COMMONWEALTH OF AUSTRALIA
SENATE Official Committee Hansard
LEGAL AND CONSTITUTIONAL LEGISLATION COMMITTEE
Reference: Copyright Amendment Bill (No. 2) 1997
WEDNESDAY, 4 FEBRUARY 1998
CANBERRA
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SENATE WEDNESDAY, 4 FEBRUARY 1998
LEGAL AND CONSTITUTIONAL LEGISLATION COMMITTEE
Members: Senator Abetz (Chair), Senator McKiernan (Deputy Chair), Senators Bolkus, Coonan, Murray and O’Chee Participating members: Senators Bartlett, Brown, Bob Collins, Colston, Cooney, Ferris, Gibbs, Harradine, Lundy, Mackay, Margetts, McGauran, Murphy and Neal Senators in attendance: Senators Abetz, Bartlett, Cooney and McKiernan
Matter referred by the Senate for inquiry into and report on: Copyright Amendment Bill (No.2) 1997
WITNESSES
BLUNDY, Mr Brett, Managing Director, Sanity Music, 36 Ashford Avenue, Milperra, New South Wales 2214 ...... 73
CORBETT, Mr Roger, Managing Director, Retail, Woolworths Ltd, Level 5, 540 George Street, Sydney, New South Wales ...... 73
ELDER, Mr Bruce Douglas, 11 Pacific Street, Kiama, New South Wales 2533 . . . 74
COTTLE, Mr Brett, Chief Executive, Australasian Performing Rights Association, 16 Atchison Street, St Leonards, New South Wales ...... 79
FAULKNER, Mr David Jonathan, Member, Australasian Performing Rights Association, 16 Atchison Street, St Leonards, New South Wales ...... 79
McCUSKER, Mr Eric Maltby, Director, Australasian Performing Rights Association, 16 Atchison Street, St Leonards, New South Wales ...... 79
BAULCH, Ms Elizabeth Mary, Executive Officer, Australian Copyright Council, 3/245 Chalmers Street, Redfern, New South Wales 2016 ...... 89
CASWELL, Mr David Allan, Member, Media, Entertainment and Arts Alliance, Cnr Chalmers and Redfern Streets, Redfern, New South Wales ...... 97
HRYCE, Ms Michel Maree, New South Wales Branch Secretary, Media, Entertainment and Arts Alliance, 245 Chalmers Street, Redfern, New South Wales ...... 97 ROWE, Mr Norman John, AM, Member, Media, Entertainment and Arts Alliance, Cnr Chalmers and Redfern Streets, Redfern, New South Wales ...... 97
FABINYI, Mr Jeremy Rohan, Chief Executive, Australian Music Publishers Association Ltd and Australian Mechanical Copyright Owners Society Ltd, 6-12 Atchison Street, St Leonards, New South Wales 2065 ...... 111
RICCOBONO, Ms Fifa, Deputy Chair, Australian Music Publishers Association Ltd and Australian Mechanical Copyright Owners Society Ltd, and General Manager, J. Albert and Son Pty Ltd, 6-12 Atchison Street, St Leonards, New South Wales 2065 ...... 111
SPECK, Mr Jorg Michael, Manager, Investigations, Music Industry Piracy Investigat- ions, 8th Floor, 263 Clarence Street, Sydney, New South Wales ...... 125 Wednesday, 4 February 1998 SENATE—Legislation L&C 73
Committee met at 8.46 a.m. CHAIR—At the meeting of the Senate Legal and Constitutional Legislation Committee on 2 December 1997, the Selection of Bills Committee recommended that Copyright Amendment Bill (No. 2) 1997 be referred to this committee for inquiry and report by 23 March 1998. The Senate agreed with this recommendation. The committee has so far received 172 submissions on the bill and held a public hearing yesterday in Canberra. Further public hearings have been scheduled throughout this month and March. A detailed list of witnesses for today’s hearing has been circulated and is available from the secretariat. Lists for later hearings will be prepared and circulated as required. It should be noted that these proceedings and submissions given as evidence are protected by parliamentary privilege. It should also be noted that the committee prefers all evidence to be given in public. However, should a witness at any stage wish to give evidence or a part of their evidence in camera or in private, they may make an application to do so and the committee will consider that request. BLUNDY, Mr Brett, Managing Director, Sanity Music, 36 Ashford Avenue, Milperra, New South Wales 2214 CORBETT, Mr Roger, Managing Director, Retail, Woolworths Ltd, Level 5, 540 George Street, Sydney, New South Wales CHAIR—The committee has received submissions from both of you which you have asked be kept confidential for commercial reasons. The committee has granted this request, bearing in mind the committee’s preference that, wherever possible, evidence be given in public. I now invite you to make any opening remarks you may wish to prior to your application to be heard in private or in camera. If there are no comments that you wish to put on the public record, then I suggest that we deal with your request to move into private session. Mr Corbett—I am happy to put something on the public record. Australia has trade practices legislation which ensures that the Australian marketplace is competitive, and the Australian retail market would be amongst the most competitive in the world. There are areas where, because of the law associated with the matters that we are talking about this morning, the Australian public pays significantly more. Even taking into account currency adjustments, sales tax and other variables, the Australian public pays very much more than their counterparts around the world for equivalent merchandise. We would strongly submit that, if the trade practices legislation applies to make Australia a competitive marketplace, why are there laws and rules that prevent that competitive marketplace being available to the Australian public? The area of CD music is, I think, one of the dramatic examples of that differential. Mr Blundy—Except for thanking you for the opportunity to appear, I would like to make my statements and take any questions in private. CHAIR—I understand that. The committee has had a request for evidence to be taken in camera. Are there any questions about that request? Senator McKIERNAN—I understand that Mr Alan Jones, a radio commentator on one of the commercial stations in Sydney, made reference in his program this morning to the fact that Woolworths would be saying certain things before the committee. There is mention in the Australian Financial Review that Woolworths will be appearing before this committee this morning. In regard to that, what is the point of going in camera and making confidential submissions if the submissions you have already made to the committee may be out in the public arena already? Is that the case? Are they in the public arena?
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Mr Corbett—As they refer to Woolworths, I will respond to that. The answer is that the submissions that I have made on behalf of Woolworths to this committee are in confidence. Firstly, I do not think the article actually reveals what is in those letters. Secondly, I do not know where Mr Jones gets his information from, but it certainly was not from any source within Woolworths, so therefore it must be a high level of conjecture on Mr Jones’s part. Senator COONEY—I am only a participating member of this particular committee. CHAIR—You are a distinguished former chair of this committee, Senator Cooney. Senator COONEY—Thank you. I will just say that I prefer that evidence not be given in camera. We are going to try to come to some conclusion about this legislation, and if evidence is given in camera the inference is that we should not use it. I can understand the position you are taking in that you want to inform the committee and help the committee by giving it a background briefing, but there are two things about that. Firstly, you might give us some quite vital evidence that we cannot use directly and, secondly, even though the evidence is taken in camera, the committee is able—and I think this will be confirmed by the chair—to use that evidence if it is so inclined. We might take the evidence in camera, giving you the impression that it will be treated confidentially, but when the committee looks at it, it might well say, ‘Look, our responsibility really is to make this public.’ CHAIR—I was going to explain that. Senator COONEY—Good. For those two reasons, I think it is not a good idea to take evidence in camera, even though there is provision for it. Mr Blundy—Mr Chairman, I am at your mercy. I am here to do the best I can for your information, but the industry does have a monopoly—there is only one place that I can source individual titles. That is sometimes a dangerous situation for a retailer to be in. Some of the things that I might say might not be agreed with by the supply side of the industry. However, I have requested it. CHAIR—The members of the committee have agreed to let you give in camera evidence. Evidence was then taken in camera, but later resumed in public— [9.32 a.m.] ELDER, Mr Bruce Douglas, 11 Pacific Street, Kiama, New South Wales 2533 CHAIR—Welcome, Mr Elder. Would you like to make an opening statement? Mr Elder—I am a senior music critic for the Sydney Morning Herald and have been a music critic in both Australia and the UK for the last 25 years. The reason that I come before you is basically to present a series of viewpoints that will perhaps run counter to those being presented by the lobby groups for the copyright council, composers, the record industry, et cetera. Basically, I want to try to do two things. I want to speak very briefly about my views on what needs to be done and then allow the committee to ask me as many questions as possible. Apart from being a record reviewer, I also lecture at university and in business organisations about change. It seems to me that one of the fundamental problems that we are dealing with at the moment is the record industry’s inability to accept that there has been such a dramatic change over the last five years that really everything has to go back to zero; everything fundamentally has to start again.
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This is widely accepted as a proposition as far as change is concerned. I suppose the best example of it is the Swiss watch industry. When digital watches came in that industry suddenly disappeared out the back door. As far as the record industry in Australia is concerned, it has adopted, I believe, a policy that says that parallel importing is somehow or other an evil that should not under any circumstances be sustained. They have argued this really on a series of hypothetical cases. The biggest single problem that I think the committee is going to face is that what you are dealing with is not so much hard-edged reality but people presenting to you a worst case scenario or a best case scenario. I think that what will happen is that over and over again you will get presented with a worst case scenario. This worst case scenario is basically: what would happen if a record company decided to try to launch an Australian act in the Philippines or in Afghanistan and for some reason the local area produced 10,000 copies of that act, let us say, Crowded House, and only two of them sold in Afghanistan? If parallel importing were allowed would we not experience the arrival of 9,998 copies from Afghanistan, all of which would be sold for a dollar in Australia? That is a purely hypothetical situation. It is not a reality. The truth of the matter is that we do not know what is actually going to happen if we get rid of parallel importing. We have no idea whatsoever. Those sorts of negative scenarios are there, but I do not think that they are realistic. The positive scenario is: if we open the market up completely, then almost for sure the price of records will decline fairly dramatically. If this occurs and the laws of supply and demand operate, then we can reasonably assume that teenagers who, in the last decade, have chosen a lot of other alternatives will return to the record industry in a major kind of way and buy very substantial numbers of records, albeit ones that have been imported. The only other thing that I want to say is that the problem should not be a problem for the government or for the consumer. This essentially is a problem between musicians, their management, the various organisations who represent them and the large multinational companies, most of whom they are signed to. As a writer, I receive a smaller royalty rate when my books are published overseas. We live now in a global economy. All I am saying is that musicians should go back to their record companies and they should say to their record companies, ‘I want a standard royalty rate throughout the world. I don’t want to receive favourable treatment in Australia and receive virtually nothing for what is released overseas, even though what is being released overseas is being released by the same multinational company.’ That takes me back to the beginning. This is a change that the record companies and the musicians need to recognise because we live in a global market. It is something that I do not believe that the consumer should be paying for and I certainly do not believe the government has really got anything particularly to contribute to that process. Senator McKIERNAN—It seems to me that your presentation this morning, Mr Elder, has more to do with the royalties that artists receive rather than what consumers pay for the end product in the stores throughout Australia. Would I be right in that assertion? Mr Elder—Up to a point. All I was trying to do was present it in that kind of light. If we remove parallel importing it seems to me that what the person actually pays in the store will almost certainly come down. I know that there is some evidence which suggests that this will not actually happen. There can be a certain amount of sophistry in attempting to prove that. If records are coming into the country very cheaply, then presumably the retailers will be
LEGAL AND CONSTITUTIONAL L&C 76 SENATE—Legislation Wednesday, 4 February 1998 trying to sell them more cheaply. As far as royalty rates are concerned, I was just raising that because I think it is an issue of some concern. Senator McKIERNAN—In one of the articles you copied for the committee you use the instance of Midnight Oil where a $3 royalty would be payable from a sale within Australia where that royalty decreases to 75c if it is sold overseas. It would seem to me that it is a very useful tool available to retailers to further reduce the price of CDs for sale to the Australian consumer if they could reduce that overhead by that degree. It would be an enormous incentive on its own to source CDs from overseas, would it not? Mr Elder—I think that you will experience an enormous amount of evidence, particularly from the larger retailers, that will suggest that that is precisely what they want to do. Large organisations like the HMV group, the Brashs group—what I sometimes cynically refer to as the whitegoods industry—which usually only keep maybe the top 20, 30 or 50 albums, would be very eager to say, ‘Well, Madonna is No. 1 this week. Let’s not buy it from the local record company. Let’s ship in 10,000 copies from the Philippines.’ That is the most obvious thing. Senator McKIERNAN—Why would you bother? Yesterday it was the Spice Girls. Mr Elder—But you see the point. If there is a large demand for a CD, a large organisation can buy in very substantial quantities of it. It would not operate for a small retailer, and it is likely that it would probably produce a fairly negative effect for small retailers. The small retailer is not going to go through the rigmarole of, say, importing 10, 15 or 20 copies, but when you are an organisation like Brashs it will be very much within their interests to say, ‘Oh good. This is a No. 1 album in America. It is probably going to be a No. 1 in Australia. Let’s import 10,000 copies.’ And doing that, I would think that, behaving as those kinds of organisations do, they will probably run advertising campaigns telling everybody that the new Madonna CD which you buy in your record shop for $29.95 is now available at Brashs for $7.95. Senator McKIERNAN—The argument is used that the volume of imports to Australia is not going to increase on passage of this bill. Opponents on one side of the argument say that the distributors here in Australia will reduce their price accordingly and, therefore, the CDs will continue to be brought from the Australian producers. We are told that 95 per cent of those CDs sold in Australia are currently produced in Australia. When you take that royalty argument on top of the earlier arguments about tax, about the distributors’ margin and so forth, it seems to me that it is going to be very difficult to continue to source CDs from within Australia. Mr Elder—As I said in my opening remarks, this is going to be one of the eternal problems that this committee is going to have to deal with. For the moment we deal with hypotheticals. We simply do not know the answers to those kinds of questions. I think that people can sit here and say, ‘Ninety-five per cent of CDs will continue to be manufactured and distributed in Australia by Australian organisations,’ and somebody can put up an equally plausible scenario saying, ‘It will absolutely emasculate the industry; there will only be five per cent. We will be buying everything from Taiwan and the Philippines.’ We just do not know. One of the points that I feel is very important the committee register is that these hypothetical scenarios, at this stage, in a way have to be discarded because we do not know what those outcomes will be. Senator COONEY—It seems to me that what you are saying is, ‘We don’t know; therefore we should change.’ Why shouldn’t the argument be, ‘Look, we ought to know before we do change.’
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Mr Elder—That is a fair point. I think one of the central problems here is that in the next three to five years—and I think I can say that I do know this—the Internet will grow exponentially. Already there is a pile of evidence that people are individually purchasing CDs, mainly from an organisation called CD Now in the United States, although whether they are continuing to do it with a change in the exchange rate might be an interesting point. What we can say is that we are now dealing with a global economy. That global economy is a reality; it is not some kind of fiction. If the record industry in Australia is somehow or other protected from the ruthlessness of that global economy, then the industry will be living in a fool’s paradise and, sooner or later, it will have to deal with it. It may well find that it ends up having to deal with it simply because, as vast numbers of people get on the Internet and the speed with which they start purchasing records from overseas becomes a reality, they will simply stop purchasing from their local shop. Jon Casimir, who was to have been here today—unfortunately, his wife is ill—can give you examples of ordering CDs from CD Now in the United States on a Thursday and having them delivered to his house the following Tuesday. Senator COONEY—I do not want to interrupt, but I have one other question, if you have time. Can you develop that by further written submission? You have come along and made a most convincing argument that we ought to change. Later today we will get some other people who are just as convincing and we will swing back. Copyright protects intellectual property. If you look at the ability of Australia to make a lot out of intellectual property, Australia does not compare well with overseas, as far as I can see. We have had evidence put forward—a lot of it is opinion evidence, the same as yours—which says the present system has produced a lot of artists. I do not need to go through that because you know the arguments. I must confess that we are relying on opinion evidence and very impressive witnesses. There is an inclination, at least on my part, to say, ‘Look, the system has produced these artists.’ It would be a tragedy, I think, for Australia’s cultural standing, for its own sense of identity—you would know all these arguments, so there is no need for me to develop them—if that were to disappear. On the evidence that has come up so far, I must confess I am declined to say that, until there is a lot more material that indicates we can preserve the present situation where we have a lot of great artists who vindicate the Australian spirit and sense of identity, we should not change. Could you give us some comments on that issue, either now or later on? Mr Elder—I will make this brief because I know you are running behind time. There are a number of things. Firstly, when the Sunday program did a report on the issue of parallel importing, the lawyer from Victoria made the very simple point which is absolutely unambiguously correct that, if he walked into any record company tomorrow with a monstrously successful act, they would be beating down his door to try to sign it. Of all the organisations and industries that I have worked in over the years—and I have worked in a large number because I work as a training officer—I do not think I have ever seen anywhere where the principle of laissez-faire economics works as aggressively as it does in the record industry. If you are good, you succeed; if you are bad, you do not succeed. The most recent figure that I have, which is very old and is not from Australia, is that in the UK in the 1970s you only needed a five per cent success rate on singles to end up with a balance sheet that was in the black, that is, if one in 20 singles released became a hit, then you were successful. Those factors have changed considerably, but that is a very good example of laissez-faire economics.
