Thursday, July 23, 2009

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!


Anonymous said...

You hit the nail on the head with:

"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."

You, of course, imply by this that local publishers are *actually* over-pricing their books and under-servicing their clients.

However, assume, for a moment, that they are NOT doing this, and things simply cost more in Australia, as they do with most everyday commodities, compared with the rest of the world.

Assume that publishers cannot actually compete with the overseas market, which is one of the arguments for retaining PIRs.

Is it worth the risk of pushing them out of business, on the off-chance that you happen to be wrong?

Peter Donoughue said...

Yes, I am implying that many publishers are over-pricing now. And I'm also saying that they'll need to step up and stop this absent the PIRs.

I can't just assume they're NOT doing this, when I know they are. They are nowhere near as responsive as they should be to shifts in the exchange rate for example, that would mean lowering their markups.

Publishers definitely CAN compete with the 'overseas market' as you put it. The mechanics of this is competing with local booksellers and their ability to import directly. Publishers will always be better placed than a bookseller to do this, as they negotiate exclusive distribution/rights agreements that are by definition on much more favorable, wholesale-type terms than retailers can secure.

Robert Collings said...

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

That's probably because, as far as I'm aware, the term territorial copyright doesn't appear in the Copyright Act and the commission isn't likely to reference something that doesn't exist.

In fact, I don't believe the term parallel importation restrictions appears in the Act either.

The term parallel importation provision does appear, referencing section 44D, 44E, 44F, 112D or 112DA; or section 44C or 112C.

I expect almost everyone in the industry (and probably the relevant sections of government) would agree the term territorial copyright is in common use and applies to the consequences of the 'provision'.

"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."

Let me suggest that the *business reality* is that retailers (particularly the likes of Woolworths, et al) will use the fact that they *can* import books as a means of driving down wholesale pricing while continuing to buy books from local distributors.

That outcome should result in reduced availability of investment capital, or alternatively if publishers wish to maintain investment capital ratios a round or two of cost cutting.

I also question any argument based on the premise that a retailer will pass on 100% of any reduction in wholesale pricing; not likely when there's the opportunity to report improved profits to the market and shareholders.

Because the commission's recommendations don't require retailers to accept a reduction in their margins, the net effect will be to redistribute wealth from investors (publishers) to non-investing entities (retailers). I'm not convinced that makes for good public policy generally but particularly so in the creative industries.

Of course, book pricing may well be out of equilibrium and lower retail price points may drive sufficient demand to offset margin reductions, therefore leading to a healthier industry. Perhaps we should look for some empirical evidence from, say, the music industry (where I worked for the past decade) rather than mounting academic arguments?

I do agree with many of the arguments suggesting the local publishing industry is not likely to be affected by the recommendations (particularly those who don't export!) and that this issue is really about multinational corporations using 'territorial copyright' to bolster profits, but if the net effect of the recommendations is to drive down wholesale price points then this must surely affect revenues industry wide?

Small publishers (investors) may then question whether their capital is best allocated in this industry vis the return on investment and if the numbers don't stack up they'll get out of the business. Some will hang around because they *love* books, others will leave because they love money.

And for what it's worth, I buy most of my books from Amazon or Book Depository because indeed most of the titles in which I am interested can be acquired more cheaply from these sources. That doesn't stop the commission's recommendations being, in my view, ideologically driven and misguided.

RachaelMc said...

Wonderful post as always Peter. The comments have also been an interesting read.

I agree with Anonymous. You have hit the nail on the head. If publishers get pricing, speed to market, and service levels right, they will have our loyalty.

There are wholesalers now who do a very nice job of servicing this market, thank you very much. If publishers don't think booksellers and library suppliers source anywhere other than local, they are either blind or stupid. Sorry to be so blunt but what do they expect? Do they expect us to be happy when they say, "out of stock, due 8-10 weeks". Good grief!

We have to manage customer expectations across the board and while we are all supportive of our local publishers and the content they produce, they have a lot of work to do to get their supply chain working better.

And don't start me on pricing - I can probably count on two hands the number of publishers and distributors that do comparative pricing and regularly review their markups in line with currency fluctuations. Did I say two hands? Hmmmmm, maybe I was being a little optimistic here. :)

Peter Donoughue said...

Great comments Robert and Rachael. Thanks so much for adding value to the blog.

Robert, I take your point about the Commission not addressing TC because it's not referenced in the Act, but it was the overriding concern of 95% of the submissions. So it could, and in my view should, have confronted it.

I agree about a transfer of margin from publishers to booksellers and have addressed this in an earlier blog piece 'Life under an Open Market'.

Rachael, your comments about supply and pricing competitiveness are suberb!

John Simkins said...

Hi Peter,
I can see both sides of the argument here. In my view, however, I think the industry could benefit from the abolition of the RRP more than anything.

A publisher pricing a book to some fictional price-point that sets the tone for "discounts" and retailer margins is flawed. I believe that this is what puts upward pressure on prices not PIRs (I knew there was a relevant point in there somewhere).

We all know that the RRP and ASP are usually far removed, so why continue with it. The sooner NET pricing for books is introduced the better. It will make publishers more honest in their pricing and retailers more responsible for their markups removing publishers from the retail price equation.

I know I'm not the first to make the point that there are not many products where the manufacturer recommends the retail price and make no mistake publishers are manufacturers like any other. They should sell their product for what it costs plus a margin, obviously, leaving the retailer to be responsible for their own pricing.

PIRs would hurt the industry but only because the industry is antiquated in its approach to pricing in the first place.