Musings on Photography

More on Droit de Suite

Posted in business, Droit de Suite, ethics, the art world by Paul Butzi on May 7, 2007


Some interesting comments on the Droit de Suite post, here

If you write a book, you sell the right to publish that book to a publisher, you don’t sell them the book. If they reprint that book and charge a higher price, you get a better return. Or, if the original contract has expired and they want to reprint it, but another publisher has offered you a better deal, you can sell the rights to them. You’re not stuck at the original rate.

Sure, that’s a good plan.  And, of course, if the book doesn’t sell well, then the writer is taking the hit when the contract expires; the artist is taking all the risk of what happens when the contract expires, and is reaping all the rewards (or losses). 

Artists, even artists that produce one off works, could do pretty much the same thing – namely, they could lease work instead of selling it outright.  Then, when the lease term expires, they can adjust the rental rate.  They could either lease it to the same person, or lease it to someone else.  Problem solved.  Or, if they only want partial participation in profits, they could just sell shares in the work – say, sell 94 shares to the ‘new owner’, and retain 6 shares themselves.  When the artwork is resold, they would get 6% of any profit.  Of course, they would also have a 6% share in any losses.

If you’re a painter or a sculptor, each work is a one-time deal. If you sell one and it goes up in value, why shouldn’t you, the person who actually created the work, make at least some profit from its increased value?

There’s a simple reason why the artist shouldn’t make any profit from the increased value – it’s that they’re not taking on any of the risk.  The purchaser is taking on all of the risk associated with the future value of the work.  If the price rises, they get all the reward.  If the price falls, they take all of the loss.  The artist is taking on none of the risk, and thus shares neither in any potential profits nor in any potential losses.  As the promoters of lotteries keep telling us, if you don’t play, you can’t win.

…the seller did nothing except buy it and hold it.

A lot of artists suffer from the misconception that the buyer did nothing.  But, of course, the buyer DID do something – they exchanged money for the ownership of the work.  As a result, they’ve incurred what the financial world calls ‘opportunity cost’ – the value of the investment they could have made instead of buying the artwork.  Even if the only alternative was to buy a long term CD, they’d still be earning interest on that money.  Instead, they bought the artwork, they’re taking all the risk that it might decrease in value (a common outcome with art purchases) and thus they have the right to all the appreciated value. 

And, I’d point out, without that buyer, the artist is left with a very nice artwork that he can’t sell, and thus it has a value of zero.  Economists have a good way to thinking about a financial transaction – it’s that the way it works when no one is being coerced is that the seller gets the money, which they value more than they value what’s being sold.  And, of course, the buyer gets the thing being sold, which they want more than they want the money.  Both participants walk away with something they wanted more than what they had when they started.  Unsurprisingly, this theory explains a vast swath of human behavior.  It’s a very useful theory, because it so accurately predicts so much.

Artists would do well to study this theory.  They should study it because it’s much more useful than the Artist’s Fantasy Theory of Economics, which states that, in a just world, art buyers would grovel at the artist’s feet for the privilege of buying the artist’s work, would apologize for being wealthy enough to buy art, and would insist on paying more than the asking price as a token of their appreciation of the artist’s ongoing creative struggle.

The gallery did nothing except sell it. There’s no creative input in either of those activities (if something as passive as displaying something and saying, “Hey, wanna buy it?” can be called active). The artist, on the other hand, made it, and without that act of creation the other folks would have nothing to “do”.

Once the gallery has made the initial sale, they’re no longer involved and don’t get any profit from subsequent sales, so I’m not sure why they’re being discussed at all.  But the gallery quite clearly did something of value – they coordinated the sale.  If galleries don’t create value for artists, no one is holding a gun to the artist’s head and insisting that they do business with those galleries.  Lots of artists (me included) do direct sales instead.

