Scribe Publications: Henry's Blog

Meeting Gorillas in the Jungle: the story so far of e-books in Australia

2011-11-30T09:54:31Z

The following is a slightly modified version of a talk I gave to introduce a session called ‘Rights Trading: new knowledge, new practices’ in Sydney on 29 November 2011, as part of a day-long industry seminar sponsored by the Australian Publishers Association called ‘The Bu$iness of Digital Rights’.

It’s hard to believe, but Amazon released its first Kindle in the United States just four years ago. Accordingly, the digital transformation of books in Australia has only been underway for a short while. Most local publishers, whether they were large or small, only needed to prepare for and engage with this transformation two years ago or less. As they did so, they had a number of key concerns that were complex and often inter-related:

They had to try to understand the technical and practical challenges coming, and how their organisation could or should deal with them. This included questions of settling on e-book formats and platforms, the resources needed to convert print files so they would be available on them, and the workflow consequences.
They had to deal with the commercial challenges. This included entering into contractual arrangements with authors and agents, and e-book retailers; e-book costing and pricing; and the level of investment necessary or even possible to do the job properly.
They had to deal with the strategic challenges. This included dealing with concerns about the security of their e-files; how much of their list to convert and when; and the likely effects on their business overall.

While they were wrestling with all of these matters, they all knew that they would not get back their investment of time and money in the foreseeable future. The Australian market was still very immature, with very few e-retailers of any size operating in it. At the same time, they knew they had to make that investment to be part of the future that was rushing toward them. Even today, I’d be surprised if any Australian publisher has yet recouped its costs of going digital from its e-book sales.

Although it’s been a rocky road, I think we can now say that the initial technical and commercial challenges have largely been met, as have some of the strategic challenges, but that the key commercial and strategic challenges remains unresolved.

The ePub format has become the default e-book format internationally, and many e-book platforms now accept it. Publishers have, by and large, worked out how to go about the conversion process, and have adjusted their organisational structures to cope with the new work demands that flow from digitisation. There are still delays and quality-control problems with e-book conversion — which end up frustrating consumers — but publishers get what they pay for.

The commercial challenges have been immense, and under-appreciated outside the industry. For some time, it wasn’t even clear whether existing publishing contracts included e-book rights; eventually, most publishers decided that it was in everybody’s interests for them to expressly acquire electronic rights in their titles. This required contractual addenda to be drawn up for old agreements, and for the new clauses to be incorporated in new agreements.

Simultaneously, the matter of e-book royalties had to be thought through and negotiated. This was another version of ‘How long is a piece of string?’ Publishers have to relate the royalties they pay to retail prices and sales, but in the case of e-books this was mostly unknown and highly speculative. Eventually, led by US practice, most of the industry settled on a royalty of 25 per cent of nett receipts. Inevitably, this will be revisited once we’ve all had enough real-world experience of the consequences.

‘Nett receipts’ begs a question or two, of course. It’s a function of list-price sales less trade discounts. But what price should e-books be? The experience of the US, which, because of Amazon’s entrenched position, led the world, was that they were very low in relation to print prices. Most Australian publishers have a much more conservative answer to this question, and priced their e-books initially at levels ranging from 80 per cent to 100 per cent of print-book prices. Partly, this was in recognition of the fact that they were incurring substantial extra costs to digitise their lists, with only the absence of print bills compensating for this. Partly, also, it was probably a recognition that they would rather start high and gradually move lower, than start low and have nowhere to move.

The other side of ‘nett receipts’ is the level of trade discounts that publishers provide. And here we come to the fact that dealing with e-book retailers has been the most trying commercial challenge of all. Of the international players, Kobo entered the scene first and relatively straightforwardly. But the big three, the so-called gorillas — Amazon, Apple, and Google — didn’t even bother to talk to local publishers until relatively recently. Some consumers were unhappy about the lack of local e-book content, not realising it was because the content sellers hadn’t bothered to deal with the content providers.

Then, when discussions and negotiations did start, it was quickly apparent that there was a vast disparity in the resources available to the parties. Even the biggest trade publisher in the world is a minnow compared to, say, Amazon. Not surprisingly, publishers found that every clause of every draft agreement favoured the content sellers. Everything had to be thought through and negotiated — e-book pricing, discount terms, duration, etc. There were different models on offer. And there were also serious worries about possible infringements of trade-practices legislation, and the downward ratcheting effect of so-called ‘most-favoured-nation’ clauses, whereby the major e-sellers insisted on never being disadvantaged on pricing, whatever the circumstances. This became a long and arduous process.

(I should add here that a number of local e-book vendors have since emerged, and that dealing with them has been pleasant and relatively straightforward. A couple of them — Booki.sh and ReadCloud — are offering much-needed solutions for local booksellers, and others provide solutions for school and public libraries.)

Most important of all, while wending their way through this labyrinth, publishers had to understand the likely effect of their decisions on the income that they and their authors would receive. Each deal was different, but each deal was related. Speaking purely for my own company, Scribe, we were determined that, on average, our authors would receive around the same income from an e-book sale that they would receive from a print-book sale. This was a complex combination of our e-book royalty rate applied to our e-book prices less our average e-book discount. The average discount we paid would vary, of course, depending on the market shares of our e-retailers. But we did everything we could to protect our authors’ interests in this way. The result, at least for the time being, is that we and our authors can afford to be indifferent as to whether we sell books physically or electronically.

This leaves us with I’ve called the strategic challenges. Local publishers were initially worried about two things: piracy and cannibalisation.

The first has to do with the anxiety that once an electronic file has been made available on the Internet, it can be pirated and downloaded for free, undermining or even destroying its commercial value. This is meant to have been dealt with by a universally adopted tool called ‘Digital Rights Management’, or DRM, which limits the availability of an e-book file to the territory in which it has been licensed. DRM is usually insisted on in publishing agreements, and we all commit to it, whether as sellers or buyers. The trouble is, it’s not worth the paper it’s written on: anybody with any digital ability can crack a DRM file in about 20 seconds. This means that digital piracy is unavoidable and inevitable. We’ve lost this battle before it’s even begun.

‘Cannibalisation’ was the word we were all throwing around 18 months ago or so, worrying that each e-book sale would occur at the expense of a print-book sale. And with e-book prices much lower than print-book prices, this seemed a sure path to ruin. What has happened since, at least in the United States, is both more and less worrying: e-book sales are going through the roof, while p-book sales are going through the floor. Or, to put it more conventionally, trade sales of printed books, both in quantity and value, are declining by much more than e-book sales are rising. As a result, most trade publishers’ turnover is down.

For example, in the first six month of this year, Penguin Group’s worldwide operations were down 7 per cent, or 36 million pounds, compared with last year; within this figure, digital sales went up by 64 per cent, or 22 million pounds, while print sales went down 13 per cent, or 61 million pounds. In the same period, Simon & Schuster reported an overall decline of 1 per cent, even though digital sales increased by 115 per cent, or $30 million, because print sales declined by 10 per cent, or $33 million.

However, even given these turnover declines, both publishers’ operating margins improved. And a batch of recent financial reports from major US houses confirms that, despite the divergent print/digital sales trends, their profitability has increased. This can only mean one thing: the deals they’ve struck with e-book retailers are more lucrative than their print-book sales & distribution arrangements. How long the marketplace will accept this arrangement is anyone’s guess.

So we now have some answers to local publishers’ initial concerns, and they’re not necessarily answers to our liking. But that still leaves us with what I’ve called ‘the key commercial and strategic challenges’. That is, most simply, how do we manage the transition from print to digital, stay in business in the meantime, and come out the other side, fit for purpose?

Australia is currently the most challenged book market in the world. (These are not my words, by the way — they were uttered spontaneously by John Makinson, the chairman and ceo of the Penguin Group, during a chance encounter we had at the recent Frankfurt Book Fair.)

Everybody knows the trouble we’re in: a high dollar that makes our book prices look high by US and UK standards; offshore online competition free of GST and duty, further enabled by subsidised international postage rates; a post-REDgroup market down by over 20 per cent; and consumers and consumer advocates now treating books like commodities.

On top of that, we have an additional problem to do with territorial e-rights that’s just over the horizon: there’s a small but discernible tendency for overseas publishers to demand world e-book rights, even when they don’t have physical territorial rights (and they’re trying to have their way with those, as well). This threatens to be the greatest of all our challenges: if we give in to, or lose, this battle, there’ll be no local publishing industry left.

At the moment, having hacked our way through the e-book jungle, but with decent e-book sales still over the horizon, we have the worst of both worlds: an old business model that doesn’t work well any more, and a new business model that’s still a work in progress. We now have to turn that progress into achievement.

Henry Rosenbloom

Reply to Bob Carr

2011-11-14T16:29:53Z

The below is a response to this post on Bob Carr's blog Thoughtlines.

Dear Bob

You were wrong then, and you’re wrong now. You were tendentious then, and you’re tendentious now.

The Book Industry Study Group (BISG) report is a serious, thoughtful, and informed attempt to deal with the challenges and problems facing the book industry. I don’t agree with all of its recommendations, but it is a much more impressive report than either one produced by the Productivity Commission in 2009. It contains original research and fresh thinking, and your glib dismissal of it does you no credit.

And will you please refrain from misrepresenting me? I did not say that the book industry is in a profound slump solely because of non-GST-paying online competition. If you really want to know what I think about this, the problems also stem from a variety of other sources, including the high Australian dollar, high interest rates, the loss of the RedGroup chain with its 20+% of the market, and the general consumer caution that has been decimating retailers of most goods around the country. It is not the result of the maintenance of parallel-import restrictions.

Your talk of ‘liberating’ local bookshops is scary. Even after all the detailed explanations and arguments of people who understand the industry and care about it, you either don’t realise or don’t care that the end-result of your economically rationalist position is a publishing wasteland. Australia would go backwards 70 years or more, to the era of the Traditional Publishing Agreement, and would resume its position of very limited local publishing and colonial dependency. Ironically — or perhaps not — your argument, if accepted, would play into the hands of the biggest and nastiest corporations, both overseas and here, and the people it would hurt most would be local authors, independent booksellers, and independent publishers.

The current 30/90 day rule, or the proposed 14/14 revision of it, is not ‘internationally and locally uncompetitive’. Parallel imports are banned in the US and the UK, and the UK often publishes books several months after they come out in the US. Our peculiar problem is that we are a small English-language market, exposed by the above factors in an economy that can never produce the economies of scale enjoyed by our larger competitors. And yet all this would be ameliorated with the dollar at its long-term average levels and a government that did its duty.

In the meantime, maybe what’s right and obvious to you stems from your lack of engagement with the fine detail and the underlying principles of what’s going on and what’s at stake. Even Laurie Oakes thinks that the government should remove the GST from books, and he’s as much of a hardhead as you.

One last point: you write scathingly of the report offering local printers ‘even more subsidy’. Even more than what? I’m unaware of any special subsidy that book printers get, but I am aware that they’re getting hammered by all of the above, as well as by some UK publishers paying them in pounds. Incidentally, I understand that some UK publishers may be avoiding GST through the use of sham offshore entities. But that would all be in the spirit of free-market competition with Australian independent publishers, wouldn’t it, Bob?

Henry Rosenbloom

On being moved

2011-10-05T15:12:57Z

We’ve just done something that may be completely crazy: we’ve moved into larger, swish, purpose-built new premises, (you can see some photos here) in the face of a book-industry recession. There’s never been a more trying time, in my experience, with pressure on every aspect of the industry around the English-speaking world. In Australia, these pressures are exacerbated by the high value of our currency, the preferential tax treatment given to offshore online booksellers, and by the high-interest-rate regime that’s been imposed by our out-of-touch, incompetent central bank for almost a year.

So why have we done this? Essentially, because we’d outgrown our previous premises, which functioned like a charming share-house; and given that we had to move, I wanted us to relocate to premises with facilities that would enable us to function at our best, and to grow when needed.

