Book industry strategy group

FINAL REPORT TO GOVERNMENT SEPTEMBER 2011

BOOK INDUSTRY STRATEGY GROUP 1 © Commonwealth of Australia 2011

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Department of Innovation, Industry, Science and Research, GPO Box 9839, Canberra ACT 2601.

ISBN 978-1-921916-21-2

DIISR 11/129

Editing by Wilton Hanford Hanover

Design and artwork by GRi.D

Printed by Elect Printing, Fyshwick

Acknowledgments

The Chair and members of the Book Industry Strategy Group would like to acknowledge the generosity of the following organisations in providing data for the research into the Australian book industry:

» Australian Publishers Association » Copyright Agency Limited » Nielsen BookScan

Printed on Pacesetter Satin, which has ISO 14001 (Environmental Management System in use), FSC (mixed sources — product group from well-managed forests and other controlled sources. Also produced using elemental chlorine-free (ECF) pulps.

BOOK INDUSTRY STRATEGY GROUP 2 Letter Senator the Hon Kim Carr Minister for Innovation, Industry, Science and Research Parliament House Canberra ACT 2600

Dear Minister On behalf of the members of the Book Industry Strategy Group, following the review requested by you in April 2010, I present the Group’s report on the Australian book industry. In setting up this review, you asked that the Group assess the impacts of digitisation on the whole book supply chain. Since work began on the review, the speed of change has escalated and major impacts have already been felt within the Australian industry. The closure in Australia of 130 Borders and Angus & Robertson bookshops, although not solely resulting from digitisation, demonstrates the scale of change that is occurring. The findings and recommendations contained within the report reflect the need for government and industry to work together to achieve the reforms required for the Australian industry to compete effectively within the global market. The industry recognises the need to innovate and to invest in infrastructure to sustain a local industry which, in turn, supports the development of Australian content and creativity. In presenting this report to you, I would like to acknowledge the dedicated contribution made by a broad group of people. First, I thank the members of the Group, especially my Deputy Chair, Louise Adler, who made a major commitment of time and resources to produce this report. In addition, I recognise the contributions made by the hundreds of consumers and industry operators who participated in the Group’s consultations. Officers from your Department were exemplary in their support, energy and expertise. The Book Industry Strategy Group records its appreciation to you, and them, for providing the resources to make its work possible. I am also grateful for the work of my technical adviser, Dr Dennis Perry.

Yours sincerely

The Hon Dr Barry Jones AO Chair, Book Industry Strategy Group 30 September 2011

BISG members Ms Louise Adler, Deputy Chair Mr Philip Andersen Mr David Barnett Ms Lorraine Cassin Mr Graeme Connelly Mr Tom Crago Mr Alan Fahy Mr David Gaunt AM Mr Ross Gibb Mr Alexander Grant Mr Angelo Loukakis Mr Emmett Stinson

BOOK INDUSTRY STRATEGY GROUP 3 Mr Chris Warren

BOOK INDUSTRY STRATEGY GROUP 4 Contents

Letter of transmittal 3

Terms of reference 7

Executive summary 8 List of recommendations 11

Prologue: Cultural development and creativity in the digital revolution – a personal perspective 15

PART 1 UNDERSTANDING THE BOOK INDUSTRY 21

1 Introduction 21 Note from the Chair 21 The scope of this review 22 Policy background 24

2 Economic contribution of the industry 27 Sales income 27 Exports 30 Employment 33 Investment and innovation 33 Regional impact 34 Economic contribution by subsector 34

3 Current operating environment 39 Technological change 39 Changing consumer preferences 41 Emerging trends in digital readership 44 Response by the Australian book industry 48 A competitive environment 53 Commercial uncertainties 58 Copyright and piracy 60

4 Book industry SWOT analysis 61

PART 2 TRANSFORMING THE INDUSTRY 64

5 Industry transformation strategy 64 Competitive advantages 64 Opportunities 64 Actions 65 Industry outcomes 65 The future 65

BOOK INDUSTRY STRATEGY GROUP 5 6 Recommendations 68

Integrating the book supply chain 69 RECOMMENDATION 1: Book industry collaboration 69

Competing effectively in the global book market 71 RECOMMENDATION 2: GST and price 71 RECOMMENDATION 3: Postal rates 74 RECOMMENDATION 4: Parallel importation of books 76 RECOMMENDATION 5: Export support 77

Improving supply chain efficiencies 81 RECOMMENDATION 6: Book distribution network 81 RECOMMENDATION 7: Digital infrastructure 83 RECOMMENDATION 8: National university press network 85

Rewarding and protecting creativity 88 RECOMMENDATION 9: Digital copyright protection 88 RECOMMENDATION 10: Lending rights for ebooks 90 RECOMMENDATION 11: The statutory licence for education 91 RECOMMENDATION 12: Protecting copyright online 92

Supporting the business environment 95 RECOMMENDATION 13: Digital skills development 95 RECOMMENDATION 14: Statistical data 96 RECOMMENDATION 15: Small business development 97 RECOMMENDATION 16: Book print industry reform 99 RECOMMENDATION 17: Digital content for schools 101 RECOMMENDATION 18: Tertiary education materials 103 RECOMMENDATION 19: Tax support for authors 106

Supporting Australian culture 109 RECOMMENDATION 20: Literature Board review 109 RECOMMENDATION 21: National Book Council 111

APPENDIXES 114

Appendix A 114 The Book Industry Strategy Group 114

Appendix B 115 Addressing the Book Industry Strategy Group terms of reference 115

Abbreviations and acronyms 126

References 127

BOOK INDUSTRY STRATEGY GROUP 6 Terms of reference

The Book Industry Strategy Group’s terms of reference recognise that digital technologies are changing the way books, both printed and digital, are being produced and delivered, and the expectation that books delivered on digital platforms will command a growing share of the market.

The terms of reference are:

1 What digital platforms for books are available in Australia, how they work, what features they offer, and how extensively they are used. 2 How fast the market for digital delivery of books will grow in Australia and internationally, what factors might slow or hasten that growth and what is the relative position of printed books. 3 The potential size and structure of the Australian digital and printed book markets, taking into account (a) demand from individuals, libraries, government agencies, and research, educational and cultural institutions; (b) the needs of the aged and people with disabilities; and (c) the needs of regional and remote communities. 4 How the supply chain for trade, educational, scholarly, scientific and technical books has been, and will be, affected by digital technologies, taking into account the impact on authors, publishers, printers, wholesalers, retailers and consumers.

5 Options for encouraging efficiencies in the supply chain for printed books, integrating it with digital delivery of books on a global scale, and increasing the overall competitiveness of the Australian book industry. 6 (a) How business models are likely to change in the digital environment; (b) how this is likely to affect business models for printed books; and (c) what can be done to facilitate these changes. 7 Opportunities for the Australian book industry to participate more actively in the global marketplace for printed and digital books over the next decade, including by creating, adopting, and using new technologies. 8 How existing Commonwealth programs and activities can be refocused to support the industry’s adaptation to new technologies.

BOOK INDUSTRY STRATEGY GROUP 7 Executive summary

The traditional book supply chain in Australia – authors, publishers, printers, booksellers – is changing at an unparalleled pace. The emergence of digital technologies is affecting book production, publishing, distribution, marketing, communications, online retailing and consumption. In addition, digitisation and globalisation are eroding the protections formerly provided by Australia’s geographical barriers, forcing its book industry to compete in the global marketplace. In spite of these changes, the impacts of digitisation and globalisation are creating, and will continue to create, opportunities for the book industry. However, books are more than an industrial output, as conventionally defined. The book culture must be stimulated and transformed. Publishing must not be looked at only in terms of its economic value but also of its relationship to culture and education in general. The opportunities presented by the digital revolution should be welcomed and the publishing industry should be moving fast to adapt. Publishers, governments and institutions should be looking for imaginative links between themselves, including, for example, opportunities for Australian universities to combine to create a major academic publishing house for ebooks and print books. In order for the Australian book industry to continue to serve its critically important cultural and educational role, its economic viability must be assured. In the current environment, where protective barriers brought about by distance or other market protection mechanisms are being lowered, continued economic viability simply means achieving the most efficient and competitive connections between content creators and consumers, whether local or international. Over the past decades, and particularly since 2000, the Australian book industry has been very successful at making these connections and, as a result, has created value for the Australian economy. This value is represented through sales income, exports, and employment. While investment data are lacking, book printing, distribution, publishing and, more recently, booksellers are investing in new technology and adopting innovations to assist in adjusting to the new operating environment. Finally, book printers continue to make a significant contribution to supporting regional development in areas where their facilities are located. In 2010, the total value of books sold in Australia (in both print and electronic formats) is estimated at $2.3 billion. This is expected to grow to $2.8 billion by 2014, with an increasing contribution estimated at 24.3 per cent of that total comprising ebook sales. The factors that will influence this growth include the state of the Australian economy, consumer preferences, tablet and ereader penetration, the availability of ebooks and the potential substitution of print books by ebooks. In 2010, Australian book publishers exported an estimated $225 million in books. Of this, approximately two-thirds (or $144 million) were trade books, and the remaining third (or $80 million) was educational books. Total book exports accounted for 12.2 per cent of publisher revenue in 2010. Despite performing strongly during the early 2000s, the value of Australia’s book exports did not keep pace with the value of Australia’s total merchandise exports over that past decade. However, the value of book exports increased at a stronger rate than the value of exports for miscellaneous manufactured articles and food and live animals. The key markets for the export of Australian books, in order of size, were the United States, New Zealand, the United Kingdom and Canada. Approximately 25,000 people were directly employed in the book industry in 2010 through authoring, printing, publishing and retailing. However, there is also significant indirect employment in the book business. The employment contribution of the book industry is particularly significant in book printing. The industry has a regional impact in communities such as Maryborough in Victoria, where McPherson’s is a major contributor to that region’s employment.

BOOK INDUSTRY STRATEGY GROUP 8 Innovation in the production, distribution and accessing of reading material is forcing more changes in the local industry. In recent years, the major book distributors have invested heavily in improving the efficiency of their distribution networks. Online book retailers have also emerged in the domestic market and are investing in digital and online sales facilities while others are initiating innovative, collaborative arrangements with other players to improve competitiveness. New online book sellers include Booktopia, TheNile , QBD, Boomerang Books, Dymocks, Borders/Angus & Robertson (now owned by Pearson), Fishpond and Collins. Book printers have also increased their investment in new technologies to improve their capacity to respond quickly to market demands. These investments have been in digital and print-on-demand technologies. Local investment opportunities are also attracting overseas investors to the Australian book market. For example, on 16 June 2011, US-owned wholesaler Ingram announced the opening of its Lightning Source Australia printing operation in Victoria. The operating environment for the book industry is changing at a rapid rate. These changes are being driven by technology that is challenging the established notion of a book, which can no longer be defined only as a physical object with printed pages between two covers. This new notion of a book, combined with more reliable and safer ecommerce transactions, has facilitated major changes in how books are produced, distributed, sold and accessed. The technological changes have had two major effects on the book industry. First are the opportunities to change the supply chain and create new business models; the second is the globalisation of book markets. A third related impact is the weakening of territorial copyright regimes. These changes are now evident in the Australian book industry. In Australia, ebook sales made a slow start, largely due to the lack of acceptable reading devices. However, since October 2009, when Amazon released its Kindle eReader globally, a wide range of ereader options have flooded the Australian, and most other, markets, and ebook sales have increased correspondingly. Australian consumers now have access to a broad range of ereader devices. It is expected that the growth in ebook sales in Australia will accelerate now that a broader infrastructure has come into place to support consumer adoption of ebooks. The challenges confronting the book industry do not occur in a vacuum. They are part of a broader pattern of change within the media and creative industries. These changes do not undermine demand for creative content, but they are challenging the business models that have sustained profitable industries, such as newspapers or free-to-air television. The pressure on the broader industry both flows over to the book industry and acts as a feedback loop, intensifying the challenges the book industry faces. While technology is an enabling force, consumer preferences are driving the changes in book production, distribution and consumption. According to the Australian Consumer and Media Authority, four in five Australians have access to an internet connection at home and are increasingly embracing the digital economy. Between November 2010 and May 2011, 88 per cent of household internet users carried out one or more ecommerce activities and 69 per cent purchased at least one good or service. The authority found that age, gender, household income, level of education and employment influenced the level and way in which consumers engage in ecommerce. In general, consumers with higher levels of education, income and in some form of employment were more likely to engage in ecommerce. The survey conducted for the Book Industry Strategy Group by TNS Global confirmed a number of the authority’s findings. Australian men were more likely to purchase an ebook, and younger age groups (between 18 and 34 years) purchased as many ebooks as all other age groups combined. Individuals who made submissions to the Book Industry Strategy Group generally embraced digital technologies such as ebooks and purchasing books online. A majority of respondents in the category of ‘individuals’ said they read ebooks, and a significant majority noted that their use of ebooks complemented their use of print books. Those who have embraced ereading technologies said that ebooks were convenient

BOOK INDUSTRY STRATEGY GROUP 9 to access, easier to store and search, and were hugely beneficial for people in remote areas or with disabilities. A majority of respondents saw great benefits in ebooks, but consumers have expressed some frustration with the transition to digital books. Some of their key concerns include the myriad of ebook formats and device interoperability; high initial start-up costs to purchase ereading technologies; a lack of titles available for download in Australia; and the price of ebooks, particularly as they have no resale value and sharing is difficult. Consumer groups, including libraries and educational institutions, identified significant benefits from ebooks and digital technologies, while noting the drawbacks relating to access, affordability and copyright. The Australian market for ebooks is expected to grow, but this growth will depend on a number of factors, including the penetration of ereaders and the availability of ebooks. Drawing on the available evidence, the market research conducted for the Book Industry Strategy Group concluded that in the short to medium term, ebook sales are likely to expand the total market for books. However, the longer-term scenario for the impact on printed book is unclear. According to PwC (2011) the market forecasts for the international ebook market project that ‘the worldwide ebook market [will] grow at a compound annual rate of 42 per cent from 2009 to 2012’, increasing from approximately $4.6 billion in 2009 to $13.2 billion in 2012. The Australian book industry has been adjusting to these technological changes, and digital technology is employed to varying degrees along the supply chain. Australian authors make extensive use of digital technologies in their work. The publishing sector is also employing digital technologies, although the impact of digital platforms varies between publishing subsectors. To remain competitive, Australian book printers have adopted a wide range of digital technologies. Digital printing allows books to be reprinted economically in small numbers; set-up costs are lower, and the cost per copy is more constant across the print run. However, in spite of these changes, the Australian book printing industry is also finding it difficult to compete on price with overseas printers, especially in China. As a result, over the past two decades revenue generated by the book printing industry has declined gradually, from $250 million in 2001 to $220 million in 2010, because of the increasing use of overseas printers by Australian publishers. Australian book retailers are experiencing the greatest impact of digitisation, ebooks and ecommerce. During the past decade, the bricks-and-mortar firms have been joined by a number of Australian online-only book retailers, some of which have enjoyed rapid growth. However, existing bricks-and-mortar bookshops have been slower to change and are experiencing greater competitive pressures from international, online retailers. The competitiveness of Australian booksellers is likely to be further challenged by the proposed purchase by Amazon of the Book Depository. These companies can sell books at a more competitive price in the Australian market than local booksellers. This is because they can buy books at a cheaper wholesale price; pay a low postage rate to Australia; and not required to impose the 10 per cent goods and services tax on books when the total value is under $1,000. The current exchange rate also favours overseas purchases. The exchange rate, in real terms, is at its highest level since the mid 1970s. Over the year to September 2011, the Australian dollar has appreciated by 15.4 per cent against the US dollar, by 8.3 per cent against the trade-weighted index of currencies, and by 5.2 per cent against the euro. The strong dollar is a challenge for all Australian trade-exposed industries. It has raised the price of the goods that Australian manufacturers sell in overseas markets and intensified competition from cheaper imported goods, including books. Australian book retailers are disadvantaged by a distribution system that is comparatively slow and inefficient. While book distributors have improved their

BOOK INDUSTRY STRATEGY GROUP 10 distribution systems, booksellers continue to have difficulty accessing titles in a timely manner. As consumers now have the choice of accessing titles online, there is a substantial sales leakage overseas. In addition, Australian retailers do not yet have a comprehensive digital distribution system to help them to compete with their international rivals in the domestic or international markets. The increasingly competitive environment is also clouded by some commercial uncertainties surrounding the sale, loan, and licensing of ebooks, particularly in relation to the holding of ebooks by libraries. These uncertainties, along with concerns about copyright and piracy (which is potentially much easier to commit in a digital environment), may erode the incomes of authors and publishers. The Book Industry Strategy Group has identified these as issues to be addressed by both industry and government in order to continue to provide incentives to Australian content creators. In spite of these challenges, the Australian book supply chain has significant strengths on which to build a competitive industry into the future. Among these are the creative capacities of Australia’s writers and illustrators, including a number of who are internationally acclaimed; a healthy and vibrant publishing industry; an efficient book printing sector with the capacity for quick turnaround times; a strong independent book retailing sector; proximity to the growing markets of India and China; an efficient royalty collection system; and the rollout of the National Broadband Network, which will provide the infrastructure necessary for an expansion of ecommerce. The Book Industry Strategy Group has set the following vision for the Australian book industry: To ensure that the Australian book industry is innovative, prosperous and sustainable for the long term, develops Australian creators and creative works and encourages investment in new technologies. The Book Industry Strategy Group believes that this vision can be achieved by a strategy to transform the book industry. This strategy would be implemented over the next three to five years, and would be embedded in a process of continual review and renewal. The transformation strategy requires the industry to recognise its competitive advantages and seize its opportunities for growth, innovation, investment and increased efficiency. Specific actions will be required to improve supply chain efficiency, encourage industry investment, develop industry skills, encourage creativity and develop new markets. To achieve the industry vision by 2020, the Book Industry Strategy Group has made a suite of recommendations aimed at integrating the book supply chain, enhancing competitiveness in the global book market, improving supply chain efficiencies, rewarding creativity, supporting the business environment and supporting Australian culture. These recommendations have been grouped into six themes that reflect the areas of core focus. A detailed discussion on the rationale supporting the BISG recommendations begins on page 50 of this report.

