Wednesday, December 16, 2015

My Submission to the Productivity Commission's Enquiry into Intellectual Property

My submission concerns the issue of the Parallel Importation Restrictions (PIRs) in Australia’s copyright act that regulate the importation of books into Australia.

In my view it is clearly in the interests of Australian book buyers that the PIRs be abolished to enable our booksellers to import product from legitimate overseas sources in circumstances where the local rights holder was over-pricing and/or under-servicing. Australian consumers and readers would always be advantaged under that scenario, if only by the competitive pressure placed on the local rights holders to lift their game.

Australian publishers, authors and other book trade bodies have long been resistant to this reform as the Productivity Commission well knows. They cite the importance of territorial copyright to the vitality of the industry, and to Australian culture in general. They are mistaken in their belief, however, that the PIRs construct Australia as a rights territory.

Australia is a territory naturally, through its distance, population size, high literacy levels and mature book trade infrastructure.

The PIR’s are just classic trade protectionist measures, long discredited in other commercial realms (music and software, for example), that have absolutely nothing to do with territorial copyright which is granted by exclusive contracts over titles and lists. As they have operated for decades now, the PIR’s simply give protection to under performing publishers, rights holders and importers by removing competitive pressure.

The book trade around the world has always been territorially focused. Rights trading remains a central and critically important feature, for the simple reason that local operators in each territory are better able to exploit the various market opportunities for any given title due to their familiarity with the marketing, publicity, sales and distribution realities - in other words, feet on the ground.

There has never been any business logic for Australian booksellers to buy around local rights holders if those rights holders were competitive and professional, and treated their customers with respect. Operational excellence, including pricing policies that were responsive to the level of the Australian dollar against the US dollar and the Pound, has always been the best and only protection that was needed.

But as the Commission’s own survey of book prices in Australia in 2009 showed, significant and unjustified markups at that time, when the Australian dollar was strengthening, were the norm.

While some heat has gone out of this issue over the last few years because of the eventual lowering of prices by publishers due principally to competition from Amazon (see my article on this issue here) and the falling dollar, I am concerned that these circumstances are transitory and the old uncompetitive patterns could quickly reemerge if the dollar once again strengthens. The Australian book trade and readers in general would be far better served if the PIRs were abolished.

In conclusion I would like to make a comment about any transitional arrangements that the Commission may propose if indeed it recommended the PIR’s be removed.

With the dollar now much weaker than in the period 2009-2014 the significance of the PIRs in the normal operations of importing in the industry has greatly dwindled. The opportunity for booksellers to profit from ‘buying around’ has declined dramatically, and hence their indulgence in it is quite sporadic.

In other words the low dollar is acting as a transition process in itself. Publishers are not looking to the PIRs for business support. This therefore is the ideal time for a swift and painless execution.

The Commission must remember that the concept and reality of territorial copyright will not be affected one iota by such a move, despite what local rights holders and authors will be loudly proclaiming.

Peter Donoughue. November 25, 2015.

Sunday, November 29, 2015

A resurrected debate with the same old dead language

Australian economist John Quiggin published a prize-winning book  in 2012 called Zombie Economics.

He was referring to old, long discredited economic ideas and proscriptions that keep being touted by so-called experts as relevant and meaningful today. They're impossible to kill off once and for all despite convincing evidence that they're actually DEAD.

I was reminded of this last week when the government unleashed yet another iteration of our local book trade's tiresome debate about our Parallel Importation Restrictions (PIRs), a debate that's being going on now for twenty-five years.

The overwhelming majority of industry commentators remain absolutely aghast at the prospect that these provisions could be abolished. The week ended yesterday with the release of the open letter to the prime minister from Booker winning authors Tom Keneally, Peter Carey and Richard Flanagan, which I'll examine in a minute.

But the week started as it finished. The language resurrected and flung around was as colourful as ever. Words like 'flooded' (by trashy American books), 'dumped' (foreign overstocks), 'swamped' (by foreign remainders of Australian originals), 'degraded' (copyright), 'worthless' (Australian rights), 'decimate' (the industry), 'colony' (back to), 'vandalism' (ideological), 'laid waste' (culture). The list goes on.

