the song, although, depending on the contracts, the composer may have some ownership. The copyrights which are owned by the record labels are then managed by the publishing company, which may or may not be a subsidiary of the record label, depending on the size of the company. As of today, there are approximately 1 million songs in Thailand that are protected by copyrights. Roughly 200,000 of these are Thai songs and the remainder is international. They are managed by the 20 registered companies in Thailand‟s music publishing business. 44 As in the movie industry, in addition to copyrights, the distribution channel of physical materials such as CDs, VCDs and DVDs is also related to another intellectual property: trademark. The trademark will help consumers to differentiate works of different producers or distributors. Table 74: Type of IPR involved in music industry Copyrights Patent Product design patent Invention patent Music Content Production X Show business X Distribution X Digital copies X Physical copies X Mobile applications X Source: Fiscal Policy Research Institute 7.2 Trademark Petty patent Trade secret Geographical indications X Assessment of Impact from Piracy 7.2.1 Piracy analysis Magnitude The International Intellectual Property Alliance (IIPA) has estimated the 2008 music piracy rate in Thailand to be 65 %, with an increasing trend from 2004 to 2008. Table 75 below shows the piracy rate in the music industry and the revenue structure of the Thailand‟s biggest music company, which is responsible for more than 60% of the music sales in the Thai market. 44 Figures from “Knowledge on copyrights, Legally Operating Business” published under the co-operation of Thailand Copyrights Collection, Song Copyrights, and GMM Music Publishing International. 94 | Table 75: Piracy rate and GMM Grammy Revenue structure Units: in Million THB, if not otherwise specified Year Piracy rate GMM Grammy Revenue from Recordings GMM Grammy Revenue from E-Business GMM Gram my Revenue from Show Business 2004 45% 2005 45% 2006 50% 2007 50% 2008 65% 2484 2074 1965 1932 - 255 334.5 367.1 418.7 - 619.7 482.709 1305.8 1768 - Source: IIPA and GMM Grammy 2008 Annual Report Types of Infringement Types of infringement include pirated CDs, illegal internet downloads, and file sharing which violates the copyrights. Sometimes there is trademark infringement when the logos of companies are used on the counterfeit products. The physical digital copies of albums are the most negatively affected products by piracy in the music industry. 7.2.2 Effects of piracy on music industry 7.2.2.1 Effect on Investment and legitimate domestic market The growth of piracy in the music industry has been very rapid in recent years, with the growth in media channels and technology being one of the most influential factors. Along with the trend in the global music industry, piracy affects directly both domestic and foreign producers‟ income and income structure in Thailand. The percentage of revenue from physical copies such as CD, VCD, and DVD has been decreasing. The response of the music labels to the increasing piracy has been to focus on the products that are more difficult to pirate. In order to clarify this point, the income structures of two of the Thai music industry‟s biggest producers, GMM Grammy and RS Promotion (and the only two with information available in detail), between 2006-2008 is shown and details are discussed below. 95 | Table 76: Income structure of two biggest music labels in Thailand 2006 Records, Rights, and Digital Music Products GMM Show Business Grammy Media Total Revenue Records, Rights, and Digital Music Products RS Show Business Promotion Media Total Revenue 2007 2008 % of Million total THB revenue % of total revenue 2,700.9 1,768 2,059.3 7286.2 37.1 24.3 28.3 100.0 2,732.4 2,129.7 2,373.4 7806.1 35.0 27.5 30.4 100.0 908.3 509.4 685.2 2,515.8 36.1 20.2 27.2 100.0 757.9 591.7 644.6 2,371.4 32.0 25.0 27.2 100.0 Million THB % of total revenue Million THB 2,701.9 1,305.8 1,750.7 6143.5 42.1 20.4 34.6 100.0 1,136.8 561.3 1,126.3 3,140.2 36.2 17.9 35.9 100.0 Source: GMM Grammy and RS Promotion‟s annual report. Not all components of revenue have been included. From Table 76 above, it can be seen that the total revenue of GMM Grammy has been increasing, while RS Promotion‟s revenue has been declining over the past two years. The share of revenue from selling records, rights, and digital products in total revenue for both companies has been decreasing, possibly due to the effect of piracy on sales. In its 2008 annual report, GMM Grammy acknowledged that consumers have moved toward digital products. RS Promotion also stated in its 2008 annual report that there has been a shift from physical product sales to digital content with CD, VCD and DVD sales decreasing by 27.9% and digital business income increasing by 42.9%. The revenue from show business of both firms grew at 20% and 16% from 2007 to 2008, while the revenue from media grew for GMM Grammy but declined for RS Promotion Piracy, more than likely, has played an enormous role in these changes in the structure of the Thai music business. Improvement in technology and increases in media platforms have driven a change in consumption behavior; there is an increasing number of ways for consumers to be reached by the industry‟s products, both legally and illegally. The sales of records, rights, and broadcast have gone down significantly in recent years as more and more consumers choose to consume illegal products (IFPI‟s estimated spending to be just over 30 baht as shown previously). The downtrend in sales of physical records means many retailers have closed down. One example is the closing of CD Warehouse, one of the country‟s biggest retailers. Show business, an area which has benefited from piracy as it increases public exposure of the artists, and hence popularity, has been growing rapidly. Table 76 shows that, where the share of total revenue from selling records, rights, and broadcast between 2003-2005 had been roughly 50% of the total revenue, it declined to 35% in 2008. Meanwhile, the same share for show business, which had been around 10% of total revenue, increased to 27.5% in 2008. 96 | As can be seen from the bar chart in Figure 37 and Figure 38 below, although the GMM Grammy‟s revenue is still growing (the 2003-2005 and 2006-2009 average revenue being 6,323 million baht and 7,168 million baht, respectively), the returns on investment of producing a record (excluding other related revenue) have worsened as the sales of products have been decreasing while the cost of production and selling have been increasing (from a 2003-2005 average of 3,557 million baht to an average of 3,954 million baht in 2006-2009). Figure 37: GMM Grammy‟s revenue from 2003-2007 Source: GMM Grammy‟s annual reports. 97 | Figure 38: GMM Grammy‟s average revenue between 2003-2005 and 2005-2007 Source: GMM Grammy‟s annual reports. 7.2.2.2 Effect on Artistic Creativity Music downloading and other forms of piracy through the growing number of media platforms have undeniably benefited the music industry in the sense that they have increased the level of public exposure, hence increasing the total consumption of music. This is especially so as regards those signed to smaller independent labels that do not have as much money as the major labels, to pay for radio broadcast or advertisements. Their music videos are of lower quality and are usually not shown on television. More public exposure increases the popularity of the artists which can lead to more income through shows. As some of these artists do not earn much income through the sale of albums in the first place, their income would not be affected significantly. In the long run however, piracy undermines the incentive to create and invest in new music as the occupations of composer or creator of contents become less attractive, and the producers of the contents earn less income while still having to bear the legitimate costs of production. Piracy pays the person who makes pirated copies, not the creator of the content. Piracy means the creators are not getting their fair share of the revenue from the sales of recorded music. It is often the case that the owner of the copyrights and the songwriter get relatively less pay for the songs being used in shows compared to the income from a good selling album. An example of this would be a composer who nowadays needs to write as many as 10 successful songs to earn him the same amount of revenue he would have earned from writing just three successful songs 10 years ago. 98 | 7.2.2.3 Effect on Social and Cultural Values Like movies, the products of the music industry include Thai cultural content. In the same manner as movies, we can learn the lifestyle of the north-eastern Thailand by listening to the lyrics. Most of the time, consumers know, what country or what region of the country the music belongs to. It is important to note that piracy means less income to the content creator who puts a hint of the local culture into the final product. On the debatable side, however, as piracy increases the total consumption for a song, legally or illegally, in the end more consumers end up consuming the industry‟s products. In this sense, piracy has both positive and negative effects on cultural values. When pirated Thai songs spread locally and internationally, it helps promote Thai culture, but when international songs get spread within Thailand, Thai cultural values may be diluted. 7.2.2.4 Effect on Public Safety As discussed in Subsection 6.2.2.5, the optical disk piracy of both movie and music products is related to organized crime. 8 Industry case 3: Information Technology (IT) 8.1 Industry Overview Definition and Scope of Industry Information technology (IT) is broadly defined as a technology for managing information, which includes data storage, data processing, printing, report making and etc. IT has become an integral part of a wide range of activities, from business to education, from entertainment to research and development, and from banking to designing. In this study, we will classify the Thai IT industry into three groups: hardware, software, and services. 45 According to the ICT market survey 2008 and outlook 2009 , Thailand‟s IT market posted moderate growth of 5.1%. Expenditures in the hardware sector reached 135,588 million baht and those in software industry were 62,937 million baht. The size of the services sector was the smallest, with expenditures of 24,981 million baht. Looking at a profile of customers, we find that household and small and home offices accounted for more than half of computer hardware spending at 57.5%. By contrast, the enterprise and corporate sector had the lion‟s share in computer software and computer services at 57.2% and 74.1% respectively. 45 This survey is conducted by NECTEC and SIPA through in-depth interview with key players in the industry. 99 | Table 77: Market Values and Growth of ICT Industry (2006-2009) Value (Million THB) Computer Hardware Computer Software Computer Services Total Share(%) Growth (%) 2006 2007 2008 2009(e) 2006 2007 2008 2009 (e) 124,712 121,728 135,588 141,966 64.8 60.9 60.7 60.0 -2.39 11.39 4.70 50,064 56,616 62,937 66,117 26. % 28.3 28.2 27.9 13.09 11.16 5.05 17,689 21,425 24,981 28,521 9.2 10.7 11.2 12.1 21.12 16.60 14.17 192,465 199,769 223,506 236,604 100. 