We’ve finally got a meeting-room — and it’s being used for remarkably productive conversations. We’ve finally got private space for editors to think and work in. We’ve finally got modern workspaces that give staff the room to spread out. And I suspect that we also feel more grounded collectively, in the heart of Brunswick, a multicultural, vibrant, inner-city suburb.

Strangely enough, we’ve moved to within a block or so of the factory from which I ran our family’s book-printing business, Globe Press, from the late 1970s to the late 1980s. Brunswick is now very different, but it feels like the right place to be, for me and for us.

I’ve found the move very moving, partly because — as it happens — Scribe has also just celebrated its 35th birthday. This marks 35 years of our existence as a home-grown, wholly independent trade-publishing house. I feel slightly weird about claiming this anniversary, as we published few books annually for the first 20-or-so years, but the fact is that we managed to survive and grow over that time, and in the process I’m certain that we’ve helped change the reality and the received opinion of what small-to-medium-sized publishers are capable of.

There are a couple of developments that have especially pleased me in recent years. One has been our ability to pick very good overseas books on intrinsically difficult subjects and to manage to find a sizeable readership for them. (I am thinking here of books such as Deer Hunting with Jesus, by Joe Bageant; The Good Soldiers, by David Finkel; and Every Man in This Village is a Liar, by Megan Stack.) We have competitors who’ve noticed this, and are trying to do the same thing; and although we could do without the implicit flattery, this can only benefit Australian readers and the culture in general.

The other is that it’s no longer the case that independent houses such as Scribe only attract small books by unknown or left-over authors that sell in small quantities — as we demonstrated, for example, with The Brain that Changes Itself, by Dr Norman Doidge (a Canadian popular-science title that has sold over 150,000 copies in three-and-a-half years), or Sideshow, by Lindsay Tanner (a local politics/media title that sold over 10,000 copies in a few months earlier this year).

Scribe and its peers have shown many times that independent publishers can publish influential books that garner substantial publicity and achieve commercial success. The niche that we now occupy is defined by the quality of what we do, and not by its quantity.

To my continuing astonishment, what started off in 1976 as a desire on my part to publish ‘serious non-fiction’ on a limited scale has turned into a company with over a dozen staff members and two scouts that publishes 60–65 non-fiction and fiction titles each year. We are continually sifting through submissions and manuscripts from around the world, and commissioning and editing local titles, in an uncompromising pursuit of the best books we can find and help create. Many of our books have won or been shortlisted for major international and national literary awards, and our company has won the Small Publisher of the Year Award several times since its inception in 2006.

After all these years, I’m still drawn to non-fiction writers who have a good case to argue, who bring vital analyses of important subjects to new readers, or who offer fresh perspectives on old stories. We’ve got to the stage that we can virtually guarantee serious readers who are concerned about international and national affairs that we either have or will have a very good book on our list that deals with the subject.

With fiction, I love writers with verve and panache who have a distinctive voice and something compelling to reveal about the human condition. Aviva Tuffield, our associate publisher of fiction, is building a strong emerging local list that is gaining critical acclaim and commercial success.

Of course, you can produce as many books as you like, but you can’t manufacture your reputation. I’ve realised in the last few years that we’re well regarded by many people I’ve never spoken to or dealt with, and that they’ve been contributing silently to our success. So I’d like to thank them, and everybody else who’s helped us to last this long and to get to this stage in relatively good shape — especially our authors, our readers, our staff, our sales and distribution partners, our rights agents and scouts, the agents and publishers we buy rights from and sell rights to, our booksellers and media, our suppliers, and our friends and supporters in Australia and around the world.

Finally, I should acknowledge, as I’ve written before, that there’s something deeply irrational about being a serious trade publisher — even in normal economic times. It’s one of the few genuinely entrepreneurial activities left in the free market; but, paradoxically, it usually rewards high risk with low financial returns and deep anxiety. It’s just that it’s something I’ve felt compelled to do. I’m driven by a conviction that we have to provide a means for authors to tell the truth about what they see and what they know, and that we have to ‘comfort the afflicted and afflict the comforted’. This is perhaps a bit prosecutorial for a publisher, but there you have it.

In the near future, we’ll be refreshing and relaunching our branding and our website, and we’ll be extending the reach of our e-books to every significant platform — including Apple, Amazon, and Google. In the worst of times, the best is yet to come.

Henry Rosenbloom

Scribe staff on our first day in the new building

In the RED

2011-02-21T09:54:47Z

Last week’s announcement that the owners of the aptly re-branded REDgroup Retail — the bookselling chains of Borders/Angus & Roberston/Whitcoulls — had placed the group in administration provoked a flurry of bullshit, special pleading, and knee-jerk nonsense.

Bob Carr, a board member of Dymocks, jumped onto his failed hobby-horse called Parallel Importation, and whipped it into a lather. He claimed that the chain was a victim of the Labor government’s wrong-headed refusal to heed the wise advice of the Productivity Commission to allow the importation of cheap foreign books. The Australian dutifully reprinted his inane blog on this subject, and echoed his argument editorially.

Carr was wrong during the debate about territorial copyright, and he’s wrong now. If he’d ever stepped inside a Borders or A&R store, he might have noticed that they regularly added 10 per cent to the publisher’s recommended retail prices for frontlist titles. At the very least, this doesn’t sound like a retailer trying to compete with cheap foreign imports. He might also have noticed poor customer service, a lot of out-of-date stock, odd or poor selections of new titles, and a lot of non-book items where customers used to expect to find books. Why you’d go into Borders to buy barbecues I don’t know, but that was apparently part of their business model.

If Mr Carr had kept his eyes open when he visited any stores belonging to the chain whose board he sits on, he might have noticed the opposite of what I’ve just described. And he would have noticed that, while they were struggling during 2010 — along with many of their bookselling peers and many retailers — the business was doing much better than Borders or Angus & Robertson. I’ll return to this point later.

At the same time, the chairman of the failed group wrote to the federal government, claiming that their plunge into administration was due to their lack of access to parallel imports, and competition from offshore online retailers who didn’t have to pay GST or duties. The PI argument is not worth thinking about, and not just for the reasons I’ve listed above. First, there’s hypocrisy: REDgroup's submission to the Productivity Commission on this subject supported the continued exclusion of parallel imports when the debate was on in 2009. Second, if there were any point to it, there’d need to be some evidence, the least of which would be signs that all booksellers have been suffering more or less equally from the problem. As the Dymocks example above indicates, and as I’ll explain below, that was certainly not the case.

Readers of this blog will know that I started complaining and campaigning about the GST tax break last year, but no one should accept the absence of offshore GST as a reason or excuse for REDgroup’s failure. As I’ve argued before, the Australian dollar is so high that most customers would keep buying from offshore sites even if GST and duty added 20 per cent to the costs they had to pay. Ironically, this isn’t an argument against dismantling the tax break, but it is an argument against thinking that, at current exchange rates, it would make much difference to domestic retailers.

The initial reaction of the media was to parrot the claims of Carr and REDgroup, and to argue that the problems they’d cited foreshadowed the end for bricks-and-mortar bookshops. There is no doubt that bookselling and book publishing are under tremendous pressure at the moment, but this interpretation was way off the mark. The REDgroup story is indeed a cautionary tale, but not of the type that Carr and some others think.

Whenever a business goes broke, the first questions to be asked should be of the management and the owners, not of the government. So let me spell this out. Borders/A&R in its REDgroup incarnation was a very badly run business, for which the owners, Pacific Equity Partners, a private-equity group, are responsible. PEP deliberately created a brutalist regime: they installed bovver-boy managers who alienated all their inherited knowledgeable staff (who left), made appalling decisions about stock selection and presentation, and tried to treat books like potatoes. They were focused on fluffing up the business so it could be floated, so all they seemed to care about was inventory control and their cash position. As they tormented their suppliers — who understood their business better than they did — things started to go badly wrong.

The group kept refusing to listen to well-informed and well-intentioned advice, so their business declined drastically. Eventually, several times last year, the group was ‘on stop’ with major publishers — that is, the publishers refused to supply books to them because the group was in breach of its credit limits and trading terms. At other times, the group simply stopped re-ordering titles that were selling or ordering new-release titles that might have sold.

The supermarket model that REDgroup had adopted was a grotesque failure. In the end, the group became a very good example of why bookselling is not a corporate business – it’s a hands-on, detail-intensive business, with low profit-margins. Only people who love it and know what they’re doing can make a success of it – Internet or no Internet.

As partial evidence for these assertions, let me proffer some internal financial information. In the 2010 calendar year, compared with the year before, Scribe’s turnover with Angus & Robertson company stores fell by 51 per cent. By comparison, our turnover with A & R franchise stores (which are effectively independents) fell by only 10 per cent. Our turnover with Borders stores within Australia (which were all company owned and run) fell by 40 per cent. For REDgroup as a whole, our turnover was down by 44 per cent. These are staggering figures, and I would be very surprised if they weren’t at least typical of other publishers’ experiences. I suspect that REDgroup’s market share fell by around half during 2010.

As to other bookselling buying groups, our turnover moved in a range from -6 per cent to + 48 per cent. In other words, REDgroup’s business performance was by far the worst of any of its peers that we traded with. And we had a relatively good year: in the critical July–December period, the sales of our titles by the book trade, as measured by Bookscan, rose by 7 per cent by value and by volume, while the invoice value of our ‘sales’ to the trade fell by 7.5 per cent. (For an explanation of the difference between the two, see an earlier post on this blog, headed ‘Sales, Returns, Reprints, and Bookscan’.)

For the whole of 2009, it was obvious that REDgroup’s woes were causing serious damage to all publishers. Publishing being international, its troubles were known abroad, and were the subject of great consternation. Within our own company, if I was asked for my opinion on the subject, I would say that everyone except REDgroup itself would be better if they just went broke. I’ve since heard that other publishers had come to the same conclusion.

And yet, despite all this, PEP kept trying to exit their investment in the REDgroup by preparing it for a public flotation on the Australian Stock Exchange. If they’d succeeded, it would have made the notorious 2009 Myer float by a fellow private-equity buccaneer, TPG, look like a responsible and well-priced endeavour.

And hereby lies the final cautionary tale, which the media doesn’t want to know about: the demise of the REDgroup is a good example of how hopeless our business journalism is. As I’ve indicated, everybody and his dog in the industry knew that Borders/A&R were in trouble. Yet no print journalist had the contacts or the wit to chase the story. They’ve all become too used to regurgitating press releases and reporting media conferences, and even limiting that to stock-exchange-listed companies. Yet the REDgroup employed thousands of people, and their fate affects many other companies and individuals. If business journalists had been on the case, last week’s announcement wouldn’t have been such a shock — and people with vested interests wouldn’t have got away with making wrong pronouncements about what it means.

Henry Rosenbloom

Much Heat, Little Light: the GST-equity debate

2011-01-19T09:19:03Z

Beware the fury of a consumer spurned.

Since my last post, there’s been a major campaign launched by Australian retailers for the federal government to level the tax playing-field — to impose the nation’s 10 per cent Goods and Services Tax (GST) on offshore online retailers as well. For years, such sales haven’t been subject to either import duties or the GST if the value of an individual transaction is below one thousand dollars. Within Australia, online and in-store sales are all subject to the GST.

The campaign has provoked a volcanic outpouring of righteous anger and resentment. There have been highly critical things said and written about the billionaires identified with the campaign’s launch, and about the retail businesses they own and run. There have been examples cited of much higher local prices for consumer items than overseas ones, of poor local customer service, and of prompt deliveries from offshore online sites.

There have been arguments made that the retailers should face facts, should stop crying poor, and should either shape up to the offshore competition or ship out.

All of this may be fair comment, but it is irrelevant to the principles at stake or the case being made. In other words, most of this adverse reaction is misplaced.

Retailers big and small, as well as countless other companies being adversely affected by the current tax loophole for foreign companies, are well aware that shoppers will keep buying from offshore online sites as long as the Australian dollar remains high — whether a GST is imposed or not.

No one is arguing that consumers should have limited access to offshore sites. Nor is the campaign an attempt to protect local industry, or to prop up ‘inefficient’ business practices or ‘out-of-date’ business models.

