Wednesday, December 16, 2009

Amazon and ebooks: a Dialogue

The rise and rise of Amazon: prepare for the battle.

Rachael McDiarmid:

In the past few days several US publishers have announced they will be delaying the release of e-book versions of major releases. So what does Amazon do? Well, instead of selling for the already loss-leading price of US$9.99, let's take it even lower to $7.99!!! Let's show the publishers exactly who is in charge of this ebook market. Let's offer Under the Dome by Stephen King and Going Rogue by Sarah Palin for $7.99. The hardcover for the latter is listed on Amazon as US$28.99 slashed 50% to US$14.50. Slash it by half again if you want the ebook. Bestsellers are being slashed - Stephenie Meyer's first two Twilight books for US$4.25, Stieg Larsson's The Girl Who Played with Fire at US$7.99. Slash Slash and Slash again.

What happens next? Well surprise surprise, Barnes and Noble cut their ebook prices to match. I'm now waiting to see what Sony does. They've already admitted the US$9.99 price is NOT PROFITABLE. You can read the full article here. Yet I'm taking bets as to when they'll slash their prices! Any takers?

But back to the giant that is Amazon. I know some publishers are trying to wrestle control away from them so they can control their own ebook destinies. Can't everyone see these price points are DEVALUING the product and the whole reading experience? And what about profitability folks? It's already fragile in the bookselling and publishing industry.

It's no use discussing what percentage Amazon, Sony, Scribd etc take on ebook sales. We already know Amazon is using their pricing strategies to make the Kindle the ereader of choice, to build market share and customer loyalty. Sony has pretty much admited the same. They invest in the technology, they need people to buy it.

While publishers benefit from the lower ebook prices in the short term (through higher sales), according to Mike Shatzkin they "don't trust Amazon to keep things that way. From their perspective, Amazon is building a consumer expectation of an under-$10 price point while they are building up their audience of captive Kindle consumers. How long can it be, publishers figure, before Amazon says 'sorry, now you have to sell me these for under ten dollars?'" Mike also shared his thoughts on the possible war over the issue, including publishers not supplying or selling e-books through Amazon, Amazon suppressing the sale of their printed books, and more.

So when and where will the battle lines be drawn? It's a'comin, folks. Wait and see...

Peter Donoughue:

Frankly, I don't think there's an issue here Rachael, apart from the entirely normal one of a retail behemoth flexing its muscles (yawn).

Publishers should relax. And Mike Shatzkin, who has always been wary of Amazon, has it wrong too. Retailers will do what retailers always do - fight for market share. Amazon wants to make it hard for Barnes and Noble and their new nook, and others, and what's wrong with that?

The real story here is how publishers are getting their strategy wrong, by delaying ebook releases. Publishers Lunch had a nice dialogue on this this morning, with top publishers all agreeing delaying makes sense: 'It's like delaying the paperback release - no different'....

This doesn't make sense. It IS different - very different. We're not talking about print dynamics, with their traditional print audiences. We're talking a new digital paradigm, with a new customer dynamic, that needs to be respected. These customers resent waiting. They don't wait weeks for the SMH to put a major story on their website just to force punters to buy the printed paper. How absurd!

Saturday, November 28, 2009

Amazon and the GST

I've said it plenty of times before, and I'll say it again: calls by Australian publishers and booksellers for the government to force Amazon to charge GST to Australian customers are profoundly misplaced. As a government policy it would be just plain bad.

Here are the reasons:

1. It would dampen the pressure on publishers to keep their markups on imported titles reasonable and competitive. (And the government have relied on this pressure as a justification for not tampering with the parallel importation restrictions).

2. Booksellers should welcome this pressure, not lobby to weaken it. The most effective way for booksellers to compete with Amazon is through ramping up the pressure on publishers to be more competitive on pricing, delivery and trading terms, and certainly not by (once again!) supporting publishers in their efforts to be protected from it.

3. I'm not an accountant or tax expert, but I'm sure it's relevant that the GST is a value-added tax, not a consumption tax or sales tax. So businesses have to be in the Australian value chain to be able to deal with it administratively and financially. Businesses that charge the tax receive input tax credits for the GST charged all the way through their supply chain. Overseas businesses supplying direct to consumers are, by definition, not in the supply loop. Nor are they subject to Australian law. This is why calls to 'slap a GST on Amazon like US states that impose their sales taxes', are naive. It's apples and oranges. If ever Amazon sets up a distribution centre in Australia, that's when they'll be forced to charge GST.

4. The Rudd government has just decided that Amazon is the savior - a friend of booksellers, printers, authors, readers, because of the pressure it puts on publishers to ratchet up their performance. So does the industry really think the government will now agree to protect publishers from that competitive rod up their arse?

5. Booksellers have one huge advantage in competing against Amazon - they don't have to charge freight. If that sizable impost doesn't currently deter Australians from purchasing from Amazon, then an additional 10% GST won't make one skerrick of difference, and is frequently washed away by currently fluctuations anyway. Why do booksellers keep banging on about this? Go to the publishers instead and bang on about the need for better, more responsive terms. That would be entirely productive.

6. It's simply not a good look for the trade to be arguing that book buyers should be lumped with another tax. And it's not a good look to keep arguing in Canberra for additional protection. Talk of 'levelling the playing field' is a dead give-away. It's how rent-seekers frame it.

It really is time the book trade grew up, and began to focus on the real issues facing it. There is so much that could be done if all parties stopped being distracted and absorbed by ephemera.

Saturday, November 14, 2009

The Big Lie...again!

I referred in my last post to the Big Lie perpetrated by publishers and authors in the parallel importation debate. Here is a succinct expression of it. It was published in Crikey yesterday:

'Patrick Gallagher, Chairman, Allen and Unwin, writes:

A combination of naiveté and muddled thinking from Crikey in the Great Book Debate. Blind Freddie can surely see the motivation behind the Murdoch Press's rabid publisher bashing, which is simply a case of a handy stick to take to Rudd. Which in fact makes the Government's decision to retain Territorial Copyright the brave one; it would have been far easier to take the populist line, tear down the walls and proclaim cheap books for all.

Put those pesky intellectuals back in their place and give the people lots of cheap rubbish from overseas.

Don't fall for the economists' and free marketeers' attempts to paint this as a failed opportunity to create a nirvana for the reading public. The small but noisy minority led by Dymocks and Bob Carr had one thing and one thing only in mind - better margins for their business.

The government deserves credit for appreciating this, and for understanding the wholesale damage that change to copyright would do to the book industry, to authors and ultimately consumers'.

The Government's decision 'to retain territorial copyright'? That wasn't the government's decision at all! The government decided to retain the importation restrictions. THESE HAVE NOTHING WHATSOEVER TO DO WITH TERRITORIAL COPYRIGHT! (See my speech to the Copyright Society on October 17 on this blog for a explication of this issue).

It really pains me to see seasoned industry players not even at first base in their understanding of these issues after almost 20 years.

Thursday, November 12, 2009

Why the Booksellers Comprehensively Lost.

When the history of the parallel importation debate is written, as I'm certain it one day will be, what with so many publishing courses and academics sprouting like mushrooms across the country in recent years, there will be a judgement made on precisely why the nation's booksellers, big and small, chain and independent, got this debate so profoundly wrong, ill-judged the political zeitgeist, and so comprehensively lost on every conceivable front.

Even given that the Rudd government gave up and played dead on the issue, which is not stopping the APA from insufferably championing its campaign winning brilliance, the booksellers, both the ABA and Dymocks, misjudged their fundamental strategy and therefore tactics so badly that the sorry saga needs to be recorded by an expert commentator such as myself before the caravan moves relentlessly on and we all get back to business.

1. The campaign run by the authors and publishers was based on a Big Lie (not an intentional one, so it would be more accurately labelled a 'big untruth', but that phrase has no poetry or power so let's stick with lie). The central thesis was that it was all about maintaining territorial copyright in Australia, because without it this great and successful industry would collapse.