I was also reminded of Tony Abbott's campaign against the carbon tax. Remember 'Whyalla' (disappearance), '$100 lamb roasts' (every Sunday), 'massive electricity price increases' (tripling)?

All of these outpourings of course are unmitigated economic tripe. To use my own colourful language, they exhibit a toxic mix of ignorance, delusion and hysteria.

The Keneally, Carey and Flanagan letter is full of it too:

The commercial underpinning of the Australian publishing industry that sustains this writing is the protection of writers' copyright in the form it exists in almost every country in the world.

The recent announcement by your government that it will end restrictions on parallel importation on books will extinguish that protection.

The consequences will be job losses, public revenue loss as profits are transferred overseas, and a brutal reduction in the range of Australian books publishers will be able to publish. Australia will become, as it was in the 1960s, a dumping ground for American and English books, and we will risk becoming — as we once were — a colony of the minds of others.

Notice the sleight of hand: the basic 'protection of writers' copyright' will be extinguished by ending the PIRs. Then the awful apocalyptic consequences. And, yes, the mindless refrain: 'Territorial copyright' will be extinguished.

Not one piece of this dreaded scenario is remotely realistic. It's a combination of conceptual confusion, profound ignorance of common industry dynamics, and rhetorical mischief. Shameful, in fact.

They go on to claim that the Australian book industry 'is not a government subsidised or protected industry'. It's not government subsidised in the main, but it is certainly protected. The PIRs have done that for more than 100 years. They have protected importing publishers from the chill winds of competition and have cosseted an industry that in critical ways has remained dozy, unresponsive and anti-consumer for far too long.

The letter concludes with another zombie claim:

These rules and rights are what allowed us and so many other Australians to become published writers. These rules and rights are what enabled a golden age of Australian writing to occur. And it is our hope that this time of great literary achievement is an early chapter in the ever growing story of Australian literature, and not — if this decision stands — the end. We cannot return to being a colony of the mind.

The PIRs have had nothing to do with the well deserved success of Australian authors, the golden age of Australian writing, or our great literary achievements, and their long overdue removal will not impede in any way, shape or form the ever growing story of Australian literature. It's absurd to claim we will return to being 'a colony of the mind'. 

One sentence in the letter, however, is completely true:

The argument that books will become cheaper if the rules are changed ignores the fact that books have become cheaper within the existing rules because of market forces.

When the dollar significantly strengthened in the years 2009 to 2013 and competition for the consumer dollar from Amazon and The Book Depository became an irresistible force, publishers were finally forced to wake up and respond by lowering their prices. (I wrote about this last year here). That's sort of what competition does. 

The Harper Competition Review and the government got this wrong when they claimed book prices would significantly decrease once the provisions were repealed. If they had been removed in 2009 when they should have been by the gutless Rudd government, the price reduction effect would have been swift and the 30% loss in sales the industry suffered greatly mitigated.

Finally, one thing the Keneally, Carey, Flanagan letter shows to full and powerful effect is that this debate will be won, as it always has in the past, by celebrity authors. There is no way the Turnbull government will abolish the PIRs with such articulate opposition from beloved public figures with instant access to every media platform. And especially now, when no claim that Australians will suddenly enjoy lower book prices will be taken seriously. 

The mistake governments have repeatedly made, and are making again, is to give the brief to the Productivity Commission to examine the issue and to recommend 'transitional arrangements'. This prolongs the debate and demands extensive industry consultation (which invariably descends into industry condemnation). The only way this reform is every going to get up is for some future, smarter  government to shove the legislation, after securing bipartisan support, into parliament late on a Tuesday night and announce it on Wednesday morning.

(A final point: The remainders issue - foreign versions of Australian originals - has always been the key one in terms of risk. The prices are so low the going exchange rate and the RRP of the Australian edition don't factor in the equation. The issue is should we structure our entire industry patterns around the possibility, even the strong possibility of these remainders coming occasionally to our shores. After all, only a small percentage of these overseas editions are remaindered in any significant volume, and a tiny percentage of Australian retailers or distributors would stoop so low as to import them. No regular bookseller would do it as they do business with integrity and in any case would not risk being ostracised by publishers they rely on.

