Thursday, May 7, 2009

How the Productivity Commission Could Usefully Spend its Additional Time

As I've repeatedly pointing out on this blog, this whole parallel importation issue is about...wait for it...importation, and under what conditions it takes place, and should be allowed to take place. It is not about territorial copyright. Let's repeat that: IT'S NOT ABOUT TERRITORIAL COPYRIGHT! (I so wish I had a button I could hand out!)

Therefore we can comprehensively ignore all but about 10 of the 552 submissions received by the Commission, including all the publishers' and all the authors'. These were universally off the point.

Easily the best submission, apart from my own of course, was Dymock's. It actually focused on the real issue and had some interesting things to say. Since Dymocks is currently about as popular in the trade as the Taliban, I happily rise to its defence.

Underpinning the logic of those who think territorial copyright would cease to exist is the presumption that booksellers would widely and at every opportunity import direct from overseas and bypass the local supplier.

Here's what Dymocks has to say about that:

'The volume of books brought in under the new arrangements direct by
booksellers may increase in the short term but over the long term will be
roughly consistent with what it is today. It is likely booksellers will
continue to buy the majority of their stock from local publishers and
distributors if their prices, service and stockholding is competitive. It is
simply easier to do so. As publishers adapt to the new conditions they will
be competitive and will ensure they continue to hold the market shares
they have today.

As has been the case in New Zealand, individual publishers will offer lower supply prices and strong marketing support to retailers in return for exclusive supply. Lower prices on international titles will enable all booksellers to be better able to compete with international online sellers such as Amazon. Independent booksellers particularly will have the opportunity to differentiate their stockholdings with more flexibility on international purchases therefore offering a wider range to customers.

Multinational Publishers and Distributors will be forced to re-evaluate the way they do business in this market. As was the case in New Zealand, it will be likely to lead to improved customer service, more timely publishing of new books and better stockholding, knowing that the bookseller has alternatives if they do not.

International publishers will be less able to double dip on profits in getting titles to the market and will reduce their prices. Again, as has been the case in New Zealand, although it has been threatened, none will reduce their operation size, promotion of international or domestic titles, or commitment to local publishing. Most, if not all, will continue to perform profitably'.

Since this is the central issue you would think that the follow up submissions would have addressed it. Wrong. Not one. Not even the teeniest of references!

Therefore my advice to the Commission would be to survey the booksellers and ask them the following questions:

1. If you import now, why do you do it, and in what volume?
2. If the PIRs were abolished, how would your importing behaviour change?
3. What trading terms do you get from the overseas wholesalers (discount, freight, returns, etc)?
4. How do you arrive at an Australian retail price for the import? What factors do you take into account? Would this price be normally lower than that of the local edition? How much lower?
5. What are the problems with importing (eg. foreign exchange exposure, inventory management, etc)?
6. What do you think the local supplier could do to effectively compete?

Then the Commission should conduct follow-up interviews with a dozen or so major booksellers - chains, department stores, independents - to tease out any nuances that may not have emerged from the written survey.

The information obtained from this exercise would be the most valuable contribution to the industry that would have been undertaken for many years.

The ABA should have done this in any case. This should have been the guts of their submission. Regrettably they failed dismally to offer the Commission anything of substance that would have informed its deliberations. This is why the Commission now has to do it itself.

You can bet your bottom dollar that Dymocks' observations, quoted above, will be borne out.

Hence, problem solved. Open market...bring it on! Territorial change!


Steve jones said...

I for one would love to be asked those questions.

Also I hope I made it into the top 10 submissions - if not I will try harder next time.


Steve Jones

Peter Donoughue said...

Steve, Kinokuniya's submissions certainly made the top 10!
I thought your follow up submission was particularly good and it gave a lot more information. I would have liked to have seen some of your appendices made public though.
Keep up the fight! It's not over yet.

Hannah said...
This comment has been removed by the author.
Hannah said...