List of recommendations

The Book Industry Strategy Group recommends:

INTEGRATING THE BOOK SUPPLY CHAIN 1 That the Australian Government establish a Book Industry Collaborative Council with membership from all parts of the book value chain, which is tasked with implementing the industry reform priorities identified by the Book Industry Strategy Group and

BOOK INDUSTRY STRATEGY GROUP 11 other issues as they emerge.

COMPETING EFFECTIVELY IN THE GLOBAL BOOK MARKET 2 The Book Industry Strategy Group urges the Government to recognise the competitive disadvantage being imposed on the Australian book industry as a result of GST inequity. In recognition of the broad range of considerations for government on this issue, the Book Industry Strategy Group offers three alternative recommendations: a That the Government take appropriate action to abolish the 10 per cent GST on books purchased in Australia, noting that in the United Kingdom and Ireland, and in most OECD member countries, books are either exempt from VAT or taxed at a reduced rate or b That the Government provide greater equity in competition for Australian retailers by applying the 10 per cent GST on books sold by overseas retailers to Australian consumers or c That the Government recognise the disadvantage placed upon Australian booksellers as a result of GST inequity when competing with international online retailers and support the Book Industry Strategy Group’s suite of recommendations. 3 That the Government initiate negotiations with the Universal Postal Union to secure amendment of the appropriate postal treaties to provide more equitable and competitive pricing for print post delivery, where Australia is currently severely disadvantaged. 4 That the Australian book industry (authors, printers, publishers and booksellers) formalise an agreed, industry-wide code of practice that will reduce the timeframe for retention of territorial copyright from 30/90 days to 14/14 days without the need to amend existing legislation. To support this, TitlePage will provide information to booksellers on the PIR status of individual titles. The code will be reviewed at the end of 12 months and subsequently at determined intervals to assess its effectiveness. 5 That the proposed Book Industry Collaborative Council work with Austrade to improve the support provided to the book industry to enter export markets. This may include working with Austrade to develop a long-term book industry export strategy to promote Australian books, including educational material, to the world, especially the Asia–Pacific region.

IMPROVING SUPPLY CHAIN EFFICIENCIES 6 That the book industry establish a goal of 48 hours turnaround for fulfilling Australian reseller orders. In seeking to achieve this, the Government should support the proposed Book Industry Collaborative Council in its task of improving the efficiency of the book distribution network through rationalisation, standardisation and consolidation, as its key priority over its first three years. 7 That the Government provide funding of $5 million for the development of the stage two TitlePage enhancement to develop the digital infrastructure required for an efficient, cost-competitive and secure online service to consumers that is comparable in promotion, range and functionality to that of the main offshore retailers. 8 That the Government provide financial support to establish a National University Press Network of $10 million over a two-year period, matched by $6 million from the university sector, for three related projects: a a publication subsidies scheme – $6 million over a two-year period; 97 per cent of these funds will be used to subsidise scholarly publications in the humanities

BOOK INDUSTRY STRATEGY GROUP 12 and social sciences b marketing and distribution infrastructure – $2 million over a two-year period c production infrastructure – $2 million over a two-year period.

REWARDING AND PROTECTING CREATIVITY 9 That, as copyright is fundamental to the viability of the book industry: a issues relating to digital books form part of the Australian Law Reform Commission’s upcoming review of digital copyright b the Australian Law Reform Commission consult directly with the book industry through its author and publishing associations. 10 That: a Australian publishers work to clarify the business model for the use of ebooks in libraries b following that, the Government establish a framework and guidelines for how ebooks may become a part of the ELR/PLR schemes. 11 That the Government actively monitor the implementation of the statutory licence for education to ensure that it meets its dual objectives of enabling instant use of material for educational purposes while ensuring the ongoing development of materials used in education. 12 That the Government: a work, through the Attorney-General’s Department, with the content and internet industries to ensure adoption of a binding industry code on copyright infringement by internet service providers and their customers in accordance with the legislative framework in order to combat and defeat piracy b consider facilitating discussions between copyright owners and internet service providers over remuneration for copyrights accessed through the internet service providers.

SUPPORTING THE BUSINESS ENVIRONMENT 13 That the proposed Book Industry Collaborative Council develop a comprehensive skills strategy, which addresses training needs for all parts of the book supply chain as a matter of priority and that it then works with peak industry associations, employers and unions to progress implementation and ensure alignment with relevant industry training packages. 14 That the Government and the book industry share the cost of reinstating collection of book industry statistics by the Australian Bureau of Statistics and that survey collection commence in the 2012–13 financial year. 15 That the Government, through new or existing grants programs, support the introduction of (a) business development programs for new and proposed digital enterprises, including for authors, publishers and booksellers, and (b) training grants to enable small business to invest in digital skills upgrading for staff. 16 That the Government recognise the significant structural shift occurring within the Australian book printing sector and provide a structural adjustment program to facilitate the transition of the sector into the future. As part of the structural adjustment process the Government should: a allow necessary industry consolidation for large-scale book printers b introduce a support package for displaced employees and regional communities impacted by labour reductions inherent in new digital production technologies and industry consolidation

BOOK INDUSTRY STRATEGY GROUP 13 c where appropriate, adjust the eligibility criteria of relevant existing industry support programs to improve access for the book printing sector d make the printing of a book in Australia a condition of receiving government assistance for developing and publishing a book e assist the industry to promote the environmental and employment advantages of buying a book printed in Australia f provide financial support for printers encouraging technology reinvestment and facilitating business transformation in response to a digital future incorporating print on demand and short-run printing. 17 That the Government reallocate $30 million over three years from the existing Digital Education Revolution funding for the purchase of digital teaching and learning resources administered through a market-based mechanism that directs government spending to the purchase of digital learning materials. 18 That the Government, in order to stimulate the development of quality higher education teaching and learning materials: a allocate 10 per cent of the $50 million funding from the Promotion of Excellence in Learning and Teaching in Higher Education program to a grants program that supports the development of quality, innovative teaching and learning resources for the higher education sector b develop a reward/recognition system which promotes teaching excellence and authoring of quality educational materials and thereby creates greater balance with the research focus of the Excellence in Research for Australia (ERA) program. 19 That: a the Government legislate to make tax exempt all literary prizes, awards and grants that are funded and administered by government, whether local, state or Commonwealth b the Government implement an income deposits tax measure, following the precedent of the rural (farm management) deposits scheme, to assist with management of fluctuations in artists’/authors’ incomes over time.

SUPPORTING AUSTRALIAN CULTURE 20 That the Government encourage a review of the Australia Council’s Literature Board grants allocation processes and criteria, aiming to provide substantial additional funding directly to authors to a minimum $3.5 million per annum thus ensuring the ongoing support of creative authorship in a period of declining remuneration. 21 That the Government work with key industry sectors and associations to create a National Book Council as a new, specific partnership. The National Book Council’s roles would include: a provision of additional funds to writers for the creation of new Australian works b the development of attractive financial investment models with potential return to government and individual investors c funding of a multiyear marketing campaign for the promotion of Australian writers both nationally and internationally.

BOOK INDUSTRY STRATEGY GROUP 14 Prologue: Cultural development and creativity in the digital revolution – a personal perspective

The Hon Dr Barry Jones AO, Chair, Book Industry Strategy Group

BOOKS AND PERSONAL DEVELOPMENT The book, originally as a scroll, then as a codex, has been critical to the transmission of ideas, narrative, information and beliefs for 2,500 years, from the time of Homer, Gilgamesh and the Pentateuch. Judaism, Christianity and Islam are all ‘faiths of the book’. Print books have been important in religious practice, learning and recreation for 500 years. Books, whether in traditional or electronic form, are a vital part of our culture, a metaphor for individual, autonomous learning, in which the reader can stop, annotate, ponder, start again, re-read an earlier passage, reconsider and continue at an appropriate rate. Isaac Newton, in the plague year, returned to the country when Cambridge closed, and with books he had bought or borrowed he had a small library of advanced mathematics. He built on this foundation of European mathematics to become the world’s paramount mathematician (Gleick 2004). It is difficult to see how Newton’s work would have developed without the thousand- page commonplace book that became his research journal – the Waste Book. But now we have Stephen Wolfram’s ‘new kind of science’ – page after page of computer graphics – impossible without powerful computers (Wolfram 2002). Whether this form of science will have the same impact as Newton’s remains to be seen, but it fits in with transformations in the nature of reading, writing and learning Reading, especially of books, has had a profound influence on personal development. According to the work of Sir Michael Marmot, an eminent Australian health researcher in England, parents reading to children is a contributing factor to happiness and longevity. It remains to be seen how far this practice will survive or flourish in the digital revolution. Reading has been central in growth, self-discovery, cultural transmission, literacy, aesthetics, values, creativity, personal development, narrative power, cultivating the imagination, pursuing the poetic, achieving psychological insights, encouraging evidence-based judgment, preservation of memory – both personal and collective – and acquiring essential knowledge. Traditionally, books were central to the creative process, involving writers, artists, designers, editors, publishers and support staff, then printers, distributors and booksellers. The book became deeply significant for readers, in schools, universities, libraries, and at home, for recreation, stimulation or instruction, especially after literacy rates rose in the 19th century. It is essential to ensure that, in the name of the digital revolution, we don’t discard the old regime. Irreplaceable aspects of traditional publishing should be identified and preserved. We read and write differently on screens: to read and write on them exclusively might have a profound effect. Language, for instance, would be bound to suffer – as it already has with the rise of technocracy and managerialism. According to renowned Australian writer Don Watson, Books are objects of love, especially among children. What they draw from them, therefore, probably cannot be replaced by a digital device, which they may love as a piece of technology but not as a book, an object of enchantment or knowledge in

BOOK INDUSTRY STRATEGY GROUP 15 itself. We research differently and find different information when we look in books. Looking up my old three-volume Webster’s for a word, I find things I do not find when I check a word on the digital Webster’s. It’s the same when I browse shelves in the State Library. The human dimension of books – the tactile thing – is not unimportant, nor are the jewels of serendipity. We should be teaching a love of words and ideas from the very beginning – that, and training teachers to do it, is the best guarantee of a healthy publishing industry – and a more than useful contribution to a successful economy and a richer culture. Jason Epstein (2011), the veteran editor of the New York Review of Books, asserts: ‘Far more than any other medium, books contain civilisation, the ongoing conversation between present and past’. We live in a cultural, economic and political context where creativity seems to have fallen out of the lexicon and our approach to issues is increasingly managerial, instrumental and material – and this situation is characteristic of most advanced economies. We look for instant communication, instant responses and instant gratification, in which Twitter speed is central.

BOOKS AND THE DIGITAL INFORMATION REVOLUTION Redefining the book is increasingly common. Some writers feel it is appropriate to start the taxonomy with the classification of fiction versus non-fiction. Fiction is generally (although Flaubert might have disagreed) a ‘read-once’ book, whereas non- fiction is a reference that is looked up many times. Whether this is a useful classification remains to be seen, and it fails when one looks at lending libraries. However, consider the following statistics about a book on information. American author, journalist, and biographer James Gleick’s The Information: A History, a Theory, a Flood (2011) is sold in bookshops in Australia for A$65.00 in hardback and A$35.00 in paperback. Amazon offers the hardback for US$17.43 (plus postage) and it can be downloaded on Kindle for US$14.15. It is not a hard decision, at midnight, to decide which is the quickest and cheapest way to get the book. The Information is a valuable overview of the information revolution. Gleick refers to Claude Elwood Shannon (1916–2001), the American mathematician who pioneered information theory and promoted the term ‘bit’ (from ‘binary digit’) for the basic unit of information. He calculated in 1949 that the US Library of Congress contained about 100 trillion bits of information. This equates to around 10 terabytes (TB) of disk storage, and could be regarded as the sum of acquired knowledge at the time. In 2011, disk drives of 3 TB are readily available, and in a few years a laptop computer could come with a 10 TB hard drive. Such is the growth of information that the Library of Congress now has a 250 TB digital archive that grows at 5 TB a month. Public tweets, the ephemeral output of the Twitter social media service, are among the material stored in the digital archive. As we seek to access such digital archives, it seems obvious that ereader devices such as Kindles, iPads or Android tablets will be necessary to store and display the material in a convenient way. How the new forms of display will work we do not know, but we know that this is happening and will continue to evolve. An encyclopaedia might be regarded as the perfect example of a non-fiction reference that would survive in print – with regular updates of new material. However, Wikipedia has, in barely a decade, displaced Encyclopaedia Britannica, the Columbia Encyclopaedia and other paper-based reference works and, as Freeman Dyson (2011) observes, ‘… become the biggest storehouse of information on the planet and the noisiest battleground of conflicting opinions’. Gleick sees the digital revolution as a ‘symptom of omniscience’ (2011: 409). It is what the music critic Alex Ross calls the ‘Infinite Playlist’, in which all recorded knowledge can be accessed by the touch of a button, a mixed blessing that brings ‘anxiety in place of fulfilment, an addictive cycle of craving and malaise. No longer has one experience begun than the thoughts of what else is out there intrudes’. Gleick

BOOK INDUSTRY STRATEGY GROUP 16 comments (2011: 409): ‘The embarrassment of riches. Another reminder that information is not knowledge, and knowledge is not wisdom’.

BOOKSHOPS AND LIBRARIES Independent bookshops play an important role in creating a culture; ‘making readers’; developing reading communities; holding events, such as book launches or discussions; acting as intermediaries, providers of information and curators. As providers of information, well-informed booksellers can compete with the internet. In addition to their content, books have been important as possessions, physical objects, important mementos of childhood, gifts or for display, collectors’ items distinguished for beauty or rarity, and the treasures of great libraries. Publishing has provided career opportunities for designers, binders, illustrators, photographers and many other professionals. The new professional opportunities that will be created in electronic publishing are not yet clear, but there will be opportunities. Before the World Wide Web there were no web developers or web designers. The book industry exists in a cultural context, spanning the creators of books – novels, poetry, biographies, travel guides, children’s books, books about cooking, gardening, art and sport – through to consumers – readers – of all ages. Ebooks offer attractive supplements to the printed text. Wolf Hall by Hilary Mantel, a historical novel about Thomas Cromwell, provides in its electronic form an interview with the author by historian David Starkey, coloured maps and reproductions of portraits by Holbein. An ebook of Alice’s Adventures in Wonderland and Through the Looking Glass by Lewis Carroll adds animations of the original Tenniel illustrations. Both are offered at below the price of the printed book. Public libraries, physical depositories of books, journals, magazines and newspapers were essential elements in community education, especially self-education, for three centuries, places where readers were exposed to chance encounters with unfamiliar material and the assistance of helpful librarians. But the very concept of a public library is currently under threat and may appear to some readers as remote as the medieval monastery, especially when they can access the contents of the Library of Congress from their iPads. The Fisher Library of the University of Sydney plans to eliminate 500,000 books from its collection. The University of New South Wales Library is converting library space to lounges, which are more friendly to people using ereaders. It is difficult to imagine any government in 2011 committing large sums to the construction of new libraries. In publishing, many books are printed and promoted even where there is a low expectation of profit because publishers want to encourage younger writers and because a large success for a few titles – the Harry Potter, Millennium and Twilight phenomena – can enable publishers to survive even when many books with small print runs do not recover cost. Finding out about books and book content will change: theoretically access will be much wider, but without person-to-person contact in a library or bookshop. The future of literary journals such as the Australian Book Review (now available online) come under challenge, as will the book review pages in our major newspapers. Bookshops, word-of- mouth recommendations and access to libraries will remain significant for older readers, while electronic systems will dominate choices by younger readers. But it may be that social media services will become a new form of word-of-mouth recommendation.

RESPONDING TO THE DIGITAL REVOLUTION Historically, Australia has generally been slow to adopt new technologies – but, once adopted, the take-up rate is very rapid. Often, we have been rather passive in the development of new technology, preferring to adopt existing technology from overseas. Black-and-white television transmission became common in the United States and Great Britain after World War II but began in Australia as late as 1956. However, the take-

BOOK INDUSTRY STRATEGY GROUP 17 up happened at an unprecedented pace. Colour television, relatively common in the United States and Great Britain in the mid 1960s, only began regular transmission in Australia in 1975; by 1978, 64 per cent of households in Sydney and Melbourne had colour sets. Although Australia built a large stored memory computer by 1949 and had some pioneering capacity in transistors, we failed to exploit either and were late to adopt mainframe computers or – decades later – personal and then portable computers. Japan had a mobile telephone network in 1979 but it was not adopted in Australia until 1987. There are now more mobile phones in Australia than inhabitants. In 2007, in Japan, 10 of the bestselling printed novels were based on cell phone novels, and 86 per cent of Japanese high school students read cell phone novels. Considering this pattern, it is reasonable to assume that even if the take-up of ebooks has been relatively modest until 2011, it may well be very rapid in the immediate future. There have been exceptionally rapid transitions in the retailing and production of videos and recorded music, from 78-rpm discs, to LPs to CDs to MP3s and now to online stores that allow the purchase of individual tracks, rather than the complete performance. Will the successor to the 2,500-year-old codex go the way of vinyl, the LP and photographic film? One aspect of the digital revolution is the speed with which change is possible. Email is a late 20th century development, but there are already attempts to reinvent email by asking the question: ‘What would email look like if it had been invented in the 21st century?’ Email as we know it has been modified to allow the incorporation of multimedia (sound and pictures) and the notion of ‘friends’ and ‘conversations’. The impact of globalisation and technology on the book industry, from authors through to readers, and the complete supply chain in between, remains highly speculative. However, there is merit in considering which likely changes in production can stimulate and increase opportunities for creativity rather than stunting them. A series of important technical changes will transform the book industry as electronic processing or creation becomes cheaper and more user friendly. Currently it costs around $1.50 per page to digitise a printed novel, but more for textbooks with illustrations. Similarly, electronic publishing services are being established to help produce ebooks more easily. Higher labour costs and relatively small production runs in Australia are serious, if not fatal, impediments to overseas competition, and are exacerbate by a strong Australian dollar. It is significant that people are rising to the challenges presented by the digital revolution and trying new ways of communicating and storytelling, in an age when many people think information should be free. This raises the question, ‘What is a fair price?’

