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!

Friday, July 17, 2009

Fiction and Fact on Book Prices

FICTION: 'There is no evidence that prices will come down if the PIRs are removed. The Productivity Commission is typically indulging in discredited free trade theory and tired ideology'.

FACT: Beside the bleeding obvious fact that the new regime hasn't been implemented in Australia so how could there be any evidence, the commission clearly states, on numerous occasions throughout the report, that removal of the provisions will remove the 'upwards pressure on prices'. They don't guarantee or promise or even say that prices will come down. The expectation clearly is that they will, if only as a matter of logic. To use an analogy, if a pool is drained presumably there'll be less drownings in it. Someone could still stick their head in the remaining dregs and do the job, but as a matter of plain common sense I would go out on a limb and say there'll very probably be less death by drowning in the non-water circumstance.

FICTION: 'If you compare Australian prices of imported US titles with their US prices you will see that local prices are not higher at all once the average exchange rate of $0.69 is taken into account'.

FACT: If you conveniently chose an average exchange rate that suits your purpose, well, unsurprisingly, this is true. The APA has selected the past ten years as its time frame. This works only because of the collapse of the A$ in the five year period from 1999 to 2003 inclusive, when, according to RBA charts, the average rate was $0.57. Over the five years since then (2004 to 2008 inclusive) the rate has been $0.79, pretty close to where it is today. Do you see any publishers pricing their imports according to that rate? No. They've had five years to adjust but have chosen not to. The 'ten year average' mightily suits their case.

FICTION: 'Dymocks and the Coalition for Cheaper Books are not really interested in lower prices to consumers but higher profits for themselves'.

FACT: I'll go out on a limb and suggest that Dymocks and the Coalition are probably interested in both. If they can source books at lower prices off shore then that gives them more margin and enables them to be more competitive by passing on some of that margin to consumers. It's called business. It happens right across the economy. It's not original or innovative and it's not rocket science. Now, with the PIRs in place, any price discounting they do to attract customers has to come 100% out of their own margin. They're discounting widely now, so why wouldn't they be motivated to do more of it if they can secure lower purchasing costs? Once again, it's a matter of logic. (The other way to gain more margin is to do what A&R/Borders is doing and mark up everything above recommended retail price. What sort of customer friendly strategy is that? Yet Dymocks, who've never marked up, is copping the flak!)

Wednesday, July 15, 2009

The Productivity Commission's final report.

In the Commission’s view, while removal of the PIRs should see an increase in imported books where these represent better value, it is probable that most Australian publishers, including the major publishing houses, would generally adapt to the new regime, that Australian stories and content will continue to be demanded and that talented and marketable Australian authors would continue to be widely published. Any pressure for contraction would also be ameliorated to the extent that subsidy arrangements were made more effective. (Report, p XX111)

In its long, frequently repetitive, constantly frustrating, badly structured and often poorly written final report released yesterday the Productivity Commission has finally seen the light, reverted to its true free market economic self, and made some core recommendations that make absolute sense, both for the industry and the nation.

The recommendation to totally abolish the import restrictions rather than tinker with them is very welcome. The recommendation to delay the implementation of this reform for three years is disappointing. One year, or even two, would have been sensible.

The recommendation to review and increase direct subsidies for worthy books is utterly unnecessary.

Why is the report constantly frustrating? It continually overstates the 'harm' and 'contraction' that removing the PIRs would bring to the industry, yet makes no attempt to describe, much less measure, this effect. I have always contended that removing the PIRs would be a fairly innocuous thing to do, like 'removing the dingo fence from around suburbia'. Sure, publishers would have to adjust, but publishers are having to adjust to unfolding, significant events all the time - violent currency movements, mergers and acquisitions of themselves and their customers, subverting technologies, and so forth. Adjusting pricing, trading terms and supply practices to compete in a PIR-free market is hardly the stuff of nightmares. Coping with the Red Retail Group (A&R/Borders) is a rather more significant challenge I would have thought. Or coping with the pressure for huge and unwarranted author advances.

Although the commission acknowledges that 'the extent of the pending contraction has often been overstated by those in sectors facing reform', it cedes far too much ground to its opponents by substantially agreeing with them that there'll be a measure of contraction.

