Pub Date Critical

A Parallel Universe? Book Industry Strategy Group's (BSIG): Final Report.

2011-11-09T14:38:00.000+11:00

Unlike most industry observers, I was very cynical about Industry Minister Kim Carr's establishment of the Book Industry Strategy Group when he announced it in February 2010.

The Group's final report to government has just been released.

It's 100 pages long and is in two parts. Part 1 regurgitates the awful PwC report I reviewed here, and Jenny Lee's excellent summary of the industry's progress in going digital. (Both of these reports are on the BISG's official website here). So don't read this first part. You'll be put off, particularly as you'll have to read all of the Group's final recommendations without the benefit of the full context and background information which is the only way they make sense.

Part 2 starts at page 45 and is well worth reading. Surprisingly, for a document like this, which must have had so many inputs, it is generally well written and it pretty much sticks to the facts. Titled Transforming the Industry, it's obviously rather bold and visionary, but manages to stay calm and unemotional. Is it naive? Probably. Optimistic? Certainly. Unrealistic? Undoubtedly. But in its rationality I found it persuasive. An ambitious agenda, spelt out clearly and in detail.

It's mainly concerned with establishing the rationale for the 21 recommendations. The first, and probably most important, is to establish a Book Industry Collaborative Council with membership from all sectors of the industry. This council would be charged with articulating and implementing the ambitious reform agenda envisaged by the BSIG, and would have a direct line to government. Nowhere was there any hint as to how this Soviet beast would be funded. Presumably it would have a full time director, with some support staff, but that's not clear. Perhaps Carr's department will fund it through one of its programs, because it will surely be all form and no substance otherwise.

However, philosophically, it's hard to get beyond the elemental fact that industries change and develop through market forces and competitive pressures, not by the determinations of councils, committees and bureaucrats, no matter how supreme or benevolent. And we're mostly talking about a global publishing industry now. It's been a long time since those industry dynamics in Australia were mainly determined by Australian management.

The next two recommendations advocate abolishing the GST on books (or the $1000 GST-free threshold on imports), and fixing the high parcel postage rates for deliveries within Australia. I guess we had to expect this sort of stuff.

Then comes an interesting one: reduce the 30/90 day rule to 14/14. This is obviously a win for the booksellers who argued in their submission for 7/14 days. To get the publishers to go along with this looks like quite a victory. The APA recommended the 30/90 provisions be extended to ebooks, a category mistake if ever there was one.

Of course the 14/14 change is akin to the familiar Arab Despot manoeuvre: throw some democratic tidbits at the angry mob in order to protect the regime. As the report insinuates time and time again, high Australian prices, set by publishers and unrelated to the high dollar, are the root cause of the retail uncompetitiveness problem. It's the elephant in the room but the BSIG is content to ignore it. The same old conceptual confusion about what constructs territorial copyright is there in all its glory.

The booksellers had another win in their push for a thorough-going reform of publishers' distribution practices. Recommendation 6 wants the industry to establish a goal of 48 hours from order to store (it's currently 3-5 days if you're lucky!), and have the Soviet BICC tasked with the necessary 'rationalisation, standardisation and consolidation'. How on earth this body can do this without having a mandate to be able to dictate to private companies is anyone's guess: 'Close your pathetic little warehouse and go through UBD or ADS'! Can't see it. Only intense competition can make things like this happen.

The appalling lack of regular, comprehensive, up-to-date industry stats is confronted, with a recommendation that the ABS and the industry jointly fund regular compilations, beginning in 2012/3. Will the industry be able to raise about $200k per time? Yes, in my view, and the money should come from CAL.

There's quite an odd recommendation to resurrect the old National Book Council to source additional funds from private sources to support Australian publishing. Someone on the committee should have thrown a bucket of cold water over whoever suggested this!

The government is being asked for quite a bit of money, $50 million or so, which is hard to take seriously, even as an ambit claim:

- $5 million for TitlePage stage 2;
- $10 million (matched by $6 million from universities) to subsidise the publishing of scholarly monographs;
- About $1 million for the ABS for the collection of statistics;
- $30 million for schools to be able to purchase digital learning resources for the National Curriculum;
- $5 million for a grants program for academics to encourage textbook authorship;
- $1.5 million to double the existing Literature Board grants;
- Close to $500k, I suspect, in making all author prize money tax exempt;
- Plus sundry smaller amounts for small business development grants, printing industry transition, support packages for displaced printing industry employees, and additional miscellaneous funds for writers.

Despite the fact that the rationale for all this funding might make a great deal of sense theoretically, and that the arguments are well marshalled, and that the recommendations (mostly) are worthy, everyone knows that only a very small part, if anything, of what is being asked for will be forthcoming. Piddling stuff that bureaucrats can give a nod to, under the political radar. There'll be no large grants or government funded initiatives. We don't live in that sweet mendicant universe any more.

You can make a case that the industry has been conned, or that we're so out of touch politically and economically that we ought to be embarrassed for even countenancing a submission like this to government. We are not a charity. We should have asked for just $3 million and left it at that - for the ABS stats collection; for doubling the Lit Board grants; and for making author prizes tax free.

But whatever becomes of it, it does seem that the whole BISG project was worth it, if only to get all parties around the table and bang heads about the current and emerging challenges of our common future.

For there is a great future. No doubt about it. But it's one the industry will have to construct almost entirely on its own. And that's the way it should be.

The Book Industry Strategy Group: PwC's Report on the Industry

2011-10-05T14:38:00.000+11:00

This is from the Department's website:

In undertaking its deliberations, the BISG commissioned a number of major research and consultation projects. The primary research project, the Market Analysis Research Report [PDF 1296KB] [RTF 30MB] provided the BISG with an analysis of the Australian industry and a review of its competitiveness against parallel industries in other major English speaking markets.

The Market Analysis report was prepared by accounting and business consultancy firm PwC, and it has just been released.

It's 130 pages in length, and will take you about six hours to read and absorb. Don't bother. It's not worth it. Just read the first 30 pages which nicely bring together much statistical data on the book industry available from a wide variety of sources, and it's absolutely up to date (including 2010) and superbly presented.

After that come long sections on ebooks and their growth prospects; overall industry competitiveness; global opportunities; and a very peculiar final section on 'Business Models'. None of these are worth reading. They re-hash old chestnuts, serving up as insightful and new such tired cliches like this: 'The fragmented nature of Australia's book distribution system, and a lack of universal standards, imposes additional costs on the wholesale price of books, and results in lengthy delivery times'. (Hello, 1999!)

And there's really helpful stuff like this: 'The ebook market in Australia is projected to reach between $150 million and $700 million in 2014, representing between 6 per cent and 24 per cent of total estimated book sales'.

To anyone who's been in this industry for a while, and who had to stomach, even participate in, godawful stuff like Accenture's report on the industry in 2001 (it was so bad it was good!), much of PwC's report will sound familiar. There's the all-pervasive naivety for starters. Then the sheer ignorance, which is inexcusable given there happen to be quite a few people from all sectors of the industry who could have sounded howler alerts along the way. Here's an example: 'There would appear merit [sic] for Australian publishers to pool their resources...in undertaking international market development that benefits the book industry as a whole. Such instances of international market development may include [drum roll..] attendance at international book fairs'.

We also get an enormous amount of confusion - different issues jammed together that are of different orders of magnitude. For instance the 'inefficiencies in Australia's book distribution system' comes before the Parallel Importation Restrictions in forcing up prices, when such inefficiencies could only be adding '$0.40 to $1.00 to the unit cost of a book'.

On the fabled PIR's we get this fearless assault: 'On the weight of the available evidence, we conclude there is a conceptual case that the PIRs do have an impact on the value of wholesale book prices in Australia. The exact magnitude of this impact, is however, difficult to ascertain..'

The report is very weak when it comes to industry collaboration. It presumes there's virtually none of it. It references related creative industries both in Australia and overseas where players have come together to build common and online platforms - Freeview (TV), MOVE (outdoor advertising), Batch.co.uk (UK book industry) - without mentioning at all, throughout the whole report, TitlePage or Pacstream or the many other standards, systems and protocols that have been part of the industry for decades.

So this is a lame effort. The stats are good but the rest is worthless.

Pearson's Lapse in Concentration

2011-07-05T10:07:00.001+10:00

Large corporations are always on the look out for acquisitions. In mature markets, when organic growth is hard to come by, and cash reserves need to be put to productive use, the attractions of acquiring another business and integrating it into current operations are easy to see and make so much commercial sense.

There are dangers, however. Acquisitions can be strategic and even brilliant - the right business purchased at precisely the right time and for the right price.

They can also be dumb.

Pearson Australia's purchase of REDgroup Retail's online business fits snugly into the latter category. This is precisely the sort of acquisition that seasoned managements usually know to avoid like the plague. They are opportunistic - the businesses have just become available, are crying out to be picked up, and are undoubtedly cheap as chips - but they are foreign to normal and well understood operations, and current management has no experience or appreciation of the subtle dynamics that need to be known and respected for them to be successful.

Executives have to guard against the sort of emotional self-pleasuring that successful acquisitions bring. When announced, the press is quoting you, the industry is abuzz and admiring your cleverness, you've got a jump on the competition. Hard to psychologically resist.

No doubt Pearson assessed this acquisition carefully. A good Australian-based operation, with an excellent Kobo partnership, growing strongly, a loyal customer base, needed by publishers, etc. It would be a shame if it disappeared just because its parent got into difficulty. Revenues now might be only $25 million or so but could well be $100 million in five years time. Penguin, in fact all Australian publishers, just can't sit by and see this business disappear. There has to be strong, vigorous and well-funded, local competition to the off-shore powerhouse, Amazon.

All superficially plausible, but the negatives are overwhelming. Pearson is a publisher, not a retailer, and no publisher understands, or has the skills to manage, specialist book retail operations. They are totally different beasts. They require careful attention, love and continued investment, all the sorts of things that REDgroup didn't bring to the table. As well, retailers have secrets. They know things about other publishers that no individual publisher should be privy to - things like trading terms, promotional deals, forward publishing plans, strategic intentions, etc. It's no use Pearson vowing to run the business 'as a separate entity'. Other publishers will be deeply suspicious, and seek alternatives.

No doubt Dymocks and other retailers passed a ruler over this business and walked away. The demise of REDgroup's online outfit would not at all have meant that the local industry would have been denied this growth opportunity. It would've simply been spread around.

The Future of Publishing

2011-06-01T09:33:00.004+10:00

I was asked to submit a contribution to 'the future of the book' series of short essays, a blog being compiled by if:book Australia. This was published today at http://www.futureofthebook.org.au

Over the last twelve to eighteen months the debate over the future of the book has moved through a number of stages. We initially focused on ebook devices and their features, functionalities and sales volumes, particularly when the iPad first appeared; we then moved onto DRM, ‘windowing’ and ebook pricing; then to agency and other supply models; then, when it became obvious that retailers were suffering, onto the critical role of high street booksellers and whether they’d survive and what impact on an emerging ebook industry their possible demise would have.

Now we’re at the stage of debating the role of publishers, and not just their role, but whether, in a thoroughly digital future, they’d even exist. Would they not be exposed as analogue relics, rooted to the legacy business models of print, and soon to be cast aside by the inexorable march of digital progress?

‘The entire publishing industry is going down the drain’ according to an executive from Siemens at the World E-Reading Congress in London in early May.

‘Publishing is not dead. It’s more like Wile E. Coyote in the moment before he notices the cliff has dropped away beneath him’, tweeted Australian author James Bradley on May 11.

The panel discussion on Jennifer Byrne Presents: Future of the Book on the ABC on May 17 was telling because it signalled how thoroughly we’ve all now moved on to a much more mature reflection on the issues. It concerned the future of publishing and whether one should be optimistic or pessimistic about the radical, structural shifts taking place in the industry that could well mean the demise of the familiar behemoths that have ruled the book world since Gutenberg.

And then there are the recent, very meaningful, moves by one of the ‘new’ behemoths – Amazon, Apple and Google. Amazon has thrown a cat amongst the pigeons by setting up a number of publishing imprints and hiring an experienced publishing professional to build its own list. Whether this will be a successful financial venture for Amazon is not the point. The fact that they have chosen to do it is the point.

Literary agents, author associations, and many authors themselves have not been slow to register their frustration over the seemingly inflexible, unresponsive and defensive corporate manoeuvres from the big publishers, and many of them are voting with their feet and striking out on their own to best position themselves for the digital future.

I find it fascinating, if not a little sad, that it’s come to this. But publishers really have no-one to blame but themselves.

Humility is not a virtue usually associated with publishers, particularly the majors (frequently referred to as ‘the big six’). Arrogance, yes, but not its usual opposite. The problem is that today, in the midst of a profound digital transition, with outcomes and endpoints intrinsically unknowable and barely amenable to forecasting, arrogance is a habit of mind that publishers need to quickly shed or they will die. When that arrogance is combined with fear, as it always is, it becomes toxic indeed.

Let’s review some of publishing’s wrong moves over the last few years:

It was wrong to respond to Amazon’s aggressive ebook pricing with the Agency model of supply, thus guaranteeing higher and uncompetitive prices. This was a distinctly pro-producer, anti-consumer move as its effect was to disallow consumer-tested pricing at the very birth of a new and exciting industry product.

It was wrong to bind the new e-tailer behemoths to geographic, territorial restrictions by contract, thus denying non-US consumers access to tens of thousands of important new titles upon their first release. (There are far better and consumer-friendly ways of dealing with territorial rights sales).

It was wrong to impose on authors a maximum royalty of 25% of net receipts on ebook sales. (35% plus is far more justified).

In Australia, publishers were wrong to oppose the abolition of our parallel importation restrictions which serve to protect publisher over-pricing and under-servicing in our local market. (This issue never had anything to do with territorial copyright, but that was the way publishers framed it – very successfully unfortunately).

Australian publishers are wrong to continue over-pricing when the Australian dollar is so strong against the US dollar and UK pound. And they are wrong to argue that the GST should be foisted on booklovers – their customers – if they chose to order online. (Publishers need to be hyper-responsive to consumer sentiment, and dramatically lower prices accordingly to keep faith).

These are only some of the ways publishers, globally and locally, have and are reacting to new, emerging paradigms – with fear, defensiveness, arrogance and protectionist sentiment. It is not the way into the future.

But the simple fact is that publishers are terrified, as are most businesses, of the digital future – perhaps not visions of that future, but the ugly, messy, transitional process of getting there. For they are being required to submit themselves and their organisations to a radical process of refinement, akin to jumping head first into a giant threshing machine, and trusting they’ll emerge alive, pared down to their essence, and thoroughly renewed.

All the analogue baggage of the print business that made them powerful players – marketing and sales machines, distribution might, wholesale/retail connections – all this has to be shed, perhaps slowly, perhaps quickly, but certainly painfully. This amounts to losing 20-30% or more of current overheads, and many staff.

What will remain is the pared down, distilled essence of publishing that most publishers today have long forgone, forgotten, and always outsourced – editorial.

Over the decades, under the pressure of mergers, acquisitions, restructurings, and downsizings, when Big Retail has squeezed margins to the thinnest imaginable, our standards as publishers have been lowered. Our regard for the quality of the text has too frequently been off our radar screen. Our respect for the old, intense, creative relationships; the old skills and craft of recognising, developing and editing talented authors; the ancient role of challenging, clarifying, re-writing, querying, red-lining and binning. We’ve been absent, cold and unsupportive.

Perhaps I’m naive in thinking that this serious, collaborative, sympathetic profession of editing will be re-born as the core of publishing. But I do know this: people are sick to death of unedited prose – the knotty, clotted, jargon-infested illiterate bilge that clogs our time and space. How refreshing and joyous it is to read clear, lucid, beautifully balanced sentences that sing and instantly communicate. And how powerful it is to be moved and spiritually expanded by stories brilliantly told.

Unless publishers rediscover this essence of what publishing is all about they will have little to offer and will certainly be squeezed out of the value equation.

But if they do, and if they bring all their design, production, marketing, metadata, administrative and management skills to the ancient process of ‘making public’ the words and ideas of the best of the best amongst us, then they deserve to, and certainly will, flourish.

If now now, when? If not Google, who? Judge Chin disappoints.

2011-03-23T17:23:00.000+11:00

After I finished reading Judge Chin's decision on the proposed Google Settlement Agreement, I wondered why it took him more than 12 months to hand it down. While refreshingly well written in lucid, to the point, prose (how's that for a legal professional?) it offers nothing at all that could be called innovative or edgy thinking, or even closely reasoned argument. There's no agony apparent, no sign of an intellectual struggle to do justice to an overwhelmingly new, breakthrough paradigm that was presented to him for a decision.

It simply regurgitated all the threadbare arguments contained in the many submissions from those parties who were against the Agreement from the start - mainly authors, foreign publishers, and..er...Microsoft!

It was a victory for the 'copyright is power' brigade, 'and that power is MINE!'

It is, in fact, quite anti-Google, for all the reasons that continually get trotted out in any debate involving this frightening behemoth - 'effectively a monopoly', 'privacy concerns', etc. But what it quite evidently doesn't do is explore in any depth the real benefits of the Agreement in the way it would have harnessed contemporary technological power to liberate locked away content in 75% of the world's books published since year dot.

Those 'orphan' works (still in copyright but out of print) reside in a fenced off museum whose key has long since been thrown away. The Settlement Agreement would have made them - all of them! - discoverable, searchable and available for a fee, to the world's readers, researchers, libraries, students. Rich or poor, educated or not. And the majority of that fee was to be recycled back to authors, publishers and other copyright beneficiaries.

The Judge gives far more weight to the permission argument than it deserves. Google scanned copyrighted works without permission, quelle horreur, and now cannot really be allowed to benefit commercially from an effective monopoly on access.

The problem with the permission argument has always been its absolute one-sidedness - all power to the ruler; none to the people. Copyright ownership has public obligations as well as private benefits. An entrenched permissions culture, without clear limitations and regulations, is private ownership taken to extremes. It works against the public good rather than for it, which is a perversion of the real meaning of copyright. There's no balance there.

Judge Chin opts for 'opt in', which would allow copyright owners to chose whether they want to be part of the system or not. But the whole structure and integrity of the proposed Agreement is built on 'opt out'. It's universal, comprehensive, all the world's books at your fingertips. That's the whole point. It simply can't be inverted like this without being essentially throttled.

It's a conservative, profoundly disappointing, and quite frankly bad, decision.

If not now, when? If not Google, who?

Pearson's net pricing move: a lot more than meets the eye..

2011-03-02T18:16:00.000+11:00

I've been thinking a little about Pearson Australia's move, scheduled for May 1, and I think it could well be a much larger initiative than one simply involving net pricing. I haven't talked to anyone at Pearson, least of all my good friend David, but I suspect this could be the first roll-out of the American model of textbook supply to Australia. In the US publishers supply campus booksellers on net pricing terms, but the effective discount off their list price (which exists in their systems but is not public) is around 20% to 25%.

There has always been the possibility, but up until now not really a probability, that the US supply model could come to Australia. Tertiary publishers and booksellers have always enjoyed a partnership relationship in Australia, which has been to both parties' advantage. In the US the relationship has always been adversarial, often ferociously so. Decades ago US campus booksellers opted to become willing participants in, and beneficiaries of, the commercially and nationally organised used book business, to the great detriment of new book sales. They effectively declared war on publishers. There has been no love lost ever since.

In Australia the used book situation has always been a fairly piddling business run by student associations on a campus by campus basis.

What has changed in Australia however, like everywhere else around the world, is that educational publishers are having to make huge investments in digital products and infrastructure, and are having to deal directly, and interactively, with students . The traditional textbook is becoming far less central to the educational process, to the point where it doesn't really matter whether it's bought or not. Thus the traditional textbook retail supply model is also becoming more marginal.

So if ever there was a time to change the Australian supply paradigm, and move more margin the publisher's way, it is now.

Pearson is probably thinking - rightly in my view - that they need the support of the Australian campus bookseller less than ever before.

Here's what may well happen May 1: net prices will not change, but Pearson's 'RRPs' may be reduced by 10% or so. Pearson is therefore able to negotiate adoptions with academics more successfully, and answer the charge that their prices haven't come down because of the strong dollar.

But they don't suffer any revenue or profitability decline by doing so. Just a bit of outrage from their legacy intermediaries, which they can fairly effectively steel themselves against.

It's the booksellers who will suffer the financial consequences. Their effective discount will be reduced from 33.3% to 25% or so.

The big problem booksellers will have is that most, if not all, tertiary publishers, particularly the Americans, will follow suit. They couldn't let Pearson take all the advantage alone. This is what happens when the dominant player makes a bold and unpopular move - the rest fold in behind, taking cover accordingly.

Perhaps I'm wrong, but somehow I doubt it. The time is ripe for such a move.

2010-12-01T20:07:00.000+11:00

MERCHANTS OF CULTURE: The Publishing Business in the Twenty-First Century

by John B. Thompson, Polity, 2010.
(A Review for LOGOS, December, 2010)

Those of us who’ve been in the publishing game for a good many years tend to approach books on publishing written by academics with a fair measure of cynicism. Even though they’re a step up from the usually tedious feature article fare of the Sunday papers, from which most people get their views on publishing and its issues, they invariably suffer from an absence of any real insight into, or appreciation of, the fundamental commercial dynamics that overwhelmingly govern the field.

To get that sort of perspective you have to go to the memoirs of publishing notables, such as Andre Schiffrin and Jason Epstein, to give just two recent examples, but here you need to contend with the standard, ego-laden biases and obsessions that come with the genre.

What is refreshing about Professor Thompson’s new book is its absolute commitment to objectivity, neutrality, balance and fact in its exploration of publishing’s economic realities. It doesn’t push any barrows, but sets out to explore a critically important part of the industry in depth and with the sort of rigor you would expect from a seasoned, academic observer.

Thompson’s focus is contemporary trade publishing in the US and the UK, particularly ‘mainline adult fiction and non-fiction’ as he calls it. He eschews (wrongly in my view, but more on this later) the more specialised domains of children’s, self-help, travel, romance, and the rest, in order to get some clarity around broad and defining issues – ‘to discern some order in the chaos, some structure in the flux’. His main research method was the semi-structured in-depth interview, of which he conducted 280, all recorded and transcribed. He interviewed publishers, booksellers and literary agents in the main, from all levels in their organisations, large and small. To ensure full and frank revelations and opinions he guaranteed anonymity. Thus the book is full of quotes from ‘Steves’, ‘Janes’ ‘Jims’ and others, but they are invariably honest, intelligent and often surprisingly frank. Players in the book trade, as we know, unlike most other industries, meet and talk to each other a lot – they actually like each other – but they’re rarely honest. If they’re not actually lying, they are colouring, painting, flavouring the stories. They’re in the words business after all! But through a process of sharp questioning and follow-up, which Thompson got better and better at over time, as he admits, he was able to extract nuggets of gold over and over again.

There are also portraits of particular companies, divisions and imprints, again disguised. ‘Star’ is an old imprint that was acquired some time ago by a large house, itself part of a global corporation with interests way beyond publishing. It’s been allowed a fair measure of independence and autonomy, which it jealously guards. Others haven’t been so lucky. The life has been sucked out of them by corporate bureaucracies with their uniform but stifling systems and processes. ‘Sparrow Press’ is a small publisher, struggling financially, but doing it ‘for art’s sake’. Thompson expertly captures the stresses and strains, and the creative and commercial tensions across the full panoply of organisations and players in the field.

What emerges from this intense engagement is a comprehensive description and analysis of ‘the logic of the field’, as the author calls it - a sociological construct that helps define the context in which the actions of each key player are conditioned by the actions of others. But Thompson doesn’t bog the narrative down with dry academic discourse or theory. He remains thoroughly grounded. What he does do, remarkably deftly in fact, is place all the various elements in context, so a coherent picture emerges of a whole, underlying dynamic governing the actions and strategies of industry organisations and individuals.

Thompson’s first three chapters describe the macro-environment of today’s transatlantic trade publishing industry. He isolates the growth of the retail chains, the rise of literary agents, and the emergence of publishing corporations, as the foundational realities that define its principal contours and dynamics. It’s hard to disagree with this analysis, apart from wondering whether these three realities are themselves the result of even larger societal or economic forces playing out across all industries in our late-capitalist phase, such as globalisation, deregulation, population growth, technology, etc. But that’s to quibble. In the book trade Thompson’s three macro factors have changed the industry radically over the last twenty to thirty years.

The rest of the book explores these changes in detail, giving flesh to ‘the logic of the field’. One effect is industry polarisation. The large corporations become more dominant by being financially more able to cough up the far more extravagant author advances that agents are demanding. The logic leads to an obsession with ‘big books’, the popular blockbusters that feed the chains and supermarkets and crowd out much midlist and backlist from high street visibility. ‘Publish fewer books and sell more of the books you publish: this is the mantra that is chanted in nearly all of the large publishing houses, and in many of the medium-sized and small publishing houses too.’

Big books means big returns – unsold copies flooding back, sometimes as high as 60% of initial sell-ins. In a chapter called ‘Shrinking Windows’, Thompson explores the challenges publishers face in driving consumers into stores in the ever shorter time frames that the high street retail logic makes available to them. His analysis of the marketing strategies and activities, and the limited budgets involved, and the many new things today’s publishers are doing, particularly online, is superb.

As someone who has spent their whole publishing career in Australia, but nevertheless in senior roles in global US corporations with strong presences in the UK, I was thoroughly enlightened by Thompson’s analysis of the dynamic of UK trade publishing since the demise of the Net Book Agreement in the mid-90’s. His chapter ‘The Wild West’ tracks the emergence of the supermarkets such as Tesco and Asda as powerful new players in the UK book retailing landscape. At the same time Amazon UK has become a significant force. Astoundingly, according to Thompson, ‘the overall impact has been an upward drift in the average discount that publishers offer to the retail sector: roughly 10 per cent of margin has been transferred from publishers to retailers in a period of ten years’.