2. The ABA and particularly its independent bookseller members swallowed this lie hook, line and sinker. I remember the sheer terror I felt when the booksellers, at various meetings around the country last year when the issue first arose, decided to support this publisher thesis and ditch their previously long-held position in support of a deregulated, open market. There was also a misguided belief that any gains from abolition of the restrictions would go mostly to the hated chains who could flex their purchasing muscle to gain more competitive advantage over the little guys.

3. This blog is littered with references to this 'sublime delusion', much to the chagrin of many of my bookseller friends. But the fact is the ABA's adoption of this posture hamstrung them from day one and neutered them in the unfolding political campaign.

4. The one sad fact of this campaign was that the lie was never nailed. Never ever nailed, except by me, a lone, irrelevant and pretty irritating voice. But imagine what could have been, if the ABA, united with Dymocks, had focused their energies in the media, in Canberra and elsewhere on nailing the lie, the absurdity and illogicality of the publishers' line.

5. Every crazy utterance could have been pounced on, and there were literally hundreds of them through the course of the debate. The madness of the printers, for example. Of all the nonsensical propositions put forward the printers' fantasies were some of the most exquisite. But the ABA never had the enemy in its sights. It never even knew who the enemy was.

6. As for Dymocks, what a mess. Their campaign was built around the premise of 'cheaper books' for western suburbs' punters. But they never nailed the lie, didn't even see it. Thus their campaign had no power or momentum. You can't position yourself as an enemy of culture and win any debate in Canberra. You just can't. Because you make it way too hard for the politicians. If you're demanding they nix a thriving and vital cultural industry you've lost them totally. Dymocks had to nail the lie, but they didn't.

7. The APA ran a superb campaign - focused, passionate, constantly on message, and very simple: preserve what we have or see a vital cultural industry die: It's all about preserving territorial copyright. There's the lie right there. And where are the voices saying it isn't so? Even the Productivity Commission was sucked in. It refused to engage and argue this point. In my memorable phrase it endlessly quoted submissions articulating the lie, but left them on the page 'like stinking turds'. It made itself utterly vulnerable.

8. In the final stages of the campaign the ABA and Dymocks, scenting defeat, came up with a compromise plan which was full of holes and could not possibly get up, as I explained in recent blog posts. You just can't propose something that breaches international treaties on one hand, and is utterly impractical in the real world on the other. This was a real low point.

9. Now the booksellers are lamenting the lost opportunity. They should be celebrating what they campaigned for - continuing protection; the continuance of 'territorial copyright' - but they must know they got it wrong right from the start. They are also promising to continue the fight. Oh please! IT'S OVER!

Wednesday, November 11, 2009

'Governing This Country is All Too Hard': Rudd

What a miserable waste of everyone's time!

The Rudd government has decided not to reform Australia's book importation regime - at all. Not even the teeniest bit of modernisation. Not even reducing the 90 days on the backlist to 30 days that every party in the industry expected and would have welcomed.

It's almost as if they've discovered Amazon in the last twelve months and concluded 'well, that's let us off the hook! We don't have to think, we don't have to debate, we don't have to upset anyone, we'll just sit back now and luxuriate in the accolades of the nation's authors. Productivity and economics can go to buggery. Basically, governing this country is all too hard'.

I'm flabbergasted! But at least I take comfort from the fact that I did predict it, fifteen months ago when this debate started:

'All of this [the author and publisher claims] is nonsense of course, but it is highly effective politically. No arid report or recommendation from an economic body like the Productivity Commission is going to be able to dislodge these noble sentiments from any politician's breast. So my strong sense is that the reform initiative will falter and the 30/90 day provisions remain'. (LOGOS 19/3, 2008)

Sunday, November 8, 2009

Another Look at the ABA's Pricing Proposition

Malcolm Neil, ABA CEO, has kindly clarified for me how he envisages the Canadian price control mechanism working in the Australian context.

In summary, if a bookseller calculates, on any given day, that the RRP set by the publisher is more than 10% above the price of the overseas edition (excluding GST), then the bookseller can freely import.

In other words, publishers would have parallel importation protection under the law, but that protection would be subject to a continuing test, based solely on price.

As much as I admire Malcolm, one of the trade's gentlemen and a good friend, I feel obliged to say that this is, frankly, unworkable, and will end up being counter-productive to bookseller interests.

Let's tease out the practicalities:

- Publishers set their prices months in advance of publication, for obvious marketing reasons, and they cannot keep changing them based on daily exchange rate fluctuations. Very few systems can handle that, particularly retailer systems. In fact retailers get quite annoyed at frequent price changes, particularly price decreases. It plays havoc with good inwards receipting, account reconciliations, returns processing, etc.

- Yet the ABA is asking for the right to test the legitimacy of those prices on a daily basis.

- Because of the impossible challenge set publishers in such an environment, recommended retail prices will soon be abandoned and net pricing become standard industry practice. Thus the law will be rendered obsolete very quickly.

- Publishers would accept the 10% markup challenge, but they would tighten their trading terms with booksellers as a result. Thus the booksellers will lose out as they have nowhere else to go. This whole debate is not just about lowering prices to consumers - although that's the ultimate point. It's also about lowering wholesale prices to booksellers by allowing them to source offshore to their competitive advantage. Booksellers would be denied this critical benefit of real reform.

- Quite likely, faced with a margin squeeze, booksellers will mark prices up, beyond RRPs, just as Red Group Retail are doing now. So where will that leave the spirit of the legislation?

The ABA is trying to engineer an open market by the back door, and it won't work. Pricing controls, whether direct or indirect, simply don't work. What works is competition.

Had the ABA opted to honor their history and support the open market from day one, as they should have, then they would not find themselves in this awful half-way house quandary. An open market would oblige publishers to earn bookseller loyalty in the usual old-fashioned way, by excellence in all facets of their business including pricing, servicing, and responsive trading terms.

The ABA's price control system will simply antagonise publishers, even those who genuinely want to play the game fairly and responsibly. And it will work against booksellers' real interests.

Where's the sense in that?

Monday, November 2, 2009

A Presentation on Digital Futures - My Speech to the AGM of the Australian Campus Booksellers Association

Five years ago I made a rather rash forecast in front of about 100 campus booksellers that, because of the rapid advance of digital technology, 50% of them wouldn't be around in five years time.

They've never let me forget it. Each and every one of them are still in business, seemingly stronger than ever.

This is the speech I delivered this week at their 2009 AGM.

First, some snippets to whet your appetite:

'Amazon is the gorilla and it’s setting price expectations, and this will be critically important as this new market unfolds. But, to be frank, reading an ebook is such a pared down, low rent, decontextualised experience, that it’s hardly worth 40% of the hard back price on any measure'.

'Authors are clamouring for a higher royalty rate, and so they should. If publishers’ net profit on the title is higher as a percentage – which it is – then the author’s share should match it. These two elements, net profit and royalty, should always be in balance'.

'Letting the consumer decide would be the best strategy, and this will also be the best way to combat piracy. Don’t alienate your customers. They’ll take revenge. In the global online world, people don’t mind paying, but they do resent waiting. Imagine if newspaper publishers temporarily withheld important content from their websites to force readers to buy the printed paper! Digital editions run in parallel – they’re not part of some outdated analogue sequence'.

A Presentation on Digital Futures – Publishing
(ACBA AGM, Brisbane, November 2009)

Some of you may remember - well...probably all of you remember - that five years ago I stood up at this gathering and pronounced that, because of the rapid advance of digital learning technology in our educational institutions, half of you traditional booksellers wouldn’t be here in five years time. The printed textbook would be well and truly on its last legs.

Looking around this morning I see that all of you are still here! Far from being almost dead, the textbook is thriving. In the year ending August 2008, according to publishing industry statistics compiled by the APA, tertiary sales grew 10.2%. In the year ending August this year growth was just as robust, at 7.8%.

A number of things can be concluded from this. Firstly, and most obviously, I didn’t know what I was talking about, and secondly, some profound transformations we all anticipated simply weren’t happening to the extent we thought they were.

In my defence let me say that I wasn’t alone. In 2001 the huge, global business consultancy company Accenture forecast that there’d be 28 million dedicated ebook readers in use in the US alone by 2005, and ebook sales would be $2.3 billion. Forrester predicted a more modest $251 million in sales of ebook devices in 2005, but – and this is astonishing - $3.23 billion in digital textbook sales. RCA, who made ebook devices at the time, dismissed Forrester’s forecasts as ‘ridiculously low’!