0 100.0 100.0 % 100.0 3.79 11.88 5.86 06/07 07/08 08/09 Source: NECTEC (2009) Market Structure and Industry Value Chain Compared to other creative industries, the IT industry is rather complex and heterogeneous. We therefore separate our value analysis into two parts: hardware and software and services. The value chain of the hardware sector will be similar to that of most standard manufactured goods. On the other hand, software and services share many common characteristics. In many cases, services are viewed as an extension of software production or additional value creation for the software industry. Hardware Value Chain Figure 39: Computer hardware value chain IPR Product Design Patent Invention Trademark Patent R&D Main players IT companies, Education Institutes, Government agencies Source: Fiscal Policy Research Institute 100 | Component Production IT IT IT company, companies companies Design Institute Marketing, distribution and after-sale services IT companies Representatives Figure 39 shows that the hardware sector consists of seven activities. Starting with research development (R&D), firms strive to discover new knowledge for better products and services. This process also covers market research, where firms can learn market conditions and the needs of their customers. Then they can design products accordingly. Next, components are manufactured and fabricated into products. To introduce these products to the market, marketing scheme and distribution is needed. Finally, after-sales services are necessary to retain customers for the future orders. Out of the seven activities, R&D, design, and marketing entail high value added and are usually perceived as strategic activities for firms. IT companies that originated in developed countries, usually take control over the value chain, especially for high-value added positions, and orchestrate all activities as seamlessly as possible. Research institutes, academia, and government all take part in R&D initiatives. Thanks to advancement in IT, component production and assembly process can be transferred to thirdparty suppliers in low-cost locations. In this study, we combine software and services into the same framework. We are interested in (1) software developers (e.g., Microsoft and Apple) (2) IT solution firms (e.g., Accenture, IBM, and Booz Allen and Hamilton) and (3) software developers with IT solutions (e.g. Oracle and SAP). Figure 40: Software and service sector value chain Source: Fiscal Policy Research Institute 101 | Similar to hardware, the value chain of software firms begin with R&D and the design of new software. Production of software involves coding and then integrates all components. Marketing, distribution, and after-sales services are significant elements of the value chain. Note that consumers can be divided into end-users and IT service providers. For the pure IT solution firms, R&D appears to be irrelevant. These firms must be able to offer customized solutions for individual clients through customer requirements during design process. For, the software firms with IT solutions services, they just take another step forward to provide services for their own applications. Unlike hardware sector, software companies need less physical capital to start up, but they rely heavily on human capital. As a result, Thai software companies have the potential to grow quickly and take control of the entire value chain. This is also true for IT solution companies. However, foreign companies still dominate the global landscape. The increasing pressure of competition and rapid advances in IT give rise to new IT service industries in cheap, high-skilled and English speaking countries like India. Thai IT services firm still purchase popular applications and capture their share of the rest of value chain. Figure 41: Classification of IT industry IT Industry Hardware Desktop and Laptop Personal Digital Assistant (PDA) Server and Workstation Monitor Printer Data Storage (Flash and Hard disk) Others Software Operating System Programming Tools Utilities Applications Computer Programming World Wide Web Page Design Program Others IT Services Hardware and System Consultancy Training and Education Service Data Processing Database Activities Supporting Services Renting of Computers Software Design and Development Source: Fiscal Policy Research Institute The hardware sector is mainly comprised of computers and their peripherals. As the line between telecommunication equipment, small computers and other digital devices become thinner and thinner, multi-function devices such as smart phones and all-in-one office equipment can be treated as IT hardware. Products of the software sector range from operation systems to 102 | applications and from programming tools to web-page design software. Lastly, IT services include consultancy, training service, data processing and database service. Supply Side The majority of IT firms in Thailand are Thai firms (See Table 78). Most of the hardware and software firms in Thailand are trading firms. For the most part foreign IT firms have not relocated their production facilities to Thailand, except for the hard disk drive cluster. Although Thai IT services firms are large in number, they are usually small in size and not qualified for large-scale projects. Table 78: Ownership structure of IT companies in Thailand Joint Venture (%) 4.96 14.64 3.65 Hardware Software IT Services No Joint Venture (%) 95.04 85.36 96.35 Source: NSO (2008) Table 79: Access to investment promotion of IT firms in Thailand Hardware Software IT Services Investment Promotion (%) 3.12 10.12 % 1.53 % No Investment Promotion (%) 96.88 89.88 % 98.47 % Source: NSO (2008) Table 79 indicates that most Thai IT hardware firms do not meet the requirements for investment promotion since they are not producers for export. While software and IT service firms have lesser requirements for investment promotion, many firms opt not to apply for investment incentives. According to our interviews, inadequate accounting practices and tax evasion are cited as main reasons not to seek investment promotion. Experts estimate that Microsoft and Oracle combine for 14.8 billion baht a year in licensing revenues, while Thai firms can generate only 2 billion baht a year in such revenues. 103 | Figure 42: Number and shared of labor IT industry 8,045 , 2% 21,670 , 5% Hardw are Softw are IT Services 415,869 , 93% Source: NSO (2008) While most Thai hardware firms are traders, hardware firms that have relocated their production facilities to Thailand have created significant employment opportunities for skilled labor, but relatively few opportunities for high-end professionals, such as engineers and chip designers. By contrast, software and service firms are hiring high-end professionals (See Figure 42). Table 80: Number of Hardware patent registered in Thailand by Country of Origin Total Hardware Patent 1996 12 1997 11 1998 11 Thai Hardware Patent 0 1 0 Source: Department of Intellectual Property 104 | 1999 4 2000 4 2001 5 2002 14 2003 15 2004 10 2005 9 2006 22 2007 26 0 0 0 0 0 0 0 1 0 Table 81: Number of Software copyright registered in Thailand 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1 0 0 0 0 0 0 1 0 0 3 4 Source: Department of Intellectual Property Using the number of patents as a proxy for technological and R&D capability, it appears that overall R&D activities in Thailand are low in both hardware and software (See Table 80 and Table 81). Looking closer, Thai firms registered very few patents from 1996 to 2007. This reinforces the notion that foreign firm take control of research and design, while Thai firms contribute more in production and distribution in the value chain. In addition, most local producers buy imported IT goods and services via foreign sales representatives. Table 82 shows the value of IT goods and services imports via foreign representatives and local representatives in 2007. Table 82: Channels of IT goods and services imports in 2007 Unit: Million THB Local representative Foreign sale representative Hardware 27402 140891.18 Software 83.75 947.72 IT Services 4726 7017.02 Source: NSO (2008) In sum, Thailand does show some potential in software and service, where it can create new products itself. Unfortunately, the number of such firms remains small. Thai firms are not able to produce their own IP and hence they typically do not push for improved IP protection. Types of IP involved Table 83 describes the types of IPRs involved in the IT industry. To begin with the hardware sector, the development of new hardware as a result of R & D will be protected by invention patents and design patents. The production and marketing of hardware are involved with trademark protection. Software is protected by copyright, while production and marketing are depend on trademark protection and trade secret protection. Finally, the services sector depends on both copyright and trademark protection. 105 | Table 83: Type of IPR involved in IT industry Copyrights Patent Product design patent R &D Content Creation X Design X Production Marketing Services X Source: Fiscal Policy Research Institute 8.2 Invention patent Trademark Petty patent Trade secret Geographical indications X X X X X Assessment of Impact from Piracy Both the hardware industry and the IT services industry suffer very little piracy. In the hardware industry, some firms are hardware vendors and their products will be of foreign brands. Piracy of such products would require sophisticated understanding of re-engineering and large investment, therefore the production of pirated hardware is rare. IT services can be classified in to two groups. The first group is IT services, beginning with designing and maintenance of systems that adapt software from major software companies such as Microsoft, SAP etc. Piracy in this case occurs when the IT services firm uses illegal software in the development of an IT system. However, most large firms using IT services have selected software that is legal and would not permit a services firm to use illegal software. The second group operates in the same manner but with its own software which has been customized to the customer‟s needs and hence there is little piracy in this sector. For the reasons above, this report focuses mainly on the IPR infringement in the software industry. 8.2.1 Piracy analysis Magnitude Table 84 shows IIPA‟s estimates of the piracy rate and the losses from pirated entertainment and business software in Thailand. The rate of piracy of both kinds of software has been rather stable in the past few years but the estimated losses have been growing rapidly because of the rapid growth of the software market. From interviews with producers in the industry, it appears that the majority of piracy on both business and entertainment software comes from SMEs and individual households as most large-scale businesses or enterprises in Thailand are not willing to take the risk of losing reputation and suffering the possible legal costs of being caught for using pirated software. 106 | Table 84: Piracy rate in Thailand‟s software industry Year Piracty rate of business software (%) Piracty rate of entertainment software (%) Loss of business software (Mil. USD) Loss of entertainment software (Mil. USD) 2002 2003 2004 2005 2006 2007 2008 77.0 80.0 78.0 80.0 80.0 78.0 76.0 86.0 82.0 76.0 75.0 82.0 77.0 NA 57.3 84.0 100.0 155.0 253.0 257.0 295.0 47.3 NA NA NA NA 91.4 NA Source: IIPA (2009) Types of Infringement Piracy of software is a violation of the copyrights of the content creator. The types of infringement include pirated copies of the software and illegal software downloads online. Illegal software CD production is defined as the process of copying and selling the software without permission from the copyright owner. The production of illegal hard copies can be classified into small scale and large scale production. Small scale production is done on personal computers and sold through small shops or on websites. Large scale production is done at a large CD plant (which sometimes produces legal CDs as well) and the products are distributed through small shops and vendors. Illegal software is also distributed through the Internet to the end users via online channels such as websites, P2P sharing programs, etc. 8.2.2 Effects of Piracy 8.2.2.1 Effect on Investment One would expect that software piracy would deter investment in software firms and foreign direct investment because the firms would not be able to fully reap benefits from their investment. Surprisingly, we found that piracy is not a key factor in IT investment decisions. In this study, we investigated two groups of firms: foreign and Thai local firms. Foreign firms such as Microsoft, Oracle, and SAP dominate the global software market, including the market in Thailand. Referring to Table 85, these software companies have continued to pour billions of dollars into R&D to gain an edge over their rivals. On average, these companies have spent more than 10% of their sales on R&D, compared to less than 1% for the typical Thai firm. Clearly, they perceive that R&D is essential to their business and piracy is not utmost sufficiently important issue to discourage their investment. Piracy may reduce the size of profits, but cannot stop innovative and successful software products from being highly profitable. 107 | Table 85: R&D expenditure of Top Software Firms and Its share to Total Sales Year Company Name Information R&D expenditures Microsoft Total sales Share of R&D expenditures to total Sales R&D expenditures Oracle Total sales Share of R&D expenditures to total Sales R&D expenditures SAP AMG Total sales Share of R&D expenditures to total Sales UNIT millions of USD millions of USD millions of USD millions of USD millions of EUR millions of EUR 2001 2002 2003 2004 2005 2006 2007 2008 2009 4,379 4,307 6,595 7,779 6,097 6,584 7,121 8,164 9,010 25,296 28,365 32,187 36,835 39,788 44,282 51,122 60,420 58,437 17% 15% 20% 21% 15% 15% 14% 14% 15% 1,139 1,076 1,180 1,278 1,491 1,872 2,195 2,741 2,767 10,961 9,672 9,475 10,156 11,799 14,380 17,996 22,430 23,252 10% 11% 12% 13% 13% 13% 12% 12% 12% 872 908 1,089 1,335 1,458 1,627 7,025 7,514 8,509 9,393 10,242 11,575 12% 12% 13% 14% 14% 14% Source: Firm annual reports As for foreign direct investment to Thailand from large software companies, it is not likely to change much in the near future. Foreign firms view Thailand mainly as a market for their products and thus they are looking for marketing and distribution channels. This does not require a lot of capital. However, it is less likely that Thailand would be a research center for software development or an IT service hub soon due to the shortage of local IT talent and the language barrier. Local Thai firms do show some concern over piracy, but access to cheap capital, training, IT infrastructure, tax incentives, and government-led market promotion tend to top of their list of desired government support in preference to action against piracy. According to a survey conducted by the National Statistic Office (NSO), only 16% of software firms have sought help on piracy. However, Thai software developers tend to be the most worried about the piracy issue, but even they want to overcome the problems of capital, training, and IT infrastructure first. As a result, it seems clear that piracy alone does not greatly impact the investment decisions of existing Thai software firms. The importance of IPR protection for new firms, especially those bringing innovations to the market, is likely to be much greater. 