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The price is wrong

18 September 2009 901 views No Comment

The increasingly shrill debate over the proposal to allow the parallel importation of books is the Australian chattering classes’ latest ideological battle.

Ever since the Rudd government’s Productivity Commission handed down a report that suggested lifting the current Parallel Importation Restriction (PIR), the literary cultural warriors have been manning the barricades to defend the protected Australian publishing industry.

The usual suspects: Tim Winton, Tom Keneally and other left-leaning authors have been loudly proclaiming that allowing normal competition to rule the local market would sound the death knell for Australian literature.

But the key question is: why shouldn’t we allow parallel importation when it will mean the public gets cheaper books?

The publication last Tuesday of The Lost Symbol, Dan Brown’s follow-up to The Da Vinci Code, will provide a clear example of what is wrong with the current system of protectionism in the Australian Book Industry, a protectionism most of the literary community is misguidedly supporting.

In the case of The Lost Symbol, the recommended retail price in Australia is $49.95 for the hardback. Dymocks was pre-selling the book at a discount of 34% at $32.99 including GST. The US and UK recommended retail prices are lower at $36.00 and $37.70 in Australian dollar equivalents.

The actual price that Australians can now pay for books delivered to their front door is what really poses a threat to the Australian book industry.

Publishers, or more accurately the Australian rights holders for books, enjoy protection from parallel importation. This means that Australian bookshops cannot import The Lost Symbol from its UK or US publishers or wholesalers without the permission of the local rights holder to the book.

That permission is never forthcoming. Under the import ban, Australian publishers can charge wholesale prices for books substantially in excess of the equivalent US and UK prices. This leads to more expensive books for Australian consumers: in the case of The Lost Symbol, a lot more expensive.

To call most of these publishers Australian publishers is something of a misnomer. Penguin is part of the UK Pearson group, publishers of the Financial Times. Random House is part of Germany’s Bertelsmann group. Hodder & Stoughton is owned by France’s Hachette group. Picador and Macmillan are part of Germany’s Holtzbrinck group.

There is an exception to this complicated set of rules. Copies can be imported provided they are not for resale, so you and I can ‘import’ a book via Internet sites like Amazon. Amazon has long been the price leader for cheaper, internationally sourced books. The only problem with Amazon is that unless you purchase multiple copies, the freight costs of a single book are a disincentive to purchasing. For instance while the Amazon presale price for The Lost Symbol is A$19.75, freight to Australia on a single book will cost you a further $12.17, making the book approximately the same price as at Dymocks.

The impact of freight costs has always been singled out by the defenders of Parallel Importation Restriction (PIR) to deflect the potency of Amazon’s pricing. Sure they might be cheaper, but books have to be sent here. The Australian Publishers Association repeated this line to the recent Productivity Commission study: ‘ To order from Amazon presents costs to Australian readers above and beyond the stated retail price of the book, including freight costs and delays.’

To combat overseas online pricing, Australia’s largest online bookseller, Booktopia, is offering Australians a 60 per cent discount and took pre-orders on its website at $19.95. ‘Selling The Lost Symbol at $19.95 should ensure that online sales stay within Australia.’ says CEO Tony Nash.

This brings us to the price of The Lost Symbol on BookDepository.com, an increasingly popular UK-based internet bookseller, which provides free worldwide delivery. Accessing the much cheaper UK wholesale price, BookDepository can offer anyone in Australia The Lost Symbol for A$17.33, including delivery, which is $15 less than the local price.

BookDepository is setting a trend, which is being followed by online booksellers all over the world. In Australia, many retailers offer access through their websites to the vast array of titles held by American wholesalers such as Ingrams and Baker & Taylor. These sites all offer deliver for around $6.00. Some offer free delivery for orders over $50. You can see the trend. It’s the result of competition.

The combination of cheaper and faster international delivery of UK and US books is a game breaker for the PIR debate. Without a reduction in Australian wholesale prices, there is simply no viable way for Australian booksellers to compete. The only reason wholesale prices are so uncompetitive in Australia is because those that set them do not face any competition.

Whatever the justification for this protection may have been in the past, it is surely questionable in today’s globalised book market. There is not much point in having a Dad’s Army – style protective shield when book buyers are subverting the whole scheme with the click of a mouse.

Currently 22 per cent of books in the US are purchased on-line. The figure in Australia is 5 per cent – but with current pricing, it will grow significantly, thereby putting local booksellers out of business, and preventing payment of any GST into the government’s revenue stream.

The Productivity Commission pointed out that the protection from competition applies to all books sold in Australia, 89 per cent of which are written by foreigners. Parallel Importation Restriction allows Australian publishers to charge higher wholesale prices to the great benefit of foreign authors. As a result, Dan Brown is likely to do better out of each book he sells in Australia than those in the UK and US. Whether he needs the added support of the Australian book buyer is questionable.

Another effect of the current restrictions is to limit distribution to existing publishers. Internationally, wholesalers now dominate the distribution of books around the world. This it the main reason internet prices are so competitive, as most sites use the big wholesalers’ more efficient services. The closed market in Australia leaves hundreds of small publishers with a real distribution challenge. Unlike the UK and the US, Australia does not have book wholesalers who benefit small independent publishers by bundling together single-copy orders from booksellers into an economical delivery package. Currently delivery costs of single copies from publisher to bookseller by post are inordinately high.

If the market is opened in Australia, wholesalers will establish here. They will bring efficient delivery to stores (and homes, in the case of the internet). This would greatly improve the viability of small publishers, and the many Australians who operate outside the world of Dan Brown’s multinational publishers. Practically, these wholesalers would combine book orders into single shipments, achieving lower costs through scale, allowing more books to get into shops. As every policymaker today is concerned about climate change, this improved delivery chain will have the added benefit of reducing the book industry’s carbon footprint.

How can a political party like the ALP, which has so wholeheartedly embraced the information superhighway, with a $44 billion commitment to connect every Australian home and family, fail to see that the very same engine driving us into the future has rendered obsolete parallel importation restrictions on books?

PIR represents the old Labor Party of the 1970s. Such protectionism doesn’t belong on a reformist government’s agenda. If the Rudd government wants to be believed when it claims that it ‘gets’ the new economy, it needs to recognise that more and more Australians are using it to buy books , not because of convenience, but because of price. Australian consumers are already in the open world market. It’s time the book industry joined them.

Ross Fitzgerald, SPECTATOR AUSTRALIA 19 September 2009.