Bollocks, basically: The Sieghart Report on UK libraries and ebook lending

Last year the UK Culture minister commissioned a panel of library and publishing industry representatives to investigate e-lending by public libraries in England and to make some recommendations.

The panel was chaired by philanthropist, entrepreneur and publisher William Sieghart, and their rather slim and insubstantial report was published this week.

The key recommendations were:

·       A number of pilots in 2013 using established literary events should be set up to test business models and user behaviours, and provide a transparent evidence base: all major publishers and aggregators should participate in these pilots.

·       Public libraries should offer both on-site and remote E-Lending service to their users, free at point of use.

·       The interests of publishers and booksellers must be protected by building in frictions that set 21st-century versions of the limits to supply which are inherent in the physical loans market (and where possible, opportunities for purchase should be encouraged).  These frictions include the lending of each digital copy to one reader at a time, that digital books could be securely removed after lending and that digital books would deteriorate after a number of loans.  The exact nature of these frictions should evolve over time to accommodate changes in technology and the market.

Frankly, this is staggeringly lame. Its main thrust is to ensure the publishing industry remains unshaken and unstirred by the emerging e-lending practices of libraries. It is profoundly protectionist and conservative. .

I can't imagine this report will garner any respect in the wider library community. It's bollocks, basically.

Firstly, it doesn't intellectually grapple with the arguments at all. It blithely assumes that 'friction' is necessary or the whole publishing industry will collapse.

It recommends pilots be set up, and, incredibly, 'all major publishers and aggregators should participate..' Why? The business is happening. Librarians know what's happening. Publishers know what's happening. And if no credible data is being collected in the UK, well, no need to panic. There's plenty of quantitative stuff (Pew, mainly) being collected in the US. There's nothing so strange about the English, surely, that they need to reinvent the wheel.

As for the recommendation to emulate analogue 'frictions' in the e-lending world, this is a highly contentious issue that should not be simply accepted as a starting point. Perhaps such contrivance is not really necessary? We'll never know from reports like this one.

A far better and more productive, but no doubt vulgar, way to proceed would be to just let market forces prevail. Why not let the publishers and librarians fight it out between them, and allow industry norms to develop as they eventually will. The more courageous and progressive publishers will blaze the trail and the dead-headed rest will eventually follow.

There's no 'role for government' here. But our UK colleagues love this sort of stuff. Remember the Net Book Agreement?

Supreme Court Decision in Wiley Importation Case

The background:  a Thai national studying in the US imported from Thailand, and subsequently sold on eBay, 600 copies of a Wiley textbook that had been reproduced by Wiley Asia in a cheaper edition and priced for the local Asian market. Such International Student Editions (ISE's) are common in the Higher Ed market. 

The price he charged his customers was obviously a lot cheaper than the US edition available from US campus bookshops.

Wiley took him to court and won. They also won on appeal. Both judgements rested on section 602 of the US Copyright Act that quite explicitly prohibits unauthorised importation of lawfully made copies of works.

However the student, Mr Kirtsaeng, was not satisfied and applied to the Supreme Court for a hearing. 

His argument was that another, more fundamental, section of the Act (109) had priority and should have determined the outcome of the case. This section deals with the 'first sale doctrine', commonly known as the 'exhaustion' of rights when the work is sold. When the customer buys the book all ownership rights are transferred. The publisher relinquishes any further control over subsequent selling, lending or hiring activities (but not copying). Thus libraries, second hand bookshops, museums and other entities can legitimately trade in the property without seeking the publisher's permission. Kirtsaeng also contended such exhaustion was global, thus enabling international trading.

The Supreme Court's judgement, in its majority and dissenting opinions, is a fascinating exploration of all these conflicting issues. Of course it benefited Kirtsaeng to focus on exhaustion, and it benefited Wiley to focus on importation.

The majority decision privileged the notion of exhaustion, thus allowing free and open importation.

The minority view distinguished the two principles and opted to privilege the prohibition of importation thus sidestepping the exhaustion issue.

In the end the argument seems to have rested on differing interpretations of Congress's intentions when framing both sections.

Congress will no doubt now be lobbied by publishers and other parties to clarify its intentions into law by strengthening the importation prohibitions.

Australia has clear importation provisions - the infamous Parallel Importation Provisions (PIRs).

So as in Australia, the debate in the US should be about whether such prohibitions are worthwhile or not, i.e. whether they do more harm than good. It should never be about rights exhaustion.

It's always been my view that Australia's PIRs are harmful to the economy and consumers and should be repealed. They operate to protect over-pricing and under-servicing by uncompetitive publishers.

However it also seems pretty clear to me that the commercial imperatives in the US are fundamentally different, and justify restrictive importation provisions. Prices in the US, particularly for trade books, are low by international standards, so the importation restrictions are not working to prop up prices to uncompetitive levels. 