Combined with the huge growth in author advances, most unrecovered and therefore having to be written off, the wonder is that US and UK trade publishers are making any money at all! Thompson doesn’t address this critical question. I was hoping for a comparison between a representative company or divisional Profit and Loss statement from twenty years ago to one today, which would have clarified what has generally happened to margins and overheads and thus profitability and return on investment. Reading the industry press one doesn’t get the impression of crisis. Hachette, for example, is doing very nicely indeed, albeit on the back of Stephenie Meyer. The small UK publisher Quercus is doing exceptionally well on the back of Stieg Larsson. Neither of these more recent phenomena are referenced by Thompson. The big book focus may be problematic. But it’s also, seemingly, salvific.

I suspect Thompson underrates the continued vibrancy in the industry, particularly in the niches. By not focussing on the genres, especially the non-fiction genres such as self-help, travel, personal investment, children’s, he misses two or even three traditionally profitable legs to publishing stools. This is hardly a criticism of the book, focussing as it does on the ‘mainline’, but it would have fleshed out the economic picture a little.

As you would expect, given the author’s extremely comprehensive 2005 tome Books in the Digital Age, there is a long and comprehensive chapter on the digital revolution which, although a little out of date – as is the way with this fast-moving field – is an excellent overview of the critical issues that publishers are facing. There is a sanity about it, a balance, that the reader by now (this chapter is towards the end) senses in Thompson’s perspective on the industry generally.

Which is why I regretted he didn’t widen his focus a little to take in the view beyond the US and the UK. A chapter on Canada and Australia, both important markets for US and UK publishers, as is the whole export business generally, would have rounded out the tale.

On the very first page of the book Thompson tells the story of a rather small book called The Last Lecture by an unknown computer science professor, Randy Pausch, who happened to be dying from pancreatic cancer. Through an auction process Pausch’s agent secured an advance of $6.75 million. Yes, $6.75 million! It was bought by Hyperion, a frontlist driven company backed by the Disney Corporation. Thompson leaves the story there and doesn’t revisit it until p. 295, when we find out what happens. We’ve explored enough terrain in the meantime, however, to appreciate how that advance came about, its full rationale, and why the publisher so desperately wanted the title. We also know the risks and how projects like this often go horribly wrong. It’s a fascinating story, and of course I won’t disclose the ending here.

Merchants of Culture is full of these gems. It is also full of statistics, charts, tables and sales figures which add immeasurably to its power.

Professor Thompson has written a seriously good, almost monumental work, one that will quickly become required reading for seasoned practitioners and newcomers alike, whatever segment of the book trade they find themselves in or are about to commit to. It’s a highly readable, absorbing account of a culturally important industry in the throes of transition. We can only hope that the author issues a second edition in five years time, and a third after that. They would be eagerly anticipated.

Besieged, Bothered and Bewildered - Our Book Industry Feels the Pain

2010-11-29T16:48:00.000+11:00

Besieged, Bothered and Bewildered - Our Book Industry Feels the Pain

(Article for The Rationalist journal, January 2011)

You cannot open a paper these days without coming across yet another article about the huge increase in purchasing from overseas-based online retailers by Australian consumers in response to the strong dollar. Books are always the prime example. The local book industry is under siege and booksellers and publishers are barely talking about anything else.

Amazon has been doing good business out of Australians for over a decade now, but has been joined in the last twelve months by The Book Depository, the UK operation that matches Amazon’s prices and discounts but also offers free freight, an appealing combination.

It’s virtually impossible to get a handle on just how much business these two do in Australia (Amazon in particular has never felt inclined to part with any information that could be remotely useful to anybody), but anecdotally industry insiders are now estimating that the business could be upwards of $200 million and rapidly rising. The total consumer book market in this country, at retail level, is about $1.6 billion (yet another difficult figure to pin down since the ABS stopped collecting book industry data six years ago). So the local industry is currently losing 12.5% plus of its turnover to offshore suppliers. It could well be 20% in five years time if things continue the way they are (and this is not counting library purchases from overseas library suppliers – another huge chunk).

Our book industry is having its own ‘annus horribilis’, with most independent bookstores experiencing sales declines of between 5-10% compared to last year. REDGroup Retail, the Angus and Robertson and Borders chains, with a share of about 30% of the total Australian consumer book market, had a sales decline of 11% for their fiscal year ending August, 2010. This amounted to $70 million. They also slashed their inventory holding by $50 million, which means they studiously declined to order from publishers and dumped unsold stock back to them where they could. You can imagine the effect on publishers and authors.

The book trade has always been a very emotional one – part art, part commerce, and totally cottage. But the heightened level of emotion and anger coursing through industry veins right now is something to behold. And it’s very typical in any industry in these circumstances to see its players develop a siege mentality, bunker down, lash out at foreigners, and resort to some fairly ordinary thinking and analysis quite typical of victims.

To get some perspective let’s go back two years. In August 2008 the Rudd government decided to hold yet another enquiry into books and parallel importation, the provisions in our Copyright Act that prohibit retail booksellers from ordering direct from overseas any title for which a local publisher holds, under contract, exclusive Australian rights. In the trade this activity is known as ‘buying around’. The government imagined there could be some political gain from overturning this century-old prohibition in the interests of allowing cheaper prices to flow to consumers. The Productivity Commission, for the third time in twenty years, was charged with examining the issue and making recommendations.

Well, as we know, to no-one’s surprise, the reaction from the industry was swift, uniform and very angry. Of the 563 submissions to the enquiry, all but a dozen of them were in favour of retaining the current restrictions. No ifs, no buts, the Visigoths must not be allowed to have their way. Australian literary culture would be decidedly poorer. The Commission’s final report, however, recommended what the commission had always recommended – that the restrictions should be abolished in favour of a better deal for the consumer. Typically, the Rudd government was frightened off, so reform never happened.

So after a highly charged year of fighting and fending off, the book industry relaxed, luxuriated in victory, and resumed business as usual. It was to be a major mistake. What had actually been happening in recent years, and what the Productivity Commission expertly analysed and measured, was a growing uncompetitiveness in the protected, privileged publishing community in response to the ever-stronger Australian dollar, a massive over-pricing that could never be commercially or realistically sustained. The Visigoths already had a foot in the camp and no artificial, protective, legal mechanism could keep them out. They were called Amazon and The Book Depository. And the consumer, whose interests were ignored in the parallel importation decision, had noticed.

The Australian Publishers Association (APA), in their long, furiously angry and sniffily dismissive response to the Productivity Commission’s draft report, denied that their members had ever over-priced, and if they ever did they were certainly not doing it now. They contended that the average A$/US$ exchange rate over the previous ten year period was $0.69, so it was entirely reasonable for local publishers today to use this rate or something close to it in their pricing for the Australian market. This submission was written when the dollar had hit $0.90! As I wrote at the time:

‘Today, as you know, [the dollar] is around $0.90c, and against the pound it’s the highest it’s been for 25 years. Publishers have had five or six years now to adjust to exchange realities but most have chosen not to do so. How long is the Australian consumer supposed to wait? Booksellers, on the other hand, have to compete with Amazon, which uses the exchange rate operative on the very day of invoicing. Not surprisingly, they are finding it hard to compete.’ (1)

Had the government decided to accept the Commission’s recommendations and abolish the provisions, the competitive pressures unleashed in the deregulated market would have been fairly intense. This is basically what would have happened:

1. Booksellers would have radically stepped up their ‘buying around’ behaviour, in order to source product overseas at lower wholesale prices so they could price lower to their customers than local publishers’ recommended prices, and thus compete more effectively with online suppliers.

2. To head this off publishers would have quickly lowered their prices and possibly sweetened their trading terms to regain the business. If they were serious about it, and went far enough, they would have recaptured virtually all the former business they had.

3. Since booksellers much prefer to order locally, all other things being equal, because there’s less risk and hassle involved, things would have got back to a new normal pretty quickly. And territorial rights would have been re-respected.

4. The consumer would have won.

5. In fact everyone would have won because of the new vitality injected into the industry. Intense competition tends to do that. (Even the printers in Maryborough, who thought the end of the world was nigh, would have won).

So the Rudd government – and how typical was this? – stuffed up big time. The only crumb they threw the industry was to set up a Book Industry Strategy Group (BISG) under the auspices of Senator Kim Carr’s industry and innovation department. This group was to recommend to the government how the industry could be helped to survive!

So having dispensed with a real solution that focussed on the real problem, the industry gravitated to familiar ground: campaign for the GST to be applied to purchases from Amazon and their ilk. This would ‘level the playing field’, and presumably solve most if not all of our problems. Under the GST system as it currently operates any purchases from overseas suppliers escape the GST net if they are below a $1000 threshold. The reason for this is to not bog down individuals in customs red tape and delays for minimal net revenue gain. In fact, the government’s advisory body on taxation matters, the Board of Taxation, recommended to the government in February of this year that any lowering of this threshold, despite the clamour from various retail associations to lower it to $250, would be counter-productive (2). The government agreed. (By the way, even this lower threshold would not capture 99% plus of book purchases!)

The Australian Booksellers Association’s (ABA) official position is to continue to advocate for a much lower threshold, or if that were not a goer, for the removal of GST from books altogether.

A few basic things need to be said:

1. There is no chance whatsoever of any government removing the GST on books. It’s really silly to even contemplate that, and it looks silly and ignorant to publicly campaign for it.

2. There is no chance whatsoever of any government lowering the threshold to below $250. The outcry from consumers would be loud and long. The GST is a tax system, not a job creation or protection system.

3. Even if by some remote chance the GST net was widened to capture these online purchases, then – and this is important – it would have minimal effect on book importing behaviour! The GST is still only 10%.

The other big retail chain in Australia, Dymocks, who to their credit did appreciate the main game and campaign for the opening of the market during the parallel importation debate, have recently come out and ‘threatened’ to move their online business offshore if the government did not change the GST rules. According to CEO Don Grover ‘It would actually make more sense for us to send books from an overseas location back to Australia and avoid the GST. To give a competitive advantage to overseas websites of 10% is just unsustainable’ (3).

Here is further evidence, if any were needed, that the current GST obsession of the Australian book trade is becoming deeply farcical. What about Australian books? Are they going to be shipped offshore and then re-shipped to the customer in Whyalla?

It’s only 10%. It’s utterly irrelevant. It’s not the main game. Publisher over-pricing is the main game, and the lack of any vigorous domestic competition to that practice. Here’s a simple test for any book buyer to apply: find out the overseas list price (Amazon’s a good source); convert to Australian dollars at today’s exchange rate (parity as I speak); add 10% (as a currency hedge); add another 10% for the GST; round up to the usual 95c price point. Then compare this to what the publisher is asking you to pay in your bookstore.

So George Bush’s just released Decision Points should be priced in this country at A$42.95, not $59.95 as it is. The US price is US$35.00. Do the math! Or take the Booker winner The Finkler Question: this L13.00 title should be $25.95, not $32.95 as it is. These aren’t isolated examples. They are commonplace. (In fact, be suspicious of any book priced at $32.95. If it’s an Australian original it should be $29.95, but if it’s a UK original, complain).

Screwing your customer is not really a productive and lasting strategy for any industry, but unfortunately it’s precisely what the publishing industry, aided by compliant and dependent booksellers, has long indulged in. Trying to slap a GST on Amazon and The Book Depository is a classic iteration of this - clobbering booklovers and serving to bolster dated, uncompetitive local pricing practices that are doing enormous structural harm to the industry.

We’re seeing precisely the same thing happening in the emerging ebook business. 2010 was the year Apple released the iPad and rolled out the ‘Agency Model’ for ebook pricing. This ‘app’ model may be fine for all sorts of products but not for books. It gave pricing power to the publisher, and prohibited the retailer from selling below the publisher-set price. Up until this time Amazon’s Kindle dominated the global ebook landscape (it still does, but it’s gone from about 90% to 65% in market share over the last two years). Amazon set ebook prices at levels way below what publishers thought they should be, so publishers jumped at the chance to force Amazon onto Agency pricing contracts. The five large US trade publishers, who carry enormous heft in the consumer market, forced Amazon to buckle by refusing supply unless they did. This model was also rolled out in the UK in October/November, 2010, and Hachette, Australia’s largest trade publisher, has just rolled it out here in Australia. Other major publishers are expected to follow. (By the time you read this they probably would all have signed up. Such is the way these things work).

The logic of the Agency model of supply is to keep pricing power in the hands of the publisher and away from retailers. Retailers are expressly forbidden under contract to offer their customers a lower price, even if only for a short time for promotional purposes. Now I keep banging on about this in the industry, but let me repeat it here: in Australia the agency pricing model is clearly and unambiguously AGAINST THE LAW! No doubt Hachette and other publishers have legal advice to the contrary. Well bugger me – legal advice that corroborates with what you want to do anyway! Who would have thought?

Here is what the ACCC says about Australia’s Resale Price Maintenance provisions in our Trade Practices Act. It’s pretty clear:

Any arrangement between a supplier and a reseller that means the reseller will not advertise, display or sell the goods the supplier supplies below a specified price is illegal.

It is also illegal for a supplier to cut off, or threaten to cut off, supply to a reseller (wholesale or retail) because they have been discounting goods or advertising discounts below prices set by the supplier.

A supplier may recommend an appropriate price for particular goods but may not stop retailers from charging or advertising below that price. In most cases, a supplier may specify a maximum price for resale. (4)

This is a succinct summary of what the actual provisions say. And why is this sort of thing illegal? Because it is anti-consumer. It denies the consumer the power to shop around to avoid being ripped off. It structures a producer-controlled market, where the producer is protected from unwelcome retail pressures for better terms that enable retailers to offer more attractive terms to their customer base.

And here is the interesting point: the expressed intentions of the publishers are to create a ‘level playing field, to enable retailers other than the dominant Amazon to be able to enter the market and compete – ensuring a better outcome for all players’. Very noble, but this sort of talk fools no-one. It’s code for smothering competition, not enhancing it. It works to the benefit of the publishers and against the interests of the consumers. Even that venerable old UK trade journal The Bookseller is becoming increasingly worried about what publishers think they’re doing: ‘At an instinctual level, whatever the sophistry employed in its defence, bringing in price fixing online will feel wrong to the only people who ultimately matter in this, the readers’ (5).

Finally, let me say something about territorial copyright, that beast that haunts the Australian trade and poisons so much of our debate. It was never the central issue in the parallel importation fracas, although most industry people, particularly authors, framed it so. It’s always been the source of enormous conceptual confusion, and I must say, with profound regret, continues to be so in the ebook world.

Most Australians who own an ebook reader are drearily familiar with the following message:

        This title is not available for customers from:
                              Australia
          Shop for titles available for Australia

What this means is that publishers have shoehorned Amazon, Apple, Sony, Kobo, Google and other ebook retailers into honouring the territorial rights deal the publisher has made with the author, or more accurately, the author’s agent. If a US publisher has only bought US rights then its ebook contract with etailers will only entitle those etailers to sell to Americans. And here’s the rub: even if no Australian rights (or, more frequently, Commonwealth rights) have yet been sold by the agent, then still no Australian consumer can buy that ebook.

To me this is an offense against logic and fairness, and runs entirely counter to the long and established conventions of the retail trade, and it certainly runs counter to what happens in the analogue book world. If I order from Amazon the US edition of a print book for which Commonwealth or Australian rights have been sold, I will still be supplied it. There is no publisher ‘contract’ that restricts Amazon from supplying it to me. In fact the US, UK and Australian Copyright Acts have long embraced the concept of the ‘first sale doctrine’, which means publisher rights over the product are exhausted after the first sale. The retailer can do what they like with the book – give it away, discount the buggery out of it, sell it to China – without being answerable to the publisher. They are only restricted from making copies of it. This convention enshrines a free space for retailers outside the usual restrictions of copyright law and underpins a vital commercial role in information distribution.

In the e-world, however, it seems we’ve gone backwards. Ironically, when it is so much easier to distribute globally a digital file than a heavy, physical object, we’ve been lumbered with publisher timidity and myopia yet again. There is a simple and practical solution though, which I’ve urged on my publisher colleagues. Make ebooks available from day one to everyone around the globe no matter where they live. The original ebook publisher could do this by not territorially constraining etailers. And when rights to a particular territory end up being acquired by another publisher, then hand over those revenues to them. It would be simple to administer. Thus publishers buy a share of global revenues, not rights to a file.

Ah, much new thinking, much water to go under the bridge yet. Old habits die hard in the book industry. Even when the readers are walking away. If only publishers would reach out to them, befriend them, listen to them, try to satisfy them. They may find they’re not that scary. And they may also find they return the compliment.

NOTES

1. ‘The Parallel Importation Debate – Thank God the End is Nigh!’ Peter Donoughue; p. 61, Copyright Reporter, Journal of the Copyright Society of Australia, June 2010.

2. ‘Review of the Application of the GST to Cross-Border Transactions’, p. 46, The Board of Taxation, February, 2010.

3. ‘Book Battle: Dymocks Considers Offshore Option’, Nicole Chettle, ABC News, November 18, 2010.

4. http://www.accc.gov.au/content/index.phtml/itemId/322982

5. ‘Expensive Model’, p. 3, The Bookseller, London, November 5, 2010.

Dymocks offshore threat... Pleeeze!

2010-11-18T19:51:00.000+11:00

Here's the ABC news report:

http://www.abc.net.au/news/video/2010/11/18/3070096.htm

Don Grover's threat to move Dymock's online business offshore to escape the GST net is further evidence, if any were needed, that the current GST obsession of the Australian book trade is becoming deeply farcical!

Firstly, what about Australian books? Would Dymocks have Australian publishers ship them to Hong Kong so Dymocks can re-ship them back to the customer in Whyalla?

Well, perhaps Australian publishers would drop ship to Whyalla and Dymocks simply invoice the customer out of Hong Kong, thus saving on freight? Nope, won't work. Any supply from an Australian company is within the GST system and Dymocks won't get GST credits unless it charges the GST to the ultimate customer.

Well, perhaps Dymocks will only ship imported books from Hong Kong, with Australian titles coming from the Australian operation on a separate invoice? Very clumsy and confusing to customers, and how will the many local printings of overseas titles be handled, and local editions where local rights have been acquired?

I'm afraid whatever way you look at this it's a dud idea. The perfect case of a bad idea leading to a bad business strategy.

Don, it's only 10%. It's utterly irrelevant. It's not the main game. It's far from forming the basis of a radical avoidance strategy, which can only incur innumerable additional costs and bog you down in logistical dead ends. Your online business draws inventory from your main, richly and superbly stocked store in George St, Sydney. Divorce the two and both will surely and immeasurably suffer. I cannot believe otherwise.

Focus on the main game - publisher over-pricing. And revisit the prohibition on parallel importing. That's still the elephant in the room.

Pricing in an Age of Parity

2010-11-12T12:11:00.000+11:00

Old habits die hard in the book trade in Australia, but some habits to do with the way publishers have long priced imported titles are going to have to radically change if customers are going to be lured back into buying from Australian booksellers rather than Amazon or The Book Depository.

There are three issues:

1. Pricing way out of kilter with TODAY'S exchange rates.
2. Price points that lock in uncompetitive markups.
3. Infrequent price changes.

Bookbuyers are aggressively responding to the current parity paradigm by buying from overseas-based online retailers, and this is one of the principal reasons retail booksellers are really struggling at the moment. Conditions have rarely been worse. Consumers have gone way beyond the ROBO phenomenon (research online, buy offline) that's been with us for the last decade or so. Now it's just BO - buy online. There's no need to even research it, just do it. The ingrained expectation is that, even if the local bookseller has it in stock, the price will be way over the top.

This mindset can be broken, but only if publishers take radical action along the following lines:

- Price to current FX realities, not some dated average over the previous year or, god help us, decade. That means using parity for US titles and around 62p for UK titles, not just for forthcoming titles, but all titles currently being sold.

- Abolish pricing up to the closest traditional price point - $26.95; $29.95; $32.95; $35.00; $49.95; etc. There is too wide a gap between these points, and too many customers are dropping off on the way up. This was not much of an issue in times past, but it is today.

- Change prices frequently according to FX movements up or down. It's time to let go of the traditional three month's advance notice to retailers, and rarely, if ever, changing the backlist. Systems and protocols have to change. Monthly adjustments across the board should be the norm.

The golden rule on pricing should be: Today's exchange rate plus 10% plus GST. Thus a 13.00 pound UK title becomes A$25.37. Rounded up to the nearest 95c point, it becomes $25.95. A US$26.95 book becomes A$32.61, which becomes $32.95.

The reason for the 10% markup prior to the addition of the 10% GST? To build in a hedge for exchange volatility. Pricing at one rate and actually paying your overseas supplier at a possibly disadvantageous rate three or more months later can be a real problem for importers. Hence the hedge. The Australian dollar climbs via the stairs and falls via the lift well, as they say!

And what about freight? Here's another golden rule: booksellers pay freight when they import directly, not publishers. Publishers have it built into their intercompany or agency trading arrangements. In other words longer discounts or their equivalent are built in to recognise the additional impost of shipping to Australia.

So George Bush's just released Decision Points should be available in Australia for A$42.95, not $59.95 as advertised! The US price is US$35.00. Do the math!

And all those 13.00 pound UK titles, such as Philip Kerr's new one, Field Grey, should be $25.95, not $32.95 as it is. And Howard Jacobson's The Finkler Question (TPB edition) should be $25.95, not $32.99 as it is.

Pressure needs to be put on publishers to be far more responsive to today's competitive realities. And here is precisely where the ABA needs to step up. Real leadership is called for.

Don't hold your breath!

The Agency Model in Australia - wtf??

2010-11-05T12:56:00.000+11:00

This distressing piece was in the WBN yesterday:

Hachette Australia CEO Malcolm Edwards has confirmed the publisher has signed with both the iBookstore and Kobo under ‘an agency agreement', but declined to comment on the publisher's pricing strategy.

Under the agency model agreements between Apple and publishers currently in use in the US and UK, publishers set the price of their ebooks and discounting by retailers is not allowed.

The Weekly Book Newsletter understands that Hachette Australia is the first publisher to come to an agency agreement with Kobo, however other publishers may also come to an agency agreement with the Canadian-based ebook distributor in future.

However Malcolm Neil, communications manager for REDgroup Retail which offers ebooks through the Kobo platform, said that ‘observing the situation in the UK, if publishers do move to an agency model in Australia in future, it will take a while for [associated price changes] to wash through the market'.

I know I keep banging on about this, but let me repeat: in Australia the agency pricing model is clearly and unambiguously AGAINST THE LAW!

No doubt Hachette has legal advice to the contrary. Well bugger me - legal advice that corroborates with what you want to do anyway! Who would have thought? (Although I'd love to see the hedging in that advice!)

Here is what the ACCC says about our Resale Price Maintenance provisions in our Trade Practices Act. It's pretty clear:

Any arrangement between a supplier and a reseller that means the reseller will not advertise, display or sell the goods the supplier supplies below a specified price is illegal.

It is also illegal for a supplier to cut off, or threaten to cut off, supply to a reseller (wholesale or retail) because they have been discounting goods or advertising discounts below prices set by the supplier.

A supplier may recommend an appropriate price for particular goods but may not stop retailers charging or advertising below that price. In most cases, a supplier may specify a maximum price for resale.

This is a succinct summary of what the actual provisions say.

One source of publisher confusion could be that Apple has thousands of Apps that have been legally supplied under the agency model in Australia since day one, so an Apple ebook is simply one more App. But 99.9% of those Apps are Apple exclusive and specific. The problem comes when other competing resellers get into the act and producers/suppliers attempt to force the model onto them. This is the danger with ebooks, which are far from being Apple specific. They need to be available on multiple devices. And foisting price control on them is restrictive of competition.

In Hachette's case they've gone to Kobo and presumably muscled them into meekly submitting. How bad is that?

This is dangerous legal ground. You really don't have to be Einstein (was he a lawyer?) to know that.

The GST and Online Retailers: the ABA's bad campaign

2010-11-05T10:37:00.000+11:00

This appeared in the WBN yesterday:
GST-free online purchases a growing concern for booksellers:

Australian booksellers are among a growing number of Australian retailers who are calling on the federal government to reform the rules guiding the application of the GST to online purchases from international retailers.

Inside Retailing Online reported last month that the Australian Retailers Association (ARA) has been 'stirred into action' by a 'groundswell' of concern among its members about increasing numbers of Australian consumers purchasing cheaper goods online which do not collect GST.

Goods coming into Australia which are valued under $1000 are currently exempt from GST, and are therefore sold at cheaper prices to their Australian equivalents. The ARA estimates that the sale of these goods is costing the federal government approximately $600 million in lost revenue.

In recent weeks, Australian consumers have been given added incentive to purchase goods online with the strength of the Australian dollar against the US currency.

President of the Australian Booksellers Association Jon Page told the Weekly Book Newsletter that more consumers are choosing to shop online for books because of the strong Australian dollar, which is compounding the problems faced by the bookselling industry because many overseas books do not attract GST.

Page said that the application of the GST on books in Australia has had a significant impact on the industry, with book prices rising almost 33% since its introduction. Page said that booksellers 'are going to continue to be disadvantaged' as long as GST is not being collected on most overseas books purchased by Australian consumers.

'Most book orders consist of 2-5 books, which is well under the [$1000] threshold,' said Page. 'For there to be any impact on books being imported into the country, this threshold would need to be reduced significantly or the GST removed from books in Australia,' he said.

