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PANZ AGM Guest Speaker: Sandy Grant on the hammering the book industry has taken

By July 30, 2013 No Comments

Sandy Grant addressed members of the Publishers Association of New Zealand on copyright issues at the 2013 PANZ AGM, 18 July:

Nothing like a discussion about Copyright to keep you awake after an AGM – but I thought I’d talk a bit about the copyright environment and then the state of the trade overall.

I am going to talk today with two hats – the Chairman of Australia’s collective licensing agency – the Copyright Agency and as the CEO of Hardie Grant Publishing, an independent Melbourne-based publisher that publishes books and magazines and employs around 150 people.

And in both hats I find that the trajectory of my working life, that has seen a steady rise in publishing output and a steady rise in income for every part of the book industry supply chain for 35 years, has taken a pretty serious hammering in the last five. Part of that is the relentless dog eat dog economic environment started in the GFC – and that has never recovered, but the other more profound influence is the transition to digital delivery of content. I was hoping to retire happily and hand the business to my son – now I am scrapping for sales and he is working at a digital agency making good money. From the outside NZ looks to be suffering as much or perhaps even more than anyone else from both problems.

What we are seeing is a hunger for change driven by technology businesses and the consumer and both have shown little or no interest in the niceties of our business.

I remember years ago being told if your business is going to be cannibalised you should do it yourself. But we didn’t do it and cannibals got to us first.

At Copyright Agency after 25 years of careful development, 25 years of building simple low-cost systems to sample schools and 25 years of expertise building the network of authors and publishers to be paid, we now face a Law Reform Report that suggests repealing the Statutory License. Last year we gave authors and publishers $90m under that license, so the implications for writers and publishers would be immense.

It is galling to read this draft report – on the surface written by supporters of Copyright, they keep saying how important Copyright is, but their conclusions are seriously hostile to those very producers. It seems all our evidence is ignored in the rush to accept that anything digital is intrinsically better and anything digital is in the public interest. And they set the bar so low for digital advocates. They don’t need proof, they don’t need to show integrity, commercial long-term viability or even workability in their systems. Our threat is that lawmakers assume digital change improves access and that educators and the public should be given more access simply because it is possible. Our rights are weighed against the perceived or promoted public good and it is concluded that producers and creators need to concede territory – and thus inevitably income and control.

Then when I put my publisher’s hat on, I see our market steadily disappearing to digital competition. I guess it started decades ago as legal publishing went online, but niche after niche has come under fire and then capitulates to digital solutions. Dictionaries, street maps, encyclopedias, then any directory or reference book and now fiction have all gone digital. Some have become embedded in devices or software like dictionaries and maps, some are websites, some are apps and now some are e-books. In parallel there has been a devaluation of the content and the role of publishing.

As an example publishers spend hours planning and designing type and layout of a novel to give a great reading experience. Now readers get their Kindle, change the type face and don’t give a flying.

Or books like Lonely Planet – an icon for decades – brilliantly laid out and brilliantly organised now they compete unsuccessfully with the website, Trip Advisor – and Trip Advisor is a pile of shit recently judged by an English Court to be content mainly created by hotel owners and their friends – or perhaps their competitors and enemies. But the public seem happy. The underlying issue is convenience, and price trumps traditional forms.

In to this digital environment came Google, Amazon and Apple who have all effectively changed the game. Initially it appeared that change was possibly going to be in favour of content creators. But they went quickly from being benign, possibly even helpful players in our supply chain, to being predatory, monopolists whose interest in content does not include an interest in fully and equitably rewarding writers and publishers.

Google’s infatuation with content is based on creating an environment where the user has no need to consider looking anywhere else. With the millions of books they have scanned and virtually every newspaper and magazine now freely available, they have created an extraordinary business – but their objective now is to make profit by placing advertising within their search. Our content is best when it is free or simply searched. They’ve created an environment where publishers need them more than they need publishers. And an environment where they can change algorithms at will to obliterate any content distributor that has a business model that doesn’t suit their interests.

Despite a massive effort by publishers there are very few paid online content models working. There are some – I have one myself – but these are usually in tightly held national niches. Google have turned content in to a commodity and if one source tries to charge they are in a position to enhance and support alternative, free models. The Age in Melbourne recently put a firewall on its newspaper – after a certain number of articles it blocks you and offers a subscription. But they can’t afford to block Google so all you have to do is search the headline of the article you want and it is free on Google. They’ve hedged their bets to keep Google users coming to their site.

