Book industry strategy group




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Table 4: Comparison of unit postal costs, Australia Post and Royal Mail




The restrictions on the parallel importation of books reduce competitiveness for Australian booksellers. As the Productivity Commission (2009) noted, Australian consumers can now effectively import books themselves as soon as they are released anywhere in the world, and can take advantage of different prices and format choices, as well as the GST-free status of books purchased online from abroad. However, booksellers are still constrained by these regulations.

The availability of ebooks is a critical issue, particularly in a country such as Australia, which has not been strongly represented in the existing global stores. To shore up their share of the local market, the major Australian book chains have built up their range of digital titles and diversified into selling ereaders capable of reading ebooks in various formats. Local online retailers are particularly concerned to boost their holdings of Australian titles to gain a point of difference from the omnipresent online global retailers. The range of Australian ebooks available has gradually widened as more locally published books are converted to electronic form.

Commercial uncertainties

Digital publishing, and ebooks in particular, have created significant uncertainties and concerns in commercial transactions. The commercial reality of the printed book market is simple: the book may be purchased from any source and ownership then rests with the purchaser. The owner of the printed book can then choose to lend that book to any number of persons, give away, resell or destroy the book.

The emergence of ebooks has raised concerns for authors and publishers, who fear the loss of income and threats to revenue streams. Both want to ensure that lower-priced digital versions of print books do not undermine or erode sales and royalties. The report Ebooks and public lending right in Canada (Whitney 2011) noted that authors report greater difficulties in negotiating royalty rates on ebooks than on print equivalents. Coupled with the fear of an overall decline in unit sales, a significant concern of authors is that in some instances royalties from ebook sales are lower than for print sales.

The potential ubiquity and permanence of ebook availability lies at the centre of may publishers’ concerns. This concern is firmly rooted in the knowledge that, because a perfect copy of the ebook can be made anywhere, the incentive to buy more than one copy disappears. The result of these concerns in a nascent ebook market is that authors are seeking different approaches when negotiating digital rights contracts, and publishers and distributors have developed a mind-boggling array of measures and controls to ensure that ebook transactions and use do not undermine their income.

Many consumers are unsure of their rights when they ‘purchase’ an ebook. This is because many of the rights associated with the printed book, such as resale or lending, are unavailable. For this and other reasons, consumers expect to pay a lower price if they cannot recover any of the investment made in an ebook through resale, as they would in the sale of a printed book.

The commercial transactions are significantly more complex, unclear and even uncertain when the purchaser or licensee is a library. Many publishers have yet to develop a satisfactory business model for their dealings with libraries. Recently, HarperCollins in the United States announced a model that would see their ebooks made available to libraries for 26 loans only. Their concern was that selling ebooks to libraries in perpetuity would undermine the emerging ebook ecosystem, hurt the growing ebook channel, place additional pressure on bricks-and-mortar bookstores and lead to a decrease in book sales and royalties paid to authors.

The Australian library system is experiencing the complexities of the decisions relating to the sale and use of ebooks, especially for trade books. Ebooks can be acquired and licensed in a variety of ways. However, The US-based company OverDrive, the premier global supplier of ebooks, supplies Australian public libraries. According to the OverDrive model:

  • The library must be a current subscriber to OverDrive. This requires paying OverDrive a once-off setup fee and an annual hosting fee. The library then purchases individual titles for its collection.

  • The library’s subscription allows it to lend the ebook to one customer at a time, for a fixed period of seven, 14 or 21 days. Items cannot be returned prior to their due date and cannot be loaned to the next customer until that period has lapsed.

  • At present, there is no limit on the total number of times that an ebook can be loaned; however, this may change as publishers begin to stipulate terms to distributors.

To maintain access to ebook files, the library service must maintain its subscription contract with OverDrive.

The Australian-based company Bolinda is an alternative supplier of e-audio books to Australian public libraries and includes many Australian titles. The US-based company 3M is attempting to break into the library ebook supply market; however, the monopoly held by OverDrive is presenting challenges for competing firms.

