Book Prices in Australia Today vs Five Years Ago.

I penned this piece for The Conservation and it was published today.

Amazon v Hachette: Is Amazon really to blame?

Unless you're living on the moon you will know that virtually everyone in the book trade has been in a lather for the past two weeks about the way Amazon has been punishing one of the big five global trade publishers, Hachette, by not displaying their books for sale, withholding purchasing options and slowing down deliveries.

Everybody is blaming Amazon. Its actions are those of a 'bully', and Hachette is being urged to resist in the interests of the whole trade. Authors are universally outraged, particularly when it comes to the possible royalty flow from ebooks if Amazon has its way.

Unlike for print books royalties on ebooks are calculated on a net price, rather than list price, basis. Authors get a percentage, usually 25%, of whatever the publisher gets in revenues after discounts or commissions to retailers are applied. The authors fear that if Amazon is successful in forcing Hachette and other publishers to grant it better trading terms, then publisher net revenues will be lower and so therefore will the royalty flows.

The situation is not quite as simple as this however. The dispute is fundamentally about the Agency Model of ebook supply, something I've been aggressively opposed to ever since it was invented by Apple and thrust onto the book trade just prior to the release of the iPad in early 2010. 

The large trade publishers all fell over themselves to embrace this model because it supposedly offered them a solution to Amazon's discounting and retail dominance. It gives pricing power totally to the publisher and prohibits any retailer discounting. 

The US Department of Justice put an end to Agency as it deemed it was brought about by publisher collusion. But the model itself is not illegal under US law as it is in Australia. So the eventual consent decree with each publisher only required the publisher to abandon the non-discounting policy for two years. Agency was stunned not killed.

Hachette's two year term is the first to expire later this year. So the argument with Amazon, we presume, is over Hachette's probable intention to resume the full Agency model, removing any discounting ability from Amazon.

Andrew Albanese from the US trade journal Publishers Weekly, easily the best journalist writing on book trade matters in the world today - he never succumbs to the luvvie sentimentality that infects so much trade commentary - has a terrific piece on this here.

The key point is that Apple has been granted by the court the ability to discount way beyond the two year term afforded other retailers under publishers' modified supply contracts (commonly referred to as 'Agency Lite').

If Hachette, the first publisher to have its court-imposed 'discounting-allowed' (Agency-Lite) contract expire, succeeds in hamstringing Amazon in this way - effectively forcing them to be unfriendly to consumers - then Amazon will be caught in a pincer movement with its biggest competitor being allowed to discount by court decree on one side and suppliers contractually forbidding it from offering competing discounts on the other.

And you think Amazon would just sit back and cop this? Really? 

No, it has decided to fight back like all retailers denied trading terms that fall far short of their needs and aspirations. And Amazon's needs in this case are entirely reasonable. It just wants to be able to offer a very competitive value proposition to its customers. This is Amazon's very identity. (And authors would not suffer by the way. Their 25% net royalty should always have been closer to 35% and now would be a good time for them to push for that.)

But the big problem in this whole war is that Amazon has decided to harm its customers by denying them Hachette's products. Worse, it is in fact lying to them - about availability. Surely Amazon is acutely aware how dangerous to their brand this sort of tactic is. And to not even issue a statement to the public clarifying their position and its rationale is beyond belief. 

My guess is Amazon will very soon retreat. It will resume normal supply of Hachette's products, just as it did with Macmillan four years ago under very similar circumstances. Effectively, it will have lost this battle, and it will lose the whole Agency war. 

Which mean that publishers will control ebook pricing well into the future. The books will be over-priced and all retailers denied their ability to be price competitive. Regrettably most ebook retailers will welcome this. They see it as restricting Amazon and allowing themselves some space in the market. What will the biggies Kobo and Barnes and Noble's Nook do? They will agree to full Agency as it's the easy option: 'shackle Amazon to help us compete'.

I personally find all this very distressing. Agency is a supply model that is pro-producer and anti-consumer, and no long term economic good ever comes from that.

All this simply could not happen in Australia. Our trade practices law clearly outlaws 'retail price maintenance' where suppliers prohibit retailers from discounting. 

We do some things right and this is one of them.

Copyright and the Digital Economy: the ALRC's Final Report

In a number of posts on this issue last year I enthusiastically welcomed the ALRC's inquiry into the fair dealing exceptions and statutory licences in the Australian Copyright Act to assess their adequacy and continuing relevance in the digital environment.