It is simply an expression of dismay that an Australian government should keep imposing a tax law that deliberately favours offshore businesses and disadvantages local businesses and employees. It is unconscionable that national tax law should work in this way.

In fact, in all of the consumer fury unleashed in the response to the campaign, I haven’t seen or heard anyone trying to justify the current policy on fundamental grounds. That’s because they can’t: in effect, consumers are currently getting a price-cut that they aren’t entitled to, via a tax-break that’s indefensible.

Businesses have been arguing the case to the government for over a year, well before the Australian dollar rose so strongly, but have been stonewalled. The government doesn’t want to go near it, ostensibly on the grounds of impractibility, but really because it doesn’t want to be responsible for raising the prices that consumers pay.

It’s a supreme irony, of course, that a federal Labor government is refusing to reform a tax — in the national interest — that was introduced by its conservative opponents over its dead body. More specifically, it’s refusing to even unwind the easing of the sales-value threshold that the Howard government introduced because Customs couldn’t be bothered with the work and paperwork involved in scrutinising smaller transactions. The government’s medium-term solution has been to handball the problem to the Productivity Commission. (Readers of this blog will know what I think of this organisation.)

The prime minister’s recent comments on the subject (‘I would be very reluctant to see Australians who are facing cost-of-living pressures not able to access shopping on the internet in the way they access it now.’) are weasel words. The topic under debate has nothing to do with ‘access’. It’s got everything to do with equity — or, rather, the lack of it. Julia Gillard knows the difference — she’s campaigned on this mantra in the educational sphere all her political life. And what’s she doing prejudging the issue, making such comments while she says she’s waiting for the outcome of the PC’s inquiry?

Most consumers want to keep the unfair advantage they’ve been handed by the government, which is understandable. But no one should dress up this reaction as anything other than greed, rancour, or thoughtlessness, and as collateral damage caused by the introduction of the GST itself.

The consumers’ voice, the Australian Consumers’ Association, is behaving disgracefully on the subject. It refuses to address the fundamental principle involved, and pretends that the problem is either non-existent or would go away if retailers simply changed their business practices and became more efficient and consumer-friendly.

It’s typical of this country that interest groups (whether political or commercial) behave adversarily: they argue their own case on narrow grounds, change the terms of the argument, and concede nothing to the opposition.

The real question that is being begged by this furore is why Australian retail prices are so much higher than US or UK prices. The answer is not because big retailers are either hopeless or profit-gouging bastards. Instead, it’s a direct reflection of the size of our economy and the living standards we regard as essential. In every economy, retail prices reflect costs — and our costs, in turn, reflect our lower economies of scale because of our much lower population, our much higher wages and conditions, and our inflated property values.

Those same consumers who are sneering at the retailers should stop for a moment to think about where they get their own purchasing power from in the first place. It’s certainly not by accepting wage rates of $10 an hour, no superannuation, few social services, and a third-world level of income and social inequality. The inevitable consequence of the GST loophole staying in place is that Australian workers and their families will suffer for it — and that the federal government will be denied revenue that it needs and is entitled to.

Globalisation and the internet are imposing remorseless pressures on everybody subject to import competition. Is it too much to ask that an Australian government at least stop favouring foreign competitors, and that Australian consumers understand where the butter for their bread is coming from?

Henry Rosenbloom

[This post first appeared on Crikey.com on 18 January 2011.]

How to Wreck an Economy

2010-11-06T17:42:33Z

If you ever wanted a demonstration of how dangerous experts can be, you needed to go no further this week than observe the Reserve Bank of Australia raising interest rates again — this time by 0.25 per cent to 4.75 per cent.

The central bank’s decision meant that mortgage rates would go up by at least as much. This, in turn, would depress consumer spending. In effect, the Reserve was applying aversion therapy to consumers and exporters.

The authorities had decided they needed to impose a ‘restrictive’ monetary policy. What, you might ask, were they trying to restrict? It couldn’t have been inflation, because that remains below 3 per cent, which is within their comfort zone, and is even tipped to drop in the near future. It couldn’t have been housing prices or new-house building approvals, because both have been dropping. It couldn’t have been retail spending, because that has been weak and getting weaker.

The only possible conclusion is that they were worried that the huge inflows of income from the continuing mining boom would eventually increase inflation to an unacceptable level. So they were engaging in a pre-emptive strike. This means, effectively, that the rest of Australia has to suffer more than it is already is because huge mining companies are making unimaginable fortunes by digging very large holes in the ground and shipping what they find there to China and India.

On paper, the nation shares in the mining boom by benefiting from the balance-of payments benefits it brings, and the taxation revenues it extracts from the companies, and the employment it generates. But the current-account improvements are also driving the local currency higher — as is the imposition of higher interest rates — thereby reducing the incomes of exporters and companies that compete with imports. The taxation revenues are far too low (but that’s another story). And the employment is moderate, given the scale of the enterprises and activities.

So, who gains, apart from the miners? Importers certainly do, as their costs come down and their prices don’t come down as much. But they have to try to sell their goods to shell-shocked consumers, whose disposable income and confidence is slashed each time that interest rates are raised.

Which brings me to the nub of the problem. Readers of my most recent blog will know that I’ve described the book industry and retail trade in general as being in a parlous condition. I’m convinced that the latest rate rise will make conditions much worse.

I spoke to several booksellers last week — each of them very experienced and very good at what they do — and they all spontaneously described conditions as the worst they’d ever known. One of them has been a bookseller for 35 years; the others had been in the industry for decades. A publisher’s sales representative I spoke to said that this has been the worst year in her career — and she’d been in her job for 25 years. One bookseller told me he’d never had so few staff, or so little stock in the shop, at this time of year.

All of them were in double jeopardy: they had fewer customers, and those they had were spending less; and they were losing business to offshore online distributors, who were benefitting both from the high Australian dollar and the fact that they don’t have to pay GST on their sales. All of the booksellers were very worried about their prospects for Christmas sales, which is the only time of the year the industry makes a profit.

Multiply these examples across the country, and apply it to most retail businesses, and you’ll get a sense of how weak the real economy is. Beneath the soothing rhetoric of politicians and the myopia of the financial sector, Australia is already in the grip of a growth recession. And it’s now guaranteed to get much worse.

I have no doubt that the authorities have got it wrong. They and their supporters may think that an economy with around 5 per cent unemployment is always going to need pre-emptive reining-in. They may even comfort themselves by thinking that consumers always complain when interest and mortgage rates go up, but that rates have been much higher in the recent past, to no ill effect. This argument is spurious. It misses the point that the real economy is extremely weak — in a precarious condition following the global financial crisis — because consumers are very hesitant.

There are three main reasons, I think, for this: there’s been an understandable blow to confidence, amid a heightened sense of the dangers lurking in the global economy; there’s been a real loss of wealth for anyone who was invested in the stockmarket, with retirees especially badly affected; and the house-price boom of recent years has meant that the average level of mortgage loans is very high, so that the repayments of such loans consume a dangerously high proportion of mortgagees’ incomes.

The Reserve Bank’s behaviour means that the book trade, retail businesses in general, and participants in the non-mining part of the economy — that is, most of the country — are being treated as collateral damage. Even worse, the government continues to allow offshore retailers and distributors to avoid the 10 per cent Goods and Services Tax that all local companies must pay. So Australians are now being disadvantaged twice in their own country: once by the creation of an artificially high dollar, and again by a tax policy that discriminates in favour of foreigners.

The latter is unconscionable, and I have never heard any government minister or bureaucrat try to defend it. I’ve heard mutterings that it’s too hard to fix, but this is nonsense. It would be easy to require Australia Post to collect GST, and doing so would have the additional benefit of generating extra local employment. The lack of official interest in the need to create what is otherwise a much-beloved level playing field makes me suspicious. Is there a secret codicil to our free-trade agreement with the United States? Or do we only believe in a level playing field when large corporations and the financial sector benefit from it?

In the meantime, the Reserve Bank is on course to turn the current growth recession into a real recession. Businesses will go broke, unemployment will rise, and the government will add to the problems by trying to compensate for the drop in its tax revenues by cutting its own spending. By then, of course, the government will be out on its ear, the authorities will have changed tack, and the results of their handiwork will have nothing to do with them.

Maybe we should just dig smaller holes in the ground in the first place. You know what they say: when you’re in a hole, stop digging.

Henry Rosenbloom

The loneliness of the long-distance publisher

2010-08-02T13:29:48Z

It’s not easy being a trade publisher in Australia these days. The outside world has caught up with us: trade is terrible, e-books are still either a promise or a threat, and there remain large uncertainties about the domestic and international economies. There’s no doubt that the ending of government stimulus payments and the raising of interest rates have dented consumer confidence, to the point that retailing in general is now in the worst state that many proprietors and employees can remember.

Some booksellers are already going broke, and many others are suffering severe declines in turnover and profitability. This, in turn, is putting increasing pressure on publishers to reduce costs and avoid risks. Since trade publishing is, by definition, a highly uncertain entrepreneurial activity, this is easier said than done.

Of course, wages can be frozen, staff can be cut back or not replaced, some internal tasks can be outsourced, lists can be pruned, and advances to authors can be reduced. Overseas, the large multinational houses have gone through this process several times over the last few years, and there’s still no end in sight to it. But this is self-evidently a holding operation — a recipe for survival or for accommodating decline — and not a plan for growth.

As an independent observer, you might retort that the world would be better off if fewer books were published — especially bad or mediocre books. This is true. To a publisher, though, such action only makes practical sense if it’s the competition that cuts back. With backlist titles disappearing from most bookshops, publishers are more dependent than ever before on each month’s new releases to generate income. With this comes an increasing premium on publishing frontlist titles that will be instant commercial successes.

Corporate owners of book chains and publishing houses tend to have a very instrumental attitude to these imperatives — they want to know why bookshops hold stock that doesn’t sell, or why publishers don’t just publish bestsellers. I’ve even known accountants to be astonished that a whole industry can be based on publishers bankrolling authors, lending their books to booksellers, paying for retail prominence, and then accepting the return of unsold books.

Even for independent booksellers and publishers, this paradigm feels under threat. To put it most simply, if the industry cannot provide a living to its participants, it will have to change radically.

I haven’t talked about my own company’s performance or prospects so far. Let me just say that we are suffering from the ailments I’ve described above, but that we remain profitable and are doing relatively well in the circumstances. A couple of months ago, our bookselling and publishing peers adjudged us the Small Publisher of the Year for the third time in the five years since the award’s inception. Several of our books have won or been shortlisted for major domestic and overseas awards (most notably, The Twin, a translated Dutch novel by Gerbrand Bakker, which won the 2010 International IMPAC Dublin Literary Award, and The World Beneath, by Cate Kennedy, which has just been shortlisted for The Age’s Book of the Year Award, after having won the People’s Choice Award in the 2010 NSW Premier’s literary awards).

Commercially, we’ve been extremely lucky to have a continuing, record-breaking bestseller (The Brain that Changes Itself, by Norman Doidge). As well — if you’ll pardon the advertisement — our high level of efficiency and our talented staff, our investment in excellent books, and the emergence of our superb fiction list has protected us from the worst of the trade’s woes.

Our list has never looked stronger, and the quality has never been better. Even so, in the last month we’ve suffered from the heaviest returns we’ve had in our history (due mainly to a dysfunctional group of booksellers that has been wreaking havoc on the industry). And I don’t want to hide the fact that it is dispiriting to see good books not selling much, and to see — after all our hard work — how difficult it has become to generate a decent income on a month-by-month basis.

I’ve been in the industry for over thirty years, and I’ve never known it as tough as this — and I’ve picked up similar vibes from my bookselling and publishing peers. This year’s Christmas is going to be more important than usual for the whole industry.

Henry Rosenbloom

A victory for common sense

2009-11-11T13:39:52Z

After a 16-month-long process, the Australian government has decided not to change the regulatory regime involving the parallel importation of books.

This is a welcome decision. It represents a triumph of common sense over ideology.

It is also a heartening and refreshing sign that the government, from the prime minister down, is able to deal with a highly complex subject in a professional, clear-sighted way while retaining core Labor values.