The agreement or agreements between the library and the distributor have flow-on effects on arrangements such as the Public Lending Rights (PLR) and Educational Lending Rights (ELR) schemes. The PLR and ELR schemes were intended to compensate authors and publishers for the potential loss of sales from their works being made available in public and educational libraries. A working scheme is in place in 29 countries, including Australia.

The PLR scheme was developed on a print-book model that is not immediately transferable to an ebook. Ebooks and public lending right in Canada suggests that, where annual payments are made to subscribe to ebooks, the rationale for compensating authors for lost royalties due to the ongoing presence of their books in libraries is no longer valid. However, many agreements are in place between libraries and distributors, publishers and distributors, and publishers and authors, all of which are based on different business models and do not easily replicate the model that was developed for print books. The Canadian review notes that changes in how content is created by authors, published and distributed by publishers and acquired and maintained by libraries may make the present approach untenable. However, a new business model for library ebooks, which addresses the legitimate concerns of all parties, has not yet emerged.

The issue is also a cause for concern in Europe. In the United Kingdom the debate centres on how the library user accesses the downloadable content: from within the library or remotely from the library’s website. The Publishers Association in the United Kingdom is concerned about the geographical reach of library membership, because the web technically allows anyone, anywhere in the world to be a member of a given library, who could therefore download material.

Agreement on the terms and conditions of sale, loans and use of ebooks will not be resolved until a business model that serves the needs of all has evolved.

Copyright and piracy

The Copyright Act protects the original expression of ideas in creative and intellectual activities, including literary works. Copyright is legally separated from physical property rights, which means that a person who owns a physical copy of a book does not own the copyright material within the book. Copyright protection applies automatically to the creators of original work, and there is no requirement to register a copyright work for it to be protected.

The Act grants copyright holders a number of exclusive rights, including:

  • the ‘reproduction’ right or right to make multiple copies of a work

  • the ‘publication’ right or right to make the work first available for sale.

These rights make copying and selling of copyright material without the permission of the author or publisher an infringement under the Act except in some limited circumstances. The right to control who may use their work gives authors and publishers the ability to trade their intellectual property. In the case of books, publishers seek permission to use an author’s creative work in exchange for payment. Authors may also allow their work to be published or reproduced in other forms, including ebooks.

The electronic environment has created many problems relating to the access and use of copyright material and is considered a major threat to the incomes of authors and publishers. Participants in the workshops conducted by the Book Industry Strategy Group, as well as contributors to the public submissions, raise a number of concerns. These concerns reflected both sides of the copyright and access debate: on the one hand some felt that copyright was restricting access to use of material, while others felt that a tightening of the copyright rules was appropriate.

The industry broadly accepts that digital delivery presents problems for capturing copyright royalties. However, there is much debate about the most effective way to manage piracy of digital works. Some believe that regulation should be tightened to enable prosecution of those that illegally copy digital works; others feel that piracy and viral marketing are an opportunity for attaining profile and should be exploited. Still others believe that a systems-based approach to monitoring use and capturing royalty payments should be employed. Within the educational sector, all agree that licensing arrangements must be revised to capture the use of digital objects. However, how the use of this material should be remunerated is the subject of considerable debate between government policy makers and the book publishing industry.

Systems for managing territoriality are also central to the digital delivery debate. The global nature of the internet means that it is difficult to regulate online sales of ebooks. The relevance of regulatory frameworks, such as parallel importation restrictions (PIR), which currently do not cover digital works, is also being scrutinised by industry operators.

Many consumers believe that digital information should be provided free of charge – particularly when accessed from the internet. This attitude appears to be particularly prevalent among younger consumers and presents a significant threat for the future viability of the book industry. Educating consumers on the illegitimacy of this approach before it becomes further entrenched as an expectation is an important component of creating a sustainable balance between the needs of creators and users.