Even Microsoft, when it launched its famed Microsoft Reader software back in early 2000, got it laughably wrong. It predicted that, by 2005 ebook sales would be almost $1 billion, and ebook stands would be everywhere, in bookstores, newsagencies and airports.

Of course, by 2005, nothing remotely like that happened. The Rocket eBook, the SoftBook, the Franklin eBookman were all dead and gone.

Notice, however, that all these forecasts are in 5 year time frames. There’s something about that 5 year horizon that is immensely and emotionally appealing to digital enthusiasts. I guess it conveys the sense that a revolution is just around the corner, and there’s an urgency about it that can’t be ignored. But importantly, it’s a timeframe where, in a rapidly changing landscape, the forecaster can be reasonably assured that he or she is across most of the elements in play.

In preparing this presentation today I read a number of books and articles published over the last two years, notably Print is Dead by Jeff Gomez, formerly Digital Director at Penguin USA, and The Book Is Dead by Sherman Young from Macquarie University. Both these books are excellent and I wholeheartedly recommend them. They were first published two years ago.

But here’s my point: neither book mentions the huge game-changer, Amazon’s Kindle, which was first released in late 2007 (while the books were being printed, ironically) and which, almost singlehandedly, has radically changed the landscape because of its wireless technology, but most importantly, because of its US$9.99 ebook pricing. Suddenly ebooks are off and running. The revolution has well and truly started.

The early forecasters simply got the timing wrong. Had they have opted for a 10-15 year period they would have been substantially correct.

And so perhaps would have I! We should be in no doubt: we’re in the midst of a tectonic shift, and the only question is the pace of it.

In September this year, the Frankfurt Book Fair in co-operation with Publishers Weekly and the German trade magazine Buchreport conducted a survey of international publishing industry experts which showed that most participants believed that 2018 would be the year that digital sales would overtake sales of physical books. Only 22% believed digital would never overtake print. The great majority actually embraced the ‘radical change’ digitisation would bring about.

How quaint now does Pulitzer prize-winning author E. Annie Proulx sound, a decade after she stated in the New York Times that ‘nobody is going to sit down and read a novel on a twitchy little screen. Ever’.

In order to get a handle on what’s happening now, and how things might well develop over the next five to ten years, I’ll first say something about the consumer, then the technology, and finally the economics of it all.

The Consumer

As Campus booksellers your future, more than any other sector of the book trade, lies in the habits and preferences of the under thirties. Believe me, that should be a real worry. While I think I can uncontroversially say that the future of our industry doesn’t lie with the blue rinse book lovers who currently sustain most of our downtown bookstores, and certainly populate our writers festivals, I do predict with a certain trepidation that the declining book reading habits of Gen Y’ers certainly don’t presage a healthy book retailing sector into the longer term future.

In a marvellous book released last year called The Dumbest Generation, Professor of English at Emory University in the US Mark Bauerlein argues very convincingly that our young students today are so absorbed, virtually 24/7, in their digital world, that they are becoming increasingly ignorant of everything culturally, socially and scientifically important. ‘Instead of opening adolescents and young adults to worldly realities, acquainting them with the global village, inducting them into the course of civilisation, or at least the Knowledge Economy, digital communications have opened them to one another – which is to say, have enclosed them in a parochial cosmos of youth matters and concerns.’

Buying music, buying newspapers, watching free-to-air TV at scheduled times, buying books – these are all activities that 20 somethings don’t really do anymore. It’s not how they socially connect and integrate with society. I have three kids in their 20’s and I’m continually amazed by their habits and how they keep up with what’s going on. It’s all through their laptops. They take them to bed. So much for the claimed portability of the book. To them I’m a relic. I actually buy media, entertainment and information on a regular basis. I wouldn’t know how to pirate something even if I wanted to. To them the appurtenances of my information world are analogue legacies with fading relevance. Books are, at the most, beautiful objects, great for gift-giving. I get a cook book for Xmas and I’m expected to cook for them when they deign to visit.

Just as they’ve taken to the iPod and iPhone, so they’ll take to ebooks, on whatever device makes sense and that they can afford. The real issue is, not whether printed books will survive, but whether long-form reading will survive, that absorption that is the book reading experience. There are plenty of voices that are saying that the very nature of reading will change. US guru Bob Stein, for instance, who runs the Institute for the Future of the Book in the US, claims that the 600 page novel, such as Hilary Mantel’s Wolf Hall, this year’s Booker winner, will not be the gold standard for much longer. Mobile technology will re-structure books into ‘shorter bits and bursts’, to be read ‘in the interstices of life’, like standing in queues, etc.

But we don’t have to subscribe to these more far-reaching and radical scenarios to know that there is something profound happening now, around which we need to develop our business strategies immediately. The digital future is really the digital present.

The Technology

Ebook readers like the Kindle, the Sony and Barnes and Noble’s nook are only one manifestation of the new, digital paradigm. There’s a new reader being released virtually every day. An interesting debate is being carried on as to whether the market will go to single purpose devices like these, or multi-purpose devices like the iPhone and other internet-connected tools. Some commentators are predicting the Kindle will quickly be consigned to the rubbish bin of history. In an excellent article in this month’s Monthly magazine author John Birmingham says: ‘Amazon’s electronic reader, the Kindle, which excited primal fears and thrills in equal measure among publishers, may well be dead technology within six months. If Apple releases its long-awaited tablet PC, then Amazon’s closed and clunky ebook system (and its ham-fisted attempt to establish the company as a monopoly provider) will end in abject failure. The modest ebook functions of the iPhone already far exceed those of the Kindle. A larger, more luxurious and powerful device like a tablet PC may provide mainstream publishers with the platform they need to convince paying customers that reading an onscreen copy of Esquire, or The Age, or The History of the Decline and Fall of the Roman Empire is just as pleasing and incalculably more convenient than lugging round an analogue copy.’

As far as young people are concerned, especially students, there can be little doubt that web-enabled devices will dominate, and I agree with Birmingham, the Apple tablet will likely be the category killer. The one thing that an educational setting requires, and that printed books and non-webconnected ebook devices can’t offer, is interactivity. Laptops offer that, so will tablets, but the tablets will offer students much more, including their music and phone. It’s a very appealing package.

Tertiary publishers, as you know, have been marketing digital, online learning packages for a few years now. Wiley’s WileyPlus, Pearson’s MyLab, etc. Their experience has been interesting, for what they’ve found is the old-fashioned textbook has been virtually impossible to dislodge. Even with heavily discounted prices – up to 50% - for the online versions, the books can’t easily be blasted out of their entrenched positions. It seems the established business models are proving to have considerable traction.

Personally I think this is a temporary stay of execution. The book business is strong at the moment because enrolment growth is strong; secondly, what we’ve seen is the first generation of online resources. The integration with university-administered Learning Management Systems such as Blackboard and Moodle, has not always been adequately or seamlessly done, if seriously attempted at all; thirdly, hosting in the US has meant latency problems in Australia due to inadequate broadband speeds. It’s frequently been a frustrating experience for adopters.

New generation packages are now being released which will address these things as well as offer far more functionality, including higher levels of customisation, greater flexibility for lecturers, far more content linkages, better collaborative tools for class interaction; more assessment, communication and administration features and so on.

Publishers are building lots of internal production efficiencies through the integration of workflows and systems. There’s a lot happening that customers aren’t noticing. And there is a great deal of investment going on. Content Management Systems are being built that ensure all of a publisher’s content is tagged according to highly sophisticated taxonomies which allow well-designed and searchable output, including visual and tabular, onto all sorts of screens. Publishers are absolutely convinced that the near future is digital so that’s where the money’s going.

And the important thing is this: no publisher can continue to invest equally in both sides of the business. We won’t see a big, toe-crushing, 1000 page, full colour textbook alongside a rich-functionality online package in seven to ten years time (notice I didn’t say ‘five’!). You might see a black and white, short companion, but that’s all. And the question for the bookseller is: will you sell it, or will the publisher give it away for free?