I also want to thank everybody who contributed to the campaign to retain territorial copyright. While it has been a painful — sometimes agonising — fight, I have been tremendously impressed by the thoughtfulness, commitment, and camaraderie of all the publishers, authors, literary agents, printers, organisations and individuals involved. The result was a remarkable degree of solidarity and a treasure-trove of information about the book industry and what drives the people in it.

I hope we never have to go through this again. But, if we do, we will have at our disposal what will come to be seen as a classic political case-study in how to beat propaganda with the truth.

Henry Rosenbloom

Books aren't widgets: the Dick/Henry finale

2009-11-03T10:44:54Z

On 2 November, Dick Smith replied to my latest email to him (see my previous posts to this blog). On 3 November — Melbourne Cup day — I replied. Then he and I had a further exchange. Here is that correspondence.

Dear Henry

Thanks for your email of Friday 30 October (7.46pm). It looks as if self-interest is strong and booming in the publishing industry. Good on you! That’s the whole basis for Capitalism. I still, however, have a feeling that the advantages are mainly going to you and similar businesses, not really to the consumer.

You state –

instead, from our understanding that a large source of our business will be removed if we are unable to have guaranteed access to our own territory when we acquire overseas-originated books or sell Australian books to overseas territories.

This actually sounds to me like the globalised marketplace. Yes, lots of people fought against it for many years, but it seems to be a fact of life – for just about everything except books and a few other selected products.

I imagine you accept the benefits offered by the global economy in everything you buy – that’s why I have always supported competition and I have never supported import restrictions to prevent competition.

I have a feeling that you don’t really know what the marketplace would be like with the restrictions removed. That would be because you have always worked in a marketplace which has been restrictive.

I am different to you – I just love competition. To me, not having competition would be like cheating at sport, and I wouldn’t be in that.

Regards Dick.

Dear Dick

Thank you for your reply of 2 November.

I think I can see why we’ll never agree: you think books are products, like widgets or shirts. They’re not.

Even a widget can only be manufactured legally because a patent was originally issued to its designer or inventor. A book is even more complicated, because it can only come into existence once an author has created it. The author is protected by copyright, but he or she can only exercise this right by licensing territorial copyright. And publishers can only justify risking their resources if the territorial copyright they acquire is recognised by the law of the land.

Your argument, ultimately, is with copyright itself. There’s no doubt there would be a totally free trade in books – a competitive marketplace of the kind you love – if there were no underlying copyright protection for them. There’d just be a small problem, though: there’d be no authors, no royalties, and no publishers.

Best wishes

Henry Rosenbloom

Dear Henry

Actually, you are wrong. I totally support strong copyright laws and protection of authors. “The author is protected by copyright, but he or she can only exercise this right by licensing territorial copyright” (my underlining).

I understand you have this belief, however it is not based in fact.

Because of globalisation we tend to have a world marketplace now. I do realise that there has been an attempt to try and keep copyright to a particular territory. However, what size should the territory be? Should it be by suburb? Obviously, that would be ridiculous. Now, with modern communication and internet, I believe authors can be protected by copyright and, on average, they will receive more royalties than when the marketplace is restricted.

Once again I say that this, of course, will not help your business which relies on territorial restrictions. Surely you can see, that with the modern internet and communications, changes will have to take place.

Regards Dick Smith

Dear Dick

You can't protect authors' interests without providing territorial copyright to them and their publishers. That's why virtually all Australian authors and their agents strongly support retention of the current system.

Nor, in the book marketplace, is there any confusion about what territorial copyright means: it refers to the territory controlled by nation-states, in which the rule of law applies.

Try telling the Americans and the British that they should abandon territorial copyright. They'd laugh you out of the room.

By the way, I've had many conversations with US and UK publishers and literary agents about this subject over the last year or so — including with some who would theoretically benefit from the change you support. Not one of them could understand how an Australian government would even contemplate abandoning territorial copyright.

I don't believe that the internet will weaken territorial ties. If anything, I think it will strengthen them, as rights-holders become even more cautious about the terms and conditions under which they license those rights.

Best wishes

Henry Rosenbloom

Dear Henry … Dear Dick: now read on

2009-10-31T07:08:10Z

On 30 October, Dick Smith replied to my email to him which I'd sent earlier that day (see my previous post to this blog). A couple of hours later – while still in Athens – I replied. Here is that exchange.

Dear Henry

Thanks for your email of today.

I would wager that every single component used in your publishing business has been purchased through a competitive marketplace. By this I mean your printing equipment, photocopying equipment, telephone equipment – everything used in your office and production facilities.

I am also confident that you would be outraged if Dick Smith Electronics, or indeed any other business, colluded to stifle competition.

Further, I would assume that when you went to purchase your last washing machine or television you understood that Australian business has to compete in the world’s marketplace – in fact, that’s probably why you would have had the opportunity to purchase the goods at such a low price.

Perhaps you remember I owned my own independent publishing house – “Australian Geographic”. I owned it for about ten years and then sold it for over $40 million to Fairfax. Not at any time did I have any problem in competing with overseas publishers. At that time I was totally opposed to import restrictions on books, and I still am.

I happen to love competition, and because Australia has benefited so much from it’s opening to world markets, I am happy to accept some of the disadvantages which accompany globalisation.

I will support import restrictions for books if you will support import restrictions for products that I would like to produce in the future for my own financial gain.

Regards Dick Smith

Dear Dick

Thank you for your quick response. I can see that you are well-intentioned, but I still think you are misinformed. Perhaps that is why your reply is rhetorical, and does not address the specific points I made.

Territorial copyright is not akin to tariff protection. It is more like sovereignty: without it, no nation can safeguard its own interests. In commercial terms, it is much more like patent law, which provides essential certainty to the originators of intellectual property.

For book publishers who buy and sell in the international marketplace, territorial copyright is the bedrock for all their activities. That is why the parallel importation of books is forbidden in such havens of free-market economics as the United States and the United Kingdom.

The arguments that I and my fellow publishers make against parallel imports are not based on fear of competition from overseas books; they come, instead, from our understanding that a large source of our business will be removed if we are unable to have guaranteed access to our own territory when we acquire overseas-originated books or sell Australian books to overseas territories.

Your Australian Geographic business, admirable as it was - which I vividly recall you establishing and building up - is not a comparable model. It would have been, had you tried to engage in international trade within it - then you would have quickly learned how important territorial copyright is. I should add that, given you were producing a narrow range of Australian-themed and -branded items, it was never subject to the general trade conditions that I am talking about.

The argument for the retention of parallel-import restrictions is not about restricting competition. If it were as simple as that, the Productivity Commission would have said so, and the decision to abandon the restrictions would have been made years ago. It is essentially about the necessary conditions for any book-publishing industry to have the confidence and the income to invest in books and authors within its own market.

You say in your accompanying letter to the ceo of the Australian Publishers Association that 'big multinationals' have been 'ripping off Australian consumers with inflated prices'. Speaking as a non-big mini-national, I feel bound to tell you that this is simply not true. Book publishing (and retailing) operates on very skinny margins, and our book prices merely reflect all the basic conditions of our economy, especially our size and our wage levels. In particular, whether our book prices seem high or low relative to, say, US book prices, is largely dependent on the exchange rate of the Australian dollar. Given that the main course in a restaurant costs more than a 450pp large paperback, Australian book prices are, in fact, relatively modest.

Finally, I must add that neither I nor my fellow publishers have been 'manipulated or brain-washed' into making such arguments, as you assert in your letter to the APA. I have written many thousands of words on this subject, in two submissions to the Productivity Commission, in several posts to my blog, and in other communications. They are all - for better worse - all my own work, independently arrived at and expressed. The alternative is truer: we know our industry, but you are the victim of an ideology.

Best wishes

Henry Rosenbloom

Mr Smith lobbies Canberra

2009-10-30T14:28:37Z

On 29 October 2009, Dick Smith, a well-known former Australian entrepreneur and adventurer, sent an email letter to federal members of parliament, headed 'Removal of Import Restrictions on Books in Australia'. His email (which is attached below) was sent to the media by Cato Counsel, lobbyists and public-relations advisers to the so-called 'Coalition for Cheaper Books'.

I received a copy of Mr Smith's letter while I was overseas, preparing to return after a post-Frankfurt break. I immediately felt compelled to write a reply, which I've reproduced - in slightly edited form - below. The subject that both letters deal with is under heated debate within the federal government as it seeks to decide its position in response to the Productivity Commission report that it commissioned. You can read Mr Smith's letter here.

Dear Mr Smith

I have long admired your public-spiritedness, but your recent letter to MPs about import restriction on books is plain wrong on every argument you make.

We are an independent Australian book-publishing house that I founded more than 30 years ago, and I can tell you that we - and fellow independents - would suffer the most if your suggestion was adopted by the federal government. My own company is regarded as an industry leader (we have twice won the Small Publisher of the Year award), and I assure you that the foreign-owned publishers you excoriate would cope, but that the independents would be placed in severe jeopardy. We all depend on territorial copyright to support and buttress our overall publishing programme; without it, our turnover and profitability would plunge, we would have little to sell or buy, and diminished means to do so. This would have a knock-on negative effect on Australian authors, independent booksellers, book printers, writers' festivals, the media, and the Australian reading public.

Ironically, if parallel imports were allowed, the country as a whole would be more subject to the whims of multinational publishers - not less. Only this time, the decisions would be made in New York, and not in Sydney or Melbourne. And the booksellers that would benefit most would be from the big end of town.

Believe it or not, there is no certainty, or even likelihood, despite the Productivity Commission's best efforts, that allowing the parallel imports of books would lower prices. The government has already implicitly accepted this point, as has the so-called Coalition for Cheaper Books, which has sniffed the political wind and has abandoned its previous fervid advocacy for this change.

Even your example of Amazon sales is wrong. Amazon and other on-line booksellers would continue to have a GST-free competitive advantage, even if parallel imports were allowed. The argument is not about on-line sales vs bookshop sales. It is about local bookshops' access to foreign-originated 'product'. In particular, it is about a grab for increased market share by Dymocks and huge retailers such as Woolworths.

I wish you had informed yourself about this subject adequately before campaigning on it, and then allowing your name to be used - by lobbyists for the big chains - on the wrong side of a vital argument for the nation.

Henry Rosenbloom

Seeing Life Through The Wire

2009-09-13T11:55:19Z

Earlier this year I watched all 60 episodes of The Wire via a five-set DVD package I’d bought from Amazon. Conceived and mostly written by former police reporter David Simon, the show originally ran for five seasons on the US’s cable network HBO until 2008.

It made a profound impact on me. Many laudatory comments have been written and uttered about this extraordinary television series since it screened in the United States (including by President Obama), and most of them are justified. Apart from the fact that you’ll appreciate the first few episodes more by turning on the English sub-title facility (which I wish I’d realised), it has a depth and breadth that is rare in any medium, let alone television.

The writing, casting, acting, and production values are exceptional. But, more importantly, it a fully realised, integrated, and highly disturbing portrayal of what most us prefer not to know or think about the modern city.

While the show is ostensibly about life, work, and death in Baltimore, it is really about endemic corruption and the vanity of human wishes. Each institution it scrutinises — whether it’s the police force, city hall, the stevedores’ union, the education sector, or the newspaper industry — is engaged, to a greater or lesser extent, in a conspiracy against its decent members and the public at large.

In this universe, statistics are always being fudged and manipulated, grudges and vendettas are always being pursued, the wrong people are being shafted or promoted, the good guys usually have bad motivations, and the bad guys are often better than everyone else.

Violence is a way of life, pursued with insouciant, breathtaking brutality. Whether it’s the local drug-dealers or the various mafia engaged in big business, the rules of civil society don’t apply to them. In between the protection they’ve bought and the subservience they enforce, they are lords of all that they survey — until they overstep.