108 | Table 86: Need for Government Supports of Thai firms in IT Industry Hardware Need for Government Supports Total Do not need Do need Access to low-cost capital Free training on ICT IT instrastructure Tax reduction on import and exports for ICT products Total IT Hardware Telecom Hardware 100.00 47.05 52.95 34.22 25.89 19.34 100.00 38.75 61.25 41.46 33.71 22.9 100.00 59.69 40.31 27.86 14.27 8.57 15.96 19.19 14.3 Software IT Services Package Software Outsourcing/ Software Development 100.00 48.86 51.14 34.9 24.32 15.98 100.00 58.93 41.07 14.01 24.18 14.69 100.00 34.8 65.2 36.3 38.17 34.13 100.00 46.96 53.04 25.07 31.12 24.33 100.00 41.35 58.65 38.02 30.68 27.17 16.83 6.51 21.38 13.89 15.79 Total Total Source: NSO ICT survey 2008 8.2.2.2 Effect on Legitimate Domestic Market The impact of piracy on the legitimate domestic market is different for foreign and domestic software firms. Foreign firms appear to handle piracy better than local Thai firms do. Due to their larger market size, foreign firms have more resources to resolve piracy problems. They work with organizations such as the Business Software Alliance (BSA) and the Software and Information Industry Association (SIIA) to reinforce intellectual property protection. Furthermore, foreign firms have introduced innovative business models to negate piracy as follows: Shifting away from licensing revenue: Software firms can offer free product and then charge customers for customizing services. Instead of paying for licensing fees, consumers now must rely on IT services to use the software more effectively. Software-on-demand: This scheme will reduce costs of purchasing new software package and make it more affordable. Provide free copy with limited features: Software firms can provide free uses of software on their websites or give away their software with limited features. This will help to prevent piracy, but it does not necessarily increase their sales. Leading software firms raise awareness of adverse effects of piracy through many channels. Their arguments are based on financial loss, distraction for new product development, and hidden threats from downloading free software. Finally, these firms invest in piracyprotection technology and work with local government to crack down on piracy. 109 | As for Thai software firms, they are still operating in the old paradigm – depending on licensing fees. They continue to suffer revenue loss from piracy. 8.2.2.3 Effect on Innovation and Artistic Creativity Research and Development (R&D) typically plays an important role in the IT business. Table 877 shows each type of R&D, namely technology improvement, products improvement, new products development and demand for aid in R&D in Thailand. It is clear from this chart that R&D activities in the Thai IT industry, however, are noticeably insignificant where a percentage of yes-answer for all questions is less than 50%. Table 87: Number of Enterprises categorized by R&D (Technology Improvement, Products Improvement, New Products Development and Demand for Aid in R&D) (percentage) Hardware Type of R&D Technology Improvement Products Improvement New Products Development Total Software IT Commun ication Total 100 100 100 100 No Yes 90.85 9.15 88.4 11.6 95.46 4.54 No Yes 91.51 8.49 88.31 11.69 96.07 3.93 No Yes 93.24 6.76 91.33 8.67 96.65 3.35 No 87.90 83.49 93.81 Yes 12.10 16.51 6.19 Total Demand for Aid in R&D 91.1 8 8.2 92.0 6 7.94 93.9 0 6.10 88.4 7 11.5 3 Package Developed by Outsource Total IT services 100 100 100 100 71.6 28.4 52.03 47.97 61.89 38.11 92.61 7.39 51.00 49.00 60.72 39.28 55.82 44.18 95.47 4.53 51.19 48.81 57.21 42.79 54.18 45.82 96.79 3.21 75.56 77.36 76.45 88.06 24.44 22.64 23.55 11.94 Source: NSO (2008) However, software development by outsourcing is ranked first for technology improvement or 47.97% while the development of software packages the leading type of product improvement. Software piracy in Thailand affects both foreign and international producers‟ creativity and innovation. Although the market size in Thailand is comparatively small, software piracy may affect the incentive of foreign producers to innovate new software that is more beneficial. Instead, piracy problem increases the incentive of foreign producers to innovate technology to protect against piracy rather than providing better performance for users. This protracts the pace of innovation in software development. Thai software producers are also affected by the software piracy if their products are included in pirated program CDs.. 110 | 8.2.2.4 Effect on Social and cultural values Software piracy does not directly affect social and cultural values. Software is developed for the universal uses. However, some software, such as games, also has social and cultural information in it. Nevertheless, there are only few game developers in Thailand. 8.2.2.5 Effect on Public safety Computer Crime Other than being one of the funding sources for organized crime and damaging the creative industry, software piracy is also connected to computer crime. Computer crime issues have become immense in the past few years. Key issues include hacking, copyright infringement, child pornography, and information theft. Problems of privacy may arise when confidential information is lost or intercepted illegally. Downloading illegal, pirated software from the Internet may allow user‟s private details to be hacked. Hackers may use techniques such as including or installing malware (or malicious software) such as Trojan horses along with the pirated products. Malware is software that has been designed to infiltrate or damage a computer system without the owner's informed consent. The types of computer crime and operations that can be performed may include data theft, installation of other software (possibly another malware), modification and deletion of files, key stroke logging and viewing of the user‟s screen. 9 Industry case 4: Pharmaceuticals The pharmaceutical industry is distinct from other industries because it is highly regulated, requires expensive upfront investment in research, and depends on constant product innovation and excellence in sales and marketing. Thailand is dependent on imported pharmaceuticals and raw materials in order for locally manufactured pharmaceuticals to meet the domestic demand. The Thai government is aware of the country‟s dependency and is hoping that promotion privileges through the Board of Investment in Thailand (BOI) will develop the pharmaceutical industry. It is hoped that Thailand will modernize and effectively enforce its legislation facilitating the development of the pharmaceutical industry, by, among other measures, reinforcing protection of intellectual property rights. Thailand has experienced increasing demand for pharmaceuticals, caused by an increasing number of foreign “health tourists” visiting Thailand and changed lifestyles among the Thai population. The Thai population is ageing and the number of persons above 60 years will increase during the next few years. According to the Pharmaceutical Research and Manufactures Association (PReMA), it is estimated that 11.7% of the population is currently above 60 years and by 2015 the percentage will increase to 13.8% and 16.8% by 2020. 111 | This increased life expectancy means that the population is beginning to encounter more and different kinds of diseases than previous generations, further fueling demand for modern medicines. While these facts alone suggest that Thailand is a regional player in terms of consumption, the role of Thailand in the development and production of pharmaceuticals could also be promising. Thus, favorable government policies implemented consistently will enable Thailand‟s pharmaceutical industry to mature over the coming years. 9.1 Industry Overview Definition and scope of the industry According to the current Drug Act of B.E. 2530 (1987), medicines are classified into two major groups: modern and traditional drugs. Modern Drugs are further divided into four categories, namely 1) household remedies whose sales require no license; 2) ready-packed drugs that can be sold in drugstores by nurses or other medical professionals; 3) dangerous drugs; and 4) specially controlled drugs. Dangerous drugs can be bought without a prescription, but must be dispensed by pharmacists. Drugs which may possess a potentially harmful effect on health, if misused, will be listed in the last category whose sales require a prescription. Traditional drugs are those intended to be used in indigenous or traditional medical care as monographed in the official pharmacopoeia of traditional medicines or those declared by the Minister of Public Health as traditional medicines or those permitted to be registered as traditional medicines. The control and registration of drugs in this group are less stringent than those for modern drugs. General medicines can be further defined as: Generics, whose registrations require only dossiers on product manufacturing and quality control along with product information; New medicines, whose registrations require a complete set of product dossiers; New generics, whose registrations require dossiers of bioequivalence studies in addition to the required dossiers for generics submission. Generics refer to pharmaceutical products with the same active ingredients and the same dosage forms as those of the original products, but legally manufactured by different firms. New medicines include products of new chemicals, new indications, new combinations or new delivery systems and new dosage forms. New generics are medicines with the same active ingredients, doses and dosage forms as those of the new compounds registered after 1992. The Government Pharmaceutical Organization (GPO) has estimated that the value of the pharmaceutical industry in 2008 was approximately THB 90,000 million. This includes locally produced domestic drugs (generic products, which account for 46% of the drugs on the market), locally produced international brands (about 32% of the market), and imports (22% of the 112 | market). The domestic pharmaceutical industry is primarily a formulating industry and does not undertake much R&D. Some 95% of the ingredients used in the locally manufacturing are imported from low cost countries such as India and China, where the copying of key substances is not yet regulated. Furthermore, The GPO also estimates that the current and predicted growth rate of the industry is 16% and the pharmaceutical market in Thailand is expected to display the same upward trends as neighboring countries in the region. As shown in Table 88, government and private hospitals and pharmacies are the largest distribution channels accounting for 43% and 40% of total sales respectively. Table 88: Total sales of pharmaceutical products by segment Market segment Government + Private hospitals Private Clinics Pharmacies/drugstores GPO Other Market share (%) 43.0 10.0 40.0 2.0 4.0 Source: Thai food and drug administration 2007 The Food and Drug Administration (FDA) under the Ministry of Public Health (MOPH) is in charge of drug approval and registration. According to the FDA, the largest imported product group is “Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses … for retail sale”. A comparison of domestic production and import value in Figure 43 suggests that Thailand has experienced increases in the value of both domestic production and import of generic drugs. The export value of pharmaceutical products in 2008 was approximately THB 4,156.2 million which accounts for only 0.05% of world‟s export of pharmaceutical products. Thailand‟s exports of pharmaceutical products are roughly 74% within the ASEAN region ((Vietnam (21%) Cambodia (15%) Myanmar (15%) Malaysia (9%) and the Philippines (5%)) and to emerging markets such as Russia and Africa. However, Thailand‟s market share in the ASEAN region is decreasing because of fierce competition from other ASEAN countries, namely Singapore, Malaysia and Indonesia and due to the impact of non-tariff barriers (NTB), standard requirements, and registration requirements from the importing countries. 