Look at what’s happening in our schools now, particularly Secondary schools. The Federal government is spending upwards of $2 billion dollars rolling out its Digital Revolution, including providing laptops and netbooks to every student. The fibre infrastructure pipes are being laid. It’s really all happening and teachers are responding. Publishers are also responding. In a few years’ time the industry could well be getting 15% of its total school revenues from digital-only products. Certainly that’s the ambition of the major players.

And when these kids go to university, do you think they’ll revert to buying expensive analogue textbooks, even second hand?

Higher Education textbooks, after all, are a pretty recent phenomenon. They have never been god-given entities of enduring educational value. They are a product of a particular sociological time – the post-war period of mass education and rapid economic growth. Their commodified, mass market, lock step pedagogical formula is well and truly dated. Coursepacks can be seen as an early expression of customisation and individualisation. Digital interactivity enables that exquisitely.

The technology is facilitating all this and the students of today are ready for it. The ducks are all being lined up in a row.

The Economics

But it’s not just the felicitous coincidence of devices and ready-made consumers that is propelling the transition. For publishers the economics of it all are extremely attractive, and some would say life-saving. They are an offer too good to refuse.

Ebooks and online resources provide publishers with enormous cost savings and high margins. No inventory baggage including printing, warehousing, shipping, returns; no tied-up capital, write-downs or write-offs; no foreign exchange exposure; no custom clearance charges; no expensive air-freighting; no damages in transit; no insurance; no fire or flood risk; no errors that can’t be immediately corrected; no out-of-stocks costing sales; no second hands – I could go on!

There are of course new sorts of costs – technical staff and systems, platform development and hosting; 24/7 support. But these are fairly minor in comparison.

There are plenty of discussions and debates going on about pricing, royalties, DRM, release dates, territoriality, etc, and also the proper place, if any, for booksellers. Let me briefly address these in turn.

Everybody agrees ebook prices should be lower than the printed hardback. Most publishers are saying around 20-30% cheaper. This is an interesting debate because Amazon is charging $10 - 12 for most titles, and this amounts to roughly 60% less than the standard US hardback price. It’s parked around the middle of the US trade paperback at $14.95 and the mass market paperback at $7.95. Amazon is the gorilla and it’s setting price expectations, and this will be critically important as this new market unfolds. But, to be frank, reading an ebook is such a pared down, low rent, decontextualised experience, that it’s hardly worth 40% of the hard back price on any measure. When Random House Australia priced the new Dan Brown ebook, only available off its own website, at the same price-gouging list price as the hardback - $49.95 – did they honestly expect to be taken seriously?

Of course no-one’s in clear water here. Publishers will still continue to have analogue overheads for many years, if not decades, to come, and these have to be covered. That’s traditionally called, in the words of management guru, Rosabeth Moss Canter, ’persevering in the middle’, and it’s not unique to publishers. But one thing you cannot do is make a victim of your customer. If ebook prices have to come down because their own cost structures demand it, then they have to come down. And, in any case, excessive margins will always be competed away.

Authors are clamouring for a higher royalty rate, and so they should. If publishers’ net profit on the title is higher as a percentage – which it is – then the author’s share should match it. These two elements, net profit and royalty, should always be in balance.

I would dearly like to see simultaneous ebook and print book release dates, as I firmly believe this is the only way to maximise total revenue, but most publishers are resisting this as they fear cannibalisation. Letting the consumer decide would be the best strategy, and this will also be the best way to combat piracy. Don’t alienate your customers. They’ll take revenge. In the global online world, people don’t mind paying, but they do resent waiting. Imagine if newspaper publishers temporarily withheld important content from their websites to force readers to buy the printed paper! Digital editions run in parallel – they’re not part of some outdated analogue sequence.

Digital consumers also resent mindless, producer-centric authority: proprietary formats and restrictive DRM controls are not the way to go.

And now we get to the tough one – territoriality. I can think of nothing more absurd than there being a number of ebook editions on the market to accommodate territorial copyright restrictions. For instance Amazon won’t sell an Australian customer a Kindle edition of any original US title where Commonwealth rights have been sold to a British publisher. The Australian customer has to wait for the British or Australian publisher to amble up and publish their own version of the ebook. To add insult to injury, if the Australian customer travels to the US with her trusty Kindle, she can’t purchase any US edition there either, like she can the printed version.

I believe this is unsustainable. The better solution would be to have all publishing parties around the globe share revenues on the one ebook edition. It really shouldn’t be hard to administer this. Thus the ebook would be available from day one to all customers globally, just as the print book is now, and the original ebook publisher simply keeps track of customer locations and rights sales and disburses revenues accordingly. It is quite wrong, in my view, to harness retailers into supporting territorial rights deals between publishers, which is what publishers supplying ebooks to Amazon and others have done. Apart from alcohol and drugs, retailers should be able to sell whatever to whomever. To me that’s a fundamental commercial principle in a free society.

Finally, do booksellers have a place in this new landscape?

In a word, no. I’m sorry. Do newsagents share in the revenues from, or That’s how it will be for ebooks. I can’t see how local booksellers can insert themselves productively into the supply chain in these transactions. Amazon and Apple will continue to sell to their customers directly, and so will Google once they set up their ebook business, as they’re certainly doing. There may be minor opportunities, particularly for Australian titles, but frankly, it will never be the main game. I notice the APA has announced a partnership arrangement is being explored with booksellers here in Australia, but I wouldn’t put too much store in this. It would only make sense where the ebook is an adjunct to a print book purchase, but not in a digital-only environment. And the digital-only environment will be the main game, perhaps sooner rather than later.

As far as Higher Education goes, there’ll be even less opportunity. The simple fact of life is that there is no love lost between American textbook publishers and their campus booksellers. This poor relationship goes back to the dark ages, when campus booksellers got heavily into used books, and started to prioritise them. It’s been a very tense relationship ever since, so publishers are chomping at the bit to get even. US publishers actually marvel at the excellent relationship their Australian colleagues have with their campus stores. They envy it. But if you try and persuade them to change their attitudes in their own territory, their hackles rise. It’s too visceral. Emotionally they can’t go there.

Unfortunately, our more collaborative tradition in Australia won’t save any of you sitting here today. I don’t bring good news. There are simply too many benefits in dealing direct with students, and too many costs that have to be eliminated in order to get prices down. The 33.3% discount to booksellers is far too easy a target.

So, in conclusion, let me wish you well. You have ten years at the most. And please don’t invite me back in ten years’ time. If I’m still alive and mentally functioning, I could well be too embarrassed!

Thank you.

Peter Donoughue
November 6, 2009

Wednesday, October 28, 2009

The ABA/Dymocks flawed compromise on parallel importation

The ABA and Dymocks have seemingly come together around a compromise proposal to the government on reform of our parallel importation provisions.

They want both the 30 day and 90 time frames reduced to seven days.

And they want a price cap policy to be introduced, as exists in Canada (which regulates a maximum 'exchange plus 10%' mark-up).

No matter how many times I've pointed out to both parties, in writing and in person, that both propositions are legally and economically non-starters for Australia, it seems they persist. Some dogs simply can't be put down.

Firstly, the seven days notion: Let me put this as clearly as I can - IT.CONTRAVENES.THE.BERNE.CONVENTION! (See my post of Sept 30 for the exact wording and rationale of Berne's 30 days definition of simultaneous publication).

It's no surprise to me that the ABA has fallen into this trap of seeing the 30 days time frame as some sort of old fashioned relic of analogue shipping times. Well, persuade all the Berne signatories and get it changed there (good luck!), but don't continue to bang on about something that has absolutely no chance of getting up in Australian law. For the same reason that the idea of protecting only 'Australian editions', favored by David Gaunt and Mark Rubbo over the years, has consistently failed the Berne test, so this seven days proposal is a dead cat swinging in the breeze.

As for the Canadian price cap idea: on importation issues Canada is a vastly different place than Australia for one simple reason: it borders the United States. That vast economy is geographically adjacent. This means that the default position of Canadian booksellers is to import direct from the huge publishing and wholesaler warehouses in New Jersey, and get supplies shipped in virtually overnight, at US prices with no markups, and with freight costs similar to Sydney to Melbourne rates. Why the hell wouldn't booksellers do that?