For educational materials the ability of publishers to price low in developing countries is an imperative that should not be undermined by unrestricted importation back to the the US. The world needs these materials to be available at differentiated prices to ensure affordability by local students. Publishers should be able to stop these low cost versions from being able to be re-imported. 

Publishing 101: Questions from a student

A student of publishing in the UK asked me for answers to the following questions. Other students of Publishing 101 courses may find them useful, so I've posted them here:

Do you think the use of digital media will have a positive effect on the publishing industry? Please give your reasons?

Yes, it certainly will, mainly because it will ensure its survival. Publishing as a business will dwindle and possibly die unless it embraces all the opportunities that the new digital age creates.

Ebooks are now a fact of everyday life in the industry, particularly for fiction. Most experts are forecasting that they’ll account for at least 50% of total fiction and narrative (non-illustrated) non-fiction revenues within the next few years. They are close to 30%, at least in the US, today.

The shift to ebooks of illustrated titles (cookery, travel, children’s, etc) is still at an early stage of development but a number of new software systems and packages are coming onto the market that are helping overcome the burdensome and expensive production process. Many publishers believe that the real digital revolution will not come to maturity until these sorts of titles are commonplace. That could take another five to ten years.

How do you think digital books and journals will affect education?

They are currently revolutionising the industry, and will continue to. Traditional textbook publishers have begun releasing fully digital versions of their content that incorporate elements that only digital can provide – for example, online assessment, online tutorial, customisation, classroom management tools and communication. School and university administrations are welcoming these innovations as they add real value to their offerings and save teacher and administration time. To compete with free online resources (MOOCs), for one thing, publishers will need to offer extensive administrative services as well as content.

The large educational publishers have begun negotiating with university administrations to allow their content to be accessed by students via the universities’ own Learning Management Systems (LMS), and for an annual license fee payable directly by each university. This is a very different business model than the current, print-based, student purchase one. But it is not one that is foreign to publishers. Scholarly (journal) publishers in particular have been doing business this way for years. So it will be simply a matter of moving it from the library’s interface to the LMS. (‘Simply’ being too simple a word! The transition will be lumpy and difficult).

This model has decided advantages for publishers however. It’s calculated on the basis of 100% of enrolled student participation, eliminates returns, cuts out the second hand market, and cuts out any involvement by booksellers in the supply chain, thus saving considerable cost. The ultimate price to the student can thus be reduced. Any fee charged the student by the university to recover the cost of their license would be much lower than the average student’s current annual printed textbook cost. (Equity issues arise here however. Some jurisdictions, Australia for example, do not allow the purchase by students of commercial learning resources to be mandated).

It is early days yet for these sorts of licenses, but most publishers can see that the license model is the future.

Journal publishers are of course well and truly ahead of all other industry sectors in their transition to the digital environment. They have virtually completed it, and are now in the throes of finessing their digital platforms, for example by developing comprehensive usage data that can allow university libraries to refine their subscriptions. They are also developing data mining functionality, allowing academics to drill down into the huge volumes of research data and discover connections, etc. This is a rapidly growing field.

Do you think it will have different effects in secondary school and primary school education?

Most school publishers, particularly secondary, are publishing digital offerings now. The larger publishers, who have more financial and technical resources, are paving the way. The nature of their offerings however is paralleling what’s being done in the tertiary textbook sector. Online assessment and tutorial are critically important dimensions.

The need to include interactivity, illustrated and full colour material (photos, line drawings, tables, charts, graphs, etc) and video material, is slowing down the roll-out of digital resources that are the core component of the package and not just an optional and limited added extra to a printed text. The production of these resources is very expensive, and skilled, technical staff need to be hired.

As in the university sector new business models based on licensing, whether school by school or regionally, need to be negotiated. This is all pretty unfamiliar territory for publishers and educational authorities, but it seems inevitable that it’s the way of the future.

 What do you think are the positives and negatives of ebooks against printed ones?

Much of my answer to this question is contained in my comments above. However as a general statement I would say that moving online brings all the advantages that the internet brings to modern life. We simply can’t imagine life without search engines, web sites, online commerce, social media, etc. Likewise students in ten years time would not possibly be able to imagine engaging with published educational content at recognised educational institutions without the rich interactivity that learning involves.

Similarly, general consumers in the trade market are very quickly embracing e-readers, whether dedicated e-ink devices or all-purpose tablets. The widespread acceptance of these devices guarantees a substantial market for ebooks in the future.

Negatives? Digital Rights Management (DRM) for a start! The restrictions placed on lending to family and friends, and borrowing from libraries; the non-interoperability of ebooks across the various e-readers, which restricts a purchaser to one particular eco-system, e.g. Amazon’s Kindle; the fact that purchasers don’t really own their ebooks as they do physical books, but ‘license’ them; the territorial rights deals that prohibit a purchaser from buying outside the designated territory, unlike for physical books.