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I do not believe that any decision, whether it is positive or negative, that is made by this committee will fundamentally alter the proposition that there will always be young people who want to be musicians. There will always be entrepreneurs out there who are keen to sign them up and try to sell them to the rest of the world. Whether you decide to embrace parallel importing or not to embrace parallel importing, the record industry will still continue because it is a creative activity. It is a bit like saying, ‘If we change the ball game people will stop making art.’ They will not, and they will not stop making music. I see it as then becoming a decision as to who you are fundamentally concerned about, and my argument for parallel importing is the absolute primacy of the consumer in this particular instance. The consumer should have the right to buy as cheaply as they possibly can and from wherever they can. What I really also am saying— Senator COONEY—Why do you say that? CHAIR—Can we wind up? Ask that question, but after that one we should wind up. Senator COONEY—Could you give us an answer? Mr Elder—Absolutely not a problem. My only problem was I was far too busy before. Senator COONEY—If you cannot, do not, but it would be good if you could. CHAIR—Senator Bartlett, do you have any questions? Senator BARTLETT—I will just ask one question which goes to the heart, I guess, of what you are talking about—the primacy of the consumer. Obviously they are important, but I am fairly concerned—when I am looking at all the pros and cons of this issue—about the impact on the artist, the performer and writers, et cetera, who tend to be at the bottom of the food chain somewhat in the whole industry. They are obviously pretty central to it all, given that they actually produce the stuff in the first place. Assuming that prices do come down, and that is obviously a benefit for the consumer, but if that happens at the cost of lower income or worse conditions for performers—and there is a similar parallel to wage rates or other workers’ conditions if the price of cheaper goods means worse conditions for your worker or artist—is that such a good thing? Mr Elder—I guess there are really two simple answers to that. One is that if the price of the goods comes down and the sales increase, then the rewards for the musician could in fact be greater. Better to make 1c and sell a million copies than to make $5 and sell one copy. That really lies at the heart of that particular proposition, and that is something we cannot prove. We just do not know, if CDs suddenly tomorrow dropped to $19.95, whether the increase in sales would be doubled, trebled, or whether there would not be any increase in sales at all. Senator BARTLETT—Just touching on something I think you said earlier on about artists trying to get together or get a common royalty rate around the globe to remove some of that problem of getting less payment for something that is sourced from another country—which is moving into another hypothetical, I guess—how probable is that? How achievable is that? Mr Elder—People in the record industry say, ‘No, it is not going to happen’, but, for God’s sake, it is a relationship between a musician and a company, and 90 per cent of the world’s record industry is now controlled by five companies. It really is simply an agreement between the multinationals and the musicians. If you have an immensely talented musician who simply says, ‘I want X rate regardless of whether you are selling it in Thailand, the United States or wherever’, then that should be perfectly feasible. I know, and I have heard from the people sitting behind me, numerous arguments against this particular proposition, but it seems to me
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 79 that that is a relationship between the manager, the musician and the record company. I am not sure that in a global economy governments really are going to have much impact on that anyway. CHAIR—Mr Elder, thank you very much. [9.55 a.m.] COTTLE, Mr Brett, Chief Executive, Australasian Performing Rights Association, 16 Atchison Street, St Leonards, New South Wales FAULKNER, Mr David Jonathan, Member, Australasian Performing Rights Association, 16 Atchison Street, St Leonards, New South Wales McCUSKER, Mr Eric Maltby, Director, Australasian Performing Rights Association, 16 Atchison Street, St Leonards, New South Wales CHAIR—Welcome. Do you have anything to add to the capacity in which you are appearing before the committee? Mr McCusker—I am a songwriter, artist, composer and musician. Mr Faulkner—I am a writer. CHAIR—We have received APRA’s submission, which is No. 145, as well as a letter from Mr McCusker, which is submission No. 133. Would you like to make an opening statement? Mr Cottle—I would like to speak to the submission from APRA, and I think Mr McCusker would also like to speak to his individual submission. You will have seen from our written submission that the perspective that we bring is that of the songwriter or composer. The reason for that is that the bill purports to remove not only the parallel importation rights in sound recordings but also the parallel importation rights in underlying musical works. The creators of those underlying musical works and the first owners of copyright in those works are songwriters. Without the song there is no CD. As I have mentioned in our submission, APRA itself is not involved in the exercise of the mechanical reproduction right or the importation right, but it does represent in fairly broad terms the interests of more than 20,000 songwriters and composers throughout Australia. APRA operates an interactive Web site for its members and is constantly in contact with many thousands of those members through seminars, workshops and get-togethers around the country. It is absolutely plain to me that no issue has aroused quite the passion, frustration or anger as this bill amongst songwriters throughout this country. Before talking about the impact of the bill on songwriters and composers, I want to bring you to the two concluding comments in our written submission. I want to deal firstly with the second of those concluding comments, which are on page 5 of our submission. What I have said is that if the bill is enacted there will be no less than three discrete regimes of treatment of importation under the Copyright Act: one for books, one for recorded music, and one for other forms of intellectual property, including software. There seems to be a prevailing philosophy running through those who support the contents of the bill that the existing importation rights are some form of special treatment or special subsidy for the music industry in this country. Nothing could be further from the truth. This is a right which is granted in relation to all forms of copyright material. It is a right which is granted in relation to films. It is granted in relation to software. It is granted in relation to all forms of literature, including books and printed materials. It is granted in relation to videos. It is not a special subsidy for the music industry at all. It is considered
LEGAL AND CONSTITUTIONAL L&C 80 SENATE—Legislation Wednesday, 4 February 1998 to be a core right in relation to intellectual property, and certainly in relation to rights of copyright. It is also considered to be a core right around the world. Very few countries in the world have dismantled this right. Our point about it is twofold. Firstly, it must be bad public policy to have different statutory regimes as complicated as these are for what are different species of the same property. That must be bad public policy in terms of the public’s understanding of what copyright is about. It does not make any sense from the point of view of rationality. If it is good policy to remove this right in relation to music, it must be good policy to remove it in relation to other forms of copyright. What is more important to the Australian economy in terms of structure? Is it music? Is it software? Is it information in the form of literature or other forms? It seems to me that music must rank very highly culturally, but in terms of structural economic considerations, it cannot be treated at the same level as software or information. Our point is that, if it is good policy for one, why is it not good policy across the board? The answer is that it is not good policy at all. The reason it is not good policy essentially relates to the unique and special nature of copyright material and the unique vulnerability that copyright material has to unauthorised copying and duplication. The second point we make in our concluding remarks is the regard in which this move will be held throughout the Asian region in relation to the protection of property rights generally. I am fortunate enough to chair the Asia-Pacific Committee of the Worldwide Council of Authors and Composers Collecting Societies. There was a meeting in New Delhi two weeks ago where this issue was considered. There is no question that this is considered throughout the region and further afield as an overall diminution in the level of property protection accorded to intellectual property in this country. It comes at a time when I have received correspondence from the government urging me to participate in APEC talks, discussions and workshops to raise the level of intellectual property throughout the region. The two issues are absolutely inconsistent. Now I come back to the particular issue that we wanted to talk to the committee about—that is, the position of composers and songwriters. We have outlined in fairly simple terms that the current situation is that the parallel importation rights in musical works, sections 37 and 38, at the moment permit the owner of copyright for a song released to the public for sale in Australia to be paid a royalty in Australia according to Australian conditions and standards. It is a very simple situation. The removal of the right will simply mean that, in relation to any CDs that are imported, regardless of what country they are imported from, there will not be a royalty paid in Australia in relation to product released to be enjoyed by Australian consumers. We believe that is absolutely wrong in principle. Australian composers and foreign composers ought to be entitled to share in the proceeds generated from sales in Australia of product enjoyed by Australian consumers. That will be directly repudiated by the effect of the bill. One of the glaring omissions we think in the explanatory memorandum accompanying the bill is the complete absence of any reference to imports from many Asian countries. I have had a fair amount of experience with royalty collections in many of those countries. As a result of this legislation, if CDs are imported into this country from countries such as Taiwan, the Philippines, Thailand or, closer to home, Papua New Guinea, there will be no royalty paid to the composer anywhere.
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It will not be a case of the Australian composer or songwriter receiving a lower royalty—the explanatory memorandum glibly refers to the royalty rate in America—or the American royalty rate being paid; it will be a case of no royalty being paid. The reasons for that are many and complex. They are not simplistic as outlined by the previous witness. In those countries there are no royalty collection mechanisms in place because many of these countries have no history of respect for intellectual property—and any legal practitioner in that field will give you the same information—and there is no court or administrative infrastructure to ensure that royalties are paid at a reasonable rate in accordance with normal commercial conditions. If you try to sue to protect intellectual property in a court in the Philippines or in Thailand, good luck. I can tell you that you will not be able to do it and successfully and honesty protect your intellectual property. I have referred to it as disingenuous on the part of the drafters of the explanatory memorandum. I suspect it is worse than that. I suspect it is an intentional omission, but at the very least it is naive in the extreme. May I, at this stage, pass on to my colleagues to make some introductory remarks as well. Mr McCusker—I would just like to refer to matters raised in the letter I wrote and remove some of the discussion from the theoretical realm into the real world. I am a songwriter and I have written songs for a band I was in called Mondo Rock. I have also had songs recorded by other artists. So sometimes I am the artist and the composer; other times I am the composer but not the artist. I recently bought a CD of Rick Springfield’s greatest hits on which he recorded a song of mine called ‘State of the Heart’. I bought this at my local supermarket. It is on Camden Records, which is a budget line for BMG records. It was discounted in the shop to $9.95 with some 19 tracks, of which one is mine. All things considered with publishers taking a commission, for a $10 CD I would probably end up making one cent. The chain of the money would go from the retailer, to the record company, to my publisher and then to me, as things stand. I think that would be over two accounting periods if you take into account six-monthly accounting periods, which is the way the industry works. That may not be a sensible way to work but that is the way the industry works and it would be very hard to change. If the bill goes through as proposed and this record was released around the world, people would be able to source that record from any number of territories. In my letter I explained what would happen if it was sourced from Brazil and Brazil is not a worst case or extreme scenario. Brazil has quite a healthy respect for copyright. They have reasonable mechanisms, although there is some dispute about the mechanical copyright rate in Brazil at the moment. This is what would happen to my royalty from the sale of the Rick Springfield CD if that record was then imported from Brazil: the money would go from the record store at the supermarket, which is a kilometre away from where I live, and it would go, I presume, to the importer. It would then go from the importer to a wholesaler in Brazil and then from them to a Brazilian record company or a Brazilian branch of BMG. Then from there to a Brazilian mechanical collection agency; from there to a Brazilian publisher; from the Brazilian publisher to the Australian publisher in a branch of the same company; and then to me. So it will go from basically two steps to six steps and with each of those steps, there is usually a delay with a six- month accounting period. Also in several of the steps commissions are taken out. I calculated that, even from a fairly reliable copyright country like Brazil, my one cent would be down to 0.3 or 0.2 of a cent. If I get a royalty statement now and I say, ‘This doesn’t seem right. I thought I had sold more records than that,’ then I can ring up my publisher here, my record company here, and
LEGAL AND CONSTITUTIONAL L&C 82 SENATE—Legislation Wednesday, 4 February 1998 get to the bottom of it reasonably easily. I have a legal right to audit them and find out. If there is a mistake, I can audit them. If this was going to Brazil—and, as I say, Brazil is not an extreme scenario; it is equivalent to the US—I would be trying to verify all of these steps in a foreign country where I do not have the legal right to audit. If I did find a mistake, I would be trying to conduct a court case in Sao Paulo or something; I would be on the phone trying to work out where my money has gone. You must understand that, from my viewpoint, this legislation is a vast impediment to my ability to fairly do business. It seems like instead of it being a simple series of steps to collect the money—on a song that I wrote in North Carlton, Melbourne—from a record that is sold in a supermarket in Brunswick up the road, it is suddenly flying around the world to this other territory. It will make it very difficult to chase my money. It could be several territories. I could be chasing dribs and drabs of this money all around the world. This is the soft case; this is things straight ahead. As Brett says, those records can be sourced from many territories in Asia where the copyright regime is not happening. I referred to the dispute in South Korea where no mechanical royalties will be coming out of South Korea for probably two or three years because they are in dispute about how it will work. That is basically a source of my income pretty well obliterated. If my local record store sources Rick Springfield’s greatest hits from a territory in Asia like Malaysia or the Philippines, I will not see any money for that basically. That is what will happen. Now surely you can understand why I am somewhat annoyed at this prospect. Mr Faulkner—I do not have any particular extra viewpoint to add other than just in answer to the previous speaker when he was mentioning a ratio of one single in 20 in the UK being the industry standard. I believe that would still be pretty much the case. It is probably about one in 10 records which make the money for the rest of the catalogue in any company. If you take out the high earning albums like Madonna or whoever, there will only be left the losers to keep the catalogue going for people like the new artists and so forth. You are going to basically remove any recoupment for the label. That is a fairly obvious answer to the question: what would happen if you take away the Madonnas and so forth, would they still be profitable record industries in the country like Australia? I have lost my train of thought; I am really just here to answer questions. Mr Elder was saying that, if a young group came into a record company with a smash hit sound, everyone would be wanting to sign them up and give them a great deal all over the world with whatever royalty rate they chose to negotiate. Savage Garden are one group from Australia that just recently got a No. 1 in the United States. They were basically rejected by every label in Australia because no-one could particularly hear their smash hit sound until it was on the radio. That is pretty much true of most other artists. If we all knew what was going to happen in advance, we would not be making those failure records. But, unfortunately, we do not. CHAIR—There was one suggestion made to us yesterday that we should ask each and every artist that comes before us as to what arrangements they have with what record companies, and what they stand to gain out of the deals that are made. Would either Eric or David be prepared to make a comment? Mr McCusker—I have a comment about what Mr Elder said in relation to that—that you could go in and you should be able to just negotiate what you want. In the situation of a lot of things that it is going to affect, I think of people like Men at Work who put out greatest hit records—
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CHAIR—No, you personally was the suggestion. I forget who made it yesterday in Canberra. It might have been Professor Fels—it has been confirmed that it was. I hope I am not putting words into his mouth but the suggestion was made— Mr McCusker—Would you like to know what the contractual arrangements are with, say, Mondo Rock? CHAIR—Yes. Mr McCusker—That is a complicated question. I am happy to answer it but I would need to do some research. Mondo Rock was signed to one record company in Australia at one stage and to an entirely different multinational for the rest of the world. CHAIR—Right. So you have signed up for Australia— Mr McCusker—This was quite a long time ago. CHAIR—And another one for the rest of the world? Mr McCusker—That is right; this can happen. CHAIR—That is something which Professor Fels and others were thinking may well happen, would happen and in fact should happen. Mr McCusker—It seems that would be quite a strange thing. If we are talking about the multinationals and saying that it does not really matter whether the money goes to Warner Bros Brazil or Warner Bros Australia; but in a situation where it is on Mushroom here and an entirely different record company in the rest of the world, and then the imports come in and Mushroom would be competing against a company that it basically had no connection to but it would obtain no benefit for. CHAIR—But should you not have the capacity to come to an agreement with a company in Australia for your product, whatever it may be, a song that you have written or that you actually perform? You say, ‘Look, you can have the rights to sell that in Australia for a couple of months or whatever, but after that I am going to go overseas to try to have some worldwide exposure and get royalties from overseas as well.’ Mr Cottle—May I just interrupt, Senator. The rights that we are talking about—namely, the rights of songwriters and composers; copyright in musical works—are not negotiable by law. There is a single statutory royalty rate that applies in this country. It was determined after very lengthy judicial proceedings by the Copyright Tribunal. The same situation applies in other developed countries which have established their own locally conditioned, determined, equitable, standard royalty rates. So the royalty rates of composers are simply not negotiable with the record company or with their publisher. CHAIR—Should that be freed up or not? Mr McCusker—I think it is very important because, in a way, we are being asked to respond to an economic pressure, but we cannot. It is fixed. If the price of a CD does come down to $20, to 6.25 per cent of retail or 9.306 per cent of quoted price to wholesale prices—I do not know if I am confusing the issue—that is not negotiable, so we cannot respond to that. We will earn less. CHAIR—But should you be able to? Mr Cottle—The point is—and I think everybody agrees—that there is no possibility of the royalty rate becoming variable in Australia because you are talking about thousands and thousands of musical works being reproduced on millions of records all the time, and the idea of differentiating at the point of first production in the value of those works is, really,
LEGAL AND CONSTITUTIONAL L&C 84 SENATE—Legislation Wednesday, 4 February 1998 commercial nonsense. That is the case everywhere around the world. Even if the rates were variable and negotiable in Australia, that would not have any impact upon the rates payable in the US, Taiwan, the Philippines or Thailand. That is the essence of the point that we are making. If I may make a couple of other fairly general points, Mr Elder spoke about what happens in response to this bill being theoretical at this point, and that he was more concerned with hard-edged reality. Let me tell you that for composers there will be a very clear hard-edged reality the minute this bill is passed. The minute this bill is passed, they will get no royalties in Australia on imported copies. Regardless of what changes in the patterns of local manufacture and import are adopted by the record industry, at the moment there are many imported CDs coming into this country, either by the majors who may not be able to fulfil an order in a local factory, or by independents. CHAIR—How many CDs do you say are imported into this country? What is a percentage? Mr Cottle—According to the best estimate, between five and 10 per cent. What that would mean for songwriters like David and Eric is that they will not be paid royalties in Australia according to Australian conditions immediately, regardless of what changes in the pattern occur. Nothing could be a more hard-edged reality for songwriters than that. The second broad point I wanted to make to the committee is in relation to this breathtaking dichotomy in treatment by the government of the film industry on the one hand and the music industry on the other. The record industry worldwide is about half the size of the film industry when you take into account all the markets open to film. That is approximately the position in Australia as well. The Australian government, by my calculation, currently pumps a net total of in excess of $100 million in direct financial assistance into the film industry. It is probably a gross of $150 million, and it recoups maybe $30 or $40 million from the film industry. There are those who can give you more accurate figures than I. The music industry, by my calculation, gets direct financial assistance from the government of almost nothing. The contemporary music industry may get something around $1 million through the Australia Council, probably less. So on the one hand there is this extraordinary beneficent cultural treatment of the film industry and almost nothing going to the music industry. I would certainly argue that music is at least as culturally valuable and important to the Australian community as film. Not only is that the case—we can live with all of that—but on top of that you want to dismantle the property protection and potentially the industry for music and, if I may say so, glibly leave other structures of property protection for other forms of culture and art unchanged. That does produce, you must forgive us, a fair amount of anger and frustration. They are the only words I can think of. Mr McCusker—Why is the Australian music industry to be considered of such low value and worthy of so little support? That is what I do not understand. CHAIR—With respect, I think that is very much a rhetorical question. You do have members of APRA who were approached by APRA to put in a submission but who take a completely different view to APRA and, as a result, felt motivated to put that different view to indicate how the current arrangements in Australia are in fact restricting their artistic activities. I refer, of course, to Mr Lyndon-Gee’s submission that he gave to the committee in Canberra yesterday, which he only bothered to write and submit to us as a result of the approaches APRA made to him that he disagreed with. So before we get too excited talking about why the government does not like the Australian music industry or whatever, there is
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 85 a divergence of opinion and there is evidence before us suggesting that the current structure in fact does impact adversely on some Australian artistic performers at least. Mr McCusker—May I ask what ratio of submissions from APRA members was pro— CHAIR—That I do not know, other than Mr Lyndon-Gee’s, which I thought was a very persuasive argument. I just thought for the record here it ought be indicated that— Mr McCusker—Probably somewhat exceptional in the range of views expressed by APRA members, would I be right in saying? CHAIR—Chances are that is the case, but the vast majority of APRA members have not put pen to paper at all to this committee, I would imagine. Senator McKIERNAN—I was going to follow up on that point. Mr McCusker, you put a view to the committee this morning which was different from what Mr Lyndon-Gee put to us yesterday in Canberra. The argument that he put to us was that he felt it would be better for him to be receiving a small payment—I am not sure whether royalty is the correct word to use—because he could generate a volume from it and it is better for him to receive, say, a thousand royalty payments which were relatively small than it would be to receive 20 which are relatively large. You have argued, I would put, the complete reverse, in that you are getting very little royalty payment from your overseas sales at all—or is that just for writing? Mr McCusker—I was talking about writing. I have not, at times, received significant amounts from overseas. The original version of ‘State of the heart’ was on a Rick Springfield record and I think it sold a million copies, mainly overseas, not here, but I am not quite sure where the point is leading to, sorry. As a composer, as I say, at the moment a statutory rate is fixed. What happens is that usually, if the record is very successful, it sells a lot and you therefore make more. It is not a matter of saying, ‘Okay, look, I’ll give you a bargain price on my composition and you will sell more records.’ I do not think the composition is a sufficiently large section of the price to really make that much difference. Senator McKIERNAN—That is the writer’s royalty or the copyright payment that you talked about. What about the artist’s copyright on royalty payment, which is what Mr Lyndon- Gee was talking about? You are also a performer. Mr McCusker—I am also a performer, yes. That is a variable according to the relationship between the artist and the record company and can vary from territory to territory to territory and is not negotiable. Usually if you are a famous artist you will get a larger chunk of the pie. Michael Jackson ends up with 20 per cent or something whereas a beginning artist may end with 10 per cent. I believe Gareth Brooks pays for his own records and gets a 50-50 deal and has made something like $400 million out of it, but that is an exceptionally large artist’s royalty. That is quite flexible and negotiable with companies, but, again, where does it lead? Mr Cottle—We do really get into the realms of theory. If the suggestion is made that, instead of the 10 CDs of a particular set of works that are currently made, released and sold in Australia, Eric is going to have 100 CDs coming in from America so isn’t 100 times the American royalty better than 10 times the Australian royalty—well, of course it is. But the point is: who can guarantee that it will be 100 copies in substitution for the existing 10 copies? Who can give us a guarantee that retailers, if they are able to source, for whatever reason, cheaper disks at wholesale, will not take the margin? The belief throughout the industry is that, in most cases, they are bound to take the additional margin if they can. The other issue for Eric is that he has no guarantee at all that those 100 copies, assuming they are 100, will come from the US. Why wouldn’t they come
LEGAL AND CONSTITUTIONAL L&C 86 SENATE—Legislation Wednesday, 4 February 1998 from the Philippines or Thailand if whichever distributor is involved can source them there more cheaply? If the only criterion for sourcing product is price, as is assumed by everyone from the PSA onwards through this saga, then why wouldn’t you source it at the cheapest possible price? Therefore, you would source it in Thailand or you would source it in Taiwan. Why would you bother going to America? Senator McKIERNAN—The argument is actually somewhat different from that. The argument says that the Australian produced disc will also be reduced in price, so you will continue to source it in Australia. Mr Cottle—That is up to the record companies to give evidence about. If they believe they can sell it at a particular price and still make a profit, that is a matter for them. But from our perspective, if there is import replacement, as is assumed by everyone, for what is currently locally manufactured, composers’ royalties will either reduce, certainly take longer to be received and in many cases disappear because of regional considerations. That is the essence of what we are putting to you. Senator McKIERNAN—The final question, because of the time constraints: what percentage of the CDs sold in Australia today are Australian artists, bands or whatever? Have we got any idea on what that is? Mr Cottle—There are those who could give you better evidence. I can tell you that, in terms of airplay of Australian compositions, the percentage is around 20 per cent Australian compositions. If that is reflected in record sales, I suspect it would be a bit less than that— around the 15 per cent to 20 per cent mark. Senator McKIERNAN—Within the industry is success measured by the number of discs sold or is it airplay on radio? Mr Cottle—It is both. In terms of commercial success, both forms of usage provide royalty income to songwriters so both are more or less equally important. CHAIR—What percentage of foreign recordings sold in Australia would be composed by Australians? Mr Cottle—Very small. Mr McCusker—Infinitesimal. CHAIR—The parallel importing that we are dealing with also deals with the capacity to sell CDs from elsewhere, doesn’t it? Mr Cottle—What would be parallel imported under this legislation is all recordings whether they are Australian artists or foreign artists. It is just as likely that Australian compositions recorded by Australian artists would be parallel imported as it is that foreign recordings of foreign artists would be parallel imported. It is difficult to see any reason for a distinction. Mr McCusker—A case in point of someone it is going to affect very strongly is Men at Work. Their records are released according to contracts that were signed a long time ago, so they cannot change the terms of their contracts. If they put out a greatest hits record, that would be released probably all over the world because they are famous all over the world. There may be 30,000 or 40,000 copies come from a number of different territories into Australia because they still have a very strong base in Australia. So they stand to lose not only the writers’ royalties but perhaps completely from the very real possibility of discs sourced from Asia.