‘DEEP READING’ AND ‘SKIMMING’ In the United States and the United Kingdom, book sales, even including ebooks and books bought online, have been flatlining for a decade, while Australian figures indicate a modest growth. Malcolm Knox (2011) speculates that our pattern of reading is a response to the changing nature of work and leisure in which ‘deep reading’, the concentrated pursuit of linear stories and thought , ‘is being trained out of us’ and this may lead to ‘rewiring the human brain’. Norman Doidge (2010), writing about neuroplasticity, argues a similar case. Surveys suggest that, as reading online has increased, reading of print has declined, especially for people in the 25 to 34 year old age group. Are the two ways of readings identical? The English neuroscientist Baroness Susan Greenfield predicts a generational change from linear reading to non-linear skimming. The web teaches us to process information very quickly but also inconsequentially. Seth Godin (2011), an American online marketing guru and prolific author, argues

BOOK INDUSTRY STRATEGY GROUP 18 persuasively that readers comprise two distinct personality types, ‘farmers’ and ‘hunters’. ‘Farmers’ are committed to deep reading, spend considerable time concentrating and reflecting, have long attention spans and avoid distraction. They are likely to remain committed to print books and to enjoy visits to bookstores. ‘Hunters’ are more likely to skim who take in material in diverse and discursive ways and are used to multitasking and moving rapidly between a variety of electronic forms, with limited time investment; their intake is wide but shallow and dependent on a diversity of external stimuli. They are less likely to be serious users of the traditional book. Of course, some readers will have characteristics from both categories. Older consumers are more likely to be ‘farmers’, younger ones ‘hunters’. The isolation required by serious reading is interrupted by constant distraction, as Knox observes, including ‘email, digital news alerts, SMS, phone calls ... RSS feeds, tweets, blogs, social networking pokes’. The American writer Nicolas Carr (2010) estimates that office workers check their emails 30 to 40 times per hour. ‘Some writers have become, or need to become, marketers .... Most are worried by “over- connectedness” ’, Carr writes. But there are others, like journalist Nick Bilton (2010), who see this overstimulation as a way to increase motivation and stimulate imagination.

THE INTELLECTUAL CHALLENGE OF THE DIGITAL REVOLUTION The disturbing paradox of the digital revolution is that, despite an exponential increase in available information, rapid growth in universities (more than a million students in Australia are undertaking undergraduate and postgraduate degrees) and spectacular achievements in scientific and medical research, it appears that the level of public discourse on many important issues (politics, climate change, human rights, refugees) is being conducted at a depressing level. There is a disturbing United States parallel. In 1860, more than 150 years ago, at the Cooper Union in New York, Abraham Lincoln began his campaign for the presidency with a complex speech about slavery – 7,500 words long, complex and nuanced. All four New York newspapers published the full text, which was sent by telegraph across the nation, widely read and discussed. In 1860 the technology was primitive but the ideas were profound and sophisticated. In 2011 technology is sophisticated but the quality of public discourse is limited. Australia, like every other advanced economy, faces serious challenges about how we perceive the world, learn, communicate, work and form relationships at every level, from the personal and intimate to the public and global. There is no reason to doubt that Australians will rise to the challenges that the digital revolution has presented to long-standing industries, built using the tools and economic models of an earlier age. There are plenty of failed experiments with the new ebook and ereader technologies. There are fiction books with embedded multimedia features that some readers may find are a distraction from immersing themselves in a story. However, the same multimedia approach could lead to better ways of teaching and learning. An animation of the circulatory system, or an engineering design, may be a better learning aid than pure text. If we are to peer into a dimly illuminated future, what can we see? When we look at computers, Moore’s law has relentlessly increased the computing capacity in ever smaller and cheaper chips. But we still have mainframe computers, minicomputers, personal computers, tablets and smartphones. They all co-exist in their own niches. So it may be with books. The taxonomy of books may become better defined, and in some areas, print books may thrive. Textbooks look like a good candidate for e-treatment, but surprising developments like rental markets for textbooks have all sprung up in a successful attempt to save students money. But we must encourage creativity or, as the dynamic English educator Sir Ken Robinson

BOOK INDUSTRY STRATEGY GROUP 19 calls it, ‘applied imagination’. If something as new as email can be reimagined in the 21st century, it is not a big stretch to think that the book industry can be transformed by creative Australians. Where do we find these creative Australians? We grow our own, from native or imported stock, in schools and universities. The digital revolution should be welcomed, and the publishing industry should be moving fast to adapt to and embrace it. However, we should not be looking at publishing in isolation, but in its relationship to culture and education in general. Publishers, governments and institutions should be looking for imaginative links with each other. Australian universities could combine to create a major academic publishing house for ebooks and print books. Knowledge is an area of the economy that will still be crucial long after the mining boom is over. The Connected Continent, a report by Deloitte Access Economics commissioned by Google Australia, calculates that the value of the internet in Australia has already become as big as that of iron ore exports. Books are more than an industrial output, as conventionally defined. The book culture must be stimulated and transformed.

BOOK INDUSTRY STRATEGY GROUP 20 Part 1 UNDERSTANDING THE BOOK INDUSTRY

1 Introduction

Note from the Chair

The Book Industry Strategy Group (BISG) was established by Senator the Hon Kim Carr, Minister for Innovation, Industry, Science and Research, in February 2010, partly as a response to the Australian Government’s rejection of the Productivity Commission’s commissioned research report Restrictions on the parallel importation of books (July 2009), set up under provisions of the Copyright Act 1968. Under the existing system, parallel importation restrictions (PIRs) provide for a 30/90-day rule, based on a ‘use it or lose it’ principle. If a book is published overseas, local publishers have 30 days to produce a local edition; if no action is taken, the book may be ‘parallel imported’. Once a book has been published in Australia, the publisher is given up to 90 days to replenish stock, before parallel importation applies. The Productivity Commission expressed scepticism about the PIRs and recommended their abolition; a recommendation that was rejected by the Cabinet.

Since 2009 challenges to the Australian book industry have intensified. It is a measure of how rapidly circumstances change that the commission’s recommendations (and its press release) make no reference to the impact of globalisation or to unprecedented increases in the value of the Australian dollar. Such overseas factors influence the price of books and pose a threat to the viability of local publishing, which may lead to reduced opportunities for Australian writers. However, if we act strategically and pursue global markets, we can strengthen Australian writing. It is puzzling, given the date of publication, that the report made no reference in its recommendations to the rising significance of electronic books, available online at low cost, nor to the impact of the information revolution generally.

In the past decade the writing, editing, publication, distribution, promotion and sale of books have been subject to unprecedented international pressure. Creators, producers and consumers are all affected by the twin challenges of globalisation and technology. Challenges include:

 the rising Australian dollar  the high price of imported books in shops compared to offshore online prices, which are GST-free

 small production runs  evidence of overservicing and surplus capacity  threats to local printers from low-cost, high-quality printing in China and other Asian nations

 the growing take-up of electronic books (ebooks) available online at low cost

BOOK INDUSTRY STRATEGY GROUP 21  increasing online purchase by readers of books through overseas suppliers such as Amazon and the Book Depository.

Tax and postage rates also affect the book industry. For example, GST of 10 per cent is imposed on books bought in Australia, while books from the United Kingdom are free of value-added tax (VAT) of 20 per cent at point of sale, and GST is not imposed on their arrival in Australia. This also applies to ebooks, which are free of GST if purchased from an overseas retailer. Variations in postage rates put the Australian book industry at a significant disadvantage compared to that of the United Kingdom.

Although readers generally complain about the high cost of print books, Australians are among the highest per capita consumers of them in the English-speaking world.

The Book Industry Strategy Group’s aspirations are to support the development of Australian creativity and in doing so, improve the capacity of industry to connect content creators with consumers in the domestic and global markets. In pursuit of these goals, the Group seeks to persuade the Australian Government and industry to undertake appropriate action to strengthen the book sector.

This report provides valuable information about the shape and reach of the industry and offers recommendations to government to ensure enhanced opportunities for the publishing industry, both in electronic and paper forms, and for booksellers and the printing industry. The recommendations aim to encourage reading as a central element in education, for pleasure, stimulation and self-discovery, and to provide greater opportunities and rewards for writers, designers, editors, publishers and for those involved in the process of production, distribution and sale. We want to see a stronger book culture – both ebooks and print books – in Australia and hope that this report will stimulate public interest and government support.

We welcome this historic opportunity to report on an area that is vital to Australia’s cultural identity and our capacity for self-discovery. We see this as a time to respond to a technological revolution and a chance to stimulate our creativity and expand its global reach. Barry Jones Chair, Book Industry Strategy Group

The scope of this review

In February 2010, the Minister for Innovation, Industry, Science and Research, Senator the Hon Kim Carr, announced the establishment of the Book Industry Strategy Group (BISG) to address the challenges presented by the emergence of digital technologies and a global market for books, and to strengthen the future of the Australian industry. Minister Carr emphasised that the focus of the review would be on developing strategies for collaboration, transformation and the future sustainability of the industry. The primary outcome of the work of the Book Industry Strategy Group would be the development of strategies to address the key issues of supply chain efficiency and integration, and developing viable business models for the digital age. This report examines book production and supply in Australia in order to determine how the industry can improve its efficiency and productivity in a changing landscape. The book supply chain comprises those sectors that are engaged in the creation, production and supply of printed and digital books. This includes authors and other content creators, literary agents, publishers, printers, digital converters, distributors and booksellers. The traditional book supply chain for print books, as depicted in Figure 1, is rapidly changing with the onset of digital production and delivery, opening markets to global supply and creating both opportunity and challenge for the Australian industry.

BOOK INDUSTRY STRATEGY GROUP 22 While the review recognises the fundamental importance of the consumer in addressing industry reform, consumer groups are not directly represented in the membership of the Book Industry Strategy Group. Consumer views, including those of individuals, associations, libraries and educators, were broadly canvassed through the BISG public submission process and stakeholder workshop series. The peak library associations were observers at BISG meetings and had the opportunity to influence the BISG deliberations. In determining a strategy for strengthening the Australian industry, the BISG formulated recommendations that recognise the importance of an efficient and integrated supply chain and promote collaboration between industry and government. To shape the Book Industry Strategy Group’s strategies and provide supporting evidence for its recommendations, the group commissioned a series of investigative activities to determine the current state of the industry and the needs of consumers. The outcomes of the research and consultation projects are summarised in the companion publication to this report, BISG research findings: Australian books in the digital era, available on the department’s website.

Figure 1: Traditional book supply chain for print books

CONSULTATION PROJECTS High priority was given to broad consultation and ensuring that industry and consumers were given ample opportunity to contribute and participate in the BISG process. For a list of parties that participated in BISG consultation projects, see the companion publication.

Industry roundtable meetings Through a program of industry roundtable meetings, the Book Industry Strategy Group sought the views of operators and associations from the key book industry sectors of authors and agents, publishers, printers and booksellers to ascertain the key concerns of each group. From these consultations, the BISG members from each relevant sector prepared an issues paper that was submitted to the full Strategy Group for further discussion. This process ensured that all BISG members had a sound understanding of the issues facing the related sectors.

BOOK INDUSTRY STRATEGY GROUP 23 Public submissions The public submission process sought to garner the views of consumers and industry operators on the impacts of digital technology. The primary purpose of this activity was to gather information to inform TOR 3; however, respondents provided views on a far broader cross-section of issues. The process was open from 18 October 2010 to 31 January 2011, and 138 submissions were received.

Stakeholder workshops The stakeholder workshops series focused on identifying strategic issues for determining a strong future for the Australian book industry. Over 200 industry practitioners participated in nine workshops that examined specific subsectoral issues, supply chain impediments and strategic considerations.

Book Industry Strategy Group consultation process on recommendations Before formulating its recommendations, the BISG consulted with key industry representatives from each of the core book industry sectors: authors, publishers, printers and booksellers. In this final consultation phase, members sought to ensure that the final recommendations would be generally embraced by industry.

Government agencies Relevant government agencies were briefed throughout the BISG process and representatives from these agencies attended the BISG workshops and meetings.

RESEARCH PROJECTS A series of data-based research projects were conducted to provide the Book Industry Strategy Group with documented evidence on market performance, new technologies and other factors influencing the operating environment.

Digital technologies in Australia’s book industry Ms Jenny Lee from the University of Melbourne was commissioned by the Book Industry Strategy Group to prepare a report on digital technologies in Australia’s book industry. The report examined technologies used in each part of the book supply chain and provides BISG members with an overview of how each segment of the industry may be affected by digital delivery of books.

Market analysis research project The market analysis research project used factual data to examine the past and current performance of the Australian book industry, with specific focus on market size, competitiveness, business models and global opportunities. In addition to this analysis of secondary research, a survey of 1,000 participants was conducted to ascertain consumer preferences for printed and ebooks. The market analysis research report was compiled by Dr Cameron Crouch and Mr Jeremy Thorpe from PricewaterhouseCoopers.

Review of Australian Government programs The audit of Australian Government programs provided BISG members with information to address BISG TOR 8 by reviewing how existing activities can be modified to support the industry’s adaptation to digital technologies. The audit looked at programs that directly target the book industry as well as those that generally support Australian businesses.

Policy background

BOOK INDUSTRY STRATEGY GROUP 24 GOVERNMENT SUPPORT FOR CREATIVITY The Australian Government provides funding through a suite of programs to support the creativity of Australian authors and the publishers who take their works to market. According to the Cultural Ministers Council’s Statistics Working Group, the Australian Government and state and territory governments contributed a total of $31.5 million towards literature and print media in 2006–07. The Australian Government Public Lending Right (PLR) scheme makes payments to eligible Australian book creators and publishers on the basis that income is lost as a result of the availability of their books for loan in public lending libraries. PLR payments totalling $8.324 million were made to 8,998 eligible creators and publishers in the 2009–10 financial year. The complementary Educational Lending Right (ELR) scheme makes payment to eligible Australian book creators and publishers whose books are held in educational lending libraries, including in schools, TAFE institutes and universities. In 2009–10, $10.81 million was approved under the ELR scheme to 10,876 eligible creators and publishers.

The Literature Board of the Australia Council for the Arts aims to support the excellence, diversity, vitality, viability and distinctiveness of Australian literature by providing direct financial support to literary creators, and grants to organisations that offer infrastructure support to the literature sector and income- generating opportunities for writers. Professional development opportunities for individual writers, including Australian and overseas residencies, are also supported. In 2009–10, the board approved grants valued at $4.2 million. Publishing subsidies have been provided to Australian-based publishers through the Literature Board since 1995 to assist with the publication of literary works by Australian authors. The stated purpose of the publishing subsidies has altered slightly during this period from the original formulation, ‘to assist the publication of books of literary merit by living Australian writers, which may not otherwise be published’. The purpose is now ‘to promote Australian creative writers and support the publication and appreciation of their work to a broader audience within Australia and overseas’. Publication of 884 titles was supported between 1995 and 2005 by $2,716,699 in funding. Previously known as Books Alive, Get Reading! is an Australian Government initiative developed through the Australia Council for the Arts. The goal of Get Reading! is the promotion of books and reading to the general public, children and young people, including books by Australian writers. The program receives $1.6 million a year in funding from the Australian Government. The Prime Minister’s Literary Awards are Australia’s richest literary prizes. The awards honour the contribution of Australian literature to the nation’s cultural and intellectual life and recognise the importance of literature to Australia’s national identity, community and economy. Awards are presented for excellence in fiction, non- fiction, young adult fiction and children’s fiction. Awards worth $100,000 are awarded in each category – $80,000 for the winning title and $5,000 each for a maximum of four short-listed titles. All prizes are tax free.

GOVERNMENT SUPPORT FOR MANUFACTURING Over four decades, the Australian Government has supported the production of books through a number of different schemes. The Book Bounty was a tariff compensation program which operated from 1969 to 1997. The Australian Government introduced the Printing Industry Competitiveness Scheme in 1999, replacing the Book Bounty. The scheme provided a 4 per cent rebate of paper input costs for designated books, whether or not the paper was subject to the 5 per

BOOK INDUSTRY STRATEGY GROUP 25 cent tariff. The scheme ended in 2003. The change over time from the Book Bounty through Printing Industry Competitiveness Scheme to the Enhanced Printing Industry Competitiveness Scheme shows that government’s involvement in the industry has moved from bottom-line compensations to implementation of innovative strategies for product and service development. The Enhanced Printing Industry Competitiveness Scheme was established in 2000 as a partial offset for the introduction of the GST on books and ended in 2004. Grants were designed to assist firms involved in book production by encouraging the use of innovative technologies, improved business practices, training and skills development.