Virtually nobody gets the fate they deserve, and everything gets inexorably worse. Of all the bad things that happen in this series, the killings are the worst. All of them are shocking, as you might imagine, but the hardest to take involve the slaying of those who should be beyond our sympathies — drug dealers and hard-core criminals. In fact, the individuals with the most admirable characters and codes of honour turn out to be the ones we would ordinarily dismiss as beneath our contempt.

This is a searing, deeply uncomfortable vision of urban life in the modern world. Seen through the unblinking eyes of its creators, the average citizen is merely fodder for these vast forces playing their own ruthless, predatory games. No institution is reliable, no politician is credible, no friend is durable.

Once you’ve absorbed and understood the messages of The Wire, it’s hard to see your own society in the same way again. Where I’m writing this, for instance — in Melbourne, Australia — we’ve heard any number of narratives that now sound familiar. We’ve got a health minister in the state government who claims not to have known that public hospitals around the city have been inventing patient numbers and treatment statistics for years. We’ve got a Country Fire Authority that managed not to warn rural and outer-suburban residents of catastrophic threats to their homes and lives last summer. We’ve got a government that won’t tell people that the city is running out of water, while it commits to emergency measures that can mean nothing else.

Around the country, take your pick. There are non-stop sleazy deals between developers and whoever they need to pay off; ex-politicians lobbying their former colleagues for outrageous favours on behalf of their corporate clients; large corporates growing more and more powerful while pumping out blander and blander advertising campaigns; and cynical training rackets for foreign students, in which the governments desperate for income and the purely mercenary ‘service providers’ both have a vested interest in lying about what they’re doing.

And that’s not even talking about entrenched police corruption, out-of-control violence on the streets, tabloid newspapers and television ‘current affairs’ programs that are getting tackier and tackier, or a culture that is becoming dumber and dumber. Or global-warming denialism, which is a way of dancing with the stars while the planet burns.

And yet, it’s not the whole story. Against the odds, and despite being treated like rubbish, there are many people who live modest lives, who care about real things, and who try to help others. There are even politicians — I know some myself — who are incorruptible, and who are committed to public life as a way to improve their society.

There is a tremendous core decency to Australians. Perhaps that is why we have tended to think of ourselves as less corrupt and more moral than other Western societies. This is, to some extent, a comforting — and perhaps necessary — illusion. Individuals, as well as societies, need to maintain their self-esteem to be able to function.

I suspect that Americans would say the same about themselves, and that this is one of the reasons that The Wire never attracted high ratings, even while it was garnering critical praise. It is determinedly non-redemptive and non-comforting, and there’s only so much of this that most people can bear.

The Wire is a complex, multi-layered television novel, in an era when fewer and fewer real novels are being written and read. Like the best of its nineteenth-century predecessors, it tells its own truths in an unforgettable way, and the ripples it sends out never seem to stop lapping our shores.

Henry Rosenbloom

Sociopaths in Suits: the Productivity Commission goes for broke

2009-07-15T12:17:31Z

This is how a civilisation commits suicide these days: it invites sociopaths in suits to dismantle its culture.

With its recommendation that territorial copyright for books be abandoned, the Productivity Commission’s final report is the apotheosis of neo-liberalism in Australia. Everything is to be sacrificed to the workings of the free market — especially writers, independent booksellers, independent publishers, and the nation’s cultural integrity. The community as a whole will benefit, the commission says, and that is all that matters.

This was always going to be the commission’s stance, whatever the evidence. As I wrote at the time, the fix was in the moment that the commission was given its brief. Now, after many months of obfuscation and pretend-consultations, the commission has come clean: it’s all about price. And the commission just knows, as it always has, that book prices are too high because of territorial copyright.

But getting from there to here has been unexpectedly difficult. The commission’s draft report — with its yawning gap between evidence and recommendations, and its ludicrous support for a 12-month limit to territorial copyright — was universally and rightly derided. Its final report is better argued and more plausible, but it is a triumph of style over substance. Its tone is reasonable, its method and conclusions more internally consistent, but its stance exposes a brutal underlying ideology that still ignores any inconvenient evidence that cuts across its trust in the market.

You can get a flavour of this, strangely enough, in the commission’s dismal attempts to discuss the cultural benefits of books. This is so pedestrian, so utilitarian a section, that it is painful to read. It represents a doffing of the cap by the commission to recognising the personal, intrinsic value of books, before it gets on to the main game of hitting the industry as hard as it can.

In its draft report, the commission acknowledged that allowing parallel imports on a cold-turkey basis would cause too much damage to the industry. Now, it’s decided that the damage is tolerable, at least to it. What’s changed in the meantime? It’s hard to avoid the conclusion that the commission has been so stung by the virulence of the criticism of its draft report that it has decided to teach the industry a lesson.

The commission has now recommended the wreaking of havoc to the book industry on the sole ground that abandoning territorial copyright, and allowing the parallel importation of books, will lower the price of books. Its evidence for this claim comes from its studies of book prices, which show that — as many of us said at the onset of the inquiry — they fluctuate according to the exchange rates between the Australian and US & UK currencies. The lower the Australian dollar, the lower book prices are here, and vice versa.

The commission itself has previously acknowledged that the average price gap between local and overseas English-language editions is eliminated if exchange rates of GBP 0.41 and USD 0.67 are used (which is very close to the average of the last 10 years). In its most recent study, for the period July 2008 to May 2009, it finds that, in RRP terms, the price of the cheapest available edition of titles in Australia is, on average, 13 per cent higher than the lowest-cost UK edition, and 27 per cent higher than the US lowest-cost edition.

You might think, as the commission does, that this is an open-and-shut case. As it happens, it isn’t. Even ignoring the fact that the commission can’t be sure it has compared like-with-like editions — so that a smaller-format, more cheaply produced US edition isn’t being compared with a larger, higher-quality local edition — there’s a key cost-component missing.

In its study of comparative book prices, the commission has not included the cost of overseas freight. This crucial fact is hidden in the commission’s language: it says that it ‘has not sought to adjust retail prices to reflect differences in freight costs’. These are highly misleading weasel words, so close to a lie as to be indistinguishable from one. The commission hasn’t excluded ‘differences’ in freight costs — it has excluded them completely. And yet the cost of shipping books from the UK or US to Australia is significant, and would be a vital factor in the setting of book prices if the commission’s recommendations were accepted. At average freight-costs and at current exchange rates, overseas books would be more expensive than locally produced ones — not less.

This is why the commission has been forced to concede that its price comparisons, ‘do not of themselves attempt to indicate the price at which the books sold in other countries could have been sold in Australia’.

So what is the point of them? The commission is free to assume a frictionless universe — where books magically appear at no cost thousands of kilometres from their point of origin — but nobody else can. Bookshops certainly couldn’t and wouldn’t.

This is a disgraceful sleight-of-hand by the commission. The whole basis of its assertion that Australian book prices are higher because of the operation of parallel-import restrictions — and that they would drop with the abandonment of PIRs — is phoney. This is typical of its whole approach. It knows it can’t prove its case, so the best it can do is exclude vital evidence and continue to assert that that PIRs are responsible for a mystical ‘upward pressure on prices’.

Even using its partial and pre-determined approach, the best argument it can come up with now is that abandoning PIRs would provide ‘opportunities, from time to time, for the importation and sale of at least a subset of books at lower prices from abroad … [and that] movements in the currency would, in the absence of those restrictions, occasionally provide opportunities for Australian booksellers to source some stock quite cheaply from markets such as the US.’

This is what is behind its headline recommendations: a pathetic assertion that some of the time, in some circumstances, some booksellers might be able to import cheaper books. And to achieve this highly conditional benefit, argued on specious grounds, it has recommended a radical change that would devastate the publishing industry and its authors, and along with it an important component of Australian life and culture.

The sociopaths in suits have had their say. This is now a political problem for the federal government, as it deserves to be. It sent the brief to the commission, so the report is its child. How the Rudd government deals with the report will be a crucial test of its leader’s disavowal of the anti-social ideology of neo-liberalism — and of its connectedness to its own community.

Henry Rosenbloom

The upward pressure of a closed mind: the PC's roadmap to ruin

2009-04-21T05:11:30Z

What follows is Scribe's supplementary submission to the Productivity Commission, written and sent in response to the commission's 'Discussion Draft', which was released on 20 March 2009. I found the draft to be a disgraceful and remarkably poor piece of work. If it had been submitted to us as a publishing proposal, we would have rejected it outright; and I strongly suspect that, if it were submitted as an essay in the economics/commerce faculty of any reputable university, it would be failed. The commission is due to send its final recommendation to the federal government on 13 May.

The commission’s draft report is a botched job: it is unsafe, unsound, and unreliable. It demonstrates fundamental ignorance about the industry it has been investigating, it makes findings that are not supported by the evidence it adduces, and it makes recommendations that it recognises would damage the interests of Australian authors, booksellers, printers, and publishers — all because it has an a priori belief that a greater good would result from the loosening or abandonment of parallel-import restrictions.

Ultimately, the draft assumes what it is incapable of proving, and relies on that assumption to recommend draconian changes to the existing regulation of a successful and important cultural industry.

The commission pays lip-service to the submissions it received (over 95 per cent of which supported the retention of territorial copyright) by quoting widely from them and then ignoring them. It masks its inadequacies by using a language that only economists could love (‘cultural externalities’), while proving tone-deaf to the inspired prose of writers such as Tim Winton and the thoughtful, honest writings of individuals with decades of experience in the industry.

What is worse, the draft report doesn’t face up to the fact that the case for the prosecution has collapsed. Of the two grounds for the inquiry — supposed problems with the ready availability and the prices of overseas-originated titles — the draft report effectively abandons the first charge.

Of the second charge, after labouring mightily, the commission has produced a mouse: it demonstrates that local book prices are competitive at the average $US–$Australian exchange rate of the past decade. Neither the supposed killer example of New Zealand’s experience after it abandoned parallel-import restrictions, nor the distortions of the Dymocks-led ‘Coalition for Cheaper Books’ turn out to be persuasive. The commission has been forced to recognise that there is no supporting evidence for the second charge, either.

Even so, the commission avers that parallel-import restrictions must be responsible for ‘an upward pressure on prices’. Why does it say this? Because it ‘knows’ on prima facie grounds that this is what happens when free markets are impeded. In the absence of forensic evidence, it relies on supposition and suspicion as a basis for proceeding.

This begs the basic question, of course: why call for submissions, at all, apart from fulfilling the need to demonstrate that due process has been followed?

Let there be no mistake about it. The case for the commission’s prosecution of the industry boils down to a pre-existing belief that PIRS produce a tendency to raise prices and hence to cause economy-wide damage. This belief underpins the commission’s imperviousness to the evidence, and explains its insouciance about the adverse consequences of its draft recommendations. It is simply not interested in the details of what it regards as collateral damage.

Not surprisingly, the commission’s recommendations are awesome in their otherworldliness. They reflect an almost complete lack of feel for what goes on inside the lowly paid, high-risk, low-reward publishing industry: the long-term investments it makes in authors, employees, and titles, and its irreplaceable role in transmitting culture and a sense of community to its readers and participants. The commission regards publishing as akin to textile manufacturing, albeit with an extra ‘cultural’ element. In its eyes, an industry is an industry is an industry.

The commission cannot even bring itself to say straightforwardly that the beneficiaries of its recommendations — the US and the UK — protect their national cultures and publishing industries by prohibiting parallel imports. (In post-draft discussions, the commission dismissed this high-mindedly as an example of what not to do if one wishes to follow free-market principles.)

And because the commission does not understand the industry, it feels able to recommend a re-engineering of it that, as it happens, would make everything worse. Even then, if the industry still has a pulse, the commission proposes coming back after five years and completing the process of ‘liberalisation’.

The commission’s central recommendation to maintain PIRs for twelve months is not just unjustified; it is inept. It is based on a fundamental misunderstanding of the relative revenues that authors and publishers derive from front-list and back-list sales. And it is a figleaf for a convoluted, backdoor abandonment of territorial copyright that would, in the process, distort the industry into a shape that would be unrecognisable locally and internationally.