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All of this complication in terms of collecting the money, the time it takes, the verification and all of that stuff to me is what the parallel importation restrictions are for. They are not a sweet deal for the music industry; they are a way, a means and a structure that makes administering this invisible copyright of intellectual property and get a return to songwriters and artists for what they do. That is hard to administer because it is invisible and there are such complicated things as piracy. There is a perception that CDs are too expensive in Australia. Does the government think it is because of the parallel importation that the CDs are expensive? CHAIR—It is not only the government. Mr McCusker—The US has parallel importation. Almost everybody has parallel import protection, not as a sweet deal but just as a way of administering copyright because it is difficult. CHAIR—Is the vast majority of music composed or written by Australians recorded and sold in Australia? Mr McCusker—Yes, I would say so. CHAIR—Would that change, do you think? Would a composer then all of a sudden record and sell overseas if we got rid of these parallel imports? Mr Cottle—I would like to make a comment about that. It is a given in the music industry that it is very difficult to succeed commercially in the local market. In order to succeed commercially, a band or a songwriter really has to have international success. Whether we like it or not, the most effective way to get international success, if not the only way to get international success, is to plug into the international system of distribution and promotion. Unless an Australian act can get the Sony, Polygram or A and R promotions people interested in their record in that market, it is almost impossible for an Australian act to gain international success. Everybody in this industry, certainly for the past 15 years, has tried to look beyond these shores, tried to look externally, to get that foreign success. The fear is that what we will do by this legislation is unplug ourselves from that international network. That is one of the fears that we have. Mr McCusker—That is the case now. If my new band Big Foot was signing a contract and this bill had gone through, I would be saying to the international department, ‘Say no. They love us, they want us bad. We can dictate some terms.’ The terms I would be dictating would be, ‘Do not release my record in Asia because I do not want my Australian sales undermined by that.’ CHAIR—And you could do that? Mr McCusker—I could do that, but is that what the government wants to do—stop exporting to countries around the world? Mr Cottle—And not have a say in how it is released in countries around the world? Senator COONEY—When you say you have to get international success, is it easier to start off in Australia—getting a contract, pressing a record—or easier to go overseas and front the agents or whatever you have over there? Mr McCusker—It is easier because you are here, because it is a hands-on industry. The geographical isolation of Australia has made it difficult, in a way. It is an industry based on promotion. It is based on ‘being there’. It is based on being able to motivate the A and R people, the promotions people, and being able to go to radio and all those sorts of things. It
LEGAL AND CONSTITUTIONAL L&C 88 SENATE—Legislation Wednesday, 4 February 1998 is quite difficult from Australia. Every time you have to do it you have to cough up a large air fare. Canada has succeeded more—Canada is equivalent, in a way, to Australia as a generator of copyrights but, in order of magnitude, has far greater success—because, firstly, they have proximity to the biggest market in the world, the American market. Secondly, they have enormous support from their government in terms of quotas on radio. They now have a scheme where there is dollar for dollar matching of production costs. The Canadian government has been far more proactive in support of the music industry than has the Australian government. It is easier to start out in Australia because you are here: you can build a base, a following of fans. You can play in the pubs. You can get your 5,000 fans and, when your record comes out, it starts charting and that starts the whole flow of a hit. A hit is like a wave you generate. Senator COONEY—It keeps legal work in Australia too, doesn’t it? Senator BARTLETT—I have a couple of questions in relation to the issue of the cost of CDs in Australia. I guess as artists you would like your work to be as cheap as possible to maximise the likelihood of people buying it. As far as consumers are concerned, the people who buy, consume, more records more than anybody else are musos, I would imagine. They tend to buy a hell of a lot. So, from that angle as well, do you feel that, broadly speaking, CDs are too expensive in Australia? Mr Faulkner—I have travelled around the world and I have bought CDs all over the place. It pretty much averages out. If you go to Japan or the UK you pay a lot more. In the US it is cheaper. Mr McCusker—In Switzerland it is a lot more. Mr Faulkner—It is really apples and oranges anyway compared with the price of things around the place. But, no, I do not think particularly. Senator BARTLETT—You do not feel from your dealings with record labels, distributors or whatever that there is massive fat padding and that they are skimming a huge amount of cream off the top? Mr Faulkner—They are profitable industries, but does destroying it somehow make it a better industry for everybody else to consume? Perhaps you can find some way of telling them to make less money. We would all like that in whatever industry you choose in the world, but I do not think it is possible without getting very interventionist. This is completely a bathwater- baby situation we are talking about here in the case of protecting our intellectual rights. Senator BARTLETT—I would imagine, regardless of whatever system is in place, people like John Farnham or Kylie Minogue would be able to look after themselves all right, but a lot of the submissions we have got are, I have found, from ‘medium poppy’ people—to use the term you used in your submission—or totally unknown people just slogging around at the grassroots level. How much scope do medium level artists have in terms of negotiating ability in the music industry with labels et cetera? How much chance would you have in managing to renegotiate a system that— Mr McCusker—I think in, say, stuff that has already been put out, already in existence— whether it be Men at Work or Little River Band—you have no hope at all because it is already enshrined in contract. They are not going to change contract because we are in some kind of difficulty here with a government doing strange things to the copyright law. I do not think you would have a chance of changing that. If you were in a very powerful position, if it was Savage Garden coming up for renegotiation, you would probably have some power of sway
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 89 to stop the international record company from releasing the product into markets where perhaps the mechanical rate is ridiculously low or where the structures are not in place. You perhaps could do that. But I also think it is very counterproductive when what you want to do with a band is get it out to the world. Mr Cottle—I emphasise that that contractual ability, if some artists do possess it, relates to their services as performers. It does not relate to their intellectual property, namely, the songs they compose. Nothing will stop cover versions of Eric’s songs or Dave’s songs being made and released in the Philippines, Thailand or Taiwan by local artists or released in karaoke versions by whoever. There is the possibility of those compositions being imported into Australia; they can do nothing about that, contractually. Senator McKIERNAN—Are there controls on the importation of those now? Mr Cottle—Yes, there are. Senator BARTLETT—I want to clarify this. This legislation will not affect performance royalties, airplay and those sorts of things, will it? Mr Cottle—No. Senator BARTLETT—Okay. A few people this morning have brought up the issue of the growth in the number of people buying things through the Internet. What sort of impact does that have at the moment on royalty payments? You would still get money at the US royalty— Mr Faulkner—Yes, from the source. You would presumably get your royalty from them. Mr Cottle—Because it is not being imported into the country for commercial distribution. Senator BARTLETT—Is that growth of Internet buying a problem, from your perspective? Mr Cottle—I think it is very difficult to see precisely what impact it is going to have. Most people agree that at some point in the future people will obtain their software on-line rather than buying bits. I think that is right. My own personal view is that pricing issues will self- adjust to take account of the on-line availability of those works over a period of time. The market will in fact self-adjust to take account of that factor. The one crucial point for copyright owners is that the rights of transmission and availability on the Internet are themselves satisfactorily protected. That is a whole other area of legislation that is being looked at by the government at the moment. CHAIR—Thank you very much. We will now move on to the Australian Copyright Council. [10.38 a.m.] BAULCH, Ms Elizabeth Mary, Executive Officer, Australian Copyright Council, 3/245 Chalmers Street, Redfern, New South Wales 2016 CHAIR—Welcome, Ms Baulch. We have received your submission, which bears the number 164. Would you like to make an opening statement? Ms Baulch—As the committee would be aware from our submission, we oppose the provisions in Copyright Amendment Bill (No. 2) 1997 which would allow the importation of sound recordings. I will briefly highlight the points that we made in our written submission, but first I want to make a couple of comments about why we have these parallel importation provisions at all. It is partly because there are suggestions from time to time that they are severable from the basic copyright rights that copyright owners have, and in fact that is not the case. The copyright system operates by giving a person legal rights in a work that enable that person to sell or otherwise derive income from the work. It is this ability to derive income
LEGAL AND CONSTITUTIONAL L&C 90 SENATE—Legislation Wednesday, 4 February 1998 from the rights in the work which is intended to foster the creation of new work and investment in publishing and distributing the work. In one sense, copyright is an international system because of the operation of the international copyright treaties, but rights are granted and traded on a territory by territory basis, so the situation with the owner of rights in one country may be different from the situation with the owner of rights in another country. In fact, this is quite commonly the case. The value of the Australian rights and the investment based upon them are diminished if parallel imports are allowed. Firstly, I will make some comments on our problems with the basic policy behind the Copyright Amendment Bill. We have always been concerned about the assumption that, if you remove the parallel importation provisions, then prices will necessarily come down. It is clearly not a direct correlation, as evidenced by the fact that countries that are said to have lower prices than Australia, such as the US, New Zealand, and Canada, all have parallel importation rights. It is obviously a much more complicated scenario that we are looking at here. Secondly, even if prices would come down, we do not think the benefits of this would outweigh the likely damage to Australian music. We are not just talking about an industry here; we are talking about a creative culture and a sense of national identity. Australian composers and artists would be worse off for a whole lot of reasons. As was mentioned in the previous presentations, most Australian musicians and composers are seeking international release. They are more likely to be able to do that if the companies they are dealing with in Australia have international affiliations than if they have to traipse off overseas. The risks of seeking international release are going to be much greater if parallel imports are allowed. Firstly, the recording artists and composers, as you have already heard, get lower royalties for recordings first sold overseas. Secondly, it takes the artists and composers longer to receive their royalties for recordings first sold overseas. The advances that they get under their contracts will be lower because they are tied to expected sales in the territory. The bill would allow the importation of deletions, for which they receive little or often no royalties whatsoever, and they may be imported even if the Australian sales are still healthy. The bill would also allow the importation of CDs sold at a low price in countries with a low disposable income. The risks of export would be much greater if we allowed this bill to be passed. Our understanding is that it will be much more difficult for copyright owners to initiate a customs seizure of pirate recordings because it can be very difficult to differentiate pirate recordings from non-pirate recordings. As it stands, the copyright owner knows that, if it has not licensed the importation of a batch of recordings, then it can prevent that importation under the current provisions. That would not be the case under the bill. There is an increase in penalties under the bill, but it is difficult to believe that somebody who is undeterred by a fine of $250,000 is suddenly going to be deterred by a fine of $275,000. I may be wrong, but it is difficult to see. Lastly, in terms of the policy behind the bill, I reinforce the point that Brett Cottle made: this bill clearly reduces copyright protection in Australia and this is completely inconsistent with other efforts by the Australian government to encourage higher standards of copyright protection in countries with little or no current copyright protection. It is sending the wrong message. I have a couple of points to make about the drafting of the bill. The bill would allow imports of CDs with no royalties payable to the Australian artists and composers in a number of
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 91 situations. Firstly, the bill would allow CDs made in a country with no copyright protection altogether to be imported into Australia. Papua New Guinea is an example. If somebody made a recording of an Australian songwriter’s songs in Papua New Guinea, that recording could be imported into Australia without any payment whatsoever to the Australian composer. There are countries that have a copyright law, but they do not protect foreign rights holders. Taiwan, for example, has a copyright law, but it does not protect Australian rights holders, so you could have a recording made in Taiwan that could be imported into Australia without any payment to the composers. There are different periods of protection for copyright works in different countries around the world. You could have a situation where a work is still protected by copyright in Australia but is in the public domain in another country. The owner of copyright in that work in Australia could have their copyright devalued by the importation of CDs made in another country where that work is in the public domain. My next point is about the claimed change of the onus of proof referred to in the government’s press release about this bill. In our view, there is no change in the onus of proof. The way this bill is drafted, it is exactly the same position as for the limited provision for importation of books or for any other exceptional defence under the Copyright Act. The copyright owner still has to make out every element of the importation, as now. They have to prove the chain of title, obviously, but also absence of licence, and that the importer knew or ought to have known that the imports would infringe copyright if made in Australia. We cannot see the correlation between that claim and the drafting in the bill. Lastly, the bill would allow importation of recordings made under compulsory licence. This is different to the situation under the books provisions, which do not allow the importation of books made under compulsory licence. It is also different to the position in Singapore, one of the few countries that does allow parallel imports but does not allow importation of CDs and recordings made under compulsory licence. The other problem with the bill allowing recordings made under compulsory licence is that, in our view, this is inconsistent with the TRIPS agreement. Under the TRIPS agreement, members of the World Trade Organisation, including Australia, are required to empower customs officials to seize pirated copyright goods on notice by the copyright owner. The TRIPS agreement defines pirate copyright goods as goods made without the consent of the right holder in the country of production. In our view, recordings made under compulsory licence are not made with the consent of the copyright owner. They are made under compulsory licence. That completes my formal statement. CHAIR—Thank you. Can I address a few questions in relation to your written submission? On the first page, in a footnote, you refer us to article 27 of the United Nations Universal Declaration on Human Rights and you purport to quote it. Is that the full article 27 that you quote? Ms Baulch—I would have to check that. CHAIR—Because if my memory serves me correctly, and I do not have it in front of me, I think there is a further part to it, referring to reasonable access for the public, which is the other part of the debate in this whole issue as to where the consumer stands and what is within the best interests of the consumer. I would like to think that you might be able to tell us what the full article 27 tells us and what weight we ought to put on reference in that article, if it does say so, about giving reasonable access to the public. That might be helpful.
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You then quote the Gregory committee on page 2, which I note is a 1952 report. In 46 years, have industry practices changed somewhat, do you think? There are certain challenges now facing the industry, including purchases from the Internet and things of that nature, which might not necessarily have been around at the time of the Gregory report. Ms Baulch—I do not know that they have changed to that extent, but I included this as an indication of how long we have had these rights around and as an indication of the purpose of them. CHAIR—You have a quote from a 1991 memorandum of WIPO. What is the status of that memorandum? Ms Baulch—It was produced in connection with the meetings leading up to the diplomatic conference in December 1996 which eventually adopted the WIPO copyright treaty and the WIPO performances and performers and phonograms treaty. CHAIR—But that memorandum was not endorsed by the committee of exports, was it? It was just a working document which, at the end of the day, was not adopted by the committee of exports? Ms Baulch—No, but it represents the view of the World Intellectual Property Organisation about rights being traded and treated on a territorial basis. CHAIR—On what basis do you say it represents their views when it was only a working document and was not adopted by the committee? It was a memorandum that got circulated but it was never adopted and, as I understand it, it was only ever a working paper which meant that member countries did not sign up to it. Ms Baulch—What was not adopted in the end was a proposal to include in effect parallel importation rights in the treaty which was considered in December 1996. That does not necessarily mean that countries which were involved in that negotiation do not regard copyright as being traded on a territorial basis. The point of this quote was to support our contention that copyright is treated and traded on a territorial basis. CHAIR—Yes, but once again it is only a working document which was not formally adopted, so it is only a matter of speculation whether it necessarily represents the members’ views. Ms Baulch—It represented the view of the International Bureau of the World Intellectual Property Organisation. CHAIR—It was a working paper, but does that of necessity represent the views of the bureau or the members? Ms Baulch—It was a paper prepared by the International Bureau of the World Intellectual Property Organisation. CHAIR—Yes, but it is like if the Public Service prepares a document for government consideration. It does not make it government policy, does it? It is just a working paper for government to take it or leave it. That is the only status of this document, isn’t it? Ms Baulch—I was not contending that it had any other status than that. It was there, as I said, to support the generally held view that copyright is treated on a territory by territory basis and treated on a territory by territory basis. CHAIR—Once again, you are trying to clothe it with some authority, which I thought we just agreed it did not have because it had not been officially adopted—it was just a working paper. Sure, the people who produced the working paper were of that view, but the people
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 93 who were preparing that working document did not have any status to then portray that to the world as the official view. Ms Baulch—Of the members of— CHAIR—Yes, that is right. Can you explain why the multinationals would no longer have an incentive to have a local presence? I think that is a suggestion in your paper. Why wouldn’t they still be interested in operating in Australia? Ms Baulch—It goes back to the official statement I made. What they own in Australia are the Australian rights. Those Australian rights are devalued if parallel imports can be brought in. The incentive that they would otherwise have for investing in the production and marketing and distribution is diminished. CHAIR—Yes, but how much of that should be left up to basic market forces? Whilst I agree with you that that may be the case, or an argument could be made out, in relation to investments made and failures, et cetera. Mining companies explore a lot but they have some failures, some successes. Is that the basis of parallel import legislation—to try to give some protection to the industry by way of nearly a tariff or subsidy type protection as opposed to using copyright protection, which is simply designed for intellectual property protection and not for market protection? Ms Baulch—The parallel importation provisions are copyright protection. Copyright works by giving the rights owner in the territory exclusive rights to do various things. One of those is the exclusive rights to make reproductions of a work. If you have the exclusive right to make reproductions of a work in Australia, for example by making CDs, the intention behind the copyright legislation is that that gives you a basis for creating the work in the first place, then investing in the production, marketing and distribution of that work. That exclusive control over the reproduction is affected by parallel imports of those CDs in the similar way that it is affected by somebody making pirate recordings in Australia. CHAIR—Japan and Singapore allow parallel importing. Ms Baulch—I am actually not sure about Japan. CHAIR—And they have local production as well. So I am not sure that, from the world experience, one could necessarily make out the argument that, if you allow parallel imports, you will not have a local manufacturing base because two countries that do allow it do seem to have a healthy manufacturing base. Ms Baulch—My efforts to check the situation in Japan did not bring me to any conclusion about the situation there. The most I could say is that it is ambiguous and the learned articles I have received about it are all in Japanese and have not been very helpful. Senator COONEY—It is a language that is exclusive to the country. Ms Baulch—The difficulty in just looking at the legislation of various other countries is that this provision can be ambiguous and there can be different views in the country as to whether or not it allows parallel importation. CHAIR—On page 3, paragraph 5.1 under the heading ‘Questionable assumptions about the effect of parallel importation on competition and prices,’ we had a representative before us this morning who sells in excess of $30 million worth of CDs each year, so I would assume they are relatively large players in the market and fairly attuned to the commercial realities
LEGAL AND CONSTITUTIONAL L&C 94 SENATE—Legislation Wednesday, 4 February 1998 of the CD market. They say that if this legislation gets through that this will result in a drop in the cost price to retailers of approximately 25 to 30 per cent. Ms Baulch—Is this the submission made in confidence? CHAIR—No, this is now a public document from Woolworths Ltd—I can indicate the source of it. I would have thought that, with respect, compared to the Australian Copyright Council they would possibly be more attuned to the commercial reality of CD sales. They are the ones who negotiate every day with the record industry, trying to get prices down and marketing strategies, et cetera. I do not know what percentage of the market $30 million worth is, but I would assume it is a fair slug. They are saying that it will have a significant price reduction effect of 25 to 30 per cent. Coming back to the very first question I asked about reasonable access to the public, and if we can get a price reduction, even of 20 per cent, for the Australian consumer out there—individual consumers do not walk into these committees saying, ‘Yes, I would prefer to buy CDs $7 cheaper,’ or something like that—because as a parliament we have a responsibility to all Australians, not necessarily just to specific interests or industry groups. What sort of weight should we put on all that? Ms Baulch—Perhaps I could go back to the first question about the relationship between the rights of creators and the access issue. There are clear statements about that in both the Berne convention and the TRIPS agreement, which I am happy to provide to you. In relation to the second question, perhaps I could repeat what I said at the outset, that is, there is clearly not a direct correlation between prices and parallel importation because countries which are said to have lower prices, such as the US, Canada and New Zealand, all have parallel importation provisions. That has always been our difficulty with it—this assumption that they are related in that way. There are clearly other forces at play there and that is not always clearly made out in the debate about this issue. CHAIR—We can agree to disagree on that. Senator McKIERNAN—In regard to the comment that you made in response to the Chair’s earlier question about the submission being made confidentially, it was, indeed, a confidential submission which, during the in camera hearing, it was agreed it be released publicly. CHAIR—I indicated that it is now public. Senator McKIERNAN—It is now public? CHAIR—Yes. Senator McKIERNAN—I take the opportunity to compliment the Copyright Council on its submission. I thought it was very clear, very concise, very direct and to the point. I put that on the record first. I am, of course, going to limit my questioning of you to two areas only. I would like clarification of what happens currently in the matter of karaoke recordings— which was mentioned by the previous set of witnesses and is also mentioned at 6.2 of your submission. That would be one of the growth industries in the music industry in Australia, I would have thought. Where are those recordings produced now? What protections are there for Australian artists for those recordings—the intellectual property as contained in those recordings and of course the performance as well? Ms Baulch—You will have to ask the other witnesses about where the karaoke recordings are made. I do not have any special expertise about that. The composer would generally be paid the agreed or compulsory set rate in the country of production, but those recordings could not be imported into Australia without the consent of the holder of the Australian rights in the recording and the musical works. I think that in the AMCOS submission there is reference
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 95 to the way that royalties are collected for recordings made in another country and imported into Australia. Senator McKIERNAN—I will be asking the question again of further witnesses. It is still not clear. You have got some doubt—and I think that came through in earlier questioning— about the benefits to consumers of this measure that is before the parliament. You mentioned that in 5.3, beyond certain benefits. A witness yesterday put the proposition to us that it is better to receive a smaller royalty for a higher volume of sales than it is to receive a larger royalty for a smaller volume of sales. I have already addressed this question to an ARIA witness as well. The argument is that if the prices in the shops are going to be reduced, and it could be up to $10 we are told—that has not been substantiated I might add—it would create a greater volume of sales. Are you aware of those arguments and do you give any credence to them? Ms Baulch—Yes. Nobody knows what would happen, but if there are 10,000 CDs that are imported on which no royalties are paid, then you are worse off than if you have 1,000 CDs, all with royalties. So if they are deletions that are imported on which no royalties are paid, or if the royalties are minuscule, then you may well be worse off even if the numbers are greater. Senator McKIERNAN—Is that a matter of commercial negotiations on behalf of the individuals? Ms Baulch—I may leave that to be answered in greater detail by the music managers who are giving evidence later, I understand, about what is possible to negotiate in this environment. But my understanding is that it would be very difficult to prevent the release of deleted product. Senator McKIERNAN—Do you have any projections about the levels of imported product that Australia might be receiving if this bill is passed in its current form? Ninety-five per cent of the CDs bought and sold in this country are now produced in Australia. Ms Baulch—I could not answer that. Senator McKIERNAN—Thank you. Senator BARTLETT—I have a couple of questions. Could you clarify for me again the issue of the hypothetical of someone going to Papua New Guinea and recording a cover album of someone else’s songs. If I were to do that now and then try to sell that material in Australia, how would that work in terms of ensuring there were royalty payments? Ms Baulch—You would need to notify the owners of copyright in the songs on the recording that were being imported. Then a royalty could be negotiated on those import recordings for the songwriters. Senator BARTLETT—And under this legislation, what would the situation be then? Ms Baulch—The songwriters should get zilch. Senator BARTLETT—So I could just go up there—I would not need to tell them I was doing it—and I could catch them unsuspecting with my fabulous album of cover versions released on the Australian market. Ms Baulch—You would have no obligation to notify them either about making the recording or about importing it into Australia.