The overwhelming and quite possibly, at least in a political sense, fatal weakness of the report is its adamant refusal to confront the confusion and wrong-headedness of most of the submissions sent to it by authors and publishers. The universal claim that this issue is all about territorial copyright and, in Tim Winton's words, the 'brutal assault' on it by reform proponents, has been allowed to go utterly unchallenged. The commission has an annoying habit of assaying opinions and quoting all sorts of views contained in the submissions, but leaves them on the page like stinking turds, uncommented upon and unswept away. It unfortunately hasn't seemed to have grasped that there is a qualitative difference between the PIRs and the reality of territorial copyright, and that abolishing the PIRs in no way renders inoperative the ability of authors to sell and publishers to acquire Australian rights. Prognostications of doom contained in these submissions are therefore quite absurd. By leaving them uncontested the commission has allowed them to still live and breathe and retain their great emotional and political power. This is a huge mistake. Even in the commentary last night and today from journalists and industry players this 'assault on our rights' notion is still being trotted out.

The commission certainly didn't take this live-and-let-live approach to challenges to its pricing comparison methodologies from some parties after its draft report was released. In this final report it has really hopped into them in no uncertain terms. The pricing analysis is one of the best things in the report, and you can sense how jealous the commission is to protect its integrity.

It's clear the commission hasn't really grasped the critical importance of territorial copyright to the whole structure and dynamic of the global publishing industry. It's a foundational concept. There are passing references to the practice of 'price discrimination' in different territories but it's vaguely frowned upon, as supporting 'the segmentation of world book markets'. Hence acknowledging it as a value seems beyond the commission's powers.

Had it believed in it, it would have aimed both barrels at accusations it was out to destroy it, and blown the confusions, misrepresentations and dismal ignorance right away. It has committed a fatal mistake, and left its flanks utterly vulnerable in the highly charged political campaign to come.

There are some real nuggets in this report, but many of them will go unnoticed, unread and unappreciated. They are buried in prose as deadening as a Kevin Rudd speech, and in a wandering narrative structure crying out for sharpness and focus.

Nevertheless, here are some of them:

The contention underpinning much commentary (both prior to and following the discussion draft) — that reform to the PIRs would have little or no impact on book prices and yet would cause a significant contraction in local publishing — is not, in the Commission’s view, sustainable. Among other things, as pointed out in chapter 4, if cheaper, or otherwise better value, books were not available for importation from overseas, removal of the PIRs would have little substantive impact on the industry. (p 1.7)

While the power relationship between local publishers and booksellers would change somewhat were the PIRs removed, the value of local supply relationships to booksellers could add to the natural protection of distance from foreign markets to provide a price margin for local publishers facing prospective competition from foreign editions. (p 5.8)

As such, were PIRs removed, the greatest impact on booksellers might not come from the actual degree to which they shift away from domestic publishers, but rather from their ability to make a choice to shift to overseas suppliers if they were unsatisfied with local sources. The availability of such options would increase the pressure upon publishers to offer competitive prices and conditions, providing the spur for greater efficiencies in domestic publishing and distribution. In this context, the current PIR regime increases the scope for publishers with market power to engage in practices that, while maximising their own returns, in some cases may be detrimental to booksellers, and indeed consumers. (p 5.21)

Thursday, July 2, 2009

Which way has the Commission jumped?

The Productivity Commission has now delivered its final report to the government, and apparently it will be released to the public the week beginning July 13.

It will be utterly fascinating to see which way the Commission has chosen to go.

Here's the way I see it:

- The draft report's 'protection for the first 12 months' is dead in the water. It proved to be utterly friendless. The commission will have ditched it.

- However, because the commission, unwisely in my view, chose to develop a messy, interventionist, halfway house position, it's highly likely that the 'initial period of protection' notion will have been retained. The time-frame will have been extended to five years. It could be three, but, politically, five ticks more boxes. No one in the industry could credibly object. Even the APA would down weapons (did I say that?...)

- Think about it: the industry could not possibly fight this without completely sacrificing all credibility. And the politicians would not chose to be more catholic than the pope. They would accept the PC's recommendations. That would give the commission a much needed political win.

- Those of us who, unlike St Augustine, consider that now is the time to be pure, will also have to lay down arms and accept the compromise. Maybe we'll be handed a bone: a recommendation that in five years the situation be revisited to assess how the new regime is working. And the PC might say that, if local publishers are at that time still obviously the source of more than 90% of the older backlist (as will surely be the case), then maybe they'd more easily accept full deregulation from day one. They would have realised their fears were misplaced (did I say that?..).

- Of course, as is infrequently the case, I could be wrong. The commission could have chosen the non-Augustinian, economically pure and rational position, and recommended the PIRs be completely abolished, and they might even have confronted the wrong-headedness of the industry submissions head on. The brutally negative responses to the draft report's 12 month recommendation might have shocked them, sent them back to economic taws and emboldened them to be more true to themselves.

Somehow I doubt it.