Many publishers lament the low prices for ebooks, and the fact that the ‘Agency’ model of supply has been outlawed, at least for two years, by the US Department of Justice, thus removing pricing control from publishers. I don’t share this view. The agency model is anti-consumer and was only ever about inhibiting Amazon. Because of the DRM restrictions ebooks are not worth anywhere near the price of the original printed edition, and publishers ought to allow actual consumer behaviour, mediated by independent retailers, to establish acceptable pricing benchmarks.

Do you think the print publishing industry will eventually be gone or will it always exist alongside digital publishing?

Printed books will survive but certainly not be published for every title as a matter of course. And those that are printed, apart from bestsellers, will only be on the market for a short period of time – maybe a year or two. The ebook version will continue and be the only one available for years afterwards. Simple economics will govern this.

The aesthetically beautiful books will always be published in print editions, but fiction and narrative non-fiction titles, particularly those with niche, specialist markets, will increasingly be available only in ebook format.

One major issue governing the publishing and availability of print books will be the demise of the bricks and mortar bookseller, an entity that plays a critically important role in book marketing and merchandising. As booksellers become more rare, so do shelf space, display and the possibility for browsing and impulse buying.

How do you think the digital publishing age will affect libraries? Will libraries still exist?

Libraries will continue long into the future to play a vital social role in the community. Publishers who are at present refusing to supply ebooks to libraries, or who are supplying in very restrictive ways – higher prices, limited lending periods and volumes, limited catalogues (for example, backlist only) – are making a major mistake.

Libraries serve the information, study and entertainment needs of large segments of society that cannot afford to purchase all that they may like to, or, like students, need access to voluminous amounts of information. It does no good to deny people access to published content just because of their financial or occupational circumstances. ‘Cannibalisation’ is not a concept that makes any sense here.

As well, patrons who discover authors through their library will often purchase further works from that author through normal commercial channels. The library therefore is a prime marketing vehicle for publishers, and will become even more important the more bookseller shelf space dwindles in the future.

Copyright Wars - the Submissions

Here's a great critique of the submissions received by the Australian Law Reform Commission (ALRC) in response to its Copyright and the Digital Economy issues paper released last year.

I've now had the opportunity to read most of the submissions myself, especially the major ones from the peak owner and user bodies. There is still - after all the water that's gone under the bridge over the last 15 or so years, and after all we've learned about how things are actually travelling in the internet age compared to early theories and prognostications - complete polarisation of views between copyright owners and users.

This is not just remarkable, it's shameful, and in no way whatsoever is it the fault of the user community. Unhappily, the copyright owners are still in complete denial.

Let's take a cold, hard look at the owners' submissions:

The Australian Publishers Association (APA): 

About 15 to 20 years ago it was de rigueur for publishing submissions on copyright matters to forcefully resist any proposed legal expansion of library, educational and consumer rights over published content just because technology made it possible. Everything was new and foreboding. Giving ground an inch meant possibly losing the whole commercial territory. Everything was rhetoric and emotion. The battles were fierce, he language fiercer.

We've come a long way since then, but the APA obviously hasn't. Here is a submission that's been dusted off from the 1996 pile. It's an exquisite example of early internet thinking. It toes a hard conservative line. The only thing good about it is its consistency. It bangs an old drum and keeps banging it remorselessly.

For example, it's anti-library: 'In particular, the broad library and archive exceptions available under the Australian Act are having a detrimental effect on the ability of publishers to participate in the digital economy to the same extent as many of their overseas counterparts.' (p.6). 'Free exceptions in the Act already eat into the legitimate business of Australian publishers'. (p.1) I'm certain this would be news to most of them.

The APA considers these exceptions a legacy from the analogue era which should be repealed. Such allowed usages can now be licensed. To me this is akin to arguing that no city street or alley should be exempt from eTolls. There's no appreciation of the rights of users to a minimal level of free access for the public good; a public space that has not been privatised. Unsurprisingly, it recommends contracts be allowed to override the fair dealing exceptions. Copyrighted material is, after all, just like 'cement, biros and bread'. (p.32).

The APA has scoured the earth for the meanest, most user-unfriendly exceptions, and most of the time locates them in the UK.

It surprises me that publishers could possibly think that these dated ideas could still resonate in the wider community. Where is the broader, more liberal, way more sophisticated appreciation of the realities of how things are playing out now in the digital economy? Where's the sympathy, the evidence that the consumer has been listened to and the intellectual effort put into appreciating the contemporary zeitgeist and responding accordingly? That is, intelligently.

This submission is a museum piece. It deserves to be, and will be, completely ignored by the commission.

