Wednesday, October 28, 2009

The ABA/Dymocks flawed compromise on parallel importation

The ABA and Dymocks have seemingly come together around a compromise proposal to the government on reform of our parallel importation provisions.

They want both the 30 day and 90 time frames reduced to seven days.

And they want a price cap policy to be introduced, as exists in Canada (which regulates a maximum 'exchange plus 10%' mark-up).

No matter how many times I've pointed out to both parties, in writing and in person, that both propositions are legally and economically non-starters for Australia, it seems they persist. Some dogs simply can't be put down.

Firstly, the seven days notion: Let me put this as clearly as I can - IT.CONTRAVENES.THE.BERNE.CONVENTION! (See my post of Sept 30 for the exact wording and rationale of Berne's 30 days definition of simultaneous publication).

It's no surprise to me that the ABA has fallen into this trap of seeing the 30 days time frame as some sort of old fashioned relic of analogue shipping times. Well, persuade all the Berne signatories and get it changed there (good luck!), but don't continue to bang on about something that has absolutely no chance of getting up in Australian law. For the same reason that the idea of protecting only 'Australian editions', favored by David Gaunt and Mark Rubbo over the years, has consistently failed the Berne test, so this seven days proposal is a dead cat swinging in the breeze.

As for the Canadian price cap idea: on importation issues Canada is a vastly different place than Australia for one simple reason: it borders the United States. That vast economy is geographically adjacent. This means that the default position of Canadian booksellers is to import direct from the huge publishing and wholesaler warehouses in New Jersey, and get supplies shipped in virtually overnight, at US prices with no markups, and with freight costs similar to Sydney to Melbourne rates. Why the hell wouldn't booksellers do that?

Therefore the Canadians, to enforce local sourcing, had no option but to regulate pricing and availability, and guarantee booksellers and consumers comparable service standards.

Could you think of a situation less like that prevailing in Australia? The default position of Australian booksellers is exactly the opposite: to source locally. The importation route is far more costly. Trucks don't traverse the Pacific overnight. Air freighting is necessary, prohibitively expensive, and shipments are always weeks away.

What really annoys me about the booksellers' position however is this: they abandoned their consistent position over the last 20 years of supporting complete abolition of the PIRs, which would have absolutely given them what they still profess to want, and instead have opted for a nonsensical set of propositions which have ZERO chance of getting up. So they are likely to be stuck with no improvement at all.

It's been a disastrous performance and a hopelessly wrong-headed campaign. By choosing to support the publishers on the basic notion of protection, they've had nowhere to go but to invent a 'have your cake and eat it' mess, which is akin to straddling a barbed wire fence for reasons of comfort!

As for Dymocks' notion of forcing publishers to cough up 1% of their revenues to establish a fund to support the publishing of 'culturally worthy' books, the less said about this the better. It is simply one of the most absurd propositions I've ever heard advanced in all my years in the trade. Dymocks cannot claim on the one hand that publishers are massively overreacting to the prospect of an open market, and that indigenous publishing won't collapse, and then pose a 'solution' to that very prospect!

The ABA/Dymocks 'compromise' position will get no traction in Canberra whatsoever. There is only one compromise position that ticks all the necessary legal, economic and political boxes, and that's the one I myself, with great respect, have proposed (elsewhere on this blog).

My god, give me a drink..

Saturday, October 17, 2009

My Speech at Copyright Symposium, Sydney, October 16, 2009

This is the speech I presented at the Copyright Society of Australia's 14th biennial symposium in Sydney. I was part of a panel discussing recent developments in broadcasting and publishing, and I was specifically asked to address the parallel importation issue. The audience was made up of about 100 or so copyright lawyers, federal government bureaucrats and other interested parties.

Also on the panel were Jeremy Fisher, CEO of the Australian Society of Authors, and Margie Seale, MD of Random House Australia. They had been invited to provide a counterweight to my reformist and presumably dangerous views (hence the references to them in my speech).

I spoke first, and they responded. Frankly, it was akin to being savaged by a dead sheep!

The Parallel Importation Debate – Thank God the End is Nigh!

For the last fifteen months or so the Australian book trade has been going through the latest iteration of its favourite sport – debating whether or not to reform or abolish the parallel importation restrictions in the Copyright Act.