113 | Figure 43: Thailand‟s domestic production and import value of generic drug 80,000.0 70,000.0 60,000.0 50,000.0 40,000.0 30,000.0 20,000.0 10,000.0 2000 2001 2002 2003 2004 Domestic production 2005 Import 2006 2007 2008 Source Thai Drug Control Division Note: 2008 data are estimated Figure 44: Thailand‟s exports value of generic drug 4,156.2 4,500.0 3,830.8 4,000.0 3,500.0 3,412.5 2005 2006 2,967.3 3,000.0 2,220.9 2,505.5 2,500.0 2,000.0 3,436.4 2,068.8 2,065.5 1,500.0 1,000.0 500.0 0.0 2000 2001 2002 2003 2004 2007 2008 Source Thai Drug Control Division Note: 2008 data are estimated Market Structure and Industry Value Chain Similar to other countries in Asia, the pharmaceutical industry in Thailand is mostly formulating active ingredients and manufacturing generic products. In 2009, 714 pharmaceutical 114 | manufacturers were registered with the Pharmaceutical Research and Manufacturers Association (PReMA). Figure 45: World‟s Global Value Chain (GVC) of Pharmaceutical Industry Leader: Germany Belgium France US UK Ireland and Italy Cultivation process Switzerland Research and Development Clinical Study Commercialized Collect and preserve raw material Product Formulation Leader: GlaxoSmithKline(UK) Pfizer(US) Sanofi-Aventis(France) Johnson & Johnson (US) AstraZeneca (UK) Novartis AG(Switzerland) Merck & Co. (US) Roche Holding (Switzerland) Abbott Laboratories (US) Bayer Schering Pharma AG (Germany) Astellas Pharma (Japan) และ UCB SA (Belgium) Raw Materials Production/Factory Domestic Pharmaceutical Industry Leader: US Belgium Germany UK France (Import active ingredient) Leader: China India Korea Switzerland Italy Spain and Canada Marketing and transportation Consumer Quality assurance/Quality control Hospital/Drug store Custom/Trade Agreement Source: Fiscal Policy Research Institute (2009) Figure 45 illustrates the global value chain of the pharmaceutical industry, which mainly driven by leading companies in developed countries. Along the value chain, R&D, product 46 formulation and clinical study alone create 40-50% of total value. While Figure 46 describes Thailand‟s Value Chain in the Pharmaceutical Industry, it shows that Thailand imports active ingredients from leading drug companies from the US, Germany and Switzerland and does not undertake much R&D. Table 89 illustrates that Thai companies spend less than 1% of total costs on R&D. This is not surprising, since the profit margin of this industry is approximately at 4-5%. Yet there are 25 ingredients that Thailand can produce, such as menthol, camphor and Sodium Chloride. 46 Fiscal Policy Research Institute (2008), Measures to support most effected industry under FTAs 115 | Figure 46: Thailand‟s Value Chain of Pharmaceutical Industry Cultivation process R&D Collect and preserve raw materials Finding raw materials Thailand imports active ingredient from leading drug company from US, Germany and Switzerland etc. Product formulation /development At the upstream value chain, Thailand can commercially develop ingredient. Clinical trial (Bio-equivalent) Product registered Leader: GPO, Bertram (1982), Pure Chem, Siam Pharmaceutical, Siampharmacy, GreaterPharma, Millimed, Biopham, Zuellig Pharma and Biolap etc Quality control and production Domestic sale and export to ASEAN countries Marketing Source: Fiscal Policy Research Institute (2009) Table 89:Thailand - Generic drug‟s cost composition Production cost Management cost Approx. 75-88% Approx. 5% Advertisement and promotion cost Approx. 7.5% Research and development cost Less than 1% Source: The Office of Industrial Economics, Ministry of Industry In Thailand, drug manufacturers can be separated into three groups: 1. Multinational corporations, which manufacture active ingredients and pharmaceutical formulation 2. Thai-owned companies, which primarily focus on producing pharmaceutical formulation and, to a smaller extend manufacturing active ingredients and 3. The Government Pharmaceutical Organization (GPO), which primarily prepares pharmaceutical formulations for public medical establishments 116 | Figure 47: pharmaceutical industry‟s structure Thai pharmaceutical industry Government enterprises Private enterprises Local companies (167 firms) Multinational enterprises (38 firms) Distributors (Diethelm, Zuellig Pharma, OLIC, US Summit, Pacific Healthcare, International-Pharmaceutical) Marketing and sales (34 firms) Third party manufacturers (OLIC, Interthai) Contract marketing services (Diethelm, Pharmalink, OLIC, Innovex/Quintiles) Manufacturers (Boots, Takeda, Otsuka, Unilab) Source: The Government Pharmaceutical Organization and Office of Industrial Economic (2009) The GPO enjoys “preferential provider” status at public hospitals because of Thai regulations that require public hospitals to use GPO medicines. Hence, the GPO holds a near monopoly over the supply of drugs to the public sector. Public hospitals are obliged, by regulation, to use at least 60% of their budget to purchase medicines within the national list of essential medicines, many of which are produced by the GPO. In the case of hospitals attached to the Ministry of Public Health, that requirement increases to 80% of their budget. Moreover, hospitals are also compelled to purchase medicines produced by GPO even when the price of a medicine may be slightly higher than those of equivalent medicines produced by other drug companies47. 47 See Clause 60 and Clause 61 of the Regulations of the Office of the Prime Minister on Procurement B.E. 2535. 117 | Figure 48: Ownership of Pharmaceutical corporations in Thailand (2009) Switzerland 7 .3 % Japan 3 .5 % France Thai 3 .0 % Netherlands 79 . 4 % 2 .2 % Denmark Others 1 .0 % 3 .6 % Source: Department of business development, Ministry of Commerce (as of 24 June 2009) In 2009, there were 714 pharmaceutical corporations in Thailand which are Thai (79.4%), Switzerland (7.3%), Japanese (3.5%), France (3.5%), Netherland (2.2%), Denmark (1.0%) and others such as UK and US (3.6%). Among foreign firms, Switzerland companies have the highest investment value in the industry (7.3%) followed by Japan (3.5%) and France (3.0%). Furthermore, information about the larger players within the pharmaceutical industry and concentration of consumer (represented by average household expenditure on medical and health care by region) is displayed in Table 90 and Table 90 respectively. Table 90: Top 10 Pharmaceutical Corporations Ranking 2007, 1. Pfizer Int'l. Corp. 2. Sanofi-Aventis 3. GlaxoSmithKline 4. AstraZeneca 5. Novartis Corp. 6. Siam Pharm. 7. Roche Corp. 8. Merck & Co. 9. GPO 10. Berlin Pharm. Ind. Source: IMS Health Quarterly Market Brief 2007 118 | Table 91: Average household monthly expenditures: by region, 2006 Unit: THB/Month Greater NorthWhole Type of expenditures Bangkok1/ Central eastern Northern Southern kingdom Food and beverage 6,333 4,567 3,386 3,253 4,650 4,221 Alcoholic beverage 356 321 179 204 269 251 Tobacco products 191 151 90 79 192 129 Apparel and footwear 601 424 285 345 542 408 Household operation 5,835 3,297 2,127 2,293 3,140 3,106 Medical and healthcare 550 300 193 282 329 305 Personal care 789 438 280 288 371 405 Transportation/communication 5,366 3,282 2,096 2,464 3,381 3,084 Recreation and reading 593 399 173 279 307 322 Education 733 246 137 220 245 283 Special ceremonial expenses 63 212 238 204 157 188 Other expediture 2,783 1,736 1,131 1,274 1,678 1,610 Total 24,194 15,373 10,316 11,185 15,260 14,311 Source: Thailand‟s pharmaceutical key data 2008 Note: 1/Including Bangkok Metropolis, Nonthaburi, Pathum Thani and Samut Prakan Types of IPR involved The pharmaceutical industry in Thailand is regulated and companies are subject to a variety of laws regarding innovation patenting, the convention bio-diversity (CBD), the testing and marketing of drugs (trademarks and trade secrets), particularly for prescription drugs (see also Table 92). Currently, the Thai pharmaceutical regulatory system is based on the Drug Act B.E. 2530 (1987) together with ministerial regulations and ministerial notifications. The fundamental basis of Thai drug regulation is that all activities in relation to the trading of pharmaceutical products must be licensed and approved by the competent authorities. The Thai FDA is the main agency in charge of drug approval and regulation. Table 92: Type of IPR involved in the pharmaceutical industry Copyrights Patent Product design patent R&D Finding raw materials Product formulation/development Clinical trials Product registered Quality controls and production Marketing and distributions Source: Fiscal Policy Research Institute 119 | Invention patent Trademark Petty patent Trade secret X X X Geographical indications Others CBD CL FDA X X X X X X X Patents for medicinal products last nominally for 20 years from the time of grant by national patent offices in all WTO members which have implemented the WTO‟s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Nevertheless, Thailand has quickly become the country to watch in the pharmaceutical field since the Thai Ministry of Public Health (MOPH) issued compulsory licenses on various key patented drugs. The MOPH‟s attempts to intervene in the pharmaceutical market have attracted considerable attention from governments, pharmaceutical companies, stakeholders, and various interest groups around the world. Some groups have praised the initiative because it could lower the cost of key medicines while others have raised concerns about the impact on the ability of pharmaceutical companies to fund development of new drugs. Critics also say that the move has an adverse impact on the Thailand‟s reputation for protecting intellectual property While the pharmaceutical regulatory system in Thailand operates independently of the intellectual property protection system, interactions between the two systems are crucial to the existence of the pharmaceutical industry. In its White Paper, the MOPH justifies that use of compulsory licensing by saying that it is responsible for ensuring that all Thais have the right to essential medicines and, given its budgetary constraints, it cannot fulfill this responsibility without compulsory licenses. The first three drugs subjected to compulsory licenses were 1) Merck‟s antiretroviral efavirenz (Stocrin), 2) Abbott Laboratories‟ antiretroviral lopinavir/ritonavir (Kaletra) and 3) sanofi-aventis‟ heart disease drug clopidogrel (Plavix). In early 2008, further compulsory licenses were issued for cancer drugs including 1) the breast cancer drug letrozole produced by Novartis, 2) the breast and lung cancer drug docetaxel made by sanofi-aventis, and 3) the lung cancer drug erlotinib produced by Roche. 9.2 Assessment of Impact from Piracy 9.2.1 Piracy analysis Magnitude and type of infringement Counterfeit medicines are part of the broader phenomenon of substandard pharmaceuticals. According to the WHO definition, a counterfeit medicine is “a medicine, which is deliberately and fraudulently mislabeled with respect to identity and/or source. Counterfeiting can apply to both branded and generic products and counterfeit products may include products with the correct ingredients or with the wrong ingredients, without active ingredients, with insufficient active ingredients or with fake packaging”. Use of counterfeit medicines can result in treatment failure or even death and they have been shown to be increasingly introduced into the global supply chain, which threatens patient safety, ethical pharmaceutical sales, and undermines the integrity of the distribution channels. When counterfeit medicines contain insufficient active ingredients they can contribute to the evolution of drugresistant microbes. Counterfeit anti-malarial drugs, for example, have accelerated the emergence of drug-resistant malaria in the Thai-Cambodia border area. Such drug resistant strains are a global threat, especially when, as for malaria, there are a limited number of effective drugs available. 