Last year Google was the world’s most profitable company – and yet the world’s most profitable business model offers no payment to creators.

Amazon also looked like they may be a white knight. A massive bookshop stocking everything, no sale or return and opening the digital market up to writers – even allowing them to self publish on a reasonable basis. But as we’ve seen their business evolve their emphasis appears to be on the technology – and the need to sell Kindle. All their PR and marketing focuses on the rapid evolution of print to e-books and the great advantages of buying a Kindle – meanwhile they have dragged down the prices of e-books. An analysis of Amazon bestsellers show that very few books in their bestseller lists, sell at reasonable prices.

Last week only two of Amazon’s top twenty e-books were priced over $5 – and 16 of the twenty were either $1.99 or free. My company were recently approached by Amazon who offered us a great Christmas promotion – our title would be on their front page and in return we just had to give them a 90% discount off their price – yes that is right – 90% for Amazon – 10% to be shared between the author and publisher. That is how monopolists act. But it is the predatory pricing and massive discounts of print and e-books that have lowered the public perception of the value of books generally. Even the most dedicated NZ book buyer must struggle to buy their favourite novel from a NZ bookshop, when they have to pay $35–$40, when that same book is a $5.00 e-book or even a $10 tax free discounted print book from Amazon. Amazon don’t need to enter the Australian or New Zealand market – they are the biggest bookshop by a mile without ever paying sales tax, employing staff or supporting our local writing. For us, the latter is the most insidious change – Borders and Angus and Robertson sales were 40% Australian published books – now our biggest bookshop, Amazon, has an infinitesimally small number of Australian books being sold. We have entered a whole new era of cultural imperialism.

Apple entered the market following their amazing and transformative success in the music business with i-tunes. But it hasn’t taken long to realize they aren’t genuinely investing in i-books. They are unbelievably controlling and they clearly see more benefit in free apps – an amazing booming activity – than seriously supporting writers and publishers. For them the content is the means to an end – selling hardware – not a mean in its own right. They’ve offered us at Hardie Grant an even better deal than Amazon – they will put our key title on their front page this Christmas – as long as it is free! You have to hope it will then go in to the bestsellers chart and hopefully attract attention and sell for money later. But there is only one winner in that sort of deal.

Incidentally on i-tunes the music industry were told they were the problem – dinosaurs – if only they offered a good price and flexibility people wouldn’t pirate their copyright – well they still did that in i-tunes, and now Apple are struggling to compete with new models – notably Pandora and Spotify with their subscription services. This week I saw Tom Yorke of Radiohead come out and complain that for one million downloads of their most popular song, Pandora paid him $160. And Pandora have been given plenty of oxygen complaining that Copyright is inhibiting their business. The US Congress has been asked again to look at questions like territory and intend to look.

A year ago Congress took fright when Wikipedia, Facebook and others went on strike against what was legislation the whole house supported – they abandoned it – so it is worth Pandora making the case.

So these totally dominant global players are influencing behaviour and devaluing content for extremely aggressive commercial goals. And because they have proved transformative and cheap they have been given the ear of Governments worldwide.  Whilst we are and other content creators are seen as dinosaurs and people over pricing and protecting out of date vested interests – they are seen as enablers of the future.

So it seems to me we are in a world where the challenges to copyright are immense and growing and those who are looking to maintain commercially viable activities – either as a publisher or a writer – need to reassert our roles as the genuine source of good content and we desperately need to break the view that all we do is inhibit fair distribution of content.

Frankly it is a cruel joke to hold writers and publishers responsible for inhibiting access to content. That is writers who invest their careers in creating valuable content and publishers whose raison d’etre, and only income comes if they disseminate that content as far as possible are now accused by the digerati of deliberately blocking access. But it is the perception we all face.

And that perception brings with it a reality of reduced income for publishers and authors, reduced employment opportunities for journalists – in fact the Collecting Societies and Copyright Agency in particular are one of the few places that haven’t seen a sharp decline income for copyright owners – with some obvious exceptions like Spain and Canada. But even that is now under serious attack by legislators everywhere.

In Australia this backdrop was recognized as the time for Copyright Agency to stop acting like some interested bystander in a bilateral dispute and start taking an active role working with publishers and authors to protect the sector’s future and future incomes. We realized that we had to create genuine dialogue between publishers and authors. The process has led Copyright Agency to a position where we formally identified the need to actively enable meaningful engagement with the publishing and writing community. As a result we have entered in to an agreement with the dominant school’s publishers to create a text book portal on a subscription basis. We are investing in industry infrastructure to give the schools what they say they need. We’re trying to beat the cannibals.