Copyright Agency/Viscopy:

Formerly known as CAL this organisation's raison d'etre is licensing, particularly the Statutory Licenses governing educational and government copying.  It plays a dead bat on all other issues raised by the Commission, exhibiting a frequent 'we are not aware of any problems' haughtiness. It also seems surprisingly unaware that schools and universities might have quite a few issues with aspects of the licences that govern their copying - which they definitely do. (In fact the universities want them abolished altogether!)

Once again the customer is being thoroughly ignored.

Copyright Agency ought to get out more!

The Australian Society of Authors:

This submission is an extremely poor effort. In fact it's simply terrible. It's got more 'No's' in it than a Tony Abbott speech. Plus it gets so many facts and fundamentals wrong. It's as hardline and miserable as the APA submission, but exhibits a whiny 'do we have to put up with this' weariness that kills it stone dead as a credible piece of work.

Let me quote:

'A first principle for literary creators is that copyright law is fundamentally a private right. It is for the author first and the national interest...second'. (p4)

'..copyright law is also a property right....This property may be dealt with, exploited only according to the wishes of the owner.' (p4)

'We take the view that all forms of Copyright Act exceptions have the capacity to impact negatively on the rights and interests of the creator.' (p1)

All these proclamations are simplistic and wrong. Good copyright regimes respect the necessary balance that must exist between creators' rights and the public good. The rights need to be limited and time-constrained, not excessive and perpetual.

You would think that, of all copyright beneficiaries, our nation's authors would be able to muster and articulate a far larger, generous and encouraging vision of the place of creativity in the nation's journey, and the necessary legal, social, educational and economic instruments to ensure its influence. What a missed opportunity.

Libraries are not the enemy. Readers are not all pirates and thieves.

(There's one good point in the submission however, which it shares with the one from the literary agents, and that is its call for some legal guarantee that a fair or stipulated portion of remuneration from that Statutory License should go to authors, and not be able to be overridden by publisher contract. The agents want 70%, which has no commercial basis, but a minimum of 25% to royalty-contracted authors where the publisher is paying substantial sums for artwork, would be absolutely justified).

Now let's take a look at the users' submissions: 

By far the best and most persuasive are the long and detailed submissions from Universities Australia and the Australian Digital Alliance/Australian Libraries Copyright Committee. Both submissions are around 80 pages each, but are are packed with fascinating detail about how the current, inflexible exceptions in the Act are simply not working in the best interests of the economy generally and education in particular.

They are both thoroughly sound and thoughtful documents, obviously written by people at the coalface with decades of painful and frustrating experience. 

If you've not the time to wade through these then the 5 page submission from the Society of University Lawyers (SOUL) nicely summarises the same message.

And the message is this:

'...copyright is operating as a roadblock. Australian researchers and innovators are prevented from making full use of technology that their colleagues in regimes with more flexible copyright exceptions take for granted'. (Universities Australia, p2)

'The educational statutory licenses...should be repealed. Fundamental changes in the way that content is used in universities have rendered [them] increasingly irrelevant....The vast majority of content used in Australian universities is purchased via direct licences with publishers. There is also a global move towards publishing academic content in open access repositories with the objective of enabling the content to be accessed without payment and without the need for a statutory license.' (UA, p3)

Given these sentiments it will be fascinating to watch what happens when the current three year stat license period is up for re-negotiation at the end of this year. For decades the universities have fronted up and signed new multi-year agreements. Will they do so again? Frankly, I doubt it. Journal publishers don't need the license, and textbook publishers' are rapidly moving to a direct licensing model of supply. Here's where the big publishers will win out. Copyright Agency will become simply a default aggregator for smaller publishers and colleges. Revenues from the stat license will no doubt plummet over the next five to ten years. There seems little need to abolish it. It will just fade way. 

Users want 'users rights', based on principles of balance and fairness, to be restored to a central place in our copyright regime, and most are in support of a radical overhaul of our current limited, narrowly defined and restrictive fair dealing provisions. There is widespread support for adopting a general purpose 'fair use' provision as exists in the US Act. 

The submission by reformist lawyers Kimberlee Weatherall and colleagues provides an excellent critique of the current shortcomings in our Act, and an excellent case for the US Fair Use provision being adopted into Australian law. Well worth reading. 

So, in summary, the ALRC is required to report to the government by November this year. If the quality and persuasiveness of the submissions is anything to go by, there seems little doubt that major reforms in favour of restoring a long overdue balance back into our copyright regime will be recommended.

Should authors and publishers be concerned? Absolutely not, but this won't stop them from mounting a ferocious political campaign when the time comes. What a waste.

Publishers, eBooks and Libraries: What a Mess!

For months now I've been following the various moves, manoeuvres and initiatives of the big trade publishers as they respond to the demand from public libraries to allow their patrons to borrow ebooks.

