My appearance before the Public Hearing: Productivity Commission's IP Arrangements Inquiry

   Public Hearing: PC’s IP Arrangements Inquiry

   (24 June 2016)

                                       

   Talking Points:

I fully support all the PC’s recommendations in its draft report, but wish to focus today only on the recommendation to repeal the current Parallel Importation Restrictions.


The commission would be well aware of the antipathy this proposal has once again aroused in the book industry.


I would urge the commission, in its final report due in a few months, to address the precise reason the industry is so negative. Unfortunately this did not happen in the draft report.


That issue is the industry’s universal and passionate belief that the commission wishes to abolish Australia’s ‘territorial copyright’ status which the PIRs ‘make possible’. The industry constantly conflates these two quite separate concepts and realities. This misunderstanding needs to be vigorously countered, a stake driven through the heart of it, or as in 2009 the government will be frightened off by proclamations of Armageddon.


Australia is a rights territory naturally, due to its geography (an isolated island with no porous borders and oceans away from the major publishing centres of New York and London), its population size (which can sustain economic print runs), its high literacy levels, that fact we speak English, and its mature and efficient book trade infrastructure (retailers, wholesalers, freight systems, multiple publicity platforms, etc).


Australian publishers can therefore confidently purchase by contract exclusive Australian rights and publish Australian versions of overseas titles. They are willing buyers and there will always be willing sellers.


Despite claims to the contrary the PIRs don’t grant, enable, construct or make possible this exclusivity. All they do is protect those publishers who abuse their contractual exclusivity by over-pricing and/or under-servicing. Booksellers cannot parallel import to offer their customers a better deal.


Provided the local publisher prices in accordance with the going rate of the Australian dollar, has invested in or contracted efficient distribution, and offers trading terms that are deemed acceptable by booksellers and others, then exclusivity can be guaranteed. Operational excellence will invariably secure close to 99% of local demand. It would not be a sound commercial proposition for retailers to buy around.


Without the PIRs the possibility will exist of parallel importation but in today's real world not the probability. But at least the competitive threat will still be there as it should be.


We're at a sweet spot now, where prices and the exchange rate are aligned. The PIRs are neutered. They are benign. They have no effect either way on importation patterns.


It may well be decades, if at all, before the PIRs are a factor again in industry behaviour. Online and global realities have stunned them.


Now therefore is the right time to remove them in case they rise like zombies in a quite different future. Obviously no transitional arrangements are necessary.


Another good reason for their removal is that this awful, ignorant and entirely emotional debate in the industry would end for good. Its recycling every seven years or so is tiresome in the extreme.


Finally, I would urge the commission to undertake another pricing analysis to establish the current state of play in the industry. It could be a truncated version of the excellent 2009 analysis. Today’s industry, under competitive pressure mainly from Amazon, has come a long way from the outrageous pricing practices that analysis showed. This would help confirm or otherwise the widely held belief, which I share, that removing the PIRs would have minimal effect on prices today.

A 'competing editions' market for Australia?

One of the favourite disaster scenarios imagined by publishers once Australia's parallel importation restrictions (PIRs) are removed from our copyright law is the one where no Australian publisher will ever again be able or even willing to buy exclusive Australian rights to an overseas title for publication here.

The theory is that US and UK publishers will exploit the opportunity to sell into the Australian market themselves and thus will only offer 'non-exclusive' rights. After all Australia will have been rendered an 'open market', a market where competing editions fight it out - the US edition, the Commonwealth edition, the Indian edition, and whatever others are out there.

Henry Rosenbloom, owner of Scribe, and a very experienced and well regarded publisher in Australia, clearly articulates this position in his recent blog post here.

There are two main things wrong with this scenario:

1. It rests on the belief that, absent the PIRs, Australia will no longer a be a territory for rights sale purposes. I've written numerous blog posts and articles and given many speeches, presentations and lectures over the years pointing out how absurd this proposition is. It rests on the assumption that everything that actually makes Australia a territory in the first place will, at the stroke of a pen, disappear - our geographical distance, population size, literacy levels, book trade infrastructure, etc.

2. It exhibits a rather quaint commercial naivete. It imagines that overseas publishers and literary agents will en masse shoot themselves in the foot and start indulging in behaviour that would be strategically silly and seriously unprofitable, not to mention bad for their authors.

It has been true for years that UK publishers in particular have been blindsided by the 'open market' terminology. They reflexively think Australia will become one. Continental Europe, the Middle East, Africa, South East Asia - these are open to all editions. Selling exclusive English language rights to a new Jonathan Franzen to a Hong Kong publisher makes no sense, nor would a HK publisher fork out for them, because of easy trade flows across borders in the region. Both importers and foreign exporters can 'free ride' without prohibitive costs. It's standard business for everyone.  

Australia, in contrast, is vastly different. Booksellers rarely 'buy around' because their needs are overwhelmingly satisfied by efficient local publishers and it is way too expensive and risky to airfreight in quantities from abroad to satisfy local demand. Overseas editions are therefore kept out commercially. 

The critical point is: this will be the natural way of things when the PIRs are abolished, and it's simply illogical and naive on every level to think otherwise. 