4 Book industry SWOT analysis

A SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and threats for a particular activity. It involves specifying the objective of the activity and identifying the internal and external factors that are favourable and unfavourable to achieve that objective. SWOT stands for:

  • Strengths: characteristics of the activity that give it an advantage over others in the industry

  • Weaknesses: characteristics that place the activity at a disadvantage relative to others

  • Opportunities: external chances to advance the activity within the operating environment

  • Threats: external elements in the environment that could cause trouble for the activity.

Table 5 presents a SWOT analysis of the book industry in Australia. This analysis has informed the transformation strategy outlined in section 5.

Table 5: Book industry SWOT analysis




STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

AUTHORS

> Creativity

> Current copyright legislation

> Number of well-known Australian authors domestically

> Growing international recognition of the quality of Australian educational and general authors

> Agent success in promoting Australian authors both domestically and internationally

> Support from Australian-based publishers

> Low and potential decline in remuneration

> Lack of digital skills and strategy and digital business model

> Weak global presence

> Lack of good sector-specific data


> Emergence of Australian culture in international arena

> Access to wider global market via online

> Self-publishing to achieve higher returns

> Global promotion of Australian works

> Increased leverage to negotiate with publishers


> Digital copyright protection

> Increased competition within global market

> Small share and profile in global marketplace

> Loss of income through piracy

> Increased competition from imported content

> Challenge to existing business models in the transition to the digital environment


PUBLISHERS

> PIR conditions, which protect investment in Australian publishing

> Vibrant independent publishing sector

> Multinational parent company support for larger Australian entities

> Strong skills in the craft of publishing

> Trend in increased efficiency and profitability

> Good publisher-specific data collected by the Australian Publishers Association


> Distribution inefficiencies

> Absence of digital distribution infrastructure

> No metadata standardisation

> Lack of digital skills and strategy

> Lack of international sales and marketing expertise

> Lack of price responsiveness


> Export opportunities

> Infiltration of emerging international markets, particularly for educational materials

> Diversification of delivery formats

> Global supply barriers removed for digital formats

> Development of a digital delivery system and its accompanying set of standards

> Innovations in customisation of products, e.g. educational, interactivity

> Rationalisation and improvement in distribution of print books

> Loss of territorial rights

> Loss of income through piracy

> Self-publishing opportunities for authors

> Change in supply–demand balance with more power for consumers

> Transitional issues facing retailers


PRINTERS

> Proximity to domestic market

> Speed of turnaround of material

> Flexibility in providing products

> Investment and innovation in new technologies


> Geographic spread and small market size

> High capital costs

> High input costs, e.g. labour, paper

> Fluctuations in demand resulting under-utilisation

> Absence of book printing data


> Print on demand

> Environmentally sustainable product

> Investment in ink-jet technologies, e.g., enables smaller print runs

> Consolidation of printing firms to gain efficiencies

> Ebooks

> Cheaper overseas printing

> Multinational firms entering the Australian market

> Generational change resulting in increased use of digital products

> Lack of skills in digital technologies

BOOKSELLERS

> Personalised customer base

> Stronger presence of independent bookshops than other countries

> Excellent data on sales of print books collected at point of sale

> Capacity to create and maintain community connection

> Lack of digital infrastructure

> PIR conditions, which inhibit competitiveness of Australian booksellers

> High overheads for bricks-and-mortar bookshops

> Speed and availability to market

> Poor industry-specific data

> Lack of online book sales data for print and ebooks


> Growing uptake of digital devices with corresponding growth in sales of digital material

> Consumer purchasing power

> Opportunity to value-add and build/increase customer loyalty

> Investment/innovation to build online presence

> Print on demand

> National Broadband Network; ease and speed of transactions

> Development of niche products

> Competitive advantage of overseas based online retailers, re access, price, taxation, availability, postage, exchange rate

> Large multinational retailers

> Discount department stores – cannibalisation via ability to purchase
at large discount then sell cheaper
than bookshops




Part 2

Transforming the industry

5 Industry transformation strategy

A prosperous Australian book industry is central to the development and vitality of Australian culture and creativity. The book, in all its forms, has a distinctive and important role in telling Australian stories and defining what it means to be Australian.