I've read just about everything serious that's been written - in journals, reports, surveys and blogs - and from the differing perspectives of the various players: publishers, librarians, suppliers, patrons, commentators.

I've spent a lot of time mulling over the differing points of view and examining whatever data I could get my hands on. I've talked to key people. I've tried to be independent and open-minded. I've tried very hard to unravel the complexities and identify the real nub of the issue.

But I've failed comprehensively! There is no complexity here; there is no depth or significance beyond the shimmering surface. What we have, once again, is another dramatic instance of the same old paralysing fear of the digital that is gripping the publishing community across so many dimensions of the business.

The fear can be simply stated: if library patrons can very easily borrow any ebook, without even physically visiting the library, why on earth would they bother to buy one? Ever! The whole emerging ebook business, the very future of the industry, would collapse overnight.

Thus the large publishers have responded with a great deal of caution and wariness:

HarperCollins introduced a 26-loan limit. Upon expiration, the library must chose to re-purchase the ebook or it disappears from their catalogue.

Random House and Hachette opted for institutional pricing - prices two to three times retail prices.

Penguin is trialling with some major US libraries a 'window' strategy - no sales to libraries in the first six months of publication, and a 12 month limit after that, unless re-purchased.

Macmillan and Simon and Schuster have so far chosen to not make their ebooks available to libraries at all.

Now, the library community, it would not surprise you, is furious! Read this wonderful and funny piece from US librarian and blogger Sarah Houghton.

The American Library Association has condemned the publishers' policies in no uncertain terms. "We are weary of faltering half steps and even more so of publishers that refuse to sell ebook titles to libraries at all....We can no longer stand by and do nothing while some publishers deepen the digital divide.' (Sept 14, 2012). Last week it issued a media kit to help librarians take their case to the public at large.

But you may wonder where is the understanding by librarians of the publishers' concerns? Where is their willingness to entertain the notion that the whole ebook ecology may well be under substantial threat if free ebooks are universally available on a patron's device of choice at the touch of a few key stokes?

But this vision of apocalypse is a fantasy.

The key issue in this debate is that the major ebook suppliers to libraries - OverDrive, 3M, Ingram, Baker and Taylor - all use the same 'one borrower at a time' policy enforced by a DRM-enabled Adobe Content Server. If a library buys only one copy of an ebook (which is nearly always the case) then this operates as a severe constriction on lending behaviour. There is always a queue - frequently weeks or months long if the title is popular. This is a major incentive for a frustrated borrower to purchase the title instead. (Recent research by the Pew Research Centre found that 52% of ebook borrowers at one point or another discovered that there was a waiting list).

Public libraries accept the 'one copy/one loan at a time' policy. There is no push to change it. (In academic and research libraries the situation is vastly different, as such institutions are virtually the entire market for the digital content. Annual subscription deals are done and there is mostly no limit to the number of concurrent users allowed access at any one time).

So why the publisher temerity? What on earth could Penguin be afraid of during the first six months of a title's life? And why the one year license? The demand profile of your standard trade title is well and truly waning by then. Most titles will not be re-purchased - the library budget is hardly generous - so why penalise the potential borrowers who've patiently waited?

And why HarperCollins' 26-loan limit? What real commercial significance does such a miserable constriction have?

And why the massive over-pricing by Hachette and Random? They are offering absolutely no additional features or functionality to the libraries or their patrons for this impost. No additional usage/loan allowances for example. 'Unrestricted perpetuity' and 'simultaneous release' should be part of the standard offer, not charged extra for.

I think a major part of the problem here is that many publishing executives have never really been sympathetic to the library mission in an emotional sense. Individual libraries have never been favoured 'customers' in the same way independent bookstores have been. They've belonged to huge and specialised library suppliers who demand generous trading terms and indulge in peculiar cataloguing and marketing practices few publishers understand. The vital social and cultural role of libraries goes unheralded. Even their role as preservers and enhancers of a healthy reading ecosystem: the critical role they play in bringing new authors to readers, who more often than not subsequently purchase those authors' works. And the very important part they play in fostering literacy, enlightenment and education to the whole of society, particularly the underprivileged and disadvantaged.

In a real sense the library network should be seen by publishers as a major marketing arm for their endeavours. (Here's an interesting tidbit: A recent survey by OverDrive found that 35% of respondents have purchased a book after borrowing it). 

They are partners, not a threat, and their ebook lending programs should be welcomed not feared. 



 

Keynote Address, Small Publishers Network Conference, Melbourne, Nov 9, 2012

As someone who’s had no experience whatsoever in owning or managing or even just working in a small, independent Australian publisher, I must say it feels a little odd for me to have been invited by Tim and Zoe to give this keynote address – just a week ago! What on earth could I offer you that would remotely be of interest or help at this very critical time?