Like me you are all probably thoroughly sick and tired of this debate by now, and are wishing the government would hurry up and decide its position. Apparently the decision is due later this month.

In this paper I want to talk about the debate itself and how dismal the quality of it has been. I’ll be quite frank, so let me apologise up front to my industry colleagues Margie and Jeremy if I offend them.

I have been an active participant in all the flare-ups over the last twenty years, since the 30/90 day amendments were enacted into legislation in 1991. My position is well known in the industry. I am, and have always been, in favour of the abolition of the restrictions, and I think I’m the only one in the industry who has been consistent on this from day one. And I suspect that’s why my colleagues are here – to present the established industry line.

Disappointingly, what has characterised today’s debate, which, by the way, has been far fiercer, louder, angrier and more passionate than all the other ones put together, has been the centrality of the concept of territorial copyright. It has been almost universally deemed to be what the issue is all about.

In the late 80’s, in 2001 and in 2005 when we previously indulged, this was not the case. The central issue was always the theory and practice of bookseller importation, and particularly the concern that overseas remainders of original Australian titles would be brought in or dumped and flood the market.

Of the 563 submissions to the Productivity Commission this time around, all but about a dozen of them were in favour of retaining the current restrictions, and they based their view on the critical importance of territorial copyright to a healthy local publishing industry. They all assumed that the PIRs and territorial copyright were one and the same. The PIRs established the possibility of Australian authors being able to sign exclusive Australian rights with an Australian publisher, and they likewise enabled local publishers to buy exclusive Australian rights to overseas titles.

Listen to some of the submissions:

Tim Winton: ‘The erosion of ANZ rights will return Australian publishing to the colonial branch office mentality we fought against for so long.’

Peter Carey: ‘To anyone still thinking in this colonial way, there will be nothing strange about the present proposal to eliminate territorial copyright and with it the discrete Australian market’.

Richard Flanagan: ‘..many independent booksellers believe the ending of territorial copyright will lead to the further closure of independent bookstores’

The ASA: ‘The ASA strongly opposes any changes to the current provisions... that would effectively dissolve Australia as a separate rights market for books’.

The APA: ‘We believe that the real risks of abandoning territorial copyright and removing the 30/90-day rules far outweigh any potential advantages..’

There is anguish and anger here, and these emotions would be entirely justified if it were true that the reality of Australian territorial copyright were in fact under threat. But it isn’t at all.

Australia is a rights territory naturally. Just like the US and Britain it is a separate, commercially tradeable territory because of its geography, its isolation, its affluence, its established book trade infrastructure and its population size. Exclusive rights contracts can be entered into because of these factors, not because of the existence or otherwise of any importation provisions. These may give additional protection, like a fence around a house, but they don’t establish the possibility of territorial copyright, that is, owning the house, in the first place.

What has been missing from this debate is any real appreciation of how the industry actually works in regard to imported titles; any real analysis of the facts, patterns and logistics, the mechanics of the trade if you like. So much has been said that is simply nonsensical and illogical on any measure, and it’s come from a profound ignorance of industry dynamics and an adamant refusal to get familiar with them.

No one can expect the authors to be familiar with these realities, although their industry association, the ASA, has been no help to them whatsoever, and in fact has played a truly lamentable and cynical role throughout. Likewise, no one can expect outside commentators like journalists, politicians, or even lawyers, to be fully conversant with industry practices, no matter how common or basic.

But one should expect the publishers and booksellers to be across them. Unfortunately their contributions to the debate have been universally disappointing in their lack of economic literacy, lack of rigor and objectivity, and lack of any real analytical quality.

George Orwell once said that some ideas and opinions were so foolish that you had to belong to the intelligentsia to believe them. We’ve seen an exquisite instance of this phenomenon in this debate.

Industry associations are truly awful entities by definition. They invariably reflect the frightened, protectionist views of the lowest common denominator of their membership, and raise chicken little scenarios at every turn. It’s a well known syndrome and commonly understood in the halls of political power.

The APA’s contribution to the debate has been, not to put too fine a point on it, shameful. They have treated the Productivity Commission with contempt, frequently accusing it of bad faith, as if it were wilfully out to destroy culture in the pursuit of some fetid and dated ideology of economic rationalism. I defy any rational person to read the APA’s follow up submission to the Productivity Commission’s draft report and not wholeheartedly agree with me.