REGULATION The reproduction and first sale of books in Australia is governed by the Copyright Act, which aims to provide a balance of incentives between the creation and consumption of creative works, including books. Included within the Act are the parallel importation restrictions (PIR), which establish the rules pertaining to the importation of books into Australia. The PIRs provide protection for holders (generally publishers and authors) of Australian rights to a title from competition by suppliers of foreign editions of that title. For the PIRs to apply, the Australian territorial rights holder must release the book in Australia within 30 days of its publication elsewhere in the world, and must ensure resupply within 90 days. Exceptions under the ‘single-use’ provisions apply to consumers who can purchase books directly from overseas and booksellers who can purchase a single copy to fill a specific customer order. If a book is published in Australia within the 30-day limit, booksellers cannot import and sell stocks of that title from an overseas supplier. This enables rights holders to set a price, and thereby secure a certain level of royalties, in the Australian market with the certainty that they cannot be undercut by commercial quantities of imports of the same titles. In 2009 the PIRs were reviewed by the Productivity Commission to assess their effects on the community and to determine whether they should be retained, modified or repealed. The commission recommended the removal of the PIRs over an adjustment period of three years before the repeal would be effective; however, the government determined that changing the regulations governing book imports would not be likely to affect the availability of books in Australia, and rejected the commission’s recommendation (Productivity Commission 2009).

BOOK INDUSTRY STRATEGY GROUP 26 2 Economic contribution of the industry

The collection of economic data on the book industry by the Australian Bureau of Statistics (ABS) ceased in 2003–04. This has created significant problems for the industry as a whole in measuring industry trends, performance and contribution to the Australian economy. The current picture of the industry is gleaned from a patchwork of sources, including industry associations, surveys and reports. Furthermore, total figures for the book industry are arrived at by aggregating the available and relevant data along the supply chain. Based on these sources, in the decade 2000 to 2010, the book industry made a contribution to the Australian economy through sales income, exports and employment. While investment data are lacking, book printing, distribution, publishing and, more recently, booksellers, are investing in new technology and adopting innovations to assist in the adjustment to the new operating environment. Finally, printers of books continue to make a significant contribution to supporting regional development in areas where their facilities are located.

Sales income

In 2010, the total value of books sold in Australia (in both print and electronic formats) is estimated to have been $2.3 billion (PwC 2011: 9). This figure includes sales from ‘bricks and mortar’ bookstores (chain, discount and independent), internet sales of books to Australian consumers (from both Australian-based and overseas-based online bookstores), sales to libraries and educational institutions, and an estimate of direct sales from publishers. Additionally, drawing on data from the Australian Publishers Association, rights income to Australian authors and publishers is in the order of $5 million to $10 million. Figure 2 charts the estimated total value of books sold in Australia over the past decade. As the chart highlights, book sales showed no growth at all in the two years following the introduction of the GST in 2000 and actually decreased by 0.6 per cent in 2002. From 2003 onwards, however, the value of book sales grew at a stronger rate, and in 2007 a 7.5 per cent increase in the value of book sales from the previous year was recorded. In all, the total value of book sales in nominal prices increased by an annual average of 4.1 per cent from 2001 to 2010. Adjusted for inflation, the annual average increase in the total value of book sales over the past decade was 1.6 per cent.

Figure 2: Total value of book sales in Australia, nominal prices, 2001–10

Source: Cover to cover, Figure 1, p. 90.

BOOK INDUSTRY STRATEGY GROUP 27 The factors that are likely to have underpinned growth in the Australian book market include:

 favourable economic and demographic conditions – Australia’s population increased, from 19.4 million in June 2001 to 22.3 million in June 2010 (an annual average increase of 1.6 per cent) (Australian Bureau of Statistics, 2011). Average weekly earnings also increased from $670 in 2001 to $978 in 2010 (an annual average increase of 4.3 per cent) (Australian Bureau of Statistics, 2011)

 investment in new retail outlets by Australian booksellers  the release of several blockbuster series during the 2000s, including the Harry Potter (seven books, published from 1997 to 2007), Twilight (four books, published from 2005 to 2008), and Millennium series (three books, published from 2005 to 2007)

 continuing strong reading habits of Australians – the Productivity Commission noted in 2009 that ‘reading is a popular activity in Australia’. ACNielsen found in 2001 that 78 per cent of the adult population ‘read for pleasure every day or on most days of the week’. A survey undertaken by Galaxy Research in 2008 similarly found that ‘85 per cent of Australians read for pleasure in their spare time once a week or more’ (PwC 2011: 10). However, relative to other retail industries, the Australian book industry underperformed over the past decade. The total value of book sales from 2001 to 2010 grew less than other retail sectors in Australia (see Figure 3).

Figure 3: Index of total value of sales, selected retail sectors and the Australian book industry, 2001–10

Source: Cover to cover, Figure 2, p. 11.

According to the Australian Bureau of Statistics (2011), for example, turnover in the retail sector as a whole grew by an annual average of 5.9 per cent from 2001 to 2010 (compared to the book industry’s annual average growth of 3.9 per cent). On the other hand, the performance of the Australian book industry fared better compared to the performance of other creative industries in Australia and overseas book industries. Likewise, while the total value of book sales in Australia grew by an annual average of 5.2 per cent from 2005 to 2010, the annual average growth rates in other international markets for the same period were as follows:  0.6 per cent in the United States  0.3 per cent in the United Kingdom  2.4 per cent in Canada

BOOK INDUSTRY STRATEGY GROUP 28  0.6 per cent in New Zealand. There are very distinct markets for trade versus educational books and the factors driving the growth of these markets differ considerably. In 2010, an estimated $1.5 billion worth of trade books were sold in Australia, accounting for 65 per cent of the total value of book sales recorded in that year. According to the PricewaterhouseCoopers analysis, the value of trade book sales grew by an annual average of 4.8 per cent from 2001 to 2010 (see Figure 4). Like the broader book market in Australia, trade book sales experienced stagnation during the early 2000s, before enjoying stronger growth from the mid to late 2000s.

Figure 4: Value of trade book sales, nominal prices, 2001–10

Source: Cover to cover, Figure 5, p. 13.

An estimated 66.3 million trade books were sold through Australian-based booksellers in 2010. As Figure 5 highlights, the volume of books sold through Australian-based booksellers increased by an annual average of 6.4 per cent from 2004 to 2010. Based on BookScan data provided by Nielsen, the average price paid for a book was $19.60 in 2004, $19.83 in 2007 and $18.98 in 2010. In 2010, an estimated $820 million worth of educational books were sold in Australia, accounting for 35 per cent of the total value of book sales recorded in that year. According to PricewaterhouseCoopers’s analysis, the value of educational book sales in nominal prices grew by an annual average of 3.1 per cent from 2001 to 2010 (see Figure 6). Adjusted for inflation, however, the value of educational book sales over the past decade grew by an annual average of only 0.3 per cent.

Figure 5: Volume of trade book sales, sold through Australian-based booksellers, 2004, 2007, 2010

Source: Cover to cover, Figure 6, p. 14.

Figure 6: Value of educational book sales, nominal prices, 2001–10

BOOK INDUSTRY STRATEGY GROUP 29

Source: Cover to cover, Figure 8, p. 15.

The educational market can be further subdivided into primary, secondary and tertiary texts; professional books, that is, books consumed by the scientific, technical, medical, legal and business professions, may also be included in this category. The value of primary, secondary and tertiary book sales grew from an estimated $450 million in 2001 to $620 million in 2010 – an annual growth rate of 3.6 per cent. In contrast, the professional book market has been much weaker. Professional book sales grew from an estimated $170 million in 2001 to $190 million in 2010 – an annual average growth rate of 1.6 per cent. The available evidence suggests that, while the value of educational book sales increased from 2001 to 2010, per student spending on educational books declined over the same period. Horsley (2010), for instance, estimates that average sales per student on commercial teaching and learning materials for each Australian primary and secondary student was $38.89 in 2000, $46.76 in 2006 and $43.85 in 2009. Taking inflation into account, ‘the real value of sales of commercially published teaching and learning materials [decreased] by more than 15 per cent from 2000 to 2009’ (Horsley 2010).

Exports In 2010, Australian book publishers exported an estimated $225 million of books (Australian Bureau of Statistics, 2005; Australian Publishers Association, 2001–09). Of this, approximately two-thirds (or $144 million) was trade books, and the remaining third (or $80 million) was educational books. Total book exports accounted for 12.2 per cent of publisher revenue in 2010. Figure 7 outlines the value of book exports, by educational and trade publishers, from 2001 to 2010. It highlights the following:

 The market for Australian book exports was relatively volatile during the early 2000s. It is unclear the extent to which this volatility represented an unstable market for Australian book exports or inconsistencies in reporting.

 The value of educational book exports declined over the past decade – from approximately $122 million in 2001 to $80 million in 2010 (an annual average decrease of 4.6 per cent).

 The value of trade book exports increased over the past decade – from approximately $40 million in 2001 to $144 million in 2010 (an annual average increase of 15.3 per cent).

 Overall, the value of book exports increased by an annual average of 3.6 per cent from 2001 to 2010. It is important to note, however, that the share of publisher revenue accounted for by book exports declined over the past decade – from an average of 14 per cent over 2001–05 to an average of 12.7 per cent over 2006–10.

BOOK INDUSTRY STRATEGY GROUP 30 Figure 7: Value of book exports, by trade and educational publishers, 2001–10

Source: Cover to cover, Figure 19, p.27.

BOOK INDUSTRY STRATEGY GROUP 31 Figure 8: Index of value of exports, selected industries, 2001–10

Source: Cover to cover, Figure 20, p. 28.

Despite performing strongly during the early 2000s, the value of Australia’s book exports did not keep pace with the value of Australia’s total merchandise exports over the past decade (the latter increased by an annual average of 7.3 per cent). Figure 8 provides an index of the value of exports for select industry groups. The value of book exports, however, increased at a stronger rate than the value of exports for:

 miscellaneous manufactured articles (for example, clothing, footwear and travel goods), which increased at an annual average rate of 0.7 per cent from 2001 to 2010

 food and live animals, which decreased at an annual average rate of 0.6 per cent from 2001 to 2010. The primary markets for Australian books are the United States, New Zealand and the United Kingdom, which in 2009 accounted for approximately 72 per cent of the value of Australian book exports (see Figure 9) – a percentage that has remained more or less unchanged since 2001 (PwC 2011: p 54).

Figure 9: Book export sales by territory, 2009

Source Cover to cover, Figure 21, p.29.

Some markets are more important depending on the type of book sold. New Zealand, for example, accounted for an estimated 68 per cent of Australia’s tertiary education book export sales in 2009. The Pacific islands (17 per cent) and Canada (7 per cent), meanwhile, accounted for a considerable proportion of Australia’s school book export sales. The United States, the United Kingdom and New Zealand accounted for just under 90 per cent of Australia’s trade book export sales in 2009.

BOOK INDUSTRY STRATEGY GROUP 32 Employment

The numbers of people employed in the book industry are based on the available data in each of the subgroups within the supply chain and represent, at best, an estimate of employment levels. The best estimate available for employment in the industry for 2010 is approximately 25,700, comprising:

 10,000 employed in authoring and content creation  5,000 employed in publishing and distribution  2,000 employed in book printing  8,700 in retail. While these numbers provide an overall picture of employment levels in the industry, there are a number of factors that affect the accuracy of these employment numbers. First, they do not include book employment levels in discount department stores, which currently sell 30 per cent of books. Second, they do not include any employment statistics for the nascent online book retailers in the Australian market, which include fast-growing firms such as Booktopia, TheNile and Boomerang Books. Finally, these statistics will be affected by the recent closure of the Borders chain and the majority of Angus & Robertson stores, which resulted in the loss of over 2,000 jobs in book retailing.

Investment and innovation

The book industry is changing rapidly and this has created new opportunities for innovation, changes in existing business models and investment in the growing parts of the industry. The demise of REDgroup Retail, owners of the Borders and Angus & Robertson stores, should be seen in this context, and not as the ‘writing on the wall’ for bricks-and-mortar bookshops, as has been widely speculated. The decline of REDgroup Retail has created investment opportunities for other booksellers. In July 2011, franchisee-owned Collins Booksellers announced that it had bought a group of Angus & Robertson franchises and raised the prospect of more purchases and store openings in the following months. This is expected to take Collins’s market share from 5 per cent to 12 per cent. Dymocks, the only remaining chain store, has bought two of the company-owned stores, while Pearson Australia Group has bought REDgroup’s online business for an undisclosed sum. Other book retailers have begun to invest in digital and online sales facilities and are initiating innovative collaborative arrangements with other players to improve competitiveness. A number of online booksellers, such as Booktopia, TheNile and Boomerang Books, have emerged in the domestic market in recent years. While book printing continues to experience significant pressures, the industry continues to adopt new production techniques and innovative processes to remain competitive. Figures on the value of investment are unavailable, but over the past few years, book printers have invested heavily in, and adopted a wide range of, digital technologies. Digital equipment is costly. In 2008 it was estimated that a fast toner digital web press with finishing and binding equipment would cost close to $2 million. There are indications that the major book printers will invest in and introduce inkjet printing equipment technology by the end of 2011 with costs up to around $7 million for a fully integrated book line. This will allow them to provide further short run print-on-demand capacity, a sector which currently represents a small proportion of the publishing market in Australia. Book printers have also undertaken major investments in fully digital workflows, customer interfaces and supporting IT platforms in recent years. Changes in printing and distribution technology are also attracting overseas investors

BOOK INDUSTRY STRATEGY GROUP 33 to the Australian book market. In June 2011, American-owned wholesaler Ingram announced the opening of its Lightning Source Australia printing operation in Victoria. Print book distributors have invested heavily in developing the distribution system, particularly for trade books. The major book distributors are investing in computerised warehousing and stock control systems. Pearson, for example, spent $18 million to establish the United Book Distributors’ facility in 2002 and another $4.5 million upgrading it in 2008. Other publishing houses, such as Random House, Hachette, Macmillan and HarperCollins, have also invested in upgrading their distribution systems, and most distributed between 10 and 20 million books annually.

Regional impact

While the total employment contribution of book printing is estimated at only 2,000 in total, some major book printers are located in regional areas where the loss of a facility will have significant economic and social impact. McPherson’s Printing Group directly provides jobs for around 300 locals in Maryborough, which is more than 10 per cent of the town’s employment. In addition to this, a significant amount of local indirect employment is supported by the Maryborough plant. In 2005, the facilities in Maryborough underwent a $20 million upgrade to broaden the range of products and services offered. Through investment in the region and employment, the printing facility continues to be an important contributor to the prosperity of Maryborough and its surrounding regions. Griffin Press is a major employer in the outer Northern suburbs of Adelaide and has also invested heavily in upgraded technology over recent years. Major publishing distribution centres are located in Moss Vale and the Central Coast of New South Wales and are a major provider of employment opportunities in those regions.

Economic contribution by subsector

These industry-wide figures mask significant changes and adjustments that are taking place at various parts of the book supply chain. The following discussion provides insight into the contribution made by authors, publishers, printers and booksellers.

AUTHORS, AGENTS AND OTHER CONTENT CREATORS Authors and other content creators – such as photographers and illustrators – are the essential drivers in the creation of books. There are approximately 7,600 to 10,000 book authors in Australia, of whom about 2,800 to 3,200 claim writing as their primary occupation. Many semi-professional and part-time, as well as full-time, book authors augment their incomes through ‘non-writing’ as well as writing-related activities. With digitisation and convergence forcing changes in traditional newspaper and print media operations, opportunities for book authors to secure additional income through freelance writing work have decreased in recent years. The development and income of authors and other content creators is also affected by the significant loss of employment and work opportunities in the broader media, particularly in print, such as newspapers and magazines. A 2010 report by the Media, Entertainment & Arts Alliance, Life in the clickstream, estimates that the number of people regularly and constantly employed in the mainstream media as journalists, writers, artists, photographers or other creative workers has fallen from about 9,000 in 2000 to about 7,000. About 5,000 of these work primarily in print, either as employees or regular freelance writers.

BOOK INDUSTRY STRATEGY GROUP 34 Balancing this has been the emergence of some new opportunities in long form journalism through essays, non-fiction books and documentaries. Many – if not most authors – work either primarily or secondarily in newspapers and magazines and many emerging writers, particularly in the non-fiction book market, are coming out of journalism. According to the PricewaterhouseCoopers report (2011), authors are estimated to have earned approximately $140 million in 2010, of which $2 million was received through direct grants from the Literature Board and $8 million in direct payment to authors from the Copyright Agency Limited, $19 million were payments from Public Lending Rights (PLR) and Educational Lending Rights (ELR) programs, and $114 million was royalties and advances (see Figure 10). The major funding sources equalled approximately $102 million in 2001 and grew by an annual average of 3.5 per cent over 10 years.

Figure 10: Author income, by major funding source, 2010

Source: Cover to cover, Figure 12, p. 20.

While the total amount of funding to authors has grown (see Figure 11), the average income earned by authors has declined, over the past decade. Mean creative income earned by writers in 2001 was $23,200, but this had fallen to $11,100 in 2007–08, a drop of 52 per cent. Equivalent median figures for the same periods were $5,400 and $3,600, respectively.

Figure 11: Growth in total author income, 2001–10

Source: Cover to cover, Figure 13, p. 21.

Literary agents represent authors in their dealings with publishers, mainly in the publication of trade and consumer books. The Australian Literary Agents’ Association has 18 member agencies, and at last count some six other agents were not association members.

PUBLISHERS According to analysis based on Thorpe-Bowker’s Australian Books in Print database, there were approximately 4,000 book publishers in Australia during 2008. The market has a

BOOK INDUSTRY STRATEGY GROUP 35 relatively long tail of small publishers. Over 70 per cent of these publishers only published one ISBN-tagged publication in 2008.

