Tuesday, April 21, 2009

Life under an open market

How exactly would the Australian book trade change if the government abolished the Parallel Importation Restrictions? (The chances of which are most probably a big fat zero, by the way, so this is an academic exercise only!).

There have been plenty of Chicken Little, 'we'll all be rooned' disaster scenarios painted by authors and publishers, but all of them are junk, based on a profound misunderstanding of the issues.

So here are my projections:

1. Publishers who import lists or buy rights to overseas titles will be far more responsive to currency exchange rates. When the dollar strengthens against the US$ or pound, prices will have to come down. Of course, this should be happening now, if publishers took more seriously their customer-focused strategies and, frankly, ethical obligations. But it isn't. Over the last five years when the dollar reached historic highs, particularly against the US$, very few publishers lowered their mark-ups.

2. Booksellers, both chain and independent, would step up their direct importing from wholesalers Ingram and Baker and Taylor. This would never become a flood but would be a constant niggle, keeping publishers honest and on their toes. It would never become more than marginal because publishers would eliminate the business logic of it by responsive pricing and improved service.

3. Booksellers would enjoy more generous trading terms. Rebates on increased volumes would become universal. Rebates reward loyalty and would therefore inhibit buying around, all other things being equal. It's disappointing to see independent booksellers siding with publishers against opening the market, because they would undoubtedly benefit through these sweetened terms. It won't just be Dymocks and other chains. Sale or return on the backlist would once again be the norm, and small order surcharges would be rare. We'd also see more flexibility on credit terms. Of course, booksellers' profits would improve. There'd very likely be a transfer of profitability from publishers to booksellers, to the tune of about two percentage points on my rough calculations. Since publisher profitability has never been higher over recent years - around 10% - and bookseller profitability never been lower - barely 2% - THIS IS NO BAD THING! Strong, profitable customers are good for everyone's business.

4. The dominant local format, especially on backlist titles, will become the 'B' format, or literary paperback format. There will be a distinct move away from the more expensive $32.95 'C' format, in order to compete effectively with the premier US paperback which would sell here for around $26.95. Publishers will need to do this to close off this import route and ensure local sourcing. This might mean less revenue, but it might also translate into higher unit sales over time as pricing becomes more responsive to consumers' ability to pay.

5. More inventory would be kept locally. Publishers' demand forecasting systems would need to be state of the art to keep expensive air freighting under control. This would be an important factor in reducing the business logic of buying around.

6. There would be a boost to local publishing, printing, rights buying and adaptation, and consequently exports, not the reverse as has been universally claimed. Local publishing would bring higher levels of predictability and security to publishers' revenues and profits. It would be the principal growth strategy.

7. Australian authors would be advantaged, and be as critical to the trade's overall fortunes as ever. So would local printers be advantaged.

8. Quality booksellers would improve their indenting skills and systems. Thousands of important new and backlist US titles would be regularly stocked on local shelves, titles that don't generally see the light of day in Australia now.

All these changes, brought about by the real or imagined threat of direct bookseller importation, would give a dynamic competitive boost to the ordinary business of the trade. And the real winner would be the Australian consumer.

Finally, publishers would have a strategic choice: they could chose to step up and compete, or they could chose not to play, to retreat. I firmly believe the great majority will step up. It's what they did when the 30/90 reforms were introduced two decades ago, and it's what they'll do now.

It's just a shame we'll probably never get the opportunity to find out.

Step up Kev!


Anonymous said...

I get all this except the crucial point six (and hence seven) -- care to elaborate?

Peter Donoughue said...

The critical thing to recognise here is that an open market Australian-style does not mean a non-territorial rights market as publishers and authors are claiming. This is the principal and unfortunate conceptual confusion running all through this debate. British publishers and agents talk about open markets like Hong Kong and Singapore as 'non-exclusive' markets, meaning exclusive territorial rights cannot be sold resulting in a 'competing editions' market. The UK and US editions fight it out.

This is NOT the way it will be in Australia as we are a natural territory - English speaking, affluent, literate, far way, and with a large enough population to support economic print runs. So this is the first thing to recognise: Exclusive Australian rights will be acquired and local authors contracted. This will be the principal strategy for prospering in this market, particularly given the challenges associated with supplying imported titles - responsive pricing, stockholding, etc.

Independent publishers like Text and Scribe will continue to publish and thrive, as will the majors.

Their fears are unfounded.