Right now, I’m involved with a group of artists putting together a coop gallery to show and promote our work.  It’s an exercise I recommend for anyone who is suffering from the hallucination that galleries don’t do anything and don’t incur any costs while selling artwork.  Short incomplete list of just the overhead items: rent, paying staff to keep the gallery doors open, phone bills, printing costs for promo cards, paint to repaint walls, accountant’s fees, costs for wine and food at receptions, insurance to cover artwork while it hangs, B&O taxes, legal fees, web hosting fees, ISP costs.  The list just goes on, and on, and on.  Truly, the list would not only stun a stoat, it would stun a really, really hard to stun stoat.  If you were to find the stoat that, of all the stoats in the world, was hardest to stun, it would stun THAT stoat. 

As for the perception that the purchaser of the work and the gallery didn’t do anything ‘creative’ – once the artist has made the work, they haven’t done anything creative either.  And, while I realize that in Artist Fantasy Universe, no one is financially compensated for anything which is not extremely artistic and creative, in the real world people earn money all the time, deservedly, for doing things which are not very creative. 

Most artists don’t make a lot of money from their art. Even with “droit de suite” this is the case. France, crazy country that they are, figured that keeping artists eating keeps them creating art, thus keeping culture alive.

Enacting Droit de Suite legislation that affects sales of artwork that was initially sold BEFORE the legislation was enacted essentially grants artists a share in any potential profits (but no share in potential losses) and thus amounts to taking money out of art owners’ pockets and placing it directly in the pockets of artists.  Regardless of the nobility of the sentiment behind this, it is theft. 

If you don’t think so, imagine for a moment similar legislation which insisted that all artists must make up a part of any losses suffered by art purchasers, but didn’t give artists a share in potential profits.  Ah, I can hear the outrage now.

And, more to the point, there’s no evidence whatsoever that Droit de Suite actually ends up putting more money in the pockets of starving artists.  None.  What happens is that art buyers discount the future profits of any sales, and incorporate this discounting into the price they’re willing to pay.  So Droit de Suite just drives prices down, resulting in LESS up-front money in the artist’s pocket.  In the final analysis, what Droit de Suite does is take money OUT of the pockets of starving, emerging artists (because prices are depressed to offset the risk of Droit de Suite payments if the work appreciates) and moves it into the pockets of established, successful artists whose work is being resold (because only the work of established, famous artists ever gets resold, and on average, because the price discounting will be based on averages, but works which appreciate greatly will outperform the average).  There are people who think this is a grand plan, but I’m not one of them.

One other point, this one in response to your asking why the artist should share in the profit, but not the risk. Simple answer – the artist already took the risk, devoting, potentially, a large part of their life to creating the work.

Yes.  The artist took the risk of investing time, energy, and money in creating the work initially.  The compensation for this risk is reflected in the price of the first sale.  But specifically, the artist does not participate in any of the risk AFTER the sale, and thus does not participate in any of the reward, either.

Let me put it like this: once the artist has sold the work, ALL of the risk is borne by the purchaser, and there’s no possible scenario in which the artist can lose money as a result of price changes in the work that’s been sold.

11 Responses

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  1. Rosie Perera said, on May 7, 2007 at 12:42 pm

    Excellent, even if rather long-winded, explanation.

  2. tim atherton said, on May 7, 2007 at 2:32 pm

    That’s a fine (if rather narrow) laissez faire market economy argument. Unfortunately (fortunately?) it doesn’t actually work terribly well – fine in theory, but not in practice.

  3. sjconnor said, on May 7, 2007 at 5:00 pm

    I mentioned the gallery in response to one of the replies to the original post.

    Your “market risk” argument only succeeds if, in fact, the purchaser is buying the art as an investment, rather than as an object that appeals to his/her aesthetic tastes – i.e. they like it and want to own it. If this is why they’re buying it, then the concept of “risk” is simply irrelevant.

    If they are, in fact, buying the piece as an investment, then under D.d.S., they would know that a percentage of any profit they realized would go to the artist. If they’re willing to accept that, they’ll buy. If not, they won’t. This, of course, goes back to your market theory – they want the art with its obligations to the artist more than they want their money.