I commented on the Discussion Paper released in June 2013 (here), and prior to that had some sport with the rather woeful industry submissions (here).

Now we have the Final Report and a Summary Report released this week. If you are seriously interested in this critical copyright issue then you should put aside a few days and read the 474 page report in its entirety. (The 23 page summary is far too cursory). The reports are here.

Firstly, congratulations to the Commission and particularly to Professor Jill McKeough who chaired this enquiry. They have produced a work of monumental significance in my view. It is extremely comprehensive, and carefully and respectfully dissects all arguments across the whole spectrum of opinion. What we have in the end is a very refreshing, sensible and balanced perspective on hotly contested areas of law and practice that should - in an ideal world - be welcomed by all parties.

The report advocates that our current limited and prescriptive Fair Dealing provisions be replaced by a more general and flexible Fair Use provision similar to that operating in the US and a number of other countries. This will make the Copyright Act 'considerably more clear, coherent and principled' (p24).

Unlike in the Interim Report the ALRC is not now advocating for the complete repeal of the Statutory Licenses for education and government, as was strenuously argued by educational and government bodies. It has recognised the equally strong arguments of rights owners that they be retained. However 'they need to be streamlined and made less rigid and prescriptive. The terms of the license should be agreed on by the parties, not prescribed in legislation. The Copyright Act should be clarified to ensure the statutory licenses are truly voluntary for users, as they were intended to be. It should also be made clear that educational institutions, institutions assisting people with disability and governments can rely on fair use and the other unremunerated exceptions that everyone else can rely on, to the extent that the exceptions apply' (p26).

I criticised the commission's Discussion Paper last June for sitting on the fence at every turn when recommending its fair use agenda. It refused to give any sort of hint as to how the grenade it was lobbing would affect the owner and user communities. In the Final Report however it adopts an entirely different approach. It offers an opinion, with no guarantees of course, when discussing whether specific uses may be judged to be fair. For instance the chapter on education contains these sentences: 'The fact that a particular use is for education should favour a finding of fair use' (p311); but then there's this: 'Educational uses are not even presumptively fair; other factors must be considered, including any potential harm to the rights holder's market. A non-transformative use that merely repackages and substitutes for a copyright work will not be fair use, under the exceptions recommended in this Report' (p312).

The one big ogre constantly painted by the copyright owner community when facing the prospect of such a comprehensive change to our current copyright regime is the one of 'uncertainty'. Jose Borghino, policy director for the International Publishers Association, condemned the ALRC's recommendation and noted that even in the US fair use 'does not offer certainty for investors in content or anyone else'. The Australian Publishers Association says much the same thing. (Publishers Weekly, Feb 14, 2014).

The ALRC has a lot to say about this, because you can tell it upsets them. Let me quote their response in full:

'Many have expressed concern that fair use may harm rights holders because it is uncertain. The ALRC recognises the importance of having copyright exceptions that are certain in scope. This is important for rights holders, as confidence in exploiting their rights underlies incentives to creation. It is also important for users, who should also be confident that they can make new and productive use of copyright material without a licence where this is appropriate.

Concern about uncertainty comes from an important and positive feature of fair use— its flexibility. Fair use differs from most current exceptions to copyright in that it is a broad standard that incorporates principles, rather than a detailed prescriptive rule. Law that incorporates principles or standards is generally more flexible than prescriptive rules, and can adapt to new technologies and services. A fair use exception would not need to be amended to account for the fact that consumers now use tablets and store purchased copies of copyright material in personal digital lockers in the cloud.

Although standards are generally less certain in scope than detailed rules, a clear principled standard is more certain than an unclear complex rule. The Report recommends replacing many complex prescriptive exceptions with one clear and more certain standard—fair use.

The standard recommended by the ALRC is not novel or untested. Fair use builds on Australia’s fair dealing exceptions, it has been applied in US courts for decades, and it is built on common law copyright principles that date back to the eighteenth century. If fair use is uncertain, this does not seem to have greatly inhibited the creation of films, music, books and other material in the world’s largest exporter of cultural goods, the United States'. (Summary Report, p13)

It would be nice if all industry leaders would just take the time to actually read this important and measured report, engage their brains and bring their knowledge and appreciation of these critical issues up to speed.

The future is going to depend on dialogue and cooperation and voluntary licenses negotiated in good faith. Legacy conflicts belong to yesterday.