120 | In developed countries the most regularly counterfeited medicines are new, expensive lifestyle medicines, such as hormones, steroids and antihistamines. Whereas, the most counterfeited medicines in developing countries are essential drugs those used to treat lifethreatening conditions such as malaria, tuberculosis and HIV/AIDS. The counterfeiting of medicines has been a problem for at least two decades in many countries around the world. As international markets expand and globalize, the problem has extended to all countries and regions; even though it remains more prevalent in developing countries. In addition, the increase in the commercial use of the internet has also contributed to a growth of the problem as many counterfeit medicines are sold illegally on unauthorized web sites. The WHO recently reported that medicines purchased over the internet from illegal sites have been found to be counterfeit in over 50% of cases. Figure 49: Thailand‟s Source: Thai Drug Control Division (2008) 121 | Definition of counterfeit medical products As shown in Error! Reference source not found., counterfeit medicines are on the rise in most countries but are particularly widespread and dangerous in developing regions. According to the IMPACT (International Medical Products Anti-Counterfeiting Taskforce by WHO), it is estimated that counterfeit drugs account for around 1-10% of sales in developed countries and more than 10% in developing countries. However, in parts of Africa, Asia and Latin America, more that 30% of the medicines on sale are counterfeit, while in some former Soviet republics, counterfeits make up more than 20% of the market. These figures place the annual earnings from the sales of counterfeit medicines at over USD 32 billion globally. However, there is huge variation between geographic regions in terms of incidence. Variation can also be significant within countries: for example, between urban and rural areas, and between cities. In this light, forming an accurate picture of the extent of counterfeit medicines is difficult and counterfeiting is generally greatest in those regions where regulatory and enforcement systems are weakest. This includes Thailand and its neighbors. Data collected in 2004 showed that fake or poor-quality medicines are widely available. For example, up to 44% of samples of artesunate, an anti-malarial drug, contained no active ingredient. In 2008, this figure dropped below 20%. According to the website www.casestudiesforglobalhealth.org, INTERPOL seized more than $6.65 million worth of counterfeit medicines in the Mekong River region in 2008. The seized medications were for treatment of malaria, HIV/AIDS, tuberculosis and other common infections in Southeast Asia in 2008. In an investigation called “Operation Storm”, authorities carried out almost 200 raids across Cambodia, China, Laos, Myanmar, Singapore, Thailand and Vietnam. Police seized more than 16 million pills. In a related operation the Chinese government arrested a number of fake medicine manufacturers and seized approximately $2.7 million worth of anti-malarial products. These efforts have disrupted the fake medicine trade in the region, but, as in earlier efforts, the impact will only be temporary unless enforcement efforts continue. Figure 50: Pharmaceutical sales and the counterfeit (CFT) problem by regions CFT ≈ 1030% Asia, Africa, Latin America, Australia , 17.8% North America, 40.3% Japan, 9.9% Europe, 32.0% CFT ≈ 1-10% 2008 Pharmaceutical sales = USD 773.1 billions Source: Pharmaceutical sales date from IMS “2008Global sales and prescription information” Counterfeits data from WHO fact sheets, http://www.who.int/mediacentre/factsheet/en/ (2009) 122 | In Thailand, the Food and Drug Administration (FDA) and industry experts estimate that approximately 10% of the medicines on sale can be counterfeit at the value of almost USD 30 million. The most common counterfeit drugs are those indicated for erectile dysfunction, treating AIDS, bird flu, malaria, tuberculosis and obesity. Furthermore, it is reported that counterfeit anti-malarial medicines alone collected along the border Thai–Cambodian border were worth about USD 600,000 (see also Table 93, Table 94, and Table 95). Table 93: Recent examples of counterfeit medicines internationally Antidiabetic traditional medicine: China, 2009 Contained 6 times normal dose of glibenclaimide (used to lower blood sugar) (2 people died, 9 people hospitalized) Metakelfin (antimalarial): Tanzania, 2009 Discovered in 40 pharmacies Viagra & Cialis (for erectile Smuggled into Thailand from an unknown source in an dysfunction): Thailand, 2008 unknown country Xenical (for fighting obesity): US, 2007 Contained no active ingredient and sold via Internet sites operated outside the US Lipitor (for lowering cholesterol); Detected in the legal supply chain Zyprexa for treating bipolar disorder and schizophrenia: United Kingdom, 2007 Source: Counterfeit fact sheet (July 2009), WHO Table 94: The recent cases on counterfeiting of pharmaceuticals in Thailand Date Aug08 Place Barring, Bangkok Confiscated Items 436 Trademark counterfeiting Viagras Sep-08 24/14 7,808 unregistered Nonthaburi and trademark counterfeiting erectile dysfunction medicine Sep-08 Samut Prakarn 3,360 unregistered and trademark counterfeiting erectile dysfunction medicine Feb-09 Bang Khun Tien, Bangkok 7,400 unregistered and trademark counterfeiting erectile dysfunction medicine Charges -Possess for sale of trademark counterfeiting products -Possess for sale of trademark counterfeiting products -Selling medicine without authorization -Selling fake and/or unregistered pharmaceuticals -Possess for sale of trademark counterfeiting products -Selling medicine without authorization -Selling fake and/or unregistered pharmaceuticals -Possess for sale of trademark counterfeiting products -Selling medicine without authorization -Selling fake and/or unregistered pharmaceuticals Current status Under ECOTEC‟s investigation Under ECOTEC‟s investigation Under ECOTEC‟s investigation Under ECOTEC‟s investigation Source: Department of Intellectual Property (2009) “Thailand‟s Implementation on Intellectual Property Rights (March 2008February 2009).” 123 | Table 95: Thailand‟s profile on counterfeit medicines (2005-2007) Number of cases How where these cases detected Source: Thai Drug Control Division (2008) As seen from above, of three types of general medicines, new medicines are most likely to be counterfeited. Also, prescription drugs are highly controlled, so it is difficult to counterfeit. Thai producers who are producing only generics and new generics drugs are thus not directly affected. The distribution channels of these counterfeited drugs include direct sales, Internet, and even some drug stores. 124 | Another controversial issue regarding intellectual property is the international exhaustion of patents, leading to “parallel trade”. Parallel trading refers to products that are legitimately bought in one territory and diverted for sale to another territory without the consent of the rights holder in the receiving territory. If the distribution occurs across national borders, it is frequently referred to as parallel importing (WHO (2006)). Thai law allows the parallel import of trademark and copyright products. Neither the Copyright Act nor the Trademark Act empowers rights owners or the authorities to prohibit the import and distribution of genuine products. At present, there are no legislative changes planned. 9.2.2 Effects of Piracy The consequences of drug piracy or counterfeit drugs are manifold - patient‟s safety and security, social and economic consequences, patients do not get safe drugs, producer patent and trademark infringements (loss of revenue), government loss of taxation revenues and undermining the National healthcare system, acceleration of the evolution of drug-resistant diseases and the considerable resources that are required to combat the practice of counterfeiting. We examine the effect of piracy in four dimensions as follows: 9.2.2.1 Effect on investment Companies decide whether to manufacture in-house or outsource manufacturing based on four issues: 1) capacity 2) capital investment 3) technical capability and 4) development phase, according to the International Federation of Pharmaceutical Manufacturers & Associations (IFPMA). Taking these four issues into consideration, the 2009 Report prepared by the Pharmaceutical Research and Manufacturers of America (PhRMA) sees Thailand as a „Priority Foreign Country‟. It reports that the controversial compulsory licensing scheme is deterring foreign investment, as is Thailand‟s political instability. Additionally, the local operating environment is considered to be negative from the point of view of foreign research-based companies due to extensive counterfeiting and parallel importation and a deficient intellectual property environment. Furthermore, PhRMA has criticized the government for not making any progress in addressing current intellectual environment shortcomings, while also suggesting that the government is actually backtracking on previously-made progress. Undoubtedly, assessing the impact of drug piracy on investment is difficult since the pharmaceutical research and development process is complex, lengthy and risky. For every medicine that is approved for use by patients, countless potential medicines never reach patients since the attrition rate is very high in pharmaceutical research and development. As shown in Figure 51, most medicines take over 10 years and cost approximately USD 100 million to develop (Dimasi, Hansen and Grabowski, 2003). In addition, for every 10 medicines that are finally made available to patients, only three succeed in covering their R&D costs (Grabowski, Vernon and Dimasi, 2002). Therefore, those three medicines must be sufficiently profitable to cover all the costs of those medicines that do not make it to market as well as those that make a loss. 125 | Figure 51: Drug discovery and development process Sources: Drug Discovery and Development: Understanding the R&D Process, www.innovation.org; CBO, Research and Development in the Pharmaceutical Industry, 2007. For foreign drug companies, investment in the Thai pharmaceutical industry has been negatively impacted by emotions aroused on both sides over the compulsory licensing scheme under which the Thai Ministry of Public Health authorized the licensing of the production or import of patented medicines by organizations other than the patent holder in an effort to reduce the cost of some medicines. Despite those emotions, some positive developments seem to be in the pipeline. There has been progress on an agreement between the Thai Commerce Ministry, PhRMA and the Biotechnology Industry Organization (BIO) to increase the availability of cheaper drugs in the country by encouraging cooperation on research and innovation rather than imposing compulsory licensing. 9.2.2.2 Effect on legitimate domestic market Since Thailand‟s pharmaceutical industry is primarily concerned with production, packaging and marketing, it is not involved in much R&D. Therefore, IPR violations do not have a large direct effect on the domestic market structure. However, it may induce R&D based pharmaceutical companies not to launch new products in Thailand. This reduces the opportunity for technology transfers and development of the domestic industry. In our interviews, we found that foreign companies are reluctant to establish research and development centers in countries with low levels of IPR protection. In the study of Azmi and Alavi (2001), an industry survey of 10 Malaysian companies that have technical transfer agreements with foreign companies indicated that intellectual property right protection is essential in technical transfer. 126 | 9.2.2.3 Effect on innovation Unquestionably, innovative medicines are an important component of effective health care systems. Pharmaceutical innovation improves and saves lives around the world. Many of the new medicines provide better treatment results than previous therapies, and offer patients hope where previously there was none. All in all, pharmaceutical innovation has directly and substantially contributed to economic and social development, by helping to build healthier and thus more productive societies. Infringement of intellectual property hinders the development of a productive environment for pharmaceutical innovation, diminishes advances in research and jeopardizes technology transfer -- all of which harm the domestic industry. Countries with successful use of IP to promote innovation and investments in research and development (R&D) will benefit in terms of economic growth and innovativeness (see Figure 52). Figure 52: Key characteristics of the successful use of IP to promote innovation Source: The pharmaceutical innovation platform (2007): Meeting essential global health needs, International Federation of Pharmaceutical Manufacturers Associations. 127 | 9.2.2.4 Effect on public safety The regular use of substandard or counterfeit medicines leads to remedial failure or drug resistance and thus has serious consequences for consumer health and safety. A study conducted in South-East Asia in 2001 revealed that 38% of 104 anti-malarial drugs on sale in pharmacies did not contain any active ingredients and had resulted in a number of preventable deaths. In 1999, at least 30 people died in Cambodia after taking counterfeit anti-malarials prepared with sulphadoxine-pyrimethamine (an older, less effective anti-malarial) which were sold as the more effective Artesunate. Counterfeiters are criminals, usually working within international networks and not easily traceable. Counterfeiting of medicines is a hugely lucrative business due to high demand and low production costs. The production of counterfeit drugs need not occur in large facilities. The majority of the counterfeiters apprehended so far carried out their activities in ordinary households, small cottage industries, in backyards or under the shade of a tree. In addition, counterfeiting is theft from the brand owner and companies face potential implications from this illicit trade, such as liability claims on ineffective drugs, which often contribute to a decrease in the original company‟s brand value. In addition, piracy may induce some MNCs to avoid launching new products in countries with a high level of drug counterfeiting and this jeopardizes public health and safety. 