 295 (or 8 per cent) published more than five titles in 2008.

 23 (or 1 per cent) published more than 100 titles in 2008 (Lee et al. 2009).

Figure 12 : Book publisher revenue, by type of publisher, 2001–10

Source: Cover to cover, Figure 14, p. 24.

The Australian book publishing industry employs approximately 5,000 people. New South Wales and Victoria had by far the largest concentrations of book industry employees, accounting for 78.9 per cent of the total between them in 2006. The Australian Bureau of Statistic’s last survey of the book publishing industry in 2003–04 found that these two states accounted for 92.8 per cent of industry income (Productivity Commission 2009). In 2010, book publishers in Australia generated an estimated $1.8 billion in revenue. Of this figure, trade book publishers earned 68 per cent (or $1.3 billion), while educational book publishers generated the remaining 32 per cent (or $580 million). Total publisher revenue grew at an annual average rate of 4.3 per cent over the decade 2001 to 2010. Over the same period, trade publisher revenue grew by an annual average of 5.6 per cent, while education publisher revenue, in contrast, increased by an annual average of only 1.9 per cent. Figure 12 shows the income for both trade and educational publishers of the decade. These trends are generally in line with the rates of increase in the value of sales recorded by trade books (4.8 per cent) and educational books (2.6 per cent).

Figure 13: Trade publisher revenue, by Australian and imported/agency books, 2001–10

BOOK INDUSTRY STRATEGY GROUP 36

Source: Cover to cover, Figure 16, p. 25.

Trade publisher revenue generated by Australian books grew by an annual average of 8.7 per cent from 2001 to 2010, compared to trade publisher revenue generated by imported and agency books, which grew by an annual average of 3.0 per cent. Educational publisher revenue generated by Australian books grew by an annual average of 2.3 per cent from 2001 to 2010, compared to educational publisher revenue generated by imported and agency books, which decreased by an annual average of 1.1 per cent.

PRINTERS The book printing industry in Australia includes three larger specialised book printing companies: McPherson’s Printing Group (Maryborough Victoria), Griffin Press (Adelaide) and Ligare (Sydney), which account for more than 40 per cent of revenue earned. McPherson’s and Griffin print the majority of locally sourced mono books for the larger ‘read for pleasure’ publishers, generally under contract. The remainder of the book printing industry comprises several smaller, mid-size specialist printers, for example, BPA Print Group, Hyde Park Press, a small number of large printers who print books as a small percentage of their total business (for example, Blue Star, Geon) and a very large number of smaller printers who also print books of relatively small print volumes. The majority of non–time sensitive printing is in Asia, particularly high-value colour books and educational texts. Books, for purposes of this report, are defined in a production sense and include anything that is bound in a book form, excluding brochures, flyers, magazines and so on. The definition of books would include bound directories, industrial catalogues, manuals, guides and journals. The concentration of ownership has been associated with increased capital intensity, partly to counter strong competition from offshore printers in low-wage countries. Book printers account for only a fraction of Australian printing employment and their numbers are not tabulated separately in the census. PricewaterhouseCoopers estimated that 2,000 people are currently employed in book printing. The revenue generated by the book printing industry in nominal prices is estimated to have declined from $250 million in 2001 to $220 million in 2010 – an annual average decrease of 1.4 per cent. Adjusted for inflation, the drop in book printing revenue over the past decade was even greater – an annual average decrease of 4.1 per cent. The drop in revenue reflects the shift of book printing jobs from Australian to overseas printers.

RETAILERS The Australian bricks-and-mortar book retail sector has three main arms: chains such as Dymocks and the franchise-based Collins; discount department stores that offer books among a wider range of consumer goods (including Target, Big W and Kmart); and independent retailers.

BOOK INDUSTRY STRATEGY GROUP 37 The most recent ABS survey of book retailers in 2003–04 found that there were 1,572 businesses selling books in Australia, including 561 bookshops. In total, they sold almost 80 million new books at a value of $1.4 billion. Bookshops accounted for 78 per cent of total sales, department stores for 14 per cent, and newsagents and miscellaneous retailers made up the remainder. The survey did not include direct online or mail order sales to consumers. The available evidence suggests that the number of bookstores has grown over the past decade, but declined in recent years. In 2011, the Australian Booksellers Association (through Thorpe-Bowker) calculated the number of booksellers as 1920, in the following categories:

Chain/franchise 110

Trade/general 1,210

Education 90

Academic 90

Religious 205

Library supply 15

Second-hand/antiquarian 200

In its most recent survey, the ABS calculated that employment in the businesses designated as bookshops amounted to 8,717 people, including 697 working proprietors. More than two-thirds of employees were female, and just under half were employed casually. These numbers will have changed after the closure of Borders and some of the Angus & Robertson stores in 2011.

BOOK INDUSTRY STRATEGY GROUP 38 3 Current operating environment

Technological change

Each part of the book supply chain, from author to reader, is changing in response to digital technologies. While the ebook is often viewed as a symbol of this evolution, in reality digital delivery is affecting every part of book production, distribution and consumption. Faster internet access, improved security for online payment systems, digital information transfer and the uptake of social media have fundamentally changed the interface between supply and demand and facilitated a truly global market. Figure 14 illustrates the range of possibilities in the global book market, due largely to technological change and globalisation. Change in the global book business is occurring at an unparalleled pace, and the Australian industry must evolve to adapt to this fundamentally transformed market. According to a report by Outsell Inc., digitisation has the potential to ‘…disrupt every element of the book ecosystem – from how an author is discovered to how content is created, distributed and sold’ (May, Fooladi & Worlock 2010: 19). In Inside book publishing, Clark and Philips (2009: 4) posed the following question: ‘Will the digital revolution be a seismic shift for the [publishing] industry on par with earlier pivotal movements?’ The earlier pivotal movements to which they referred are the introduction of the printing press in England in 1476, the development of the English novel in the eighteenth century and the first Penguin paperback published in 1935. While the response to the question will be varied and nuanced, it is clear that digitisation is already having a significant impact on the processes of book production, distribution, sales and consumption.

Figure 14: Possible futures for the Australian book industry

BOOK INDUSTRY STRATEGY GROUP 39

Digital platforms are used to offer books in printed and electronic forms, or a combination of both. Applications include print-on-demand, pay-per-view (single chapter purchases), audiobooks, ebooks and enhanced ebooks, which are linked to video, sound and interactive elements. In Australia, ebook sales made a slow start, largely due to the lack of acceptable reading devices. However, since October 2009, when Amazon released its Kindle ereader globally, a wide range of ereader options have flooded the Australian, and most other, markets, with a corresponding increase in ebook sales (see Figure 15).

Figure 15: Value of ebook sales, by book type, 2005–10

Source: Cover to cover, Figure 24, p. 31.

Such devices include ereaders, tablets, smartphones, and notebooks and computers more broadly:

 ereaders. Australian consumers now have access to a broad range of ereader devices. There is already evidence of downward pressure on ereader prices: In 2011, Amazon is selling the WiFi-only version of its Kindle in Australia for $139. This downward trend is likely to be compounded by the emergence of device suppliers in the Asian region, where the proprietary US brands are manufactured.

BOOK INDUSTRY STRATEGY GROUP 40  tablets such as Apple’s iPad and Samsung’s Galaxy Tab. These are increasingly popular in Australia and can easily be used for ebook reading. PricewaterhouseCoopers estimates that 740,000 tablets were sold in Australia between the iPad’s release and the end of March 2011.

 smartphones. According to Telstra (2010), ‘36 per cent of the Australian mobile population own a smartphone and ownership is expected to grow to more than half the Australian mobile population within 12 months’.

 notebooks and computers. Notwithstanding their relatively low prominence in discussions about ebooks, computers remain one of the most popular means of reading ebooks. A survey commissioned by the Book Industry Study Group (2010) in the United States found that, in 2010, 37 per cent of readers were reading ebooks using computers – compared to 32 per cent for the Kindle and 3 per cent for the iPad. Digital books have recently gained acceptance in the US market after an extended period in which they were largely limited to niche and specialist fields. This change has not arisen simply from the adoption of new ebook technologies; in fact, most of the technologies deployed have been in existence for at least a decade. What has changed is that a broader infrastructure has come into place to support consumer adoption of ebooks, specifically:

 availability of fast broadband and mobile telecommunications  near-universal adoption of internet-based payment systems  development of a service infrastructure to convert, manage and distribute books in digital form

 formation of a large web-based library of digital texts  diversification of large firms from several different sectors into the manufacture, sale and promotion of ebooks and ebook readers

 release of a range of well-publicised ereading devices offering individual consumers wireless access to these texts. The result is that US ebook sales have experienced rapid growth, though from a very low base. Ebook sales recorded by the Association of American Publishers rose 176.6 per cent in 2009, to give a compound growth rate of 71 per cent since 2002. The Economist has estimated that US sales of about 110 million units in 2008 grew to almost 340 million in 2009.

Changing consumer preferences

In line with the technological changes are changes in how consumers choose to access and read their books. This is as true in Australia as in other parts of the developed world and the available data confirm this trend.

INDIVIDUALS Australians are changing the way they are using communication services and how they value particular services. According to the Australian Consumer and Media Authority, four in five Australians have access to an internet connection at home and are increasingly embracing the digital economy. Eighty-eight per cent of household internet users engaged in one or more ecommerce activities and 69 per cent purchased at least one good or service in the last six months. While email is the most widespread use of a home internet connection across all age groups (94 per cent of those who have an internet connection), social networking is equally popular for the youngest age group (91 per cent of those aged 18 to 24 years) and is more likely than email to be the main form of communication for this age group. The use of social

BOOK INDUSTRY STRATEGY GROUP 41 networking declines with age, to a low of 15 per cent of internet users aged 65 years and over (ACMA 2011).The authority found that age, gender, household income, level of education and employment influenced the level and way in which consumers engage in ecommerce. In general, consumers with higher levels of education, income and in some form of employment were more likely to participate. The incidence of ecommerce activity is shown to decrease with age, while the types of goods or services purchased online differ across age groups. Respondents aged 25 to 34 years had the highest incidence of purchasing online: 82 per cent had purchased a good or service online. This figure decreases in a linear fashion to 38 per cent for people aged 65 years and above. The typical ebook consumer differs somewhat from the typical print book buyer. A 2010 survey by the US Book Industry Study Group found that 51 per cent of ebook consumers were men, while women are the largest buyers of print books. Ebook consumers are also more affluent than print book buyers. The Australian survey conducted by TNS Global confirmed that Australian men were more likely to purchase an ebook (Figure 16) and revealed that younger consumers – those aged between 18 and 34 years – purchased as many ebooks as all other age groups combined.

Figure 16: Ebook demographics, by gender

Source: Cover to cover, Figure 26, p. 32.

Individuals who made submissions to the Book Industry Strategy Group generally embraced digital technologies such as ebooks and purchasing books online. A majority of respondents in the category of ‘individuals’ said they read ebooks, and a significant majority noted that their use of ebooks complements their use of print books. Those who have embraced ereading technologies said that ebooks were convenient to access, easier to store and search, and were hugely beneficial for people in remote areas or with disabilities. This was supported by the consumer survey (see Figure 17).

Figure 17: Nominated main benefits of an ebook over a print book

BOOK INDUSTRY STRATEGY GROUP 42

Vision Australia, which represents close to 300,000 Australians, emphasised that digital books offer opportunities to reduce the barriers that people with a vision impairment face in attempting to read the books of their choice, through synthetic speech, braille, and screen-magnification software. Retirees, represented by the Association of Independent Retirees, overwhelmingly prefer to purchase, borrow and lend the printed book. It is generally believed that only those retirees who live in remote locations, do not have physical access to a library, are no longer able to drive, have a disability or are confined to a residence are likely to demand ebooks. However, this view is less likely to apply to younger retirees, such as the baby boom generation. A majority of respondents saw great benefits in ebooks, but consumers have expressed some frustration with the transition to digital books. Key concerns include:

 the myriad of ebook formats and the issue of device interoperability  high initial start-up costs to purchase ereading technologies  a lack of titles available for download in Australia  the price of ebooks, particularly as they have no resale value and sharing is difficult.

LIBRARIES Through the BISG public submission process, libraries reflected a willingness to adopt ebooks and associated technologies, with digitisation of content an integral part of contemporary Australian libraries. The National Library of Australia has been building and delivering a digital collection for well over a decade. The State Library of Western Australia has a policy that digital resources will be collected in preference to print within budget constraints and current standards. The University of Tasmania Library remarked that electronic journals and databases now account for a major part of its acquisitions budget. The benefits of digital delivery specific to libraries included that collections are more accessible, that ereading technologies encourage people to read, and that the digital world offers solutions for disabled and vision-impaired readers. Practical benefits include the fact that library staff spend less time shelving, checking books in and out and collecting fines. While the benefits of ebooks and the digitisation of content are broadly recognised, there are three primary concerns: equality of access, copyright and affordability for institutions and individuals.

Access Libraries seek to ensure equitable access to information for users in all geographic locations. The development of a reliable broadband infrastructure to facilitate equality in the provision of online services to regional and remote communities is

BOOK INDUSTRY STRATEGY GROUP 43 seen as a priority.

Affordability Educational libraries at both the school and tertiary level have raised concerns about the additional cost of technology to support digital books. Educational institutions face a choice between the cost of ereaders plus ongoing licence fees to access individual ebooks, or the purchase of a printed book that is not subject to ongoing subscription costs.

Copyright Copyright and licensing is an important issue for libraries because they need to continuously balance the rights of copyright owners with the rights of the public to gain access to information. In the case of digital media, the owner of the resource is not the purchaser, but the publisher, who permits use of the resource through a subscription. This model relies on continued yearly licences and downloads to specific machines, which limits the transfer of the resource and adds additional costs for further downloads. Digital rights management is challenging the traditional library model in terms of how their clients are able to obtain, store, retrieve and use information. The inability for libraries to loan ebooks efficiently is an issue that may offset the benefits of digital delivery.

EDUCATORS Like libraries, educational institutions have already started to invest heavily in technologies that create a transition from print to digital materials and that in turn will significantly affect the Australian publishing industry. Submissions to the Book Industry Strategy Group stated that technological advances, such as the development of ebooks, have fundamentally changed the learning environment for both teachers and students, bringing benefits such as greater student access to educational materials, more certainty of availability, and improved speed of delivery – particularly for students in regional and remote Australia and people with disabilities. The key concerns for educators mirror those of libraries. In addition, educators have concerns about the impact of globalisation on curricula and on the practice of copyright.

Emerging trends in digital readership

THE EBOOK MARKET In Australia, the ebook market is relatively immature. However, the TNS Global Market Research consumer survey commissioned for the Book Industry Strategy Group by PricewaterhouseCoopers in 2011 revealed the future preference of consumers and their reading habits. Of those who have been exposed to an ebook, 40 per cent indicated their preference to purchase only an ebook version of a newly released book; roughly one-third would purchase only a print version; and 24 per cent would purchase both ebook and print versions. The key reasons given for the preference for ebooks over print books were portability, ease of storage, speed and convenience in downloading and price. These findings reflect similar results from consumer surveys in the United States, where affordability, ease of downloading, readability, instant access and portability were the key factors influencing the decision to purchase an ebook. Around 30 per cent of respondents to the survey who purchased an ebook in 2010 said that they would likely buy more in 2011. Furthermore, consumers who were familiar with or interested in both print and ebooks expressed a slight preference for purchasing an ebook version of a newly released book rather than a print version. Table 1 summarises consumer intentions regarding print and ebooks in 2010 and 2011. Findings from the

BOOK INDUSTRY STRATEGY GROUP 44 public submissions show that all groups believe that the use of ebooks is likely to grow.

Table 1: Expected growth in print and ebook sales, 2010–11 Print ebooks books

Proportion of population 75.8% 6.2% who purchased in 2010

Proportion of population who are likely to 76.7% 12.2% purchase in 2011

Number of units per 7.2 3.0 person purchased in 2010

Number of units per person expected to be 7.5 5.0 purchased in 2011

Growth in volume and 230.8 5.0% sales from 2010 to 2011 %

Source: Cover to cover, Table 2, p. 39.

Notwithstanding the increase in demand for ebooks, demand for print books is predicted to remain stable over the short term. Print books are seen to have some significant advantages over ebooks relating to ownership and the ability to share. Additionally, the emotional attachment to the print book was strongly expressed in the public submissions and validated by a group of the population in the TNS survey. Some of the comments from the public submissions include ‘there is nothing like the touch, the smell and feel of a book’ or ‘a printed book is a wonderfully sensual and enchanting experience’. Some readers believe that, for these reasons, the printed book will continue to exist in some form.

TABLET AND EREADER PENETRATION A key factor likely to influence the size of the ebook market in Australia is the extent to which consumers purchase devices that allow them to read ebooks. The TNS survey of Australian consumers sought to further define the market for ebook readers in Australia. According to the survey, 28 per cent of respondents read ebooks using a Kindle (see Figure 18). The next most popular devices are the iPad (22 per cent); a personal computer, laptop or netbook (21 per cent); and a smartphone (11 per cent). Using the results of the survey, PricewaterhouseCoopers estimates that there are more than 500,000 ereaders in Australia (not including iPads, smartphones, or computers and laptops), 70 per cent (or 370,000) of which are Kindles.

Figure 18: Devices used by respondents to read ebooks

BOOK INDUSTRY STRATEGY GROUP 45

Source: Cover to cover, Figure 35, p. 41.

