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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Book Prices in Australia Today vs Five Years Ago.

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

Amazon v Hachette: Is Amazon really to blame?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Anti-Amazon Hysteria is Silly and Self-Defeating.

I participated in a lively debate at Melbourne University last night on the topic 'Amazon Will Destroy the Publishing Industry'. I was on the negative side. We won. Here is my contribution:

The book industry's antipathy to Amazon is getting really, really silly. It's descending into farce.

A month ago Amazon launched ‘Amazon Source’, a proposal that allowed bricks and mortar bookstores to sell the Kindle for a small margin and pocket a percentage of the customers’ ebook purchases for two years afterwards. It was a reach-out, a peace offering perhaps, especially given so many independent booksellers around the world are now enthusiastically stocking and selling the Kobo eReader on very similar terms.

Typically, however, the bookselling community went hysterical:

‘We don’t see this new program as being at all credible’ said the CEO of the American Booksellers Association’

‘I wouldn’t want our customers to think that we were doing trade with the bad guys…sleeping with the enemy’ said a bookshop manager in East London.

Others called it ‘disingenuous’, and a ‘Trojan Horse style attempt to gain access to our customers’; ‘a dagger disguised as an olive branch; ‘a Faustian bargain’.

Here in Australia the CEO of Dymocks claimed booksellers would be ‘mad’ to sell Kindles, because they would be enabling Amazon to ‘gain access to their customer’s database’.

Big W has decided to sell the Kindles, but the co-founder of online bookseller Booktopia called them ‘fools’. ‘They’ll sell a single device to someone then they’ll never walk in to buy a book ever again’.

There are strong counter-arguments to all of these outbursts, but frankly, the visceral antipathy to Amazon is tiresome. Way more importantly, it’s quite self-defeating.

There have been many examples in recent years, including empty gestures like ‘Kindle Amnesties’ and supply boycotts. The most notorious of course was the forcing onto Amazon by the large US publishers the deeply flawed Agency model of ebook supply. That cost publishers over $300 million in government-imposed fines. Publishers claimed they did it ‘to enhance competition’. No they didn’t – they conspired to close down Amazon’s uncomfortable disruption and to raise prices.

Let’s list some elementary facts here. Amazon didn't invent the Internet, the web, ecommerce, PC’s, smartphones, or tablets. It didn't write the tax codes under which it operates globally. It didn't invent globalization or disintermediation. It didn't invent the strategy of ‘everyday low prices’ or deep discounting. It wasn’t the first vendor of cloud computing services. It wasn’t even the first online bookseller.

Amazon is simply the consummate expression of the Internet's power and functionality in retail (as Google is in information). Of course Amazon is a ruthless operation. Of course it exhibits no care or concern whatsoever for the health of bricks and mortar retail businesses or the local communities in which they operate. It exploits unsentimentally all avenues open to it to pursue its objectives. But it's only that way because of its 'take no prisoners' focus on customer acquisition and, most importantly, customer satisfaction.

In his review of Brad Stone’s The Everything Store: Jeff Bezos and the Age of Amazon Slate’s Matthew Yglesias writes that ‘Bezos’ core ideas – long-term focus, consumers first – are correct but hardly earth-shattering. But while most companies just pay lip service to this stuff, Amazon stands out by actually doing it’.

Even Amazon's much criticized ‘walled garden’ or ‘private ecosystem’ is hardly original. Apple became the largest and most profitable company in the world because of a similar policy. Walled gardens are a common commercial phenomenon because they work. Open systems also work, as Google has shown with Android.

No one is denying that small independent bookstores are having a tough time of it today, particularly in Australia. Michael Webster from Nielsen Bookscan provided some fascinating statistics at the Independent Publishers Conference a few weeks ago that looked at trade book sales in Australia over the last ten years.

There was steady revenue growth each year up until 2009 when consumer book sales reached $1.3 billion. Then things really started to decline dramatically, by about 8% per year. Frightening stuff.

Total sales in 2012 had slipped back to 2005 levels, a drop of around $300 million dollars. If that trend line continues into 2013, as it certainly appears, then the drop will be close to $400 million, or around 30% in total. Remember, these statistics measure sales made to customers in retail bookstores.

It’s apparent that customers are deserting our bricks and mortar bookstores in droves. There are many theories as to why, but in my view the overwhelming reason is price resistance.