10 Implications for Thailand’s development 10.1 Policy implications by industry 10.1.1 Movie and music industries Since both the movie and music industries depend on copyrighted creative works, they share some common characteristics. In Thailand the large entertainment corporations usually have both movie and music businesses, and use their synergy to make further profits. To promote Thailand‟s movie and music industries, a set of appropriate policies is needed. Firstly, we will discuss in this Subsection the policy recommendations regarding the IPR. Policy recommendations for industry development of these industries are then presented. From their value chain, we can see that the physical distribution channel (optical discs) is heavily affected by the IPR piracy. The effects, however, spread to the whole value chain. While production companies or music labels can somewhat change their business model to focus on the less pirated parts of their business, content creators have little choice but to accept the negative indirect effects of piracy and receive less than the full benefit of their creativity. 128 | Policy response to IPR infringement In response to optical disk piracy, the government should encourage more effective law enforcement. It should support inter-agency cooperation in monitoring and tracking, raiding, arresting and seizing infringing goods. The corruption that is sometimes involved in lax enforcement should be addressed. The responsible agency should root out violations at the beginning of the supply chain. Legal punishment should be set at a level that makes optical disk piracy riskier and less profitable. This will reduce the involvement of organized crime. Moreover, government policy should focus on eliminating weaknesses in existing laws in order to limit the piracy rate. For example, according the present law, officials cannot arrest pirated-optical-disk traders if there is no plaintiff. It would be more effective if there were a revenue stamp to indicate authentic goods, and if the cover of a pirated optical disk can be counted as an exhibit. The law should also aim to reduce retail piracy as well. In response to Internet piracy, Internet service providers should be asked to cooperate with relevant government agencies to prevent illegal downloads. Also, the existing law should be amended to cover illegal activities on the Internet. Since the Computer Crime Act B.E. 2550 does not address the IP infringement on the Internet, infringers can use the Internet as an advertisement channel. Also, online advertisement of counterfeit drugs is widespread, even on legal websites. To solve the piracy problem in the long run, the government should also raise public awareness of the negative effects of piracy. It could be in the form of education in schools or public service announcements to the public. This public awareness should support efforts to suppress piracy by encouraging the public to report violations at the same time it will reduce the willingness of the public to purchase the pirated products that continue to be available, thus reducing the scale and profitability of piracy. Industry development policy The cost of producing creative works is high. The government should find ways to make it easier for the movie and music industries to finance creative production. In addition to financial assistance, the government should support the entertainment business with promotion of exports. This is important both in terms of monetary value and cultural value as movies and music can strengthen the cultural and social values of the country and raise the understanding and appreciation of those values internationally. The South Korean government‟s active support of entertainment exports is a good example. Moreover, an increase in a number of production firms will help create more competition in the industry. Our industry cases of both movie and music suggest that the market in Thailand suffers from a lack of competition. The government can help reduce the barriers to entry of new players by providing artistic training. Greater competition will bring better quality of and enhance the variety of creative works. The compensation system in these industries for creators should be more flexible. The movie script writers or lyric writers should be able to select form of compensation to suit their needs, and the compensation should be fair. This will bring more talented artists into the industry, increasing more creative works. Also, in connection with intellectual property rights, the IP system should be improved in the manner that provide more bargaining powers to original 129 | content creators. For example, there should be channels that for content creators can directly sell their creative works to their customers, with the protection of intellectual property rights. This will increase more creative works. 10.1.2 Information technology industries The value chain of software industry in Thailand suggests that the content creators are mainly of foreign companies. The alternative choices, such as open source software, however, can be used. The competitiveness of Thai content creators should be also raised by the creation of market of Thai software and the increase of capacity of Thailand‟s software business. Policy response to IPR infringement First of all, government should support IT users to buy legal software at low but still fair prices. This may be done by government negotiation with software producers. Also, software purchase in the form of installments with low interest rate should be encouraged to broaden the base of the legal software market and undercut the sales of pirate software. Secondly, government should allow options for the use of legal open source software in government software procurements to provide competition to existing software. Thirdly, there should be a policy that makes the purchase of legal software a culture for the new generation of people and possibly the current generation. This can be done by educating people on the negative effects of piracy on the creative industries and the economy in general. This education campaign should promote the idea that piracy is no different from stealing. Industry development policy The value chain of the software industry in Thailand suggests that the content creators are mainly of foreign companies. The critical disadvantage of Thai firms is a shortage of trained and experienced software personnel. The competitiveness of Thai content creators could be raised by improvement in training at all levels in collaboration with the Thai industry as well as providing more opportunities for foreign experts to provide on-the-job mentoring to talented Thais. Supply side policy aims to encourage Thai producers‟ innovation and creativity so that Thai software products can compete in both domestic and foreign markets and to reduce the impact of software piracy. As the software industry is highly dynamic, it is important for producers to understand the future trends in the IT industry. The government and relevant bodies should support the provision of information on the trends of the IT industry worldwide. Government should support the provision of market research and advisory services by domestic and international experts. This can be done in various ways such as hosting training sessions and events, strengthening industry associations, raising industry standards and providing online access to information. The government and relevant bodies should strengthen the competitiveness of Thai software producers in three ways. 130 | The first to better protect Thai producers‟ copyrights. Since small, domestic firms do not have the same technical or financial capability in dealing with infringement of their copyrights, improvement in enforcement for local producers is needed. The second is to provide a new, supporting market for Thai software products. This can be done by supporting the producers in searching for new customers overseas. In order to get to such new markets, however, producers will need to strengthen their product innovation and creativity to meet international standard. Finally, the government must move forward on long-delayed efforts to develop thirdgeneration (3G) wireless communications infrastructure. Innovation in IT is closely tied to telecommunications infrastructure and this infrastructure offers opportunities to develop many new products, both software and hardware. Thai producers, however, will be severely handicapped if the Thai wireless infrastructure continues to lag behind world standards, thus depriving Thai business of the opportunity to develop products for the local market that can later be exported. The availability of advanced ICT infrastructure also impacts decisions on foreign direct investment, with high-technology companies hesitant to invest in countries, such as Thailand, where the ICT infrastructure lags behind global standards. 10.1.3 Pharmaceutical industries From the value chain of Thailand‟s pharmaceutical industry, it can be seen that Thai drug companies are mostly formulating active ingredients and manufacturing generic products. Counterfeiting mostly occurs in the generic or new generic drugs. The effects however can also spread throughout the value chain. Policy response to IPR infringement The pharmaceutical industry relies heavily on intellectual property protection as it plays an essential role in stimulating the development of new medicines. A progressive intellectual property system also lies at the heart of attracting investment in high technology and also in ensuring that local universities can fully secure the benefit of costly research and development. Without patents, these essential medicines would probably not have been produced and the development of new and better medicines could be in jeopardy. To conclude, intellectual property protection provides an important impetus for continued innovation in the future, which is the key to meeting future public health needs Counterfeit drugs, which not only harm legitimate producers, but also create negative impacts on public safety, should be seriously suppressed. 131 | Industry development policy Health care systems encompass various elements and represent interests of different stakeholders – governments, citizens, health care providers and funders. All these stakeholders have their own objectives, which are interrelated. It is the role of government to balance these often-conflicting objectives. Medicines are just one component of delivering better health to patients. Healthcare professionals, infrastructure and systems are equally important and all of these components must be developed together if the healthcare system is to be improved. The government supports the development of the healthcare sector in Thailand, hoping to make the country the “Healthcare hub of Asia”. At present, however, Thailand‟s pharmaceutical production capacity is limited to “formulation” type facilities in which imported active ingredients are made into medicines for consumption. Thailand‟s capacity for producing active ingredients is still limited to a handful of companies and the Government Pharmaceutical Office (GPO). Thailand‟s efforts to develop pharmaceutical capacity have concentrated on medical biotechnology and related life science sectors. In comparison with other countries within the region, Thailand‟s effort in these fields of research and development commenced relatively late. Nevertheless, many significant research-based pharmaceutical companies have voiced strong support for recent initiatives. Thailand‟s National Biotechnology Policy Framework, which was published in 2004, sets out a seven-year plan to achieve excellence in six areas of practical application of biotechnological innovation. A strong focus on two key areas of clinical research and medical tourism is needed to generate revenues to facilitate development of adequate infrastructure and at the same time increase skilled employees trained in biomedical science. In the last decade, Thailand has the ability to quickly become a significant regional player by attracting significant number of clinical trials. In this light, Thailand already possesses a significant cluster of well-qualified scientists and researchers across various medical and life science fields, but unfortunately many such scientists are engaged by private enterprise. Moreover, partnerships among established R&D base pharmaceutical companies (mostly MNCs), local companies, international organizations and the government allow the complementary expertise of the various partners to be harnessed efficiently in the search for new preventives and treatments. In sum, in order to develop production capacity so that the industry will become selfsufficient, foreign technology transfer will need to be attracted by creating a friendly investment climate. Moreover, a steady stream of qualified scientists, pharmacists and chemists will also be needed. In this respect Thailand‟s educational system will play a vital role. Therefore, viable and efficient regulatory environment supplemented by modern educational and intellectual property policies are definite requirements. 