Nevertheless, to rid the industry of the possibility, the best solution would be to introduce specific provisions disallowing re-importation. The US book industry, where re-importation is of far greater significance than importation (which is entirely a non-issue), is currently lobbying Congress to legislate to that effect after the Supreme Court judged in 2013 that re-importation was currently legal.

The problem with this solution is that it would most probably be contrary to the Berne Convention to which Australia is a signatory. Berne disallows countries from privileging their own books. All member countries' copyrighted products must be treated equally. 

The only feasible option therefore may be our anti-dumping regulations. Publishers could apply to the Anti-Dumping Commission to have a duty applied to imported remainders which would make their prices at retail level equivalent to the local editions).

Saturday, April 11, 2015

Typical uncritical media reporting on publisher and author confusion on parallel importation. Jason Steger in today's Age:

   'In November 2009 a rally against the lifting of parallel importation restrictions became a celebration after the Labor government rejected the proposals of the Productivity Commission that had been roundly criticised by printers, publishers, authors and booksellers alike. Five years on and the Competition Policy Review chaired by Ian Harper has suggested those restrictions, which have been significantly adjusted over the past few years, be scrapped completely. Already Australian Publishers Association president Louise Adler has fired up on the subject, saying abolishing territorial copyright regulations makes no sense, while the Australian Society of Authors says ‘‘screwing authors is no way to sustain a healthy writing scene, a strong Australian reading culture, or a vibrant educational sector’’. Adler reckons the current government doesn’t have the collective will to remove the restrictions and confirmed that the collective agreement covering current supply terms in the book industry had just been renewed for another year. While the industry would wait for the government’s response before deciding what to do in terms of any campaign, she said she would talk to anyone she could about the proposals. Given her relationship with PM Tony Abbott – she is both his publisher and chair of the judges for his literary awards – would she be lobbying him? ‘‘I will mention it to anyone who will let me mention it.’’ '

Saturday, April 4, 2015

Australian publishers' reactions to the Harper Competition Policy Review: same old, same old.

The Final Report of the Competition Policy Review led by Professor Ian Harper was released this week. Its draft report last year had recommended the abolition of all the remaining parallel importation restrictions (PIRs), including those in the Copyright Act applying to books.

In a lengthy discussion about parallel importation generally, and what previous reviews have recommended over the years, and after assessing all the submissions on the issue from publishers and others, Harper's conclusion is this:

On the basis that the PC [Productivity Commission] has already reviewed parallel import restrictions on books... and concluded that removing such restrictions would be in the public interest, the Australian Government should, within six months of accepting the recommendation, announce that... parallel import restrictions on books will be repealed. 

The reference to the hated PC and particularly its analysis of book prices in Australia compared to the US and the UK has once again inflamed the local debate of course, but it's a debate that's by now tiresome in the extreme. The PC looked at industry practices in 2008/9, a long time ago in this Internet age.

Harper seems unaware that things have changed rather dramatically in pricing and importation practices since then. In response to a surge in online ordering by consumers from Amazon and The Book Depository given the strong Australian dollar, publishers finally reacted and the high markups on imported titles have been virtually eliminated. (I wrote in detail about this last year). 

The real question today is: should we be at all bothered about this issue any more? The booksellers association (ABA) thinks not. It's completely moved on. It considers other competition issues, like GST on low value imports and high Australian postal rates, far more significant.

Even the publishers association (APA) submission considers the PIRs today 'low impact'. Their removal would provide 'no benefits to consumers'.  

My view is we definitely should be bothered. The PIRs should finally be abolished, buried and cremated so they don't rise like zombies in a quite different future. Many individual publishers operating in the Australian market are adamant they play a vital role and need to be retained.

Their basic argument is this: The PIRs construct Australia as a separate rights territory, and this reality is absolutely critical in enabling the purchase of Australian rights to overseas titles and the sale of rights to original locally published titles into export markets. The PIRs grant exclusivity both ways, and therefore rights trading can be done with full confidence. 