Therefore the Canadians, to enforce local sourcing, had no option but to regulate pricing and availability, and guarantee booksellers and consumers comparable service standards.

Could you think of a situation less like that prevailing in Australia? The default position of Australian booksellers is exactly the opposite: to source locally. The importation route is far more costly. Trucks don't traverse the Pacific overnight. Air freighting is necessary, prohibitively expensive, and shipments are always weeks away.

What really annoys me about the booksellers' position however is this: they abandoned their consistent position over the last 20 years of supporting complete abolition of the PIRs, which would have absolutely given them what they still profess to want, and instead have opted for a nonsensical set of propositions which have ZERO chance of getting up. So they are likely to be stuck with no improvement at all.

It's been a disastrous performance and a hopelessly wrong-headed campaign. By choosing to support the publishers on the basic notion of protection, they've had nowhere to go but to invent a 'have your cake and eat it' mess, which is akin to straddling a barbed wire fence for reasons of comfort!

As for Dymocks' notion of forcing publishers to cough up 1% of their revenues to establish a fund to support the publishing of 'culturally worthy' books, the less said about this the better. It is simply one of the most absurd propositions I've ever heard advanced in all my years in the trade. Dymocks cannot claim on the one hand that publishers are massively overreacting to the prospect of an open market, and that indigenous publishing won't collapse, and then pose a 'solution' to that very prospect!

The ABA/Dymocks 'compromise' position will get no traction in Canberra whatsoever. There is only one compromise position that ticks all the necessary legal, economic and political boxes, and that's the one I myself, with great respect, have proposed (elsewhere on this blog).

My god, give me a drink..

Saturday, October 17, 2009

My Speech at Copyright Symposium, Sydney, October 16, 2009

This is the speech I presented at the Copyright Society of Australia's 14th biennial symposium in Sydney. I was part of a panel discussing recent developments in broadcasting and publishing, and I was specifically asked to address the parallel importation issue. The audience was made up of about 100 or so copyright lawyers, federal government bureaucrats and other interested parties.

Also on the panel were Jeremy Fisher, CEO of the Australian Society of Authors, and Margie Seale, MD of Random House Australia. They had been invited to provide a counterweight to my reformist and presumably dangerous views (hence the references to them in my speech).

I spoke first, and they responded. Frankly, it was akin to being savaged by a dead sheep!

The Parallel Importation Debate – Thank God the End is Nigh!

For the last fifteen months or so the Australian book trade has been going through the latest iteration of its favourite sport – debating whether or not to reform or abolish the parallel importation restrictions in the Copyright Act.

Like me you are all probably thoroughly sick and tired of this debate by now, and are wishing the government would hurry up and decide its position. Apparently the decision is due later this month.

In this paper I want to talk about the debate itself and how dismal the quality of it has been. I’ll be quite frank, so let me apologise up front to my industry colleagues Margie and Jeremy if I offend them.

I have been an active participant in all the flare-ups over the last twenty years, since the 30/90 day amendments were enacted into legislation in 1991. My position is well known in the industry. I am, and have always been, in favour of the abolition of the restrictions, and I think I’m the only one in the industry who has been consistent on this from day one. And I suspect that’s why my colleagues are here – to present the established industry line.

Disappointingly, what has characterised today’s debate, which, by the way, has been far fiercer, louder, angrier and more passionate than all the other ones put together, has been the centrality of the concept of territorial copyright. It has been almost universally deemed to be what the issue is all about.

In the late 80’s, in 2001 and in 2005 when we previously indulged, this was not the case. The central issue was always the theory and practice of bookseller importation, and particularly the concern that overseas remainders of original Australian titles would be brought in or dumped and flood the market.

Of the 563 submissions to the Productivity Commission this time around, all but about a dozen of them were in favour of retaining the current restrictions, and they based their view on the critical importance of territorial copyright to a healthy local publishing industry. They all assumed that the PIRs and territorial copyright were one and the same. The PIRs established the possibility of Australian authors being able to sign exclusive Australian rights with an Australian publisher, and they likewise enabled local publishers to buy exclusive Australian rights to overseas titles.

Listen to some of the submissions:

Tim Winton: ‘The erosion of ANZ rights will return Australian publishing to the colonial branch office mentality we fought against for so long.’

Peter Carey: ‘To anyone still thinking in this colonial way, there will be nothing strange about the present proposal to eliminate territorial copyright and with it the discrete Australian market’.

Richard Flanagan: ‘..many independent booksellers believe the ending of territorial copyright will lead to the further closure of independent bookstores’

The ASA: ‘The ASA strongly opposes any changes to the current provisions... that would effectively dissolve Australia as a separate rights market for books’.

The APA: ‘We believe that the real risks of abandoning territorial copyright and removing the 30/90-day rules far outweigh any potential advantages..’

There is anguish and anger here, and these emotions would be entirely justified if it were true that the reality of Australian territorial copyright were in fact under threat. But it isn’t at all.

Australia is a rights territory naturally. Just like the US and Britain it is a separate, commercially tradeable territory because of its geography, its isolation, its affluence, its established book trade infrastructure and its population size. Exclusive rights contracts can be entered into because of these factors, not because of the existence or otherwise of any importation provisions. These may give additional protection, like a fence around a house, but they don’t establish the possibility of territorial copyright, that is, owning the house, in the first place.

What has been missing from this debate is any real appreciation of how the industry actually works in regard to imported titles; any real analysis of the facts, patterns and logistics, the mechanics of the trade if you like. So much has been said that is simply nonsensical and illogical on any measure, and it’s come from a profound ignorance of industry dynamics and an adamant refusal to get familiar with them.

No one can expect the authors to be familiar with these realities, although their industry association, the ASA, has been no help to them whatsoever, and in fact has played a truly lamentable and cynical role throughout. Likewise, no one can expect outside commentators like journalists, politicians, or even lawyers, to be fully conversant with industry practices, no matter how common or basic.

But one should expect the publishers and booksellers to be across them. Unfortunately their contributions to the debate have been universally disappointing in their lack of economic literacy, lack of rigor and objectivity, and lack of any real analytical quality.

George Orwell once said that some ideas and opinions were so foolish that you had to belong to the intelligentsia to believe them. We’ve seen an exquisite instance of this phenomenon in this debate.

Industry associations are truly awful entities by definition. They invariably reflect the frightened, protectionist views of the lowest common denominator of their membership, and raise chicken little scenarios at every turn. It’s a well known syndrome and commonly understood in the halls of political power.

The APA’s contribution to the debate has been, not to put too fine a point on it, shameful. They have treated the Productivity Commission with contempt, frequently accusing it of bad faith, as if it were wilfully out to destroy culture in the pursuit of some fetid and dated ideology of economic rationalism. I defy any rational person to read the APA’s follow up submission to the Productivity Commission’s draft report and not wholeheartedly agree with me.

The Australian Booksellers Association (the ABA) has been far more respectful and measured, but its fundamental position on the issues has been wishy-washy and confused. In former times, the ABA took a real leadership role when it argued for an open market in the interests of its membership and their customers. This time round however they lost their way, concluding that the interests of independent booksellers lay with the publishers. It’s been a sublime delusion.

On the other side of the ledger I think Dymocks made a huge mistake in joining with the grocers, Coles and Woolworths, presenting themselves as the Coalition for Cheaper Books. That retail duumvirate has few friends, and can too easily be written off as an evil empire simply out to boost its profits by seeking to dominate yet another retail sector. Richard Flanagan had great sport with this at the Sydney Writers Festival, as you may remember. Dymocks, unable to get the support of the ABA, to which it belongs, should have gone it alone. It would have had much more credibility.

So, what is it about the industry dynamics that’s been missed? What are the real issues around importation?

Firstly, the great majority of overseas published titles that are brought to Australia by local publishers are NOT brought into this country under the current 30/90 day rules. They are not protected for the simple reason that they don’t need to be. To fly them in within 30 days would be artificial and silly, not to mention hideously expensive. Most parent and sister company titles of local multinationals are in this boat, as are the great majority of foreign titles marketed and distributed here under agency agreements. Titles brought in under the provisions are the cherry-picked, key sellers, and they constitute a distinct minority. There are no statistics on this, to the great frustration of the Productivity Commission and many of us in the industry.

