Friday, June 24, 2016

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.