  4. David Grundy said, on May 8, 2007 at 5:14 am

    There are various ways to think about this. How about an example with a few numbers? I’ll look at this as a possible buyer…

    Suppose I see a work of art for $99. (It’s a minor piece …) Maybe I figure I’ll get $20 worth of enjoyment out of it, and much later I might be able to sell it – suppose I assess there’s 10% chance that will be for $800 [Note 1 below], and 90% chance that it will be worth nothing.

    Its value to me is then
    $20 + 10%x$800 + 90%x$0 = $100.
    So I decide to pay the $99.

    And now let’s suppose that 10% of any profits I make will go to the artist. That means if I sell the piece in future, instead of $800 I would only get $730. [Note 2] So now this piece must be worth (to me)
    $20 + 10%x$730 + 90%x$0 = $93.
    In return for losing 10% of the upside potential, the highest price I’d be prepared to pay would be $7 less.

    There’s a second-tier effect, too. The art-collector I sell the art to (in the 10% of cases) will have the same problem. He’ll be expecting to sell it on later for a profit too; since he’ll have to give 10% of that profit to the artist, he’ll be willing to pay less upfront. On the assumption eventually the work might be worth either much more than the $800 due to inflation and other appreciation (in which case 10% of future profit will be about 10% of the total value of the work) or almost nothing, the value of the work to the new buyer will be around 10% less, so he’d only be willing to pay $720 instead of the original $800.
    And when I sell it to him for $720 I’d only get to keep $658 [Note (3)], since I’d have to give $62 to the artist.

    Recognising this, I’d revise the initial value of the work down again, to
    $20 + 10%x$658 + 90%x$0 = $85.8.
    So now the artist’s 10% participation in future profit means I assess the piece as being worth 14% less.

    I can get different numbers by messing around with probabilities, holding periods, etc, but in the end I certainly would not be prepared to pay the same price for the art work that I would in the absence of DdS.

    sjconnor said, “If they’re willing to accept that, they’ll buy. If not, they won’t.”

    I think this is too simplistic. At a low enough price (in this example, below $86) I’d buy regardless of DdS. At a high enough price (in this example, above $100) I wouldn’t. But there’s a range of prices in the middle where DdS will make the difference. In this case, DdS means either lower initial prices, or some lost sales.

    [Note (1): You can regard $800 as risk-adjusted present value, if you prefer. If you do that, I expect it makes a second-order difference to the numbers, reducing the acceptable price still further.]
    [Note (2): Profit=$800-$100=$700. The artist gets 10%x$700=$70. I get $800-$70=$730.]
    [Note (3)): Profit=$720-$100=$620. The artist gets $62. I get $720-$62-$658.]

  5. Bryan Willman said, on May 8, 2007 at 12:51 pm

    All of this applies way too much long term finance-economist thinking to entities that are normally traded on a pretty short term emotional basis.

    FAR more “art” is bought on the “oh, that’ll look great” or better “boy, I really like that” basis, and then displayed for a while, and then stored in a rented garage, and then “disappears”.

    Just how will the people who clean out my closets in 25 years find the estate of the by then dead artist and give them the $4.95 they are due after selling the faded print to an antiquities nut in the estate sale that closes my affairs?

    This whole discussion is about mechanisms that apply in only a vague theoretical way to a very small percentage of Art under the best of circumstances. It’s of low practical value.

    Oh, and if some body of Strong Law arose that actually enforced all of these rules, it would cause many people to think “oh, I don’t want to hassle with that” and refuse to buy “Art” at all, and instead insist on buying only ‘decorations’ to which such rules do not apply.

    So the net present value doesn’t go from $99 to $83, it mostly goes from $99 to $0, because the typical buyer won’t hassle with it.

  6. tim atherton said, on May 8, 2007 at 6:41 pm

    why not work those figures through on the basis of actual numbers?