The Australian Booksellers Association (the ABA) has been far more respectful and measured, but its fundamental position on the issues has been wishy-washy and confused. In former times, the ABA took a real leadership role when it argued for an open market in the interests of its membership and their customers. This time round however they lost their way, concluding that the interests of independent booksellers lay with the publishers. It’s been a sublime delusion.

On the other side of the ledger I think Dymocks made a huge mistake in joining with the grocers, Coles and Woolworths, presenting themselves as the Coalition for Cheaper Books. That retail duumvirate has few friends, and can too easily be written off as an evil empire simply out to boost its profits by seeking to dominate yet another retail sector. Richard Flanagan had great sport with this at the Sydney Writers Festival, as you may remember. Dymocks, unable to get the support of the ABA, to which it belongs, should have gone it alone. It would have had much more credibility.

So, what is it about the industry dynamics that’s been missed? What are the real issues around importation?

Firstly, the great majority of overseas published titles that are brought to Australia by local publishers are NOT brought into this country under the current 30/90 day rules. They are not protected for the simple reason that they don’t need to be. To fly them in within 30 days would be artificial and silly, not to mention hideously expensive. Most parent and sister company titles of local multinationals are in this boat, as are the great majority of foreign titles marketed and distributed here under agency agreements. Titles brought in under the provisions are the cherry-picked, key sellers, and they constitute a distinct minority. There are no statistics on this, to the great frustration of the Productivity Commission and many of us in the industry.

Secondly, booksellers much prefer to order from local suppliers. They are forced to order direct from overseas, through wholesalers like Ingram and Baker and Taylor, only because local suppliers refuse to support a huge array of titles by holding stock and pricing them reasonably. Rarely would the importing bookseller get a better deal, as they have to pay freight, take a currency hedge, and are denied return rights.

Interestingly, Dymocks and Kinokuniya, the two principal booksellers arguing for an open market, have made it quite clear in their public statements and their submissions to the Productivity Commission, that they see importation as a second best option. They would much prefer to buy locally, all other things being equal.

Third, territorial copyright is a foundational concept in the global publishing industry. It’s just how things work. Authors and their agents simply get the best deal by dealing with publishers who are strong in the key territories. They’ll sell US/Canadian rights to a US publisher, Commonwealth rights to a British publisher, and occasionally, but unfortunately all too rarely, foreigners will sell Australian rights to an Australian publisher. Global rights deals are also done of course, but these are in the minority for big titles. Australian authors will sign with Australian publishers, of course. (Tim Winton’s submission to the Productivity Commission, by the way, is a superb celebration of territorial copyright and how important it is to an author).

All this simply means that exclusive rights trading primarily depends on the maturity of a territory’s book trade infrastructure and the buying publisher’s marketing and distribution strength within it. Whether that territory has parallel importation controls is an issue for the buying publisher to deal with. It is not a central, governing issue establishing the possibility of rights trading in the first place.

A number of commentators, such as Imre Saluzinsky in The Australian, have contended that it’s territorial copyright that’s the problem, and the government should accept the Productivity Commission’s recommendations and abolish it. Firstly, no change to Australia’s PIRs is going to have the slightest effect on territorial copyright – you might as well ask the government to abolish Australia’s geography – and secondly, the Commission did not recommend territorial copyright be abolished. It didn’t fall into that trap.

So putting the three things together you get the following facts of importation life: If publishers secure Australian rights, then provided they don’t screw up by over-pricing and under-servicing, booksellers will order from them. And servicing them properly, by the way, includes extending reasonable trading terms to them that fully acknowledge their overheads.

Therefore, whether booksellers would exploit the ability to buy around local publishers that a deregulated market would allow, depends entirely on the operational excellence of the local publisher. Entirely. Best practice is its own protection.

Unfortunately there are far too many examples of poor practice in this country. And this poor practice is what the publishing community is arguing should be protected by retaining the current restrictive provisions.

The Australian book buyer shouldn’t have to put up with high prices unrelated to today’s exchange rates, frequent out-of-stocks and slow delivery times. Booksellers shouldn’t have to put up with these things, as well as unresponsive customer service, inadequate title and availability information, poor sales representation, high surcharges and miserable trading terms. All of us in the industry know who these players are. Most publishers are generally good but too many are generally bad. Booksellers should, in my view, be able to buy around these uncompetitive operations, to prod them into improving their performance. Our current laws stop that from happening.