Similar sentiments were also expressed by ABA chief executive officer Joel Becker who told the Weekly Book Newsletter that the ABA expects the issue will be raised in many individual submissions, as well as their own, to the Book Industry Strategy Group.

Becker said that Australian booksellers are faced with 'an unfair impediment' when competing with overseas booksellers as they are effectively required to charge 10% more than international retailers before any other concerns are factored in.

Becker said that the issue is about more than just lost tax revenue for Australian governments, with significant flow-on effects on employment levels in the industry and in severe cases, the closure of businesses.

Becker told the Weekly Book Newsletter that the problem could be resolved in one of two ways.

The first option, said Becker, is to 'go back to what was supposed to happen before... the Australian Democrats went belly up to the Howard Government, and do not charge a GST on books'.

'Or if the government, in spite of having been opposed to a GST on books when in government and, later, in opposition, accepts that there should continue to be a GST on books, then introduce fairness into the process by charging GST on cross border purchases,' said Becker.

'All that we ask is that fairness and equity come into play,' he said.

This whole obsession with trying to get the GST applied to books imported online is pathetic on a number of counts.

Here are the facts:

1. The government reviewed the GST regulations governing imports as recently as February this year. The investigation by the Board of Taxation concluded that, if the current $1000 threshold were lowered to $250 as recommended by retail associations, 'there will be an increase in administrative costs of bringing more goods into the customs system in order to account for the GST which is likely to outweigh any benefit....[consumers would be] paying disproportionately high amounts of GST and administrative charges to have their goods released from Customs compared to the value of the goods' (p.46).

The Board concluded that, at the far lower threshold of $250 (no organisation was proposing it go any lower) the case had no merit. When you consider that most consumer book purchases from Amazon or The Book Depository would be well under that amount - 99% at least, I'd venture - then the case doesn't even get off the ground!

The ABA, and booksellers generally, ought to appreciate the following:

1. There is no chance whatsoever of any government removing the GST on books. It's really silly to even contemplate that, and it looks silly and ignorant to publicly campaign for it.

2. There is no chance whatsoever of any government lowering the threshold to below $250. The outcry from consumers would be loud and long. The GST is a tax system, not a job creation or protection mechanism.

3. Even if by some remote chance the GST net was widened to capture these online purchases, then - and this is important - IT WOULD HAVE MINIMAL EFFECT ON BOOK IMPORTING BEHAVIOUR! Despite the humorous 33% claim of Jon Page above, the GST is still only 10%!

4. By far the most critical issue is the way consumers are forced offshore by the over-pricing of imported books in this country through publisher markups way out of line with foreign exchange realities. And now we're at parity, the situation is worse than ever. Having joined publishers to save them from having to face real competition through parallel imports last year, the ABA is reduced to this absurd focus on the GST because they've nowhere else to go.

5. The booksellers ought to take the fight to where it really belongs - up to the publishers and their outrageously outdated markup policies. The days of imported $32.95 TPB's and $40-50 HB's are well and truly over. It's way past time the pricing nexus between local titles and imports was broken.

Step up Jon and step up Joel. You know what you have to do. Stop being nice.

Pathetic move from Hachette

2010-09-20T20:32:00.001+10:00

http://www.tinyurl.com.au/sc3

This sort of anti-consumer activity is quite illegal in Australia, and thank god for that. Pity it's not illegal everywhere.

Shame on you Hachette. You deserve to be condemned.

Let's hope the UK retailers stand their ground, particularly Amazon.co.uk, whose US parent company did not have the intestinal fortitude to do so in America.

Will the Book Publishing Industry Survive the Digital Revolution?

2010-09-11T20:46:00.000+10:00

WILL THE BOOK PUBLISHING INDUSTRY SURVIVE THE DIGITAL REVOLUTION

[This is a presentation I gave to academic staff in the School of English, Media Studies and Art History at the University Queensland on September 10, 2010. The tables may be a bit misaligned due to the vagaries of blogspot, so apologies in advance.]

Introduction

The Digital revolution is presenting the book publishing industry with enormous challenges. So many of the industry’s long-established, entrenched practices are under serious threat and are very likely unsustainable in the digital world. This paper will explore what is happening and how publishers, globally and in Australia, are reacting, or more accurately, not reacting. It will examine the critical issues of declining prices and revenues, relations with authors, the future of booksellers, device wars, business models, and others. It will challenge the publishing community to seriously lift its game, if it wants to survive.

Background

There can be absolutely no doubt that the book industry, like the newspaper industry, is in the midst of a profound revolution. And it is happening very, very quickly - in fact so quickly that the landscape seems to change week by week.

Let me provide a little context. In November last year I gave a presentation on digital futures to the Australian Campus Booksellers Association. It was an anniversary speech. Five years previously, in 2004, I’d given a similar address to the same audience, where I’d rather boldly declared that, given the rapidity of developments in the emerging digital world, in five years time only half of them would be still in business, selling printed textbooks to tertiary students. As it turned out, all of them were still there, and in fact were thriving, and were delighting in pointing that out to me!

Far from being dead, the textbook is very much alive and well. In figures collected by the Australian Publishers Association, sales of tertiary textbooks grew 10.2% in 2008 and 7.8% in 2009. So, not only was I wrong, I was very wrong!

A number of things can be concluded from this. Firstly and most obviously, I didn’t know what I was talking about, and secondly, some profound transformations we all anticipated simply weren’t happening to the extent we thought they were.

In my defence let me say that I wasn’t alone. In 2001, the global business consultancy company Accenture forecast that there’d be 28 million dedicated ebook readers in use in the US alone by 2005, and ebook sales would be $2.3 billion. Another major consultancy company Forrester predicted a far more modest $251 million in sales of ebook devices by 2005, but – and this is astonishing - $3.23 billion in sales of digital textbooks alone. RCA, who made ebook devices at the time, dismissed Forrester’s forecasts as ‘ridiculously low’.

Even Microsoft, when it launched its famed Microsoft Reader software back in early 2000, got it laughably wrong. It predicted that, by 2005 ebook sales would be almost $1 billion, and ebook vending machines would be everywhere, in bookstores, newsagencies and airports.

Of course, by 2005, nothing remotely like that happened. The first generation, as it turned out, of ebook devices, the Rocket eBook, the SoftBook, the Franklin eBookman were all dead and gone, and sales of ebooks themselves were at asterisk levels - virtually non-existent.

Notice however that all these forecasts, including my own, are in 5 year time frames. There’s something about that 5 year horizon that is immensely and emotionally appealing to digital enthusiasts. I guess it conveys the sense that a revolution is just around the corner, and there’s an urgency about it that can’t be ignored. But importantly, it’s a timeframe where, in a rapidly changing landscape, the forecaster can be reasonably assured that he or she is across most of the elements in play.

Two years ago, in 2008, two fairly influential books were published on the impending future on the book, Print is Dead by Jeff Gomez, former Digital Director at Penguin USA, and The Book is Dead by Sherman Young from Macquarie University. Both books are excellent and I wholeheartedly recommend them. But almost three years on, they are quite outdated. [1]

While the books were at the printers, ironically, the huge game-changer appeared, Amazon’s Kindle. Almost single-handedly, the Kindle radically changed the landscape because of its wireless technology, but most importantly, its US$9.99 ebook pricing. Suddenly ebooks were off and running. The revolution had well and truly re-started. Since then of course we’ve seen Apple’s iPad, the Kobo, and plenty of others.

Which brings us back to the rapidly changing environment of today. I called it a profound revolution and one that seems to be changing week by week. In fact virtually every day there is a new announcement, whether it’s yet another device released, or some hard sales data released, or yet another forecast made, or another initiative from a publisher, an author or literary agent.

(In this presentation today I will focus solely on the trade, or consumer, market sector. The educational side of the industry, whether school, vocational or tertiary, is undergoing its own digital revolution, but it’s a web-based, interactive paradigm, and, although fascinating, is an entirely separate story).

Some Statistics

About three weeks ago the Association of American Publishers (AAP), in conjunction with an organisation called the International Digital Publishing Forum (IDPF), released their data on ebook sales for June and thus the first half of 2010 [2]. As cheekily put by Michael Calder in his well regarded book trade newsletter Publishers Lunch ‘as usual [this data] is leading to a variety of interpretations. Ebook sales are rising, falling, slowing down, plateauing and doubling or tripling all at the same time...The data shows sales of $29.8 million for June (and $88.7 million for the second quarter, versus $91 million for the first quarter)’. [3]

These figures reflect publishers wholesale sales only, not retail sales, and only from the 12 largest US publishers who are the only ones regularly reporting their ebook sales. Still, the vast bulk of sales would be captured in these numbers. What they show is that sales are about $30 million per month – with some months this year being slightly more, some slightly less - and will therefore be about $360 million for the whole of 2010.

As far as I can work out the best estimates for growth over the next four to five years is about 70-80% per year. This means that by 2015 publishers’ ebook sales could be $5 billion per year. In the US the total consumer book market is approximately $18 billion and this is not expected to grow much at all over the next five years, so we’re looking at around 30% of the consumer market being ebook sales in just five short years.

However, predictions vary widely. Digital guru Nicholas Negroponte made headlines a month ago when he ventured that, within five years, the printed book would be ‘dead’. Of course there’d be residual traces still around, but the ‘dominant’ form would be ebooks. [4]

Mike Shatzkin, who runs a highly respected publishing consultancy company in the US, the Idea Logical Co, has long been forecasting that at least 50% of what he calls ‘immersive reading’ – straight text novels and non-fiction – will be done via ebook devices within five years. [5]

We know that Kindle sales have boomed since Amazon dropped the price substantially, from $259 to $189, and now that they’ve just released version 3 for $139 this momentum will continue. The same thing happened to Barnes and Noble’s Nook when they cut their prices. According to Forrester Research Amazon has sold about 5 million Kindles since the launch in 2007, and Barnes and Noble has sold about 1 million Nooks. Sony, however, seems to have dropped the ball and is fast losing market share. Their prices are still high, at $299 for the WiFi version. Interestingly, and uniquely, they are a manufacturer, not a retailer.

The immediate popularity of the iPad (over three million being sold in its first two months), and the impending release before Xmas of Google Editions will add significant further propulsion to the ebook revolution. I must say I am excited by what Google intends to offer, and particularly for the future of traditional book retailing, and I’ll address that later in this presentation.

Here in Australia REDgroup Retail (the A&R/Borders/Whitcoulls conglomerate) have announced that they have sold approximately 20,000 units of the Canadian Kobo e-reader since its launch in May, and that customers have downloaded 100,000 paid ebooks to the device and another 200,000 Kobo apps to other devices. Borders, who sell Kobo in the US, last week dropped their price to $99, the first device to be sold for under the magic $100 mark. Surely they won’t be the last.

Revenues

So if things come to pass as most observers expect, what is in store over the next five years for traditional trade publishers? How are their businesses likely to be affected?

I have to tell you – things don’t look good at all.

Let’s do some simple computation, taking into account the following facts:

1. Ebook sales, at much lower prices than print books – up to 50% less - are growing rapidly. Let’s assume an average 40% less for the purposes of this analysis. If my Trade Paperback first release is $32.95, my ebook is $19.77, or $20.

2. Sales of print editions are stalling and are forecast to fall as readers desert them for ebooks. Let’s assume 50% of ebook sales are substituting for a print edition purchase - a 50% ‘cannibalisation’ rate. This could be optimistic, in other words in the real world it could turn out to be a higher number, or pessimistic, meaning lower priced ebooks are mostly being sold to readers who would never have bought the print edition in the first place. So in chosing a 50% cannibalisation I’m taking a middle path.

3. Let’s assume ebooks will be around 30% of total trade sales in five years time.

4. The average Gross Profit from a printed book is 51.5%, and from an ebook 59.5%. (I will show you how I have arrived at those numbers later when I deal with author royalties).

5. Let’s say I manage a quality fiction and non-fiction trade publishing operation with annual sales of $150 million in 2010, and we’ve taken concerted action over the last few years to convert all our non-colour frontlist and backlist (which amounts to two thirds of our total list) to ebook format in order to exploit this emerging market, beginning in 2011. (At present we’re not thinking about making enhanced ebooks out of any of our illustrated or full colour books, including childrens and cookbooks, so we expect sales of these will continue as before, with the usual modest 3% annual growth).

In 2011 we predict 5% of all the black and white units we sell will be ebooks; in 2012, 15%; in 2013, 30%; and in 2014, 50%. We are fully and enthusiastically participating in the revolution.

Here’s how the revenues for this segment will look: ($millions)

                                   2010      2011    2012      2013    2014

Print sales:                                     $100        97.5     90.2      76.7       57.5
Ebook sales:                                     -            3.0        9.0      18.0       30.0
Total sales:                                      100      100.5     99.2     94.7       87.5

Here’s how the Gross Profit will look:

Print GP:                                        $51.5    50.2    46.5     39.5      29.6
Ebook GP:                                          -          1.8        5.4     10.7        17.9
Total GP:                                          51.5      52.0      51.9     50.2       47.5

Add the colour print books:

Sales:                                               50.0        51.5      53.0     54.6      56.3
GP:                                                  25.8        26.5      27.3     28.1      29.0

TOTAL COMPANY:

Sales:                                             150.0      152.0   152.2   149.3    143.8
Gross Profit:                                    77.3        78.5     79.2      78.3     76.5

So after five years of aggressive ebook transformation of its fiction and narrative non-fiction list this company is in a steep and serious decline. The more ebooks they sell, the more their total business suffers. It’s a disastrous business scenario.

No wonder publishers are worried and adopting defensive postures. Let’s examine them.

Reactions

The initial response of many publishers to the rapid emergence of low-priced ebooks was to implement the familiar analogue strategy called ‘windowing’. In the print world the first release of a new book is in the highest price edition, whether hardback or trade paperback, and this is subsequently followed 10-12 months later by a lower priced premium paperback, and finally by a mass market paperback. In the US prices typically go from $27.95 to $14.95 to $7.95. In Australia they go from a Trade Paperback price of $32.95 to the literary paperback of $24.95 to the mass market price of $18.95. This staggered arrangement has always worked well, and has its origins in the physical need to print cheaper editions to meet continuing demand at cheaper prices.

So in 2009 publishers thought windowing was the obvious way to go for ebooks, as this would protect the higher priced print edition from immediate cannibalisation, thus allowing time for revenue and profit maximisation to establish the necessary return on the investment made. But the consumer backlash against this strategy was immediate, vocal and ubiquitous. Consumers were outraged that, having forked out for an e-reader, they were being denied the very ebooks they wanted – the latest releases. The blogosphere this time last year was electric with anger. In no time at all, therefore, publishers dumped windowing. They suddenly realised that an analogue concept dependant on printings was utterly out of place in an e-world.

So the next strategy publishers tried was to target Amazon for pricing Kindle ebooks so low. Publishers uniformly considered, with few exceptions, that the whole emerging ebook economy was in danger of being so skewered by Amazon that it would very likely destroy the whole book trade. Consumer expectations around price would be set at such a low level that no player could possibly make any money. It would be a situation that could never be reversed. Authors, publishers, competitive ebook suppliers and retailers – nobody in the chain could ever get a decent return on their investments. The industry would suffer immeasurable harm.

Then Apple emerged with its Agency model of pricing and supply. This gave pricing power to the publisher, removing it from the distributor/retailer. In return publishers would assume responsibility for sales tax collection and administration, a particularly onerous burden in the US where many states have different rates and exceptions. In return publishers only had to give Apple a 30% ‘commission’ or discount, a lot better deal than the minimum 50% Amazon demanded.

Publishers heralded the Agency model of supply, in my view quite unthinkingly. When the time came to sign supply contracts with Apple, whether for the iPhone or iPad or any Apple device, contentious clauses abounded. Apple demanded that, although publishers could set the prices, they had to do so within certain set parameters that would be acceptable to Apple customers. Ironically these turned out to be roughly equivalent to half the price of the highest print edition, much lower than the prices publishers had set, and off which they had extended the 50% discount to Amazon.

Print edition under:

$22.00 = $9.99 or less
$24.00 = $10.99 or less
$25.00 = $11.99 or less
$27.50 = $12.99 or less
$30.00 = $14.99 or less
$35.00 = $16.99 or less
$40.00 = $19.99 or less

What Apple was quite clearly saying was ebooks should be half the price of the print edition, until the low priced paperbacks kick in. Publishers had been pricing much higher than this, some even at the same price as the hardcover.

I’m sure you know the fascinating little drama that unfolded between Amazon and the publisher hero of the hour, John Sargeant, CEO of Macmillan US. Sargeant refused to supply Amazon with Macmillan’s ebooks unless it adopted Apple’s agency model of supply which theoretically gave publishers the power to price. For two whole days Amazon refused – before it gave in. I wrote about this unseemly capitulation in my blog post of April 2nd this year:

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.

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%? [6]

This would have preserved the wholesale model, where the retailer, not the publisher sets the ultimate price to the consumer. 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 inexperienced and pretty hopeless at this sort of stuff.

In my view the Agency model of ebook supply is seriously wrong-headed, and I’m astounded that serious commentators on publishing matters in the US have not come out and condemned it 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.

In Australia we thankfully have very clear legislation that prohibits arrangements like the Agency model which allows producers to set prices and mandate retailers to abide by them. We are one of the few countries in the world with clear and unambiguous Resale Price Maintenance provisions as part of our Trade Practices Act. I part company from my colleagues on this. Most publishers in Australia are still heralding the Agency model as some sort of saviour of the industry, and they’re spending small fortunes on legal fees to explore ways around the Australian prohibition. They are sadly mistaken.

Look what’s currently happening in the UK, where, despite a more accommodating legal environment, publishers are not insisting on an agency arrangement and the wholesale arrangement is in full swing. A fierce, let-‘er-rip price war has been unleashed as the Waterstones and WH Smith chains are taking on the new UK-established Kindle ebook store. Apple’s prices, set by the publisher, are only on average 15% lower than the print editions, whereas Kindle’s and WH Smith’s are 60%+ lower.

Publishers just have to come to terms with the elementary fact that retail behemoths will always engage in savage, to-the-death, competition with each other to gain market share and consumer loyalty. It’s the free market. Eventually things wash out. Normality returns as losses can’t be sustained forever. Sooner rather than later prices achieve equilibrium, a state where things are in balance and everybody gets on with dealing with the real challenges of commerce in a free society.

Producers who try to control this sort of thing are being fundamentally anti-consumer, and that’s why it’s illegal in Australia.

Royalties

Another expression of publisher anxiety as the industry faces the unrelenting march of this paradigm-shifting, traditional business crunching, ebook world is the attitude to author royalties.

There has been much discussion and debate about this over the past year or so, and it has recently come to a head in the US with literary agent Andrew Wylie’s Odyssey Editions initiative. Publishers have been consistently arguing that they can afford to pay authors no more than 25% royalty on net receipts, that is, the price after discounts or commissions. This roughly equates to what successful and established authors receive on print editions. Wylie, along with every other agent in the world, had been increasingly dissatisfied with this publisher attitude. He decided to go it alone by setting up his own ebook publishing company representing about 20 classic backlist titles, and signed an exclusive two year distribution agreement with Amazon.

Random House recently settled with Andrew Wylie by offering to pay 35-40% on the 13 backlist titles where Random had print edition rights but where the parties were in dispute as to who controlled the digital rights. Other publishers are expected to follow this lead.

This doesn’t really settle anything, however. The real issue is the standard, benchmark royalty that should be offered to all authors, new or old, in dispute or not.

The industry remains all over the place on this one. Authors and their agents are arguing for between 35% and 50%, and basing their arguments mainly on the cannibalisation syndrome. The royalty from an ebook, they argue, should approximate the dollar amount the author would get if it were a print book being sold. Thus the Australian Society of Authors (ASA) recently issued a paper to their members arguing this point [7]. Their calculations ended up with the figure of 35% as being the right one. Other author societies and guilds around the world, and literary agents, have argued for 50%, a figure not based on anything other than ‘an equal share of revenues’ concept.

To help get to the bottom of this, and try to establish what is fair, with your indulgence I need to do another computation:

                                                                       Print Edition             EBook

Retail Price (incl GST):                                        $32.95                  $20.00
Retail Price (excl GST):                                       $29.95                 $18.18
Less retailer discount:                                            47.5%                   50%
Net Price:                                                           $15.72                    $9.09

Total Life Sales (units):                                          6361                      3181
Total Life Sales (dollars):                                   $100,000              $28,915

Editorial/Design/Typesetting:                                 $8,000                    -
Printing:                                                              $20,000                    -
File Conversion/Hosting:                                           -                      $1 600
Author Royalty %:                                                 17.5%                    35%
Author Royalty $:                                            $17,500               $10,120
TOTAL COST:                                                 $45,500               $11,720

Gross Margin:                                                    $54,500               $17,195
Stock Writedown/Bad Debts:                               $3,000                   $500

Gross Profit $:                                                    $51,500               $16,695
Gross Profit %:                                                       51.5%                 59.5%

Print business overheads (35%):                          $35,000                     -
Ebook business overheads (22%):                            -                       $6 361

Operating Profit ($):                                         $16,500               $10,334
Operating Profit (%):                                             16.5%                  35.7%

A long established and fundamental principle governing the author/publisher commercial relationship is that both parties should equally share in the financial rewards that the project brings, after all their costs are deducted. The royalty should approximate the publisher’s operating profit on each project. If you look at the figures above the author and publisher are roughly getting the same dollar amounts from the project. In the case of the printed book the author is getting $17,500 and the publisher $16,500. In the ebook case, the author is getting $10,120 and the publisher $10,334. These amounts will vary of course, depending on the project, but the general principle is important.

It is this principle, not any false notion of dollar royalty equivalence across editions, that should inform the debate over royalties due authors on ebooks. I’ve demonstrated 35% to be far more in the ballpark than 25% or 50%.

Now, many publishers take exception to this. They argue that ebooks can’t be evaluated in isolation like I have done above. John Schline from Penguin in the US is quoted as saying ‘you don’t do a P&L on a format; you do a P&L on a title’. Editorial costs, for example, should be allocated to the ebook as much as the print book; all the publisher’s overheads should be allocated equally across all formats, etc. But this is simply an exercise in transference. We don’t do this for successive print formats like mass market paperbacks, or book club editions, or anniversary or premium editions, or export editions. We identify the incremental costs incurred according to the particular dynamics of the project, and attempt a Profit and Loss (P&L) account to guide pricing, royalties, distribution, publicity and other format driven activities. In other words we isolate the format-driven costs in most instances.

I contend therefore that authors are getting a bad deal from publishers at the moment and this cannot and should not last. There is plenty of room to move, after all, judging by my figures above.

Some authors, out of frustration, have been experimenting with going it alone – self-publishing. Amazon, after all, offers an attractive deal – 70% of sales proceeds. Smashwords offers 85%. But this is a fairly illusory solution, it seems to me. Print books are still 90% of the market and likely to be dominant for a few years yet, and authors need the intensive publicity and marketing that established publishers alone can bring to the table.

But at least this phenomenon, or threat, is forcing publishers to see sense and give ground, and that is a good thing.

Retailers

Of all the entities that comprise the book trade, the one most at risk in the ebook world is the traditional retailer, the bookseller. While the large retail chains around the world seem to have engineered a place for themselves, because of their financial firepower and reach, by investing in and manufacturing their own brand of ebook device (apart from, interestingly, Dymocks in Australia) it is the small, quality independent bookseller who looks like an endangered species.

And they are very nervous, particularly here in Australia. They are already suffering quite badly because of the migration of many customers to Amazon and Book Depository.com due to Australian publishers’ continuing practice of over-pricing US and UK titles when the Australian dollar is as strong as it currently is. Many of us in the trade have been warning for some time that these habits are unsustainable, but throughout 2010 the industry is really feeling it. A substantial number of Australian booksellers are themselves ordering overseas titles from Book Depository, who pay the freight, rather than order from the local supplier.

You can imagine how attractive the Kindle and the iPad are in that environment, and how attractive globally priced ebooks are. Australian book buyers are not stupid.

Google and its Google Editions project offers real hope for independent booksellers that they’ll be able to get a piece of the ebook action. According to Mike Shatzkin ‘[Google] are likely to be offering the largest selection of ebooks from any single source. [They] have a staggering number – millions – of public domain books but they will have professional and scientific books not published on most of the prior ebook platforms. Their well-promoted proposition is their cloud model, which will allow their ebooks to be read on any device that can support a browser’. [8]

But it is the fact that they intend to offer a wholesaling service to bookstores that is the clincher. They will be offering a full, complete and device non-specific service, meaning that participating booksellers will be able to sell ebooks, either alone, or in an undoubtedly popular print/ebook bundle, to their customer base.

Apparently no publishers have yet signed with Google. Perhaps it’s the wholesale rather than the agency terms that is the problem, although I’ve heard privacy issues voiced as well. I find this situation profoundly disappointing and impossible to understand. Apart from residual anger over Google’s library scanning project, now on the brink of resolution, there is no substantive reason for publishers to be reluctant to embrace this obvious partner. There seems to be a complete lack of trust of Google. A seasoned bookseller said to me recently ‘publishers are a funny bunch – they are very emotional!’ And that is so true.

Meanwhile independent booksellers are in limbo. And consider this: while ever they are kept out of the equation, the whole printed book culture, especially the quality fiction and narrative non-fiction end of it, is in serious jeopardy. Independent booksellers are a critical factor in the economic vitality of this part of the business. Unless culturally important books are on their shelves, unless author events are organised on their premises, unless they have the basic financial strength, including growth prospects, to stock, merchandise and attractively lay out their stores to attract the discerning customer base they go for, then the whole book business is threatened.