Secondly, booksellers much prefer to order from local suppliers. They are forced to order direct from overseas, through wholesalers like Ingram and Baker and Taylor, only because local suppliers refuse to support a huge array of titles by holding stock and pricing them reasonably. Rarely would the importing bookseller get a better deal, as they have to pay freight, take a currency hedge, and are denied return rights.

Interestingly, Dymocks and Kinokuniya, the two principal booksellers arguing for an open market, have made it quite clear in their public statements and their submissions to the Productivity Commission, that they see importation as a second best option. They would much prefer to buy locally, all other things being equal.

Third, territorial copyright is a foundational concept in the global publishing industry. It’s just how things work. Authors and their agents simply get the best deal by dealing with publishers who are strong in the key territories. They’ll sell US/Canadian rights to a US publisher, Commonwealth rights to a British publisher, and occasionally, but unfortunately all too rarely, foreigners will sell Australian rights to an Australian publisher. Global rights deals are also done of course, but these are in the minority for big titles. Australian authors will sign with Australian publishers, of course. (Tim Winton’s submission to the Productivity Commission, by the way, is a superb celebration of territorial copyright and how important it is to an author).

All this simply means that exclusive rights trading primarily depends on the maturity of a territory’s book trade infrastructure and the buying publisher’s marketing and distribution strength within it. Whether that territory has parallel importation controls is an issue for the buying publisher to deal with. It is not a central, governing issue establishing the possibility of rights trading in the first place.

A number of commentators, such as Imre Saluzinsky in The Australian, have contended that it’s territorial copyright that’s the problem, and the government should accept the Productivity Commission’s recommendations and abolish it. Firstly, no change to Australia’s PIRs is going to have the slightest effect on territorial copyright – you might as well ask the government to abolish Australia’s geography – and secondly, the Commission did not recommend territorial copyright be abolished. It didn’t fall into that trap.

So putting the three things together you get the following facts of importation life: If publishers secure Australian rights, then provided they don’t screw up by over-pricing and under-servicing, booksellers will order from them. And servicing them properly, by the way, includes extending reasonable trading terms to them that fully acknowledge their overheads.

Therefore, whether booksellers would exploit the ability to buy around local publishers that a deregulated market would allow, depends entirely on the operational excellence of the local publisher. Entirely. Best practice is its own protection.

Unfortunately there are far too many examples of poor practice in this country. And this poor practice is what the publishing community is arguing should be protected by retaining the current restrictive provisions.

The Australian book buyer shouldn’t have to put up with high prices unrelated to today’s exchange rates, frequent out-of-stocks and slow delivery times. Booksellers shouldn’t have to put up with these things, as well as unresponsive customer service, inadequate title and availability information, poor sales representation, high surcharges and miserable trading terms. All of us in the industry know who these players are. Most publishers are generally good but too many are generally bad. Booksellers should, in my view, be able to buy around these uncompetitive operations, to prod them into improving their performance. Our current laws stop that from happening.

There has been a lot said and claimed about pricing during the course of this debate. All sorts of figures and stats have been thrown around, all self-serving, as you would expect. The Productivity Commission’s own analysis, however, is by far the best and most comprehensive that I’ve ever seen in all my years in the trade. That hasn’t stopped the ASA from judging it as ‘guesswork’, and the APA from condemning it as worthless. But the APA has been indulging in a massive sleight of hand on this issue, by claiming that, if you take the average A$/US$ exchange rate over the last ten years, then Australian book prices are shown to be not more expensive at all. That average is $0.69c. But it’s only that low because in the first five years the A$ plummeted to an average $0.57c, compared to $0.79c in the last five years. Today, as you know, it’s around $0.90c, and against the pound it’s the highest it’s been for 25 years. Publishers have had five or six years now to adjust to exchange realities but most have chosen not to do so. How long is the Australian consumer supposed to wait? Booksellers, on the other hand, have to compete with Amazon which uses the exchange rate operative on the very day of invoicing. Not surprisingly they are finding it hard to compete. (Publishers don’t seem to care about competition from Amazon, which I find exceedingly strange. Amazon’s market share at around $150m is now close to 10% of the Australian industry and rapidly growing).

Many supporters of the current restrictions have referred to the fact that no other country has removed its parallel importation restrictions. Once again this is a furphy. Booksellers in the UK can freely, under European law, import US editions from the open market that is continental Europe. The fact is they chose not to do so as there is little margin advantage and supply is problematic. In the US the issue is re-importation - of original US editions from low-priced developing countries - not parallel importation. In the main it simply doesn’t make sense for an American bookseller to order a British edition instead of the US edition, because the US edition is always far cheaper. There’s no commercial logic to it.

In conclusion, allow me to hazard a guess as to what the outcome of this rather unhappy debate will be. I wrote to the Prime Minister early last month suggesting a compromise, because I am not at all convinced this government has the stomach for the sort of reform that is needed. If it abolished the provisions, as it should, the squeals from the cultural community would be loud and never-ending. Yet maintaining the status quo with no real change is also not a viable political option, to so publicly humiliate its own agency, the generally well-regarded Productivity Commission.

My proposal is to maintain the 30 day protection, but only for the first five years of a title’s life, and to abolish the 90 day provision altogether. The industry could not credibly object. Dymocks and the big end of town would not be too happy but at least they would grudgingly accept that there would have been significant movement their way. Over 80% of titles in print would be available on the open market. The publishers and authors would herald the decision with a fair measure of enthusiasm and see it as a victory for their lobbying efforts. The 50,000 or so protected titles on the market at any one time would constitute the bulk of industry revenue.

I hope we don’t have too much longer to wait for the government’s decision. None of us want to read any more rubbish on this issue in the press.

Thank you.

Peter Donoughue
October, 2009

Thursday, October 8, 2009

The Real Game Changer: Amazon's Kindle Now in Australia.

Amazon has just announced the launch of an international version of their ebook device, the Kindle. Thus Australians will finally be able to get access to over 250,000 ebooks (including the vast majority of the current New York Times bestsellers) at the hugely discounted prices available, up until now, only to Americans.

For around A$340, including shipping, Australians can buy the hardware and subsequently purchase a huge variety of frontlist and backlist ebooks from between $12-$20 at current exchange rates. Nearly all major publishers are coming to the party and making their titles available.

Amazon has done a deal with AT&T to exploit their global wireless reach, and that service won't cost users anything. Up until now Australia has been denied the Kindle, as has every other country outside the US because Sprint, their wireless provider, was a US-only operation.

So suddenly, a very serious game changer! This development will really put the cat amongst the pigeons. It will have wide, structural ramifications for the Australian book trade, because consumers will be able to bypass high Australian prices for imported printed titles, and exploit the far lower prices for ebooks that Amazon is offering when compared to the printed edition.

It will be interesting to see how territorial copyright deals play out in Australia, ie, whether we get access to all US versions, or whether, in their particular agreements with Amazon, publishers have restricted them from making a range of titles available in various territories. While Amazon, like any retailer or wholesaler, has no obligation under law to honor any territorial rights agreements publishers may have entered into, the publishers themselves may have given Amazon only restricted distribution rights.

We'll just have to wait and see.

Wednesday, September 30, 2009

Craig Emerson's Proposed Compromise

Competition Minister Craig Emerson's proposed 'compromise' on the issue of the reform of Australia's parallel importation laws, as outlined here, is deeply flawed in that it clearly breaches the Berne Convention and a mirror provision in the Australian Copyright Act which is based on it. It will therefore go nowhere. The Attorney-General's department will quickly point this out, as they have on numerous other occasions.

Here are the relevant clauses:

Berne: Article 3 (4) A work shall be considered as having been published simultaneously in several countries if it has been published in two or more countries within thirty days of its first publication.

Copyright Act: Section 29 (5) For the purposes of this Act, a publication in Australia or in any other country shall not be treated as being other than the first publication by reason only of an earlier publication elsewhere, if the two publications took place within a period of not more than thirty days.