However, the book industry and its markets are at a crucial point: rapid change is occurring in every part of the supply chain. The true shape of the future cannot be fully known; however, it is critical at this point in its evolution that the industry establishes a strategy for ensuring a strong and viable future. Figure 22 illustrates a pathway for transforming the Australian industry by taking advantage of its strengths and positioning itself to counter the challenges it currently faces.

Competitive advantages

In assessing the Australian industry’s competitive advantages, it is important to look across the supply chain and to recognise that what gives one sector an advantage may be seen as an impediment by another. The diverse nature of the supply chain makes it challenging to find the right balance between competing priorities.

A good example of this is investment protection through parallel importation restrictions (PIRs). For many booksellers, the PIRs present a barrier to competitive commerce because they cannot source cheaper books from overseas suppliers. However, authors, publishers and printers view the PIRs as a safeguard for encouraging investment. When we examine the net benefit to the whole supply chain, we must consider both positions and find suitable compromises to enable the industry as a whole to flourish.

Achieving effective collaboration across all sectors of the industry is paramount to the success of the Australian industry. While the digital environment provides an opportunity to reshape the traditional supply chain, all sectors will benefit from a combined approach to evolving the business environment to strengthen the appeal of Australian books to domestic and international consumers.

By maximising advantages such as Australia’s relatively low publishing costs, good author reputation and strong independent book sector, the industry can establish a place in the global market. This list is by no means conclusive, and individual operators will identify innovative ways to triumph over competitors. The key is to ensure a focus on our strengths when assessing the viability of opportunities.

Opportunities

The changes taking place in global book markets bring both challenges and opportunities for the Australian book industry. The opportunities that require commitment from the industry as a whole are the ones likely to provide the greatest benefit for Australian books and the Australian economy. While digitisation presents options for Australian operators to work directly with overseas firms, the strengthening of our domestic supply chain provides the foundation for export expansion into established and emerging overseas markets.

However, the capacity of the industry to take advantage of opportunities is largely dependent on the underpinning hard and soft infrastructure that supports new initiatives. Key examples include the urgent need for digital warehousing for online ordering and supply of ebooks and systems to facilitate consistency of metadata standards. Booksellers cannot optimise opportunities to promote and sell Australian works if the systems to connect them with publishers and consumers do not exist. Achieving outcomes that will strengthen the global position of Australian books requires innovation, investment and collaboration across the sector.

Actions

The BISG recommendations identify a suite of actions that will strengthen the Australian industry’s position and its capacity to compete globally. Priority areas include improving efficiency of the supply chain, investing in industry infrastructure and skills development – particularly in relation to the digital environment – recognising and rewarding content creators and increasing the export market for Australian books. These actions, however, are not an end in themselves, but represent the beginning of a process that will see the traditional supply chain evolve into a more adaptable and resilient structure.

A key challenge for the book industry is to implement strategies that improve efficiency and facilitate collaboration across the supply chain, without hindering the capacity of individual sectors to take advantage of opportunities presented by the digital environment.

The BISG report looked specifically at how industry and government can work together to address the emerging digital environment for books. However, beyond the BISG recommendations for government, the industry can do much to innovate and improve its competitiveness and global profile. The pace of change is accelerating, and if the Australian industry is to thrive in a global market, this must be an ongoing process.

Industry outcomes

Over the past four decades, Australia has established a thriving and independent book industry. However, as new technologies change the operating environment for book production and sales, the ability of Australian companies to remain competitive is increasingly under challenge. Industry and government must commit to the development and implementation of a strategic approach to industry development to achieve reforms.