It is Shatzkin’s often expressed view that bricks-and-mortar’s share of total trade book sales in the US will drop from around 80% today to about 30% in five years time – a 60% reduction. [9]

I personally don’t share this alarmism. Visions of apocalypse are always 100% wrong, after all. Nevertheless, what if he were only half right? It haunts me, it really does. I prefer the less alarmist view of Marcus Dohle, global CEO of the Random House (and I give his view significant weight as Random were the only major trade publisher to resist the illusory delights of the Agency model), who is more optimistic about the longer term survival of the printed book and bookstores. [10]

Rights and Availability

Before I conclude I would like to take a brief look at the current position of ebook availability in Australia. If you own an iPad, a Kindle, a Kobo, a Sony or any other eReader, or even if you’re inclined to read ebooks the old-fashioned way, on your PC, you will know what I mean when I say that the ebook experience for Australians is a thoroughly impoverished and deeply depressing one.

Last week, when I was writing this paper, I decided to do a little experiment, just to gauge for myself what anecdotal evidence has been saying over the last 12 months about our limited ebook choices. I listed all the books I have read since January 1 this year, and divided them into US, UK and Australian titles. There were 17 titles originally published in the US, 14 in the UK, and 15 in Australia [11]. I consider this a fairly representative sample of latest fiction and non-fiction releases.

Of the 17 US titles, only 8 were available in Australia. Of the 9 that were not, 5 were not yet published in ebook format even in the US, and 4 were but were not available to Australians.

                        This title is not available for customers from:
                                                               Australia
                                           Shop for titles available for Australia

That message on Amazon is all too common.

Of the 14 UK titles 8 were available in Australia, 3 were not yet published in ebook format even in the UK, and 3 were available in the UK but not in Australia.

Now for the sorry picture on the 15 Australian titles. Only 2 were available on the Kindle, and rather surprisingly, only 2 available on the local Kobo managed by REDGroup retail. What really annoyed me, however, was that 4 Australian titles were available to Kindle-owning Americans but not Australians, and this included Peter Temple’s Truth, this year’s Miles Franklin winner.

Of course we recognise that many publishers around the world, particularly the smaller ones, are struggling to get their ebook versions published at the same time as their print book releases. Organising internal production systems, signing contracts with Amazon, Apple, Kobo and the rest of them –all this is a complicated process and an administrative burden to say the least. In some cases, however, there’s no enthusiasm for the task, or any sense of urgency, because publishers are gripped by the fear of cannibalisation. In Australia our publishers have been slow to get on board for two principle reasons – the quite small and relatively insignificant market because of the small number of device owners, and the cumbersome task of dealing with Amazon and Apple who have dedicated woefully insufficient resources to the production and administrative processes at their end. Australia is very small beer in their world.

But far more significant than any of this admin stuff that will surely be resolved over the next 12 months or so, is the question of territoriality. More than any other global territory, we suffer adversely from English language rights sales by our transatlantic friends that, more frequently than not, don’t include Australia. Ironically, we are suffering even worse in the distance-negating world of the digital file than we ever have done in the analogue, print book world.

This could be very easily fixed, but like much else, we are bringing legacy thinking, the categories of an analogue mind-set, to the new digital circumstances.

The trading of rights in physical books results in separately printed editions in the various territories. The economics of this makes sense. Shipping heavy books around the world is costly, time-consuming and inefficient. But separate territorial ebook editions are a nonsense. The better solution would be to have all publishing parties around the globe who have bought the rights to their territories share revenues on the one original ebook edition. It really shouldn’t be hard to administer this. Thus the ebook would be available from day one to all customers globally, and the original ebook publisher simply keeps track of customer locations and rights sales and disburses revenues accordingly. Ebook suppliers like Amazon and Apple can easily report territory sales.

There is another part of the current, clumsy way the industry handles this that adds immeasurably to customer frustration, and that is to shackle retailers like Amazon into honouring territorial agreements between publishers. It is quite wrong, in my view. It doesn’t happen in the physical world where retail behaviour regarding copyright protected products is governed by the First Sale Doctrine in national Copyright Acts, including the US, UK and Australian Acts. The publisher’s control over who the retailer sells the product to is exhausted once the first sale to the retailer is made. This is a fundamental principle and allows Amazon and other retailers to legitimately sell to Australians an American edition of a book where Commonwealth or Australian rights have been sold to a UK or Australian publisher. We desperately need that freedom in the e-world, but seem to be a long way from getting it.

                      This title is not available for customers from:
                                                              Australia
                                         Shop for titles available for Australia

I never want to see that again. But sadly, I will, and, I suspect, for many years to come.

Publishers say that Amazon is too strong and should be constrained. In my view they are not strong enough. And shamefully, they don’t seem passionate enough to stand up for some pretty basic commercial principles. We Australians are very much the poorer for it.

Conclusion

At the beginning of this paper I presented a five year revenue and profit outlook for a typical large publisher facing the challenge of a rapidly growing ebook business. The numbers did not look pretty. I referred to the prospect of likely cannibalisation – a severe decline in the traditional print business which was not being made up by sales of ebooks. I reflected on the responses we’re typically seeing from global publishers, responses characterised by fear, defensiveness and suspicion.

I would prefer to see a publishing community characterised by boldness, not by fear; by a sense of opportunity, not of threat; by openness, not protectionism.

One willing to embrace the self-evident fact that ebooks are only worth half the price of a print book; that there’s a large market out there of disaffected, ex-book readers who are ripe for re-capture at far lower price points with today’s technology. Any many of these customers will be new and young and ripe for conversion into committed, life-long readers.

Our challenge is to move beyond the fear of cannibalisation by courageously accepting the opportunity presented to us. The central tenet is to be aggressively and remorselessly customer-centric. That is hard for any business, for any industry, but it is the only way to break through into the future.

Of course the revenue and profit numbers over the next few years will be problematic. Many of today’s companies will not survive. But publishers need the wisdom and strategic nous to accept a fair measure of pain as a necessary process of transition to a new and vibrant future, the specific contours of which are as yet unknown. To do otherwise is to simply fade away. That ‘persevering in the middle’, as management theorist Rosabeth Moss Canter calls it, is common to all industries at some point in their development. Look at telecommunications: Telstra, for example, with its dying revenues from its highly profitable copper wire, fixed line business. They’ve finally confronted the unpalatable truth – in the next few years their total revenues and profits will decline as they focus on mobile, fibre and wireless businesses and embrace the challenge of radically changing their corporate culture to a customer-centric one.

In Nicholas Carr’s just published book about the internet, The Shallows, he reflects on the critical change to Western culture and civilisation brought about by Gutenberg’s invention of the printing press in 1445. Within 200 years ‘the literary mind, once confined to the cloisters of the monastery and the towers of the university, had become the general mind. The world, as Bacon recognised, had been remade.’ [12]

Today publishing is surely at the beginning of a profound and positive change to the very structure of the industry. It’s best to be in favour of it.

NOTES

1. Print is Dead, Jeff Gomez, Palgrave Macmillan, New York, 2008; The Book is Dead, Sherman Young, UNSW Press, Sydney, 2007. (The forecasts referred to are from these books).

2. http://www.idpf.org/doc_library/industrystats.htm

3. Publishers Lunch: www.publishersmarketplace.com

4. http://techcrunch.com/2010/08/06/physical-book-dead/

5. Mike Shatzkin: www.idealog.com/blog

6. Pub Date Critical: www.peterdonoughue.blogspot.com

7. http://www.asauthors.org/lib/ASA_Papers/ASA_Ebooks_Royalties_Contracts_2010.pdf

8. Shatzkin, August 4, 2010.

9. http://www.idealog.com/blog/where-do-we-lose-the-shelf-space-and-how-much-do-we-lose (August 8, 2010)

10. http://www.spiegel.de/international/business/0,1518,709760-3,00.html

11. US TITLES: Storms of My Grandchildren, James Hansen; Outside of a Dog, Rick Gekoski; Game Change, Heilemann/Halperin; Climate Confusion, Roy Spencer; Gusher of Lies, Robert Bryce; Audition, Ryn Murakami; Reality Hunger, David Shields; The Big Short, Michael Lewis; Caught, Harlan Coban; The Ask, Sam Lipsyte; War at the Wall Street Journal, Sarah Ellison; Tinkers, Paul Harding; Innocent, Scott Turow; Imperial Bedrooms, Brett Easton Ellis; The Things About Life is One Day You’ll Be Dead, David Shields; The Passage, Justin Cronin; The Shallows, Nicholas Carr.

UK TITLES: Race of a Lifetime, Heilemann/Halperin; Chill, Peter Taylor; The Man From Beijing, Henning Mankell; If the Dead Rise Not, Phillip Kerr; On Evil, Terry Eagleton; Solar, Ian McEwan; 61 Hours, Lee Child; Alone in Berlin, Hans Fallada; Museum of Innocence, Orhan Pamuk; The Good Man Jesus and the Scoundrel Christ, Philip Pullman; Hitch 22, Christopher Hitchens; Nomad, Ayaan Hirsi Ali; The Thousand Autumns of Jacob De Zoet, David Mitchell; The Whisperer, Donato Carrisi.

AUSTRALIAN TITLES: Cloudstreet, Tim Winton; Breath, Tim Winton; Wyatt, Gary Disher; Dog Boy, Eva Hornung; The Marsh Birds, Eva Sallis; Requiem for a Species, Clive Hamilton; Failure of Free Market Economics, Martin Feil; The Norseman’s Song, Joel Deane; Jasper Jones, Craig Silvey; The Book of Emmett, Deborah Forster; The Bath Fugues, Brian Castro; Truth, Peter Temple; The Family Law, Benjamin Law; Reunion, Andrea Goldsmith; Gunshot Road, Adrian Hyland.

12. The Shallows, Nicholas Carr, Atlantic Books, London, 2010.

The Demise of the Local MD

2010-06-16T10:47:00.001+10:00

It used to be the plum job in Australian publishing, to which every young thruster who joined the industry, and found he or she liked it, aspired. It offered status, good remuneration, regular overseas trips, five star hotels, business class travel, wonderful camaraderie and lots of other perks.

I can remember how fiercely the ambition to make it burned in my breast. It was a privileged club, an elite grouping of men and women with real power to shape the emerging and evolving local publishing industry.

But today it seems that job - Managing Director of the local subsidiary - is fast disappearing. If it exists at all, it is a pale imitation of what it used to be.

Last week McGraw-Hill announced that they would not be replacing their Australian MD, Murray St Leger, who is returning to England. Wiley did not replace me when I retired nearly two years ago. The current MD has a much diluted job. Cengage removed the MD position and now run the local operation from Singapore. There is no CEO overseeing all Pearson operations in Australia. Simon and Schuster diluted the top job after giving it to Lou Johnson by deciding to run the service operations out of the UK.

The flip side, ironically, is that where strong MDs remain in Australia (Gabrielle Coyne and Margie Seale, for example), additional responsibilities for Asian operations have been tacked on to their roles. This just proves my point: a purely Australian focused MD position is no longer thought necessary, desirable or sustainable. Australian operations, at one level or another, are being folded into larger, more global configurations.

Is this important? I think it is, because in a real sense we're seeing a neo-colonisation of the Australian publishing industry. The real independence of Australian management, which was fought for over decades previously, is seriously in retreat. As globalisation increases its grip on formerly multi-domestic corporate structures around the world, local entities in the various territories are losing their identities and cultures and thus their ability to serve their specific marketplaces with focus, vigor and authority.

Ultimately this is a losing formula for globally organised companies. As the local operations become hollowed out they very quickly become uncompetitive. They lose traction. They become unattractive to talent. Key managers, editors, marketers and operational staff spend most of their time talking to global colleagues and serving on global committees. Their focus is inward. Policies, procedures and practices become globally 'harmonised'. Local customers, authors, projects and suppliers are increasingly subject to filters testing their relevance and significance in the global corporate matrix. Australia is once again reminded what a small and relatively unimportant place it is. Australian initiatives - even at benchmark levels of excellence - rarely succeed in getting the green light. Adaptation and acceptance, not innovation or creation, become the norms, under the guise of cost saving. We're all Good Global Citizens.

Of course there are exceptions. There always are. But the trend is definitely there, and I judge it an unfortunate and self-defeating one. Where Australian culture and society is best served under this publishing paradigm is in the vitality of our locally owned companies like Allen and Unwin, Hardie Grant, Text, Scribe, Black Inc, and many more. Their existence, their endeavours and their financial survival are increasingly more important to Australia.

More stength to their bow.

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

2010-04-19T18:18:00.000+10:00

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.

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

2010-04-02T20:27:00.001+11:00

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.

Stumbling Backwards Into the Future: ebooks and Territorial Copyright

2010-02-22T18:40:00.000+11:00

The publishing industry is at a very early stage in working out the best way to proceed with ebooks and territoriality.

Right now book lovers around the world are being utterly antagonised. This is happening for the following reasons:

- Territorial rights are being bought for the 'Work', which is inclusive of all formats. This is right and proper and really shouldn't operate in any other way. Calls by literary agents and author associations for authors to withhold e-rights from traditional print publishers are wrong-headed and, like most things that essentially don't make sense in the real world, will quickly come to nothing.

- But publishers are falling into the mistake of running ebooks along the same familiar tracks as print books when it comes to exploiting these geographic rights. Whereas print books are invariably re-issued in the specific territorial edition, ebooks do not need, and shouldn't therefore be press-ganged into, the same analogue dynamic.

- There is no need at all to 'issue' the ebook into a different territorial edition. All that needs to happen is that the revenue collected for sales into the appropriate territory OF THE ORIGINAL EBOOK needs to be now remitted BY THE ORIGINAL EBOOK PUBLISHER to the publisher who has bought the rights to that territory. There need be no cessation in supply. Amazon, Apple, B&N, Google, whoever, can provide sales data by territory. Amazon does that now for print books.

- What is currently happening is quite absurd, utterly unnecessary and is alienating readers. Let's take a typical example: if a work, in simultaneous print and ebook editions, is first published in the US, then the ebook (barring any silly 'windowing' or withholding policy) is usually available globally, but only until that publisher or the author's agent sells Commonwealth rights. Then it suddenly, and infuriatingly, STOPS being available outside the US, and this state of affairs lasts for months and months while the Commonwealth publisher (my god how that term grates!) ambles up and publishes its own ebook edition.

- UK and Australian publishers have felt little urgency in releasing their ebook territorial versions, as the installed base of ebook readers has been, and still is, quite small. Why rush in and possibly undermine sales of the more expensive print book? Thankfully, over the next year or so we will see this dramatically change. The demand for the ebook will need to be satisfied.

- This is why Australian Kindle owners are so frustrated by not having available to them tens of thousands of ebook titles that are freely available to Americans. The same with Apple Apps. It is all so unnecessary. The mechanics of rights sales, production, versioning, etc, are not the problem. The barrier is conceptual.

- Which bring me to my final observation about how all this is playing out. It is extremely frustrating to me that e-wholesalers and e-retailers like Amazon, Apple, Kobo, etc are willingly partnering with publishers in this backwards stumble into the future. Unlike for printed books, these new world, glitzy digital entities are refusing to supply whole swathes of global consumers because of restrictive, geographic covenants they've entered into with publishers, that force them to honor territorial deals publishers do with each other. It's a clear breach of common and accepted retail practice. Don't get me wrong: publishers are right to do the deals. But retailers are wrong to withhold supply to their customers on the basis of a crass, geographic discrimination.

- It's even worse than allowing publishers to take away from you the power of pricing by forcing you onto an 'agency' model of supply (shame on you Amazon, for your degrading capitulation to Macmillan). That bad publishing strategy will soon come unstuck I'm sure. Give it a couple of years at the most. Publishers have no business dictating pricing to retailers. (It's quite illegal in Australia anyway, thank god!)

- The question for readers is: how long do we have to wait for publishers to focus primarily on the needs of consumers and work out a sensible path into the future, one free of awkward, analogue dead ends and blockages that have no place on the celesial highway?

An Old Idea But Still a Bad One

2010-02-16T16:33:00.002+11:00

This press release was issued yesterday by the Minister for Innovation, Industry, Science and Research, Senator Kim Carr.

SUPPORT FOR AUSTRALIA’S BOOK INDUSTRY IN THE DIGITAL AGE

The Rudd Labor Government is establishing a new Book Industry Strategy Group to help Australia’s $1.5 billion book industry meet the challenges of increased online book sales and grasp the opportunities presented by the emerging ebook market.

The strategy group will bring together representatives from across the industry to map out the way forward for this important sector. It will develop strategies to address the key issues of supply chain integration and developing viable business models for the digital age.

Announcing the strategy group at the Digital Revolution: Publishing in the 21st Century symposium in Melbourne today, Innovation Minister Senator Kim Carr said it will focus on collaboration, transformation and future sustainability.

“The written word may be almost as old as human civilisation itself but this doesn’t mean we can ignore the very real and very rapid advances being made in digital publishing technologies,” Senator Carr said.

“We are moving into an environment in which the printed book is just one platform among many.

“We have a proud and distinguished literary history in this country thanks to the work of generations of talented authors, publishers and local book manufacturers.

“Australia has the only dynamic and growing independent book selling sector in the English-speaking world.

“I want to keep it that way. We must be prepared to seize the opportunities the digital revolution is offering.

“I am giving this strategy group a very clear mandate – I don’t just want a report, I want a way forward.

“I want to see book printers, publishers, distributors and retailers together in one room collaborating with each other and taking responsibility for transforming their industry in a way that ensures its future sustainability.

“The group will be able to tap into our existing $50 million a year Enterprise Connect initiative and a broad range of other programs currently in place to assist business transformation.”

The Book Industry Strategy Group will operate according to precise terms of reference and is expected to report back within twelve months.

Having shamefully walked away late last year from the prime dynamic of industry change, progress and development - competition - the Rudd government now reverts to the oldest of bad ideas - 'industry policy', in order to offer some semblance of actual government engagement with the book industry.

Kim Carr, better known in economically liberal circles as Kim Il Carr, representing in government the remnants of Victoria's once thriving manufacturing base - unionised, organised, centralised - has long been a fevered supporter of the once fashionable but now widely discredited concept of Industry Policy, a complex framework of grants, subsidies, offsets, tax breaks, quotas, tariffs, incentives, marketing boards, mandates, etc, that were meant, when all boiled down, to provide a good level of protection to industries from the chill winds of global competition and technological disruption. Give them a helping hand, so to speak. Ensure, in today's parlance, their 'future sustainability'.

Look at the press release, interesting on a number of levels. Firstly and superficially Minister, the book industry is $2.5 billion in size, not $1.5 billion.

Secondly, why aren't the nation's authors part of this collaborative 'all together in one room' process? All other players are there: printers, publishers, distributors and retailers. And come to think of it....why not..er.. READERS?

Thirdly, Carr lauds the fact that 'Australia has the only dynamic and growing independent book selling sector in the English-speaking world', and he 'wants to keep it that way'. But he seems blithely unaware that, 'seizing the opportunities the digital revolution is offering' may very well mean a wholesale undermining of the retail bookseller. His protectionist instinct is flying in the face of reality. You can't skewer things so two opposing forces suddenly cease to oppose. The dynamics of the free market will work these things out, not noble sentiments or 'strategy groups' or any officially sanctioned 'collaborations'.

It's not hard to guess what this ominous, Roald Dahl-esque BISG will recommend. It will simply pool all the trade's current obsessions and delusions which have been articulated to the point of exquisite tedium over the last awful year. After a breathless appreciation of the government's wisdom in retaining the parallel importation restrictions, the central recommendation will undoubtedly be to impose the GST on Amazon. Then to empower the Australia Council with more money for literature and 'industry development'. Then all sorts of 'facilitation' stuff that bureaucrats love. All very deep.

Industry programs and proposals going back decades will be dusted off, given a fresh coat of paint and enthusiastically re-presented. To a government that staged a 2020 summit which elicited heaps of recommendations that have never since seen the light of day. (I wouldn't be at all surprised to see the printers re-propose the book bounty! This is Carr we're talking about...)

I'm too cynical, no doubt. But rest assured, I do know what I'm talking about.

Down Under and Anal

2010-02-05T11:01:00.000+11:00

The Federal Court's decision that the flute riff in the classic Australian song Down Under breaches the copyright held by Larrikin Music in the iconic Australian folk song Kookaburra Sits in the Old Gumtree is quite simply appalling.

The judge found that a 'substantial part' of Kookaburra was swiped by Greg Ham for his solo, and that substantial part added up to two bars, yes, TWO BARS! Given that Kookaburra, in total, adds up to four bars, then 50% must be considered substantial.

Now no-one could object to that: 50% of anything is a substantial part.

The problem is this: when any piece of copyright content is short and brief it would be almost impossible to quote even the smallest part of it without running up against the concept of substantiality. And quoting and referencing prior works is what so much of creative output is all about. New works build on the rich legacy of others - the musical, literary, filmic, performance traditions in which they live and breathe. That tradition is enriched and extended by borrowing, tribute, echo, reflection, criticism, satire, etc.

Ham, a classically trained musician, wanted to introduce into Down Under some appropriate Australian references. Quoting two bars (remember, two bars) of a universally known and revered old Australian children's song, written in 1934, was reverential and enhanced the overall wittiness of the entire Down Under song. As well, the two bars were only a small part of the solo and an even smaller part of the song.

The judge seems to me to have missed the logic of this. It would have been impossible for Ham to have quoted less than two bars (eg, one bar) and still achieve his valid purpose - the small and enriching quotation, that had to be recognisable.

If referencing an insubstantial part therefore of such a brief piece of content is impossible, then surely the concept of substantiality in this context is bereft of meaning.

The judge has delivered a decision based on an empty technicality. It also runs totally counter to the current musical culture of sampling and remixing, and for this reason alone will stoke the fires of disaffection that are bringing the whole notion of copyright into disrepute, particularly amongst the young.

What a lost opportunity. An opportunity to be wise.

Macmillan and Amazon

2010-01-31T11:01:00.003+11:00

The hamfisted attempts of US publishers to force Amazon to raise its ebook prices to above US$9.99 have now descended into farce. (See Macmillan's letter to authors below)

This sort of activity is quite illegal in Australia, under our Trade Practices Act, and thank god for that. It is openly and brazenly anti-consumer. No Australian corporation can indulge in any action or strategy aimed primarily at forcing a retailer on price.

We get a few things right in this country, we really do.

To: All Macmillan authors/illustrators and the literary agent community

From: John Sargent

This past Thursday I met with Amazon in Seattle. I gave them our proposal for new terms of sale for e books under the agency model which will become effective in early March. In addition, I told them they could stay with their old terms of sale, but that this would involve extensive and deep windowing of titles. By the time I arrived back in New York late yesterday afternoon they informed me that they were taking all our books off the Kindle site, and off Amazon. The books will continue to be available on Amazon.com through third parties.

I regret that we have reached this impasse. Amazon has been a valuable customer for a long time, and it is my great hope that they will continue to be in the very near future. They have been a great innovator in our industry, and I suspect they will continue to be for decades to come.

It is those decades that concern me now, as I am sure they concern you. In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.

Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.

The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.

Amazon and Macmillan both want a healthy and vibrant future for books. We clearly do not agree on how to get there. Meanwhile, the action they chose to take last night clearly defines the importance they attribute to their view. We hold our view equally strongly. I hope you agree with us.

You are a vast and wonderful crew. It is impossible to reach you all in the very limited timeframe we are working under, so I have sent this message in unorthodox form. I hope it reaches you all, and quickly. Monday morning I will fully brief all of our editors, and they will be able to answer your questions. I hope to speak to many of you over the coming days.

Thanks for all the support you have shown in the last few hours; it is much appreciated.

All best,
John

More iPad: quite simply it is way too big!

2010-01-29T09:28:00.002+11:00

I think I'm on fairly safe ground in predicting that Apple's new iPad will never make it as an eReader that competes with the Kindle. It's just TOO BIG!

No humungous device like this has any chance whatsoever of capturing a sizable share of the standard trade ebook market. Amazon can rest easy. Can you imagine consumers lugging this thing around just to read Dan Brown in a cafe, on a small wobbly table which can barely cope with a coffee and a Danish now?

I was eagerly anticipating the iPad as I imagined it would be roughly the same size as the Kindle but with far more screen real estate; and in color; and web-enabled. One of the Kindle's biggest design flaws for me is the fact that the keyboard takes up far too much room at the bottom, thus making the actual screen far too small. I use the keyboard infrequently - it's only a search function - but of course read from the screen constantly. The entry hall of a house shouldn't be the same size as the living room! No sense there.

The iPad will most probably become a niche device, used by sales reps for product presentations, etc, much as existing tablets are now. But it is in the textbook space that the real revolution will take place. Content combined with interactivity and communication: that's the textbook future. Most students in five years time will be lugging around iPads instead of laptops, and certainly instead of textbooks.

So there is still a space in the market for a multi-functional ebook reader that is actually aimed at the ordinary consumer who goes to a cafe, travels on public transport, and flies in planes. It ain't gonna be the iPad.

Slouching towards Bethlehem...

2010-01-28T15:36:00.000+11:00

There is a huge textbook industry out there. Today, courtesy of the iPad, it just died..

ebooks: being customer-centric.

2010-01-21T14:36:00.001+11:00

The ebook debate is becoming very confusing, with all sorts of people saying all sorts of things.

The only way to cut through and get some clear perspective is to do what strategists should always do, that is, see it through the eyes of the customer. Be CUSTOMER-CENTRIC. It's not easy but it's essential.

As a new consumer of ebooks, here's an early stab at what I would like to see:

1. Simultaneous publication with the first version of the print book.

Some major US publishers are getting spooked by Amazon, and delaying their ebook release dates for a few months. They're trying to protect print edition sales from being undercut by Amazon's nasty $9.99 price. Instead of seeing hundreds of thousands of new and enthusiastic Kindle owners as an opportunity they're seeing them as a threat, because some of those enthusiasts would purchase the print book if the ebook weren't available. Some. Maybe 25-30%? Let's do the math:

   Print revenues without the ebook available:    10,000 x $15.00 net = $150,000.