This is death by a thousand cuts. The commission, in effect, is urging the national government to bring into being a publishing industry that would be much smaller, with a reduced local list, and which printed fewer copies of each new title (in an irony typical of the draft report, these lowered print-runs would increase unit costs and hence retail prices). As a result, independent publishers, local authors, and literary agents would face diminished prospects, and lowered incomes and revenues; some independent booksellers would be forced out as the large chains got even bigger and imported more mass-market titles; local book-printing would decline, and printing jobs would be exported; and, of course, there’d be a significant rise in unemployment.

As well, the decades-long battle for the splitting of Australian territorial rights from UK and Commonwealth rights would be over. Australia would revert to being a post-colonial dumping ground for US and UK ‘product’, where what we get to read would become more dependant than ever on the whimsies of export-sales departments in New York and London.

This is an impressive amount of destruction to wreak, on the sole ground that the commission believes that the retention of territorial copyright causes a tendency for prices to rise. One wonders what it would have recommended if it had any proof. Nationalisation? Transportation to England with forced labour?

The truth is that the current regulations work remarkably well, but that the commission is constitutionally unable to face the consequences of this fact. Its job, after all, is to recommend reforms, not to award commendations for good performance or to preserve the status quo. Throughout its draft report, it is apparent that the commission was always going to recommend change of some kind, come what may. Its only problem is that the gap between the evidence and its recommendations requires a leap of bad faith.

The draft has succeeded in only one thing: it has aroused the fury and scorn of the entire publishing industry and its stakeholders, and among many readers and those who care about the place of the written word in Australian culture.

It is possible, of course, that the commission will want to change course in its final recommendations. It may revert to recommending the total abandonment of territorial copyright, or it might be tempted to fine-tune its grand design for Australian publishing. Either approach is bound to have catastrophic consequences.

Whatever it ends up recommending, I believe the commission has destroyed its own credibility on this subject. Its discussion draft demonstrates the folly of subjecting a complex cultural industry to the tender mercies of a neo-liberal economic inquisition. It is hard to imagine that a Labor government, let alone a national parliament, could accept such devastation being wrought on the flimsiest of pretexts and for such non-existent or marginal benefits.

Henry Rosenbloom

The unproductive Productivity Commission

2009-03-22T11:49:41Z

The story so far:

The Productivity Commission is investigating whether or under what conditions imported editions of English-language books should be allowed to compete with Australian editions. There are two main reasons for the inquiry having been set up: the suspicion that a broad range of overseas editions are not being made available to local consumers quickly enough; and a belief that overseas editions are or would be cheaper than local versions.

The commission is the government’s free-market facilitator. It likes nothing more than sinking its teeth into anti-competitive or inefficient arrangements that impose undue burdens on consumers and taxpayers. So the mere fact that the book industry was referred to it by the government was a clear indication that, at the least, ‘reform’ of some kind was expected.

The commission knew next to nothing about the industry when it embarked on its ‘study’, but that didn’t bother it. After all, it has all-purpose economic-analysis skills at its disposal, as well as bullshit detectors that have stood the test of time.

So the commission launched into its typical inquiry process by calling for public submissions. It received over 270; many of them were detailed and thoughtful, and presented evidence as well as arguments to make their case.

There were eloquent submissions from some of Australia’s best-known and most successful authors. There were powerful submissions from publishers large and small. There were impressive submissions from industry bodies such as the Australian Booksellers Association, the Leading Edge group of independent booksellers, the Australian Publishers Association, and the Copyright Agency of Australia.

Over 95 per cent of the submissions opposed allowing parallel imports.

There was also overwhelming evidence that new books from the US and UK were readily available in Australia (although not as quickly as some booksellers would like). There was persuasive evidence that the prices of local editions were, in the main, cheaper than US editions (although this inevitably fluctuates with the $A-$USD exchange rate).

The only exception to the latter point came from the jerry-rigged ‘Coalition for Cheaper Books’, a front run by Dymocks, whose submission was distinguished by the way it sneered at publishers and used dodgy figures from a frictionless universe.

In other words, the basis for the inquiry was shown to be unwarranted. There is no withholding of new titles. There is no consumer rip-off.

As well, the submissions revealed that there is almost no constituency for the abandonment of territorial copyright or the introduction of parallel imports. The industry submissions made it clear that they regard the retention of territorial copyright as essential to the existence of Australian publishing. Even booksellers support this point— around 65 per cent of booksellers by market share came out against the mooted reforms.

This was extremely inconvenient for the commission. It has a hatchet-job to do, but it doesn’t have the evidence to justify wielding the weapon.

So what does it do? The commission has just produced a ‘discussion draft’ that tries to square the circle.

It concedes that the timely and wide availability of books is not a problem, and doesn’t even argue that local editions are more expensive than imported books would be (the most it says on this subject is that the existing parallel-import restrictions ‘put upward pressure on prices’ — whatever that means). It even buys the industry arguments about the central importance of territorial copyright.

Nevertheless, it’s in the business of removing impediments to the operation of free markets. So its central draft recommendation is that territorial copyright should apply only for 12 months from the date of first publication of a book in Australia. ‘Thereafter, it says, ‘parallel importation should be freely permitted.’ And after five years, the industry should be investigated again.

This has to be the most cynical, insouciant, and bizarre recommendation that the Productivity Commission has ever made. It pretends to retain territorial copyright while setting up conditions that would effectively destroy it — and the Australian publishing industry.

Why? Because it is unworkable and absurd. How can publishers acquire rights to books from the United States that have a duration of one year? How can publishers sell rights to books by Australian authors, knowing that a year later they will face competition from the very editions they’ve licensed? Why would publishers market foreign-sourced books, bring authors out to tour, and maintain backlist stocks, if their rights could be taken away from them in one year?

Read my lips: copyright means copyright; investment needs certainty; commitment has to be reciprocal.

None of the submissions even hinted at such a reform. This is a crazy idea that has been made in Canberra, by a commission that has learned just enough about the book business to be dangerous.

You get a hint of the contortions that the commission is engaging in by looking at how it deals with a fundamental political problem. The United States and the United Kingdom are the countries where our parallel imports would come from, but they don’t allow them in their own territories. This is not exactly the level playing field beloved of neo-liberal economists. The commission, sensitive to this potential impediment, is therefore carefully misleading about US and UK laws on this subject: it describes these two biggest English-language territories as ‘also having parallel-import restrictions, although without time requirements for first publication’. This is a cute, elongated way to obscure the fact that the UK and UK don’t limit parallel imports — they prohibit them.

You also get a hint of what a manipulative game the commission is playing when you realise that it handed its interim report to selected media before posting it on its website, or alerting those individuals and organisations who have a direct stake in this debate, and who put so much thought and effort into writing submissions. The media were not allowed to show the document to ‘third parties’, or to seek comments from them, before writing their pieces. Accordingly, reports such as The Sydney Morning Herald’s travelled around the country and the world, unencumbered by alternative points of view.

Who knows what the commission is really thinking? If it intends its central recommendation to be taken seriously, it’s seriously deluded. If it has floated this for it to be punctured, consider it done. My worry is that what lies behind it is the naked intent that it’s trying to hide.

Now we’re all meant to continue this punch-and-judy show by making further submissions, before a final recommendation is made to government in May.

This is what passes for public policy-making in Australia in 2009.

Henry Rosenbloom

State of Play: the parallel-imports inquiry

2009-02-23T12:40:51Z

The Productivity Commission is now chewing over the initial submissions it received to its inquiry into the idea of allowing the parallel importation of foreign-originated books. This is what it’s faced with:

• the commission has received 268 submissions to its inquiry, of which around 260 oppose the idea;

• in a historic shift, most booksellers — the supposed beneficiaries of parallel imports — have dropped their support for the proposal: around 65 per cent of booksellers by market share now oppose the idea, including the Australian Booksellers Association and the Leading Edge group of independent booksellers;

• every publisher opposes the idea — from the largest multinational to the smallest independent — and many of them have submitted lengthy, detailed, and well-argued explanations for their stance;

• apart from universal rejections from authors and literary agents, even the Copyright Agency thinks it’s a very bad idea; and

• there are only two substantial submissions in favour of the idea: from the so-called Coalition for Cheaper Books, which is a front run by Dymocks, and includes the discount department stores; and from the Australian Consumer and Competition Commission, which argues for the ‘reform’ on economic-rationalistl first principles.

Nearly everybody who understands the industry is alarmed that the unilateral surrendering of territorial copyright would severely weaken Australian publishers and independent booksellers, damage the welfare of authors and Australia’s literary culture, and devastate ancillary activities and industries.

Even the handful of submissions in favour of the idea don’t attempt to argue on one of the main grounds for the inquiry being set up — that allowing parallel imports would increase the timeliness and availability of foreign-originated books in the Australian market. This is undoubtedly because they know that the current provisions have worked very well to make a wide range of overseas titles available promptly.

The sole economic argument is based on the belief that parallel imports would allow ‘cheaper books for everyone’. And yet even this isn’t true. At I’ve argued previously, at a $US–$Australian exchange rate $A0.67 to $US1.00, booksellers have to multiply US prices by an average of around 2.2 to arrive at an Australian recommended retail price inclusive of GST. This makes locally printed Australian editions of US-originated books cheaper than imports of the US edition. There are countless examples of this marketplace reality provided in various publishers’ submissions to the inquiry.

Under a parallel-import regime, this would not change. In fact, as one of the consequences would be the removal of competition in the local book-printing industry, the cost of manufacturing books — and hence of selling them — would go up. This doesn’t even take account of the consequences of larger chain booksellers forcing out independents: hardly anybody in the industry seriously thinks that this would result in lower book prices, or an increased range of titles.

As many submissions show, the argument to abandon territorial copyright in order to reduce the retail price of books is not sustainable. It is not supported by the facts on the ground and, ultimately, is hostage to foreign-currency exchange rates and the behaviour of booksellers. Of course, if the Australian dollar were to strengthen considerably against the US dollar, local prices would become higher. But this is not, to put it mildly, a sound basis for public policy, or for making such a major change to existing policy.

Some attempt is made by the ‘pro’ forces to argue that authors could prevent foreign remaindered or run-on editions of their books appearing in Australia by stipulating this in their contracts with overseas publishers. This is simply misguided: no contractual arrangements between authors and publishers could stop remainders being exported to Australia by third parties. To understand the author’s perspective on the subject in depth, I recommend Tim Winton’s magnificent submission.

The overwhelming body of evidence has demonstrated that allowing the parallel importation of books would cause massive damage for no appreciable gain. This is not what was meant to happen — the subject was originally referred to the Productivity Commission via the Council of Australian Governments by a newly minted Labor prime minister on the assumption that there’d be widespread support for change, and that the commission, a champion of economic rationalism, would deliver a saleable ‘reform’ to the government.

Instead, what was meant to be a lay-down misere has turned into a hospital hand-pass. The economy is now in terrible trouble, and Kevin Rudd has decided that neo-liberalism is a bad thing. The commission may still recommend the abandonment of territorial copyright, of course. But could the Rudd government embark on a draconian, neo-liberal course of action that the vast majority of experts are certain would endanger the industry and the culture? Watch this space.

PS: I urge interested readers to examine the various submissions on the commission’s website at www.pc.gov.au/projects/study/books/submissions. In particular, I recommend the submissions from Peter Carey and Tim Winton; the Australian Publishers Association (and individual houses such as Penguin, Random House, Text, Scribe, and Allen & Unwin, as well as the individual submission from A&U’s chairman, Patrick Gallagher); and the Leading Edge group of booksellers. Collectively, these are a magnificent set of presentations.

Henry Rosenbloom

Reconsidering parallel imports #2: the trouble with Bob Carr

2008-12-17T11:36:24Z

Recently, a former Labor premier of New South Wales, Bob Carr, published an argument for cheaper books (‘The Forum’, Weekend Australian 13-14 December 2008). His piece displays just enough knowledge to be dangerous, and enough insouciance and ignorance to be breathtaking.