As I write this the Australian dollar is heading for another few years of historic lows. Our book prices today are therefore situated at the right levels. While they were an average 30-40% too high when the dollar was strong a few years ago - and publishers were too slow to reduce them - that landscape has radically changed. 

That actually means that retaining the PIRs or abolishing them now will have no effect whatsoever on trading patterns either way. 

When the dollar strengthens again though, as it undoubtedly will, it is entirely predictable that too many publishers will again be slow to respond and their prices will remain unjustifiably high. 

That's why we should take this opportunity to abolish these protectionist provisions now.

The Australian book industry should be declared 'Demented'.

I would hazard a guess that only a handful of authors, publishers and their association representatives have actually read the Productivity Commission's draft report into Australia's intellectual property laws, or the Australian Law Reform Commission's 2013 report Copyright and the Digital Economy, or the Harper Review of our competition laws - much less any of the detailed and knowledgeable submissions that were lodged by numerous parties during the inquiry processes.

You can tell that by the dated and long-discredited rhetoric that's been continually spewed into the media condemning these highly regarded bodies' thoughtful and well-argued recommendations.

The book industry's arguments have been comprehensively dismissed time and again after careful and rigorous analysis, but the industry never learns and never adjusts. We get the same old, same old statements and arguments as if their demolition never took place.

The APA responded to the PC's draft report with this sort of familiar abuse: 'a radical manifesto'; 'one-sided analysis': 'an agenda for sabotage'.

Copyright Agency joined in: 'one of the greatest dangers to Australian-made content in a generation'; 'a wrecking ball'; 'it would lead to serious job losses throughout Australia's creative community'.

Author Tom Keneally couldn't help himself: '... the very medium through which ideas are disseminated in Australia, the publishing industry... eviscerated'; '... the ecology.. will wither'; 'the coming immolation'.

Author Jackie French pitched in: 'One in four Australian jobs are in the creative industries. This report will... abolish most of them'.

When the industry keeps coughing up this sort of anti-intellectual, vacuous bile, how on earth can it be expected to be taken seriously in the ongoing debate? The PC has called for input to help it frame its final report, due in August. How open could it possibly be to empty-headed abuse just restating delusional propositions that it and similar government inquiries have patiently dissected and rejected time and time again?

It's of course to be expected that industry bodies would voice lowest common denominator opinion. They always do - whatever the industry. Their representatives are paid to be shills.

But what I find profoundly disappointing is when our deeply respected and much loved authors indulge in the same sort of mindlessness. When we need intellectual rigour we get sentimentality. When we need calm and sober reflection on facts and evidence we get reckless, apocalyptic, doom and gloom melodrama.

The author community both in Australia and the US has, from day one, got it all wrong on Google's book scanning project. Time and again they've lost their legal battles over fair use. At every stage their arguments have been found wanting. But they adamantly refuse to learn, to acknowledge, to see sense, to respect the right of the wider public to embrace good public policy.

And most importantly, to comprehend what copyright law is actually all about - establishing the social and economic balances that make it work for everyone.

It's not only disappointing. It's shameful.

Publishing, Copyright and Canada. Is it really the end of days?

Reading publisher and author submissions to the Productivity Commission's inquiry into our intellectual property laws is a dismal way to spend a few days let me tell you.

The two issues of concern to the industry are the parallel importation provisions (predictably) and the possible introduction of US-style 'fair use' exceptions into the copyright act to replace our current and more limited 'fair dealing' provisions.

I want to address the fair use arguments the industry is making because they are quite simply dreadful if not downright dishonest.

Here's what Pearson says:

We would be very concerned to hear about any changes to Australia's fair use or fair dealing provisions, particularly in light of changes made to Canada's copyright laws with respect to fair dealing, which have had catastrophic effects on the publishing industry.

Here's what Oxford says:

Canada’s new ‘fair dealing’ guidelines, which were adopted in 2012, and which redefined what can be copied without compensation to creators and publishers, has had significant negative impacts on educational publishing in Canada. 

Here's what McGraw-Hill says:

Taking the Canadian experience from 2012, revisions to ‘fair dealing’ directly contributed to an unprecedented decline in Access Copyright revenue for McGraw-Hill Education in Canada, with the Schools division heavily impacted. There has been a subsequent loss of jobs and a shift to a US structure, damaging not only the local industry but by extension the publications of Canadian-specific cultural and curricula content. 

Here's what Macmillan says:

We support the view of the Oxford University Press Australia and NZ Submission that highlights the severe impact seen on businesses in Canada due to the change to a ‘fair use’ approach to copyright. 

A number of other submissions refer to the hugely 'negative' and 'destructive' impact the Canadian change has brought about.

Then, over the weekend, this interview with lawyer Roy Kaufman from the Copyright Clearance Centre in the US appeared in an international book trade newsletter Publishing Perspectives which forecasts armageddon for the Australian industry if proposals similar to Canada's were to be adopted here.

This interview is well worth reading. It is an exquisite example of massively over-hyped, absurdly overly dramatic, apocalyptic nonsense. Even the statistics it quotes are cherry-picked and flat out wrong, all out of context and marshalled to support propositions that have no basis in fact. If an Economics 101 student served this sort of stuff up they'd be quite deservedly kicked back into primary school to study arithmetic.