Realising the full potential of the industry will require commitment to change. Among other adjustments, this will mean the development and adoption of new business models that complement, rather than resist, new modes of supply and production, including those that engage with consumers and recognise their ability to influence supply. To be globally competitive, the commercial environment must empower Australian firms to meet the increasing demands from consumers related to efficiency, availability, quality and price. However, to be sustainable, consumer needs must be balanced by industry profitability and incentives for content creators. The outcomes being sought through the BISG process are about creating a balanced environment that encourages creativity, attracts investment, and improves business conditions for all parts of the book supply chain.

The future

Like many creative industries, the book industry has long relied on the commitment of its participants, despite the low remuneration and return on investment that have traditionally been part of the sector’s operations. The new global environment created through online commerce is irrevocably altering what it means to be viable in this industry. Those who thrive in this new world will do so through improved efficiency and innovation. This environment will favour big corporations that can achieve economies of scale. But it is also an environment that will provide opportunity for the development of niche markets and personalised customer service and product.

What this will mean for Australian books is yet to be fully determined, but the BISG process has provided an opportunity for the industry to influence its own outcomes and to create a future that is both prosperous and sustainable in the long term.

A prosperous, sustainable future

If the BISG recommendations are accepted and implemented, we envisage that by 2020 the Australian book industry will be a profitable, competitive industry playing a significant role in the global English-language market. Internationally, the Australian book industry will be recognised as a producer of quality books at the right price. Australia’s book industry will produce books the world wants – the content, the product, the pricing and the speed to market will be attractive and competitive.

In the local economy, the book industry will be a leader in innovation, will have adapted to the revolution in reading habits and will be able to offer consumers a diversity of experiences: offline and online, from Australian physical retailers and e-retailers.

In education, the intellectual skill of our academic and school authors, and the structural and technological skill of publishers, will have created a pre-eminent role for our educational materials. In the 20th century we built markets in the United States, the United Kingdom and New Zealand, but as technology has reduced cost and improved speed to market, in 2020 our published work will appear across the region and the world.

This change will have been stimulated by investment in the education revolution, which will have allowed the enhanced commitment to teaching to flow to the production of quality works that will have brought much to the national educational experience.

Australian publishers and retailers will have brought the world of books to Australian consumers. The range of available titles and ease of purchase will be the result of best practice customer service attitudes. The Australian book printing industry will have adapted to the new markets and be valued by the Australian public as a major employer and carbon saver and by the book supply chain as a reliable and quick-to-market book source.

The Australian Bureau of Statistics annual collection of data, implemented in 2012, will reveal that Australian authors in 2020 earned an annual income double that of the previously reported figure of $15,000 a year. The copyright regulatory framework will recognise and value originality and reward creativity. The Australian ethos of a fair go will extend to the knowledge economy, and the public will recognise that the creators and distributors of content are entitled to a reasonable financial reward for their endeavours. The intellectual property of Australian authors will be recognised through an equitable royalty system that captures and values both print and ebook sales. Australian authors will be promoted nationally and internationally with support from the Australian Government. The international promotion of Australian writers will have proven to be a cost-effective form of soft diplomacy, enhancing Australia’s image abroad and promoting Australia’s talents.

Australian authors and books will have a particular resonance with Australian readers. Meeting readers’ cultural appetite will be a priority for the local book industry. The promotion of Australian writing to Australian consumers will deliver income to Australian writers and employment to Australian printers, publishers and retailers.

The book industry-wide campaign for consumers to buy Australian books, funded under the rebranded Books Alive program, now known as Get Reading!, will have been successful. The consumers’ commitment to the Australian book will have been matched by excellent service from publishers and retailers who have recognised their mutual interdependence. The need for the whole industry to be profitable will have ensured that each sector is firmly focused on speed of delivery, understanding the market, and competitive pricing.

The BISG recommendations respond to the terms of reference set by the Minister and seek to provide reforms that strengthen the Australian book industry in a global digital marketplace.

The recommendations are divided into six broad themes:

> integrating the book supply chain

> competing effectively in the global book market

> improving supply chain efficiencies

> rewarding and protecting creativity

> supporting the business environment

> supporting Australian culture.


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