Let’s be clear what’s going on here. Mr Carr is seeking to justify the abandonment of territorial copyright for Australian publishers and authors on the grounds that it would result in cheaper books across the board. This is a powerful, simple rationale — which, as it happens, is plain wrong. But even if it were right, it ignores the devastating costs of such a radical move. His pitch is seductive because it is simplistic and selective.

To take Mr Carr’s main argument at face value, I find it extraordinary that, for a person who sits on the board of a book-retailing chain, he doesn’t seem to understand the first thing about book pricing or the book industry. He quotes, amongst his examples of apparent local rip-offs, the fact that The White Tiger sells for $32.95 in Australia, but only $21.53 in the US and $30.70 in Britain. Apart from the fact that he hasn’t added GST to the overseas prices (which immediately makes the UK edition dearer), he doesn’t mention that booksellers would have to get copies of a US title such as this into Australia in order to sell them.

To do so, booksellers have to pay for freight, compensate themselves for having to buy copies on a firm basis (not on sale-or-return basis, as they do locally) and, in the process of converting their costs from US dollars to Australian dollars, add a buffer to protect themselves against adverse currency fluctuations. The nett result of these practical factors is that, at the current $US-$Australian exchange rate, booksellers, like Mr Carr’s very own Dymocks group, multiply US prices by around 2.2 to arrive at an Australian recommended retail price inclusive of GST. Thus The White Tiger, which costs US$14.00 in America, would retail here for $30.80, assuming that booksellers didn’t round the price up — a maximum potential saving of $2.15.

In fact, most of the time, Australian editions of US-originated books sell for less than the US edition would if it were able to be imported by booksellers. Let me give you a few examples. We have just published Obama’s Challenge, by Robert Kuttner, a US paperback that retails for US$14.95 in its home country. If booksellers were able to import it, they would charge $32.95 for it. Our recommended retail price is $27.95.

We have also just published a small-format paperback of The Canon by Natalie Angier. The US retail price of $15.95 would become $35.00 in local booksellers’ hands. Our price: $27.95.

We publish many local editions of US-originated titles, and most of the time they demonstrate the same price disparity in Australia’s favour. But, what is even more extraordinary, Mr Carr doesn’t seem to have noticed that Australian consumers get the further benefit of having paperback editions available to them instantly instead of the expensive hardbacks that US publishers originate.

Thus, for example, next month we’re publishing ‘A Long Time Coming’ by Evan Thomas and Newsweek journalists, a book about the recent US election campaign. In the US, it will be published as a US$22.95 hardback, which would have an Australian RRP of $49.95. Instead, we’re publishing our edition as a paperback for $27.95.

Similarly, early in 2009 we’re publishing Legacy of Secrecy, by Lamar Waldron, an 864-page book on the Kennedy assassination. In the US, it’s just been released as a US$33.00 hardback, which would be priced here at around $72.50. We’re publishing it as a paperback for $45.00.

There are countless examples such as these available to demonstrate how Australian consumers continually benefit from the availability of what is called the trade paperback.

But even comparing like with like — hardback with hardback — local pricing is often keener. I notice, for instance that the US edition of The Man Who Owns The News, by Michael Wolff, a recently released hardback biography of Rupert Murdoch, retails there for $US29.95. If the Knopf edition were to be imported by local booksellers, they would charge around $66.00 for it. Instead, the Australian edition, published by Random House, is priced at $49.95.

Whichever way you look at it, the argument to abandon territorial copyright in order to reduce the retail price of books is not sustainable. It is not supported by the facts on the ground and, ultimately, is hostage to foreign-currency exchange rates and the behaviour of booksellers. This is not, to put it mildly, a sound basis for making such a major change.

Mr Carr has one extra claim to support his case: the experience of New Zealand since it allowed parallel imports ten years ago. He says that their publishing industry has thrived since then. I don’t know of the report that he relies on, but I do know that this doesn’t resemble the New Zealand publishing industry I deal with. Books are more expensive there than here; their indigenous publishing has been stunted and starved; and the country is essentially treated as a dumping ground by multinational publishers. This is not a picture of a healthy or growing industry.

Which brings me to my main areas of disagreement with Mr Carr’s argument. He seems to have no awareness of the centrality of territorial copyright, the nature of Australian publishing, or where the best interests of authors, consumers, and the culture at large lie.

There is no publishing industry of any significance in the Western world that does not rely on exercising exclusive copyright in its own territory. Indeed, it is impossible to imagine an industry that could exist without such an enforceable right. In Australia, which for many decades suffered from being a neo-colonial outpost, it is especially important in enabling indigenous publishing — and everything that goes with it — to flourish. Like taxation, territorial copyright is one of the prices we pay for civilisation.

As I've noted in a previous blog on the subject, the current copyright rules, which were introduced in 1991, have led to the emergence of a vibrant book publishing industry. In fact, in terms of its market share, Australian book publishing has become the most successful cultural industry in the country (much more successful than the local film industry, for example) — all without any significant subsidies from government. It has never boomed financially but, compared to the US and the UK, it is healthy. Whereas it was once a plaything of foreign-owned distributors, it has become a complex ecosystem, with multiple symbiotic relationships between publishers, booksellers, authors, writers’ festivals, and the media increasing all the time.

All of this is now at serious risk if the arguments of people like Bob Carr were to be listened to by the Productivity Commission or the Rudd government. There are two main ways, I think, in which the industry would be decimated if parallel imports were allowed.

Earlier, I gave examples of US-originated titles that publishers like us acquire regularly. We can only do this if we have a territory to buy — that is, if our own territory is available to us exclusively. Without the protection of territorial copyright, no local publisher would be able to make an offer for the right to publish overseas titles here with any confidence (as our print-runs could be undermined by booksellers importing competing editions, or by overseas publishers or distributors exporting their editions, especially if the exchange rate moves in their favour). We certainly could not afford to support the publishing of such titles with local marketing and promotional activities.

It’s also possible that US rights-holders (that is, publishers or literary agents) would be reluctant to license Australian rights at all, as they might be unnerved or emboldened by the prospect of UK editions competing with theirs in our market, or they might think they could do better by exporting their own editions.

Consequently, Australian local publishing programmes, which are underwritten by our access to profitable overseas-originated titles, would shrink: there would be a severe reduction in quantity and quality, and a forced emphasis on likely bestsellers.

Meanwhile, Australian publishers selling rights would face unbearable competition from foreign editions of their own titles — either offered at run-on marginal costs, or as remainders. In either case, their authors would get either low royalties or none at all. For this reason as well, local publishers would not be able to afford to pay significant advances to prominent local authors, and local publishing programmes would contract significantly.

The collateral damage would also be significant. Book printers would be devastated, as their business has been built on local and UK-owned publishers printing locally to abide by the so-called ‘30-day rule’ that currently protects copyright. Local authors and literary agents would be imperilled. Independent and serious booksellers would face a crippling loss of diversity and quality in their range. And Australia would revert to its twentieth-century status of being a territorial dumping ground, our bookshops filled with books that other people wanted us to have.

All of these consequences would follow from the imposition of Bob Carr’s simplistic solution in search of a problem. Dymocks, the company on whose board he sits, would be free to import whatever titles it wanted to, whenever it wanted to. Everybody else would be free to wander a blasted heath. Perhaps they should adopt the motto of ‘Import and be damned.’

Bob Carr also raises the issue of Australians increasingly buying books online at lower prices than local booksellers charge. This is true, but is a red herring. It has nothing to do with territorial copyright, and would remain a marketplace reality whatever regime were imposed. Its real significance is that it is an example of an unlevel playing field — a gift to Amazon and its ilk — as the government imposes no GST on online purchases, to the great disadvantage of local booksellers, let alone local publishers. This is a genuine reform crying out to be undertaken, which would have the added benefit of contributing to government revenues.

Mr Carr mentions that there’ve been five inquiries into this subject since 1988, and he hopes, exasperatedly, that this new one will be the last. A little humility might have led him to realise that the very fact that there have been no changes following so many inquiries is an indication that this is a highly complex subject, and that there might be good reasons why it has so far withstood the urgings of economic-rationalist zealots and the superficial attractions of free-market ‘reforms’.

Mr Carr concludes by saying that, ‘All expect reform to happen, the Productivity Commission to say, “Open the Market”, and the cabinet to agree.’ This is precisely what he has been lobbying for. The truth is that hardly anyone else in the industry — from multinational publishers to independent publishers, from authors to literary agents, from writers’ festival directors to most booksellers — agrees with this idea. But the fix is certainly in with the referral of this question to the Productivity Commission. If it proceeds as expected, Australian publishing will face an existential threat of the utmost severity.

It will be ironic indeed if an Australian Labor government listens to the siren-song of a failed ex-premier, and tries to resurrect market fundamentalism and deregulation at a time when the whole world is suffering terribly from the consequences of such a demonstrably asinine approach.

(A shorter version of this article appeared on ABC online at www.abc.net.au/unleashed/stories/s2450051.htm.

Mr Carr's article can be accessed online at www.theaustralian.news.com.au/story/0,25197,24774541-26063,00.html)

To read my full submission to the Productivity Commission's inquiry into 'copyright restrictions on the parallel importation of books', download the PDF: Download

Over 200 submissions were sent to the commission by the due date of 20 January, and they came from a wide range of individuals and organisations. Following its evaluation of the submissions, the commission will release a draft report (in early March); arrange ‘roundtables’ to discuss the draft report (March–April); call for supplementary submissions (by 10 April); and issue a final report to government (13 May).

Henry Rosenbloom

Reconsidering parallel imports: a draconian solution in search of a problem

2008-11-30T16:59:43Z

As if we all didn’t have enough to worry us, the Australian government has sooled its attack dogs on the Australian publishing industry. The Productivity Commission has been given the task of investigating whether Australian territorial copyright for books should be surrendered, so that parallel imports — foreign-originated or foreign-sourced books — might be freed legally to compete with local editions.

To understand any of this, a bit of history and context is needed. In 1991, the fundamental copyright protections available to Australian authors and publishers under the Copyright Act 1968 were qualified by the introduction of two new rules that were aimed at increasing, in bureaucrat-speak, ‘the timeliness and availability of books in the Australian market’. They were introduced, to put it bluntly, to stopping foreign-owned publishers from sitting on their rights and not exercising them, which was a practice that had been making Australian consumers and booksellers increasingly frustrated.

The first of these rules — the so-called ‘30-day rule’ — stipulated that in order for publishers to continue to be protected against parallel imports, they had to make new titles available for sale within 30 days of their first publication overseas. If a book was not published locally within this period, Australian booksellers could import it from foreign publishers and distributors themselves. A related provision, ‘the 7/90-day rule’, obliged publishers to supply the book trade, within 90 days of being asked to do so, of copies of foreign-sourced books to which they already had rights.

These ‘use it or lose it’ rules were the result of a lot of argy-bargy at the time between protectionists and free-traders. As it turned out, the political compromise that the rules represented was a masterstroke: it resulted in the flowering of the Australian publishing industry, to the great benefit of authors, book buyers, booksellers, book printers, and the culture as a whole.

Under these provisions, Australia virtually invented the trade paperback (because it was faster and cheaper to get to market than a hardback, which was the format in which the US and UK originated their titles); an improved range of books started to appear in bookshops promptly and at competitive prices; and smaller publishers, in particular, were able to expand their publishing programmes, and to support them with marketing expenditures and author tours.

Slowly at first, and then with increasing speed, a publishing industry emerged that was to become the marvel of the Western world. With territorial copyright guaranteed, a rights-buying culture emerged, and then a rights-selling one. Microscopic independent publishers became small and then medium-sized ones; new publishers emerged and flourished; multinational publishers beefed-up their local programmes; independent booksellers retained their vitality and their market-share; local authors gained more publishing choices and greater visibility; major writers’ festivals sprang up and strengthened around the country, often headlined or attended by foreign authors who otherwise wouldn’t have been heard of; and the local media were continually offered a rich fare of talent to review and interview.

As a result, Australian book publishing has become the most successful cultural industry in the country (much more successful than the local film industry, for example) — all without any significant subsidies from government. It has never boomed financially but, compared to the US and the UK, it has become vibrant. Whereas it was once a plaything of foreign-owned distributors, it has become a complex ecosystem, with multiple symbiotic relationships increasing all the time.