Thus no Australian government has the authority, while ever Australia remains a signatory country, to alter the 30 days definition of simultaneous publication. And the reason for the 30 days is to allow foreign titles sufficient time to get published here in order to extend the exact same basic copyright protections to those titles that local Australian-originated titles receive. This is a foundational fairness principle in Berne, and will never change. Local titles, in any signatory country, cannot be privileged.

Try again Minister.

Wednesday, September 16, 2009

Random House and the global Dan Brown rip-off

The book trade has a phenomenon called 'megasellers'. They are highly orchestrated, globally released bestsellers where the authors and publishers make truckloads of money but the retailers none at all.

Harry Potter is the perfect example. Dan Brown's The Lost Symbol, released yesterday, is the latest.

Random House's ARP is $49.95, an outrageous piece of price gouging if ever there was one. Similarly, the US and UK prices are at the very high end of the scale. They are all hardback editions, so the consumer is tricked into thinking that there's extra value and quality in that binding and therefore the price must be justified.

This is garbage. What's really happening is that a quintessentially mass market title is being offered in an elite package simply to screw more dollars out of the author's expectant fans.

Most Dan Brown readers came to The Da Vinci Code, Angels and Demons, and Deception Point late into the life of these titles and were buying them at paperback prices of around $18 - $25. So The Lost Symbol is finally released and they walk into a bookshop and are confronted with an expensive hard back and a price that absolutely turns them off.

The retailers, who know and respect their customers, are on the front line. They sacrifice their own margins to get the business and keep faith with joe public. A&R/Borders is offering it at $29.99 and Dymocks has it at $32.99. Independents Readings and The Avenue in Melbourne have it at $39.95, the best they can do because they simply don't get the sweetest terms from the publisher. Most other smaller independents can't discount at all, and have stuck to the RRP of $49.95. So if you buy from them you're being ripped off - not by them but by the publisher. What a treat for loyal customers!

I'd like to buy the book, so I'll go to Dymocks. And I'd be silly to buy from an independent, despite my usual habits and preferences.

What irks is the cynicism of Random House. A mass market product like The Lost Symbol should be produced, first up, in a paperback edition for no more than $32.95, which would then be discounted by retailers. Independents would get their usual share of demand because we're not talking big dollar price differences between stores.

But the real issue is meeting customer expectations and not alienating them. And just being a bit ethical, if that's not too difficult a concept for a global corporation to understand.

Random have printed over 600,000 copies for the Australian market. I'd love to see them eat half of that because of consumer distaste.

Monday, September 7, 2009

The Australian Book Trade and Parallel Importation: a Compromise Proposal

There it was again on Sunday morning - the question to this government that simply won't go away: 'But what unpopular decisions have you taken so far? What painful policy proposals have you implemented?' Barrie Cassidy was interviewing Wayne Swan on The Insiders.

Swan listed a few semi-forgotten things but nothing really emblematic stood out. The parallel importation issue presents a perfect opportunity for the Rudd government to firmly, clearly and very symbolically demonstrate its reform credentials; to send an unmistakable message to the big end of town, the commentariat, the ordinary voter: 'I don't just write essays about the need to improve Australia's productivity performance, the need to continue the process of reform so successfully undertaken by the Hawke and Keating governments - I'm getting on with it'.

But let's get real. Even with the cover of the Productivity Commission's report, it is extremely unlikely that this government will seize the day. First and foremost in its mind will be the loud and continuing shrieks and howls of outrage from the cultural elite if it took this course. And from the printing unions. And from state governments. And the Fairfax press. Support from the usual suspects - the Fin Review, The Australian, Bob Carr - none of this would compensate. This is a government focussed on 'palatable' policy, not policy purity.

Therefore, seeing that we're now close to the end - Cabinet's decision is expected within weeks - and we're at the final hand-to-hand combat stage, it's probably time to frame some sort of compromise position that I believe all players, however reluctantly, would accept.

I sent this letter to Kevin Rudd on September 1:

Dear Mr Rudd

The Australian Book Trade and Parallel Importation: a Compromise Proposal

The media is reporting that Cabinet may be close to debating the recommendations of the Productivity Commission to abolish the Parallel Importation Restrictions (PIRs) in the Copyright Act that currently regulate book importation into Australia by retailers.

I have been an active participant in this debate for over 20 years in my capacity as Managing Director of John Wiley and Sons Australia Ltd, a board member of the Australian Publishers Association for ten years, a past President of that association, and now, having recently retired, through my industry blog Pub Date Critical ( and my recent appointment as Adjunct Associate Professor at the University of Queensland.

I have always been in favor of reform and have been a lone voice on the publishing side of the ledger.

My sense now, however, is that the industry needs to come together around a compromise position. Such a position could be constructed by your government and I believe it would receive the support of the vast majority of authors, publishers and booksellers, and all their industry associations. It would likely also receive the support, albeit grudging, of those retailers like Dymocks who are strongly in favor of complete abolition.

My proposal would involve two elements:

1. Maintain the 30-day frontlist protection, but only for the first five years of a title's life.
2. Abolish the 90 day backlist provision altogether.

Providing local authors and publishers with protection from parallel importation for the first five years of the life of a particular title would, in virtually all cases, be more than sufficient to get a full return from the investment associated with local development, printing, marketing and selling. Very few publishing projects these days are costed with a view to a life beyond five years, although of course many continue to sell well for years beyond this period. No publisher would seriously consider not investing in a project or author on the basis that parallel importation protection would expire five years after first publication. And no author, established or otherwise, could seriously mount a case that the government had eroded his or her rights to local publication or income.

The current 90 day backlist protection is a legacy of sea freight time frames from the UK and the US and makes no sense these days when air freight is the norm. There have been calls from some industry players that the period should be shortened to 30 days or even 7 days. But allowing retailers the immediate freedom to import if the local publisher is out of stock is by far the best way to maintain competitive pressure on the privileged supplier. In the great majority of cases the retailer will wait for the publisher to re-stock because it is simply less expensive and more efficient to do so. Mostly the wait would be for only a week or two. Once the title is back in stock the local publisher would regain the protection initially afforded.

The virtue of this compromise position is that no industry party could credibly object. Those in favor of adopting the Productivity Commission's total abolition recommendations would obviously be less than happy, but they would at least be able to celebrate a significant movement their way. Close to 80% of English language titles in print would be available on the open market. The authors and publishers, on the other hand, would welcome such an outcome with a fair measure of enthusiasm. They would certainly perceive it as a victory for their lobbying efforts. The 50,000 or so protected titles on the market at any one time would constitute the bulk of industry revenue.

The other virtue of this position is that it does not involve any re-thinking of the current programs of government support for literature or publishing.

I trust you will find this proposal helpful.

Yours respectfully

Peter Donoughue

Tuesday, August 25, 2009

Melbourne Writers Festival: Panel on Parallel Importation

This MWF panel brought together Allan Fels (ex ACCC), Gabrielle Coyne (Penguin), Sandy Grant (Hardie Grant), David Vodicki (music industry) and me to discuss the issues under the chairmanship of Mark Davis from Melbourne Uni.

It was an enjoyable night, but predictably frustrating. There were about 50 people in the audience.

Here are some of the claims that were made and my responses to them. There simply wasn't time on the night to go into any depth, so I'll do that now.

1. It might be true that, technically, territorial copyright (TC) wouldn't be affected by the abolition of the parallel importation restrictions (PIRs), but the reality of it would be thoroughly subverted.

Henry Rosenbloom made this point and claimed that my separation of TC and the PIRs is a 'distinction without a difference'. Well this simply doesn't hold water. It's a neat side-stepping of the issue. For TC to be subverted booksellers would have to source a significant percentage, if not all, of their foreign-originated books from overseas wholesalers rather than from local publishers. It implies a number of things: a) that local publishers would not be able to profitably compete with overseas sources of supply; b) that, even if they could, booksellers wouldn't order from them.

Both these contentions are rubbish. Both Dymocks and Kinokuniya (the only two booksellers arguing for an open market) have repeatedly said local sources of supply are by far their preferred option, all other things being equal. It is far less expensive, far more efficient and makes inventory management far easier. But publishers must come to the party and make their offering competitive. The days of sitting back and hiding behind antiquated regulations are long gone. What is wrong with asking publishers to be competitive? Everybody benefits if they are.

