The Productivity Commission thinks Australia will be better off with fewer writers and fewer publishers. By Michael Heyward.

Michael Heyward
Parallel importation and the attack on local publishing

The Productivity Commission has an irrational obsession with destroying the livelihoods of writers. This is the only conclusion I can draw from its draft report on intellectual property. It has an intemperate and profoundly unbalanced hatred of the concept of literary ownership.

Take one recommendation: By the end of 2017, the commission would abolish the qualified territorial copyright arrangements, or parallel import rules, we have in Australia. These precisely limited arrangements, which have operated in Australia since 1991, make copyright enforceable in Australian book publishing. Without this market mechanism the ability of Australian writers and publishers to compete for the benefit of Australian consumers will be eroded.

If the draft recommendations are adopted, it will damage the wellbeing and long-term interests of people who buy books, and harm the ability of writers and publishers to be entrepreneurs and to innovate. It will be harder for new players to enter the market. Far from encouraging competition, the removal of territorial copyright will freely transfer revenue to huge foreign retailers, wholesalers and publishers because they will continue to benefit from territorial copyright in the other major English-language territories. No significant English-language market other than New Zealand has done as the Productivity Commission would have Australia do. But books aren’t cheaper in New Zealand, and its publishing industry has withered since it tossed territorial copyright into the Tasman.

The commission assumes its recommendations would reduce book prices. None of its assumptions about prices are tested. The Productivity Commission has done no research on price since it delivered its previous report, in 2009. Yet, since 2008, the average selling price of printed books has fallen by at least 25 per cent in Australia.

The commission has a duty to put its assumptions to the test. It ought to do its homework on price before it recommends fracturing our extraordinarily successful book culture. There have been no Australian Bureau of Statistics data on the industry for more than a decade. Back in 2009 the commission confessed it was unable to measure the effect of parallel import rules (PIRs) on prices or to predict what would happen to prices if they were removed.

In September 2009, it said: “In summary, while it is not possible to provide a definitive estimate of the effects of PIRs on book prices, or an unequivocal prediction of market-wide price movements in their absence, the evidence assembled during the study enabled the Commission to draw conclusions about those price impacts that, in its experience, are sufficiently robust for assessing the merits of policies such as PIRs.”

This Alice-in-Wonderland logic remains painful to read. It is a marvel of nature that any report could ever draw robust conclusions in the absence of definitive estimates or unequivocal predictions.

Understanding the importance of territorial copyright for the publishing industry begins with the Copyright Act, which is based on the inherent right of ownership that attaches to creative effort. But the Copyright Act cannot fulfil its objectives in the absence of territorial copyright because without it writers cannot enforce the contracts they sign. Without enforcement, they cannot compete.

The current rules not only encourage competition – they make it possible because they grant Australian writers and publishers the same territorial rights that writers and publishers have in other English-language markets.

Australia has an impressive diversity of booksellers, who operate in the fairest and most liberal territorial copyright regime in the English-speaking world, because the 1991 amendments balanced the interests of all parties. As a consequence, our independent bookselling sector has real market clout and sets international standards. This prescient reform ensured books would be made available to readers in a timely fashion, thus protecting the competitive interests of booksellers. It permitted parallel importation – the purchase of a competing edition from an overseas supplier – for personal use, allowing readers to buy books from all over the world, and it permitted booksellers to parallel import upon customer request.

All this applied downward pressure on prices and created powerful incentives for our industry to operate efficiently. I am appalled that the commission believes that Australian territorial copyright rules “distort the allocation of resources from their highest value uses”.

What the Productivity Commission means is that Australia will be better off with fewer writers and fewer publishers. The Turnbull government, which has not bothered to announce an arts policy, has already declared it will adopt the commission’s draft recommendations. In fact its policy has been declared for it by the Productivity Commission, and its purpose is to reduce the number of Australian writers and publishers and to diminish Australian literary culture.