All of this is now at serious risk. There are two main ways, I think, in which the industry would be decimated if parallel imports were allowed. Without the protection of territorial copyright, rights buyers would not be able to offer for overseas titles with any confidence, and certainly would not be able to support their publication with local marketing and promotional activities. In turn, our local publishing programmes, which are effectively underwritten by our access to overseas-originated titles, would shrink: there would be a reduction in quantity and diversity, and a forced emphasis on likely bestsellers.

Rights sellers, on the other hand, would face unbearable competition from foreign editions of their own titles — either offered at run-on marginal costs, or as remainders. In either case, their authors would get either low royalties or none at all. Local publishers would not be able to afford to pay high advances to prominent local authors, and local publishing programmes would contract significantly.

The collateral damage would also be significant. Book printers would be devastated, as their business has been built on local and UK-owned publishers printing locally to abide by the 30-day rule. Local authors and literary agents would be imperilled. And Australia would revert to its twentieth-century status of being a territorial dumping ground, our bookshops filled with books that other people wanted us to have.

All of these devastating consequences would follow from the imposition of a solution in search of a problem. Ironically, the main original problem of overseas-originated books not being available promptly no longer exists. Sometimes, we even publish US titles before they’re available in the United Kingdom.

Even the alleged problem of local books being more expensive than overseas versions has been dispatched by the plunge in value of the Australian dollar against most other currencies. In any case, book pricing is more at the mercy of booksellers than you might think; in recent years, when the local dollar was high, enterprising booksellers kept their windfall profits when importing US titles. And some booksellers have given recent evidence that they favour higher — not lower — prices — by selling a range of local books above their recommended retail prices.

Booksellers do have a legitimate grievance, but it’s not addressed by this inquiry: the ability of consumers to buy books from overseas online suppliers without having to pay GST. This is completely indefensible, and irrational — the government would earn additional revenue by levelling the GST playing field, and it would help local booksellers by doing so.

The federal government picked up parallel importation as a fit subject for investigation as a piece of ‘unfinished business’ from the previous regime. It has few dedicated proponents: one bookselling chain that’s keen to import titles directly, whatever the cost to anybody else; a former faux-intellectual Labor premier who seems to be compensating for having turned masterly inactivity into an art form during his reign; and maybe a Labor prime minister who wants to prove his ‘reform’ credentials in an industry that his predecessor found too hard.

Of course, referring this subject to the Productivity Commission is like asking duck-hunters what they’d like to shoot. The PC is the last redoubt of economic rationalism here, in an era when the whole world is paying very high costs for having believed that unregulated markets deliver acceptable results. As a hint of their attitude, a section of the PC’s ‘Issues Paper’, just released, wonders innocently whether ‘direct subsidies or other potential assistance mechanisms [could] provide similar benefits to Australian author/publishers as the parallel import restrictions’. This smells of so-called ‘transitional arrangements’ — drop-dead money that has been routinely proffered to all those manufacturing industries that have already been rationalised out of existence.

Still to come is Kevin Rudd’s famous ‘due process’: submissions to the PC, the release of its draft report, ‘roundtables’ to discuss the report, supplementary submissions, and a final report. Don’t hold your breath waiting for the PC to deliver a vindication of the current arrangements, though, or for the federal government to see the light.

I have been in this business, on and off, for over thirty years: I’ve been a book printer, an author, a freelance journalist, and book reviewer; our company won the inaugural small publisher of the year award in 2006, and we won it for the second time this year. I hope that’s enough experience to make people pay attention when I say that surrendering territorial copyright and allowing the parallel importation of books is a terrible idea. It is a dagger aimed at the heart of Australian publishing.

With the benefit of hindsight, I think we can say with confidence that if you wanted to come up with a policy to produce a healthy trade-publishing industry, and everything that went with it, you would produce the 30-day rule that has governed the provision of Australian territorial copyright since 1991. Conversely, if you wanted to destroy the industry, you would do away with the rule.

I have no confidence that the Productivity Commission will see it this way, or that the federal government will disagree with it. This will require a political campaign of massive proportions to overcome. I, for one, am prepared to abandon a lifetime of party-political support to stop the barbarians from getting their way.

Henry Rosenbloom

Frankfurt 2008: the words to say it

2008-10-30T15:06:03Z

For the first time, Scribe has sent a three-person team to the Frankfurt Book Fair: at the recently concluded 2008 fair, our fiction acquisitions editor, Aviva Tuffield, and our translations editor, Margot Rosenbloom, accompanied me on the most stimulating and gruelling trip in world publishing.

The three of us took part in over 100 meetings with agents and publishers during the week of the fair, pitching our own wares and looking at those of others. We’ve already bought several terrific titles that we were shown, and offered for others, and there’s been serious interest expressed in a number of our books. At this early stage, it feels like our best Frankfurt yet.

We came across the usual bullying rights-buying behaviour by large UK houses, who keep insisting on acquiring Australian rights within the rubric of ‘UK and Commonwealth’ rights (as they’re so quaintly named) when they’re shown new titles. This is blackmail, pure and simple, as I've said before. By threatening to withdraw their offers, or not offer at all, unless these rights are made available to them, they gazump or freeze-out Australian publishers, sweep up Australian rights for next to nothing, pay low ‘export’ royalties, and thereby prop up their bottom lines effortlessly. Perhaps these rights should be renamed ‘UK and British Empire’ rights, because that’s their true neo-colonial basis.

Luckily, US publishers and agents are waking up to this rort, and are more prepared than ever to ‘split rights’, as it’s called, with Australian publishers. Even they face some difficulty, though, with their own UK sub-agents — who, in some cases, are extremely reluctant to have their work lives complicated by having to consider Australian offers and thereby antagonising the large UK publishers they depend on for a living.

When I said something to this effect last week to The Age’s book review editor, Jason Steger, and he incorporated my typically diplomatic comments in a piece he wrote for his column, I was astonished to see my words ricochet around the world. A recently launched UK industry email-newsletter, BookBrunch, promptly headlined a report of Steger’s column with the words ‘Rights holders — bastards and cowards’. Now I know what to do to get attention: talk like an Aussie.

Frankfurt was conducted against a backdrop of deepening anxiety about the world financial crisis, of course, but there were no obvious signs that this affected the number of participants or their buying-and-selling animal spirits. Perhaps this has something to do with the fact that trade publishers, by their nature, tend to be optimistic and forward-looking. I was asked about this on Ramona Koval’s ‘Book Show’ on ABC radio national on 24 October, and found myself saying that, ‘You can’t just retreat ... and hide and cower until it’s all over. You still have to assume there’s a market for good books.’

As it turned out, our October ‘sales’ were very strong — above budget, and above the same month last year. I put the word ‘sales’ within quotation marks because, as readers of this blog will know, invoiced sales are not necessarily the same as bookshop sales. We were helped greatly by having a bestseller on our list — The Brain That Changes Itself by Norman Doidge — which has now been reprinted four times, with over 20,000 copies in print.

In the meantime, visits to our website keep growing, to a level that would have astonished me a year ago. I think this has got a lot to do with the widespread publicity that our new books keep generating, the breadth and depth of the list, and the richness of the site.

So, as financial Armageddon approaches, we gird our loins, and keep fighting the good fight.

Territorial rights and wrongs (aka perfidious Albion)

2008-03-25T10:55:44Z

There’s been an undeclared guerrilla war going on for several decades between UK publishers and Australian publishers. Like most wars, it’s being fought for the financial gains that go with territorial rights; unlike most wars, however, the aggressors have never tried to clothe their naked self-interest with ethical rhetoric. They’ve simply planted their flags in foreign lands because they can.

The problem starts in the United States, the home of much of the best writing in the English-speaking book world. When US publishers or literary agents seek to sell English-language rights to their authors’ books, they usually look first to the UK, which has a domestic market of 60 million people — and access to many more. Although the UK is very choosy about what it wants, this is where the big bucks are.

The trouble is that UK publishers have almost always insisted, when they acquire domestic rights, that so-called ‘Commonwealth’ rights — that part of the globe which used to be coloured red — be included. They’ve even tended to refuse to consider buying rights in books that originate in Australia.

Why? Because Australia is a highly profitable market for UK publishers. They usually don’t have to pay for the Commonwealth component when they acquire the rights; they get to pay the authors what are called ‘export royalties’ (which are around half of what are known as ‘home royalties); and they sometimes sell more copies here than they do in their own country. They don’t even have to publish the books here — simply distributing moderate quantities is still money for jam. The disproportionate profits go straight to their bottom lines, and help prop up their own ailing industry. This is rent-seeking and coupon-clipping on a grand scale.

It’s a wonderful rort, and it’s been going on for a long time. And the UK publishers protect it fiercely: if Australian publishers want to acquire rights to such books from the US (which requires what is known as ‘rights splitting’), the default position of UK houses is that they will then refuse to offer for UK rights. This is blackmail, to put it bluntly, and it usually works. Faced with the prospect of potentially losing a largeish UK deal over a small-to-middling ANZ deal, US publishers and agents — and their UK rights agents — have tended to fold and to cede the territory.

The UK houses are unapologetic about their behaviour. If pressed, they will simply aver that Australia is very important to them financially. This is certainly true, but that doesn’t make it edifying or defensible. It’s akin to nineteenth-century plantation owners claiming that slaves are essential to the profitable operation of their enterprises.

In recent years, despite the continuation of neo-colonial rule from London, an insurgency has emerged: Australian publishing has developed a rights-buying culture. Many houses, large and small, now look to acquire local rights in US titles. (Our own company has been prominent in this area.) Often, the books they’re interested in are of relatively little interest to UK houses; but, equally often, the UK refuses to abandon its hard-line position, because it doesn’t want to set an unwelcome precedent.

Every day of every week, Australian publishers offer for US books, only to hear that the publishers are holding out for a UK deal, or that the UK has already ‘pre-empted’ (made a knock-out offer for UK and Commonwealth rights that includes Australian rights). Sometimes the wait lasts for months — and there’s no UK bid forthcoming.

The galling thing is that Australia often understands US books better than UK publishers do — and that, when Australian houses do manage to acquire local rights, they often publish the books with verve and commercial success. They print substantial quantities, publicise the books professionally (sometimes bringing the author out for a publicity tour), and often create a market for an author that would otherwise never have existed. And they do this while paying a market price for the rights, and higher, domestic royalties to the US publishers and their authors.

Word of these successes has started to seep out more and more in the US publishing community. More US publishers and agents are nowadays prepared to split rights, and some UK houses, under this market-place pressure, are being forced to give ground: they will now acquire some books even after Australian rights have gone, and sometimes they find themselves forced to pay domestic royalty rates as the price of retaining their entitlement to Australian rights.

Nevertheless, it remains the case that most UK publishers regard themselves as entitled to Australia as a territory, and refuse to cede the ground. I’m convinced that they don’t understand the bitterness and deep resentment, bordering on fury, that this stance is arousing in Australian publishing. It is a refrain I hear constantly, whether I’m talking to colleagues in multinational houses or to fellow independents. There is no question in my mind that the UK’s position is not sustainable.

I understand very well that the UK book trade is in a sorry state, and that UK houses have come to rely on Australia to subsidise their often-marginal domestic operations. (It may even be the case that, without this subsidy, they’d be forced to resist the punitive discounts that they’re having to offer large retail chains.)

But we must put out own interests first. As in all neo-colonial enterprises, UK publishers, by protecting their own financial interests, are holding up the development of Australian publishing and the Australian book trade in general. To the extent that they prevent Australian publishing houses from reaching their potential, they weaken the financial base of our industry, and even the prospects of local authors.

UK publishers are not entitled to Australia as a territory. It is our country, our market, and our industry. They should either pay for it on the same terms and conditions that we do — and then make professional use of the publishing rights they acquire — or else bugger off and let us get on with it.

Henry Rosenbloom

[A slightly modified version of this piece first appeared in the Age on 24 March 2008, under the heading 'Brits in the bad books'.]