It seems to me that these steps of working together and realizing our shared history and interests – particularly between publishers and authors – is essential in the sort of hostile environment we are facing. In Australia the book industry associations have been likened to a bunch of Medieval Craft Guilds – secretive, competitive and wanting the Government to resolve our disputes. We need to change. I know you are more collaborative here, but we need to be taking up the fight in a co-ordinated and public way.

We need to keep explaining the benefit and the equity copyright delivers no matter how hopeless it seems and no matter how noisy the opposition.

And I think there is now some reason to be optimistic – GAFA have blotted their copy books. I saw an estimate from the Australian Opposition this week that Google should have paid $500m tax last year – they paid under $10m. Similarly the arcane tax set-ups Apple has been using are under scrutiny and simply look immoral. Amazon seem to be even worse tax evaders and win the prize for creativity in the UK where they were given more than 6m pounds from a job creation scheme – the development was a success – 600 news warehouse jobs were established but it destroyed more than 10,000 jobs in bookshops. And then to rub salt in the British Government wounds Amazon paid around 1m pound company tax with a Leichtenstein dodge. Or I like the story that they ran a warehouse in Pennsylvania with so little heating and cooling that they needed to reach an agreement with the State authorities to have ambulances in the car park. I see you looking at putting sales tax on imported net purchases – surely this is a no brainer.

So our new goliath’s hubris is costing them some credibility and the onus is on us to spend time and money reminding governments and consumers that we aren’t the greedy monopolists, but a group that contributes massively to cultural and educational development of our relative nations.

So what should we do –

1 We have to support bookshops and keep building new outlets for books. I had a phone call with the new CEO of Random Penguin Marcus Dohle regarding Hardie Grant distribution, where he stressed how important the bookshops were to the future of publishing and thus how much Random would continue to invest in systems to help make bookshops profitable, so they can compete with the Amazon for options and service. I think he’s right – we may have a greatly reduced number of effective bookshops but we should work with the good ones to build a sustainable retail environment beyond the e-tailers.

2 We have to globalise – I guess I don’t need to say that here – Sunshine Books, Shortland, PQ Blackwell showed all of us the way many years back.

It doesn’t mean there isn’t a role for local culturally important fiction or children’s books, but these have become harder and harder as the bookshop numbers reduce and may well need to live on cultural subsidies in the way of most other highbrow cultural activity. Certainly the Australian Government suggested we might be better to argue for subsidy than create a faux industry plan or try to create copyright regimes that are highly protective.

3 Publishers need to offer fairly priced e-versions and quickly learn to use digital marketing strategies. I am not sure the e-book is going to sweep us away. I just had a fortnight in New York and did dozens of subway trips and undertook an e-book survey. Books were still winning – 10 to 1 – and of the e-users they were universally older men. Kids use their phones all the time, but they were still reading print books. There is a strong demand for e-books but isn’t simply generational and we’ll be wiped out when the current kids grow up. They are the Harry Potter generation or Twilight. We’ve just sold one million Billy B Brown books to 8–10 year olds in twelve months. SO our challenge is to sustain their interest and to give them things they’ll be proud to collect and have on their shelves.

I doubt it will include some of the average books – produced on shit paper, overhyped that were such a big part of our business for twenty or more years.

4 We have to offer real quality. In some ways our future may look a lot like the past. In the eighties and nineties, books became more ubiquitous, every mall had a Whitcoulls, Barnes and Noble, Angus and Robertson or a Waterstones and publishers could pump out big numbers of virtually everything they released. That’s over.

But we can offer well priced nicely crafted books and create an innovative range of digital editions – not just e-books. Subscription web sites, apps, free content supported by ads and affiliations can all work for publishing businesses that add new skill and change their culture.

But most of all – we need to fight back – we need to find ways to make sure digital arguments are subject to more rigorous reality checks and challenges in the future.

We need to highlight Amazon and their tax free, profitless business model.

We need to challenge Apple to respect content and not simply use it as a sales lure.

We need to keep the fight up to Google who say they do no evil.

But we all need as a community to keep arguing in every forum for a Copyright regime that encourages writers to write because they know publishers operate in an environment where that investment in the writers can be justified.

Sandy Grant, Copyright Agency Australia
18 July 2013