The problem with this argument has always been its profound conceptual confusion.  The PIRs don't make Australia a rights territory at all (referred to as 'territorial copyright'). All they do is disallow importation for commercial purposes by booksellers. The territorial rights are granted by contract with an overseas agent or publisher, and it makes sense to buy separate Australian rights because our population size is big enough to support local printings; our borderless, distant continent inhibits 'buying around' by booksellers; and our mature book trade infrastructure (distributors, retailers, freight systems, publicity channels, etc) facilitates immediate availability and sales.   

Protection and exclusivity can be guaranteed commercially, in other words. An arcane importation provision shoved into our Copyright Act 100 years under pressure from panicky British publishers is  not at all necessary, and for decades now, in its anti-consumer bias, has done way more harm than good. Publishers should have been forced to gain protection by operational excellence, not by a trade protectionist law guaranteeing over-pricing and under-servicing.

The PIRs have always protected the weak and uncompetitive publishers, and hence disadvantaged those who wanted to play the game fairly and professionally and with a sure customer focus.

But surely, publishers argue, without the PIRs booksellers will be free to import cheaper overseas editions, or even remainders, thus severely undercutting local rights holders. How can that not do enormous damage to local publishing and authors and eventually readers? 

Publishers can quite easily make buying around an unprofitable thing for a bookseller to indulge in. They need to watch their pricing far more actively than they've been in the habit of doing. Maintaining a high Australian RRP when a standard US edition is significantly cheaper is no longer viable. Individual consumers are already able to buy direct via Amazon, and retailers should also be able to exploit opportunities to compete if the local supplier remains unresponsive to overseas prices and exchange rate fluctuations. Retailers have to do everything they can to attract that consumer into their stores. But they also have to pay freight, absorb currency losses and can't return overstocks, so importation is never going to be the usual method of supply unless the local offer is simply not competitive.

Under the current regime the 'policing' of local retailers, chastising them and threatening them with possible litigation is no way to build and maintain their loyalty. Australian booksellers universally want to support local publishers and the thriving literary and cultural scene on which their livelihood depends. Unresponsive pricing and stocking, and miserable trading terms, are the culprits, not the retailers who are simply trying to offer a fair deal to their customers.

The natural protection available to responsive publishers will more than guarantee that their local edition will dominate the market. There will inevitably be leakage at times, but it will be minimal in impact.   

Publishers need to stop indulging in apocalyptic fantasies of doom and destruction. They are the common argot of industry associations across the board who feel threatened by increased competition, and they do the industry no good at all in terms of public image. Expressions such as 'a radical instrument of cultural engineering' have no empirical basis whatsoever and are simply absurd.

They are also illogical. The APA, for example, proclaims that there will be minimal advantage to consumers from abolishing the PIRs, yet such reform will cause Australian publishing to suffer immense damage. Both can't be true. 

As for the claim that foreign publishers will likely 'take over' the Australian territory absent the PIRs (because, you know, no Australian Territorial Copyright!) by demanding Australia be deemed a non-exclusive territory in rights contracts so the foreign edition can compete, I doubt there's a more insulting interpretation of how a PIR-absent market would work. Rather than cower toward ignorant UK or US publishers and their insistence on non-exclusivity, Australian publishers will need to muscle up and clearly explain the facts of the Australian market to their colleagues. 

Finally, this Harper Review is only a series of recommendations to government. And there are so many of them that have traditionally frightened the pants off even popular governments let alone the deeply unpopular one we have now. I feel no confidence whatsoever that we'll see the abolition of these outmoded, unwarranted and completely unnecessary PIRs any time in the near or even distant future. The political battle is still to come and remember that the author community, egged on by their  publishers, will vigorously engage as they have on every previous occasion. Authors are the most articulate and powerful lobby group in the country - beloved public figures with ready access to every media platform.

It's once again going to be ugly, and that's a real shame. Unless of course the Abbott government decides up front to not entertain any reform, which is probably what they'll do.