   Print revenues with the ebook also available:    7,000 x $15.00 net = $105,000
   ebook revenues:                                              3,500 x $12.00 net = $42,000

(I've assumed ebook sales to be 50% of the print book sales if both versions were available, as Amazon seems to be suggesting this is their current, for now at least, sales ratio).

So you can see revenues are pretty much the same under both scenarios.

2. ebook prices should be lower than the initial print version by 30% at least, and then decreased sequentially just as print books are now.

Let's look at what the customer doesn't get by purchasing an ebook: a well-designed and printed package which incudes an arresting, beautiful cover; something to place on a bookshelf for all to see and pick up for years and years; something to lend to family and friends; something to sell second hand; a felt sense of where you are and how much further you've got to go - the standard 'flick' thing. What you get instead is just the content, in a standard typeface, with clumsy accessibility. It's a pared down, decontextualised experience, well and truly.

What I'd dearly like to see, and would be willing to pay extra for, would be the ability to purchase a 'print and ebook combined' package at my favorite terrestrial bookstore. If I could buy the printed version of Wolf Hall and get the ebook version thrown in for either free or another five bucks, that would be wonderful. That would entail a partnership agreement between the bookseller, the publisher and Amazon, so that when I walked out of the shop I carried the thick-as-a-brick paper version and knew that the ebook version was sitting snugly in my Kindle. A real 'home and away' package!

Regarding prices, there is a great deal of confusion in the industry on this subject. There's this quite silly notion that the ebook has to be the same price for all time. Rubbish. The whole point of sequencing cheaper versions of print books, from the initial hardback, to the trade paperback, through to the mass market paperback, is to make the book available, in an orderly fashion, to wider markets at lower prices. People don't want the mass market paperback - they want the mass market price. Ebooks therefore, where no printing costs have to be lowered accordingly to protect margins, can also undergo a lower price process. In the first year of publication they could be 70% or so of the hardback price, in the second year 50%, and finally 30%, or some such gradation. Not all books have to follow this tradey sequence of course, but many do. You can't have a situation where the ebook is $10.00 and the paperback $8.00. (I'm talking US dollars here, as this is where the debate is. We're a long way from the action in Australia, unfortunately, and will be until local titles are readily available on the Kindle, the iPhone and then all the others).

3. Choice should be part of the standard offer.

Publishers should stop seeing the so-called 'enhanced ebook' as part of the pricing solution, as in 'Throw in some audio, video and added extras and we can charge more and solve our revenue problems'. As a customer I want to be able to chose - either the basic or enhanced version, or a print/ebook combination, or some other appealing package.

So in summary, publishers should embrace this new market aggressively and optimistically, and stop being scared witless and defensive. Focus on readers and customers and their needs and preferences. As for Australian publishers, for god's sake get off your bums and get on with it.

Game Change and Clueless Publishers

2010-01-20T14:30:00.002+11:00

Obama's run for the White House was always going to going to be a ripe subject for an intriguing, behind the scenes, tell-all political tome. Game Change is definitely it. Published in the US by HarperCollins and re-titled, stupidly, by Penguin as Race of a Lifetime for those of us in the British Commonwealth who couldn't possibly relate to 'Game Change' as a title, it's an absolutely fascinating read for political junkies of all sorts.

Some observations:

First, well done Penguin Australia for getting the book out on virtually the same day (Jan 11) as the US release, and for pricing it competitvely ($32.95 for 448pp, which is today's exchange plus 10% plus GST plus price point rounding, which is the fair formula).

Second, a book like this, which pulls no punches and is full of some really unpleasant revelations about so many of the major and minor players in the Democratic and Republican campaigns, could never have been published in Australia about Australian politicians because of our restrictive defamation laws.

Third, changing the title for the Commonwealth edition virtually guarantees the book doesn't capitalise on the huge publicity Game Change is getting in the world's media. I stumbled on it in Readings by accident when I was actually looking for the title Game Change, and thinking I'd probably, once again, have to go to Amazon. As will so many other junkies.

And finally, what a mess HarperCollins have made of the ebook. They're delaying the release for six weeks so as not to allow Amazon's $9.99 price to undercut hard cover sales. This is causing a consumer revolt, as it should. Clueless in the extreme. No respect for consumer choice. This is how traditional publishing will die.

Amazon and ebooks: a Dialogue

2009-12-16T19:13:00.000+11:00

The rise and rise of Amazon: prepare for the battle.

Rachael McDiarmid:

In the past few days several US publishers have announced they will be delaying the release of e-book versions of major releases. So what does Amazon do? Well, instead of selling for the already loss-leading price of US$9.99, let's take it even lower to $7.99!!! Let's show the publishers exactly who is in charge of this ebook market. Let's offer Under the Dome by Stephen King and Going Rogue by Sarah Palin for $7.99. The hardcover for the latter is listed on Amazon as US$28.99 slashed 50% to US$14.50. Slash it by half again if you want the ebook. Bestsellers are being slashed - Stephenie Meyer's first two Twilight books for US$4.25, Stieg Larsson's The Girl Who Played with Fire at US$7.99. Slash Slash and Slash again.

What happens next? Well surprise surprise, Barnes and Noble cut their ebook prices to match. I'm now waiting to see what Sony does. They've already admitted the US$9.99 price is NOT PROFITABLE. You can read the full article here. Yet I'm taking bets as to when they'll slash their prices! Any takers?

But back to the giant that is Amazon. I know some publishers are trying to wrestle control away from them so they can control their own ebook destinies. Can't everyone see these price points are DEVALUING the product and the whole reading experience? And what about profitability folks? It's already fragile in the bookselling and publishing industry.

It's no use discussing what percentage Amazon, Sony, Scribd etc take on ebook sales. We already know Amazon is using their pricing strategies to make the Kindle the ereader of choice, to build market share and customer loyalty. Sony has pretty much admited the same. They invest in the technology, they need people to buy it.

While publishers benefit from the lower ebook prices in the short term (through higher sales), according to Mike Shatzkin they "don't trust Amazon to keep things that way. From their perspective, Amazon is building a consumer expectation of an under-$10 price point while they are building up their audience of captive Kindle consumers. How long can it be, publishers figure, before Amazon says 'sorry, now you have to sell me these for under ten dollars?'" Mike also shared his thoughts on the possible war over the issue, including publishers not supplying or selling e-books through Amazon, Amazon suppressing the sale of their printed books, and more.

So when and where will the battle lines be drawn? It's a'comin, folks. Wait and see...

Peter Donoughue:

Frankly, I don't think there's an issue here Rachael, apart from the entirely normal one of a retail behemoth flexing its muscles (yawn).

Publishers should relax. And Mike Shatzkin, who has always been wary of Amazon, has it wrong too. Retailers will do what retailers always do - fight for market share. Amazon wants to make it hard for Barnes and Noble and their new nook, and others, and what's wrong with that?

The real story here is how publishers are getting their strategy wrong, by delaying ebook releases. Publishers Lunch had a nice dialogue on this this morning, with top publishers all agreeing delaying makes sense: 'It's like delaying the paperback release - no different'....

This doesn't make sense. It IS different - very different. We're not talking about print dynamics, with their traditional print audiences. We're talking a new digital paradigm, with a new customer dynamic, that needs to be respected. These customers resent waiting. They don't wait weeks for the SMH to put a major story on their website just to force punters to buy the printed paper. How absurd!

Amazon and the GST

2009-11-28T11:15:00.009+11:00

I've said it plenty of times before, and I'll say it again: calls by Australian publishers and booksellers for the government to force Amazon to charge GST to Australian customers are profoundly misplaced. As a government policy it would be just plain bad.

Here are the reasons:

1. It would dampen the pressure on publishers to keep their markups on imported titles reasonable and competitive. (And the government have relied on this pressure as a justification for not tampering with the parallel importation restrictions).

2. Booksellers should welcome this pressure, not lobby to weaken it. The most effective way for booksellers to compete with Amazon is through ramping up the pressure on publishers to be more competitive on pricing, delivery and trading terms, and certainly not by (once again!) supporting publishers in their efforts to be protected from it.

3. I'm not an accountant or tax expert, but I'm sure it's relevant that the GST is a value-added tax, not a consumption tax or sales tax. So businesses have to be in the Australian value chain to be able to deal with it administratively and financially. Businesses that charge the tax receive input tax credits for the GST charged all the way through their supply chain. Overseas businesses supplying direct to consumers are, by definition, not in the supply loop. Nor are they subject to Australian law. This is why calls to 'slap a GST on Amazon like US states that impose their sales taxes', are naive. It's apples and oranges. If ever Amazon sets up a distribution centre in Australia, that's when they'll be forced to charge GST.

4. The Rudd government has just decided that Amazon is the savior - a friend of booksellers, printers, authors, readers, because of the pressure it puts on publishers to ratchet up their performance. So does the industry really think the government will now agree to protect publishers from that competitive rod up their arse?

5. Booksellers have one huge advantage in competing against Amazon - they don't have to charge freight. If that sizable impost doesn't currently deter Australians from purchasing from Amazon, then an additional 10% GST won't make one skerrick of difference, and is frequently washed away by currently fluctuations anyway. Why do booksellers keep banging on about this? Go to the publishers instead and bang on about the need for better, more responsive terms. That would be entirely productive.

6. It's simply not a good look for the trade to be arguing that book buyers should be lumped with another tax. And it's not a good look to keep arguing in Canberra for additional protection. Talk of 'levelling the playing field' is a dead give-away. It's how rent-seekers frame it.

It really is time the book trade grew up, and began to focus on the real issues facing it. There is so much that could be done if all parties stopped being distracted and absorbed by ephemera.

The Big Lie...again!

2009-11-14T10:58:00.009+11:00

I referred in my last post to the Big Lie perpetrated by publishers and authors in the parallel importation debate. Here is a succinct expression of it. It was published in Crikey yesterday:

'Patrick Gallagher, Chairman, Allen and Unwin, writes:

A combination of naiveté and muddled thinking from Crikey in the Great Book Debate. Blind Freddie can surely see the motivation behind the Murdoch Press's rabid publisher bashing, which is simply a case of a handy stick to take to Rudd. Which in fact makes the Government's decision to retain Territorial Copyright the brave one; it would have been far easier to take the populist line, tear down the walls and proclaim cheap books for all.

Put those pesky intellectuals back in their place and give the people lots of cheap rubbish from overseas.

Don't fall for the economists' and free marketeers' attempts to paint this as a failed opportunity to create a nirvana for the reading public. The small but noisy minority led by Dymocks and Bob Carr had one thing and one thing only in mind - better margins for their business.

The government deserves credit for appreciating this, and for understanding the wholesale damage that change to copyright would do to the book industry, to authors and ultimately consumers'.

The Government's decision 'to retain territorial copyright'? That wasn't the government's decision at all! The government decided to retain the importation restrictions. THESE HAVE NOTHING WHATSOEVER TO DO WITH TERRITORIAL COPYRIGHT! (See my speech to the Copyright Society on October 17 on this blog for a explication of this issue).

It really pains me to see seasoned industry players not even at first base in their understanding of these issues after almost 20 years.

Why the Booksellers Comprehensively Lost.

2009-11-12T13:00:00.007+11:00

When the history of the parallel importation debate is written, as I'm certain it one day will be, what with so many publishing courses and academics sprouting like mushrooms across the country in recent years, there will be a judgement made on precisely why the nation's booksellers, big and small, chain and independent, got this debate so profoundly wrong, ill-judged the political zeitgeist, and so comprehensively lost on every conceivable front.

Even given that the Rudd government gave up and played dead on the issue, which is not stopping the APA from insufferably championing its campaign winning brilliance, the booksellers, both the ABA and Dymocks, misjudged their fundamental strategy and therefore tactics so badly that the sorry saga needs to be recorded by an expert commentator such as myself before the caravan moves relentlessly on and we all get back to business.

1. The campaign run by the authors and publishers was based on a Big Lie (not an intentional one, so it would be more accurately labelled a 'big untruth', but that phrase has no poetry or power so let's stick with lie). The central thesis was that it was all about maintaining territorial copyright in Australia, because without it this great and successful industry would collapse.

2. The ABA and particularly its independent bookseller members swallowed this lie hook, line and sinker. I remember the sheer terror I felt when the booksellers, at various meetings around the country last year when the issue first arose, decided to support this publisher thesis and ditch their previously long-held position in support of a deregulated, open market. There was also a misguided belief that any gains from abolition of the restrictions would go mostly to the hated chains who could flex their purchasing muscle to gain more competitive advantage over the little guys.

3. This blog is littered with references to this 'sublime delusion', much to the chagrin of many of my bookseller friends. But the fact is the ABA's adoption of this posture hamstrung them from day one and neutered them in the unfolding political campaign.

4. The one sad fact of this campaign was that the lie was never nailed. Never ever nailed, except by me, a lone, irrelevant and pretty irritating voice. But imagine what could have been, if the ABA, united with Dymocks, had focused their energies in the media, in Canberra and elsewhere on nailing the lie, the absurdity and illogicality of the publishers' line.

5. Every crazy utterance could have been pounced on, and there were literally hundreds of them through the course of the debate. The madness of the printers, for example. Of all the nonsensical propositions put forward the printers' fantasies were some of the most exquisite. But the ABA never had the enemy in its sights. It never even knew who the enemy was.

6. As for Dymocks, what a mess. Their campaign was built around the premise of 'cheaper books' for western suburbs' punters. But they never nailed the lie, didn't even see it. Thus their campaign had no power or momentum. You can't position yourself as an enemy of culture and win any debate in Canberra. You just can't. Because you make it way too hard for the politicians. If you're demanding they nix a thriving and vital cultural industry you've lost them totally. Dymocks had to nail the lie, but they didn't.

7. The APA ran a superb campaign - focused, passionate, constantly on message, and very simple: preserve what we have or see a vital cultural industry die: It's all about preserving territorial copyright. There's the lie right there. And where are the voices saying it isn't so? Even the Productivity Commission was sucked in. It refused to engage and argue this point. In my memorable phrase it endlessly quoted submissions articulating the lie, but left them on the page 'like stinking turds'. It made itself utterly vulnerable.

8. In the final stages of the campaign the ABA and Dymocks, scenting defeat, came up with a compromise plan which was full of holes and could not possibly get up, as I explained in recent blog posts. You just can't propose something that breaches international treaties on one hand, and is utterly impractical in the real world on the other. This was a real low point.

9. Now the booksellers are lamenting the lost opportunity. They should be celebrating what they campaigned for - continuing protection; the continuance of 'territorial copyright' - but they must know they got it wrong right from the start. They are also promising to continue the fight. Oh please! IT'S OVER!

'Governing This Country is All Too Hard': Rudd

2009-11-11T10:06:00.003+11:00

What a miserable waste of everyone's time!

The Rudd government has decided not to reform Australia's book importation regime - at all. Not even the teeniest bit of modernisation. Not even reducing the 90 days on the backlist to 30 days that every party in the industry expected and would have welcomed.

It's almost as if they've discovered Amazon in the last twelve months and concluded 'well, that's let us off the hook! We don't have to think, we don't have to debate, we don't have to upset anyone, we'll just sit back now and luxuriate in the accolades of the nation's authors. Productivity and economics can go to buggery. Basically, governing this country is all too hard'.

I'm flabbergasted! But at least I take comfort from the fact that I did predict it, fifteen months ago when this debate started:

'All of this [the author and publisher claims] is nonsense of course, but it is highly effective politically. No arid report or recommendation from an economic body like the Productivity Commission is going to be able to dislodge these noble sentiments from any politician's breast. So my strong sense is that the reform initiative will falter and the 30/90 day provisions remain'. (LOGOS 19/3, 2008)

Another Look at the ABA's Pricing Proposition

2009-11-08T09:29:00.007+11:00

Malcolm Neil, ABA CEO, has kindly clarified for me how he envisages the Canadian price control mechanism working in the Australian context.

In summary, if a bookseller calculates, on any given day, that the RRP set by the publisher is more than 10% above the price of the overseas edition (excluding GST), then the bookseller can freely import.

In other words, publishers would have parallel importation protection under the law, but that protection would be subject to a continuing test, based solely on price.

As much as I admire Malcolm, one of the trade's gentlemen and a good friend, I feel obliged to say that this is, frankly, unworkable, and will end up being counter-productive to bookseller interests.

Let's tease out the practicalities:

- Publishers set their prices months in advance of publication, for obvious marketing reasons, and they cannot keep changing them based on daily exchange rate fluctuations. Very few systems can handle that, particularly retailer systems. In fact retailers get quite annoyed at frequent price changes, particularly price decreases. It plays havoc with good inwards receipting, account reconciliations, returns processing, etc.

- Yet the ABA is asking for the right to test the legitimacy of those prices on a daily basis.

- Because of the impossible challenge set publishers in such an environment, recommended retail prices will soon be abandoned and net pricing become standard industry practice. Thus the law will be rendered obsolete very quickly.

- Publishers would accept the 10% markup challenge, but they would tighten their trading terms with booksellers as a result. Thus the booksellers will lose out as they have nowhere else to go. This whole debate is not just about lowering prices to consumers - although that's the ultimate point. It's also about lowering wholesale prices to booksellers by allowing them to source offshore to their competitive advantage. Booksellers would be denied this critical benefit of real reform.

- Quite likely, faced with a margin squeeze, booksellers will mark prices up, beyond RRPs, just as Red Group Retail are doing now. So where will that leave the spirit of the legislation?

The ABA is trying to engineer an open market by the back door, and it won't work. Pricing controls, whether direct or indirect, simply don't work. What works is competition.

Had the ABA opted to honor their history and support the open market from day one, as they should have, then they would not find themselves in this awful half-way house quandary. An open market would oblige publishers to earn bookseller loyalty in the usual old-fashioned way, by excellence in all facets of their business including pricing, servicing, and responsive trading terms.

The ABA's price control system will simply antagonise publishers, even those who genuinely want to play the game fairly and responsibly. And it will work against booksellers' real interests.

Where's the sense in that?

A Presentation on Digital Futures - My Speech to the AGM of the Australian Campus Booksellers Association

2009-11-02T20:30:00.015+11:00

Five years ago I made a rather rash forecast in front of about 100 campus booksellers that, because of the rapid advance of digital technology, 50% of them wouldn't be around in five years time.

They've never let me forget it. Each and every one of them are still in business, seemingly stronger than ever.

This is the speech I delivered this week at their 2009 AGM.

First, some snippets to whet your appetite:

'Amazon is the gorilla and it’s setting price expectations, and this will be critically important as this new market unfolds. But, to be frank, reading an ebook is such a pared down, low rent, decontextualised experience, that it’s hardly worth 40% of the hard back price on any measure'.

'Authors are clamouring for a higher royalty rate, and so they should. If publishers’ net profit on the title is higher as a percentage – which it is – then the author’s share should match it. These two elements, net profit and royalty, should always be in balance'.

'Letting the consumer decide would be the best strategy, and this will also be the best way to combat piracy. Don’t alienate your customers. They’ll take revenge. In the global online world, people don’t mind paying, but they do resent waiting. Imagine if newspaper publishers temporarily withheld important content from their websites to force readers to buy the printed paper! Digital editions run in parallel – they’re not part of some outdated analogue sequence'.

A Presentation on Digital Futures – Publishing
(ACBA AGM, Brisbane, November 2009)

Some of you may remember - well...probably all of you remember - that five years ago I stood up at this gathering and pronounced that, because of the rapid advance of digital learning technology in our educational institutions, half of you traditional booksellers wouldn’t be here in five years time. The printed textbook would be well and truly on its last legs.

Looking around this morning I see that all of you are still here! Far from being almost dead, the textbook is thriving. In the year ending August 2008, according to publishing industry statistics compiled by the APA, tertiary sales grew 10.2%. In the year ending August this year growth was just as robust, at 7.8%.

A number of things can be concluded from this. Firstly, and most obviously, I didn’t know what I was talking about, and secondly, some profound transformations we all anticipated simply weren’t happening to the extent we thought they were.

In my defence let me say that I wasn’t alone. In 2001 the huge, global business consultancy company Accenture forecast that there’d be 28 million dedicated ebook readers in use in the US alone by 2005, and ebook sales would be $2.3 billion. Forrester predicted a more modest $251 million in sales of ebook devices in 2005, but – and this is astonishing - $3.23 billion in digital textbook sales. RCA, who made ebook devices at the time, dismissed Forrester’s forecasts as ‘ridiculously low’!

Even Microsoft, when it launched its famed Microsoft Reader software back in early 2000, got it laughably wrong. It predicted that, by 2005 ebook sales would be almost $1 billion, and ebook stands would be everywhere, in bookstores, newsagencies and airports.

Of course, by 2005, nothing remotely like that happened. The Rocket eBook, the SoftBook, the Franklin eBookman were all dead and gone.

Notice, however, that all these forecasts are in 5 year time frames. There’s something about that 5 year horizon that is immensely and emotionally appealing to digital enthusiasts. I guess it conveys the sense that a revolution is just around the corner, and there’s an urgency about it that can’t be ignored. But importantly, it’s a timeframe where, in a rapidly changing landscape, the forecaster can be reasonably assured that he or she is across most of the elements in play.

In preparing this presentation today I read a number of books and articles published over the last two years, notably Print is Dead by Jeff Gomez, formerly Digital Director at Penguin USA, and The Book Is Dead by Sherman Young from Macquarie University. Both these books are excellent and I wholeheartedly recommend them. They were first published two years ago.

But here’s my point: neither book mentions the huge game-changer, Amazon’s Kindle, which was first released in late 2007 (while the books were being printed, ironically) and which, almost singlehandedly, has radically changed the landscape because of its wireless technology, but most importantly, because of its US$9.99 ebook pricing. Suddenly ebooks are off and running. The revolution has well and truly started.

The early forecasters simply got the timing wrong. Had they have opted for a 10-15 year period they would have been substantially correct.

And so perhaps would have I! We should be in no doubt: we’re in the midst of a tectonic shift, and the only question is the pace of it.

In September this year, the Frankfurt Book Fair in co-operation with Publishers Weekly and the German trade magazine Buchreport conducted a survey of international publishing industry experts which showed that most participants believed that 2018 would be the year that digital sales would overtake sales of physical books. Only 22% believed digital would never overtake print. The great majority actually embraced the ‘radical change’ digitisation would bring about.

How quaint now does Pulitzer prize-winning author E. Annie Proulx sound, a decade after she stated in the New York Times that ‘nobody is going to sit down and read a novel on a twitchy little screen. Ever’.

In order to get a handle on what’s happening now, and how things might well develop over the next five to ten years, I’ll first say something about the consumer, then the technology, and finally the economics of it all.

The Consumer

As Campus booksellers your future, more than any other sector of the book trade, lies in the habits and preferences of the under thirties. Believe me, that should be a real worry. While I think I can uncontroversially say that the future of our industry doesn’t lie with the blue rinse book lovers who currently sustain most of our downtown bookstores, and certainly populate our writers festivals, I do predict with a certain trepidation that the declining book reading habits of Gen Y’ers certainly don’t presage a healthy book retailing sector into the longer term future.

In a marvellous book released last year called The Dumbest Generation, Professor of English at Emory University in the US Mark Bauerlein argues very convincingly that our young students today are so absorbed, virtually 24/7, in their digital world, that they are becoming increasingly ignorant of everything culturally, socially and scientifically important. ‘Instead of opening adolescents and young adults to worldly realities, acquainting them with the global village, inducting them into the course of civilisation, or at least the Knowledge Economy, digital communications have opened them to one another – which is to say, have enclosed them in a parochial cosmos of youth matters and concerns.’

Buying music, buying newspapers, watching free-to-air TV at scheduled times, buying books – these are all activities that 20 somethings don’t really do anymore. It’s not how they socially connect and integrate with society. I have three kids in their 20’s and I’m continually amazed by their habits and how they keep up with what’s going on. It’s all through their laptops. They take them to bed. So much for the claimed portability of the book. To them I’m a relic. I actually buy media, entertainment and information on a regular basis. I wouldn’t know how to pirate something even if I wanted to. To them the appurtenances of my information world are analogue legacies with fading relevance. Books are, at the most, beautiful objects, great for gift-giving. I get a cook book for Xmas and I’m expected to cook for them when they deign to visit.

Just as they’ve taken to the iPod and iPhone, so they’ll take to ebooks, on whatever device makes sense and that they can afford. The real issue is, not whether printed books will survive, but whether long-form reading will survive, that absorption that is the book reading experience. There are plenty of voices that are saying that the very nature of reading will change. US guru Bob Stein, for instance, who runs the Institute for the Future of the Book in the US, claims that the 600 page novel, such as Hilary Mantel’s Wolf Hall, this year’s Booker winner, will not be the gold standard for much longer. Mobile technology will re-structure books into ‘shorter bits and bursts’, to be read ‘in the interstices of life’, like standing in queues, etc.

But we don’t have to subscribe to these more far-reaching and radical scenarios to know that there is something profound happening now, around which we need to develop our business strategies immediately. The digital future is really the digital present.