AVAILABILITY OF EBOOKS The availability of ebooks is a critical issue in determining the future size of the ebook market in Australia (Lee 2010). A sufficient range of titles is required to ensure that supply is matched with demand. Globally, there is a wealth of ebooks available to readers. The United States Kindle store, for example, has more than 800,000 titles, while there are ‘an additional 1.8 million free ebooks in the public domain that can be downloaded from Amazon’ (PwC 2011: p 42). Barnes & Noble, meanwhile, contends that it is the world’s largest ebook store with more than 2 million ebook titles. The available evidence (primarily of a qualitative nature) suggests, however, that there are constraints on the availability of ebooks in Australia. For example:

 While Australians can access Apple’s iBookstore using their iPads, users have reported concerns about the availability of titles, specifically titles beyond those already available in the public domain.

 A 2010 analysis of the ebook market in Australia highlights the difficulty faced by independent booksellers in accessing ebooks and selling these to consumers.

 Numerous submissions made to the Book Industry Strategy Group highlight problems in the supply of ebooks in Australia, particularly in relation to Australian- authored work. This evidence suggests that the availability of supply may act as a constraint on the expansion of the ebook market in Australia over the short to medium term.

POTENTIAL SUBSTITUTION OF PRINT BOOKS BY DIGITAL BOOKS Two important questions in determining the trends in ebook consumption and the likely size of the ebook market – particularly relative to the print book market – in the short to medium term are: will ebook sales expand the total market for books? Or will they cannibalise print book sales? The current evidence linking ebook and print book sales is inconclusive. For instance, Ernst and van der Velde (2009), after analysing usage statistics from SpringerLink in Germany, Greece and Turkey, conclude that ‘not only is [ebook] usage growing dramatically, the print business is not being cannibalised by ebooks, and in some cases ebooks are even driving print book sales’. Similarly, a consumer survey conducted by Verso Advertising in 2010 in the United States found that only 13 per cent of ebook readers were not planning to purchase a print book over the next 12 months. In contrast:

 15 per cent of ebook readers indicated that they would purchase at least one print book over the next 12 months

 14 per cent indicated that they would purchase three to four print books  17 per cent indicated that they would purchase five print books  28 per cent indicated that they would purchase 10 or more print books. Drawing on these survey results and others, it is suggested that the choice may not be

BOOK INDUSTRY STRATEGY GROUP 46 about either ebooks or print books, but a marketplace where content in multiple formats actually increases book purchasing across the board. Industry experts in Europe (surveyed by PricewaterhouseCoopers) have a more nuanced perspective. They all agree that ‘ebooks and printed books will co-exist’. However, they also believe that ‘in certain cases, printed editions will be replaced by digital editions. This is probable particularly in the case of special interest and travel books and in areas in which only sections of books are read’ (PwC 2011: 44). Drawing on the evidence outlined above, in the short to medium term, ebook sales are likely to expand the total market for books. However, in the longer term the impact on printed books is unclear.

FUTURE OF AUSTRALIAN EBOOK AND PRINT BOOK MARKET Based on the factors discussed above, the total book market in Australia will grow to approximately $2.8 billion in 2014, 24.6 per cent (or $700 million) of which will comprise ebook sales. Of the three potential scenarios illustrated in Figure 19, scenario three is projected to be the likely outcome. Of the $700 million projected value, $500 million will be trade ebook sales (representing 25.7 per cent of the total trade book market) and $200 million will be educational ebook sales (representing 21.4 per cent of the total educational book market). The value of trade print book sales will grow in line with the three-year average (3.5 per cent) in the short term, before slightly tapering to 3.0 per cent in 2014, while the value of educational print book sales will grow in line with the three-year average (0.9 per cent) in the short term, before slightly tapering to 0.7 per cent in 2014. This taper reflects the belief that ebook sales will slightly cannibalise print book sales in the short to medium term:

 The value of educational ebook sales will grow by approximately 80 per cent a year in the short term, before tapering off to 50 per cent a year in 2014.

 The total value of print book sales will decrease from $2.3 billion in 2010 to $2.2 billion in 2014 (an average annual decrease of 1.2 per cent).

Figure 19: Projections of ebook share of Australian book market, by scenario, 2010–14

Source: Cover to cover, Figure 37, p. 47.

The future of the print book market is unclear over the medium to long term. Recent data released by the American Association of Publishers suggest that the cannibalisation effect may be occurring more rapidly than previously expected. Members of the association recorded that their ebook sales grew by 164.4 per cent from 2009 (from US$167 million to $441 million), while their print book sales decreased by 5.1 per cent (from $5.1 billion to $4.9 billion). In May 2011, Amazon announced that it is now selling more ebooks than paperback and hardcover print books combined.

BOOK INDUSTRY STRATEGY GROUP 47 FUTURE OF INTERNATIONAL EBOOK MARKET There is a range of available market forecasts for the international ebook market. The Outsell report projects that ‘the worldwide ebook market [will] grow at a compound annual rate of 42 per cent from 2009 to 2012’, increasing from approximately $4.6 billion in 2009 to $13.2 billion in 2012 (May, Fooladi & Worlock 2010). It further predicts that the ebook market will grow at the fastest rate in Europe, the Middle East and Africa (at an annual average rate of 51 per cent), followed by the United States (41 per cent), the Americas (41 per cent) and the Asia–Pacific region (31 per cent).

Figure 20: Projected value of ebook sales as a proportion of total book sales, global

Source: Cover to cover, Figure 39, p. 49.

PricewaterhouseCoopers’s Global entertainment and media outlook 2010–2014 projects that the value of global ebook sales will increase from $4.7 billion in 2010 to $10.7 billion in 2014 – an annual average increase of 22.5 per cent. The projected rate of global growth in ebook sales is illustrated in Figure 20. According to the survey, the ebook market in the following key international territories will grow strongly in the short to medium term:  In the United States, the value of ebook sales is projected to increase from an estimated $2.6 billion in 2010 to $4.8 billion in 2014 – annual average growth of 16.4 per cent.

 In the United Kingdom, the value of ebook sales is projected to increase from an estimated $82 million in 2010 to $500 million in 2014 – an annual average growth of 57 per cent.

 In Canada, the value of ebook sales is projected to increase from an estimated $77 million in 2010 to $154 million in 2014 – an annual average growth of 19 per cent.

 In New Zealand, the value of ebook sales is projected to increase from an estimated $11 million in 2010 to $35 million in 2014 – an annual average growth of 36 per cent. While the rate of growth in ebook sales is projected to be the greatest in the United Kingdom over the next three to five years, ebook penetration in the United Kingdom is still expected to lag behind that of the United States, Canada and New Zealand.

Response by the Australian book industry

AUTHORS, AGENTS AND OTHER CONTENT CREATORS With very few exceptions, Australian authors make extensive use of digital technologies in their work. Most necessarily do so with a relatively small expenditure

BOOK INDUSTRY STRATEGY GROUP 48 on hardware and software; the key tools of trade are a personal computer with standard word-processing and spreadsheet software and a reasonably fast internet connection. Many authors also make use of voice recognition software, and those whose work involves mathematical or scientific material often use specialised add-ons such as equation editing packages, usually by prior agreement with their publishers. Authors also employ a wide variety of digital research tools. There is virtually universal use of the World Wide Web, and those who have electronic access to public or university libraries make use of online databases and subscription journals. Several of the authors interviewed also reported using digital media for research in particular fields. Liaison with agents is conducted by email, and manuscripts are submitted to agents electronically. Though many consumer book publishers still officially prefer unsolicited submissions to be supplied in printed form (if they accept unsolicited submissions at all), authors are expected to supply their work electronically once it has been accepted for publication.

PUBLISHERS The impact of digital platforms varies according to the specific publishing subsector.

Reference book publishing The extensive use of digital platforms for the delivery of reference book material, whether it takes the form of web-based content, online subscriptions or stand-alone ebooks, has required reference and professional publishers to integrate their processes for print and digital production.

Higher education publishing This highly competitive field has several significant areas of concern for the long- run future of higher education publishing. These include:

 the changing role of textbooks, which are becoming less central to higher education as courses of study diversify and enrolments in traditional disciplines such as physics and mathematics fall away in favour of professional courses

 the cost of developing supplementary digital materials for supply in conjunction with textbooks

 the universities’ increasing emphasis on offering education through online platforms. Higher education publishers have used digital technologies to adapt their offerings to these new patterns. Some make digital materials available through the universities’ password-protected learning management systems. For subjects with large enrolments, publishers offer customised textbooks made up of extracts from books on their lists as alternatives to the ubiquitous photocopied course packs. These customised readers are printed digitally for the main print run, with top-up copies produced by print-on-demand, which offers higher reproduction quality than photocopies. Some publishers offer academics the option of editing, rewriting and supplementing textbooks using publisher’s software to fit specific courses.

Scholarly publishing To varying degrees, Australia’s few remaining mainstream university presses offer digital editions. Most of the journals published in Australia are only available digitally and are produced by commercial publishers at commercial prices. This has placed academic libraries under budgetary pressure, which has reduced the libraries’ ability to purchase scholarly monographs. This has had serious implications for university

BOOK INDUSTRY STRATEGY GROUP 49 presses and their capacity to publish. Titles released by the traditional university presses are generally released through ebook and print-on-demand formats. Several universities have established e-presses (all originally associated with university libraries), which provide free electronic copies of titles by academics at the institution and digital copies of theses, but charge for print-on-demand books.

Educational publishing For well over a decade, publishers of primary and (especially) secondary textbooks have supplemented their print materials with electronic content, such as password- protected websites, classroom exercises and downloadable PowerPoint presentations. The sector is highly competitive and, as in the case of higher education, much of this material has been made available at no cost, provided teachers adopt the relevant textbooks. Many educational publishers are hoping that a shift to digital books will enable them to repurpose – and charge for – more of the content they produce. In terms of their forward lists (as opposed to titles already in print), educational publishers are increasingly integrating the preparation of print titles with the production of ebooks. There has been much more widespread use of XML tagging to facilitate the indexing and repurposing of content, and some educational publishers are now having works proofread on screen. The options for incorporating visual material have also been broadened by the availability of digital image libraries, which are open to making agreements with publishers for access to their contents

Trade publishing The release of the Kindle (2009) and Apple iPad (2010) triggered a shift in the approach to digital publishing among trade publishers. While ebooks have been offered by some publishers in PDF form for a number of years, the shift to more versatile formats makes the product viable commercially. Disparities between formats and inconsistencies in metadata standards impose considerable costs and inefficiencies on publishers. The emergence of digital publishing has ramifications for the workflow of print books. In the past, many publishers released their titles in digital form after they were completed as printed products; however, many are now moving to integrate the two processes so that books are optimised for release in either medium. With few exceptions, such as Lonely Planet, this is a recent development for most publishing firms. Digitisation has introduced a number of changes to publishing processes:

 streamlining of print production  an increase in global publishing output  a shift from physical production to ancillary services, such as marketing, metadata, content management and distribution. Book marketing has universally been digitised. In educational, professional and technical publishing, client databases are compiled into email lists for targeted promotion; in trade and consumer publishing, the promotion of titles and author events has largely shifted to the web and to mobile phones. Digital technologies have also made it possible for publishers and booksellers to receive more timely information about book sales and trends. One example is the advent in 2000 of Nielsen BookScan, a service that collects point-of-sale information directly and generates weekly sales reports. More generally, publishers have had to pay closer attention to the management of both print and online content, the tracking of publishing workflows, budgeting, royalties and the management of client lists. In the early stages of digital publication

BOOK INDUSTRY STRATEGY GROUP 50 management, individual publishing houses tended to devise their own software for these purposes, but especially among the larger publishing houses this has now given way to the use of specialist publishing software. Developing and acquiring specialist software, managing large client bases and compiling and updating data are all activities that require a substantial investment of capital and labour. Rising capital requirements have contributed to the consolidation of ownership in the global publishing sector.

SMALL PRESSES Publishers in the small press sector, in Australia as elsewhere, have become increasingly active in the past decade or so as ‘what you see is what you get’ desktop publishing and internet-based communication have reduced the capital costs of preparing books for publication. For small presses, Twitter and Facebook are overwhelmingly the social media of choice and are almost unanimously seen as promotional tools. Australian small publishers’ use of electronic publishing is mixed; just under 30 per cent publish ebooks, and 37 per cent use print-on-demand. Through the BISG workshop series and a 2011 survey compiled by the Copyright Agency Limited, publishers (across all categories) identified their key concerns about the digital environment:

 lack of technical expertise and a need for re-skilling (noted as being the greatest impediment to developing digital product)

 piracy and lack of protection for digital works  lack of digital marketing skills  the low price of ebooks affecting profitability for publishers  market domination of large multinational distributors such Apple, Amazon and Google

 emergence of multiple interactive platforms that drive changes in consumer choice  impact of technology on the future of reading  effect of globalisation on the capacity of Australian publishers and authors to be noticed in global markets.

PRINTERS To remain competitive, Australian book printers have adopted a wide range of digital technologies. Publications arrive at the printers as print-ready PDFs prepared using Adobe InDesign, which has become an industry standard. This produces interoperable files that can be printed in a number of ways. Australian book printers have been moving into the digital arena for several years, partly in response to a joint industry study funded under the Australian Government’s Enhanced Printing Industry Competitiveness Scheme, which identified the need for printers to adapt as book publishing moved towards mass customisation rather than mass production. Digital printing allows books to be reprinted economically in small numbers; setup costs are lower, and the cost per copy is more constant across the print run. The quantity at which digital printing is more economical than offset has continued to rise, from about 500 copies in 2008, to 2,000 to 3,000 copies in 2011 (depending on the number of pages). From the printers’ perspective, digital equipment is a major investment. A fast digital web press that includes integrated finishing and binding equipment costs

BOOK INDUSTRY STRATEGY GROUP 51 between four and seven million dollars. Digital printing is especially useful for backlist titles because the numbers sold are generally too small to warrant using offset. General demand for digital printing is growing rapidly; however, much of this is not book printing but the production of training materials, catalogues and similar items. Further down the quantity scale is print-on-demand, which can be used to print books as single copies. The main reservation many publishers have about print-on-demand is the quality of the resulting books, which are often visibly inferior to web offset or longer-run digital printing. Globally, digital printing of all kinds is increasing its market share as publishers seek to tailor print runs more closely to demand, avoiding the cost of trade returns and losses from sales of remainders. It is also benefiting from growth in small-press publishing. Book printers also provide archiving services. Older titles that were printed from film need to undergo conversion before they can be brought back into print. In some cases this involves scanning printed copies of older works to convert them into current file formats. It is difficult, however, for Australian printers to compete with the low-cost options offered by firms in India. Digital technologies are widely used to speed up ordering systems. This is primarily done through online archiving services that allow publishers to order books by ISBN. Once a book is available in PDF format, it can also be converted into an ebook. The impact of digitisation on the print industry is significant. While new opportunities exist through digital printing and print-on-demand, the market transition from paper to screen book formats is fundamentally changing the face of the book printing industry. It is generally anticipated that the printed book will continue to have a place in the market, but the ability of Australian printing firms to remain competitive against low-cost Asian rivals in a shrinking market is an immediate and significant challenge.

DISTRIBUTORS AND RETAILERS Australian retailers are digitising their activities, but the available data on the extent to which this is occurring are old – the latest being the 2003–04 ABS data. That survey also asked retailers about their use of digital technologies. Some key aggregates for booksellers and other retailers are shown in Table 2.

Table 2: Book retailers’ use of digital technologies, key aggregates 2003–04

Technology used Bookseller Other book s retailers (%) (%)

Computerised stock 75.0 50.9 control Barcoding and scan- 89.6 80.0 ning Receiving online or- 48.7 25.2 ders Researching availa- bility/cost of ser- 72.3 29.6 vices online Researching biblio- graphic information 68.2 16.6 online

BOOK INDUSTRY STRATEGY GROUP 52 Businesses having a 56.7 19.3 web presence

Source: ABS, Book retailers, 2000–04, cat. no. 1371.0, p. 13.

Unfortunately, no subsequent ABS surveys have specifically looked at book retailing; the 2009 report Arts and culture in Australia: A statistical overview reiterates the 2003–04 figures, and the industrial classifications used in the census combine book retailers with newsagencies and do not distinguish the book-retailing activities of supermarkets and department stores. During the past decade, the bricks-and-mortar firms have been joined by a number of Australian online-only book retailers, some of which have enjoyed rapid growth. Booktopia, for example, was among the 100 fastest-growing Australian companies in 2009, and CEO Tony Nash is confident it will retain its position in 2010.1 Other online-only retailers include TheNile and Boomerang Books, which has a particular (but not exclusive) emphasis on Australian titles. While all these firms operate online, their main focus is on the sale of print books.

A competitive environment

AUTHORS AND OTHER CONTENT CREATORS Exploring the competitiveness of Australian content creators presents challenges. Though commonly used to ascertain ‘relative cost’, ‘competitiveness’ is a concept of limited efficacy when applied to authorship. An individual author’s inputs and productivity may of necessity vary widely from one project to another, making measures of output – other than the delivery of an acceptable manuscript to a publisher to a deadline – hard to establish. Within a given book genre, one author may be deemed to produce more ‘efficiently’ in cost or output terms than another, perhaps on the basis that one writes more books more quickly than the other. However, depending on the genre and a host of other factors, a ‘slow’ writer may not be an ‘efficient’ practitioner, but may still be an effective creator who enjoys a greater commercial success than a ‘fast’ writer. Although many authors operate as small economic units and producers, their place within the broader economy is blurred by the nature of their practice and the often poor fit between effort and return. Authors’ output retains a twin character – being commerce and art/craft – so that their economic contribution must be weighed alongside the delivery of cultural and other benefits. In the context of the book industry’s overall costs, authors influence general industry competitiveness in only limited ways. While authors’ direct cost to publishers takes the form of advance and royalty payments, roughly ten per cent of the total publishing ‘pie’, there is no evidence that author-driven excessive or publisher misjudged advances and royalty payments are cumulatively sufficient to have influenced retail prices and made local products less competitive than imports. Taking the total Australian book market over time as being open and fluid, the creation of a greater volume of quality, local author–generated intellectual property is an economic input with at least the potential to enhance revenues through increased book sales. On this measure, an indication of the competitiveness of Australian authors lies in the number of local titles produced and published annually.