I spent my whole publishing career - 36 years in all - working in the large global corporates, McGraw Hill and Wiley. Most of that time in senior executive positions.

But I think I bring a perspective now that may resonate. I’ve been thoroughly liberated from the Man! Thoroughly liberated from the groupthink, from the siege mentality, from the debilitating defensiveness, that plagues all thinking within the large corporate entities that dominate the publishing industry globally as well as, naturally, here in Australia.

The publishing industry, right now, is in a very funny place. We are in the throes of a digital transition that is radically challenging our traditional operations, structures, habits of mind and very identities. This is not news to anybody.

My contention, however, is that we seriously misdiagnosing this challenge, and adopting strategic postures to deal with it that are thoroughly wrong-headed.

I want to start with a few observations about the Penguin Random House merger, as a lead-in to the central thrust of my argument. There’s been a lot of very thoughtful stuff written about this merger, and I don’t want to rehash that. 

I would say firstly though that, contrary to my claim above that we’re wrong-headed about the way we’re dealing with the digital challenge, this merger is absolutely right. It’s the start of something good and necessary.

Let me make the observation however that the experience of bedding down this combined operation is going to be terribly stressful and painful for the entire global staff of both Penguin and Random.  I really feel for them. They are in for a world of pain.  This is what I wrote in a recent blog post:

In my experience it is a far better outcome for everyone involved if companies are acquired rather than 'merged'. An acquisition means there is clarity around who is in charge, i.e. who sets the agenda and who has to give way; whose policies and processes take precedence; whose jobs will likely go. A merger means constant, ongoing political infighting at every level over things large and small.

So many senior staff will be spending most of their time in meetings and conference calls 24/7, that is, internal navel-gazing, that the core objective of the business - competing in the fast changing marketplace - will get far too little attention. The whole entity will suffer. This is so predictable and usually beyond the capability of management to prevent.

As well, morale generally hits rock-bottom. The people who win - who survive or get additional responsibilities - are universally the smooth and political, those who can best game the system.

Overlay onto this process the all-pervasive and negative effects of globalization - the rationalisation of structures, systems, policies, processes and responsibilities across the globe - and you get a real and irreversible leaching of energy and competitive urgency from local, country-based operations like those in Australia. Australian subsidiary companies are very susceptible to this process: they are large enough to be respected, but not large enough to be critically important.

Henry Rosenbloom recently wrote in his blog that the Penguin Random merger was really nothing of the sort. It was a takeover in all but name. I agree. What we’re actually seeing is a slow-motion takeover of Penguin by Random House.

And we will undoubtedly see more, most probably over the next year or so. HarperCollins will acquire Simon and Schuster or possibly Macmillan, and Hachette will acquire the other one. This is a logical and rational process, an inevitable outcome, because of what’s driving it.

Imagine for a moment the enormous advantages these mega-publishers will garner. They can afford to invest in very sophisticated software systems across all areas of the company including editorial, composition, production and distribution; they can contract cheaper printing; and squeeze suppliers of everything until their pips squeak. And they can even say to Amazon: ‘Your ebook discount is now 30%, not 50%. Live with it.’

The industry, worldwide, is undergoing a massive revenue subsidence. Print revenues are shrinking (despite the uptick in the first nine months of 2012 mainly because of the Fifty Shades of Grey and The Hunger Games phenomena). In the US in 2011 hardback revenues were down 17.5% over 2010, and paperback revenues down 15.6%. In the UK total revenues were down 11%. We don’t have such precise figures in Australia but we all know anecdotally how depressing things generally are and how badly the collapse of Borders hurt the industry.

The very welcome strong growth of ebooks has ameliorated this situation – they now represent 26% of total trade sales in the US and a bit less in the UK - but the logic of lower-priced ebooks means more units but less revenues.

Thus the industry has no choice but to cut its traditional overheads by at least 15 - 20% to maintain profitability and continue to attract investor capital. The best way to do this is to radically cut duplication, and the best way to do that is for players to acquire, merge or partner. This is creative destruction at its best, and the book trade has seen it many times over the last 100 or so years.

In the 1920’s heavily discounted bestsellers began to be sold in non-traditional retail outlets like grocery and department stores; In the 30’s and 40’s book clubs subsequently emerged and prospered; by mid-century public libraries were rapidly spreading under new government funding initiatives, bringing free access to books to millions of patrons around the world; then the paperback was invented. Now it’s the ebooks revolution.

What is common to all these major disruptions? The offer of lower prices and vastly improved access, and the enthusiastic reader response.