The Technology

Ebook readers like the Kindle, the Sony and Barnes and Noble’s nook are only one manifestation of the new, digital paradigm. There’s a new reader being released virtually every day. An interesting debate is being carried on as to whether the market will go to single purpose devices like these, or multi-purpose devices like the iPhone and other internet-connected tools. Some commentators are predicting the Kindle will quickly be consigned to the rubbish bin of history. In an excellent article in this month’s Monthly magazine author John Birmingham says: ‘Amazon’s electronic reader, the Kindle, which excited primal fears and thrills in equal measure among publishers, may well be dead technology within six months. If Apple releases its long-awaited tablet PC, then Amazon’s closed and clunky ebook system (and its ham-fisted attempt to establish the company as a monopoly provider) will end in abject failure. The modest ebook functions of the iPhone already far exceed those of the Kindle. A larger, more luxurious and powerful device like a tablet PC may provide mainstream publishers with the platform they need to convince paying customers that reading an onscreen copy of Esquire, or The Age, or The History of the Decline and Fall of the Roman Empire is just as pleasing and incalculably more convenient than lugging round an analogue copy.’

As far as young people are concerned, especially students, there can be little doubt that web-enabled devices will dominate, and I agree with Birmingham, the Apple tablet will likely be the category killer. The one thing that an educational setting requires, and that printed books and non-webconnected ebook devices can’t offer, is interactivity. Laptops offer that, so will tablets, but the tablets will offer students much more, including their music and phone. It’s a very appealing package.

Tertiary publishers, as you know, have been marketing digital, online learning packages for a few years now. Wiley’s WileyPlus, Pearson’s MyLab, etc. Their experience has been interesting, for what they’ve found is the old-fashioned textbook has been virtually impossible to dislodge. Even with heavily discounted prices – up to 50% - for the online versions, the books can’t easily be blasted out of their entrenched positions. It seems the established business models are proving to have considerable traction.

Personally I think this is a temporary stay of execution. The book business is strong at the moment because enrolment growth is strong; secondly, what we’ve seen is the first generation of online resources. The integration with university-administered Learning Management Systems such as Blackboard and Moodle, has not always been adequately or seamlessly done, if seriously attempted at all; thirdly, hosting in the US has meant latency problems in Australia due to inadequate broadband speeds. It’s frequently been a frustrating experience for adopters.

New generation packages are now being released which will address these things as well as offer far more functionality, including higher levels of customisation, greater flexibility for lecturers, far more content linkages, better collaborative tools for class interaction; more assessment, communication and administration features and so on.

Publishers are building lots of internal production efficiencies through the integration of workflows and systems. There’s a lot happening that customers aren’t noticing. And there is a great deal of investment going on. Content Management Systems are being built that ensure all of a publisher’s content is tagged according to highly sophisticated taxonomies which allow well-designed and searchable output, including visual and tabular, onto all sorts of screens. Publishers are absolutely convinced that the near future is digital so that’s where the money’s going.

And the important thing is this: no publisher can continue to invest equally in both sides of the business. We won’t see a big, toe-crushing, 1000 page, full colour textbook alongside a rich-functionality online package in seven to ten years time (notice I didn’t say ‘five’!). You might see a black and white, short companion, but that’s all. And the question for the bookseller is: will you sell it, or will the publisher give it away for free?

Look at what’s happening in our schools now, particularly Secondary schools. The Federal government is spending upwards of $2 billion dollars rolling out its Digital Revolution, including providing laptops and netbooks to every student. The fibre infrastructure pipes are being laid. It’s really all happening and teachers are responding. Publishers are also responding. In a few years’ time the industry could well be getting 15% of its total school revenues from digital-only products. Certainly that’s the ambition of the major players.

And when these kids go to university, do you think they’ll revert to buying expensive analogue textbooks, even second hand?

Higher Education textbooks, after all, are a pretty recent phenomenon. They have never been god-given entities of enduring educational value. They are a product of a particular sociological time – the post-war period of mass education and rapid economic growth. Their commodified, mass market, lock step pedagogical formula is well and truly dated. Coursepacks can be seen as an early expression of customisation and individualisation. Digital interactivity enables that exquisitely.

The technology is facilitating all this and the students of today are ready for it. The ducks are all being lined up in a row.

The Economics

But it’s not just the felicitous coincidence of devices and ready-made consumers that is propelling the transition. For publishers the economics of it all are extremely attractive, and some would say life-saving. They are an offer too good to refuse.

Ebooks and online resources provide publishers with enormous cost savings and high margins. No inventory baggage including printing, warehousing, shipping, returns; no tied-up capital, write-downs or write-offs; no foreign exchange exposure; no custom clearance charges; no expensive air-freighting; no damages in transit; no insurance; no fire or flood risk; no errors that can’t be immediately corrected; no out-of-stocks costing sales; no second hands – I could go on!

There are of course new sorts of costs – technical staff and systems, platform development and hosting; 24/7 support. But these are fairly minor in comparison.

There are plenty of discussions and debates going on about pricing, royalties, DRM, release dates, territoriality, etc, and also the proper place, if any, for booksellers. Let me briefly address these in turn.

Everybody agrees ebook prices should be lower than the printed hardback. Most publishers are saying around 20-30% cheaper. This is an interesting debate because Amazon is charging $10 - 12 for most titles, and this amounts to roughly 60% less than the standard US hardback price. It’s parked around the middle of the US trade paperback at $14.95 and the mass market paperback at $7.95. Amazon is the gorilla and it’s setting price expectations, and this will be critically important as this new market unfolds. But, to be frank, reading an ebook is such a pared down, low rent, decontextualised experience, that it’s hardly worth 40% of the hard back price on any measure. When Random House Australia priced the new Dan Brown ebook, only available off its own website, at the same price-gouging list price as the hardback - $49.95 – did they honestly expect to be taken seriously?

Of course no-one’s in clear water here. Publishers will still continue to have analogue overheads for many years, if not decades, to come, and these have to be covered. That’s traditionally called, in the words of management guru, Rosabeth Moss Canter, ’persevering in the middle’, and it’s not unique to publishers. But one thing you cannot do is make a victim of your customer. If ebook prices have to come down because their own cost structures demand it, then they have to come down. And, in any case, excessive margins will always be competed away.

Authors are clamouring for a higher royalty rate, and so they should. If publishers’ net profit on the title is higher as a percentage – which it is – then the author’s share should match it. These two elements, net profit and royalty, should always be in balance.

I would dearly like to see simultaneous ebook and print book release dates, as I firmly believe this is the only way to maximise total revenue, but most publishers are resisting this as they fear cannibalisation. Letting the consumer decide would be the best strategy, and this will also be the best way to combat piracy. Don’t alienate your customers. They’ll take revenge. In the global online world, people don’t mind paying, but they do resent waiting. Imagine if newspaper publishers temporarily withheld important content from their websites to force readers to buy the printed paper! Digital editions run in parallel – they’re not part of some outdated analogue sequence.

Digital consumers also resent mindless, producer-centric authority: proprietary formats and restrictive DRM controls are not the way to go.

And now we get to the tough one – territoriality. I can think of nothing more absurd than there being a number of ebook editions on the market to accommodate territorial copyright restrictions. For instance Amazon won’t sell an Australian customer a Kindle edition of any original US title where Commonwealth rights have been sold to a British publisher. The Australian customer has to wait for the British or Australian publisher to amble up and publish their own version of the ebook. To add insult to injury, if the Australian customer travels to the US with her trusty Kindle, she can’t purchase any US edition there either, like she can the printed version.

I believe this is unsustainable. The better solution would be to have all publishing parties around the globe share revenues on the one ebook edition. It really shouldn’t be hard to administer this. Thus the ebook would be available from day one to all customers globally, just as the print book is now, and the original ebook publisher simply keeps track of customer locations and rights sales and disburses revenues accordingly. It is quite wrong, in my view, to harness retailers into supporting territorial rights deals between publishers, which is what publishers supplying ebooks to Amazon and others have done. Apart from alcohol and drugs, retailers should be able to sell whatever to whomever. To me that’s a fundamental commercial principle in a free society.

Finally, do booksellers have a place in this new landscape?

In a word, no. I’m sorry. Do newsagents share in the revenues from fairfax.com.au, or news.com.au? That’s how it will be for ebooks. I can’t see how local booksellers can insert themselves productively into the supply chain in these transactions. Amazon and Apple will continue to sell to their customers directly, and so will Google once they set up their ebook business, as they’re certainly doing. There may be minor opportunities, particularly for Australian titles, but frankly, it will never be the main game. I notice the APA has announced a partnership arrangement is being explored with booksellers here in Australia, but I wouldn’t put too much store in this. It would only make sense where the ebook is an adjunct to a print book purchase, but not in a digital-only environment. And the digital-only environment will be the main game, perhaps sooner rather than later.

As far as Higher Education goes, there’ll be even less opportunity. The simple fact of life is that there is no love lost between American textbook publishers and their campus booksellers. This poor relationship goes back to the dark ages, when campus booksellers got heavily into used books, and started to prioritise them. It’s been a very tense relationship ever since, so publishers are chomping at the bit to get even. US publishers actually marvel at the excellent relationship their Australian colleagues have with their campus stores. They envy it. But if you try and persuade them to change their attitudes in their own territory, their hackles rise. It’s too visceral. Emotionally they can’t go there.

Unfortunately, our more collaborative tradition in Australia won’t save any of you sitting here today. I don’t bring good news. There are simply too many benefits in dealing direct with students, and too many costs that have to be eliminated in order to get prices down. The 33.3% discount to booksellers is far too easy a target.

So, in conclusion, let me wish you well. You have ten years at the most. And please don’t invite me back in ten years’ time. If I’m still alive and mentally functioning, I could well be too embarrassed!

Thank you.

Peter Donoughue
November 6, 2009

The ABA/Dymocks flawed compromise on parallel importation

2009-10-28T19:04:00.004+11:00

The ABA and Dymocks have seemingly come together around a compromise proposal to the government on reform of our parallel importation provisions.

They want both the 30 day and 90 time frames reduced to seven days.

And they want a price cap policy to be introduced, as exists in Canada (which regulates a maximum 'exchange plus 10%' mark-up).

No matter how many times I've pointed out to both parties, in writing and in person, that both propositions are legally and economically non-starters for Australia, it seems they persist. Some dogs simply can't be put down.

Firstly, the seven days notion: Let me put this as clearly as I can - IT.CONTRAVENES.THE.BERNE.CONVENTION! (See my post of Sept 30 for the exact wording and rationale of Berne's 30 days definition of simultaneous publication).

It's no surprise to me that the ABA has fallen into this trap of seeing the 30 days time frame as some sort of old fashioned relic of analogue shipping times. Well, persuade all the Berne signatories and get it changed there (good luck!), but don't continue to bang on about something that has absolutely no chance of getting up in Australian law. For the same reason that the idea of protecting only 'Australian editions', favored by David Gaunt and Mark Rubbo over the years, has consistently failed the Berne test, so this seven days proposal is a dead cat swinging in the breeze.

As for the Canadian price cap idea: on importation issues Canada is a vastly different place than Australia for one simple reason: it borders the United States. That vast economy is geographically adjacent. This means that the default position of Canadian booksellers is to import direct from the huge publishing and wholesaler warehouses in New Jersey, and get supplies shipped in virtually overnight, at US prices with no markups, and with freight costs similar to Sydney to Melbourne rates. Why the hell wouldn't booksellers do that?

Therefore the Canadians, to enforce local sourcing, had no option but to regulate pricing and availability, and guarantee booksellers and consumers comparable service standards.

Could you think of a situation less like that prevailing in Australia? The default position of Australian booksellers is exactly the opposite: to source locally. The importation route is far more costly. Trucks don't traverse the Pacific overnight. Air freighting is necessary, prohibitively expensive, and shipments are always weeks away.

What really annoys me about the booksellers' position however is this: they abandoned their consistent position over the last 20 years of supporting complete abolition of the PIRs, which would have absolutely given them what they still profess to want, and instead have opted for a nonsensical set of propositions which have ZERO chance of getting up. So they are likely to be stuck with no improvement at all.

It's been a disastrous performance and a hopelessly wrong-headed campaign. By choosing to support the publishers on the basic notion of protection, they've had nowhere to go but to invent a 'have your cake and eat it' mess, which is akin to straddling a barbed wire fence for reasons of comfort!

As for Dymocks' notion of forcing publishers to cough up 1% of their revenues to establish a fund to support the publishing of 'culturally worthy' books, the less said about this the better. It is simply one of the most absurd propositions I've ever heard advanced in all my years in the trade. Dymocks cannot claim on the one hand that publishers are massively overreacting to the prospect of an open market, and that indigenous publishing won't collapse, and then pose a 'solution' to that very prospect!

The ABA/Dymocks 'compromise' position will get no traction in Canberra whatsoever. There is only one compromise position that ticks all the necessary legal, economic and political boxes, and that's the one I myself, with great respect, have proposed (elsewhere on this blog).

My god, give me a drink..

My Speech at Copyright Symposium, Sydney, October 16, 2009

2009-10-17T13:52:00.011+11:00

This is the speech I presented at the Copyright Society of Australia's 14th biennial symposium in Sydney. I was part of a panel discussing recent developments in broadcasting and publishing, and I was specifically asked to address the parallel importation issue. The audience was made up of about 100 or so copyright lawyers, federal government bureaucrats and other interested parties.

Also on the panel were Jeremy Fisher, CEO of the Australian Society of Authors, and Margie Seale, MD of Random House Australia. They had been invited to provide a counterweight to my reformist and presumably dangerous views (hence the references to them in my speech).

I spoke first, and they responded. Frankly, it was akin to being savaged by a dead sheep!

The Parallel Importation Debate – Thank God the End is Nigh!

For the last fifteen months or so the Australian book trade has been going through the latest iteration of its favourite sport – debating whether or not to reform or abolish the parallel importation restrictions in the Copyright Act.

Like me you are all probably thoroughly sick and tired of this debate by now, and are wishing the government would hurry up and decide its position. Apparently the decision is due later this month.

In this paper I want to talk about the debate itself and how dismal the quality of it has been. I’ll be quite frank, so let me apologise up front to my industry colleagues Margie and Jeremy if I offend them.

I have been an active participant in all the flare-ups over the last twenty years, since the 30/90 day amendments were enacted into legislation in 1991. My position is well known in the industry. I am, and have always been, in favour of the abolition of the restrictions, and I think I’m the only one in the industry who has been consistent on this from day one. And I suspect that’s why my colleagues are here – to present the established industry line.

Disappointingly, what has characterised today’s debate, which, by the way, has been far fiercer, louder, angrier and more passionate than all the other ones put together, has been the centrality of the concept of territorial copyright. It has been almost universally deemed to be what the issue is all about.

In the late 80’s, in 2001 and in 2005 when we previously indulged, this was not the case. The central issue was always the theory and practice of bookseller importation, and particularly the concern that overseas remainders of original Australian titles would be brought in or dumped and flood the market.

Of the 563 submissions to the Productivity Commission this time around, all but about a dozen of them were in favour of retaining the current restrictions, and they based their view on the critical importance of territorial copyright to a healthy local publishing industry. They all assumed that the PIRs and territorial copyright were one and the same. The PIRs established the possibility of Australian authors being able to sign exclusive Australian rights with an Australian publisher, and they likewise enabled local publishers to buy exclusive Australian rights to overseas titles.

Listen to some of the submissions:

Tim Winton: ‘The erosion of ANZ rights will return Australian publishing to the colonial branch office mentality we fought against for so long.’

Peter Carey: ‘To anyone still thinking in this colonial way, there will be nothing strange about the present proposal to eliminate territorial copyright and with it the discrete Australian market’.

Richard Flanagan: ‘..many independent booksellers believe the ending of territorial copyright will lead to the further closure of independent bookstores’

The ASA: ‘The ASA strongly opposes any changes to the current provisions... that would effectively dissolve Australia as a separate rights market for books’.

The APA: ‘We believe that the real risks of abandoning territorial copyright and removing the 30/90-day rules far outweigh any potential advantages..’

There is anguish and anger here, and these emotions would be entirely justified if it were true that the reality of Australian territorial copyright were in fact under threat. But it isn’t at all.

Australia is a rights territory naturally. Just like the US and Britain it is a separate, commercially tradeable territory because of its geography, its isolation, its affluence, its established book trade infrastructure and its population size. Exclusive rights contracts can be entered into because of these factors, not because of the existence or otherwise of any importation provisions. These may give additional protection, like a fence around a house, but they don’t establish the possibility of territorial copyright, that is, owning the house, in the first place.

What has been missing from this debate is any real appreciation of how the industry actually works in regard to imported titles; any real analysis of the facts, patterns and logistics, the mechanics of the trade if you like. So much has been said that is simply nonsensical and illogical on any measure, and it’s come from a profound ignorance of industry dynamics and an adamant refusal to get familiar with them.

No one can expect the authors to be familiar with these realities, although their industry association, the ASA, has been no help to them whatsoever, and in fact has played a truly lamentable and cynical role throughout. Likewise, no one can expect outside commentators like journalists, politicians, or even lawyers, to be fully conversant with industry practices, no matter how common or basic.

But one should expect the publishers and booksellers to be across them. Unfortunately their contributions to the debate have been universally disappointing in their lack of economic literacy, lack of rigor and objectivity, and lack of any real analytical quality.

George Orwell once said that some ideas and opinions were so foolish that you had to belong to the intelligentsia to believe them. We’ve seen an exquisite instance of this phenomenon in this debate.

Industry associations are truly awful entities by definition. They invariably reflect the frightened, protectionist views of the lowest common denominator of their membership, and raise chicken little scenarios at every turn. It’s a well known syndrome and commonly understood in the halls of political power.

The APA’s contribution to the debate has been, not to put too fine a point on it, shameful. They have treated the Productivity Commission with contempt, frequently accusing it of bad faith, as if it were wilfully out to destroy culture in the pursuit of some fetid and dated ideology of economic rationalism. I defy any rational person to read the APA’s follow up submission to the Productivity Commission’s draft report and not wholeheartedly agree with me.

The Australian Booksellers Association (the ABA) has been far more respectful and measured, but its fundamental position on the issues has been wishy-washy and confused. In former times, the ABA took a real leadership role when it argued for an open market in the interests of its membership and their customers. This time round however they lost their way, concluding that the interests of independent booksellers lay with the publishers. It’s been a sublime delusion.

On the other side of the ledger I think Dymocks made a huge mistake in joining with the grocers, Coles and Woolworths, presenting themselves as the Coalition for Cheaper Books. That retail duumvirate has few friends, and can too easily be written off as an evil empire simply out to boost its profits by seeking to dominate yet another retail sector. Richard Flanagan had great sport with this at the Sydney Writers Festival, as you may remember. Dymocks, unable to get the support of the ABA, to which it belongs, should have gone it alone. It would have had much more credibility.

So, what is it about the industry dynamics that’s been missed? What are the real issues around importation?

Firstly, the great majority of overseas published titles that are brought to Australia by local publishers are NOT brought into this country under the current 30/90 day rules. They are not protected for the simple reason that they don’t need to be. To fly them in within 30 days would be artificial and silly, not to mention hideously expensive. Most parent and sister company titles of local multinationals are in this boat, as are the great majority of foreign titles marketed and distributed here under agency agreements. Titles brought in under the provisions are the cherry-picked, key sellers, and they constitute a distinct minority. There are no statistics on this, to the great frustration of the Productivity Commission and many of us in the industry.

Secondly, booksellers much prefer to order from local suppliers. They are forced to order direct from overseas, through wholesalers like Ingram and Baker and Taylor, only because local suppliers refuse to support a huge array of titles by holding stock and pricing them reasonably. Rarely would the importing bookseller get a better deal, as they have to pay freight, take a currency hedge, and are denied return rights.

Interestingly, Dymocks and Kinokuniya, the two principal booksellers arguing for an open market, have made it quite clear in their public statements and their submissions to the Productivity Commission, that they see importation as a second best option. They would much prefer to buy locally, all other things being equal.

Third, territorial copyright is a foundational concept in the global publishing industry. It’s just how things work. Authors and their agents simply get the best deal by dealing with publishers who are strong in the key territories. They’ll sell US/Canadian rights to a US publisher, Commonwealth rights to a British publisher, and occasionally, but unfortunately all too rarely, foreigners will sell Australian rights to an Australian publisher. Global rights deals are also done of course, but these are in the minority for big titles. Australian authors will sign with Australian publishers, of course. (Tim Winton’s submission to the Productivity Commission, by the way, is a superb celebration of territorial copyright and how important it is to an author).

All this simply means that exclusive rights trading primarily depends on the maturity of a territory’s book trade infrastructure and the buying publisher’s marketing and distribution strength within it. Whether that territory has parallel importation controls is an issue for the buying publisher to deal with. It is not a central, governing issue establishing the possibility of rights trading in the first place.

A number of commentators, such as Imre Saluzinsky in The Australian, have contended that it’s territorial copyright that’s the problem, and the government should accept the Productivity Commission’s recommendations and abolish it. Firstly, no change to Australia’s PIRs is going to have the slightest effect on territorial copyright – you might as well ask the government to abolish Australia’s geography – and secondly, the Commission did not recommend territorial copyright be abolished. It didn’t fall into that trap.

So putting the three things together you get the following facts of importation life: If publishers secure Australian rights, then provided they don’t screw up by over-pricing and under-servicing, booksellers will order from them. And servicing them properly, by the way, includes extending reasonable trading terms to them that fully acknowledge their overheads.

Therefore, whether booksellers would exploit the ability to buy around local publishers that a deregulated market would allow, depends entirely on the operational excellence of the local publisher. Entirely. Best practice is its own protection.

Unfortunately there are far too many examples of poor practice in this country. And this poor practice is what the publishing community is arguing should be protected by retaining the current restrictive provisions.

The Australian book buyer shouldn’t have to put up with high prices unrelated to today’s exchange rates, frequent out-of-stocks and slow delivery times. Booksellers shouldn’t have to put up with these things, as well as unresponsive customer service, inadequate title and availability information, poor sales representation, high surcharges and miserable trading terms. All of us in the industry know who these players are. Most publishers are generally good but too many are generally bad. Booksellers should, in my view, be able to buy around these uncompetitive operations, to prod them into improving their performance. Our current laws stop that from happening.

There has been a lot said and claimed about pricing during the course of this debate. All sorts of figures and stats have been thrown around, all self-serving, as you would expect. The Productivity Commission’s own analysis, however, is by far the best and most comprehensive that I’ve ever seen in all my years in the trade. That hasn’t stopped the ASA from judging it as ‘guesswork’, and the APA from condemning it as worthless. But the APA has been indulging in a massive sleight of hand on this issue, by claiming that, if you take the average A$/US$ exchange rate over the last ten years, then Australian book prices are shown to be not more expensive at all. That average is $0.69c. But it’s only that low because in the first five years the A$ plummeted to an average $0.57c, compared to $0.79c in the last five years. Today, as you know, it’s around $0.90c, and against the pound it’s the highest it’s been for 25 years. Publishers have had five or six years now to adjust to exchange realities but most have chosen not to do so. How long is the Australian consumer supposed to wait? Booksellers, on the other hand, have to compete with Amazon which uses the exchange rate operative on the very day of invoicing. Not surprisingly they are finding it hard to compete. (Publishers don’t seem to care about competition from Amazon, which I find exceedingly strange. Amazon’s market share at around $150m is now close to 10% of the Australian industry and rapidly growing).

Many supporters of the current restrictions have referred to the fact that no other country has removed its parallel importation restrictions. Once again this is a furphy. Booksellers in the UK can freely, under European law, import US editions from the open market that is continental Europe. The fact is they chose not to do so as there is little margin advantage and supply is problematic. In the US the issue is re-importation - of original US editions from low-priced developing countries - not parallel importation. In the main it simply doesn’t make sense for an American bookseller to order a British edition instead of the US edition, because the US edition is always far cheaper. There’s no commercial logic to it.

In conclusion, allow me to hazard a guess as to what the outcome of this rather unhappy debate will be. I wrote to the Prime Minister early last month suggesting a compromise, because I am not at all convinced this government has the stomach for the sort of reform that is needed. If it abolished the provisions, as it should, the squeals from the cultural community would be loud and never-ending. Yet maintaining the status quo with no real change is also not a viable political option, to so publicly humiliate its own agency, the generally well-regarded Productivity Commission.

My proposal is to maintain the 30 day protection, but only for the first five years of a title’s life, and to abolish the 90 day provision altogether. The industry could not credibly object. Dymocks and the big end of town would not be too happy but at least they would grudgingly accept that there would have been significant movement their way. Over 80% of titles in print would be available on the open market. The publishers and authors would herald the decision with a fair measure of enthusiasm and see it as a victory for their lobbying efforts. The 50,000 or so protected titles on the market at any one time would constitute the bulk of industry revenue.

I hope we don’t have too much longer to wait for the government’s decision. None of us want to read any more rubbish on this issue in the press.

Thank you.

Peter Donoughue
October, 2009

The Real Game Changer: Amazon's Kindle Now in Australia.

2009-10-08T11:22:00.006+11:00

Amazon has just announced the launch of an international version of their ebook device, the Kindle. Thus Australians will finally be able to get access to over 250,000 ebooks (including the vast majority of the current New York Times bestsellers) at the hugely discounted prices available, up until now, only to Americans.

For around A$340, including shipping, Australians can buy the hardware and subsequently purchase a huge variety of frontlist and backlist ebooks from between $12-$20 at current exchange rates. Nearly all major publishers are coming to the party and making their titles available.

Amazon has done a deal with AT&T to exploit their global wireless reach, and that service won't cost users anything. Up until now Australia has been denied the Kindle, as has every other country outside the US because Sprint, their wireless provider, was a US-only operation.

So suddenly, a very serious game changer! This development will really put the cat amongst the pigeons. It will have wide, structural ramifications for the Australian book trade, because consumers will be able to bypass high Australian prices for imported printed titles, and exploit the far lower prices for ebooks that Amazon is offering when compared to the printed edition.

It will be interesting to see how territorial copyright deals play out in Australia, ie, whether we get access to all US versions, or whether, in their particular agreements with Amazon, publishers have restricted them from making a range of titles available in various territories. While Amazon, like any retailer or wholesaler, has no obligation under law to honor any territorial rights agreements publishers may have entered into, the publishers themselves may have given Amazon only restricted distribution rights.