132 | Efficient markets - National action to promote efficient market environment In theory, effective markets should allow for an efficient allocation of resources. This, however, is generally not the case for the Thai pharmaceutical market, which is distorted by inadequate health funding and government pricing, the monopolistic power of the GPO as well as government reimbursement policies. Since the pharmaceutical industry is particularly influenced by government policies, the relationship between the industry and government is very important. Well-intentioned government policies directed at managing scarce resources, such as price controls or restrictions on intellectual property rights, can have unintended and grave negative consequences for the industry, which in turn can have a negative impact on public health, as well as social and economic development. Legislation forms the basis for drug regulation. Medicines need to be safe, effective and of good quality in order to produce the desired effect. Ensuring these properties requires the creation of competent national drug regulatory authorities with the necessary human and other resources to control the manufacture, import, distribution and sale of medicines. The Thai government needs to develop strategies to reduce criminal activity and promote inter-agency cooperation between regulatory authorities, police, customs services and the judiciary to effectively control the drug market and enforce drug regulation. One means of ensuring the attractiveness of Thailand as a center for drug R&D and production is the implementation of an efficient drug regulatory system that functions up to international standards. Even Thailand has shown the potential to conduct clinical trials, it is surprising that the process of approving clinical trials has not yet been centralized leading to uncertainty about requirements for trial approvals. To launch a clinical trial in Thailand, a drug developer/sponsor must first select a research facility and a team of physicians to conduct the study. In most cases, hospitals and university medical centers are more apt to locate and retain suitable participants for clinical trials than other research institutes due to their ready access to a broad range of patients and research volunteers. Therefore, most clinical trials in Thailand are carried out at these establishments. Nevertheless, the most significant area of difficulty presently facing drug innovators wishing to conduct trials in Thailand is the perceived lack of facilities and human resources to conduct the more remunerative Phase III studies. Some drug originators also report difficulties in obtaining approval for the conduct of trails from ethical committees at testing facilities. As a first step in securing the attractiveness of Thailand for clinical research, modernization of drug regulation is paramount. It is hoped that modern legislation will clarify not only the procedures for conducting and obtaining approval clinical trials, but also other related important loopholes. 133 | 10.2 Policy recommendations for Thailand’s development As noted earlier, the Thai government has initiated a policy of supporting the development of a “creative economy.” This is an important policy that can make a significant contribution to Thailand‟s economic development and the needed transition to a more advanced economy that can provide higher per capita income and better quality of life for the Thai people. Figure 53 suggests the framework for our analysis. It shows that in the transitional stage from the Old Economy to the New Economy, there is a shift from goods and services that are factor-driven to goods and services that are creativity-driven. Recently, new ideas in development have been initiated by developed countries. These countries have developed their societies and economies by differentiating their products and services to avoid price-based competition in the world markets. In light of this analysis, it is obvious that Thailand‟s economy is still in the Old Economy stage. Our findings suggest that the value added of creative industries in Thailand is still low. Although there have been attempts in the 9th and 10th National Development Plans to promote research and development, the use of information and communication technology, and intellectual property rights, Thailand‟s goods and services still lack competitiveness. Figure 53: Thailand’s economic structure and development status Source: Adapted from UNIDO (2002) and Fiscal Policy Research Institute (2009) 134 | Nevertheless, Thailand has the opportunity and the potential to apply the concept of the “Creative Economy” as a new vehicle for its modern economic development. The Creative Economy policy can be implemented successfully by taking advantage of Thailand„s special characteristics in products and services and by strengthening key supporting infrastructure in the education and ICT systems. Current government policies to develop Thailand’s creative industries The Government has realized the increasing importance of developing creativity to add value to services and manufacturing. The ultimate aim is to develop Thailand into a creative hub in the ASEAN region. The Government has planned to spend approximately THB 20 billion on its Creative Thailand policy. Furthermore, the National Creative Economy Policy Committee, chaired by Prime Minister Abhisit Vejjajiva, has been set up and a Cabinet ruling has established a 12-point commitment for the creative economy drive. Some recent government policies to support creative industries are as follows. The government has announced nine projects under the creative economy policy that are being carried out by the Office of Knowledge Management and Development (OKMD). The total budget for this project is approximately THB 53 million for the period from November 2009 to March 2010. The objectives are to provide the people with a better understanding of the policy and the concept of creative industries, to develop Thai society as a knowledge-based one, and to enable Thai entrepreneurs to develop their products and services using Thai culture and wisdom. The details of nine projects are in Table 96 below. Table 96: Nine projects under the creative economy policy carried out by the OKMD Projects Bangkok Creative City Scheme Creative Skill Mapping Bangkok Music Network Festival Creative Studio Bangkok Food Network Festival Creativities Unfold Symposium 20082009 OKMD Creative Awards Executive CE Creative Mobile Creative Economy Website Source: Public Relation Department 135 | Details To encourage Bangkok residents to help turn the capital into a creative center for various areas, such as designs, music, and food. This will promote Bangkok as a livable city and make it more attractive in terms of tourism and education The presentation of awards for creative entrepreneurs, or The establishment of a creative economy course for executives, or Mobile knowledge dissemination to every province nationwide. Public relations and the development of the website to promote the creative economy. The relevant government agencies also are active in setting up policies to support creative industries. The Ministry of Culture has launched a Creative Arts and Cultural Festival in the hope of generating employment and income for local villagers by arranging multipurpose grounds for cultural shows, and using them to sell cultural products. Other projects to be launched include the preservation of cultural world heritage sites, the installation of lights at various historical structures, and support for film and video production. A fund of THB 612 million will be spent under the “Thailand: Investing from Strength to Strength” program. The Ministry of Industry also uses the idea of the creative economy in the development of industry. For example, the second phase of the project Thai Kitchen to the World focuses on creativity under the “Thailand Food Forward” concept. The National Food Institute of Thailand has received THB 100 million. The Institute‟s main duties are to encourage Thai restaurant operators worldwide to maintain the quality of Thai food and to provide international consumers with more knowledge of Thai food and its connections with Thai culture and beliefs. In terms of services, the Government also applies the idea of creative economy to tourism. The Tourism Authority of Thailand (TAT) is focused on creating extra value for tourism services and products. Many investment projects have been introduced to improve tourism sites and make use of “cultural capital” to support the tourism industry. In light of current policies to support creative economy in Thailand, we found the role of making use of IPR is still under-emphasized. We believe that improvement of IPR system should be carried out in tandem with the promotion of the creative economy because registering creative products and services as intellectual property will generate more income, providing further incentives for creative economy development. The critical role of the Ministry of Labor, however, is often overlooked. This ministry should be included as relevant to the creative economy because it has the capability of raising creative skills through its Skills Development Department and of lowering barriers to attracting world-class creative talent to come live and work in Thailand. Government, thus, should strongly support the creation of intellectual property. This can be done by addressing the weaknesses of the current IP protection system. Creative industries depend on IPR to gain the financial rewards of creativity and attract the investment capital necessary for future development of IP. At the same time, the huge profits possible through IPR infringement attracts pirates and counterfeiters. Meaningful fines and effective enforcement are needed to make IPR infringement significantly less profitable. A key challenge is to improve the system in ways that provide real protection to the IPR of small as well as large companies, since much creativity originates with small firms. For example, in the movie and music industries, content creators, often small companies or individuals, tend to have limited powers of negotiation with the large companies. An improved system should also provide channels that would allow small firms or individual creators to better protect and sell their creative works. Also, the government should support the various alternatives to traditional full copyright protection for IT goods as new, more flexible types of limited use and open source licenses provide ways to lower software costs, reduce the expense of software protection, increase competition and reduce software piracy. 136 | In the long run, the government should use the education system and public service announcements to help people understand the importance of IPR. The inclusion of teaching on the topics of creativity economy and the importance of IPR in the school curriculum is one possible way to educate young people to understand the connection between IPR protection and creativity. Figure 54: Thailand’s development strategy Source: Fiscal Policy Research Institute Overall policy recommendations In addition to the industry-specific recommendations described above, our study of the contributions of Thailand‟s creative industries, the assessment of losses due to IPR infringements and the in-depth industry cases, suggest that leaders in government and the private sector consider and discuss the following policy recommendations to further develop Thailand‟s creative industries. Our analysis shows that government support for the creative industries is an important policy direction that can make a significant contribution to Thailand‟s economic development. Promoting creative industries is a key element in the needed transition to a more advanced economy that can provide higher per capita income and greater quality of life for the Thai people. In line with this policy, government should strongly support the creation of intellectual 137 | property. Creative industries depend on IPR to gain the financial rewards of creativity and provide the investment capital necessary for future development of IP. The government should use the education system and public service advertisements to help people understand the importance of IPR to the Thai economy and this, in turn, will lead more Thais to support enforcement of IP protection and reduce their purchases of pirated or counterfeit products. More detailed policy recommendations are provided for each of the creative industries in the full report, but the general recommendations include the following: Expand the elements supporting creativity already in the draft of the 11 th National Development Plan Development of creative industries should be carried out together with that of knowledge-based industries. This is because knowledge and creativity are interrelated. The government should increase its support for research and development, both through support for public sector education and research institutes and through tax incentives for R&D in the private sector. Private sector firms should develop longer term strategies for product innovation, possibly involving collaboration with universities and research institutes. Government efforts, such as those funded by the NESDB, the Ministry of Commerce and the Ministry of Industry, to strengthen creative value chains through a cluster approach should be stepped up. Pilot cluster projects in the digital content and jewelry clusters have already shown some success and should be expanded. Weaknesses in the IPR system should be addressed. The patent registration process, for example, should be supported with improved processes, higher fees for outside assessors and more trained personnel to reduce the time needed to register a patent. IPR enforcement should also be improved with fines and conviction rates that provide real deterrence. The role of education in creativity should be strengthened because it produces new knowledge as well as creative people. This must include more effective and better-funded implementation of the Ministry of Education‟s policy of moving away from rote-based learning to more student-centered and project-based or enquiry-based learning. Of particular importance is developing better ways to assess knowledge and creativity than the current use of national multiple choice examinations. Efforts should be made to attract high-level creative talent to live and work in Thailand. Such talent should include software engineers, designers, film-makers, multi-media professionals, authors, creative entrepreneurs and researchers. Such talented people not only boosts the creative industries in Thailand by developing new businesses and creating intellectual property, but they pass on their skills and knowledge to young Thais working with them. Thailand‟s barriers to such talents should be eliminated, especially the difficulties created by Ministry of Labor concerning work permits. 