Stephen Conroy: Defender Of Local Content?

Earlier this week, the Federal Government released two separate and important documents about Australian culture. One of them, Stephen Conroy’s "roadmap for Australia’s digital economy future", has generated relatively little attention. The other, the Productivity Commission’s report on parallel importation of books, has caused what ministerial media officers sometimes call a "shitstorm".

Ironically, the two reports are inextricably interlinked. But the fact that they don’t even acknowledge each other tells us a lot about Australia’s fragmented approach to culture — indeed, about the way our Government plans for the future.

Conroy’s Digital Roadmap is a fairly innocuous document. There are a few "success story" anecdotes about things like Google Maps (if you can call selling a promising start-up business to Google because of a lack of Australian venture capital a "success story"); some well-meaning sentiments about government, business and the community all doing their bit; and seemingly endless mentions of the "$43 billion National Broadband Network".

Of course, there are some worthy things the Government is doing in the digital field. It has established a "Government 2.0 taskforce" and — wait for it — Kevin Rudd now has a blog. There’s also a promise to "set conducive regulatory frameworks" like giving Google and YouTube the same safe harbour protections that telcos currently enjoy. Strangely, this section somehow fails to mention the elephant in the room: internet filtering.

The report also makes much of the need for Australian industry to "develop sustainable online content models". In a paragraph that will fascinate Australia’s authors and publishers, who are currently under siege from the Productivity Commission, the report argues that:

"Countries that lack a sustainable local content industry risk: Lower levels of participation in the digital economy because content is a proven draw card; Slower skills development and lost investment opportunities; Dilution of our cultural identity, particularly if younger Australians mainly view overseas content on the internet."

The irony of this section will not be lost on the publishing industry — Australia’s largest and most successful content industry. According to the Productivity Commission, $2.5 billion worth of books are sold in this country every year, and book publishing and its associated printing activity employs something like 18,000 Australians, including around 10,000 full-time and part-time authors.

Of course, you could argue that book publishing is not a "sustainable online content model" — yet. But it’s inevitable that it soon will be. Thanks in part to Amazon’s Kindle, books are rapidly migrating online. In the not-too-distant future, the majority of Australian books will be released digitally. It’s a massive opportunity for Australia’s future digital economy — if our publishers and authors can adapt and deliver for digital platforms.

But that’s a big "if" considering what’s going on in the publishing industry just now. The Productivity Commission’s recommendation that government laws that prevent the parallel importation of books be abolished has the entire industry in a panic.

There’s been an avalanche of anguish from authors and publishers on this issue, and a smaller but smugger outpouring of schadenfreude by neo-liberals, book chains and others who enjoy watching skivvy-wearing writers squirm. But if you delve into the report, you can quickly find the issues at stake.

The controversy stems from a decision last year by the Productivity Commission to review the issue of territorial copyrights as they apply to literature in Australia. Territorial copyrights are a component of Australia’s intellectual property system, governed by our various copyright laws including Section 112A of the Copyright Act of 1968.

Currently, Australian publishers enjoy a special trade barrier under this section of the copyright law, which prohibits what is called "parallel importation" of a publication from an overseas territory, if an Australian publisher holds the rights to that title.

How does it work? International intellectual property law divides the world into "territories" for trade and royalty purposes. The UK is a territory, the US is a territory, Canada and Australia are separate territories, and so on. Publishers sign deals with authors in a particular territory; each territory generally means a different deal unless authors are so foolish as to sign over their rights worldwide.

Now, say I am an Australian publisher and I have bought the right to publish a particular book in the Australian territory. And say another publisher has published the same book in a different territory. Parallel importation restrictions prohibit the importation and sale of that copy of the book in Australia. If you’re a book store or wholesaler here, and you want to sell Breath by Tim Winton, you have to sell the Australian edition of Breath from Penguin; you can’t, for instance, import and sell this US edition from Harper Collins, even though it is cheaper.

A bad deal for consumers? Sure.

And in general, the evidence from the economic literature suggests that removing parallel importation rules does make cultural goods cheaper. Singaporean economists Yeh-ning Chen and Ivan Png wrote this paper examining the price data for CDs after parallel importation was removed in a number of jurisdictions. They found that prices fell on average by around 7 per cent. Mind you, they also point out that "the price reduction was probably concentrated in relatively new, top-of-the-chart releases".

The World Bank’s Keith Maskus agrees. In The World Economy: Global Trade Policy he argues that after removing parallel importation restrictions, "there would be a redistribution from consumers in high-price countries … to producers in countries that are net exporters of those goods. Seen in this light, it is easy to understand why nations such as Australia and New Zealand favour liberal treatment of Parallel Importation, while intellectual property developers in the United States favour restricting them."

Translation? Consumers win: they get cheaper books and CDs. Producers lose: prices for their products fall.

And that, essentially, is the nub of the Productivity Commission’s argument. By recommending Australia unilaterally abandon its territorial copyright restrictions on book importation, the Productivity Commission is arguing it is better for consumers to enjoy cheaper books than it is for Australian writers and publishers to enjoy a trade protection which allows them to charge higher prices for their books and manuscripts.

According to the Productivity Commission, if domestic authors and publishers suffer, so what?

"The unpriced ‘externality’ component of the cultural benefits that is dependent on the Parallel Importation Restrictions is unlikely to be large, and PIRs do not target such benefits effectively or efficiently," the Commission argues in section 6.1 of the report.

For those acquainted with the Productivity Commission’s ethos, the grudging admission that a vibrant local publishing industry does produce some positive "cultural externalities" is actually a big step. But once it gets that far, the Commission appears to realise it has stepped into unfamiliar territory and effectively recommends another study to work out how to support local publishers and writers.

Cultural matters are not exactly home ground for the Productivity Commission’s economists. You can almost sense their annoyance at having to deal with these wishy-washy issues where there isn’t a robust price signal that lets everyone know exactly what the cultural value of a book is. They write:

"… the value of the cultural externality of any particular book is not readily quantifiable, and it can be difficult to differentiate (with much precision) between different books or even classes of books. This poses challenges for determining the eligibility of different books for subsidy, and the appropriate rate of subsidy."

Well, yes. A tricky business, this cultural externality stuff.

So what does the Productivity Commission recommend? It hints strongly that the Government should emulate Canada’s approach and pay publishers a subsidy for each Australian-authored work they sell. This, it argues, would be a much more efficient way to support authors and publishers:

"Irrespective of the specific arrangements selected for the administration of a subsidy scheme, the costs of such administration would be modest relative to the costs of PIRs: indicative Commission estimates suggest that the equivalent figure for delivering assistance to copyright holders for Australian-authored trade books under the PIRs is at least 60 per cent, due mainly to the substantial leakage of assistance to foreign copyright holders that they entail."

So there you have it. According to the Productivity Commission, books are too expensive, and if cheaper books mean local authors and publishers struggle, then the taxpayer should simply give money to them directly. Amazingly, the very same report which claims one form of cultural protection distorts the local books market concludes by recommending another form of cultural protection — a direct subsidy to local producers, exactly akin to a US or EU-style agricultural subsidy — as the remedy.

It’s not surprising that authors, publishers and independent book stores are up in arms. Richard Flanagan gave an eloquent defence of the current system at this year’s Sydney Writers’ Festival. After all, it’s not as though our trading partners in the US, UK and Europe are dismantling their copyright regimes; if anything, they are strengthening them. And according to the Government’s digital economy roadmap, removing these restrictions could threaten Australia’s cultural identity.

Perhaps Stephen Conroy should make another speech.