There has been a lot said and claimed about pricing during the course of this debate. All sorts of figures and stats have been thrown around, all self-serving, as you would expect. The Productivity Commission’s own analysis, however, is by far the best and most comprehensive that I’ve ever seen in all my years in the trade. That hasn’t stopped the ASA from judging it as ‘guesswork’, and the APA from condemning it as worthless. But the APA has been indulging in a massive sleight of hand on this issue, by claiming that, if you take the average A$/US$ exchange rate over the last ten years, then Australian book prices are shown to be not more expensive at all. That average is $0.69c. But it’s only that low because in the first five years the A$ plummeted to an average $0.57c, compared to $0.79c in the last five years. Today, as you know, it’s around $0.90c, and against the pound it’s the highest it’s been for 25 years. Publishers have had five or six years now to adjust to exchange realities but most have chosen not to do so. How long is the Australian consumer supposed to wait? Booksellers, on the other hand, have to compete with Amazon which uses the exchange rate operative on the very day of invoicing. Not surprisingly they are finding it hard to compete. (Publishers don’t seem to care about competition from Amazon, which I find exceedingly strange. Amazon’s market share at around $150m is now close to 10% of the Australian industry and rapidly growing).

Many supporters of the current restrictions have referred to the fact that no other country has removed its parallel importation restrictions. Once again this is a furphy. Booksellers in the UK can freely, under European law, import US editions from the open market that is continental Europe. The fact is they chose not to do so as there is little margin advantage and supply is problematic. In the US the issue is re-importation - of original US editions from low-priced developing countries - not parallel importation. In the main it simply doesn’t make sense for an American bookseller to order a British edition instead of the US edition, because the US edition is always far cheaper. There’s no commercial logic to it.

In conclusion, allow me to hazard a guess as to what the outcome of this rather unhappy debate will be. I wrote to the Prime Minister early last month suggesting a compromise, because I am not at all convinced this government has the stomach for the sort of reform that is needed. If it abolished the provisions, as it should, the squeals from the cultural community would be loud and never-ending. Yet maintaining the status quo with no real change is also not a viable political option, to so publicly humiliate its own agency, the generally well-regarded Productivity Commission.

My proposal is to maintain the 30 day protection, but only for the first five years of a title’s life, and to abolish the 90 day provision altogether. The industry could not credibly object. Dymocks and the big end of town would not be too happy but at least they would grudgingly accept that there would have been significant movement their way. Over 80% of titles in print would be available on the open market. The publishers and authors would herald the decision with a fair measure of enthusiasm and see it as a victory for their lobbying efforts. The 50,000 or so protected titles on the market at any one time would constitute the bulk of industry revenue.

I hope we don’t have too much longer to wait for the government’s decision. None of us want to read any more rubbish on this issue in the press.

Thank you.

Peter Donoughue
October, 2009

Thursday, October 8, 2009

The Real Game Changer: Amazon's Kindle Now in Australia.

Amazon has just announced the launch of an international version of their ebook device, the Kindle. Thus Australians will finally be able to get access to over 250,000 ebooks (including the vast majority of the current New York Times bestsellers) at the hugely discounted prices available, up until now, only to Americans.

For around A$340, including shipping, Australians can buy the hardware and subsequently purchase a huge variety of frontlist and backlist ebooks from between $12-$20 at current exchange rates. Nearly all major publishers are coming to the party and making their titles available.

Amazon has done a deal with AT&T to exploit their global wireless reach, and that service won't cost users anything. Up until now Australia has been denied the Kindle, as has every other country outside the US because Sprint, their wireless provider, was a US-only operation.

So suddenly, a very serious game changer! This development will really put the cat amongst the pigeons. It will have wide, structural ramifications for the Australian book trade, because consumers will be able to bypass high Australian prices for imported printed titles, and exploit the far lower prices for ebooks that Amazon is offering when compared to the printed edition.

It will be interesting to see how territorial copyright deals play out in Australia, ie, whether we get access to all US versions, or whether, in their particular agreements with Amazon, publishers have restricted them from making a range of titles available in various territories. While Amazon, like any retailer or wholesaler, has no obligation under law to honor any territorial rights agreements publishers may have entered into, the publishers themselves may have given Amazon only restricted distribution rights.

We'll just have to wait and see.