PUBLISHERS The conversion of content into books in Australia is primarily the responsibility of

BOOK INDUSTRY STRATEGY GROUP 53 the country’s publishers. However, the competitiveness of Australian publishing industry is difficult to assess because of the protection afforded it under the Copyright Act and also because many publishing houses are subsidiaries of larger international publishers. Notwithstanding these issues, the Australian publishing industry is competitive relative to international competitors. The following observations help to support this conclusion:

 The export market for Australian books has grown over the past decade (an annual average increase of 3.6 per cent), while the export markets in the United Kingdom and United States have stagnated. The value of Australia’s book exports grew from $162 million in 2001 to $225 million in 2010 – an annual average increase of 3.6 per cent.

 The share of Australian publishing revenue accounted for by Australian books has grown over the past decade from 44 per cent in 2001 to 48 per cent in 2010 (see Figure 21). This suggests that Australian publishers have become more effective in linking Australian content creators with the Australian market.

 Australian book publishers have improved the management of inventory over the past decade as inventory levels as a proportion of sales have been trending downwards for both trade book publishers and educational book publishers. Australian book publishers have embraced the digitisation of production.

Figure 21: Book publisher revenue, by type of publisher, 2001–10

Source: Cover to cover, Figure 14, p. 24.

Lastly, Australian publishers have made some progress in addressing the problem of returns. Confidential data provided by the Australian Publishers’ Association show a 5 per cent decline in trade returns as a proportion of sales over the past decade. Labour productivity is an issue as this has stagnated over the past decade. This has increased by an annual average of 0.6 per cent for trade publishers and declined by an annual average of 2.5 per cent for educational publishers. However, this trend may reflect the overall slowdown in productivity growth throughout the economy.

PRINTERS The Australian book printing industry has been involved in the production of books since the early 19th century. The past two decades, however, have witnessed a gradual decline in the revenue generated by the book printing industry, from $250 million in 2001, to $220 million in 2010. The decline in book printing revenue may be attributed to the increasing use of overseas printers by Australian-based publishers, driven by cost differential between Australia and Asia. Asian-based printers have a price advantage of between 12 and 27 per cent; the biggest differential is for four-colour casebound books.

BOOK INDUSTRY STRATEGY GROUP 54 The cost differentials result from higher labour costs in Australia; higher paper costs; the small market; under-utilisation; economies of scale; higher regulatory standards; and the high Australia dollar, which provides a price advantage for overseas-based printers. Other factors include:

 The average print run for a book in Australia (excluding trade paperbacks) is between 7,000 and 10,000, in contrast to 1.2 million in China. Compounding the print run problem is the significant under-utilisation of capacity.

 At the extreme, 2011 International Labour Organization data show that manufacturing labour costs are 1,900 per cent higher in Australia than those in China and 600 per cent higher than those in Malaysia.

 Australia imports coated and uncoated paper at a higher price than printers in the United Kingdom. PricewaterhouseCoopers believes this is because Australia buys lower volumes of paper. The industry has sought to adjust to these changes through investment in new technology. The industry has embraced digital file plate technology, and wages in the broader printing industry fell as a percentage of revenue between 2005 and 2010 due to efficiency and productivity gains. As a result of these adjustments, the average price of trade paperback fell by 9 per cent at Griffin Press and McPherson’s Printing Group over the past decade.

DISTRIBUTORS Distribution is widely seen as a factor impeding the competitiveness of the Australian book industry. Inefficiencies in the distribution system in Australia could account for 6 to 16 per cent of the price differential of the average total price charged by Australian and overseas online booksellers. Factors that affect distribution are the geographically large and dispersed market, a fragmented distribution system, lack of agreed standards underpinning book distribution and lack of access to the distribution system for smaller publishers. As a result of these difficulties:

 The fragmentation limits the ability of publishers to achieve economies of scale in distribution, which drives up the cost of each unit distributed.

 The lack of agreed standards results in the multiple handling of books, thus increasing costs. The use of radio frequency identification could help to track the seamless movement of books across the supply chain and reduce costs.

 Up to 40 per cent of publishers, mostly small, feel that they are locked out of the national distribution system. Distribution in Australia is also affected by the absence of an Australian digital asset distributor, which acts as an intermediary between publisher and bookseller. These specialist companies play an important role in the ebook supply chain in the United States and the United Kingdom through providing publishers with technical capacity in managing their ebook portfolios. This includes managing metadata and digital rights for the publisher and providing ebook formats that match the ecommerce systems of booksellers.

RETAILERS With fast internet connection speeds and reliable online payment systems, consumers are increasingly willing to purchase print books through online platforms. PayPal Australia estimated that Australian online retail sales would reach $33.8 billion in 2012, a 40 per cent increase over 2009 levels. Local online retailers are struggling to establish a presence in the market, and overseas firms account for about 40 per cent of total Australian online retail sales. Australian booksellers have been pitted directly against their overseas competitors in the ebook and online sales of print book market. The use of specialist wholesalers in the United Kingdom and the United States helps to improve efficiency, because such

BOOK INDUSTRY STRATEGY GROUP 55 wholesalers are able to offer more consolidated ordering services to booksellers. Speed of access and the range of available titles are major issues for booksellers’ competitiveness. Books that are out of stock locally can take between three and 12 weeks to be supplied, while major US book distributor Ingram can supply any Australian bookshop in four to five business days. However, books that are in stock can usually be supplied in Sydney or Melbourne within three to five days. Lengthy delivery times can encourage inefficient ordering behaviour, such as ordering on the basis of predicted future demand. As a result, booksellers may be less likely to have the titles to meet consumer needs. An inefficient distribution system is blamed for slow delivery times. Another key issue for competitiveness of Australian retailers is price. Overseas online booksellers such as Amazon are able to sell print books published overseas to Australian consumers at a price (including delivery) that is more competitive than the price charged by Australian online booksellers for the same book. The available evidence suggests that Australian online booksellers are able to sell print books published in Australia more competitively (see Table 3).

Table 3: Summary of comparison of total prices charged by Australian-based and overseas-based online booksellers (as at 27 March 2011)

Average total price Median total price

Sales Differential Differential rank Title Australia Overseas (%) Australia Overseas (%)

18 Letters and Numbers * $20.14 n/a n/a $20.4 n/a n/a 1 21 The Plantation * $35.39 n/a n/a $36.3 n/a n/a 1 24 Ben Cousins: My Life Story * $39.97 n/a n/a $39.3 n/a n/a 4 13 Last Sacrifice: Vampire Academy * $23.39 $30.14 22.4% $23.4 $30.1 22.2% 5 4 7 Losing the Last Five Kilos * $32.11 $38.33 16.2% $33.6 $38.3 12.3% 1 3 22 MasterChef Australia (Volume 2) * $40.43 $46.54 13.1% $42.1 $46.5 9.4% 5 4 14 Dog Days: Diary of a Wimpy Kid * $19.30 $21.89 11.8% $20.2 $21.8 7.4% 6 9 3 Ugly Truth: Diary of a Wimpy Kid * $19.48 $21.89 11.0% $20.4 $21.8 6.8% 1 9 8 Diary of a Wimpy Kid * $19.46 $21.56 9.7% $20.1 $21.5 6.7% 1 6 6 Lake of Dreams $33.18 $36.48 9.0% $33.6 $36.4 7.9% 1 8 11 Before I Fall $15.80 $17.31 8.7% $15.9 $15.9 0.2% 5 9 12 Rodrick Rules: Diary of a Wimpy $19.71 $21.56 8.6% $20.3 $21.5 5.7% Kid* 4 6 15 Last Straw: Diary of a Wimpy Kid * $20.05 $21.89 8.4% $20.4 $21.8 6.8% 1 9 10 Fast Fresh Simple * $43.68 $42.34 -3.2% $44.4 $43.4 -2.3% 7 7 16 Clean & Lean Flat Tummy Fast! $31.32 $29.39 -6.6% $32.1 $27.8 -15.2% 4 9 20 You Belong to Me $29.11 $25.88 -12.5% $29.4 $25.8 -13.8% 4 8 19 The King’s Speech $32.80 $27.49 -19.3% $33.9 $22.3 -51.6% 1 7 1 Tick, Tock $33.88 $26.57 -27.5% $35.9 $19.4 -84.6% 7 8 23 Jamie’s 30-minute Meals $52.38 $39.40 -33.0% $51.9 $35.9 -44.4% 1 6 17 Secrets to the Grave $36.02 $26.27 -37.1% $36.6 $26.2 -39.5% 4 7

BOOK INDUSTRY STRATEGY GROUP 56 Average total price Median total price

Sales Differential Differential rank Title Australia Overseas (%) Australia Overseas (%)

2 Awakened: House of Night $33.08 $24.12 -37.1% $33.7 $17.5 -92.3% 9 7 4 The Girl Who Kicked the Hornets’ $27.43 $18.20 -50.7% $29.1 $20.5 -41.9% Nest 6 5 25 Eat, Pray, Love $27.07 $17.67 -53.2% $29.2 $16.2 -80.3% 9 5 5 The Girl with the Dragon Tattoo $26.95 $16.65 -61.8% $29.0 $13.1 - 6 2 121.5% 9 The Girl Who Played with Fire $26.01 $15.94 -63.2% $26.4 $14.8 -78.2% 6 5 Average for books published in 10.7% 8.3% Australia Average for books published over- -26.0% -42.6% seas Average for all books -9.4% -18.3%

* Titles published in Australia.

Note: Prices include sales price and postage.

Source: Cover to cover, Table 7, p. 69.

Factors affecting the price competitiveness of Australian booksellers include:

 The wholesale price of books. The prices paid for wholesale books published overseas by Australian booksellers are, on average, greater than those paid by booksellers overseas.

 GST on books sold in Australia PricewaterhouseCoopers found that if the GST on books sold in Australia were removed, the price advantage enjoyed by overseas online booksellers would be reduced for all books by approximately 87 per cent and would increase the price advantage for Australian booksellers for books published in Australia by approximately 60 per cent.

 The differential cost of postage between Australia and other destinations. Australian businesses suffer a significant disadvantage in postal rates to the United Kingdom compared to postal rates from the United Kingdom. Rates from Australia can be up to 89 per cent higher for posting parcels of similar volume and weight (see Table 4).

 The appreciation of the Australian dollar against the US dollar and the British pound has made purchasing books in those markets much more attractive to Australian book buyers. The exchange rate, in real terms, is at its highest level since the mid 1970s. Driving the appreciation in the Australian dollar has been our high terms of trade, relatively strong economy and the expansionary monetary policy settings of major world economies including the United States and the United Kingdom. Over the year to September 2011, the Australian dollar has appreciated by 15.4 per cent against the US dollar; by 8.3 per cent against the trade-weighted index of currencies; and by 5.2 per cent against the euro. The strong dollar is a challenge for Australian manufacturing industries, particularly those that are trade exposed. It has raised the price of the goods that Australian manufacturers sell in overseas markets and intensified competition from cheaper imported goods; thus putting pressure on income, sales levels, margins and ultimately profits. This is the current scenario for the book retailing segment of the book industry – Australian consumers are able to buy books more cheaply offshore due in part to the stronger Australian currency.

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

BOOK INDUSTRY STRATEGY GROUP 57

The restrictions on the parallel importation of books reduce competitiveness for Australian booksellers. As the Productivity Commission (2009) noted, Australian consumers can now effectively import books themselves as soon as they are released anywhere in the world, and can take advantage of different prices and format choices, as well as the GST-free status of books purchased online from abroad. However, booksellers are still constrained by these regulations. The availability of ebooks is a critical issue, particularly in a country such as Australia, which has not been strongly represented in the existing global stores. To shore up their share of the local market, the major Australian book chains have built up their range of digital titles and diversified into selling ereaders capable of reading ebooks in various formats. Local online retailers are particularly concerned to boost their holdings of Australian titles to gain a point of difference from the omnipresent online global retailers. The range of Australian ebooks available has gradually widened as more locally published books are converted to electronic form.

Commercial uncertainties

Digital publishing, and ebooks in particular, have created significant uncertainties and concerns in commercial transactions. The commercial reality of the printed book market is simple: the book may be purchased from any source and ownership then rests with the purchaser. The owner of the printed book can then choose to lend that book to any number of persons, give away, resell or destroy the book. The emergence of ebooks has raised concerns for authors and publishers, who fear the loss of income and threats to revenue streams. Both want to ensure that lower-priced digital versions of print books do not undermine or erode sales and royalties. The report Ebooks and public lending right in Canada (Whitney 2011) noted that authors report greater difficulties in negotiating royalty rates on ebooks than on print equivalents. Coupled with the fear of an overall decline in unit sales, a significant concern of authors is that in some instances royalties from ebook sales are lower than for print sales. The potential ubiquity and permanence of ebook availability lies at the centre of may publishers’ concerns. This concern is firmly rooted in the knowledge that, because a perfect copy of the ebook can be made anywhere, the incentive to buy more than one copy disappears. The result of these concerns in a nascent ebook market is that authors are seeking different approaches when negotiating digital rights contracts, and publishers and distributors have developed a mind-boggling array of measures and controls to ensure that ebook transactions and use do not undermine their income.

BOOK INDUSTRY STRATEGY GROUP 58 Many consumers are unsure of their rights when they ‘purchase’ an ebook. This is because many of the rights associated with the printed book, such as resale or lending, are unavailable. For this and other reasons, consumers expect to pay a lower price if they cannot recover any of the investment made in an ebook through resale, as they would in the sale of a printed book. The commercial transactions are significantly more complex, unclear and even uncertain when the purchaser or licensee is a library. Many publishers have yet to develop a satisfactory business model for their dealings with libraries. Recently, HarperCollins in the United States announced a model that would see their ebooks made available to libraries for 26 loans only. Their concern was that selling ebooks to libraries in perpetuity would undermine the emerging ebook ecosystem, hurt the growing ebook channel, place additional pressure on bricks-and-mortar bookstores and lead to a decrease in book sales and royalties paid to authors. The Australian library system is experiencing the complexities of the decisions relating to the sale and use of ebooks, especially for trade books. Ebooks can be acquired and licensed in a variety of ways. However, The US-based company OverDrive, the premier global supplier of ebooks, supplies Australian public libraries. According to the OverDrive model:

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

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

 At present, there is no limit on the total number of times that an ebook can be loaned; however, this may change as publishers begin to stipulate terms to distributors. To maintain access to ebook files, the library service must maintain its subscription contract with OverDrive. The Australian-based company Bolinda is an alternative supplier of e-audio books to Australian public libraries and includes many Australian titles. The US-based company 3M is attempting to break into the library ebook supply market; however, the monopoly held by OverDrive is presenting challenges for competing firms. The agreement or agreements between the library and the distributor have flow-on effects on arrangements such as the Public Lending Rights (PLR) and Educational Lending Rights (ELR) schemes. The PLR and ELR schemes were intended to compensate authors and publishers for the potential loss of sales from their works being made available in public and educational libraries. A working scheme is in place in 29 countries, including Australia. The PLR scheme was developed on a print-book model that is not immediately transferable to an ebook. Ebooks and public lending right in Canada suggests that, where annual payments are made to subscribe to ebooks, the rationale for compensating authors for lost royalties due to the ongoing presence of their books in libraries is no longer valid. However, many agreements are in place between libraries and distributors, publishers and distributors, and publishers and authors, all of which are based on different business models and do not easily replicate the model that was developed for print books. The Canadian review notes that changes in how content is created by authors, published and distributed by publishers and acquired and maintained by libraries may make the present approach untenable. However, a new business model for library ebooks, which addresses the legitimate concerns of all parties, has not yet emerged. The issue is also a cause for concern in Europe. In the United Kingdom the debate centres on how the library user accesses the downloadable content: from within the library or remotely from the library’s website. The Publishers Association in the

BOOK INDUSTRY STRATEGY GROUP 59 United Kingdom is concerned about the geographical reach of library membership, because the web technically allows anyone, anywhere in the world to be a member of a given library, who could therefore download material. Agreement on the terms and conditions of sale, loans and use of ebooks will not be resolved until a business model that serves the needs of all has evolved.

Copyright and piracy

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

 the ‘reproduction’ right or right to make multiple copies of a work  the ‘publication’ right or right to make the work first available for sale. These rights make copying and selling of copyright material without the permission of the author or publisher an infringement under the Act except in some limited circumstances. The right to control who may use their work gives authors and publishers the ability to trade their intellectual property. In the case of books, publishers seek permission to use an author’s creative work in exchange for payment. Authors may also allow their work to be published or reproduced in other forms, including ebooks. The electronic environment has created many problems relating to the access and use of copyright material and is considered a major threat to the incomes of authors and publishers. Participants in the workshops conducted by the Book Industry Strategy Group, as well as contributors to the public submissions, raise a number of concerns. These concerns reflected both sides of the copyright and access debate: on the one hand some felt that copyright was restricting access to use of material, while others felt that a tightening of the copyright rules was appropriate. The industry broadly accepts that digital delivery presents problems for capturing copyright royalties. However, there is much debate about the most effective way to manage piracy of digital works. Some believe that regulation should be tightened to enable prosecution of those that illegally copy digital works; others feel that piracy and viral marketing are an opportunity for attaining profile and should be exploited. Still others believe that a systems-based approach to monitoring use and capturing royalty payments should be employed. Within the educational sector, all agree that licensing arrangements must be revised to capture the use of digital objects. However, how the use of this material should be remunerated is the subject of considerable debate between government policy makers and the book publishing industry. Systems for managing territoriality are also central to the digital delivery debate. The global nature of the internet means that it is difficult to regulate online sales of ebooks. The relevance of regulatory frameworks, such as parallel importation restrictions (PIR), which currently do not cover digital works, is also being scrutinised by industry operators. Many consumers believe that digital information should be provided free of charge – particularly when accessed from the internet. This attitude appears to be particularly prevalent among younger consumers and presents a significant threat for the future viability of the book industry. Educating consumers on the illegitimacy of this approach before it becomes further entrenched as an expectation is an important component of creating a sustainable balance between the needs of creators and users.