We'll just have to wait and see.

Craig Emerson's Proposed Compromise

2009-09-30T15:25:00.009+10:00

Competition Minister Craig Emerson's proposed 'compromise' on the issue of the reform of Australia's parallel importation laws, as outlined here, is deeply flawed in that it clearly breaches the Berne Convention and a mirror provision in the Australian Copyright Act which is based on it. It will therefore go nowhere. The Attorney-General's department will quickly point this out, as they have on numerous other occasions.

Here are the relevant clauses:

Berne: Article 3 (4) A work shall be considered as having been published simultaneously in several countries if it has been published in two or more countries within thirty days of its first publication.

Copyright Act: Section 29 (5) For the purposes of this Act, a publication in Australia or in any other country shall not be treated as being other than the first publication by reason only of an earlier publication elsewhere, if the two publications took place within a period of not more than thirty days.

Thus no Australian government has the authority, while ever Australia remains a signatory country, to alter the 30 days definition of simultaneous publication. And the reason for the 30 days is to allow foreign titles sufficient time to get published here in order to extend the exact same basic copyright protections to those titles that local Australian-originated titles receive. This is a foundational fairness principle in Berne, and will never change. Local titles, in any signatory country, cannot be privileged.

Try again Minister.

Random House and the global Dan Brown rip-off

2009-09-16T21:23:00.003+10:00

The book trade has a phenomenon called 'megasellers'. They are highly orchestrated, globally released bestsellers where the authors and publishers make truckloads of money but the retailers none at all.

Harry Potter is the perfect example. Dan Brown's The Lost Symbol, released yesterday, is the latest.

Random House's ARP is $49.95, an outrageous piece of price gouging if ever there was one. Similarly, the US and UK prices are at the very high end of the scale. They are all hardback editions, so the consumer is tricked into thinking that there's extra value and quality in that binding and therefore the price must be justified.

This is garbage. What's really happening is that a quintessentially mass market title is being offered in an elite package simply to screw more dollars out of the author's expectant fans.

Most Dan Brown readers came to The Da Vinci Code, Angels and Demons, and Deception Point late into the life of these titles and were buying them at paperback prices of around $18 - $25. So The Lost Symbol is finally released and they walk into a bookshop and are confronted with an expensive hard back and a price that absolutely turns them off.

The retailers, who know and respect their customers, are on the front line. They sacrifice their own margins to get the business and keep faith with joe public. A&R/Borders is offering it at $29.99 and Dymocks has it at $32.99. Independents Readings and The Avenue in Melbourne have it at $39.95, the best they can do because they simply don't get the sweetest terms from the publisher. Most other smaller independents can't discount at all, and have stuck to the RRP of $49.95. So if you buy from them you're being ripped off - not by them but by the publisher. What a treat for loyal customers!

I'd like to buy the book, so I'll go to Dymocks. And I'd be silly to buy from an independent, despite my usual habits and preferences.

What irks is the cynicism of Random House. A mass market product like The Lost Symbol should be produced, first up, in a paperback edition for no more than $32.95, which would then be discounted by retailers. Independents would get their usual share of demand because we're not talking big dollar price differences between stores.

But the real issue is meeting customer expectations and not alienating them. And just being a bit ethical, if that's not too difficult a concept for a global corporation to understand.

Random have printed over 600,000 copies for the Australian market. I'd love to see them eat half of that because of consumer distaste.

The Australian Book Trade and Parallel Importation: a Compromise Proposal

2009-09-07T14:53:00.004+10:00

There it was again on Sunday morning - the question to this government that simply won't go away: 'But what unpopular decisions have you taken so far? What painful policy proposals have you implemented?' Barrie Cassidy was interviewing Wayne Swan on The Insiders.

Swan listed a few semi-forgotten things but nothing really emblematic stood out. The parallel importation issue presents a perfect opportunity for the Rudd government to firmly, clearly and very symbolically demonstrate its reform credentials; to send an unmistakable message to the big end of town, the commentariat, the ordinary voter: 'I don't just write essays about the need to improve Australia's productivity performance, the need to continue the process of reform so successfully undertaken by the Hawke and Keating governments - I'm getting on with it'.

But let's get real. Even with the cover of the Productivity Commission's report, it is extremely unlikely that this government will seize the day. First and foremost in its mind will be the loud and continuing shrieks and howls of outrage from the cultural elite if it took this course. And from the printing unions. And from state governments. And the Fairfax press. Support from the usual suspects - the Fin Review, The Australian, Bob Carr - none of this would compensate. This is a government focussed on 'palatable' policy, not policy purity.

Therefore, seeing that we're now close to the end - Cabinet's decision is expected within weeks - and we're at the final hand-to-hand combat stage, it's probably time to frame some sort of compromise position that I believe all players, however reluctantly, would accept.

I sent this letter to Kevin Rudd on September 1:

Dear Mr Rudd

The Australian Book Trade and Parallel Importation: a Compromise Proposal

The media is reporting that Cabinet may be close to debating the recommendations of the Productivity Commission to abolish the Parallel Importation Restrictions (PIRs) in the Copyright Act that currently regulate book importation into Australia by retailers.

I have been an active participant in this debate for over 20 years in my capacity as Managing Director of John Wiley and Sons Australia Ltd, a board member of the Australian Publishers Association for ten years, a past President of that association, and now, having recently retired, through my industry blog Pub Date Critical (www.peterdonoughue.blogspot.com) and my recent appointment as Adjunct Associate Professor at the University of Queensland.

I have always been in favor of reform and have been a lone voice on the publishing side of the ledger.

My sense now, however, is that the industry needs to come together around a compromise position. Such a position could be constructed by your government and I believe it would receive the support of the vast majority of authors, publishers and booksellers, and all their industry associations. It would likely also receive the support, albeit grudging, of those retailers like Dymocks who are strongly in favor of complete abolition.

My proposal would involve two elements:

1. Maintain the 30-day frontlist protection, but only for the first five years of a title's life.
2. Abolish the 90 day backlist provision altogether.

Providing local authors and publishers with protection from parallel importation for the first five years of the life of a particular title would, in virtually all cases, be more than sufficient to get a full return from the investment associated with local development, printing, marketing and selling. Very few publishing projects these days are costed with a view to a life beyond five years, although of course many continue to sell well for years beyond this period. No publisher would seriously consider not investing in a project or author on the basis that parallel importation protection would expire five years after first publication. And no author, established or otherwise, could seriously mount a case that the government had eroded his or her rights to local publication or income.

The current 90 day backlist protection is a legacy of sea freight time frames from the UK and the US and makes no sense these days when air freight is the norm. There have been calls from some industry players that the period should be shortened to 30 days or even 7 days. But allowing retailers the immediate freedom to import if the local publisher is out of stock is by far the best way to maintain competitive pressure on the privileged supplier. In the great majority of cases the retailer will wait for the publisher to re-stock because it is simply less expensive and more efficient to do so. Mostly the wait would be for only a week or two. Once the title is back in stock the local publisher would regain the protection initially afforded.

The virtue of this compromise position is that no industry party could credibly object. Those in favor of adopting the Productivity Commission's total abolition recommendations would obviously be less than happy, but they would at least be able to celebrate a significant movement their way. Close to 80% of English language titles in print would be available on the open market. The authors and publishers, on the other hand, would welcome such an outcome with a fair measure of enthusiasm. They would certainly perceive it as a victory for their lobbying efforts. The 50,000 or so protected titles on the market at any one time would constitute the bulk of industry revenue.

The other virtue of this position is that it does not involve any re-thinking of the current programs of government support for literature or publishing.

I trust you will find this proposal helpful.

Yours respectfully

Peter Donoughue

Melbourne Writers Festival: Panel on Parallel Importation

2009-08-25T11:04:00.011+10:00

This MWF panel brought together Allan Fels (ex ACCC), Gabrielle Coyne (Penguin), Sandy Grant (Hardie Grant), David Vodicki (music industry) and me to discuss the issues under the chairmanship of Mark Davis from Melbourne Uni.

It was an enjoyable night, but predictably frustrating. There were about 50 people in the audience.

Here are some of the claims that were made and my responses to them. There simply wasn't time on the night to go into any depth, so I'll do that now.

1. It might be true that, technically, territorial copyright (TC) wouldn't be affected by the abolition of the parallel importation restrictions (PIRs), but the reality of it would be thoroughly subverted.

Henry Rosenbloom made this point and claimed that my separation of TC and the PIRs is a 'distinction without a difference'. Well this simply doesn't hold water. It's a neat side-stepping of the issue. For TC to be subverted booksellers would have to source a significant percentage, if not all, of their foreign-originated books from overseas wholesalers rather than from local publishers. It implies a number of things: a) that local publishers would not be able to profitably compete with overseas sources of supply; b) that, even if they could, booksellers wouldn't order from them.

Both these contentions are rubbish. Both Dymocks and Kinokuniya (the only two booksellers arguing for an open market) have repeatedly said local sources of supply are by far their preferred option, all other things being equal. It is far less expensive, far more efficient and makes inventory management far easier. But publishers must come to the party and make their offering competitive. The days of sitting back and hiding behind antiquated regulations are long gone. What is wrong with asking publishers to be competitive? Everybody benefits if they are.

2. The Productivity Commission's (PC) pricing analysis, which shows Australian prices at current exchange rates to be 30% higher than US prices of similar editions, and 50% higher than the cheapest US editions, is deeply flawed for two reasons: if the average exchange rate over the last 10 years of 0.69c is taken into account the price differential evaporates; and no account has been taken of the freight costs to ship books from the US to Australia.

As I've said before in this blog the PC's pricing analysis is one of the best things in their report. Publishers ought to do themselves and the whole debate a favor and accept it. They should also stop hiding behind the absurd ten-year average exchange rate argument. The average over the last five years is 0.79c. Today it is 0.83c. The facts here are simply incontestable. As for the freight argument this has no substance. Airfreight to Australia from the US costs about 5% - 10% of the average retail price, depending on the volume of the shipment and it's weight. Furthermore, and this is a key point, airfreight costs are part and parcel of overall trading terms negotiations with overseas principals. The higher the freight the deeper the purchasing discount, which is why Australian publishers normally get sweeter discounts from their US suppliers than their colleagues in either Canada or Britain. The same goes for shipments from the UK.

The fact that local publishers get this decided advantage from their overseas principals is precisely why retail booksellers, who will get a far worse deal on freight from the overseas wholesalers, would prefer to buy locally. Why would a bookseller pay for the freight when the publisher can much more easily absorb it, and therefore price competitively?

3. Publishers will find it hard to sell export rights to Australian titles because the buying publisher will demand a non-exclusive right to re-export their edition back to Australia, given the new open-market status of this territory.

This is an exquisite piece of illogicality! The Australian publisher obviously holds exclusive Australian rights under the contract with the author, so it's logically impossible to sign any non-exclusive deal with anyone else. As well, the only way the UK or US edition can come back to Australia is via a UK or US based wholesaler. In that case no contract is necessary.

But the root of this confusion lies in the term 'open market', which British and American publishers universally think of as a market for competing editions, all operating on a non-exclusive basis. Australia won't be like this, as I've explained in my last post. It would be more accurate to describe Australia, if the PIRs are abolished, as a 'deregulated market' where booksellers can parallel import in the hard cases.

It will be up to Australian publishers to explain these realities properly, and positively, to overseas publishers. Dopey notions need to be solidly and politely whacked.

4. Virtually the whole industry considers the PC report poison, therefore it must be!

I refuse to give this comment any credibility by spending time refuting it! We are really at the bottom of the barrel here.

5. Economic rationalism has no place in the world of books and culture. The PC report should be ignored by any government seriously interested in preserving and developing Australian writing, literature and identity. Slightly lower prices are absolutely no substitute.

Where do you start with this one? If the whiff of elitism doesn't turn you off then the cultural bunker mentality should. How dare any mere economist encroach on our pristine, privileged terrain? This stuff is straight out of the 80's. Surely we've got beyond it. By all means attack the economists' arguments, assumptions, methodologies and recommendations, but don't embarrass everybody by claiming they have no right. Ugh!

Exclusive Australian Rights in an Open Market

2009-07-23T13:31:00.006+10:00

I know some publishers fear that it will not be possible to buy exclusive Australian rights to overseas titles under Australia's version of an 'open market'.

Therefore, abolition of the PIRs would in fact mean that territorial copyright would no longer exist in Australia. Territorial copyright relies on exclusivity.

A version of this way of thinking crops up all the time in the way some commentators refer to the abolition of the PIRs as meaning that Australia 'will become a market for competing editions'. This is the favorite way Jason Steger, literary editor of The Age, for example, expresses the meaning of the reforms.

They are all very wrong.

Firstly, Australia is a natural territory, just like the US, Britain and Canada. Trading exclusive rights is possible because of geographic, population and market dynamic features that naturally secure and enforce those rights. This means that Australia will not be an 'open territory' in the way that Hong Kong, Singapore, Continental Europe, the Middle East and Africa are.

Secondly, once exclusive Australian rights have been secured, NO OTHER PUBLISHER'S EDITION CAN COME HERE, other than by direct importation by a bookseller from an overseas wholesaler. That's the way things are now, and they won't change.

Australia will not be a market, therefore, 'for competing editions', meaning a market where US and UK publishers fight it out.

Some Australian publishers believe US and UK publishers/agents will only want to sell them non-exclusive rights.

This may initially be the case, but it certainly won't last. Six weeks max. Faced with insistent demand from British and Australian publishers wanting to pay good money for exclusive Australian rights, it will quickly dissipate. Willing buyers breed sellers.

Nonsense from Michael and Henry

2009-07-23T09:58:00.010+10:00

Michael Heyward and Henry Rosenbloom are two of Australia's best publishers. They run Text and Scribe respectively, small but highly successful and critically important Melbourne-based independent publishing companies.

They are also excellent writers, with a gift for the nicely honed phrase. They've been given an inordinate amount of space in the nation's press, particularly The Age, during the current parallel importation debate.

It's a pity therefore that their opinions and arguments are so baseless and wrong-headed. In fact, they're nonsense - all emotion and no intellect.

If you want to read their latest outpourings here they are:

http://www.scribepublications.com.au/blog?source
www.theage.com.au/opinion/our-writers-and-publishers-dont-need-handouts-20090722-dtif.html

The fundamental mistake they make is in considering that the argument is all about territorial copyright, when it isn't.

Here's Henry: 'With its recommendation that territorial copyright for books be abandoned, the Productivity Commission....' (my italics).

Here's Michael: 'As the gospellers of deregulation, the commissioners have stuck to their hymn sheet: remove all import restrictions, strike down territorial copyright' (my italics).

Nowhere in the PC's recommendations is there any mention whatsoever of 'territorial copyright'! The recommendation is to remove the Parallel Importation Restrictions (PIRs).

Michael and Henry consider that by removing the PIR's you remove the ability of authors and publishers to benefit, as they do now, from territorial copyright. This is manifestly untrue, and to proclaim otherwise demonstrates a massive failure of thought and logic, and a dismal ignorance as to how the industry actually works.

One can forgive the nation's authors for getting this thing so wrong. They're not involved daily in the dynamics of the trade, and during this debate have mostly been fed lines by their publishers anyway. But I find it astonishing and profoundly disappointing that practicing publishers could prove to be so confused in their understanding and appreciation of some of the basic issues.

Here's the fundamental illogicality: (I'm paraphrasing the publishers' position)

Premise 1. 'What with freight costs, exchange volatility, no return rights etc, the opportunities for consistently profitable direct importing by booksellers are just not there'.

Premise 2: 'Without the PIRs therefore, prices to consumers will only occasionally be lower than what they are today. The Commission is massively overstating what beneficial impacts there will be from their recommendations'.

Therefore: 'The publishing industry would be devastated'.

As you see, this syllogism makes no sense whatsoever. The PC picked up on this pretty easily, as have most commentators from outside the industry over the last twenty years. But still the publishers don't get it!

It's simply embarrassing!

The facts are that there will be plenty of opportunities for direct importation by booksellers, but only where local rights-holding publishers have chosen to over-price and under-service. Once they stop doing that they'll close off the business logic of buying around them and will secure their place as the preferred supplier. They will supply close to 100% of the demand.

Do you see where this has anything to do with territorial rights? Only at the margins, and only where an arrogant publisher chooses to be vulnerable.

Do you see a devastation of the industry here? Do you see an almighty whack to Australian literary culture? Oh, please!

Here's where the consumer will benefit. Lower prices will mainly come about through the existence of lower-priced editions overseas, particularly the premium or literary paperback, selling in the US for around $US16.00. Australian rights-holders will have to be responsive to this, by issuing equivalent editions here, priced at around $A23.95. Sticking with the $A32.95 bigger 'C format' paperback as the title sinks into the backlist will pretty much become dated. But, interestingly, this change is happening now. There are more and more of the quality $22-24 smaller, but well produced, paperback editions coming from Australian publishers every day, and it's a very welcome trend.

Buying and selling exclusive Australian rights, and negotiating to exclusively represent overseas lists on an agency basis will remain as strong a feature of the Australian publishing landscape as it's ever been.

Any 'devastation' scenarios should be consigned to the fantasy section!

Fiction and Fact on Book Prices

2009-07-17T11:41:00.008+10:00

FICTION: 'There is no evidence that prices will come down if the PIRs are removed. The Productivity Commission is typically indulging in discredited free trade theory and tired ideology'.

FACT: Beside the bleeding obvious fact that the new regime hasn't been implemented in Australia so how could there be any evidence, the commission clearly states, on numerous occasions throughout the report, that removal of the provisions will remove the 'upwards pressure on prices'. They don't guarantee or promise or even say that prices will come down. The expectation clearly is that they will, if only as a matter of logic. To use an analogy, if a pool is drained presumably there'll be less drownings in it. Someone could still stick their head in the remaining dregs and do the job, but as a matter of plain common sense I would go out on a limb and say there'll very probably be less death by drowning in the non-water circumstance.

FICTION: 'If you compare Australian prices of imported US titles with their US prices you will see that local prices are not higher at all once the average exchange rate of $0.69 is taken into account'.

FACT: If you conveniently chose an average exchange rate that suits your purpose, well, unsurprisingly, this is true. The APA has selected the past ten years as its time frame. This works only because of the collapse of the A$ in the five year period from 1999 to 2003 inclusive, when, according to RBA charts, the average rate was $0.57. Over the five years since then (2004 to 2008 inclusive) the rate has been $0.79, pretty close to where it is today. Do you see any publishers pricing their imports according to that rate? No. They've had five years to adjust but have chosen not to. The 'ten year average' mightily suits their case.

FICTION: 'Dymocks and the Coalition for Cheaper Books are not really interested in lower prices to consumers but higher profits for themselves'.

FACT: I'll go out on a limb and suggest that Dymocks and the Coalition are probably interested in both. If they can source books at lower prices off shore then that gives them more margin and enables them to be more competitive by passing on some of that margin to consumers. It's called business. It happens right across the economy. It's not original or innovative and it's not rocket science. Now, with the PIRs in place, any price discounting they do to attract customers has to come 100% out of their own margin. They're discounting widely now, so why wouldn't they be motivated to do more of it if they can secure lower purchasing costs? Once again, it's a matter of logic. (The other way to gain more margin is to do what A&R/Borders is doing and mark up everything above recommended retail price. What sort of customer friendly strategy is that? Yet Dymocks, who've never marked up, is copping the flak!)

The Productivity Commission's final report.

2009-07-15T11:23:00.010+10:00

In the Commission’s view, while removal of the PIRs should see an increase in imported books where these represent better value, it is probable that most Australian publishers, including the major publishing houses, would generally adapt to the new regime, that Australian stories and content will continue to be demanded and that talented and marketable Australian authors would continue to be widely published. Any pressure for contraction would also be ameliorated to the extent that subsidy arrangements were made more effective. (Report, p XX111)

In its long, frequently repetitive, constantly frustrating, badly structured and often poorly written final report released yesterday the Productivity Commission has finally seen the light, reverted to its true free market economic self, and made some core recommendations that make absolute sense, both for the industry and the nation.

The recommendation to totally abolish the import restrictions rather than tinker with them is very welcome. The recommendation to delay the implementation of this reform for three years is disappointing. One year, or even two, would have been sensible.

The recommendation to review and increase direct subsidies for worthy books is utterly unnecessary.

Why is the report constantly frustrating? It continually overstates the 'harm' and 'contraction' that removing the PIRs would bring to the industry, yet makes no attempt to describe, much less measure, this effect. I have always contended that removing the PIRs would be a fairly innocuous thing to do, like 'removing the dingo fence from around suburbia'. Sure, publishers would have to adjust, but publishers are having to adjust to unfolding, significant events all the time - violent currency movements, mergers and acquisitions of themselves and their customers, subverting technologies, and so forth. Adjusting pricing, trading terms and supply practices to compete in a PIR-free market is hardly the stuff of nightmares. Coping with the Red Retail Group (A&R/Borders) is a rather more significant challenge I would have thought. Or coping with the pressure for huge and unwarranted author advances.

Although the commission acknowledges that 'the extent of the pending contraction has often been overstated by those in sectors facing reform', it cedes far too much ground to its opponents by substantially agreeing with them that there'll be a measure of contraction.

The overwhelming and quite possibly, at least in a political sense, fatal weakness of the report is its adamant refusal to confront the confusion and wrong-headedness of most of the submissions sent to it by authors and publishers. The universal claim that this issue is all about territorial copyright and, in Tim Winton's words, the 'brutal assault' on it by reform proponents, has been allowed to go utterly unchallenged. The commission has an annoying habit of assaying opinions and quoting all sorts of views contained in the submissions, but leaves them on the page like stinking turds, uncommented upon and unswept away. It unfortunately hasn't seemed to have grasped that there is a qualitative difference between the PIRs and the reality of territorial copyright, and that abolishing the PIRs in no way renders inoperative the ability of authors to sell and publishers to acquire Australian rights. Prognostications of doom contained in these submissions are therefore quite absurd. By leaving them uncontested the commission has allowed them to still live and breathe and retain their great emotional and political power. This is a huge mistake. Even in the commentary last night and today from journalists and industry players this 'assault on our rights' notion is still being trotted out.

The commission certainly didn't take this live-and-let-live approach to challenges to its pricing comparison methodologies from some parties after its draft report was released. In this final report it has really hopped into them in no uncertain terms. The pricing analysis is one of the best things in the report, and you can sense how jealous the commission is to protect its integrity.

It's clear the commission hasn't really grasped the critical importance of territorial copyright to the whole structure and dynamic of the global publishing industry. It's a foundational concept. There are passing references to the practice of 'price discrimination' in different territories but it's vaguely frowned upon, as supporting 'the segmentation of world book markets'. Hence acknowledging it as a value seems beyond the commission's powers.

Had it believed in it, it would have aimed both barrels at accusations it was out to destroy it, and blown the confusions, misrepresentations and dismal ignorance right away. It has committed a fatal mistake, and left its flanks utterly vulnerable in the highly charged political campaign to come.

There are some real nuggets in this report, but many of them will go unnoticed, unread and unappreciated. They are buried in prose as deadening as a Kevin Rudd speech, and in a wandering narrative structure crying out for sharpness and focus.

Nevertheless, here are some of them:

The contention underpinning much commentary (both prior to and following the discussion draft) — that reform to the PIRs would have little or no impact on book prices and yet would cause a significant contraction in local publishing — is not, in the Commission’s view, sustainable. Among other things, as pointed out in chapter 4, if cheaper, or otherwise better value, books were not available for importation from overseas, removal of the PIRs would have little substantive impact on the industry. (p 1.7)

While the power relationship between local publishers and booksellers would change somewhat were the PIRs removed, the value of local supply relationships to booksellers could add to the natural protection of distance from foreign markets to provide a price margin for local publishers facing prospective competition from foreign editions. (p 5.8)

As such, were PIRs removed, the greatest impact on booksellers might not come from the actual degree to which they shift away from domestic publishers, but rather from their ability to make a choice to shift to overseas suppliers if they were unsatisfied with local sources. The availability of such options would increase the pressure upon publishers to offer competitive prices and conditions, providing the spur for greater efficiencies in domestic publishing and distribution. In this context, the current PIR regime increases the scope for publishers with market power to engage in practices that, while maximising their own returns, in some cases may be detrimental to booksellers, and indeed consumers. (p 5.21)

Which way has the Commission jumped?

2009-07-02T14:23:00.002+10:00

The Productivity Commission has now delivered its final report to the government, and apparently it will be released to the public the week beginning July 13.

It will be utterly fascinating to see which way the Commission has chosen to go.

Here's the way I see it:

- The draft report's 'protection for the first 12 months' is dead in the water. It proved to be utterly friendless. The commission will have ditched it.

- However, because the commission, unwisely in my view, chose to develop a messy, interventionist, halfway house position, it's highly likely that the 'initial period of protection' notion will have been retained. The time-frame will have been extended to five years. It could be three, but, politically, five ticks more boxes. No one in the industry could credibly object. Even the APA would down weapons (did I say that?...)

- Think about it: the industry could not possibly fight this without completely sacrificing all credibility. And the politicians would not chose to be more catholic than the pope. They would accept the PC's recommendations. That would give the commission a much needed political win.

- Those of us who, unlike St Augustine, consider that now is the time to be pure, will also have to lay down arms and accept the compromise. Maybe we'll be handed a bone: a recommendation that in five years the situation be revisited to assess how the new regime is working. And the PC might say that, if local publishers are at that time still obviously the source of more than 90% of the older backlist (as will surely be the case), then maybe they'd more easily accept full deregulation from day one. They would have realised their fears were misplaced (did I say that?..).