The draft report notes that Australia is a net importer of copyright. The fact is that every writer whose book is published in the United States or Britain, or any other market, is a net exporter of copyright. Some publishers, such as Text, are net exporters of copyright. The dismantling of territorial copyright, to the extent that it disabled the export of Australian writing, would damage entrepreneurial creators and producers, and so erode Australian culture. The beneficiaries of this erosion will be foreign wholesalers and retailers who will become free riders in our market.

Abandoning the rules will strip writers of royalties they would otherwise earn. Here’s why. Publishers pay domestic royalties to authors for books they sell in their home territory. For books sold in foreign territories authors are paid export royalties – commonly about one-third the value of a domestic royalty. The overwhelming majority of Australian authors receive domestic royalties in Australia and the overwhelming majority of foreign authors whose books are distributed here earn export royalties. In general, the only foreign writers receiving domestic royalties from sales in Australia are those who have licensed their books to Australian publishers, just as Australian authors receive domestic royalties in foreign countries when they license their books to publishers in those countries.

The Productivity Commission wants to believe our rules favour foreign writers. If this is true, is it then in favour of territorial copyright in the US and Britain because the rules in those countries must therefore benefit foreign copyright holders, such as Australian writers? Or does such revenue merely encourage Australian writers to persist with the inefficient allocation of their resources into books?

The fact is that our qualified territorial copyright benefits Australian writers most because Australian writers are in general paid much higher royalties here. Abandoning territorial copyright will benefit foreign copyright holders at the expense of Australian copyright holders simply because the volume of foreign books sold here will increase, and the volume of Australian books will decrease, whether or not there is any measurable impact on prices. Australian writers will begin to earn export royalties on foreign editions of their books sold in their own country, so their incomes will fall, a welcome trend in the eyes of the commission since it will be evidence its recommendations are working.

Trading in rights is critical to any modern publishing industry. The benefits of selling the territorial rights of Australian authors abroad should be obvious: greater audience and royalties, the export of Australian culture. The benefits of buying Australian territorial rights from foreign writers are also widespread. The books of these writers are printed in Australia, creating jobs. Their contracts are negotiated in Australia, creating jobs. Their books may be edited for Australian conditions, creating jobs. Their books may be designed in Australia, creating jobs. The Australian publishing industry supports 20,000 jobs. It is worth $2.2 billion, bigger than film and recorded music combined.

The removal of territorial copyright will shrink every aspect of our industry: fewer authors published, fewer books printed, fewer Australian-made books sold. The rights market will be eroded because it will no longer be possible to define Australia as a publishing territory.

No publisher will be exempt. At Text, for instance, the foreign revenue we earn by selling rights considerably exceeds the royalties we pay as a consequence of Australian sales. Most of this foreign revenue flows through to our Australian writers. The value of our books in print outside Australia is greater than the value of our original domestic editions. It shows what can be achieved if we conceive of Australia as a sovereign territory upholding the same rights in copyright as our international competitors. And it shows the threat to fair competition and entrepreneurial risk-taking if those books, produced because we have licensed rights outside Australia, can boomerang back into this market as free riders. There’s a lot at stake. As much as a third of our company’s revenue is generated internationally. About two-thirds of the royalties we pay our writers are generated internationally.

Any proposal to dismantle territorial copyright is in fact a radical instrument of reverse cultural engineering, which is why the Productivity Commission’s draft report is a covert arts policy. It is designed to take us back to the days when Australia was a publishing colony. Who in the commission’s brave new world is going to publish in Australia the large number of Australian writers who also have international readerships? The answer is foreign companies who will be competitively advantaged by the absence of territorial copyright here. It is not in Australia’s interest for Australian copyrights to go offshore and for Australian culture to be curated elsewhere. And who is going to publish debut authors, the bestsellers and prizewinners of tomorrow? Fewer publishers, I would suggest, taking fewer risks. But that’s good news for the Productivity Commission and the Turnbull government because, in the efficient reallocation of resources to value uses higher than literature, there will be fewer writers too.

This article was first published in the print edition of The Saturday Paper on June 18, 2016 as "Closing the books".

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Michael Heyward is publisher of Text Publishing.

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