With all due respect, I'm afraid that if you stopped and thought about it, it IS in fact about territorial copyright. I quote from the Productivity Commission's draft report:

"Broadly, under the PIRs, publishers and/or authors who hold the Australian rights to a title are largely protected from competition from foreign editions of that title... [T]hese provisions effectively bestow copyright holders with territorial monopolies on their titles, thereby segmenting the international book market."

If PIRs were removed, this would undoubtedly have an effect on territorial copyright in Australia. In the minds of many international publishers, the ANZ territory would effectively cease to exist, as there would be no point in them investigating rights sales into the territory.

Having worked in small publishing companies I can personally attest to the fact that the loss of potential rights sales and purchases, and their attendent income, would have a devastating effect on publishing, and therefore on reading culture, in Australia. And, frankly, I'm surprised you can't see this.

It might be worth you actually READING some of the 500 or more submissions that you so vehemently disagree with. You might come to realise that supposedly "cheaper" books are not the be all and end all.

Peter Donoughue said...


I can't say I've read all the 552 submissions, but certainly most of them. Have you read mine? I doubt it.

Some UK and US publishers/agents may well consider Australia a 'non-exclusive' territory if ever the PIRs were removed (ie, a territory where competing editions fought it out), but they'd be seriously mistaken, and I reckon it would take about six weeks before they realised their mistake. As well, some Australian publishers may consider it impossible any longer to buy exlusive Australian rights to overseas titles, but I reckon it would take about, let's see, six weeks before they realised that their competitors were buying rights from under their noses.

Australia will not be an 'open market' in the same way Hong Kong, Taiwan or Singapore are. Australia is a natural rights territory, as I've constantly argued in my original submission to the Commission and in further blog postings. This is the crux of the issue.

Removing the PIRs is equivalent to removing the fence from around the house - the additional protection. It's not about demolishing the house, or making it impossible to live in.

I don't happen to think allowing booksellers to import at the margins is going to destroy our way of life.

Hannah said...

I have indeed read your submission Peter and, as you can see, it failed to convince me.

The fact of the matter is that no one knows exactly what would happen if the PIRs were removed, and assertions made by you that 'Australian rights to
overseas titles will still be bought in similar volumes as now' cannot be proved. No truly comparable situation has yet occurred, and I agree that Australia is an entirely different territory from Hong Kong, Taiwan et al. The simple fact that other markets are holding onto their restrictions on parallel importation should point out to us that maybe losing them is not such a swell idea. If the entire world market opened up, that would be an entirely different story.

Removing the fence from around a house gives trespassers an open invitation to traipse through as much as they like, and leave whatever mess they like behind them. I don't think I, for one, would feel safe living in such a house.

However, I do also agree that asking booksellers the questions you propose would be a good step forward.

Steve Jones said...

Hi Hannah

I did choose to answer Mr. Donougue's questions. Here are my answers.

1. If you import now, why do you do it, and in what volume?

Kinokuniya imports on average 20 pallets of books per week from sources all over the world. Our store has over 300,000 titles in-stock at any one time and Australian Publishers/distributors do not carry a range that could fill a store as large as Kinokuniya.

2. If the PIRs were abolished, how would your importing behaviour change?

Kinokuniya may choose to import and stock on the shelves American hard covers/limited editions/different formats to complement the local edition. This would be in addition to local sales, adding value to an author profile. It does not reduce sales of local titles.

We may also choose to airfreight copies of a niche author’s new book to fill the lead time between the international and local publishing dates. Some customers would like to read a book simultaneously to their U.S./U.K. counterparts and Kinokuniya has the ability to offer simultaneous - or close to simultaneous - releases. In most cases once the book is released in Australia we would switch our buying over to the local supplier.

As most multinational publishers base their editions on U.K. pricing we may also choose to import U.S. editions of indent titles we feel are over priced in this market. We accept that an indent title maybe more expensive due to economies of scale, but our globally-minded customers expect internationally competitive pricing.