In any case Canada seems to be the thing. But any calm analysis of the facts about the Canadian educational publishing industry's fortunes over the last few years shows quite a different picture. I've spent quite a bit of time recently trying to unravel what's happened there and this is what I've found:

- Canada's fair dealing provisions were indeed loosened in 2012 after Supreme Court decisions allowing a liberal interpretation of 'educational use' in classroom settings. Educational authorities subsequently issued guidelines allowing teachers to copy up to 10% of a work, or one chapter, without seeking permission or making any payments.

- Previously such copying had to be licensed by Access Copyright, Canada's equivalent to Australia's Copyright Agency/Viscopy. The payments to Canada's publishers and authors over the last eight years (since 2008) have been far less than Copyright Agency pays in Australia (roughly $A100m per year):

                      2008: $28m
                      2009: $24m
                      2010: $16m
                      2011: $17m
                      2012: $18m
                      2013: $13m
                      2014: $10m
                      2015: $8m
(Source: PwC 2015b, Economic Impacts of the Canadian Educational Sector's Fair Dealing Guidelines, p43)

- So, since 2012, the year the new guidelines came into effect and the year all provincial governments stopped paying licensing fees to Access Copyright, the industry suffered a loss in revenue of $10 million. Not $100 million, but just $10 million. Total industry revenues in 2013, as quoted in the PwC report for both School and Higher Education, were $540 million. So the percentage drop due to the fair dealing liberalisation was, at most, 2%.

- In contrast, the absolute collapse of revenues due to market forces as a whole started in 2006 when sales peaked. For the school segment alone, sales declined from close to $205m in 2006 to approximately $100m in 2015. That's a 50% decline (about 10-15% per year). It clearly dwarfs the licensing losses from Access Copyright.

- That's what Armageddon really looks like. What was at play here? Here are some quotes from Canadian insiders that I approached (and who wish to remain anonymous). All have been in the publishing game for many years:

'The short answer to your question is that the decline of educational publishing in Canada, especially at K-12, is a sad and sordid tale of a long and steady decline - think of the the frog in the pot - which began well before changes to copyright. I believe responsibility for this can be laid right at the feet of greedy owners who wanted all the cash but none of the risk, and paralytic general managers stricken by a mind-numbing lack of imagination, courage and foresight. I would say that new legislation, which undoubtedly weakened the raison d’etre of Access Copyright and future licensing revenue, was just one more small nail in the coffin'.

'The real business of publishing, as you know, is making outstanding educational products and services that further educational outcomes. In this regard Canadian educational publishers have really fallen short. They have held a death grip on traditional product profiles and business models. “From my cold dead hands” they protested - which, it turns out, has become a self fulfilling prophecy. Ultimately their sense of entitlement and self importance led them to the position that the problem was the customer, not their products and services. A fatal conclusion. In my view, buying “educational content” was seen by senior educators and administrators as a low return investment. They want to change instructional practice and have spent huge monies on professional development and system change. There is still a ton of money in the system, but only for things that map onto priority initiatives. Content acquisition isn’t one of them. Today, Canadian publishers have put up the white flag and just given up making any new indigenous educational product. Its very very sad'.

'In the digital age content is ubiquitous. Industries of all kinds are being disrupted, disintermediated and decimated by new digital solutions. Educational publishers are amongst the many victims of this global phenomenon. So yes it is Armageddon!!! Abso-fucking-lutely!!! But fixating on protecting intellectual property rights is like howling at the moon - its not going lead to innovation or better products and services. The problems are just so much bigger than that. One might argue that it only protects vested interests and excuses them from innovation and reinvention. Like taxi cab companies complaining about Uber - ultimately futile. Stop complaining and reinvent yourself!!!!'

'In my opinion the most significant difference between the current health and prosperity of K-12 markets in Canada and Australia is that in Australia parents pay for resources and in Canada governments do. In Canada, if it had been up to classroom teachers, textbook sales would have declined much less. But because spending in Canada is controlled by politicians and bureaucrats, spending priorities have really shifted based on efficacy and investments that make a measurable difference. In Australia, buying educational resources has a much lesser impact on government policy and budgets. I think that structural reality is the one to really protect'.

'I'’ll say one other thing that you may want to pass on. Words of warning. For years, company presidents here have excused poor performance because of market conditions. Ministries of Education are all screwed up, spending is down, priorities have shifted, customers are stealing from us, blah, blah, blah, blah, blah. And for a while it worked. But I am convinced that these continuously negative market evaluations poisoned their back yard. Higher ups in NY and London etc. finally said well if this is such a crumby market why are we in it? This is what they did at Oxford. Management was so endlessly pessimistic they finally said well this is crazy and got out. The truth was there are plenty of opportunities. So by focussing on unwinable battles and inevitable losses, like copyright, you just make things look bad. Forget about it and move on and sing a song of happy opportunity otherwise they are gonna get it in the neck. Of course, eventually you have to deliver results on your happy tune which may be difficult if you have no courage or imagination. But that’s another story.'