We have our own rather significant circumstance in Australia – the dramatic strengthening of the Australian dollar over the last decade - which is putting downward pressure on prices. Australian publishers, distributors and others involved in importing have lowered prices by 10-15% over the last few years under competitive pressure, but this is nowhere near enough. Prices should have been lowered by around 30% to meet consumer expectations and to fend off Amazon, but of course this adds considerably to revenue decline unless there’s a far more substantial, i.e. around 50%, increase in volume. And this requires not just a great deal of faith but a great deal of courage, and in our industry that’s in short supply.

I was Managing Director of Wiley Australia in the early 2000s when the dollar start to climb, after five years or so of plumbing the depths, and the exhilaration in the company, shared by all importing businesses, at our increasing margins was palpable (and the executive bonuses bankable). But I soon realized it was wrong. I fought my own divisional managers fiercely to force them to lower prices regularly. We were the only company doing it. To me it was a matter of integrity as much as anything else – keeping faith with our customers, booksellers as well as readers.

I’ve long argued that our booksellers’ obsession with Amazon and its GST-free imports was misplaced. Of course we should welcome any move by the government to lower the $1000 threshold, but we’re missing the real target. And that is massive over-pricing by Australian importing publishers that has gone on for far too long. We allowed Australian consumers to get hooked on Amazon and The Book Depository and the whole industry is now paying the price.

Now let me return to my main point, and as Ellen Degeneres said ‘And I Do Have One’. My contention is that the industry globally, apart from corporate rationalization, is adopting strategic postures in the face of the digital challenge that are entirely misplaced.

I want to talk about Google, then Amazon. And end with some optimism about the future.

You are all familiar with the Google library scanning project. In 2004 Google began scanning, without seeking permission from authors and publishers, entire books that were held by half a dozen major university and public libraries in the US and the UK. The purpose was not to sell the files subsequently but simply to offer snippets (two or three lines) around key terms entered by searchers, and then point them to where the book or file could be purchased or borrowed. About 12 millions titles were eventually scanned before authors and publishers instituted legal action against Google. After a long period of negotiation a complex Settlement Agreement was reached in 2009 and, according to proper legal process, presented to the US Federal Appeals court for approval. It was rejected by the judge, unfortunately, principally because it gave Google a virtual monopoly, and thus the whole project was stopped in its tracks. Just last month the publishers came to a different sort of settlement with Google concerning works still on their lists – one that doesn’t require court approval - but the authors, who are always very bolshie, are sticking to their litigation agenda.

Now here’s the nub of the issue: Google always maintained that their scanning was ‘fair use’ under the terms of the US Copyright Act. After all, they were undertaking a scanning process that their library clients were already free to do under the law for archival purposes; they were not intending to offer the files for sale; and were not impinging on a publisher’s commercial terrain as there was no conceivable market for ‘snippets’ anyway.

This always sounded to me as innocent an activity as cataloguing, shelving or browsing. It encourages discovery and eventual purchase by a consumer.

What is more, the great majority of titles held in these major libraries were what is called ‘orphan works’ – titles in still in copyright but out of print where the original publisher and/or author could not be tracked or contacted. They were to be liberated: made discoverable and accessible to students, researches, hobbyists, readers.

As a result of the litigation, those works are still rotting in the deep recesses of the world’s libraries, unknown and unloved.

Wouldn’t it have been a wiser course for publishers and authors to welcome Google’s scanning initiative and benefit from the sales of the discovered works that eventuated?

Now for another behemoth that’s universally loathed and feared by the industry, to such an extent, it seems to me as to have become quite pathological. I refer to Amazon.

Now I’m not so naïve as to defend everything Amazon has done and is still doing. It’s a ruthless, aggressive operation that rides roughshod over its competition and more particularly over its suppliers.

But I do want to lament the way the industry has dealt with Amazon since day one of the ebook take-off five years ago when the Kindle was first released. You all know the story. It’s become the trade’s standard, orthodox narrative:

Once upon a time Amazon invented an ebook reader and in a short space of time garnered nearly 90% of the market for the new, revolutionary ebooks. Amazon demanded 50% discount off the ebook price of around $25.00 yet they priced the bestselling ebooks at $9.99, way below cost.

The publishing community was aghast at this outrageous and cynical manoeuvre. ‘This will lower price expectations across the board’ they lamented. ‘It must be stopped’.

Fortunately a major new entrant appeared, called Apple, with its amazing iPad. It said to publishers ‘Use our app model – you set the price; we take 30% commission as your agent. However you must not allow any other ebook retailer to undercut us on price.’

The publishers rushed on board (whether after a boozy lunch at an upmarket Manhattan establishment is a debatable point), and forced Amazon to adopt the agency model. This would end the discounting, they yelped, and restore order and security to the book world.

Well of course we know how the story then unfolded. The US Department of Justice refused to believe the fairy tale and in April this year condemned Apple and the agency publishers for their collusion to restrict competition. It pronounced that the agency model had to be unwound.