    In the EU as it stands right now

    No DdS on Re-sales for less than €3,000

    No DdS on Sales where the seller has acquired the work directly from the artist and resells it within 3 years for less than €10,000

    DdS is 4% for the portion of the sale price up to €50,000

    then add 3% for the portion of the sale price between €50,000 & €200,000

    then add 1% for the portion of the sale price between €200,000 & €350,000

    then add 0.5% for the portion of the sale price between €350,000 & €500,000

    then add 0.25% for the portion of the sale price between €500,000 & €2,000,000

    The portion of the sale price above €2,000,000 will not incur the levy because the total amount of Droit de suite payable cannot exceed €12,500.

  7. Bryan Willman said, on May 8, 2007 at 7:25 pm

    So, on the face of it, a great deal of work is exempt because a great many photographs at least sell for less than €3000.

    But now there is a practical matter. Collector C buys a print from artist A for €5000. 35 years later (assuming the law has not changed) collector C sells the print for €4000, in theory owing artist A 4% or €160. But 35 years have elapsed. Will €160 buy a postage stamp by that time? Will it be possible to find artist A? If collector C forgets or ignores all of this, who will press them for the money? Can anybody ever afford to sue someone for €160?

  8. tim atherton said, on May 8, 2007 at 8:18 pm

    But 35 years have elapsed. Will €160 buy a postage stamp by that time? Will it be possible to find artist A? If collector C forgets or ignores all of this, who will press them for the money? Can anybody ever afford to sue someone for €160?

    we have the same situation with copy rights if you want to use a work legally. You have to track down the owner up to 70 years after the creator died.

    (and the are also collective copyright clearing houses for a lot of that – in music, writing and photography), who maintain that information for certain form of usage)

    It would be quite easy to maintain a DdS registry or clearing house for those who wish to avail themselves of it in pretty much the same way.

    (they could even to it along the lines of collecting royalities from all sales and distributing them to the artists as they do with copyright of different sorts – there are plenty of models that already work)

  9. sjconnor said, on May 10, 2007 at 8:39 pm

    I find it fascinating that everyone seems to be buying their art as an investment. I’ve never done that. Do I like it? Great – I’ll buy it. Would the thought that it might increase in value and enhance my financial status one day ever occur to me while considering the purchase? No. Would I, if such a thing ever happened, be willing to share my windfall with the person responsible for it? Sure. Why not? Especially if it’s a piddly 3-10%.

  10. David Grundy said, on May 11, 2007 at 1:56 am

    I probably should have clarified that the point of my example was that the impact on the value to the purchaser may be more than the simple percentage of DdS would suggest. (This is more likely to be relevent for the established artists who are most likely to benefit from DdS.)

    I do agree that if you buy art just because you enjoy it, and you maintain an expectation that it won’t be worth anything later, then DdS makes no difference to the price you’d be prepared to pay.

    I appreciated Bryan’s comment about the hassle factor. I’m not sure that Tim’s analogy with the admin of copyright is fully relevent, since I as a consumer don’t expect ever to need to think about that, whereas with DdS I as a consumer might need to be aware of it. I do know that if I had had DdS in mind, with the possibility of needing to retain purchase documentation forever in case of selling at a profit, I would not have purchased the most expensive of the few very minor works I do own. I’m not a very well organised person and I’d hate to fall foul of the rules. Perhaps most people wouldn’t worry about this, but I just tend to steer away from this sort of complication.

  11. timatherton said, on May 11, 2007 at 8:55 am

    I’m not sure that Tim’s analogy with the admin of copyright is fully relevent, since I as a consumer don’t expect ever to need to think about that, whereas with DdS I as a consumer might need to be aware of it.

    In many jurisdictions, if you (or your children) ever copy something at a library or educational establishment, then someone else is thinking about it for you so you don’t have to. If they didn’t have that mechanism in place, you would need to seek out copyright permission each time you did that

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