Saturday, April 25, 2009

Exclusive!..The Productivity Commission's Final Report - weeks before its official release!

I have just been delivered in a dream a newly minted copy of the Commission's final report due to be presented to the government on May 13 this year.

This is what it says in the Executive Summary:

1. After extensive consultations with all sectors of the industry we now believe that the recommendations contained in our Draft Report of March 2009 were wrong. We had recommended that the PIRs be removed after the first 12 months of first publication. We had genuinely thought that this compromise position would be accepted by most industry participants, despite it not meeting their preferred 'no change' position. We had agreed with them that total abolition would be disruptive and negatively impact the cultural externalities that the Commission identified as a social and economic good. The total abolition option would not be prudent. Even under our compromise position we recognised that the industry would undergo a certain amount of shrinkage and some firms not survive. Authors' incomes and cultural impacts might be reduced. However we had suggested various ways we thought the industry could mitigate these negative impacts, for example by delaying any export sales so as to eliminate the possibility of overseas editions of original Australian works being imported back into Australia within the first 12 months of publication.

2. To our surprise however the industry has unanimously rejected our recommendations. No support from any sector or participant, either during the round tables or in the follow-up submissions, was forthcoming. In fact, they seemed to have produced more anger, if anything.

3. The Commission has therefore decided, in this final report, to recommend the total abolition option as the only viable one. The economics of this option are clear cut, as spelt out in our Draft. Benefits will accrue to the economy at large, despite there being initial adjustment costs for the book industry.

4. Also, after further consideration and analysis of the many submissions the enquiry elicited, the Commission now recognises that our earlier assessment of negative impacts to the industry was misplaced. We had taken at face value a number of claims made by industry participants in our genuine belief that they knew what they were talking about. After a great deal of further reflection, and being further belted around the ears by industry participants who often accused us of bad faith, we now realise our mistake. We should have critically engaged with the industry's arguments and vigorously rejected the vast majority of them for the confused and wrong-headed nonsense that they were. By not doing this we ceded too much ground, constructed what we thought was a compromise, and have been roundly condemned in the process! BIG mistake!

5. Where are the industry's confusions? These are the main ones:

- Territorial Copyright. Surprisingly, the vast majority of submissions failed to appreciate that the PIRs have nothing to do with the existence or otherwise of territorial copyright in Australia. Removing the PIRs will in no way remove the ability of publishers and authors to sign exclusive Australian rights. It's like a fence around a house. It's added security but removing it does not remove the essential ownership and enjoyment of the house. In submission after submission this confusion manifests itself, rendering most of what the submissions say irrelevant.

- Copyright. Many submissions accuse the Commission of seeking to end 'copyright' after 12 months. Claims that under the commission's draft recommendation authors and publishers will only enjoy copyright protection for the first 12 months, are a variance of the territorial copyright confusion addressed above, but demonstrate more tellingly the absence of any clear thinking around essential facts associated with the PIRs and their place in the Australian book trade.

- Exclusivity. Most of the same submissions blithely assume that ending the PIRs would end 'exclusivity', an essential feature of territorial copyright. Certainly the law of the land would no longer provide additional protection to exclusive agreements entered into freely by willing parties. Contract law alone would govern and secure these agreements, as is the case for the vast majority of commercial agreements entered into by businesses and individuals. It would be up to the parties themselves to police their exclusivity under contract law.

- Dumping. Again, the vast majority of submissions showed ignorance on this point. It should not be the role of the Commission to have to educate industry players on the basics of the way their industry's supply line works, but it seems we have to. Once exclusive, territorial rights contracts have been entered into by an Australian publisher with an overseas entity, be it an agent or publisher, no other publisher is at liberty to market, sell, or distribute into Australia, directly or through an Australian-based supplier, any other edition of that work. This does not mean that third party wholesalers, however, can't supply orders from Australian booksellers. They can, quite legally. But this is not dumping, under any circumstances. It's importing by the bookseller.

- PIRs in the US and the UK. Many submissions referred to the legally protected status of these territories, and questioned why Australia would want to 'go it alone' in abolishing its equivalent PIRs. Once it is recognised that Australia would retain its exclusivity under contract the issue becomes marginal in relevance. But both the UK and the US situations are informative. Under EU law British booksellers can legally import any US edition sold in continental Europe and compete with the UK edition. British publishers don't like this but they're living with it. It's commercially controllable because there's not much additional margin in it for the bookseller, if any, and the supply line is messy. As for the US there's simply no logic in a US bookseller importing direct from the UK because the US editions are invariably cheaper. What would be the point?

6. In conclusion, the Commission now believes, after extensive and quite frustrating consultation with the industry, and after reading hundreds of misguided, confused, illogical and just plain mad (the APA's) submissions, that the premonitions of apocalypse can be easily rebutted and should therefore be comprehensively ignored.

7. We believe the industry will continue to prosper once the PIRs are removed and a period of transition has passed. We recommend the new, open regime be implemented after two years from this date. This will give the industry sufficient time to do some serious, informed and unemotional thinking.

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