Parallel Importation of Books

Author and former NSW premier Bob Carr ruffled some feathers in the publishing industry with an article in the Australian arguing the case for cheaper books. Previously considered a strong supporter of the arts I imagine he'll drop off some christmas card lists this year, but it is notable for being the first spirited article I've seen that argues against the status quo.

In case you've missed the debate, the article refers to the productivity commission study on Copyright Restrictions on the Parallel Importation of Books, and if you read to the end of the article, Bob is a board member of Dymocks. It probably isn't a stretch to say he would broadly represent the views of Dymocks and most other book retailers.

On the other side of the fence opposition to the enquiry has been heated with the publishers, printers, agents, and the Australian Society of Authors (ASA) all voicing their objections. Jason Steger from the age covers the various objections in this article, and I found this spray from the ASA pretty interesting, as well Henry Rosenbloom's dire predictions in his blog. The productivity commission itself covers the issues in a paper on the topic.

I can't speak for my employer, UNSW Press, but up until Bob's article I was a bit of a fence sitter on the topic. Strangely enough though, Bob's article, and the film industry's attack on iinet for not banning pirates got me thinking about the issues of copyright control, and I think I'm with Bob on this one. It might seem odd that I should relate the two topics but they are both about intellectual property producers trying to exert a level of control over their product that is not realistic in a global internet economy. That doesn't mean I'm with the internet anarchists that think that the internet voids copyright, but rather I think that content producers have problems acknowledging the virtual "elephants in the room". Lets talk about those elephants.

Firstly, as Bob shows, parallel importations already exist in the not insignificant form of Amazon for consumers and the many booksellers who quietly import small amounts of stock via Ingrams and Baker and Taylor for 'special orders' where the stock holding in Australia is poor or non-existent. Okay so most publishers accept this already and it's mainly the retailers who don't like being seen as uncompetitive. Consumers don't see the territorial boundary with an internet browser, just a freight charge.

Secondly, following on from that, ebooks recognise no boundaries, and despite being a miniscule part of the overall book trade is the only segment of the book industry that is showing any significant growth. Although I dislike reading for pleasure from a laptop, I pretty much purchase all computer books in electronic format. Publishers haven't been faced with an ipod revolution but ebooks will grow significantly, eventually relegating printed books to the collectable. I don't discount the value of the book as a physical object, but once the e-readers improve (e-ink is still not quite there), the printed book will become much like LPs are to music - a niche product, making territorial rights difficult to enforce without some appalling region encoding scheme like DVDs.

So that's the practical argument for parallel imports from a consumer perspective, but what about the impact on the local publishing industry, that will be destroyed by cheap imports?

The publishers have several arguments here. The first is that people will purchase cheaper overseas titles instead of local authors. The second is that less local authors will get published and promoted as they are currently subsidised by sales of international authors. Third, retailers will get a free ride by parallel importing titles that are being heavily promoted by local publishers thus reducing the incentive to market books. Finally, author and publisher income will be reduced when cheap overseas editions of popular Australian authors flood the local market.

The problem with these arguments are that I'm not sure they stand up to scrutiny, and there's nothing beyond empty rhetoric that currently supports them.  The only working example, the NZ open market experience hasn't managed to get much access to cheap editions, and the small NZ publishing market can in no way be compared to Australia. However, I can easily say that yes parallel imports will impact my own employer from the perspective of the international publishers we distribute, but I'm having a harder time arguing against parallel imports if I look at it from the perspective of Australian publishing or Australian authors, so lets look a little closer at the arguments.

Readers will purchase cheaper overseas titles instead of local more expensive authors.