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Senator BARTLETT—At the start you said a number of organisations are affiliated with the Copyright Council. How does that work in terms of affiliation? Who are the people who are affiliated with you? Ms Baulch—We are a non-profit organisation. A lot of our funding comes from the Australia Council, the government’s arts funding and advisory body. We also have 25 affiliated organisations. They are organisations whose own members are owners of copyright or performers. In terms of this issue, the affiliated organisations include the Media, Entertainment and Arts Alliance, APRA, AMCOS, ARIA—they are the main ones. Senator BARTLETT—Do they give you direction, or whatever, in terms of the sort of position that the council takes or are you able to operate independently? Ms Baulch—We notify affiliated organisations that we are preparing a submission and circulate that in draft if requested. Then organisations may directly endorse the submission or they may make reference to our submission in their separate submissions. Senator BARTLETT—Affiliates, broadly speaking, do not provide much in the way of your funding? Ms Baulch—In terms of funding, no. Senator BARTLETT—I am just trying to get a flavour of the direction of where the organisation sits and things. There has been an implication that everyone who is taking this sort of approach is basically doing so under fear and terror from baseball bat wielding record industry people and that sort of stuff. Ms Baulch—I am happy to tell you it is not true. Perhaps I should also say that our main interest is in the songwriters and the recording artists. ARIA is affiliated with us, but generally they are big enough to look after themselves. We are more concerned about the smaller creators at the bottom of the food chain, as I think you described them before. We see them as our interests. Senator BARTLETT—One more question, if I may, around that Internet issue which we touched on earlier. I am just wanting to get a clear picture of it. Is that perceived as a problem or potential problem from your perspective? Ms Baulch—Certainly the delay with introducing new legislation to give copyright owners effective rights to control their works on the Internet is a big consideration. There are processes happening at the governmental level, but we have not seen any legislation. So we are very concerned about that. Senator COONEY—It has been said that the Australian customer would like cheaper records, which I think would be right. Do you know whether there is any research done into the question of whether the Australian consumer wants the owners of intellectual property to surrender that property without reward? If you do know of any research, could you direct that to us? Ms Baulch—I am certainly not aware of any research like that. But I am happy to make investigations. Senator COONEY—Thanks very much. CHAIR—Thank you, Ms Baulch, for your written submission and your oral evidence. I understand you have taken a few matters on notice and we look forward to receiving that from you. Thank you very much.
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[11.10 a.m.] CASWELL, Mr David Allan, Member, Media, Entertainment and Arts Alliance, Cnr Chalmers and Redfern Streets, Redfern, New South Wales HRYCE, Ms Michel Maree, New South Wales Branch Secretary, Media, Entertainment and Arts Alliance, 245 Chalmers Street, Redfern, New South Wales ROWE, Mr Norman John, AM, Member, Media, Entertainment and Arts Alliance, Cnr Chalmers and Redfern Streets, Redfern, New South Wales Mr Caswell—My name is David Caswell, and this year I have been a member of MEAA for 25 years. I am a singer, songwriter, record producer and just about everything else in the music business, which is how you survive in this country. Mr Rowe—I am Normie Rowe, AM. I am also a member of the Media, Entertainment and Arts Alliance. I have been a member since 1963. I have been in show business for a bit longer than that, as an amateur of course. I am very concerned about what is going on here. Ms Hryce—Senators, I will commence today and talk briefly to the written submission that you have before you, and then we will call upon Mr Rowe to follow me, and then Mr Caswell, to discuss their actual experiences in the industry and what we perceive are our concerns. Initially I would like to hand you a one-page sheet, of which we have some copies, with the names of some of our leading artists who are supporting our submission. We apologise for not getting it to you earlier. I would like to start by saying that the Media, Entertainment and Arts Alliance does support the coalition government’s commitment to copyright reform. The basis of the reform has been put forward by the government to ensure that in the new communications environment the rights of all creators of intellectual property are appropriately recognised and protected, whilst at the same time users have reasonable access to the materials. MEAA and its colleagues were very—perhaps not excited—pleased to see the release of the most recent discussion paper for the government in respect of copyright reform. That is the one that is looking at improving the rights of performers within the copyright area. However, as you can see from our submission, we have a number of concerns with this particular bill. We hope that what we have presented in our submission to you is focusing on the performers or, often, composers and people in the industry, as we believe that performers’ rights—what little we have got at the moment, or what we hope to achieve—will be undermined. A number of other copyright owners’ rights will also be undermined, although the government is attempting to do so for reasons that are sensible to the Australian consumer. I suppose we are faced with this funny situation where we hope within a few months we will persuade all of you, the Australian people, the government and the world, that Australian performers, after 30 years of lobbying, should be entitled to copyright, particularly in their recordings. Gentlemen, you will be aware from our submission and from those of others, and looking of course at the recent WIPO treaty on performances, that finally we have on the international agenda something that can persuade our record companies and everyone else that Australians should be entitled to a form of copyright—moral rights and economic rights in their works. So over here we are faced with this sort of task that we are getting ourselves ready for, and we are feeling very hopeful for the first time in many years. At the same time that this bill on the other side is hitting us, we believe—and it is clear in other submissions—that this bill will impact on copyright owners’ royalties. So this is the dilemma we are faced with.
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The other issue that we are concerned with is that performers—although they do not have copyrights in their recordings, and certainly depending on whether they are well-known performers—attempt to negotiate the best deal they can with recording companies for percentage payments on the basis of sales. So it is a royalty but in fact it is not a copyright, a statutory right. I have had some experience negotiating with the majors on behalf of my members for recording contracts, and I must say they are not the easiest people to have on the other side. They are tough negotiators; it is always hard. However, I believe it is made tougher because we have no statutory right to a royalty, unlike the composers, who might try to get a bit more than they are entitled to statutory-wise if they are performing and the rest. We go in and say, ‘We want this,’ so we have to fight very hard; it is the basis of contractual arrangement. I have negotiated with Disney, Polygram and Sony for a number of deals for groups of performers, particularly in the opera and in cast recordings and the rest, to try to push this notion of royalties so we can look at it as a statutory obligation. It is hard but it is not impossible; it is the way of the commercial world, and I understand that. Performers are concerned at what little they can negotiate through contractual means in terms of whether they are a composer and performer or just purely a performer on a recording that has sold around the world. My understanding of the industry—my colleagues will talk a bit more about this and clearly the representatives of the publishers coming on later will talk in more detail—is that Australian performers manage to get a better percentage deal from sales within Australian territory. This is the market; this is Australians marketing to themselves, their fans and everyone else, and it becomes reduced as it goes on. We are very concerned that if this bill encourages the production of CDs outside of Australia and they are then brought back into the country, the performers’ deal, the performers’ income from that—call it a royalty, but it is not a copyright one—will be reduced as well. We are also very nervous about the notion that Australia can be flooded by remainder copies of our Australian performers, let alone others. These are the concerns of the performers individually. Performers, as you will be aware, and creators of recordings as well as film and television— indeed, nine out of 10 of the members that I represent—have a broader concern: they have a concern for their industry and for Australian culture. So their concerns in this issue as well as others go way beyond their own pockets. Firstly, in terms of looking at the industry, we are extremely concerned that independent groups and our fledgling artists are really going to be affected by parallel importing. If we have a situation where the majors say, ‘We are not earning enough here from profit, from our rights to recordings in Australia and being able to import in,’ if they are not earning a wack of money in profit to be able to then move on—and it is debatable how much they put into the industry, but to move into the industry—we have a problem. I have spoken to a number of our performers and, indeed, independent record producers and retailers and there seem to be two ways that people start off—again, my colleagues will talk about this a bit more, but I would like to get this through. We have our fledgling bands and performers who will often work day jobs, night jobs—work around the clock—to try to save that money to put out their first CD. No-one in particular is ever going to look at anyone. Johnny Farnham was a nobody once. He did not become a hit because everyone went boom and ‘this is it’. It is usually the younger kids who are trying to do what is left of the pub circuit, trying to play to an audience to put their CD out.
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My understanding is that these kids have to raise money themselves to put into the CD, to then try to get someone to sell it. They sell it at their gigs for a lesser price. After they have done this a few times, maybe an independent retailer—which is often an independent producer of music in this country on a small scale—will notice them and maybe take them on, give them some money and some important advances. When they have gone through that period they will come to the attention of the majors. My understanding is that that is the situation with the Whitlams. I have had a long talk with the manager of the Whitlams through the past six months when looking at difficulties musicians face. So for the little band starting off, there is no point putting the CD out to even start if you are not, at the end of this, going to attract that major there with the money to be able to give you the publicity and sell you here and overseas. So our concern is that, if these companies are not earning the money to invest back into our industry here, our performers are not going to develop and we are not going to get groups like the Whitlams, who have just sold enormous numbers of things and will be the next big thing that is going to hit overseas following Silverchair. It is not going to happen. We are worried it is not going to happen. Senator COONEY—It is a bit like going to your first branch meeting on your way to parliament. Ms Hryce—Exactly. CHAIR—In the Labor Party. Ms Hryce—You do have to perform, don’t you, on the first one? So we are concerned about that side of the industry. We are also concerned about these independent retailers who are often independent producers. This is really the niche area of our market that is developing new Australian music. Polygram is not going to run out and listen to this band down the road; they are going to wait until they get to some degree to show a bit of interest. These are the people who work in a very tight situation. They often have their retail stores, their recording; they try to put together the money to give to the artist or to work with the artist to get them on the move. My concern about the parallel import effect on them is not only the fact that the majors are no longer there for them to try to get money fed back to them as well: if we allow a situation where the prices of CDs coming into this country drop, and we are flooded with these $2 CDs and everything else, what happens to these independent retailers who are trying to put out Australian music and produce Australian performers in Australia? They will not be able to compete with a $5 CD from Woolworths. At the moment the industry sits very precariously. I am very concerned that this group of people who are essential to the development of our recording industry will be wiped out. They are just there now. I think that they will go. Finally, the most important thing to me and our colleagues—our colleagues here as well as those out working or not working—is that the record industry is not like the shoe industry. There is a similar argument to the shoe industry in the sense that we would like to think we will promote our own industries. But it is a bit further than this. The recording industry presents our culture, talent and our view of the world. Australian consumers want to hear that. They want to see their bands, they want to buy their music. We are concerned that the bill in this state will destroy that. We do not want that to happen.
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CHAIR—Why would the Australian consumer change their tastes and desires if the legislation is passed? Ms Hryce—We are concerned that a number of effects of the bill will actually wipe out a whole lot of players in the industry. I think Allan will talk a bit as a composer and songwriter and will explain to you. Perhaps Allan could quickly answer that question. CHAIR—Perhaps later on when you have made your comments. We will allow you to keep on. Ms Hryce—Yes. I think it is easier to explain through a performer. As you can see, our recommendations are on the last page. We would like to see the government doing things that are more positive for the music industry—of course not at the expense of taking away money from the film industry, but similarly generous perhaps. I think two areas that the government can look at that would be important include, firstly, the Australian music code of practice. It sets that rate for Australian air time on Australian broadcasting. We would like to see that increased. That varies depending on whether you are in the country, the city and all the rest, but we would like to see that get a bit higher. We have Australian content quotas on television. How much Australian television would be made without those laws to encourage people to make them? We want that to be stronger. We would like the government to put forward policies that support this industry, and a few dollars would also not go astray. Finally, we would like to see the government introduce and support performers rights in the form of a copyright, and then performers, even more so, will be fighting strongly to protect this. Mr Rowe—Thanks very much for allowing me to appear today. As I said before, I have been in this industry for a very long time. I know it implicitly. I choose not to live overseas. I choose to live in Australia. This is where I choose to raise my family. I love this country very much. Senator COONEY—You have even served in its defence forces. Mr Rowe—I have done so, but so did 50,000 other Vietnam veterans. I have learned to love the entertainment industry of Australia because of its independence, because of its ability to survive the constant onslaughts of government legislation, banks and big business trying to take from it on a constant basis, or control it or, when it cannot be controlled, to reduce it to nothing. When I first started recording in 1964, no Australian compositions were being recorded— literally none. However, in those days there was support for the industry in television. I will run through for you the television shows which rated: Bandstand, The Go Show, Saturday Date, It’s all Happening, Teenscene—I am not saying one after the other; I am saying all at once—Six O’clock Rock, Sing Sing Sing, Uptight, Happening 70, Happening 71 and Happening 72—which were one after the other, of course—Kommotion, Rock‘n’Roll Circus, Countdown and many and varied other national and local shows such as Tonight, Midday and others. They all supported the Australian music industry and, eventually, in its turn, the Australian writer. There was a plethora of visual exposure opportunities for Aussie performers, and they were of all ages and they all had an opportunity to get a go in our own country. That is why I am here. What is going to happen with this bill is that the opportunity will be taken away for many young performers, and even old performers like me, to get a bloody go. That is not fair.
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I do not care what you say about free market access and level playing fields and all that sort of thing. Previous governments have virtually destroyed the shoe industry and have tried to have a go at the textile industry, and I do not want to see interference in the music industry. From my understanding of the sorts of questions that have been asked from that table this morning, this industry is not understood. What you are talking about are little five-inch plastic discs with a little hole in the middle. What we are talking about is somewhat less tangible. People like Allan and the other guys who were sitting here and all the other songwriters sit there day after day working diligently, skilfully employing their techniques to write songs that will touch the hearts of people, the general public, in their day-to-day lives. It seems to me that the only people who can really understand what it takes to be a songwriter and what they really deserve are people like me, people who cannot write but who really wish they had the opportunity to—and so what I do is that I sing the songs. People are coming along here and saying that you will see importation from places like Singapore, New Guinea, the Philippines, Indonesia and a lot of other countries which do not have any controls over these copyright laws. Are you trying to tell me that they will not come back into Australia. For God’s sake! If you put a child into a lolly shop and say, ‘We are going away for an hour and a half; don’t you dare touch anything,’ you do not expect that child to sit there legs crossed and hands in its lap and expect it not to touch. If you do expect that then you are even more naive than I think you might be. The point is that if you look at what has happened with deregulation in a greater, supposedly more respected industry, the banking industry, and see what has happened to the services supplied to the community then how can you expect that the large retailers and large corporations will not take advantage of this. It is their business to take advantage of this. Their job is to make sure that that is the first thing their corporations sell. Their first responsibility is to their investors, not to the people who give their love and heart and soul to things. If Banjo Paterson had written Waltzing Matilda today it would never have been heard. Radio stations in my day— CHAIR—That is speculation, is it not? It is a rhetorical comment. Mr Rowe—I would have expected that from you, Senator. CHAIR—That does not assist us. Mr Rowe—If the opportunity for exposure is diminished there is no way that that product will receive the appropriate accolade. It is up to the public whether they buy it or not but they have to see the damn thing first. In the 1960s— CHAIR—That is a bit like Savage Garden’s problem with the current situation. Mr Rowe—Savage Garden were rejected in Australia and had to go overseas. CHAIR—Under the current regime. Mr Rowe—Under the new regime they would not have even got a look in over there. What I am trying to say to you is this. CHAIR—Once again that is speculation. Mr Rowe—You want us to talk, you want to inquire— CHAIR—A part of inquiring is to ask questions along the way. If you are offended by that, I will not ask any more questions until you have finished. Senator McKIERNAN—You should let the witness make the statement and then take the questions afterwards.
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Mr Rowe—The thing is that in the 1960s and the 1970s—and this is all part of history— there was incredible television and radio support for the music industry in Australia. When I first started off there were very few people writing songs and having them recorded. By the end of the 1960s people like Daddy Cool, the Little River Band and those of that ilk were recording their own songs. They were recording exclusively Australian material because of the support that was given. Then someone said that it would be a good idea if we deregulated the amount of Australian product on Australian radio—let us stop that. From the 1960s and 1970s the power of Australian music has diminished and it has been left up to Triple J, who are largely hand fed, and that is about it. If it had not been for this radio exposure and the television exposure in those days, we would not have had people like the Seekers, Olivia Newton-John, the Little River Band and Rolf Harris. Even Dame Joan Sutherland would not be able to get a look in these days. If you want to do something for the industry and if you want to lower the price of records, let us try to sell more records. One thing is for sure—and I just do not quite understand—and this will be my last statement. You alluded this morning to Woolworths suggesting that the removal of the status quo will lower the retail to the public sale price. That cannot be said. That is just as much speculation as what you were saying about me. CHAIR—That is right. Mr Rowe—But you were prepared to make that statement as if it were gospel. You cannot say that. CHAIR—I did not say that. I said a suggestion was made to us, and then I read it out from the Woolworths submission. Mr Rowe—What you can say is that a retailer can access a product which is made for a larger mass market cheaper than you can access it for Australia. We have only 17½ million people here. They have 150 million or 200 million people in other parts of the world. They have another language in Japan. Are you trying to compare apples with oranges, as they say in parliament? The product will not be cheaper necessarily at the retail place unless the retailers decide that it will. Certainly what will happen—and this is, of course, a very important thing for anybody who is in the retail marketplace—is that the wholesale price will be cheaper. It will be a damn sight cheaper if you make it 70c a royalty for a song for people like Allan instead of $1.30 or whatever it might be. That is the way I feel. I am sorry I am very passionate about this, but this is my life. CHAIR—We appreciate that. That is fine. Mr Rowe—It is not just my industry; it is my life. I really am offended by people mucking around with it. CHAIR—I think we are used to having passionate presentations between each other and also from witnesses, so there is no need to— Mr Caswell—I will probably try to be a little less passionate than normal, but I do not think I can be a great deal more positive. Australian songwriters and performers are an endangered species. As far as I am concerned, if this bill is passed, we are going to become an extinct species. First, I would just like to say I resent the implication that every artist and every writer who gets up here is in some way a lackey of a major record label. The only good news in this particular introduction that I am about to give is that something miraculous has happened. It is the first time in the 25 years that I have been in the music business that I have actually seen
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 103 the music business united on anything. They are united in their opposition to this bill for the damage that it is going to do. I am no apologist for major record labels. I am not even an apologist for multinational publishing companies, because I am currently in dispute with my publishing company. It seems to me that if this comes in, it is not going to hurt the multinational record companies that much. They will go from being a manufacturing and distribution organisation to becoming an importing organisation. What it is going to do is kill off the local industry, kill the people at our end of the food chain. I have been writing songs for, I guess, 25 years. I have had a fair bit of success. I have had 400-odd recordings from my songs. I have had songs released overseas that have charted. Basically I have done all right. It has paid for my divorce and all of that kind of stuff. I have survived with support from these evil multinational publishing companies, and I do not like these people that much. My ability to survive as a song writer, my ability to make a contribution to Australian culture, dies with me, and people like me, when I become an extinct species rather than an endangered species. My ability to survive is because of the seed money that is provided by major companies that have been prepared to advance me money, which in most cases has been recouped out of the money that my songs have earned. I could not have survived without that. I have been really lucky. I have had 25 years in the business now. I have a track record that will at least keep me going after the other members of my species are dropping like flies, but the bottom line is that there are young talented songwriters coming through at the moment, young talented artists, young talented bands. If this bill comes in, there is going to be nowhere for them to go. At one point I was proposing to ARIA that they present a special award to the CES for its support for rock and roll. These kids are struggling. It is not going to get any better. Forget the industry. We are talking about writers and we are talking about artists. I do not personally care what happens to the multinational record companies; that is their problem. I do care what happens to Australian writers and I do care what happens to Australian performers. As far as I am concerned, anything that wipes out Australian music wipes out our culture. I came to Australia 30 years ago at the age of 14. I chose to become an Australian for what it stood for. I stood for the things that I used to think Australia stood for. I am proud to be an Australian. They have got a whole bunch of people in Canberra arguing about over whether we should become a republic. I do not care whether we become a republic or not right now because at the rate we are going we are going to have the really pointless exercise of having a republic and no culture. That is where this is headed. Any questions? CHAIR—Thank you very much. One philosophical question that arises from both Normie’s and your presentation, Allan, is this. With bank deregulation, the footwear industry and the extinct species, I am trying to get a handle on whether your argument is that the industry is worthy or deserving of some sort of government protection in relation to tariff or industry support, or are we talking about the protection of intellectual property, which copyright legislation is designed to do? I am just trying to find out where you are placing the most weight, because, if you are talking about industry support—say, with the footwear industry that you should not be deregulating it like Keating did with the banks or whatever—that is fine, but can you understand that in my mind I might be thinking that is a different argument to how we ought to be dealing with intellectual property rights?