Australians are voting with their feet. They are walking away from the sustained over-pricing by importing publishers over the last decade or so despite the strong dollar. We should have seen prices dramatically fall, by 30% or so, but we didn’t. We saw token falls, that was all.

Amazon’s value proposition was just too hard to resist.

Close to $500 million in sales is currently being bought offshore:  $200 million ebooks and $300 million print books. That amounts to a third of trade book purchases by Australians. These numbers are shocking, but for those of us who were paying attention they’re not really surprising.

In the parallel importation debate in 2009 booksellers broke with a long tradition and sided with publishers to preserve the protections in place that allowed overpricing and underservicing by publishers. It was a classic own goal - an act of self-destruction on a grand scale that continues to this day. And yet they are blaming Amazon.

Our booksellers’ challenge now is not to get righteous and indignant, but to adjust and compete by finding new pathways for their businesses, new ways to appeal to readers who now have far more choices than they've ever had before.

Firstly, they should lobby the government to abolish the parallel importation restrictions so they can buy around at cheaper prices when necessary.

Secondly, regarding Amazon, recognize many if not most of your customers are travelling down that highway, and less often down your high street. Position yourself in Amazon’s slipstream. Amazon Source offers you that opportunity. Welcome the reach-out. Don’t spurn it. Don’t compete with each other to see who can come up with the best anti-Amazon rhetorical blast. The financial terms on offer aren’t perfect so meet with Amazon and argue for a better deal.

When those customers buy a Kindle in your store shower them with all the warmth and affection you can muster. Help them set it up and show them how to use it. They’re in your store! Offer them all the freebies you can afford. Invite them to events. Survey them. You’ll know their reading profile in detail. Yes, they are readers.

And for God’s sake, stop demanding the government clobber book buyers with a GST imposition on low-value imports, given the dollar decline of 15% over the last two years has already made their importing more expensive. Is this being nice to your customers?

It’s time we stopped seeing trivial solutions to major problems.

Why Google's Fair Use Victory Is Absolutely Right

The Google decision handed down by Judge Denny Chin in the US

on Thursday was absolutely no surprise to those paying attention. Last year's HathiTrust decision, in which Judge Harold Baer determined that the librarys' scanned book repository was allowable under Fair Use, meant implicitly that Google's scanning - which made the repository possible - could not but have been Fair Use too. Judge Chin had nowhere else to go.

Predictably the Authors Guild has announced that they will repeal the decision. This is, frankly, about as dumb as it gets. All the arguments against Google's scanning over the years advanced by publishers and authors have been profoundly weak on all levels, and easily demolished if emotions were put aside and minds engaged instead.

Looking back, Google probably profoundly regrets it opted to begin settlement negotiations back in 2005 when authors and publishers first sued. But the financial penalties if it lost were scary indeed - possibly running into billions of dollars.

In plain English here are the basics: scanning is equivalent to bookseller shelving and merchandising in the analogue world, and viewing snippets is equivalent to customer browsing. Just as shelving and browsing are not breaches of copyright law, neither are their digital equivalents. That's really the essence of this issue. It's always been that simple. (Although a Google 'browse' around a particular word or phrase is a search across the whole corpus of twenty million scanned books, not just one or two. It's an 'uber-browse' perhaps!)

The problem is the issue has been enormously complicated over the years because of two things: the litigation initiated by publishers and authors; and the subsequent, very complex and contentious 'Settlement Agreement' negotiated by the parties over a three year period. The Agreement was eventually outlawed by Judge Chin in 2011 because of the effective monopoly status it granted to Google. Google was the privileged partner in the proposed grand remuneration scheme.

Right from the start, blindsided by a vacuous '(but it's MY PROPERTY!') prejudice, publishers and authors could not see what was staring them in the face -  a massive new marketing opportunity being handed to them on a platter. And Google was bearing all the expense!

The overall response to this decision, apart from the delight expressed by Google and its library partners, seems to have been rather muted. Even the Authors Guild seems to be going through the motions. After eight years the issue seems to have lost its power to excite. 

There is a distinct possibility that new book search companies will now emerge, and the issue will become, as it always should have been, the size of the snippets. Some specialized companies, focusing on medical and technical titles for example, will offer entire lines, even short paras, more advanced data mining functionality and more targeted and specific purchase recommendations. 

But at least scanning is now legit.