138 | Teaching on creativity and intellectual property should be included in the education system. Pilot efforts by the Department of Intellectual Property to create a curriculum and teaching materials for use in secondary and vocational schools should be supported and expanded. Public service announcements should be used to create understanding among the public that piracy of creative products is a form of theft. The government should support the provision of entrepreneurship skills to people in the creative industries. Software engineers, doctors, researchers and artists need the business skills that will enable them to build profitable businesses on the basis of their creativity and technical skills. Creative, technically capable entrepreneurs are needed to develop the creative goods and services and then successfully commercialize them. Efforts pursued by various Thai universities, the Office of Knowledge Management and Development (OKMD) and the National Science and Technology Development Agency (NSTDA) to improve the process for technology licensing should be supported as technology licensing helps provide the revenues needed for expansion of R&D efforts. In addition to the promotion of SMEs in general, there should be a higher level of support for creative SMEs and creative start-up companies through the Office of SME Promotion and the SME Bank as well as venture capitalists and “angel investors”. Government agencies responsible for promoting the development of creative industries should implement policy in a systematic, integrated and understandable manner. Interagency cooperation, especially where regulatory powers overlap, is required. Public-private partnerships to support creative industries, such as the Thailand Animation and Multimedia Awards, the Thailand Animation Film Festival and the Intellectual Property Mart, should be actively pursued. Creativity, especially in the IT and entertainment industries, is supported by an international level telecommunications infrastructure. Government should make it a high priority to remove the obstacles to implementation of ITC infrastructure such as Wimax and 3G and make the National Telecommunications Commission more effective and efficient to ensure that obstacles and delays do not delay the roll out of future technologies. Conditions for licences should provide ITC services to the public at a reasonable cost rather than provide high income to the state. Radio broadcast frequencies should be reallocated on the basis of value added. The capability of organizations set up specifically to support the creative economy should be strengthened. 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GMM Grammy (2004, 2005, 2006, 2007, 2008). “Annual Report” GMM Grammy (2008, 2008). “Report on Analytical Meetings” Major Cineplex (2004, 2005, 2006, 2007, 2008). “Annual Report” Office of Industrial Economics (2009). “Annual Report on Conditions of Manufacturing Industries: 2008”. Pongsaap (2004, 2005, 2006, 2007, 2008). “Annual Report” R.S. (2003, 2004, 2005, 2006, 2007, 2008). “Annual Report” The National Statistical Office (2008), “Significant results from ICT Industrial survey 2008” Ubornrat Siriyuwasak. (2004). Mass Chulalongkorn University Press Communication Media, Culture and Society, Warunee Ta-aye (2008). “A Study of Furniture Industry‟s Supply Chain Management in Thailand”. Online Box Office Mojo. (http://www.boxofficemojo.com/movies/?id=ongbak.htm) http://www.unctad.org/creative-economy http://www.pantip.com/cafe/chalermthai/release/release-2008.html) 143 | International Intellectual Property Alliance http://www.iipa.com/ The Publishers and Booksellers Association of Thailand (PBAT), http://www.pubat.or.th/default National Research Council of Thailand (NRCT). http://www.nrct.go.th WHO (2009), WHO Fact Sheets, http://www.who.int/mediacentre/factsheets/en/ 144 | Appendix 1 Table 97: Thailand‟s creative industries in the present study (detailed) I-O Code 080 083 Description of Industry 000 Wooden Furniture & Fixture 100 Wooden Furniture & Fixture 200 Bamboo & Rattan Furniture 900 Other 990 Others, Except Of Metal 000 Printing & Publishing 100 Newspaper 110 Thai 120 English 130 Chinese 190 Others 200 Periodical 300 Books 310 Textbook 390 Others 400 Advertisement 500 Printed Matters 510 Map Table 97: Thailand‟s creative industries in the present study (detailed) I-O Code 088 Description of Industry 520 Printed Advertisement Matter 530 Calendar 540 Bank Note 550 Stamp & Postcard 560 Printed Music Note 590 Others Book Binding 600 Printing Services 700 Block and Offset Plating Services 000 Drug And Medicine 100 Vitamin 200 Hormone 300 Vegetable Alkaloid 400 Other Organic Compounds 410 Penicillin 420 Tetracycline 490 Others 500 Antisera 600 Medical Chemicals 610 Anti-Malaria 690 Others Table 97: Thailand‟s creative industries in the present study (detailed) I-O Code 132 168 Description of Industry 700 Native Medicine 800 Wadding & Bandage For Medical Use 810 Wadding 820 Bandage & Gauze 890 Others 900 Other Drugs & Similar Products 000 Jewelry & Related Articles 100 Precious Stone, Cut Or Mounted 200 Articles Of Gold And Semi 300 Articles Of Silver 400 Articles Of Platinum 500 Coin, Not Currency 600 Pearl Product 700 Semi-Precious Stone 900 Others 901 Niello Wares 969 Others 000 Research 100 Public Research 110 By State Enterprise Table 97: Thailand‟s creative industries in the present study (detailed) I-O Code 172 173 174 Description of Industry 120 By University 130 By Science Research Institution (Sri) 140 By National Research Council (NCR) 190 By Other Offices 200 Private Research 900 Others 000 Motion Picture Production 100 Motion Picture Production 200 Motion Picture Distribution 000 Movie Theater 100 Movie House 200 Theatre 000 Radio, Television & Related Services 100 Radio Broadcasting 200 Television Broadcasting 300 Cable T.V 400 Video Services 500 Appendix 2 Definition of Intellectual Property in Thailand 48 Patent is a type of intellectual property that is most familiar to everyone. It is possible to say that patent is related to everyone‟s daily life in that products that people use every day are the results of human inventions, such as the creation of detergent, which is now highly condensed and very effective in cleaning. Therefore, a patent has contributed to more conveniences and a better and safer living standard. Patent means important document issued by the government to protect an invention, a product design, or a utility model as provided under the laws. Invention means innovation on composition, structure or mechanics of a product, production and maintenance processes, as well as quality improvement. Product Design means innovation related to modification of exterior feature of a product for beautification and differentiation. Utility Model or also called Petty Patent is similar to invention but the level of technological innovation is not high or it is a result of minor innovation. Petty patent is an important document issued by the government to protect an invention. Trademark means a mark, a symbol, or label used for a product or service as the following. Protection for a trademark is provided under the Trademark Act (No.2) B.E. 2543 (2000). The trademark law provides protection for 4 categories of trademarks as follows: Trademark is a mark that is used in conjunction with goods to present that the goods is different from other goods that use other trademarks, such as BREEZE (detergent), Ma-Ma (instant noodle), and Red Bull. Service Mark is a mark that is used in conjunction with service to present that the service is different from other services provided under other marks, such as service marks of an airline, a bank, and a hotel. Certification Mark is a mark that the owner of a product or service uses in conjunction with the product or the service to ensure quality of the product or the service, such as Shell-Chuan-Chim (gourmet mark), Mae Choy Nang Ram (gourmet mark), and Halal Food (Muslim food). 48 Source: www.ipthailand.com Collective Mark is a trade mark or service mark used by a company or other associates ventures or members of an association or other organizations of public and private entities, such as the Siam Cement Group Co. Ltd. Copyright Copyrights mean exclusive right to undertake any activity that is related to works that an innovator has created. A copyright is a work that resulted from intellectuality, knowledge, and assiduousness to innovate the work. It is considered a type of intellectual property that has economic value. Therefore, an owner of a copyright should be protected under the law. Rights under copyrights will be acquired immediately after an innovator developed the work without registration requirement. The owner of copyright should therefore protect the work by bringing together relevant evidence that may be used to prove the ownership of the work in the future. Innovative works that are considered copyright comprise of different types of works as follow: 1. Literary work, such as book, periodicals, article, publication, and computer program; 2. Choreographic work, such as cultural dance, dancing, posture or a performance that is composed in to a story, as well as pantomime; 3. Artistic work, such as painting, sculpture, graphic arts, architecture, photography, plan chart picture, applied art including photograph and diagram of the work; 4. Musical work, such as melody and lyrics or only melody including a well composed tones and chorus; 5. Audiovisual, such as video tape and laser disc; 6. Cinematography, such as movie and supporting sound of the movie (if available); 7. Sound recording, such as cassette tape and compact disc; 8. Sound and picture broadcast, such as radio broadcast, or sound and picture broadcast via a television station; 9. Other works that are related to the literary, scientific, and art domains. Traditional knowledge of local wisdom and cultural heritage that exists in Thailand can be separated into 2 categories: 1. Traditional knowledge of local wisdom such as food and beverage production, herbal products, surplus material products and products that are made from wood, stone, metal, glass, ceramic, baked clay, leather and the like. 2. Cultural heritage are such as folk tales, stories, poems and, songs, as well as arts, painting, sculptures, handicrafts, costumes and fabrics. Traditional knowledge as above will be gathered for the use of public information or contacted for use in business and promotes traditional knowledge for the full utilization for commercial benefits. In addition, those who notify Department of Intellectual Property about traditional knowledge can bring the certificate from department to certify banks or financial institutes for IP Capitalization for credit and to pay debt to banks or any financial institutes. Trade secret is trade information that is not generally well-known or is not accessible by groups of people who normally are related to the information. The information can be used for trade benefits since the owner or the protector of the information has maintained the information secret by appropriate means. Normally trade secret is under protection as long as the information remains secret. Therefore, the right of the owner of the information is permanent as long as the information is not revealed to the public. Trade secret will receive protection without the requirement for registration. Accordingly, the owner of trade secret can choose to notify the trade secret by using the secret as collateral to guarantee a loan from a bank.