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Mr Caswell—As far as I am concerned it is a combination of the two. When I write a song, that is my property. I invented it. I own it. I own all the rights to it. If subsequently I decide to give a piece of it away to a publishing company in return for the work they put in exposing that song and making money for me, that is my decision. The way things are at the moment are: I create a song; it is my property; I own it and I have certain rights associated with that which, if this legislation comes in, are going to be undermined. That is one point. The other point is, as I started to say before, that economically this does not hurt the majors as much as it hurts the minors, as much as it hurts the independents. They will not be able to compete. That is the breeding ground for Australian music. I do not like using the word ‘industry’. ‘Industry’ implies the people gather together and achieve something. I do not think the Australian music industry is an industry because I do not think it does either. This is the first time I have seen the Australian music industry united on anything, as I said before. I am an idealist. I care about things. It is like, ‘Give me another windmill, I want another shot at it.’ The thing I care most deeply about is Australian culture. It is not about the Australian music industry; it is about Australian writers and it is about Australian artists having some rights and having an opportunity to keep going. One thing for sure is that you are not going to get rich in this business, but at least you are making a contribution. I have had 25 years of doing something I really enjoy and scratching a living out of it. It is great. Ms Hryce—I would agree with what Allan is saying. The problem at the moment is that performers do not have copyright. We would like to think you are going to support us in our copyright efforts in the not too distant future. CHAIR—Have you got ARIA on side on that? Ms Hryce—I am sure— CHAIR—It is just a rhetorical question. Ms Hryce—I am sure their attitude will be very different this time round than last time around. So there are two issues there. Quite clearly, we want performers’ copyright, but when we get it we want to make sure it is worth something and it has value in these recordings. So when Allan records his own song as a performer, he will be entitled to copyright and royalties from his composition as well as his performance. Mr Rowe—I do not know from which states you all emanate— CHAIR—We have got a good spread: Queensland, Western Australia, Tasmania and Victoria. Mr Rowe—So none of you will know Parklea markets obviously. It is very similar to any market anywhere else in Australia. I was there on Sunday with my kids and I heard my great hit ‘Shakin’ all over’ for which I received two gold records. That was for 50,000 sales. I have not to this day received one penny in royalty for my performance on that record. The only time I have ever received a royalty was from a record sale. I can assure you it is really interesting getting a one cent cheque later on. That song would never have been a hit had I not recorded it and promoted it around Australia, had we not had the radio industry supporting us, had we not had television supporting us, had we not had people coming in and saying, ‘Let the market forces take their shot. Let us make everything cheaper and all this sort of thing.’ You do not have to put Australian music on TV any more. CHAIR—Normie, in your opening comments you mentioned independence from big business and how you thought that that was so important, yet the statistics we have been given are that, in relation to market share, Sony has 24 per cent, EMI has roughly 20 per cent,
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Polygram has 17.5 per cent, Warner Bros has 15 per cent. Those four major players have over 75 per cent of the Australian market. Mr Rowe—Why wouldn’t they have? CHAIR—With respect, the current situation is hardly independence from big business. That is the current situation. Mr Rowe—The point is that the reason there are such big players there is that all of the major independents from not the current decade but the previous three decades have been swallowed up by those major companies. They were just bought by them. We have gotten to a stage where if we do not own our culture then what the hell do we own? CHAIR—I am wondering how much things will really change when you have such a huge market share by those from overseas of 76.8 per cent which has been asserted to us. Mr Rowe—Purely and simply because there will be no incentive for internationals in Australia to record Australian material. Why would they? Why would they spend the money? CHAIR—So will we still get people like Savage Garden? Why did they persist with Savage Garden? Mr Rowe—The only reason they persisted with Savage Garden is that Savage Garden could not get a look in in Australia. Mr Caswell—That is not quite true actually. Savage Garden were always going to be a topic of conversation, given how successful they are at the moment. As I said before, I am not an apologist for the major record companies. Any money they put into Australian writers and Australian artists however grudgingly—and the same with the publishing companies—is all we have. It is like the only show in town. We get no support from anywhere else. Previous governments’ and for all I know the current government’s idea of Australian culture is to throw money behind the Sydney Symphony Orchestra and get them to play tunes by dead European composers. We are talking about Australian culture here. I am no friend of the major record labels. CHAIR—I do not think the music industry will be united over that comment. Mr Caswell—No, sure. It says: Allan Caswell—this is my opinion. The point of it is to get the seed money to keep our writers and performers going, to get them started and to give them exposure to keep our damn culture alive. However grudgingly they give it to us, that is all we have. They are in business. They do not care what their percentage share is. If you are in business the idea is to make a profit. As I said to you before, it does not worry me what happens to the multinational companies other than the fact that if they are not making a profit they just move from being a production and distribution centre in Australia to being an importing business and then we lose that. If the government is really serious about helping Australian writers and Australian artists, they ought to look at the radio industry where we get stuff all support in terms of airplay. Mr Rowe—That is new material. Mr Caswell—No, but it is minimal. In a country that is predominantly peopled by Australians, they do not get to hear a lot of Australian music. Because every radio station— apart from Triple J—in the whole country has the same play list, basically what you are hearing are really good records by Daddy Cool, Sherbet— Mr Rowe—Normie Rowe.
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Mr Caswell—And Normie Rowe, definitely. You hear a lot of Normie, the Delltones and other friends of mine. Mr Rowe—But I have not recorded for 20 years. Mr Caswell—I am known because I have been successful in the country music industry. People say, ‘What radio station do you listen to?’ I say, ‘Triple J’, and they say, ‘But they play a lot of shit.’ I say, ‘Yes, but it is new shit and it is Australian shit. I want to hear that.’ As I think Dave Faulkner said before, we are talking about throwing the baby out with the bathwater. If this legislation comes in, it is basically going to kill off the people down our end of the food chain. There are lots of other issues that many other people are going to talk about, but I am concerned with what is going to happen to the people that create the music in this country and the people that create Australian music for Australians. There are people out there who want to hear Australian music because they are Australians, and they understand it. But if they do not get some support and if something like this wipes us out, then I dread to think what is going to happen at the opening ceremony of the Olympics when they have no Australian music to play. Ms Hryce—Could I just make another point on that issue: we are concerned that, if the majors no longer feel obliged to produce anything in Australia, markedly reduce their presence and become a post-office box in Australia for a bit of distribution from somewhere else, they are not here looking at artists or having our artists throwing themselves in front of them. They are not a part of the industry if they are not here with enough people watching it. If they become a post-office box, who is going to notice the up and coming Australian performers and composers? It means every Australian will have to go overseas, which is a major problem. CHAIR—Or a greater opportunity for the small independents to develop in Australia? Ms Hryce—My concern with the independents is how they are going to compete. As I said in the submission, the small independents—like Half a Cow, A Go-Go in Melbourne, and a number of other retailers as well as independent producers—cannot put in a bulk order like Woolworths or Brashes who say, ‘We will have 400,000 of those CDs for America and we will just throw another 100,000 on for our Australian market.’ It is not their market. These people, the independents, survive in a very tight situation. They will not be able to take advantage of bulk-billing and if the prices come down enormously through the retail sales, as Woolworths suggests it will, they still have to spend that money to create their CD or to put it forward. You come down to a situation of whether you are going to buy an Australian performer for the $30, because it still costs that person to do that and to sell it, or whether you are going to buy Celine Dion? There is a real concern on that level. It is not only the majors disappearing, not seeing anyone and not putting some of their profits in to promote our performers both here and internationally; also we believe that independent level will find it hard. CHAIR—Do you know how much money they do put in to promoting Australian performers? Do we have a figure? Mr Rowe—Who specifically? CHAIR—These majors such as EMI, Sony, Warner Bros. Mr Caswell—I think you would probably have to ask them that. CHAIR—All right.
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Mr Caswell—What I know is principally as a songwriter. I have made several trips to America to work with American writers to try to get my songs placed over there and to take Australian culture to the world. It has been financed basically by me, but the money has come from these wicked, cruel, multinational publishing companies that had enough faith in me to advance me the money in the hope that I would earn it back at some point. Senator McKIERNAN—Before I ask a question, can I just make a short comment. I would accept the criticism made by Mr Rowe that I do not understand this industry or this area. I did not prior to reading the submissions and I do not pretend to now. I thought yesterday at one time that it was actually quite simple—as an old lefty standing side by side with Professor Fels fighting the multinationals in partnership with the conservative government, which is a new alliance but nonetheless might be a more effective alliance than I have had in my short career within Australia if we could have brought the multinationals to bear. Professor Fels, unfortunately, yesterday was not able to convince me that the passage of this legislation would indeed curtail the power of the multinationals in this particular industry. Your appearance here has added a greater dimension to it. However, rather than providing clarity, it has confused me somewhat because your submission is talking about protecting the Australian culture. I thought this was about providing cheaper CDs to the Australian consumer by reducing them by up to $10 a time. That is the preamble and I will come to the question: one of the larger groups of consumers of recorded music in this country is the musos themselves. Isn’t it in your interests as a trade union and as performers to bring down the price of CDs to Australians generally and particularly to your section of the industry? Mr Caswell—Not at the expense of the culture itself. Mr Rowe—Nor of the livelihood of the writers. Mr Caswell—I am no different from anyone else— Mr Rowe—Where are they going to get the money to buy the records in the first place for Godsakes? Mr Caswell—I would naturally prefer to pay $22 for a CD—or whatever it is going to get down to; no-one yet has been able to explain to me what the price is actually going to be— than $30. I guess I am talking about protectionism but it is a question of what you are protecting. Sure, a lot of musicians buy records—the ones that can still earn enough money to have money left over for records after they have paid the rent. With the deteriorating live music scene and the lack of air play on radio and stuff, for a lot of musicians buying a record is not really high on the list of priorities. I support the idea that the population of Australia should have cheaper CDs. But I also support the idea that the creative community of Australia deserves to get some kind of reward for the work they have put in. If they cut the sales tax down a little bit that would cut CD prices down and that might make life easier for everybody. Mr Rowe—But that has happened and the retail price did not change. So how can you expect it to happen with this— Mr Caswell—This bill is definitely going to benefit large retail chains—Woolworths and people like that—but it is going to wipe out small retailers. If the majors decide to make records overseas, it is going to put the people who print the covers out of business; it is going to put the photographers out of business; and it is going to put all the small independent record stores out of business.
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Mr Rowe—Some of us who have no talent to write their own songs. Senator McKIERNAN—The argument has been put to us—and it was certainly put to us with some force yesterday—that it is not so much the royalties or the copyright payments of the performers, but the margins by these multinationals, the people who control the industry. That is what is going to be hurt when we pass this bill and allow the competition, when we allow people to bring those top selling records in from overseas. I do not think we are talking about bringing in Normie Rowe CDs from overseas but maybe a few other names such as Spice Girls and Madonna. Mr Caswell—If you pass the bill rather than when, because I would like to think that basically you are not going to. As I tried to point out before, I am speaking today with very little interest in what happens to the major record companies. There are plenty of other people that it will affect. I am giving you—as the gentleman who opened the proceedings said—a worst case scenario. The worst case scenario is that, in sorting out these greedy multinational record companies, you are going to wipe out the small independent artists, the small independent writers and the small independent record stores. You are going to put a lot of people out of work. If you really want to handle the multinational record companies, I have a theory: what you do is force radio to play a greater percentage of Australian music. Mr Rowe—Sixty per cent. Mr Caswell—No, let us be fair. Mr Rowe—No, no, no. Mr Caswell—Normie, this is my best case scenario. Fifty per cent. That means Australians are hearing 50 per cent Australian music. CHAIR—What if they don’t want to? Mr Caswell—It is tough. Just go with me on this. Ms Hryce—We know they want to. Mr Rowe—We already have proof that that is not so. Mr Caswell—This is about as realistic as this legislation that is being pushed through at the moment, so go with me on it. It is not Disneyland; this is a possibility. Fifty per cent of what you hear on radio has to be Australian. The major record companies are going to have to go around looking for Australian acts. If you want to do something positive, do something positive for the writers and artists of this country. Ms Hryce—The other issue, in answer to one of your questions, is that we have a concern, first, on the copyrights. There is no reason any longer to produce a CD in Australia. They will go and do it in Taiwan or New Guinea, where they do not have to pass on the royalties when it is distributed back. Who in their right mind wouldn’t? You would if you were a business person. So they are going to do that. The composers and the artists are going to lose their royalty that they are entitled to now because they will not receive any on it, as Libby Baulch was discussing in terms of this issue. The other thing is that we are going to be flooded with remainders and everything that they will not be receiving anything or a very small amount of money back from. So for the actual sales themselves—not only for the rest of the world but within Australia—the income coming back to the writers and composers will be vastly reduced. That is not even taking into consideration that the majors may disappear and become a post office, which in effect means
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 109 they are not looking to even give money to composers or to have performers perform and sing on their CDs. Mr Rowe—Before you said that, by lowering the retail cost of CDs, basically the people who are going to be hurt are the majors or whoever was going to make the largest margin. I do not know if you understand—but I am sure you should by now—how song writers and performers actually gain remuneration for their work. There is a royalty paid. That royalty is by way of a percentage—a percentage of 90 per cent of gross retail price. If the retail price is dropped by a third, then surely by extrapolation the royalty paid to the song writer and the performer has to drop by a third. CHAIR—Not necessarily. Mr Rowe—Why? Ms Hryce—Is the government going to increase the royalties? Mr Caswell—If the song writer’s royalty is based on retail price. CHAIR—No, because there is a substantial margin at the moment that the wholesalers are making. Mr Rowe—But it is fixed on a retail price. Senator COONEY—That is right. That is what you are left. That is the point you should make. CHAIR—The argument, if I can try to put it very quickly, is that the wholesalers are making a significant margin. If they were open to competition from overseas, they would be prepared to substantially reduce that margin to obviate the necessity for retailers to source overseas supplies—as a result of which the wholesale price would come down substantially, and we are talking about the price to the retailers. Woolworths in their submission tell us that they make all of 7.64 per cent. They sell their CDs at the moment at $23.82 and the cost to them is $22.00, so they say they make a margin of 7.64 per cent. So the real fat seems to be, allegedly, in the wholesale area. Mr Rowe—Did they mention that, if they do not sell it, the product can go straight back to the record company at no cost? Did they mention that? What is the risk? Mr Caswell—Can I make a point? When Mr Cottle was talking before he was talking about where songwriters make their money: it is a fixed percentage, or mechanical royalties, of the retail price. I am not an accountant, but it seems to me that if a record was selling for $30 and is suddenly selling for $20, then I am going to lose a third of the income that I am entitled to for that song. CHAIR—That is for the songwriter. Mr Caswell—I do not think I should be happy about this bill—seriously. CHAIR—Do you think though, and this is the other argument, that if the price comes down by a third there is a fair chance that you might sell a substantially greater number and therefore make up some of that lost income, if not all of it, or, indeed, increase your sales? Mr Caswell—Do you know what? I have been here all day. I heard Mr Elder say that he does not know. I have heard everybody say, ‘We do not know what is going to happen.’ Everybody has said we do not know what the price is going to go down to. Everybody has said we do not know how it is going to affect the industry. At the moment, we have a situation in place where we do know what is going on. If this bill is passed, we are going to get into a situation where anything can happen.
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Senator McKIERNAN—I have a tangible question. Parallel importing has now been abolished in Singapore. What has been the effect on local artists in Singapore? Mr Rowe—Do they have a local industry and how much of that is in English? Again, you have apples in one basket and in the other one you have watermelons or something. Senator McKIERNAN—There is a local industry in the United Kingdom, and the United Kingdom fairly recently decided not to abolish parallel importing. Mr Rowe—That is 58 million people. We have only 17 million. I do not think it compares. Senator McKIERNAN—They are two tangible examples of what is happening in the world today which we can look to. They are not direct comparisons as it is somewhat of an apples and oranges situation. Mr Caswell—Exactly. If we keep comparing apples and oranges then we are going to get no closer to knowing what exactly is going to happen. Senator McKIERNAN—That is the difficulty with committees such as ours. We are given these arguments all of the time. There was quite a deal of stress put in the submission to the committee by the ACCC yesterday about what is happening in other parts of the world. Singapore got a mention. Japan got a mention. Questions came out of there. Canada, Sweden and the United Kingdom have got a mention. The European Union has got a mention. Yet, in parts of Europe, it is actually more expensive to buy the product, depending on the type of product that you buy, than it is to buy the same product here in Australia. Mr Rowe—Can I make a suggestion? Australian recording performers were most successful somewhere between 1965 and 1975—would anybody agree with that? I should say the most successful in Australia, en masse. Record prices were then very small. We did not see the size of platinum records or any of that sort of thing. When CDs first came onto the market—and the prices have not reduced very much—they were $10 to $15 dearer than vinyl and still there were platinum records being sold; there were enough to warrant a platinum record being awarded. I do not quite see how you can sell more records when it is more expensive, and sell fewer records when it is not expensive, and then turn around and say, ‘If we lower the price, we are going to sell more records.’ I do not think you can say that. This is fact. Ms Hryce—In terms of the UK, it may be that they have raised this sort of issue, but from a performer’s point of view I would like to point out that the UK, as a member of the European Community, has indeed supported ASEDA II and then been involved in a number of the treaties that we have listed for you today, which provide a great deal of protection for both performers and composers and creators in music. This is where I am concerned: that we have almost none of that for performers so that this is going to impact even more strongly on us at this time. Senator COONEY—Earlier on, Mr Rowe, you talked about the drop in the Australian content of television. Mr Rowe—Yes. Senator COONEY—Not now, but could you give us a statement showing how that occurred. Mr Rowe—I have it here, as a matter of fact. Senator COONEY—No, not now because we haven’t the time. There was a change in legislation which brought that round, I think you were saying. Could you get a copy of that
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 111 legislation—Ms Hryce, you ought to be able to do that as the secretary—are you on the committee of management of the federal body? Ms Hryce—Yes. Senator COONEY—Could I also get from you how typical the positions put by Mr Caswell and Mr Rowe are of the various artists, composers and songwriters around the country. I do not know whether you were here earlier this morning. There was a gentleman who gave evidence in Canberra yesterday and I was not there. I would like to see how typical he was and how typical are Mr Rowe and Mr Caswell. Ms Hryce—Yes. CHAIR—Thank you for your presentation. [12.12 p.m.] FABINYI, Mr Jeremy Rohan, Chief Executive, Australian Music Publishers Association Ltd and Australasian Mechanical Copyright Owners Society Ltd, 6-12 Atchison Street, St Leonards, New South Wales 2065 RICCOBONO, Ms Fifa, Deputy Chair, Australian Music Publishers Association Ltd and Australasian Mechanical Copyright Owners Society Ltd, and General Manager, J. Albert and Son Pty Ltd, 6-12 Atchison Street, St Leonards, New South Wales 2065 CHAIR—Welcome. Would you like to make an opening statement. Mr Fabinyi—I would like to thank the committee for the opportunity to address you. I am very grateful that Fifa Riccobono is here. I am not sure whether you are aware of her company, J. Albert and Son. It is one of the great Australian music companies with a proud history of supporting, investing in and developing Australian talent. Unfortunately, the chairman of the board of directors of AMPAL and AMCOS, Mr Norm Lurie, who is also the managing director of Larrikin Music, cannot be with us today. He is on an important export mission selling Australian music overseas. I am sure he would like to be here, but I would draw your attention to the submission which he made individually to the committee and which I believe is submission No. 117. I also draw to your attention the submission of one of his writers, Eric Bogle, submission No. 84. It has been suggested that people giving evidence before this committee should be required to state any vested interest. I have no hesitation in doing that. As chief executive of the Australian Music Publishers Association, clearly I have a vested interest and I have a keen interest in the outcome of this committee’s deliberations. As a former manager and participant in the artists’ and managers’ campaign against the introduction of parallel importation as a result of the PSA report in 1990, I spent an awful lot of time, effort and energy on this particular subject. I must say that the real vested interest that I have in this legislation is a passion for Australian music and for the Australian music industry. I believe that we can be very proud of the Australian music industry and its achievements. It is not an industry without its detractors; it is not an industry that should not be subject to criticism. Certainly I have been a party to some of that criticism over its time. I think healthy criticism is worthwhile, but I think it would be a big mistake for this committee to go away with a view that the music industry is a bunch of ratbags. The music industry has achieved great things, and my concern is the damage which I think will be inflicted on the Australian music industry and on Australian culture if this exercise in academic economics which is before us gets played out to its full conclusion.