3. What trading terms do you get from the overseas wholesalers (discount, freight, returns, etc)?

Kinokuniya does not divulge trading terms, but needless to say as one of the largest retail chains in the world we are offered attractive discounts/terms from wholesalers and freight companies; discounts are usually comparable to local publisher’s discounts. All stock bought from overseas wholesalers are on a better SOR terms than buying locally.

4. How do you arrive at an Australian retail price for the import? What factors do you take into account? Would this price be normally lower than that of the local edition? How much lower?

Kinokuniya uses a formula for each supplier factoring in exchange rates, shipping, and selected on costs. The sold price is never manipulated up to set price points. Sometimes import prices are less than the local edition and sometimes they are higher – but for open market titles customers can have the choice of edition and price. The customer has the power to decide what edition/price they wish to have/pay, not the publisher, and not government regulations.

5. What are the problems with importing (eg. foreign exchange exposure, inventory management, etc)?

We are very experienced importers and so suffer very few problems. However retailers starting out would have to consider exchange rates losses, and titles bought from wholesalers should always be ordered firm sale even though they are SOR; this would save future costs.

6. What do you think the local supplier could do to effectively compete?

Easy – just be the same or better than an overseas wholesaler. Due to contractual obligations a bookstore cannot buy directly from overseas publishers directly - the best terms a retailer may receive, other than from the local publisher, is from an overseas wholesaler. Being as good as a wholesaler would mean publishers would have to upgrade Titlepage, at no extra cost to a bookseller, be more efficient with stockholding i.e. employ an experienced book buyer who would buy ahead of the trends – not just follow trends, and offer a discount that is representative of a customer’s business. A strong customer/supplier relationship may need to be established; not all publishers believe bookstores are their customers. It would also beneficial to print more books simultaneously; current technologies means a manuscript can be sent by email. The argument used to protect the time lag on releases saying overseas publishers are slow to send the manuscripts to Australia says more about Australian/ U.S. publisher relationships than what is, or isn’t possible.

Note at the end

An open book market in Australia does not mean the destruction of ANZ as a territory – it means the Australian Government doesn’t regulate the industry. Publishers can protect their titles with International contracts, which is already done. No overseas publishers can sell directly into Australia now, even if a book is released after 30 days from publication.

Book-dumping - i.e. of remainders - is only a marginal risk. Kinokuniya’s buyers have agreed not to purchase Australian author’s books as remainders from overseas remainder merchants. Kinokuniya does this out of respect for the Australian author’s royalties. We believe the negative feedback other retailers would receive in the media would prevent retailers from importing remaindered Australian originated books.

It is worth noting that indeed the U.K, U.S, and Canada have closed markets – but look at the health of their industry, hardly a bastion for protectionism! All three territories have wholesale distributors that compete against publishers – Australia doesn’t so we have no competition. India is an open market and international publishers have begun investing in that country. The New Zealand publishing industry is in-fact doing extremely well; if not publishers would have retreated from the territory completely. The fact that there is little competition at the retailer end means prices have not lowed; good retailers are something we are blessed with in Australia. And finally many Australian authors’ rights deals are negotiated in the U.K. not Australia. We do not have a truly independent publishing industry; we are, and always will be part of the commonwealth rights agreements.

People have claimed some proponents of the open market are merely seeking some margin redistribution; isn’t that good for a healthy industry? The average bookstore makes 2 cents in the dollar and the average publisher 10 cents in the dollar, and authors probably less. Imagine if you are a new independent niche bookstore, if the local publisher doesn’t believe in your business so you may only get 30% discount off RRP. But with an open market you can choose to buy your entire range from one wholesaler at a better discount. Doesn’t that mean we could have even more independent bookstores?

A free open market will only make Australia’s industry stronger and more efficient. Protectionism for the sake of protectionism does few favours; it only protects the inefficient and gives the efficient a bad name.

Peter Donoughue said...


This is wonderful stuff!

Thanks so much for answering my questions. I hope other booksellers take up the challenge too.