2. The Productivity Commission's (PC) pricing analysis, which shows Australian prices at current exchange rates to be 30% higher than US prices of similar editions, and 50% higher than the cheapest US editions, is deeply flawed for two reasons: if the average exchange rate over the last 10 years of 0.69c is taken into account the price differential evaporates; and no account has been taken of the freight costs to ship books from the US to Australia.

As I've said before in this blog the PC's pricing analysis is one of the best things in their report. Publishers ought to do themselves and the whole debate a favor and accept it. They should also stop hiding behind the absurd ten-year average exchange rate argument. The average over the last five years is 0.79c. Today it is 0.83c. The facts here are simply incontestable. As for the freight argument this has no substance. Airfreight to Australia from the US costs about 5% - 10% of the average retail price, depending on the volume of the shipment and it's weight. Furthermore, and this is a key point, airfreight costs are part and parcel of overall trading terms negotiations with overseas principals. The higher the freight the deeper the purchasing discount, which is why Australian publishers normally get sweeter discounts from their US suppliers than their colleagues in either Canada or Britain. The same goes for shipments from the UK.

The fact that local publishers get this decided advantage from their overseas principals is precisely why retail booksellers, who will get a far worse deal on freight from the overseas wholesalers, would prefer to buy locally. Why would a bookseller pay for the freight when the publisher can much more easily absorb it, and therefore price competitively?

3. Publishers will find it hard to sell export rights to Australian titles because the buying publisher will demand a non-exclusive right to re-export their edition back to Australia, given the new open-market status of this territory.

This is an exquisite piece of illogicality! The Australian publisher obviously holds exclusive Australian rights under the contract with the author, so it's logically impossible to sign any non-exclusive deal with anyone else. As well, the only way the UK or US edition can come back to Australia is via a UK or US based wholesaler. In that case no contract is necessary.

But the root of this confusion lies in the term 'open market', which British and American publishers universally think of as a market for competing editions, all operating on a non-exclusive basis. Australia won't be like this, as I've explained in my last post. It would be more accurate to describe Australia, if the PIRs are abolished, as a 'deregulated market' where booksellers can parallel import in the hard cases.

It will be up to Australian publishers to explain these realities properly, and positively, to overseas publishers. Dopey notions need to be solidly and politely whacked.

4. Virtually the whole industry considers the PC report poison, therefore it must be!

I refuse to give this comment any credibility by spending time refuting it! We are really at the bottom of the barrel here.

5. Economic rationalism has no place in the world of books and culture. The PC report should be ignored by any government seriously interested in preserving and developing Australian writing, literature and identity. Slightly lower prices are absolutely no substitute.

Where do you start with this one? If the whiff of elitism doesn't turn you off then the cultural bunker mentality should. How dare any mere economist encroach on our pristine, privileged terrain? This stuff is straight out of the 80's. Surely we've got beyond it. By all means attack the economists' arguments, assumptions, methodologies and recommendations, but don't embarrass everybody by claiming they have no right. Ugh!

Thursday, July 23, 2009

Exclusive Australian Rights in an Open Market

I know some publishers fear that it will not be possible to buy exclusive Australian rights to overseas titles under Australia's version of an 'open market'.

Therefore, abolition of the PIRs would in fact mean that territorial copyright would no longer exist in Australia. Territorial copyright relies on exclusivity.

A version of this way of thinking crops up all the time in the way some commentators refer to the abolition of the PIRs as meaning that Australia 'will become a market for competing editions'. This is the favorite way Jason Steger, literary editor of The Age, for example, expresses the meaning of the reforms.

They are all very wrong.

Firstly, Australia is a natural territory, just like the US, Britain and Canada. Trading exclusive rights is possible because of geographic, population and market dynamic features that naturally secure and enforce those rights. This means that Australia will not be an 'open territory' in the way that Hong Kong, Singapore, Continental Europe, the Middle East and Africa are.

Secondly, once exclusive Australian rights have been secured, NO OTHER PUBLISHER'S EDITION CAN COME HERE, other than by direct importation by a bookseller from an overseas wholesaler. That's the way things are now, and they won't change.

Australia will not be a market, therefore, 'for competing editions', meaning a market where US and UK publishers fight it out.

Some Australian publishers believe US and UK publishers/agents will only want to sell them non-exclusive rights.

This may initially be the case, but it certainly won't last. Six weeks max. Faced with insistent demand from British and Australian publishers wanting to pay good money for exclusive Australian rights, it will quickly dissipate. Willing buyers breed sellers.

Nonsense from Michael and Henry

Michael Heyward and Henry Rosenbloom are two of Australia's best publishers. They run Text and Scribe respectively, small but highly successful and critically important Melbourne-based independent publishing companies.

They are also excellent writers, with a gift for the nicely honed phrase. They've been given an inordinate amount of space in the nation's press, particularly The Age, during the current parallel importation debate.

It's a pity therefore that their opinions and arguments are so baseless and wrong-headed. In fact, they're nonsense - all emotion and no intellect.

If you want to read their latest outpourings here they are:

The fundamental mistake they make is in considering that the argument is all about territorial copyright, when it isn't.

Here's Henry: 'With its recommendation that territorial copyright for books be abandoned, the Productivity Commission....' (my italics).

Here's Michael: 'As the gospellers of deregulation, the commissioners have stuck to their hymn sheet: remove all import restrictions, strike down territorial copyright' (my italics).

Nowhere in the PC's recommendations is there any mention whatsoever of 'territorial copyright'! The recommendation is to remove the Parallel Importation Restrictions (PIRs).

Michael and Henry consider that by removing the PIR's you remove the ability of authors and publishers to benefit, as they do now, from territorial copyright. This is manifestly untrue, and to proclaim otherwise demonstrates a massive failure of thought and logic, and a dismal ignorance as to how the industry actually works.

One can forgive the nation's authors for getting this thing so wrong. They're not involved daily in the dynamics of the trade, and during this debate have mostly been fed lines by their publishers anyway. But I find it astonishing and profoundly disappointing that practicing publishers could prove to be so confused in their understanding and appreciation of some of the basic issues.

Here's the fundamental illogicality: (I'm paraphrasing the publishers' position)

Premise 1. 'What with freight costs, exchange volatility, no return rights etc, the opportunities for consistently profitable direct importing by booksellers are just not there'.

Premise 2: 'Without the PIRs therefore, prices to consumers will only occasionally be lower than what they are today. The Commission is massively overstating what beneficial impacts there will be from their recommendations'.

Therefore: 'The publishing industry would be devastated'.

As you see, this syllogism makes no sense whatsoever. The PC picked up on this pretty easily, as have most commentators from outside the industry over the last twenty years. But still the publishers don't get it!

It's simply embarrassing!

The facts are that there will be plenty of opportunities for direct importation by booksellers, but only where local rights-holding publishers have chosen to over-price and under-service. Once they stop doing that they'll close off the business logic of buying around them and will secure their place as the preferred supplier. They will supply close to 100% of the demand.

Do you see where this has anything to do with territorial rights? Only at the margins, and only where an arrogant publisher chooses to be vulnerable.

Do you see a devastation of the industry here? Do you see an almighty whack to Australian literary culture? Oh, please!

Here's where the consumer will benefit. Lower prices will mainly come about through the existence of lower-priced editions overseas, particularly the premium or literary paperback, selling in the US for around $US16.00. Australian rights-holders will have to be responsive to this, by issuing equivalent editions here, priced at around $A23.95. Sticking with the $A32.95 bigger 'C format' paperback as the title sinks into the backlist will pretty much become dated. But, interestingly, this change is happening now. There are more and more of the quality $22-24 smaller, but well produced, paperback editions coming from Australian publishers every day, and it's a very welcome trend.

Buying and selling exclusive Australian rights, and negotiating to exclusively represent overseas lists on an agency basis will remain as strong a feature of the Australian publishing landscape as it's ever been.

Any 'devastation' scenarios should be consigned to the fantasy section!