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I can recall growing up in the 1960s and listening to my crystal set as I went to bed, listening to the hits of the UK and the US, and occasionally there was an Australian artist, often with a version of an American song coming across. It is hard to express the impact on me and my life the first time I ever saw Daddy Cool perform—an Australian band singing Australian songs. Similarly, I can recall the pride I felt when I was on tour with a band in America in the mid- 1970s and heard LRB coming out of the radio having major hits, or being backstage at the Us festival in 1983 with my friends from INXS, the Divinyls, and hearing Men at Work lead 50,000 people singing I come from a land down under—or hearing that Crowded House had been voted the most popular band in the UK. And now we have Savage Garden No. 1 on the top of the charts in America. I must say there has been a lot of talk about Savage Garden in the hearings and in the press and in the media. I respectfully submit it would be an absolute dereliction of the duty of the committee if it did not seek out the real facts regarding Savage Garden. I do not intend to go into them; I do not have the full facts. I can guarantee you that the full facts regarding Savage Garden can be given to you by John Woodruff, the manager and the original investor in the band—who I note gave a submission where he sought to appear before the committee—is the only way you will get the story about Savage Garden. I urge you not to take account of the stories you are hearing; hear the real story about Savage Garden. CHAIR—I understand that we will be, in Melbourne, next week. Mr Fabinyi—As I said, Australian music was a cottage industry. Now we are competing and winning on the global stage. Right now we have acts like Silverchair, Peter Andre, Midnight Oil, Gina G, Nick Cave, Troy Cassar-Daley, Lee Kernaghan, David Helfgott, Slava Grigorian, Human Nature, Tina Arena, Kylie Minogue, OMC, Crowded House, and the list goes on, who are out there earning millions of dollars of export income from their work for this country. It is an achievement of which we can be very proud. This committee has heard evidence deprecating the achievements of the industry, sneering about the tiny proportion of music in Australia that is Australian. I do not have access to detailed statistical analysis, but I advise the committee to be very careful about analysing some of the information which has been put before them to date. I noted yesterday there were some comments made about a figure of six per cent of the majors’ product being locally licensed. I simply do not believe that this data has been correctly interpreted. I know there were ABS figures where that was extracted from. As I say, I believe it is being used completely out of context to the way in which those figures were calculated, and again I would suggest that perhaps it would be incumbent upon the committee to actually find out the real figures involved and not rely on some of these wild assertions from people we should expect to give real, detailed, hard evidence to this committee. CHAIR—Are you able to assist in that regard at all? Mr Fabinyi—I would happily assist, but the Australian Bureau of Statistics is somebody we should all talk to and say, ‘Let’s analyse these figures.’ If you want to get certain information, they have obviously done detailed studies I believe, and I am happy to be party to a discussion with them— CHAIR—I was just hoping that as you were making that assertion you may have had a consultant or somebody investigate those figures which allowed you to make that assertion about the ABS figures, that is all.
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Mr Fabinyi—I am not doubting the ABS figures for one second. I am saying I believe the way they are being interpreted is not correct. I have not done detailed research but, if I may, I will table for you this document. I do not pretend this has any more statistical validity than some of the anecdotes you heard yesterday from other people, but this is a list of the Australian top 100 albums of 1997. It is a chart brought out by ARIA. It lists that seven of the top 20 records sold in Australia last year were by Australian artists. I table that but, as I say, I think you need something a bit more detailed than to rely on that. But I certainly think you need something more detailed than to rely on some of the so-called expert evidence that was presented yesterday. Australian music is competing in the toughest music market in the world. Our competition is from the English speaking countries with which we compete: the US, the UK, New Zealand, Canada, South Africa—all countries, by the way, which have parallel importation protection. There are some other countries like Japan which have the benefit of language to give their local product an edge, but we are out there competing head to head with the big ones. The up-side, of course, is that there is export potential. If we can make it through, then we can work into their markets and we can make hits. It is very difficult for a Japanese act to do that. So I think the sorts of figures that— Senator COONEY—Are a lot of English records going to non-English speaking countries? Mr Fabinyi—As I understand it, in Japan the breakdown is 85 to 90 per cent Japanese music, and obviously the balance is non-Japanese music. What that breakdown is versus the US, the UK, China or whatever, I cannot tell you, but those are the figures which were given to me. So I think this idea that you judge the Australian music industry by whether we have 70 per cent Australian music in Australia is just plain idiocy. As has been said before, we are working in a global market. We have the potential to embrace, encourage, respond to and enjoy foreign music which has been presented to us. Our job now is to develop our own industry, to develop an export industry and to work together with the government to improve our performance and to maximise our export income. We should be looking to the future. We talk about new technologies and the Internet and so forth. Our aim surely should be to be a net exporter of music and a global player in the information age. This bill is about looking backwards. This bill is about being negative. This bill says, ‘It’s hopeless. You’ll never be any good, Aussie. Don’t worry about it. Let’s just find a way to buy cheap American and English products.’ We think this bill will be a disaster for the Australian music business. We believe that the premise of the bill—the premise being that the price of sound recordings in Australia is so high that urgent legislative intervention is required to address the problem—does not stand up to any sort of objective analysis. I think after Professor Bewley’s presentation yesterday there is not really anything much more I can say about that. This bill is bad policy but, more than that, it is bad legislation. With regard to the first point, we do not think the bill should be passed. With regard to the second point, we do not think the bill can be passed in the way in which it is drafted. We come before you as representatives of music publishers and composers. Yesterday you did not hear anything about music publishers and composers. It was just quickly fleshed over. There was a mere mention at some point acknowledging yes, of course, composers will be the losers, composers will be worse off. We do not believe that the interests of publishers and composers have been taken into account by the government. We do not believe there has been adequate consultation. We do not believe the government understands the implications for
LEGAL AND CONSTITUTIONAL L&C 114 SENATE—Legislation Wednesday, 4 February 1998 publishers and composers. We believe that this bill throws up all sorts of unintended consequences which have dire effects on music publishers. In our submission, we go into a lot of detail about how the music industry works to try to explain the role of publishers and the role of composers. I do not intend to repeat what is in our submission. I am sure you have all had a chance to read it. I do just stress that it is the composers who are the creators of the musical works. They are the people who write the song. It is at the foundation of the music business. It is the most important critical first step. Without the songs, there is no music. Composers generally entrust their songs to music publishers who administer them and exploit them. What will this bill do for publishers and composers? This bill provides a positive incentive to record companies to move their manufacturing out of Australia and offshore. This says to record companies, ‘If you move your manufacturing facility from Sydney to Malaysia or Indonesia or Taiwan, we will reward you by making you pay less for the use of the songs on the records’—a positive incentive to export our industry overseas. Is that good for the balance of payments of the country? I think we need expert economic advice to do that. I stress the point—you have already heard it today—that, if the record is manufactured in Australia, the mandatory statutory royalty rate must be paid. For example, Australian works are not protected if the record is made in one of a huge number of countries. Some of these countries, such as Taiwan, have large, sophisticated manufacturing facilities. They are not hypothetical facilities and they are not deletions in Afghanistan. This bill would allow imports from those countries, countries where there is no copyright law and no obligation to pay composers a single cent. We have heard the karaoke example. The sound-alike business is a huge industry. I am happy to answer questions about that, if you like. This bill would allow imports from countries where, as our government is fully aware, there is no effective copyright protection and no likelihood whatsoever that the copyright owners will receive a reward. The government knows that. They cannot say they do not know that. The bill would allow the importation of musical works which are out of copyright in a foreign territory but still protected by copyright in Australia. It is interesting that the PSA report—heaven forbid that I should quote from the PSA report—specifically addresses that issue. It said that such imports are unfair competition for domestic suppliers. That is on page 158 of the PSA report. Clearly it is unfair competition for domestic suppliers. The question was put to Mr Paterson yesterday: should records be allowed to be imported from such countries? He said, ‘Oh, absolutely not—that’s the complete antithesis of competition policy.’ Those are exactly the sorts of unintended consequences which will flow from this bill. One of the key recommendations of the PSA report— Senator McKIERNAN—You are stuck in a groove! Mr Fabinyi—One of its key recommendations was that imports should only be allowed from countries providing comparable levels of copyright protection over the reproduction of musical works and sound recordings. That is the principal recommendation: imports should only be allowed from countries providing comparable levels of copyright protection over the reproduction of musical works and sound recordings. The matter was raised with the ACCC yesterday in terms of, ‘What you’re suggesting now is inconsistent with the PSA report.’ The answer was, ‘Yes, what we’re saying now is inconsistent with the PSA report.’ Let us move on to another subject that was not resolved yesterday. This bill will remove from publishers one of their most important income streams. It will remove their capacity to further invest in signing, developing and funding new works and their ability to promote and
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 115 market works in their catalogue. The bill renders valueless rights which publishers have spent tens of millions of dollars acquiring. You go out there and you enter long-term contracts with suppliers to represent in this country. You pay a lot of money to acquire those rights. Those rights will become meaningless if you can not, as the Australian copyright owner, collect the royalties flowing from the exploitation of those rights in this territory. Therefore, the rights for which you paid large sums of good Aussie dollars evaporate. The bill removes the most effective method that we have of combating piracy and detecting pirate and counterfeit products. I believe ARIA referred to the detailed legal submission—its tabling, I presume, is imminent. It deals in some detail with those issues and also with the breach of the international obligations under TRIPS which are built into this legislation. As I said before, not only should the bill not be passed; I also submit that, after the government finds out what this bill really means, it cannot be passed in its current form. The government surely cannot allow itself to be party to a massive rip-off of artists’ rights. The bill, as it is currently drafted, would be considered throughout the world as one of the most radical and draconian attacks on authors’ rights ever perpetrated by a developed nation. To say our trading partners would be dismayed by this rolling back of international property protection would be an understatement. I think sanctions and retaliations would be inevitable. Certainly the US and others have already indicated that a 301 order will follow, but that is on the basis of the principle; that is without seeing the detail of what this bill really does. Why are we doing all this? It is an academic, theoretical approach that has been put forward. It is not supported in a comparable country anywhere else in the world—not only is it not supported but it is rejected out of hand by the Monopolies and Mergers Commission in the UK. The Monopolies and Mergers Commission was a detailed, credible thorough analysis of the recording music industry in the UK—not the same as the PSA report. That commission came to the conclusion that parallel importation would not reduce prices of CDs and could be damaging because of the increased risk of piracy and the general weakening of copyright protection which is territorially based. Why are we doing it? There is a theory that has been energetically pushed—in fact, you could say it is a crusade on the part of the ACCC. You could also say it is an overdose of ideological zeal. It is a peculiar sort of ideology because it is geared towards only sound recordings. It is not a policy or ideology that actually deals with the subject at hand— intellectual property. We have heard nothing about how we are going to do the same thing to computer software or books. In fact, we understand that there has been an undertaking that that will not happen to computer software and books. It is an argument which has been characterised by all sorts of emotive phrases such as ‘monopoly’ and ‘anti-competitive’. I put it to everyone that this tie is my property. I have a monopoly over this tie. This is my property. You cannot sell this tie from me. This is my tie. Intellectual property is a property right. To try to couch it in all of this economic gobbledegook—‘It is a monopoly right’—is just not addressing the way the rest of the world addresses these sorts of issues. Every time that this theory that is being perpetrated comes up and collides with the realities of the music business, some plausible semblance of a justification is invented to say, ‘We have solved that this way.’ With due respect to Bruce Elder this morning, I think that was a classic case of giving somebody a concrete example of a problem that exists in the real world and them saying, ‘You would solve that by negotiating a deal where you get the same rate all over
LEGAL AND CONSTITUTIONAL L&C 116 SENATE—Legislation Wednesday, 4 February 1998 the world. Yes, that solves that problem. Let’s get on with the next one.’ That has nothing to do with the realities of the music business. We heard yesterday talk about, ‘You will solve deletions contractually because the artists will just buy them all up,’ or some such absolute nonsense. The idea that artists—and I am straying into the artists’ territory here for one second—have equal bargaining power when negotiating a record contract in the United States or the UK and are able to put in place terms and conditions which US artists are not able to achieve is plainly not in the real world; it is a fantasy. One of the other great lines we have heard which I cannot resist is this idea that there is going to be this huge boom in jobs in the retail sector to make up for all the jobs we are going to lose in the manufacturing, recording, publishing, composing and artists industry. Does anyone believe this? I do not think so. Did you ask Woolworths today what extra jobs are going to be provided by whatever it is that they have put forward? I have not read their submission and I am not aware of what they have said. Really, do you see Woolworths creating a huge boom in jobs in the retail sector to make up for all these jobs that we are going to lose? I do not think anybody believes this. This whole thing is based on the PSA report from 1990. That report in 1990 looked at 1980s data. The world has changed and moved on. The music industry has moved on. I will not go into much detail, but you can question me about it if you like. CHAIR—Is that a separate note? If you like, you can table that if you do have the details written there. Mr Fabinyi—No, I will stay with my opening statement. The original debate is about US prices and Australian prices. We are not talking about that any more. We are talking about imports from Asia, from Third World countries, from countries such as Paraguay and Bulgaria; we are talking about imports from countries all over the world. We are talking about a time when we have an economic crisis occurring in the Asian countries. I would see that a major threat from Asian governments and businesses attempting to acquire hard currency would be a flood of product coming in—some legal, some not so legal, and some ostensibly legal but on which no royalties are paid. There is a huge piracy problem in the region. We do not think there is any genuine need, either economically or socially, for these amendments. They threaten the livelihood of our members and composers. We come here today to put our point forward. We realise that this may be a long crusade on our behalf, but we will not give in. We are going to fight this. I think I can say that, despite the odd person who will not agree with us, the overwhelming majority of the music industry stands behind us on this, and we will build up a head of steam if we have to take this whole process further. I just want to take up a point that was made yesterday about how record companies are intimidating artists. Not surprisingly, I have been travelling around the country talking to composers and artists about what I see is the danger of this bill. I have to tell you that they are not backward about coming forward to me if they do not agree with me. We have had some full and frank exchanges of views in public and in private about this very issue. I am pleased to say that in virtually every case once the discussion was through I convinced them about the validity of our arguments. CHAIR—You did not beat them into submission. Mr Fabinyi—I did not beat them into submission. I did not threaten them and I have to say that if I had they would have laughed at me. The view that Australian artists and
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 117 composers are a herd of impressionable, frightened spokespeople for evil multinational corporations is an insult to a group of people who are making an important contribution to this country and its culture—they are people voicing their real concerns about the future of their industry and their livelihood. I have a different view about intimidation. I believe that the vilification and the pillorying of Australian artists who make a stand against this bill has been an absolute disgrace. If you refer back to comments made about Peter Garrett some time ago it was a shameful, shameful thing. Artists who speak out have been labelled as either greedy pop stars or unwitting tools. I am heartened in the knowledge that their legacy will remain long after those bureaucrats responsible for those slurs are forgotten. CHAIR—Thank you. The top 100 that you have given us, the Australian top 100 albums— you said seven out of 20— Mr Fabinyi—Savage Garden, Tina Arena, Paul Kelly, Human Nature— CHAIR—That is not the question I am getting to. Seven out of the top 20 were Australian. How many of the 100 were Australian? Mr Fabinyi—The figures are there. If you give me time we will count them all up. They are all there. CHAIR—I thought you might have known off the top of your head. What sort of percentage of the market does the sale of CDs represent? Mr Fabinyi—I invite the committee to get detailed information about those sales figures. That is not my area of responsibility. I cannot give you that information. Senator McKIERNAN—Yesterday we were given information that 20 per cent of the industry was Australian and 80 per cent was other than Australian. The figures you have given us here would appear to counter that argument. Mr Fabinyi—I am not putting these forward as statistically valid figures. I am saying that I do not know the figures. I am saying that a variety of figures were put forward. I think it is important to find out what the real figures are so the committee can make its deliberations knowing the real figures. There is a figure of six per cent floating around that I submit is probably according to my experience wrong. So a figure of six per cent was mentioned yesterday. CHAIR—What would you say from your experience then? Mr Fabinyi—I would say 20 to 30 per cent. Australian airplay is about 20 to 30 per cent, as I understand. I think that is a fair indication. Senator McKIERNAN—Seven out of 20 is a lot more than 20 or 30 per cent. How do you differentiate what is Australian here? Mr Fabinyi—I am doing this on the basis of Australian bands. They are highlighted on my copy. We will highlight them and send them to you. I am sorry I did not take the technology into consideration. Senator McKIERNAN—I note No. 17—say no more. CHAIR—What is that? Bill Lawry ‘12th Man.’ Do you think the Australian community at large has been given adequate access to the less popular type of music through the current arrangements that we have in Australia, the less popular titles that might exist on some catalogues that are not readily available? There has been some criticism.
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Mr Fabinyi—We represent music publishers and composers. Our works, our catalogues, are available. We have no restriction on access of musical works. If you want to use one of our musical works there is no restriction on you doing so. You have the benefit of the compulsory licence provisions in order to do so. We do not make available recorded product. That is not our business. We have no say over the access of product. CHAIR—Are you aware of the alleged problem that people cannot access— Mr Fabinyi—The Music Publishers Association believes very strongly that Australians should have access to the widest possible choice of recorded music and in fact through access via the Internet they have exactly that. These days an individual has access to any piece of recorded product that is gettable via the Internet. CHAIR—Your organisation, as I understand it, is part of the AAA agreement that was referred to. Mr Fabinyi—I overheard the conversation—it was a chilling thing to hear. Obviously there are problems with that agreement. As far as I am concerned, that agreement has no standing. The agreement has not been consummated; it is an agreement in principle. There is a draft agreement in place. It was drafted by ARIA’s external lawyers. If it has the problems which were highlighted yesterday, I do not want to have anything whatsoever to do with it. That agreement was an honest attempt on our side to go the next step to try to come up with a variety of systems to make music more accessible. That was our intention. If it has not achieved that intention—the government and the ACCC clearly think we are going down the wrong path. Right now publicly I renounce the AAA agreement. I believe it should be torn up. I think we would be foolish after what we heard yesterday to say anything more about it. Senator COONEY—Shouldn’t you get your own lawyer’s opinion first? I would not go ripping it up on the say so of yesterday. Mr Fabinyi—The person who said it is one of the most powerful people in the country. Senator COONEY—That is a different issue as to whether or not he is a lawyer. You are giving way to pressure there. CHAIR—He did have David Shavin QC’s opinion that he was relying on. As part of that agreement your organisation must have been involved in at least providing some instructions for the drafting of that agreement or not? Mr Fabinyi—The problem of a record company failing to make available a sound recording is essentially a sound recording problem. Our prime concern in the drafting of that agreement was that where you have musical works for which the copyright is controlled in Australia by an Australian company but the sound recording rights are not being controlled in Australia by the sound recording company that that product can flow into Australia and that it should be only fair and equitable that all products sold in Australia should be on the same basis. So we were very keen to continually make that point that we believed that there needed to be a fee payable to cover that situation. I am not pretending for a second that I was a great fan of the AAA agreement and I had my own points. We did put it in and it was in an honest attempt to try to solve a problem. CHAIR—In the AAA agreement we were also told, at Recital or Background C, that ARIA and AMCOS ‘have, by way of a separate agreement, resolved to enter into this agreement.’ You may say it is commercial-in-confidence. If it is I will accept that. Are you willing to divulge to us the basis of that separate agreement? According to this terminology, ARIA and
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AMCOS ‘have, by way of a separate agreement, resolved to enter into this agreement.’ Have you already entered into that agreement? Are you willing to divulge what it might mean for the consumers of music in the country? Mr Fabinyi—As I said, the AAA agreement is an honest attempt to improve access and availability. The general principles were agreed between the parties. The agreement has not been consummated either by signature of agreement between AMCOS and ARIA. I do not believe any AMRA person has actually signed that agreement. I believe that is probably a draft you are looking at. CHAIR—Yes, but the agreement says that ARIA and AMCOS have already entered into a separate agreement whereby they both have agreed to enter into that agreement. Mr Fabinyi—We have agreed in principle. There is no written agreement between ARIA and AMCOS. CHAIR—So there is no written agreement between ARIA and AMCOS to enter into this agreement. Mr Fabinyi—No, there is an agreement in principle. CHAIR—Do you want to divulge any more detail, other than that there is an agreement in principle, as to what it may or may not have contained? Mr Fabinyi—I am not being evasive. There is an agreement in principle to do it. It is true to say that we and ARIA are still negotiating on the various details. For example, if your question is what the split-up is between the dollar payment, that is a matter of some discussion, but that is a matter between ourselves and ARIA, I would submit. We agreed between ourselves and ARIA that we would not allow the resolution of that disagreement to stand in the way of putting this forward if this was what people wanted, if this is a way to solve a perceived problem. Senator McKIERNAN—Briefly, going to your chart of top 100 albums, albums are CDs, are they? Mr Fabinyi—That is right. Senator McKIERNAN—I ask the question because you mentioned the PSA report—twice, and that is rubbing salt in the wound. Some criticism has been directed to the PSA report to say that effectively its conclusions were directed at the audiotape market rather than the CD market. You did say that the industry moves on and that technology has moved on, but you did not pick up that point. Is that a valid criticism? Mr Fabinyi—If you look at the chart which the ACCC provided in its submission, I believe that relates essentially to sales of cassettes. Appendix J of the PSA report, which I do not have before me, relates to CD prices. I think that is a good example of the intellectual rigour that has been applied by the PSA in gathering data that supports its theories on the one hand and not worrying about the others that do not. We heard yesterday that piracy is a red herring—I think that was the expression used. In no other part of the world would any responsible person describe CD piracy and counterfeiting as a red herring. Senator McKIERNAN—I mentioned by way of interjection No. 17—Bill Lawry’s ‘This is your life’. That is not highlighted on your highlighted chart as being Australian. I would have thought it was. Mr Fabinyi—Yes, it is highlighted.