The trade was aghast, and the condemnation of the DOJ has been universal. As recently as last week respected industry consultant Mike Shatzkin opined ‘the legal experts applying their antitrust theories to the industry don’t understand what they’re monkeying with or what the consequences will be of what they see as their progressive thinking.’  Shatzkin demands they respect the ‘specialness’ of the publishing ecosystem. By removing Amazon's ability to aggressively discount, the competitive landscape is enhanced. It allows other retailers to emerge and potentially flourish and not be crushed by a deep-pocket behemoth seeking dominance at all costs by indulging in ‘predatory pricing’.

But I go back to my Economics 101 basics: it is not the prerogative of a producer to so constrict - for whatever reason - a retailer from engaging in the age old dynamics of customer satisfaction. So no matter how large, voracious, aggressive, ugly, or profoundly discourteous any particular retailer is at any time, a producer just has to live with that retailer's consumer satisfaction strategy.

Let's remember that, pre-agency, publishers were pricing their new ebooks at ludicrously high prices - often at the same price as the hardback - and in fact far higher than Apple demanded publishers price at if they wanted to deal with Apple. Ironically the consumer demand profile of recent times is unequivocally demonstrating that the greater volume of ebook sales occurs around the $10 mark, and falls off quite rapidly at price points beyond that.

Now, post the DOJ decision, the fear of many is that Amazon will return not just with renewed vigor but with a good measure of vengeance. Some commentators are indulging in truly awful effusions of doom and apocalypse, booksellers in particular, who for a variety of reasons have no reason to love this online enemy.

But the Agency model, like any price-fixing model, is a dead hand. My view is that if in the end if we all trade in an open, unconstrained, free market then it is not naive to believe that we will all be better off in the long run. New, original, highly innovative business models will have a far higher chance of emerging if the dead hands of tradition, authority, stability and comfort are not privileged. Protective shells need to be broken to allow new life to emerge.

The industry went to war with Google; it’s still at war with Amazon; it’s at war with the US Department of Justice. Publishers are at war with authors over ebook royalties; they are at war with libraries over ebook lending. Even consumers over DRM.

All these wars are shameful. But what really amazes me is how we have sniffily turned our backs on what has clearly been the greatest financial investment in books and reading ever seen.

Billions of dollars have been spent over the last decade alone in building a whole new digital ecosystem to take our content to millions of existing and, particularly, new readers around the world. Think of the enormous investment that Google has made into reaching into the content of virtually every book published since Gutenberg and making it discoverable and accessible to the entire world’s population. This could only be of be of benefit to publishers.

Think of the hundreds of millions of dollars Amazon, Apple, Kobo, Sony, Nook and others have made in bringing eReading technology to the world’s consumers. It’s a massive reach-out to the non-traditional, non-bookshop visiting consumer, particularly the young who can now be distracted from HBO, Showcase and BitTorrent, and can access content we publish on their must-have devices, including their smartphones.

Why haven’t we embraced, in fact, celebrated this? Why have we been struck by a paralyzing timidity? An awful defensiveness? A demobilizing moral panic? A reactionary urge to protect our dated, legacy business models? A tentativeness that borders on the absurd. Why haven’t we begun working positively with these behemoths to secure win-win outcomes of real benefit to consumers, and equal benefit to publishers? Eliminating DRM, closed systems, restrictive licensing arrangements, etc.

Here’s where small and medium independent publishers can and should take the lead. You are a dynamic and vibrant sector. You are the hope of the future.

You don’t have to worry about savagely cutting costs. You don’t have any to begin with. You are not captive to a corporate line, a groupthink. You don’t lack courage. You’ve chosen to be in publishing after all. You don’t have to adopt the conservative, timid, strategic postures of the corporates.

You can have a go. Take risks. Experiment. And your opportunity to thrive will grow stronger as the big publishers turn inwards and, under financial pressure, think only big. Ever more gems will be considered by them small beer and a distraction from core business. But these works are just as necessary to our cultural and social development as they ever were.

Let me be personal for a moment. I’m a literature graduate and an avid reader. I devour just about everything Text publishes; everything Scribe publishes; everything Black Inc publishes; even everything Louise publishes at MUP! At least half of my annual reading diet comes from small and independent Australian publishers. And I would not be unique. (And, by the way, I’m so delighted that Wayne Macauley’s The Cook won last night’s award. It is a brilliant book on so many levels. Just like the food, the evil is exquisite! Simply wonderful.)

 

I wish there was a way fervent supporters like me could contribute financially to your continued existence other than just buying your books. I wish Australian governments could be convinced that there must be practical ways to support you and your authors beyond the paltry grants from the Literature Board and the lottery of literary awards. 

But in the meantime can I plead with you to continue to grasp the opportunities that will increasingly come your way. Please.

Thank you very much.