It's true, local publishers can't compete on price with international authors, but there is no way you can argue that price is the only consideration in book purchase. I don't choose who I read based on price, any more than I buy books by the kilo, but there is no question it is a factor in the size of potential readership, and overall spending on books. If you look at what people spend on entertainment activities, the amount people spend on books has declined in real terms over the years, and there is no question that books are considered expensive compared to other options even if they ultimately provide longer term enjoyment value. Other more instant gratification entertainment options such as DVDs are growing rapidly, dropping in average price and taking up a much higher percentage of our spending. So if the average household will only spend $10 per week on books, but price is not the only consideration then it stands that if the average price of books drops then there is more chance of increased book sales overall, and possibly better dollar competitiveness with other forms of entertainment. In essence it's easy to argue increased sales of international authors but harder to argue that local author readership will suffer. In fact local author prices may drop a little to compete with international authors, so it's easier to argue that books may benefit overall when competing with other forms of entertainment.

Local publishing and promotion is subsidised by international authors, without which local publishing will suffer.

But actually, the reverse I think is true. If margins on overseas titles suffer because of parallel importation then local authors become increasingly more important to local publishers because there is less incentive to promote international talent if they think their returns will be eroded by imports. Given the size of the local market it can easily be argued that international rights sales of local authors is the only real incentive to invest in local authors. Publishers like to say how much they spend on marketing and advertising, but in matter of fact the vast majority of marketing dollars is spent on established and already successful authors. Your average author is lucky to get a media release and hopefully some free column space in independent bookshop newsletters and newspaper book pages. So no, on this point I actually think publishers have to turn to local talent or pay the price.

Retailers importing will get a free ride on the back of publisher promotion.

Contrary to the image that retailers are just sitting waiting for the parallel importation floodgates to open, there is actually likely to be fairly modest impact. For starters the retailer has to find someone who will sell them the cheap edition. On a blockbuster such as Harry Potter or Stephanie Meyer this is actually harder than you would think, as the originating publisher is likely not to supply a large order that it knows is destined for a market which it has already sold rights in by it's parent. Secondly, local retailers are dependent on local publishers for marketing dollars for their catalogues and return rights if the books don't sell. It's easy to see how retailers would find it harder to attract marketing dollars from their local publisher if they shaft them with a parallel import. The other mechanism publishers increasingly use to lock themselves into retailers is through rebates from overall sales, which makes it a disincentive to purchase from other sources for popular titles. So really when it gets down to the nitty gritty the books that are likely to be imported are where there is a massive discrepancy between the AUD price and the US edition. But to me, what it really means is that there will be more pressure to split out commonwealth rights. A UK publisher who traditionally retains Australian rights or buys commonwealth rights from the US is going to have to carefully consider leakage from the US, and cannot just take the Australian market for granted. Local subsidiaries or agents that represent the publishers in Australia will be under increasing pressure if the smarter retailers spot a big pricing discrepancy.

Author and publisher income will be reduced when cheap overseas editions of popular Australian authors flood the local market.

To be honest, if as an author you are in a position where your overseas editions could flood the local market it means you're in an enviable position. It means that you're most likely a success in the smaller local market, and it also means you've probably already received your royalty cheque from the overseas edition. For publishers, it's no question it's a problem when you're trying to break authors into overseas markets or print too many for the local market, but again we're talking the top authors in the list not the vast majority.

So what's the likely outcome from parallel importations

Not much really. The biggest impact is likely to be on the larger multinational publishers who have tried to tie in the British rights to the Australian market. Retailers will use the threat of imports to negotiate a modest number of specific deals with publishers on international authors, and those same publishers will pressure back up their international chain to get more realistic pricing for the local market, or bring in the US mass market editions because they have to. But that is an extreme example. For all but the blockbuster authors there will be minimal impact on pricing, because even now you have to cherry pick your titles to get a significant price advantage by buying from Amazon. Despite being open market NZ is hardly leading the way in cheap prices so the precedent for massive price drops just isn't there. The best that can be said for the impact on local authors is that there may be some pressure on the deals done overseas for the top 100 Australian authors, but given that a successful 10,000 copy Australian author earns less than a 15 year old McDonalds employee in royalties this is hardly going to change your average author's income significantly, and maybe just maybe the consumer might choose a cheaper book over a dvd. Wouldn't that be worthwhile?