Monday, April 19, 2010

Book Industry Strategy Group: now let's try to be positive...

If there is anything positive that could come out of this Strategy Group process it could be this: the resurrection of the 'Australian Edition' concept.

This concept has been kicking around ever since the early days of the first parallel importation debate in the late 80's. It was advocated by the ABA as a way to protect Australia as a rights territory without, at the same time, having to extend the full 30/90 day protection to the vast mass of imported titles. Such an Australian edition, whether an original title or a local edition of an overseas title, would have a separate ISBN. Only these titles would be protected. Booksellers would be prohibited from importing the overseas edition, including remainders. For titles without specific Australian editions - booksellers could import more liberally.

The proposal got shot down by the Attorney-General's department (as it continues to do) on the grounds that it breached the Berne Convention to which Australia is a signatory. The convention prohibits governments from enacting any provisions into their Copyright Acts that would have the effect of favoring their own nation's output. The Australian Edition concept certainly does that.

So what has changed? How could this concept make a comeback? It can't be by a change in our law. The Berne provisions still prevail. But it could be done via a protocol adopted by the industry that, informally, governed importation.

Such a protocol could address the trade's need to ramp up its competitiveness on importation without having to revisit the tired parallel importation debate and persuade a reluctant government to change the law.

I would suggest something like this:

The parties, being Australian booksellers and publishers, agree to the following code of behaviour regarding importation of overseas published titles:
1. Australian booksellers, as per the current law, would not seek to import any title where an Australian Edition of that title met the 30/90 day provisions of the Copyright Act.
2. All other titles would be able to be imported under the following conditions: where the title was not available in Australia within seven days of overseas publication or within seven days of any subsequent out-of-stock situation.

This distinction between local editions and the huge volume of other imports would allow the trade to get beyond the current impasse to which our current law subjects us.

Another protocol should also be entertained - to do with pricing. I would recommend that publishers sign up to an agreement along the following lines:

The parties, being publishers, agree to the following code of behaviour regarding the pricing of overseas-published titles:
1. When the Australian dollar is strengthening against foreign currencies to the advantage of local consumers, Australian RRPs will at all times reflect the average exchange rate for the prior medium term period, eg. three months, and will be adjusted on a regular basis accordingly.
2. An additional amount, eg. 10%, will be added to cover exchange volatility and other charges, prior to adding GST.
3. An adjustment to traditional price points will be also usually be made.
4. Booksellers would be free to import around any local supplier who consistently failed to honor this protocol.

(An objection could be made that publishers could not enter into such a pricing agreement without coming up against the Trade Practices Act and its outlawing of cartels. But the point of this agreement would be to serve the interests of the consumer, not the profitability of publishers. It would act like an industry code of ethics, and of course would need to be worded in precisely the right legal way).

I am not naive enough to think that the APA, as currently led, would enthusiastically embrace these sorts of protocols. The booksellers would, as they have to compete with Amazon and The BookDepository, and so require REAL support from publishers on pricing and availability if they're not going to get it from abolition of the importation provisions. And they won't benefit much from the government slapping the GST on online suppliers either. This won't be anywhere near enough and will be quickly washed away by exchange movements and increased discounts.  

No, only some creative, liberal, reformist, all party agreements on business practices is the way to go. These are the only way to get beyond the legal framework that currently deadens so much competitiveness in our industry. 

Let the lawyers work out how such protocols would play legally - as defences in any litigation. The point is to move beyond our current impasse.

I'm sure this is what Barry Jones and Kim Carr would like to hear. Something rather challenging and meaty.   

Friday, April 2, 2010

Amazon's strategic blunder - what were they (not) thinking?

It's been fascinating following the debate raging in the US about ebook pricing and business models, particularly the argy bargy over the so-called agency model, and the tug of war between Amazon and Apple for publisher allegiance.

In my humble view things are going from bad to worse.

I cannot understand the thinking behind Amazon's embrace of the agency model of ebook supply. Oh sure, I can understand how it got there, albeit reluctantly. It capitulated to Macmillan's threat to not do business with it unless it adopted the business model advanced by Apple that allows publishers, not retailers, to control the price to the consumer. And capitulate Amazon did, quickly and publicly.

But imagine if Amazon had just been a little bit more savvy and less arrogant. The entire publishing and author community had been up in arms for months about Amazon's pricing of popular trade ebooks at $9.99 or lower, as it believed that price point to be a dangerously low precedent. It had the potential to set consumer price expectations at levels insufficient to allow the emerging ebook industry to become economically viable for all parties.

If Amazon, in the face of this rather fierce resistance, had sat down and twigged its pricing policy just a bit, perhaps even in dialogue with publishers, it could have avoided the mess it's now found itself in, of having to adopt under pressure a business model that was invented by Apple and runs entirely counter to Amazon's whole discount, value for money, consumer-friendly proposition.

It's been left to Apple to shoehorn publishers, bang some sense into them, and come up with a pricing model or template that now seems to have informed the whole industry, an industry which was all over the place in pricing philosophies prior to this. Apple's template is this:

Print edition under $22.00 = $9.99 or less
$22.01-$24.00 = $10.99 or less
$24.01-$25.00 = $11.99 or less
$25.01-$27.50 = $12.99 or less
$27.51-$30.00 = $14.99 or less
$30.01-$35.00 = $16.99 or less
$35.01-$40.00 = $19.99 or less

It's roughly a 50% discount off the print edition price. Was that beyond the wit of Amazon to come up with, and sell to publishers as the way that both parties should price? And could not Amazon, in return for publishers lowering their ebook RRP's to these levels, have agreed to accept a lower discount than the 50% they previously demanded - to, say, 30%? This would have preserved the wholesale model, where the retailer, not the publisher sets the ultimate price to the consumer, as it should be. Retailers know consumer dynamics intimately. Publishers don't. Retailers need the freedom to construct promotions and special offers around price, and all parties, including consumers, benefit from these. Publishers are hopeless at this sort of stuff.

Amazon stuffed up, lost control, and are now scurrying around like a dog with its tail between its legs. It's not a pretty sight. They utterly misread the anger in the publishing and author community.

What a strategic blunder.

However I'm amazed that serious commentators on publishing matters in the US have not come out and condemned the agency model for the profound abomination that it really is. It breaches some fairly fundamental, age old distribution and retail practices, as well as being essentially anti-consumer. I can't see it being sustainable over the medium to longer term. It's a ball and chain ankle bracelet which the trade should not have acquiesced to.