- Of course, as is infrequently the case, I could be wrong. The commission could have chosen the non-Augustinian, economically pure and rational position, and recommended the PIRs be completely abolished, and they might even have confronted the wrong-headedness of the industry submissions head on. The brutally negative responses to the draft report's 12 month recommendation might have shocked them, sent them back to economic taws and emboldened them to be more true to themselves.

Somehow I doubt it.

-

Ben Atkinson's True History of Copyright in Australia

2009-06-26T14:25:00.002+10:00

There aren't too many 500 page tomes on intricate matters of law that a reader would find, let's say, interesting!

There are even less that a reader would find utterly absorbing and invigorating!

Well, Sydney-based copyright scholar Ben Atkinson has written one of the best - a powerful story of how Australia ended up with its current copyright regime, a regime that Atkinson considers oppressive, burdensome, unfair, and nothing but a reflection of Australia's shameful cowering to, initially, British imperialism, and latterly, US corporate power.

Atkinson is a radical, and there is much in the book that many lawyers and content industry practitioners will find distasteful and undoubtedly naive. But his narrative is compelling and he builds a persuasive case. Every bit of detail, no matter how slight, helps build the riveting story, a story of politicians, economists, writers, bureaucrats...you name it, from big to small.

I was reminded of the aphorism that one should remain unaware of the intricacies of law making, as one should remain ignorant of the process of sausage making. Yet it's a remarkable and fascinating story.

Among Atkinson's many criticisms of the Australian copyright tradition are two that are central:

1. The prohibition on direct importation by retailers is simply a carry-over from British law originally aimed at Irish pirates, and it is antithetical to Australian interests - always was and still is today.

2. The bans on free use of parts of works for non-commercial purposes (as in our educational institutions) are a massive over-reaching by global, principally US, corporate interests, and should never have been acceded to by weak Australian politicians. CAL gets a real pasting.

Here are some samples:

'The case is significant for another reason. The reactions it provoked typified the strain of histrionic self-justification that infected the discourse of copyright proponents from the first days of publishers demanding perpetual rights. Stripped of surface glitter, the discourse often reveals something ugly: covetousness and presumption masquerading as moral right'. (p.343)

'By 2005, obtuseness and the politics of economic power determined Australian copyright policy. Policymakers, learnedly explaining the obligations of international law, obediently agreed - in the interests of the nation - to Australia's status as a tributary of the American hegemony. The greatest irony is that 100 years earlier, Australian politicians attacked with great vehemence the copyright policy of the United States, and even proposed legislation to strike at American publishers.' (p.406)

I certainly don't agree with Atkinson on all matters, but this book is a lively treatise, full of juicy bits and pieces, heroes and villains, and lots of commonsense and wisdom. The scholarship is simply inspiring. Just the fact that Atkinson exists, and belongs to a growing tradition in copyright studies in Australia (mainly based at QUT) is cause enough for celebration. The vast majority of copyright lawyers and thinkers in this country are only concerned with the mechanics, not the underlying business and economic realities. It's as if they know the scaffolding inside out, but remain ignorant of the building underneath, the whole point of it.

If you're at all interested in copyright, buy this book!

The Question of Literary Property

2009-06-05T15:13:00.011+10:00

It was good to see Lynne Spender's article in the current issue of Meanjin on the touchy subject of copyright and whether the law is long overdue for some serious reform.

Spender (along with her illustrious and better known sister Dale) has been at the forefront of critical thinking in this field for many years. She is a lawyer and former director of the Australian Society of Authors, and has just completed a PhD on 'Digital Culture and the Challenge to Copyright Law'.

The contentious views expressed by Spender in her article are certainly not novel. Many copyright scholars have been arguing these points for years, particularly in the US. People like Lawrence Lessig, Siva Vaidhynathan, David Bollier and James Boyle have paved the way. Their positions are sound and, in my view, persuasive. (I list their major books below).

In Australia however, such views are unfamiliar, radical and seemingly treacherous. The well known children's author, Morris Gleitzman, has already signalled his decided lack of enthusiasm for them, and he intends to reply to Spender in Meanjin's next issue.

Spender argues for a substantial reduction in the period of copyright protection - from the current 70 years after the death of the author, to 18 years from first publication. This reflects the views of Australian copyright scholar Benedict Atkinson, who 'poses the idea that a copyright work is to a creator as a child is to a parent, and that at eighteen years of age each should be legally free from its creator's control'. Gleitzman responds, quite off point, that 'when an eighteen-year-old leaves home it is surrounded by legal and social convention protections so that not anybody can do anything with that individual that they chose. Those social and legal protections are the exact equivalent of the social and legal protections that our creative work has, and it's called copyright'.

Whether it be 18 years from creation, 28 years renewable (as favored by Boyle), or something in between, one thing is for certain: the current 70 years from death is too long. It is not sound public policy. It privatises access to creative works for a greatly extended and unproductive time, to society's detriment. It impedes further creativity, sharing and public enjoyment by bogging everything down in the permissions culture for way too long.

Spender was also enthusiastic about Google's book digitisation project, in its original conception, where Google copied the totality of five major librarys' holdings without first seeking permission of copyright owners. 'Just as Gutenberg's printing press brought increased and independent access to knowledge and information 600 years ago, it seemed possible that the Google Books Library Project's searchable database of the world's books would allow access to our entire cultural heritage in digital format'.

As it has turned out this dream is not dead, but the intended access is now licensed, on a commercial basis, and Google is paying a lot of money to creators for the privilege. It will be no less comprehensive. Spender considers Google should have proceeded as it initially intended as it was allowable behaviour under the fair use provisions of US copyright law. But Google itself backed away from this, and was seemingly unwilling to test it in the case brought against it by authors and publishers. We'll never know now.

On one major issue Spender is quite wrong. She questions 'should we..still support a copyright system that allows academic publishers to charge libraries annual subscription fees of $25,000 or more for access to their journals, or should we be using the cheap reproduction and distribution capabilities of digital technology to make such scholarship freely available?'

Well, on the one hand all journal access is now digital and libraries are paying fees for all sorts of content usage, added value and flexibility; and on the other there is nothing cheap about digital technology. 'Freely available' is a rather quaint, old fashioned concept. Someone, somewhere has to pay the big bucks associated with building robust platforms with rich functionality. If it isn't publishers, then like Voltaire's god, they'd have to be invented.

Nevertheless, I applaud Spender for tackling the big issues in our local context, and hopefully challenging our provincial copyright players to expand their minds and join a vigorous, contemporary debate.

[Lawrence Lessig: Free Culture; Remix. Siva Vaidhyanathan: Copyrights and Copywrongs; The Anarchist in the Library. David Bollier: Brand Name Bullies; James Boyle: The Public Domain.]

Richard Flanagan's nutty contribution

2009-05-30T13:07:00.012+10:00

As regular readers of this blog would know I have been particularly critical of our well-known Australian authors for their less than intelligent contributions to the parallel importation debate currently exercising the Australian book industry.

In January I awarded the first prize for awfulness to Peter Carey, and predicted that, having descended to such a farcical rock bottom level, surely the contest among authors to write the most appalling drivel was over.

How wrong could I have been!

Richard Flanagan gave the closing address at the recent Sydney Writers festival, and you can get it here.

Apparently Flanagan received a standing ovation for this speech. Jason Steger in The Age described it as 'a beautifully crafted and blistering attack on the proposal to allow parallel importation of books into Australia'.

In my experience (wide, as it happens) it doesn't take much to get a rousing cheer from audiences at writers festivals. Just push the predictable, soggy left buttons and you're there. 'Smash economic rationalism' - cheer!; 'Smash corporate greed' - cheer!; 'Smash John Howard' - cheer! (that always got a big one); 'Smash the banks' - cheer!; 'smash the free market' - cheer!.

Flanagan got all these usual suspects in there, and added some more: 'Smash book chains', 'smash Bob Carr', 'Smash the GST', 'Smash the Woolies/Coles duopoly'. Cheers all round.

As if this wasn't enough, he added spice to the brew with the following visions of apocalypse, guaranteed to get the crowd downright salivating: 'the dying of the Murray or the Great Barrier Reef', 'a theology of the abacus rather than the cross', 'economic malaise and environmental despair', 'a climate system stressed and unstable', 'more people live in poverty than at any time in human history', 'untold damage to Australian culture', 'a remarkable industry crippled'.

The audience is now at fever pitch. This guy is not a top story teller for nothing. They're eating out of his hand, and then he closes with these beautiful words and phrases, far better than anything your average tub thumping evangelist could ever do:

'But as in Tyndale's time, we will need to stand up for such things to happen, for the ongoing right to hear our stories in our voice. And in time I hope we in Australia my even find our own words as remarkable as those words 'beautiful' and 'atonement', new words that not just describe but create a new country and people coming into being, an idea for our language in the shape of these words and the worlds that come forth from them, word and worlds it remains our shared possibility to make and our future glory to know'.

The problem is that the whole argument is rotten to the core. It is based on a lie, namely that the proposed reforms to our importation regulations would destroy the reality of territorial copyright in this country and thus destroy the industry. If this is wrong, which it is, then Flanagan's fine words are no more than empty, emotional rhetoric.

I thought Flanagan's latest novel, Wanting, one of the best novels of 2008, and I said so in this blog (Dec 16). What characterises this novelist's art is his sure grasp of the details of past lives and societies, imaginatively brought to vivid life.

But absolutely none of this propensity for careful research is evident in this SWF speech. He simply accepts at face value the prevailing but wrong-headed notion that ending the parallel importation restrictions would end the possibility of territorial copyright for Australian authors and publishers. Somehow this demon got out of the bag and is scaring everyone witless. But the demon is a fantasy. It doesn't exist. Even the simplest examination of the evidence and the real issues would uncover that. Combine it with a bit of hard thinking, and the demon vanishes in a puff of smoke.

Flanagan's speech ends up a hubristic, pompous, insufferably smug, self-important tirade against a fictitious enemy.

It is also an elitist mish-mash of the most tiresome sort, setting high minded culture against the vulgarity of commerce. The Coalition for Cheaper Books is 'predictably deceitful', 'compelled to so shamefully manipulate its customers', only interested in making 'big business richer'.

He also recycled the nutty, protectionist propositions he first put forward a decade ago: a 'national book commission'; 'a raft of measures, programmes, laws and institutions all with the purpose of supporting Australian writers telling Australian stories'. Few people took them seriously then, and few will now. But it's great fodder for writers festivals. Cheers all round.

I cringe when academics presume to be familiar with the intricacies of the publishing industry - not the best of them, mind - and I have likewise cringed during this debate when authors have presumed to be experts on all aspects of the publishing industry, including its complicated supply logistics. But I must reserve special distaste for Flanagan's commercially naive and simplistic take on corporate realities generally and its experienced players like Alan Fels. His cynicism is unearned, bought on the cheap.

The standing ovation, therefore, was for a weak and emotional rant, nothing more than bluster and wind, supremely unworthy of one of Australia's greatest authors.

Mark Helprin's Digital Barbarism

2009-05-13T10:26:00.006+10:00

Digital Barbarism, A Writer's Manifesto is a new book by American novelist Mark Helprin, that exuberantly and passionately defends the notion of copyright against the 'new barbarians' of the digital age.

The book arose from the extraordinarily negative reaction he received from his 2007 op-ed piece in the New York Times which proposed an extension of the term of copyright beyond the current 70 years after the death of the author. Within a week the article had received 750,000 angry comments. He was shocked by the 'breathtaking sense of entitlement' demonstrated by the commenters, and 'appalled by the breadth, speed, and illogic of their responses'.

Helprin writes beautifully and angrily, like a poet on heat. I found myself re-reading paragraphs over and over, savouring the rhythm and balance of the phrasing, and the frequently electric similes and metaphors.

Here's a few examples:

'The saving graces and the fragile institutions of humanity depend upon our humanity itself , which in turn depends absolutely on the discipline or rejection of certain appetites. We have many a resolution that separates us from the other animals, many a custom, practice, tradition, and taboo, and if we do away with these in the pursuit of power, the worship of reason, or the imitation of time-and-space-flouting divinity, we will become a portion for foxes'. (p.16)

'The entries in the bloggy-type wikis are often so quick, careless, and primitive that they are analogous to spitting on the street. Their authors write the way Popeye speaks, though with less polish. This is because there is no investment, risk, or accountability, and thus no matching labor or probity.' (p. 65).

'It would be one thing if such a [digital] revolution produced Mozarts, Einsteins, or Raphaels, but it doesn't. It produces mouth-breathing morons in backwards baseball caps and pants that fall down; Slurpee-sucking geeks who seldom see daylight; pretentious and earnest hipsters who want you to wear bamboo socks so the world won't end; women who have lizard tatoos winding from the navel to the nape of the neck; beer-drinking dufuses who pay to watch noisy cars driving around in a circle for eight hours at a stretch; and an entire race of females, now entering middle age, that speaks in North American Chipmunk and seldom makes a statement without, like, a question at the end?' (p.57).

That last quote, however, is telling. Helprin writes from the top of the mountain, distant from the realities and dynamics and sheer ordinariness of contemporary society. There is a strong whiff of elitism, and a palpable disdain for the cut-and-thrust of young lives lived in our technology-infused culture.

He has nothing to say, for instance, about the power of publishing and music conglomerates, and their copyright wars against innocent, innocuous and quite reasonable consumption. He vigorously defends their rights as owners, but stops well short of critiquing their frequently appalling behaviour.

Having no sympathy for the young or their technologies, Helprin's arguments in the end descend to eccentricity and quaintness, the mad rantings of an old notable whose comfortable world is long gone.

This is a pity, as the book is stimulating, immensely literate, highly enjoyable and well worth reading. One thing is for sure though: anybody under 30 won't touch it with a barge pole!

Melbourne: Cosmopolitan and Cosy; Big and Small.

2009-05-11T10:54:00.009+10:00

I've lived in Tokyo for 2 years, Rome for 4 years, Sydney for 10 years, Brisbane for 26 years and Melbourne for only 8 months.

Of all these humming, throbbing metropolises (don't laugh about Brisbane) Melbourne is starting to characterise itself in my mind as a rather extraordinary mixture of rich sophistication and rank provincialism. Australia's most European city has an underside. Its denizens seek out the comfort and warmth of a small town community, and do their level best to ring fence it from the unwelcome intrusions of a vulgar modernism.

Victoria has always been the manufacturing heartland of Australia, grown fat over most of the 20th century from government policies of economic protection. Close industry, government, political and media relationships have fostered a culture of collaboration and mutual support, and cemented networks of influence, power and status. The Melbourne Club, the Atheneum Club and other exclusive bastions of privilege still hold preeminent places in the social architecture of Melbourne, unlike in any other Australian city.

There is a palpable conformism in Melbourne. You see and experience it everywhere. There is one football code, and everyone follows it. Everybody eats brunch on weekends, which means breakfast is available all day and it's not really the thing to order lunch at 12.00 (you want what? at 12.00?). Women all wear black all the time, summer and winter (well, mostly, and anyway, I quite like that. Melbourne women are uniformly beautiful, honest!).

If they hold a marathon or charity run or bike ride, which they do every other weekend seemingly, half the bloody population gets involved and half the city streets are closed!

Attendances at outdoor events are enormous and legendary. Melburnians love being outdoors and love doing it together. Any old cafe on a windswept street will have outdoor tables and chairs, choc-a-bloc full of young and old. It could be freezing, with a ball-tearing southerly blowing in from the Antarctic and reversing all notions of adverse climate change - but there are our Melburnians, together again!

They huddle, that's what they do!

The Age had an article on the weekend about a group of people of influence in Melbourne wishing to start a new...wait for it...club. Intellectuals, corporates, sporting administrators, politicians, celebrities - all coming together. A provincial clubbiness is part of the way of life. We'll be members, we'll be insiders, we'll all think and do much the same thing. Can you imagine such an event in Sydney or Brisbane? The robust cry would be - join the bloody RSL or RAC clubs, for god's sake! Get over it! We know the Melbourne and Atheneum clubs are prehistoric in their anti Semitic and anti women attitudes, but starting a new club? Where does that impulse come from?

In my own industry, publishing, Melbourne-based publishers and authors have provided the intellectual leadership (I use 'intellectual' and 'leadership' loosely) to the campaign against the possible reform of the importation provisions governing the book industry. The champions of reform, Don Grover, CEO of Dymocks, and me, are from Sydney and Brisbane respectively. This is interesting. Is there anything to it? Yes, I think there definitely is.

Still, small communities are generally full of nice and homey people. Melburnians are definitely nice. They are warm, relaxed, unpretentious and friendly. Perhaps, ironically, the most traditionally Australian of any of our cities in that sense. Nonconformists can be humoured and safely ignored.

Madness from Jason Steger of The Age

2009-05-11T09:33:00.004+10:00

The literary editor of Melbourne's The Age has today tossed aside his even handedness and come out swinging against the Productivity Commission's review of Australia's parallel importation restrictions:

http://www.theage.com.au/opinion/a-robust-book-industry-helps-the-economy-20090510-az6v.html

This is my calm and temperate (for me) reply, which hopefully will be published tomorrow:

Dear Editor

It's a pity that Jason Steger has swallowed hook, line and sinker all the illogical and misinformed arguments of publishers and authors against introducing a greater level of competition into the Australian book industry.

The reforms will inhibit overpricing and underservicing in the local market, and plenty of that happens now. This issue has nothing whatsoever to do with the retention of territorial copyright, much less copyright in general, as Jason blithely maintains.

Dymocks' propositions are sound and sensible, and will contribute to a more dynamic and healthier industry. Hardly 'madness', Jason.

Peter Donoughue
Retired Managing Director of publisher John Wiley.

How the Productivity Commission Could Usefully Spend its Additional Time

2009-05-07T08:27:00.005+10:00

As I've repeatedly pointing out on this blog, this whole parallel importation issue is about...wait for it...importation, and under what conditions it takes place, and should be allowed to take place. It is not about territorial copyright. Let's repeat that: IT'S NOT ABOUT TERRITORIAL COPYRIGHT! (I so wish I had a button I could hand out!)

Therefore we can comprehensively ignore all but about 10 of the 552 submissions received by the Commission, including all the publishers' and all the authors'. These were universally off the point.

Easily the best submission, apart from my own of course, was Dymock's. It actually focused on the real issue and had some interesting things to say. Since Dymocks is currently about as popular in the trade as the Taliban, I happily rise to its defence.

Underpinning the logic of those who think territorial copyright would cease to exist is the presumption that booksellers would widely and at every opportunity import direct from overseas and bypass the local supplier.

Here's what Dymocks has to say about that:

'The volume of books brought in under the new arrangements direct by
booksellers may increase in the short term but over the long term will be
roughly consistent with what it is today. It is likely booksellers will
continue to buy the majority of their stock from local publishers and
distributors if their prices, service and stockholding is competitive. It is
simply easier to do so. As publishers adapt to the new conditions they will
be competitive and will ensure they continue to hold the market shares
they have today.

As has been the case in New Zealand, individual publishers will offer lower supply prices and strong marketing support to retailers in return for exclusive supply. Lower prices on international titles will enable all booksellers to be better able to compete with international online sellers such as Amazon. Independent booksellers particularly will have the opportunity to differentiate their stockholdings with more flexibility on international purchases therefore offering a wider range to customers.

Multinational Publishers and Distributors will be forced to re-evaluate the way they do business in this market. As was the case in New Zealand, it will be likely to lead to improved customer service, more timely publishing of new books and better stockholding, knowing that the bookseller has alternatives if they do not.

International publishers will be less able to double dip on profits in getting titles to the market and will reduce their prices. Again, as has been the case in New Zealand, although it has been threatened, none will reduce their operation size, promotion of international or domestic titles, or commitment to local publishing. Most, if not all, will continue to perform profitably'.

Since this is the central issue you would think that the follow up submissions would have addressed it. Wrong. Not one. Not even the teeniest of references!

Therefore my advice to the Commission would be to survey the booksellers and ask them the following questions:

1. If you import now, why do you do it, and in what volume?
2. If the PIRs were abolished, how would your importing behaviour change?
3. What trading terms do you get from the overseas wholesalers (discount, freight, returns, etc)?
4. How do you arrive at an Australian retail price for the import? What factors do you take into account? Would this price be normally lower than that of the local edition? How much lower?
5. What are the problems with importing (eg. foreign exchange exposure, inventory management, etc)?
6. What do you think the local supplier could do to effectively compete?

Then the Commission should conduct follow-up interviews with a dozen or so major booksellers - chains, department stores, independents - to tease out any nuances that may not have emerged from the written survey.

The information obtained from this exercise would be the most valuable contribution to the industry that would have been undertaken for many years.

The ABA should have done this in any case. This should have been the guts of their submission. Regrettably they failed dismally to offer the Commission anything of substance that would have informed its deliberations. This is why the Commission now has to do it itself.

You can bet your bottom dollar that Dymocks' observations, quoted above, will be borne out.

Hence, problem solved. Open market...bring it on! Territorial copyright...no change!

Climate Change....in all fairness!

2009-05-01T16:42:00.009+10:00

My last post celebrated climate change sceptic Ian Plimer's Heaven+Earth, so in all fairness I decided I should read a highly regarded view from the other side - the 'mainstream' view, if you like, so I could get an authoritative perspective that might put me right. Barrie Pittock was a lead author of the UN's IPCC reports. He is an Australian scientist who has been closely involved in the science of climate change for most of his long career with the CSIRO.

His recently published book is Climate Change: The Science, Impacts and Solutions. It's a very well written and lucid exposition of the accepted science and challenge of global warming.

The problem for me is that it raises more questions than it answers. It doesn't even try to prove the case that higher levels of CO2 in the atmosphere are causing the higher temperatures we've experienced throughout the 20th century. It simply asks you to accept that as fact. Plimer states categorically that higher levels of CO2 follow temperature increases, not the reverse. Most of the CO2 increase is natural, not man-made.

Look at these contrasting quotes:

Pittock: 'Scientists believe the rapid warming in the last several decades is due mostly to human-induced changes to the atmosphere, on top of some natural variations.' (p. 7)

Plimer: 'The last thirty years of weather are not in accord with what greenhouse models predict and can be far better explained by natural processes, such as solar variability'. (p. 392)

Pittock: 'Arctic sea ice is melting more rapidly than projected in the IPCC report, and reached a startlingly low minimum extent in September 2007. Moreover, permafrost is melting, floating ice shelves have rapidly disintegrated by processes not previously considered, forests are burning more frequently, droughts in mid-latitudes are getting worse, and so it goes. All this leads to the possibility of apocalyptic outcomes, with associated gloom and doom: multi-metre sea-level rise displacing millions of people, regional water shortages and mass starvation, conflict and economic disaster' (p. xiv).

Plimer: 'There is one constant: there is no shortage of self-styled climate experts willing to make diabolical predictions and to cast shadows of doom. Numerous scientific papers contradict the IPCC predictions of increased extreme weather, floods and droughts due to human-induced global warming. All of these scientific studies are ignored by the IPCC' (p. 483)... The slightest change in Nature is viewed as a message that we humans are changing the climate, that this is evil and that we must rid the world of this evil. To many, it is incomprehensible that Nature can change the planet or that humans are an insignificant short-lived recent terrestrial vertebrate living on a planet where natural forces are many orders of magnitude greater than any human force (p. 298).

Pittock: 'The truth is that in the reports by the...IPCC we have the most thoroughly peer-reviewed and carefully written series of reports summarising the science of a major issue that have ever been published' (p. 240).

Plimer: 'After reading a history of the 'hockey stick' no one could ever again trust the IPCC or the scientists and environmental extremists who author the climate assessments. The IPCC has encouraged a collapse of rigour, objectivity and honesty that were once the hallmarks of the scientific community' (p. 98)

I could go on and on with this stuff, but you get the point.

It's a vicious, no holds barred squabble. But when so much is at stake you can understand why.

A Big, Sane, Optimistic, Blockbuster of a Book!

2009-04-26T10:28:00.006+10:00

Professor Ian Plimer's Heaven+Earth: Global Warming - the Missing Science lobbed like a grenade into the climate change debate last week, and, boy, did it create a storm!

I've been absorbed in this 500 page, deeply academic, heavily footnoted monster for five days, and what a real, visceral pleasure it has been.

This book will undoubtedly become a classic. Plimer is an Australian geologist, well known and highly regarded internationally. He shot to fame in the 80's and 90's for taking on and, virtually single-handedly, demolishing the obscene Christian fundamentalists who wanted to replace the teaching of evolution in US schools with creationism and, later, 'Intelligent Design'.

He is on a similar crusade in this book, bringing a huge amount of scientific knowledge and expertise to the deeply flawed science underpinning the global warming disaster scenarios contained in the UN's IPCC (International Panel on Climate Change) reports released over the last decade.

You may think, as I certainly did, that Al Gore's An Inconvenient Truth encapsulated it all, that it was a powerful, persuasive film, and that the IPCC reports, particularly the fourth and final summary one released in 2007, and the Stern and Garnault reports since then, were all based on what has become known as 'the accepted science'. Well, Plimer blows that whole illusion away. It is an incredibly comprehensive, wholesale demolition of what he regards as politically inspired, consensus driven, pseudo science.

I normally don't read science. I failed both Physics and Chemistry in year 12. I'm an Arts wanker. But I was absolutely sucked in by this book. It's tough going - you have to concentrate and take it slowly, but as you read, the overwhelming logic of it grips you and you become hooked. It's virtually unputdownable!

In my mind the greatest virtue of all is sanity. This book has it in abundance. Sanity leads to optimism, like night follows day. And optimism is what we all need in these dark days.

Buy this book and read it, as best you can. You won't regret it, I promise you. It could well be one of those books that changes your life.