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Senator McKIERNAN—I have been misdirected. I have been given a copy that it is not on. CHAIR—I am glad we have cleared that up. Senator McKIERNAN—That actually brings my calculations into some doubt. I counted 21 out of 100, so if the figures are correct it is now 22 out of 100, which would bring credibility to the 20 per cent figure that was quoted yesterday. Mr Fabinyi—Let me say, and again I do not mean to give undue influence to this particular piece of paper, that you would find that the top 20 sellers are a hugely greater percentage of the sales than the bottom 80. Senator McKIERNAN—That is a worry when you see that the Spice Girls are noted twice in that top 20. Mr Fabinyi—That is a matter of opinion! My daughter would disagree with you. CHAIR—Did ARIA do a survey, whereas ABS do it from actual sales. Mr Fabinyi—If you want expert opinion on the chart, you should speak to ARIA. My understanding is that it is taken from sales information. CHAIR—Thank you. Senator McKIERNAN—You were somewhat forceful in your argument that the bill was in effect sending an industry offshore, and with that the jobs of Australians. You said that we should get expert advice on that. I put it to you that yesterday we did have expert advice on that in the form of the ACCC who have done extensive studies into this matter. They gave a prolonged submission to the committee on that matter. Do you accept that forceful argument that was given to the committee yesterday by the ACCC? Mr Fabinyi—Let me say that perhaps the ACCC did not take into account some of the comments which I have made today in coming to that opinion. When you create a positive incentive to move offshore, the logic that local prices would fall to meet the competition— when you have what the ACCC describes as unfair competition—I don’t believe stands up to rigorous analysis. Senator COONEY—The ACCC listens to Greenspan and you listen to Pavarotti! Senator McKIERNAN—I am certainly surprised with the force of opinion and the force of views that have been put to the committee so far in response to this bill. We experienced something similar on an earlier copyright bill that went through the committee last year—it was urgent at the time but it is still sitting on the Notice Paper. What was the consultation that went on with your industry prior to the development of this particular bill? The issue has been around for a number of years. You mentioned the PSA report as well, but with regard to this bill from this government what was the consultation with you? Mr Fabinyi—I would submit that we believe there has not been adequate consultation. We were invited to make a submission to the interdepartmental committee. We sought meetings with the minister and we were not given an audience with Senator Alston. We do not believe that anybody who understands the unintended consequences of this bill could really have done it if they had been aware of what those unintended consequences would be. CHAIR—What about with the Attorney-General? Mr Fabinyi—That is true. We had a very brief meeting with the Attorney-General.
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CHAIR—And the Attorney-General is responsible for this bill jointly with the Minister for Communications. You picked out that you did not have a meeting with Senator Alston, but you did have a meeting with the Attorney-General, who is responsible for it. Mr Fabinyi—I do not believe that the interests of publishers and composers have been adequately taken into account in developing the policy of this bill. CHAIR—I understand that, but that is different. Mr Fabinyi—I do not submit that we have had adequate consultation. I do not believe that 10 minutes with Daryl Williams is adequate consultation, with due respect to the Attorney- General. Senator McKIERNAN—You may have been more lucky than many of the other people in just getting to meet him. I will not comment on that. I am not in any way imputing anything to the Attorney-General, Mr Williams, a fellow Western Australian. When you were consulted during those 10 minutes and there was the opportunity then to put additional material in a written form to the Attorney, did you do that with the same vigour and force that you have done here this morning, both in the content of this submission to the committee and your oral presentation? Mr Fabinyi—I am happy to provide you with a copy of our submission to the interdepart- mental committee which we took and spoke to in our meetings with Mr Williams. Senator McKIERNAN—Are you able to say whether or not any of the views expressed within that submission to the interdepartmental committee were reflected in any way in the bill, or would it be your assertion that you were just dismissed? Mr Fabinyi—I do not believe we were adequately considered. Further, certainly when we spoke to the Attorney-General we were not contemplating a bill as draconian as the one which finally emerged. In terms of consultation on the bill, the first time that we were aware of it was when it was introduced into the House of Representatives. There was zero consultation on the structure of the bill with us as an important industry player. Senator McKIERNAN—Thanks very much. Senator BARTLETT—I have one question for Ms Riccobono touching perhaps more on your role with Alberts. In your submission you made the fairly straightforward statement that your company’s income stream, and thus its profitability, will be severely curtailed, and there will be flow-on effects of not having being able to invest and support Australian artists. Could you step through specifically why you feel your income stream is going to be cut back? Ms Riccobono—Albert’s is an Australian company; we are an Australian label and a publishing house. We have been a label in excess of 30 years. It has been our strength in the past to work with artists and writers at a very early stage in their careers. Because we are an independent, we do not have the financial backing that the majors have so we cannot wait until an act develops and gets to a great level and then go out and purchase the band or whatever. So we get in a lot earlier—when we see a glimmer of hope somewhere, we take them. Our strength is to develop and create that act. It might take six to 12 months, or even 18 months or longer, but we are prepared to put that in because we know what the results could be in our environment. Professor Fels keeps talking about this coming about: its being against the multinationals and how it is going to help the independents. I am an independent and I have not been able to see one thing here that is going to help us. We have supported artists since 1962. We started with the Easybeats, Billy Thorpe and the Aztecs, all of that, when there were no songs being
LEGAL AND CONSTITUTIONAL L&C 122 SENATE—Legislation Wednesday, 4 February 1998 written in this country. Every artist that was out there was recording an American or an English song that was already No. 1. Our director was a visionary and he wanted to see Australian music put forward. He supported Australian songwriting. He went in with all the faith that he possibly could and supported the Easybeats, who in turn went overseas and were quite successful, disbanded and came back and we ended up with a writing team called Vander and Young. Because of the faith in them as writers, we were able to then look at more acts. We came up with John Paul Young and AC/DC—which is our biggest rock export. These were bands that we supported for years. We were in the red for years, but always with the hope that when one got away it would pay big. We were very fortunate that after five years that AC/DC were on the road—and it was not until 1979—they went finally out of the red and into the black. We as an independent helped to create that situation. The major record companies do it to a degree but not as well as the independents. There has to come a time when you have to marry with a major to take it to the next level. The label has been going in excess of 30 years. We have always worked with the majors—EMI in particular and Sony as well. We fight like cat and dog; nothing has changed. Half of the people in this room I have fought with for the last 27 years, and I love it. They have been supportive where we need it, but we still know what we can earn out of this marketplace. If we cannot get it happening in this marketplace, there is no point in us being here. Senator BARTLETT—I am particularly interested in the impact on—as I was saying earlier on—the medium poppies or whatever, and that applies to labels as well as artists, et cetera, because I tend to think that, regardless of what you do, the multinationals will be able to look after themselves at the end of the day. Ms Riccobono—You are not going to hurt the multinationals. You are going to hurt us. We have only been going for 114 years, and this might just change it. Mr Fabinyi—If I could just put another point of view: I believe that what it would mean in the publishing industry is that there would be fewer independent publishers and that publishers would be forced to do deals with the multinational corporations. There would be more power, less competition, and creativity would be stifled by this legislation. Senator BARTLETT—Just following that a bit further forward—using your company as an example, if that is okay—in terms of your income stream you are saying that you are primarily a publishing house, you also have a label and a recording studio and that sort of thing. Ms Riccobono—Yes, we have a commercial recording studio, but we have two studios that we keep full-time for ourselves, just for our writers. They can come in and sit and we will hire musicians and whatever is required for them to have the environment to develop. We probably have about seven new writers on our books at the moment and, obviously, all of our existing writers. Some of them have been with us in excess of 25 years—Vander and Young have been with us for 30 years. They are still considered to be one of Australia’s best writing teams and best production team. Again, going back to Mr Elder’s comments, ‘Yeah, go out there and determine what you want’, I say, ‘In another lifetime’. When we were out trying to get deals in America, nobody even considered Australians. We just did not rate. Twenty-five years ago nobody wanted to know who you were. Now we have some credibility out there, but it has been a long time getting there.
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Senator BARTLETT—Would the majority of your income come through the publishing side of things? Ms Riccobono—Publishing and recording on the label side. A lot of income that is from publishing is not necessarily directly related to the label, so it is publishing income. Senator BARTLETT—In a purely business sense, that is where you would be reinvesting those profits—back into the composers and— Ms Riccobono—Just to keep two studios running all the year with engineers—there would be an excess of $200,000 just to keep the studios available for our writers and artists. That is money that we keep investing. Senator BARTLETT—Can I just narrow it down specifically to the publishing area and why you think that your income would dry up or diminish in that area. Ms Riccobono—We have been saying here that there is going to be a reduction of anything up to one-third. Senator BARTLETT—That is, if prices fall. Ms Riccobono—That is what this is all about, isn’t it? Senator BARTLETT—One of the threads of it, yes. What if they do not fall, which is also one of the counter-arguments? Ms Riccobono—If they do not fall, then we are where we are if you do not change the legislation. Senator BARTLETT—No, if we change the legislation but the prices do not actually go down, which is also being counter-argued. Ms Riccobono—Well, forget it. That means that we do not have any protection for the product that we have and for the songs that we have. Senator BARTLETT—So it still does not actually matter whether the prices go down or stay up; you are still going to be impacted upon? Ms Riccobono—No. It is the protection that has gone. CHAIR—The protection from what? I do not quite follow that. Ms Riccobono—As copyright owners, if anybody starts to import into the— CHAIR—But the protection is the price and your investment, isn’t it? Ms Riccobono—No. CHAIR—What Senator Bartlett was saying is that if the price remains, you will still be able to make your appropriate profit. Mr Fabinyi—If the product sold in Australia is imported from overseas, then Alberts or any other Australian publisher will not be able to get a return on their investment in Australia from the exploitation of those rights. Ms Riccobono—That is the point I was making. CHAIR—Even if the prices remain the same? Mr Fabinyi—The price has nothing to do with it. Publishers will get screwed, no matter what happens to the price. CHAIR—Can I ask you to take two questions on notice, because they are somewhat technical in nature. On the top of page 11 of your submission, you tell us current international practice provides for the mechanicals to be paid in the country of sale, et cetera. Reading that
LEGAL AND CONSTITUTIONAL L&C 124 SENATE—Legislation Wednesday, 4 February 1998 paragraph, the question I have is why is this so. Why does this international custom depend on parallel importation rights? If it does not, then surely Australian composers would have nothing to fear? Mr Fabinyi—I do not understand the question. CHAIR—I was hoping not to delay the proceedings too long. You have told us that there is a current international practice with the mechanicals and you have in place agreements with other societies that allow for product manufactured in one territory to be exported royalty free on the basis that the country of import licenses and accounts for the mechanical royalty. Such a scheme could not continue for imports into Australia if parallel importation protection is taken away from Australian copyright owners. Why couldn’t you keep on with such agreements, even if the legislation were altered? Mr Fabinyi—I am happy to take it on notice and give you a written response. CHAIR—Yes, that is what I am asking. In paragraph 5.3 you make comments about imports from countries with no copyright laws. Can you tell me what you believe the effect will be of the new section 10(1), subparagraph (h)? Mr Fabinyi—This is not a trick question, is it? CHAIR—No. That is why I have asked you to take it on notice so you can come back to us with some detail on that because I think the assertion from the government point of view is the fear, from those regimes that do not have copyright, that you will not be appropriately protected from section 10(1)(h). Mr Fabinyi—Can you give me a hint what section 10(1)(h) might possibly be? CHAIR—I can to a certain extent. The new section 10(1) would define non-infringing copy as a copy: (b) made by or with the consent of: ...... (ii) the owner of the copyright or related right in the sound recording in the country (the original recording country) in which the sound recording was made, if the law of the copy country did not provide for copyright...when the copy was made. Mr Fabinyi—What section are you quoting? CHAIR—Section 10(1), and then read through all that into (h), but you would need to read other subsections as to what non-infringing copy means, et cetera. It is quite a detailed question. It is not a trick question; I am not expecting you to answer it here. Mr Fabinyi—It is 10(1)(h) you are saying? CHAIR—Yes. Mr Fabinyi—I am sure there is a great answer— CHAIR—I do not want you to answer it now because I do not think it would be fair, but I would like you and your support team to look at that and to deal with that question because I think it might be a fairly pivotal point in the whole discussion as to whether what has been asserted could in fact occur. Mr Fabinyi—All I can say is that we have sought expert legal advice. I understand the committee will be hearing that expert legal advice. Quite frankly, I will handpass it directly to them, and you will be hearing from them directly.
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CHAIR—All right. Do not take it on notice then. I will ask them on Monday or whenever it is next week we are in Melbourne. Senator COONEY—Just remember that all legal advice is expert; it is just that it is not the same. CHAIR—That is exactly right. Thank you very much, Ms Riccobono and Mr Fabinyi, for your submissions. [1.07 p.m.] SPECK, Mr Jorg Michael, Manager, Investigations, Music Industry Piracy Investigations, 8th Floor, 263 Clarence Street, Sydney, New South Wales CHAIR—Welcome, Mr Speck. I invite you to make an opening submission, keeping in mind that we have your submission which has been numbered 142. Mr Speck—Music Industry Piracy Investigations is the jointly funded anti-piracy operation of AMCOS and ARIA. I thank you for the opportunity to be here, and I will read my opening statement. CHAIR—Do you wish that statement to be incorporated in Hansard? Can we agree that the opening statement can be published and put into Hansard? There being no objection, it is so ordered. The document read as follows— Government has clearly ignored the full extent of the industry’s concerns relating to the importation of illicit sound recordings if this Bill becomes law. Our concerns, to some extent, are held by others. In this regard, I would like you to consider the following statements: Enforcement of intellectual property rights offences is likely to increase in difficulty over the next five years. Changing technology and increased levels of technological skills will make the commission of intellectual property offences easier and their detection and prosecu- tion more difficult. Over the next five years there is likely to be an increasing demand for criminal enforcement of copyright offences and increasing criticism of the priority that law enforcement gives to investigating such infringements. These are statements from the Office of Strategic Crime Assessment, the body responsible for forecasting crime trends up to five years ahead for the Attorney General and the Minister for Justice. Against this forecast, Government proposes to increase penalties and enhance civil proceedings and nothing else. How can an organisation like the OSCA make such an assessment? And why is sound recording piracy/intellectual property fraud a law enforcement issue at all? Quite simply because of the very nature of sound recording piracy, at the commercial end it is big, sophisticated business often involving organised criminal activity. It doesn’t start out as some accidental event. It is big business. Typically trans-national operations, criminal by their nature and activities they take advantage of legislative and enforcement deficiencies to market their wares in various territories. Here in Australia, professional sound recording pirates can and do factor the cost of civil actions into their operations. Indeed it has been our experience that these operators are not
LEGAL AND CONSTITUTIONAL L&C 126 SENATE—Legislation Wednesday, 4 February 1998 affected by civil actions which usually only serve to make their operations more efficient. This is the experience overseas also. As a result, law enforcement agency intervention is required. The explanatory memorandum implies that the Australian Customs Service will be that law enforcement agency in a parallel import environment. Further, that it will not require further resources. This is in our opinion, nonsense. The Australian Customs Service could do with more resources to deal with the matters that are currently priorities. An obvious example is the significant amount of narcotics that make it through the barrier. Fortunately in this case the community can rely on other law enforcement agencies to pursue such matters once the Custom’s mechanism has failed. Often several law enforcement agencies vie for control of investigations into narcotics matters once they are identified in the market place. However, when the Customs mechanism fails for this industry and illicit product appears in the market place we cannot expect that kind of law enforcement agency interest. Indeed we can expect almost none. Several police services have advised us that they will not undertake copyright investigations in any circumstances. Rather they would refer them to the Australian Federal Police. The Australian Federal Police has a practice of only investigating matters that can be described as high end criminality when resources permit. This is kind of like making the grocer first prove that an extortion is part of some organised criminal enterprise before the police will take a report. Our experience, once law enforcement agencies become involved, is even less heartening. We rarely receive more than several calls per year from the Australian Customs Service relating to seizures or suspect importations. ACS seizures total approximately 1,000 units, against the MIPI seizures of approximately 270,000. This is not because the ACS is inefficient it is because of their resources and the clearance systems that are in place. Since MIPI’s inception there has been 3 major actions against multi-million dollar—large scale operations. Two were trans-national and all were involved in their illicit enterprises. One of those matters is now 3 years old. Five instructing DPP solicitors on—offending company liquidated and free from the risk of a POCA action, no one has been charged. In another of those matters it has now been two years since the execution of search warrants. No offender charged, again the offending company has liquidated—there are no assets—there is no risk of any POCA action and the offenders continue their activities here and off-shore. In the third matter in which the search warrants were executed over 12 months ago, no one has been charged. Again offending company liquidated and so it goes on. In this case the operators were also prosecuted civilly and still they re-formed and conduct their oper- ations from the same premises. These are just some examples—there are more (AFP letter to Commissioner). Finally where are these agencies going to get their specialist training in intellectual property fraud matters? They do not receive any at the moment and there does not appear to be any movement afoot to provide any.
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Civil prosecutions can be no less fulfilling for copyright owners at present. Civil action is costly, difficult, complicated and its efficacy is questionable. As I have stated earlier professional sound recording piracy operations can factor in the cost of civil actions and conduct themselves virtually unimpeded. And so against this background, where it is generally accepted that sound recording piracy is a serious issue for the industry and that the importation rights model is the superior anti- piracy model, government has produced this bill. By the nature of the Bill and statements made in support or explanation of the Bill I believe it is accepted that sound recording piracy will increase. Make no mistake, it will. This Bill if enacted will become a useful tool for sound recording pirates. Also, in a trans-national activity like intellectual property fraud, it would be mindful to remember that offenders are unlikely to be located or remain in your jurisdiction. On the issue of increased penalties, it is naive to believe that increasing penalties will act as an effective deterrent to offenders undertaking a very high profit and very low risk activity. The alleged ‘reverse onus of proof’ in practical law enforcement is likely to be so ineffective as not being capable of being relied upon in formulating a prosecution or action. Alternatively it is capable of being defeated in the first blush of a prosecution. In a practical sense it will become another obstacle to copyright owners and another technicality for sound recording pirates to effectively hide behind. This Bill fails because it does not adequately address the prevailing law enforcement issues let alone the potential ones. As much as anything else, the Government owes it to the community to protect it from large scale criminal activity and fraud in the market place. CHAIR—I invite you now to pick out the eyes of it, if you like, as to the specific points you wish to make. Mr Speck—I would say that if this bill becomes law the government has clearly ignored the full extent of the industry’s concerns. Our concerns are held by others, and I would like to draw your attention to two statements. The first is: Enforcement of intellectual property rights offences is likely to increase in difficulty over the next five years. Changing technology and increased levels of technological skills will make the commission of intellectual property offences easier and their detection and prosecution more difficult. The second statement is: Over the next five years there is likely to be an increasing demand for criminal enforcement of copyright offences and increasing criticism of the priority that law enforcement gives to investigating such infringements. Those are concerns that support the clearly stated concerns of the music industry expressed by the Office of Strategic Crime Assessment, a body charged with providing over-the-horizon crime forecasts to the Attorney-General and also the Minister for Justice. In that context, what the government proposes to do here is simply increase penalties and enhance civil proceedings. The fact that an organisation like OSCA can make such a series of statements begs this question: why is sound recording piracy a law enforcement issue at all? It is, quite simply, by the very nature of it. At the commercial end it is large-scale, sophisticated business, often involving organised or entrenched criminal activity. It does not start out as an accidental
LEGAL AND CONSTITUTIONAL L&C 128 SENATE—Legislation Wednesday, 4 February 1998 event—it is big business. It is typically transnational, and it typically takes advantage of legislative and enforcement deficiencies. Here in Australia, for example, professional sound recording pirates can factor in to their operations the cost of civil operations. As a result, it is often the case that law enforcement agency intervention is required. The explanatory memorandum indicates that that agency is likely to be the Australian Customs Service and that they will not require any assistance. This is, in my opinion, a nonsense. I think it is already apparent to all and sundry that they could do with more resources to deal with the matters that are currently priorities. The purported flood of narcotics that breached the barrier is a classic example of that. The difference between the narcotics example and us is this: if narcotics breach the Customs barrier controls, there are often several, sometimes up to four, law enforcement agencies vying for a piece of that cake. As far as the Australian music industry and individual victims are concerned, we are lucky to get any interest—and really get none—from law enforcement agencies. Several state police services have advised that they are not prepared to investigate intellectual property infringements or copyright infringements at all—rather that they would defer those investigations and refer them to the Australian Federal Police. The Australian Federal Police have a policy of investigating only high-end criminality matters so far as intellectual property is concerned. I would suggest that this is like asking the grocer to prove an extortion is part of an organised criminal activity before the police will take a report. Even when we can get law enforcement agencies involved the experience is less than heartening. We rarely receive more than several phone calls per annum from the Australian Customs Service. The Australian Customs Service seizures total in the vicinity of 1,000 units against the anti-piracy unit seizures of approximately 270,000 units. I must say that this is not because of their inefficiency; rather it is because of the clearance processes in place, the lack of resources that exist and also the fact that the import provisions provide the very best available deterrent. Since MIPI’s inception, there have been three major operations into large-scale multimillion dollar transnational operations. One of those matters is now three years old; five instructing DPP solicitors on, with the offending company liquidated and free from the risk of a proceeds from crime action, no-one has been charged. In the second case, it is now two years since the execution of the search warrant and the situation is very much the same. In that case, the offenders continue their operations here and offshore. In a third matter in which search warrants were executed over 12 months ago, no-one has been charged. The situation is exactly the same: liquidated company, no assets, nobody charged. In this case, the offender was also prosecuted civilly. The end result of that is that the offenders have re-formed their enterprise and continue to conduct themselves from the same premises in the Sydney metropolitan area. These are just some examples. There are many more. Finally, I would ask this committee where these agencies would get their specialist training in the investigation of intellectual property matters. They do not receive any at the moment and there does not seem to be any move afoot for them to receive it from anywhere else. Civil prosecutions of professional sound recording pirates can be no less fulfilling for copyright owners. Civil action is always costly, always difficult, always complicated and always protracted, and its efficacy is questionable. As I said earlier, civil actions can be factored in— and, in fact, are factored in—to professional sound recording pirates’ operations. So, against this background, sadly, the nature of sound recording piracy is accepted. We have this bill.
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By the very nature of the bill and the statements made in support of it, or in explanation of it, it is generally accepted that there will be a rise in sound recording piracy. Make no mistake, there will. On the issue of increased penalties, it is naive to believe that increased penalties will act as a deterrent in an enterprise that is very high profit and very low risk. The alleged reverse onus of proof in practical law enforcement terms is likely to be so ineffective that it cannot be factored into the formulation of a prosecution or action. Alternatively, it is capable, I believe, of being defeated in the first blush of a prosecution. In a practical sense, it is going to become just another obstacle for the copyright owners. I would like to say in conclusion that I think this bill should fail because it does not adequately address the prevailing law enforcement issues or the potential law enforcement issues. Finally, as much as anything, the government owes it to the community to protect it from large-scale criminal activity and fraud in the marketplace. CHAIR—In your submission to us in the third paragraph and in your comments to us you told us about the importation of illicit sound recordings. What are we talking about there? Are we talking about piracy or parallel importing which, under the current law, is illegal? Mr Speck—We are talking about all the forms of piracy specifically. CHAIR—Well, that does not help me. Are you describing parallel importing as piracy? Mr Speck—No. CHAIR—So when you talk about the importation of illicit sound recordings you are not talking about any parallel importing, albeit that it may be against the law at the moment? Mr Speck—When I talk about illicit sound recordings I am talking about pirated material, bootleg material, cover versions, sound alikes, unlicensed material—that kind of thing. CHAIR—What do you mean by unlicensed material? Mr Speck—I am talking about material where— CHAIR—CDs that are imported into Australia may not be licensed by whoever under the current— Mr Speck—I am specifically talking about sound recordings where there are substantial fraudulent documents in existence purporting to establish its legitimacy. The reality is that that is not the case. It is, in effect, a hybrid form of piracy relying on the specific definition of piracy. I am not talking about parallel importations. CHAIR—In the last paragraph on the first page of your submission you tell us: . . . a global operation imported directly into Australia a catalogue of sound recordings . . . on initial testing several hundred positive matches—that is copyright infringements. What did you mean by that? Can you explain that to me? Mr Speck—Yes, I can. An organisation existed in this country which was a subsidiary corporation of a global operation. That global operation is based in Europe. There is a pyramid of corporations established in countries where the identity of directors can be concealed, where the identity of offices of the company can be difficult to identify because of the nature of recording corporations. That corporation, as I say, had established a distribution company here. It advertised in the media, it had a warehouse, it had distribution deals and it was selling a large-scale catalogue. I have a photocopy of the catalogue with me that I can supply to you if you wish. CHAIR—Undoubtedly, it would be of interest to members, but this operation that you are talking about emanated in Europe?
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Mr Speck—Yes, it imported into this country. CHAIR—Which has certain parallel import legislation protecting the European scene? Mr Speck—Yes, these were exports from Europe. CHAIR—Following on from that, what does MIPI do internationally in relation to law enforcement? Do you just check in Australia or do you also go overseas—without, of course, divulging any operational secrets? Mr Speck—The nature of the major infringements we identify are transnational and international in every case. To efficiently investigate and prosecute them, the investigation must become transnational. In that regard, we investigate matters wherever they take place in one form or another. CHAIR—In your opening comments you mentioned criminal activities and then expressed concern that they were not being pursued as rigorously as they otherwise might. Do you see the copyright law for the industry as being to assist them against unfair practices so that they can take the appropriate civil actions? Other companies, for example, have to do that against each other under the trade practices law in this country for companies engaging in inappropriate behaviour towards each other—whereas in criminal proceedings you have always got that higher onus of proof and often you do rely on civilian witnesses—or, in this case, possibly the recording industry—to provide the necessary information to enable the prosecution to run their case. So there are different scenarios. Mr Speck—I do not think this industry is any different from any other corporate victim of fraud here in Australia or internationally. The vast majority of matters are prosecuted civilly, and that places a tremendous burden on the financial resources of MIPI itself and the member companies. However, there are clearly cases where operators are impervious to civil prosecution. I can provide examples of that. It is an emerging, identifiable trend; it is the reason that OSCA expends its resources looking at the issue where organised criminal activity or entrenched criminal activity becomes involved. There was a case as late as last year where the Naples office of the anti-Mafia public prosecutor’s office identified a family manufacturing 10,000 compact discs and 50,000 music cassettes each week. There are a number of other examples I can give from my notes. For the sake of brevity, I will give just one or two. The Irish journalist Veronica Guerin was shot dead in consequence of her expose in drug trafficking. The follow-up investigation of that saw the raid of a suspect’s premises where a large quantity of video and audio duplicating equipment and quantities of pirated material were seized. In the Netherlands in January last year, the Federal Police seized some 6,000 pirate compilation CDs from two men involved in the cocaine trade. There was a case recently where an operation in Sydney was using illicit sound recordings as part of its ecstasy and cocaine business. It was an Australian Federal Police case last year. There are any number of other examples. There is not, for this industry, a cheap way of prosecuting or protecting the market. It is very expensive to go to the police. It is cheaper to prosecute civilly. When this industry goes to the police, it is a very serious infringement. The point of my being here is to say to you that this is already an emerging trend. The nature of this legislation is going to rapidly make it a more obvious trend in this country, as it has already been in others. CHAIR—Why would that be, given the assumption—and of course it is an assumption—that if prices do come down the bootleggers will not be making as high a profit, one would imagine, and therefore the returns will not be as great?
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Mr Speck—Because it decreases the risk of detection to start with. CHAIR—Why would that be? Mr Speck—Quite simply, in the current environment, it is possible to tell who owns what. CHAIR—Why would that change? Mr Speck—If parallel imports were allowed, that whole process of identification of offenders would blow out. That whole process of testing and providing the fundamental component of the brief of evidence to commence a prosecution would take so long that the infringing material would dissipate. It would become totally ineffective. CHAIR—Do you have any technical measures in place to detect piracy at the moment? Mr Speck—It is very difficult at best to detect piracy. The best measure is the appearance of offending material in the marketplace. That is quite simply the most efficient means from a prosecutorial point of identifying the material. CHAIR—What percentages of CD sales in Australia do you say are from pirated sources, from parallel imported sources and from legit sources, if we can use that term? Mr Speck—I could not express an opinion on parallel imported material. In relation to infringing material, we can never factor in the dark figure of fraud. Any figure that I would give you would be a clear understatement of the situation. I say that on this basis. Any of the empirical victim studies that are available always show that frauds far exceed the recorded frauds. There is also the variable of detection in the marketplace. I would put it, on what we have available to us, in the vicinity of five per cent of the market. CHAIR—It has been suggested to us, albeit that the figures vary, that about the same amount is coming into the country through Internet sales. Does that create as big a problem then as piracy for the industry in Australia? Mr Speck—I see the Internet as an emerging law enforcement issue. It is one that people and institutions with more social control than the music industry need to contend with first. CHAIR—But I understand that the Internet is legal if I am purchasing for my own purposes. I can put in an order and purchase into Australia. We have been given figures—at one time of 2.7 per cent and at another time seven per cent figure, but let us say in rough terms five per cent—for the number of CDs being purchased in Australia that are purchased through the Internet. The suggestion is that that will continually increase because of the cheaper prices that people can obtain for that product overseas and, therefore, chances are that people purchasing through the Internet will overtake in any event the purchase of pirated material within the country. Do you have any view about how that may impact on the totality of the industry if, because of the price differential, 30 per cent or 40 per cent or more of product is brought in from overseas via the Internet? Mr Speck—I have no doubt that the industry will adjust to meet any emerging technological trend in customer service delivery, but there is a whole range of issues involved—for instance, the importation of sound recordings that contain racial vilification, pornography, et cetera. Your contention is, sir, that if it is imported for individuals, then it is legal. If that is the benchmark for our barrier control, then that kind of material has the capacity of entering the marketplace. As for whether or not it will affect prices, I do not know. I am here in my capacity as a law enforcement expert. Senator McKIERNAN—Thank you for providing us with a copy of your submission to the IDC. I expect after the IDC received that submission they immediately got on the phone
LEGAL AND CONSTITUTIONAL L&C 132 SENATE—Legislation Wednesday, 4 February 1998 to talk to you further about the array of matters that are contained in the submission. Can you tell us what actually happened? Mr Speck—Eventually a person contacted me from the IDC. He came to Sydney and we had a meeting at my office. Senator McKIERNAN—Were the concerns that you have expressed in this submission, which is six to seven pages plus the appendices, listened to, and, if they were, were they reflected in the bill? Mr Speck—Quite clearly they were listened to. I do not think they were acted on. There is limited reflection of our concerns in the bill, and that reflection is a poor one and ineffective one. Senator McKIERNAN—What other contact do you have in a formal, official sense with government or government instrumentalities? Mr Speck—We liaise frequently with members of the Australian Customs Service and with members of the Australian Federal Police. That is about it. Senator McKIERNAN—Were you able to give this submission to the AFP or the Customs Service or at least make them aware of it? If so, did they have a reaction or a response? Mr Speck—I made it available to the Australian Customs Service and also to the Australian Federal Police. I understand the Australian Federal Police made a submission to the IDC. My understanding for that is generated by the fact that a member of the Australian Federal Police contacted me for some information about the nature of parallel importation. Senator McKIERNAN—It is interesting that whenever a nerve is hit you get a reaction. We have seen this consistently throughout the hearings. That, to me, shows that a great big barricade has been put up in defence rather than the hearings being used as an exercise in listening and learning, as was the instance in many of the committees that I served on in the previous government. It is unfortunate but— CHAIR—Senator Murphy was given notes by industry representatives yesterday as well. It has gone both ways, and I think it is a bit of a cheap point to make. Sure, I am getting notes from time to time from people but your Labor colleague yesterday was similarly getting notes from industry representatives when I was asking questions. So it goes both ways. Senator McKIERNAN—How long has MIPI been in existence? Mr Speck—Nearly four years now. Senator McKIERNAN—Why were you set up by the two organisations that fund you? Mr Speck—As I understand it, the anti-piracy unit was reconstituted to more efficiently deal with the investigation of sound recording infringements, to take a more holistic approach to identifiable offences and to participate in any transnational actions that took place. Senator McKIERNAN—What investigatory powers do you have? Do you have the power of apprehension? If you know of somebody who is in the act of committing an offence, can you apprehend them? Do you have, as it were, tacit policing powers? Mr Speck—The only investigative powers we get that have a legislative or lawful basis are the common law powers at a state level and section 13 of the Commonwealth Crimes Act. It is very limited. Senator McKIERNAN—You would be aware that recently both the Australian Customs Service and the Australian Federal Police have had their resources cut back. Has that had an impact on your work with those law enforcement bodies?
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Mr Speck—It has had a noticeable impact. There has been a complete shift in customer service delivery from those organisations. Where, in the past, these people would have given the impression of being able to offer every assistance in every possible instance, they now clearly say to you that they do not have the resources to investigate matters, that any matter we ask them to investigate will be prioritised, that is put in a queue, and that it may well be possible we will receive some investigative assistance. We have been very lucky, compared with some copyright owners, so far as assistance is concerned from the Australian Federal Police and the Australian Customs Service, and that is because we spend so much money preparing the brief of evidence before we go to them. Senator BARTLETT—In relation to the nature of the prioritised material, I have a rough idea of two different types. There may other ones, but the main one, I presume, is stuff that is just direct copies of legitimate material that someone has copied onto a tape or a CD and then put a pretend cover over it. Mr Speck—A clone which is a full copy of the sound recording, the printing on the disc, the slick, the cover and rear of the CD is a counterfeit. A sound recording where the tracks are taken from a legitimate recording, placed on another recording and then the album is given the appearance of somebody else’s product is a pirate. Senator BARTLETT—What about the types that are not actually legally available, like recordings of live performances? Does that come under your— Mr Speck—Yes. I had intended to continue. Senator BARTLETT—Sorry. Mr Speck—The next form of illicit sound recording is the boot, which is an authorised recording of live performances in certain circumstances. That is a large market in itself. You might be pleased to know that two of the world-class bootleg operations that exist globally are Australian. They operate out of Australia. In fact, one operates relatively close to a law enforcement agency building and that law enforcement agency indicated some two years ago that it was not a matter within their purview. The bootlegs are very expensive products made at no cost to the bootleggers. A bootleg of the 1972 concert of, say, Led Zeppelin in Melbourne will be about $70 and nobody, except the offenders, gets any money from that. The government does not get any money; nobody gets any money. A copy of Mick Jagger singing at the Kardomah Cafe, when it existed, is worth $70 to $110 in the marketplace. I can give you the names of stores or retailers that sell it now, openly, without any fear of prosecution. Nobody gets any money from that, except the offenders. The next form of illicit sound recordings that exist are the sound-alikes, the recordings that are clearly deceptive. The punter does not know he has been dudded until he sticks it in the machine when he gets home. He has some non-Anglo-Saxon person purporting to be a well- known Anglo-Saxon artist, invariably, or a bad quality recording of something else. It is a relatively common occurrence for us at MIPI to hear from people who have purchased in good faith sound recordings where you can hear the needle or the stylus hitting the vinyl, where you can hear people heavily affected by colds suffering from those colds while the concerts are being recorded. They are the large bulk of the recordings that I would describe as illicit. There is another body of recordings that fit all those categories that are designed to be delivered within corporate shells. They are backed up by a wealth of bogus and fraudulent documentation that often takes years and years to disprove, and it completely reverses the whole process. It is an ideal example of why the reverse onus of proof would not work. These
LEGAL AND CONSTITUTIONAL L&C 134 SENATE—Legislation Wednesday, 4 February 1998 people present themselves with an array of documents that prove that they own this material, that it has existed for a long time, and it takes many years to prove that that is not the case. Often we are looking for people who worked for companies in the 1960s, and that is a frequent occurrence now. Given a lesser risk of detection, we are going to see a whole lot more of it. Senator BARTLETT—Statistics and information you provided at the end of your submission give a lot of information about other countries’ piracy rates, so I presume you would have a fair idea of trends in that area. One of the allegations that has been made in a number of submissions in relation to Norway was that piracy increased fairly dramatically when they introduced parallel imports. Mr Speck—Yes. Senator BARTLETT—And ACCC seem to believe that not to be the case. Are you aware of— Mr Speck—Yes, I am. With the Norway example, the level of piracy increased markedly. It was clearly noticeable in the marketplace. I dispute the figure, I dispute the methodology. It was still obvious to the investigators that there was a dramatic influx of pirated material. Singapore is another example. It is clearly obvious to a seasoned traveller that there is now a significant influx of pirated material. Once the barriers were freed amongst the European Union states, the anti-piracy investigators put aside the methodology and put aside the collection of statistics altogether. The anti-piracy people were the busiest people in the music industry in most of those countries. The nature of the offences changed; the virulence of the operators changed. Clearly there is an increase in piracy, given an increased opportunity coupled with a decreased opportunity of prosecution. Senator BARTLETT—At the moment under the current set-up, to detect pirate copies or to determine whether something is pirated—and I guess that would apply with duplicates or whatever, rather than bootlegs— Mr Speck—Yes. Senator BARTLETT—Basically all you need do is contact the authorised importer. You have got one spot to go to, and that can tell you straight away; is that right? Mr Speck—It is a very simple process for anyone that lives, eats, breathes and gets to work to know that certain artists belong to certain owners in this country. If that benchmark were removed, it would take a very sophisticated system and, I would suggest, considerable resources to replace it as effectively, or even come close. The very nature of how these people will profit from this marketplace will change dramatically. I am not talking about how much the publisher will lose, how much an artist will lose; I am talking specifically about how much these people will make. It is impossible to tell. If the benchmark does not exist, I defy anyone—presented with a professional, sophisticated, pirated copy of a sound recording—to produce a plausible identification method which just is not completely opposed to the whole process of trade facilitation that is supposed to exist at the barrier. You would have to wholesale stop importations of material and undertake fairly laborious scientific testing to identify anything. Senator BARTLETT—Is there any priority that either you or the industry gives between stamping down on your duplicate-type pirates versus your unauthorised live recordings, or do you just tackle whatever you can find? Mr Speck—In the past 3½ to four years we have started with the largest and worked our way backwards. I can say that that ensures I have a lengthy career in the Australian music
LEGAL AND CONSTITUTIONAL Wednesday, 4 February 1998 SENATE—Legislation L&C 135 industry. And there are still plenty to go—still plenty of the people we identify early operating, or conducting themselves, albeit in a different form, still living in that grey zone commercially. Senator COONEY—The evidence you have given is fairly vital evidence. I was wondering whether you could qualify yourself, either in writing, if modesty requires you to do so, or just tell us what experience you have had in investigations. Obviously it is not the first time you have given evidence, I would have thought. Mr Speck—I have given evidence once or twice before, Senator. I joined the New South Wales Police Service as a cadet when I was 16. After being sworn in, I had some experience in general duties before undertaking criminal investigation duties, together with special weapons and operations squad duties. Subsequent to that, I performed duties with the special forces group as an operative, a trainer and a state adviser. Senator COONEY—What do the special forces do? Mr Speck—It is a permanent undercover operation conducted by the New South Wales police. Subsequent to that, I was a senior investigator, supervisor and relieving commander at various units and task forces at the Drug Enforcement Agency and the major crime squad in the north-west region of the New South Wales police. Since 1994, I have been the manager of investigations for MIPI itself. I undertake lecturing in investigation methods at various places. I am a technical adviser to the Indonesian police on copyright enforcement, and I also assist other agencies where required. Senator COONEY—Can I ask how old you are now? You joined the force when you were 16. Mr Speck—I am 38 now. Senator COONEY—In the evidence you have given today, have you drawn on that experience? Senator COONEY—Yes, I have. CHAIR—Thank you, Mr Speck. That concludes today’s proceedings. Committee adjourned at 1.46 p.m.
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