BOOK INDUSTRY STRATEGY GROUP 60 4 Book industry SWOT analysis

A SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and threats for a particular activity. It involves specifying the objective of the activity and identifying the internal and external factors that are favourable and unfavourable to achieve that objective. SWOT stands for:  Strengths: characteristics of the activity that give it an advantage over others in the industry  Weaknesses: characteristics that place the activity at a disadvantage relative to others  Opportunities: external chances to advance the activity within the operating environment  Threats: external elements in the environment that could cause trouble for the activity.

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

Table 5: Book industry SWOT analysis

STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

AUTHORS > Creativity > Low and potential > Emergence of > Digital copyright protection > Current copyright decline in Australian culture > Increased legislation remuneration in international competition within > Number of well- > Lack of digital arena global market known Australian skills and strategy > Access to wider > Small share and authors and digital global market via profile in global domestically business model online marketplace > Growing > Weak global > Self-publishing to > Loss of income international presence achieve higher through piracy recognition of the > Lack of good returns > Increased quality of sector-specific > Global promotion of competition from imported content Australian data Australian works > Challenge to educational and > Increased leverage existing business general authors to negotiate with models in the > Agent success in publishers transition to the promoting digital Australian authors environment both domestically and internationally > Support from Australian-based publishers

BOOK INDUSTRY STRATEGY GROUP 61 PUBLISHERS > PIR conditions, > Distribution > Export opportunities > Loss of territorial rights which protect inefficiencies > Infiltration of > Loss of income investment in > Absence of digital emerging through piracy Australian distribution international > Self-publishing publishing infrastructure markets, opportunities for > Vibrant independent > No metadata particularly for authors publishing sector standardisation educational > Change in supply– > Multinational > Lack of digital materials demand balance parent company skills and strategy > Diversification of with more power support for larger > Lack of delivery formats for consumers Australian entities international sales > Global supply > Transitional issues facing > Strong skills in and marketing barriers removed for retailers the craft of expertise digital formats publishing > Lack of price > Development of a > Trend in increased responsiveness digital delivery efficiency and system and its profitability accompanying set of > Good publisher- standards specific data > Innovations in collected by the customisation of Australian products, e.g. Publishers educational, Association interactivity > Rationalisation and improvement in distribution of print books

PRINTERS > Proximity to > Geographic spread > Print on demand > Ebooks > Cheaper overseas domestic market and small market > Environmentally printing > Speed of turnaround size sustainable product > Multinational of material > High capital costs > Investment in ink- firms entering the > Flexibility in > High input costs, jet technologies, Australian market providing products e.g. labour, paper e.g., enables > Generational > Investment and > Fluctuations in smaller print runs change resulting innovation in new demand resulting > Consolidation of in increased use technologies under-utilisation printing firms to of digital > Absence of book gain efficiencies products printing data > Lack of skills in digital technologies

BOOKSELLERS> Personalised > Lack of digital > Growing uptake of > Competitive advantage of customer base infrastructure digital devices with overseas based > Stronger presence > PIR conditions, corresponding growth online retailers, of independent which inhibit in sales of digital re access, price, bookshops than competitiveness of material taxation, other countries Australian > Consumer purchasing availability, > Excellent data on booksellers power postage, exchange sales of print > High overheads for > Opportunity to rate books collected at bricks-and-mortar value-add and > Large point of sale bookshops build/increase multinational > Capacity to create > Speed and customer loyalty retailers > Discount and maintain availability to > department stores community market Investment/inn – cannibalisation connection > Poor industry- ovation to build via ability to specific data online presence purchase > Lack of online book > Print on demand at large discount sales data for > National Broadband then sell cheaper print and ebooks Network; ease and

BOOK INDUSTRY STRATEGY GROUP 62 speed of than bookshops transactions > Development of niche products

BOOK INDUSTRY STRATEGY GROUP 63 Part 2 TRANSFORMING THE INDUSTRY

5 Industry transformation strategy

A prosperous Australian book industry is central to the development and vitality of Australian culture and creativity. The book, in all its forms, has a distinctive and important role in telling Australian stories and defining what it means to be Australian. However, the book industry and its markets are at a crucial point: rapid change is occurring in every part of the supply chain. The true shape of the future cannot be fully known; however, it is critical at this point in its evolution that the industry establishes a strategy for ensuring a strong and viable future. Figure 22 illustrates a pathway for transforming the Australian industry by taking advantage of its strengths and positioning itself to counter the challenges it currently faces.

Competitive advantages

In assessing the Australian industry’s competitive advantages, it is important to look across the supply chain and to recognise that what gives one sector an advantage may be seen as an impediment by another. The diverse nature of the supply chain makes it challenging to find the right balance between competing priorities. A good example of this is investment protection through parallel importation restrictions (PIRs). For many booksellers, the PIRs present a barrier to competitive commerce because they cannot source cheaper books from overseas suppliers. However, authors, publishers and printers view the PIRs as a safeguard for encouraging investment. When we examine the net benefit to the whole supply chain, we must consider both positions and find suitable compromises to enable the industry as a whole to flourish. Achieving effective collaboration across all sectors of the industry is paramount to the success of the Australian industry. While the digital environment provides an opportunity to reshape the traditional supply chain, all sectors will benefit from a combined approach to evolving the business environment to strengthen the appeal of Australian books to domestic and international consumers. By maximising advantages such as Australia’s relatively low publishing costs, good author reputation and strong independent book sector, the industry can establish a place in the global market. This list is by no means conclusive, and individual operators will identify innovative ways to triumph over competitors. The key is to ensure a focus on our strengths when assessing the viability of opportunities.

Opportunities

The changes taking place in global book markets bring both challenges and opportunities for the Australian book industry. The opportunities that require commitment from the industry as a whole are the ones likely to provide the greatest benefit for Australian books and the Australian economy. While digitisation presents

BOOK INDUSTRY STRATEGY GROUP 64 options for Australian operators to work directly with overseas firms, the strengthening of our domestic supply chain provides the foundation for export expansion into established and emerging overseas markets. However, the capacity of the industry to take advantage of opportunities is largely dependent on the underpinning hard and soft infrastructure that supports new initiatives. Key examples include the urgent need for digital warehousing for online ordering and supply of ebooks and systems to facilitate consistency of metadata standards. Booksellers cannot optimise opportunities to promote and sell Australian works if the systems to connect them with publishers and consumers do not exist. Achieving outcomes that will strengthen the global position of Australian books requires innovation, investment and collaboration across the sector.

Actions

The BISG recommendations identify a suite of actions that will strengthen the Australian industry’s position and its capacity to compete globally. Priority areas include improving efficiency of the supply chain, investing in industry infrastructure and skills development – particularly in relation to the digital environment – recognising and rewarding content creators and increasing the export market for Australian books. These actions, however, are not an end in themselves, but represent the beginning of a process that will see the traditional supply chain evolve into a more adaptable and resilient structure. A key challenge for the book industry is to implement strategies that improve efficiency and facilitate collaboration across the supply chain, without hindering the capacity of individual sectors to take advantage of opportunities presented by the digital environment. The BISG report looked specifically at how industry and government can work together to address the emerging digital environment for books. However, beyond the BISG recommendations for government, the industry can do much to innovate and improve its competitiveness and global profile. The pace of change is accelerating, and if the Australian industry is to thrive in a global market, this must be an ongoing process.

Industry outcomes

Over the past four decades, Australia has established a thriving and independent book industry. However, as new technologies change the operating environment for book production and sales, the ability of Australian companies to remain competitive is increasingly under challenge. Industry and government must commit to the development and implementation of a strategic approach to industry development to achieve reforms. Realising the full potential of the industry will require commitment to change. Among other adjustments, this will mean the development and adoption of new business models that complement, rather than resist, new modes of supply and production, including those that engage with consumers and recognise their ability to influence supply. To be globally competitive, the commercial environment must empower Australian firms to meet the increasing demands from consumers related to efficiency, availability, quality and price. However, to be sustainable, consumer needs must be balanced by industry profitability and incentives for content creators. The outcomes being sought through the BISG process are about creating a balanced environment that encourages creativity, attracts investment, and improves business conditions for all parts of the book supply chain.

The future

BOOK INDUSTRY STRATEGY GROUP 65 Like many creative industries, the book industry has long relied on the commitment of its participants, despite the low remuneration and return on investment that have traditionally been part of the sector’s operations. The new global environment created through online commerce is irrevocably altering what it means to be viable in this industry. Those who thrive in this new world will do so through improved efficiency and innovation. This environment will favour big corporations that can achieve economies of scale. But it is also an environment that will provide opportunity for the development of niche markets and personalised customer service and product. What this will mean for Australian books is yet to be fully determined, but the BISG process has provided an opportunity for the industry to influence its own outcomes and to create a future that is both prosperous and sustainable in the long term.

A PROSPEROUS, SUSTAINABLE FUTURE If the BISG recommendations are accepted and implemented, we envisage that by 2020 the Australian book industry will be a profitable, competitive industry playing a significant role in the global English-language market. Internationally, the Australian book industry will be recognised as a producer of quality books at the right price. Australia’s book industry will produce books the world wants – the content, the product, the pricing and the speed to market will be attractive and competitive. In the local economy, the book industry will be a leader in innovation, will have adapted to the revolution in reading habits and will be able to offer consumers a diversity of experiences: offline and online, from Australian physical retailers and e-retailers. In education, the intellectual skill of our academic and school authors, and the structural and technological skill of publishers, will have created a pre-eminent role for our educational materials. In the 20th century we built markets in the United States, the United Kingdom and New Zealand, but as technology has reduced cost and improved speed to market, in 2020 our published work will appear across the region and the world. This change will have been stimulated by investment in the education revolution, which will have allowed the enhanced commitment to teaching to flow to the production of quality works that will have brought much to the national educational experience. Australian publishers and retailers will have brought the world of books to Australian consumers. The range of available titles and ease of purchase will be the result of best practice customer service attitudes. The Australian book printing industry will have adapted to the new markets and be valued by the Australian public as a major employer and carbon saver and by the book supply chain as a reliable and quick-to- market book source. The Australian Bureau of Statistics annual collection of data, implemented in 2012, will reveal that Australian authors in 2020 earned an annual income double that of the previously reported figure of $15,000 a year. The copyright regulatory framework will recognise and value originality and reward creativity. The Australian ethos of a fair go will extend to the knowledge economy, and the public will recognise that the creators and distributors of content are entitled to a reasonable financial reward for their endeavours. The intellectual property of Australian authors will be recognised through an equitable royalty system that captures and values both print and ebook sales. Australian authors will be promoted nationally and internationally with support from the Australian Government. The international promotion of Australian writers will have proven to be a cost-effective form of soft diplomacy, enhancing Australia’s image abroad and promoting Australia’s talents. Australian authors and books will have a particular resonance with Australian readers. Meeting readers’ cultural appetite will be a priority for the local book industry. The promotion of Australian writing to Australian consumers will deliver income to Australian writers and employment to Australian printers, publishers and retailers.

BOOK INDUSTRY STRATEGY GROUP 66 The book industry-wide campaign for consumers to buy Australian books, funded under the rebranded Books Alive program, now known as Get Reading!, will have been successful. The consumers’ commitment to the Australian book will have been matched by excellent service from publishers and retailers who have recognised their mutual interdependence. The need for the whole industry to be profitable will have ensured that each sector is firmly focused on speed of delivery, understanding the market, and competitive pricing. The BISG recommendations respond to the terms of reference set by the Minister and seek to provide reforms that strengthen the Australian book industry in a global digital marketplace. The recommendations are divided into six broad themes: > integrating the book supply chain > competing effectively in the global book market > improving supply chain efficiencies > rewarding and protecting creativity > supporting the business environment > supporting Australian culture.

BOOK INDUSTRY STRATEGY GROUP 67 Figure 22: Transformation strategy for the Australian book industry

BOOK INDUSTRY STRATEGY GROUP 68

6 Recommendations

Integrating the book supply chain

RECOMMENDATION 1: Book industry collaboration

The Australian book industry faces significant challenges in securing and maintaining a position in the English language global market. While there are both opportunities and obstacles ahead for Australian authors, publishers, printers and retailers; the sustainability of the industry as a whole will be significantly enhanced by these subsectors working together to achieve mutually beneficial goals.

This principle was recognised in 2001 through an industry review (Ad rem – The Australian book industry: Challenges and opportunities) conducted on behalf of the Australian Publishers Association and the Printing Industries Association of Australia. The Ad rem report argued that a joint industry approach to supply chain reform would dramatically lower the overall cost structure of the industry, to an estimated value of $155 million. Despite some degree of industry and government endorsement of this recommendation, in the decade since the release of the report no action has been taken to form an overarching collaborative body. The book industries in both the United States and United Kingdom have established collaborative industry bodies that are tasked with improving the efficiency of the book supply chains in those markets. The principal functions of both bodies include development, maintenance and promotion of standards; certification and accreditation schemes; and commissioning research to address knowledge gaps and inform decision making.  Formed in 1976, the Book Industry Study Group in the United States seeks to create a more informed, empowered and efficient book industry supply chain for both physical and digital products. Membership includes publishers, booksellers, manufacturers, distributors, wholesalers, libraries, trade associations and others involved in digital and print publishing.  The equivalent body in the United Kingdom is called Book Industry Communication (BIC). Formally established in 1991 by the Publishers Association, the Booksellers Association, the Library Association and the British Library, BIC describes itself as ‘the book industry’s independent supply chain organisation, committed to improving the efficiency of the trade and library supply chains, reducing cost and automating processes’ (PwC 2011). This report provides the context for understanding the issues facing an industry in transition. It proposes a suite of recommendations, some of which address the needs of individual subsectors and others which target whole-of-industry reforms. The industry needs a collaborative forum which is empowered to communicate directly with government and mandated to implement industry wide reforms. It is essential that this body becomes a permanent forum with the longevity and authority to act on behalf of the

BOOK INDUSTRY STRATEGY GROUP 69 entire book industry, while recognising and supporting the role of specific sector organisations such the Australian Society of Authors, the Australian Literary Agents Association, the Australian Publishers Association, the Small Press Underground Network, the Australian Booksellers Association and the Printing Industries Association of Australia. The establishment of a body with representation from all sectors within the Australian book value chain – the Book Industry Collaborative Council – will provide such a forum. While not limited to implementation of reforms identified in the BISG recommendations, the council must be guided by a clear priority agenda that links to the recommendations in this report. This agenda should include: 1 efficiency reforms for the book distribution network within Australia, including industry standards (as a matter of immediate urgency) 2 maximising export opportunities for Australian book producers 3 coordination of industry skills development strategies and implementation 4 development of funding models which support Australian literature 5 facilitation of research initiatives 6 a body for centralising book industry consultation with government and other bodies.

RECOMMENDATION 1 That the Australian Government establish a Book Industry Collaborative Council with membership from all parts of the book value chain, which is tasked with implementing the industry reform priorities identified by the Book Industry Strategy Group and other issues as they emerge.

BOOK INDUSTRY STRATEGY GROUP 70 Competing effectively in the global book market

RECOMMENDATION 2: GST and price

Australian book retailers are required by law to impose the 10 per cent goods and services tax (GST) on the price of books sold. This, however, is not the case for overseas online retailers who sell books in the Australian market with a total value of less than $1,000. This differential tax treatment of books clearly favours the online retailer and creates a competitive disadvantage for the Australian retailer.

In many OECD countries, due to their educational and cultural value, books are either free of value-added tax (VAT) or subject to a reduced rate (see Table 6). The Australian book industry believes there is a case for the Australian Government to recognise the educational and cultural value of books and consider the level of GST applied to books. When the VAT was introduced in the United Kingdom in 1973, books, newspapers and magazines were specifically exempted because of their contribution to education, culture, personal development and literacy as a social good. Of nations in the OECD, eight countries impose their own standard rate of GST or VAT on books: Australia, Canada, Chile, Denmark, Israel, Japan, Mexico and New Zealand. Twenty impose a reduced rate. France, for example, has a VAT of 19.6 per cent and a rate of 5.5.per cent for books, except if they are pornographic or incite violence. In Germany, the standard VAT rate of 19 per cent falls to 7 per cent for books, in the Netherlands (19 per cent) to 6 per cent, in Belgium (21 per cent) to 6 per cent, in Italy (20 per cent) to 4 per cent for most books and in Spain (18 per cent) to 4 per cent. Four nations impose a zero rate: Ireland, the Republic of Korea, Norway and the United Kingdom. The United States situation is complex because a variety of taxes are imposed by individual states. For most goods and commodities – food, fuel, low-cost clothing, toiletries – immediate availability at point of sale is decisive. This is not true of books, and is of decreasing relevance with newspapers and magazines. Booksellers report that potential customers enter their shops, photograph publication details of books on their iPhones so that they can order them, VAT- and GST-free, by computer, either as a print book (with the benefit of subsidised postage) or downloaded as an ebook. More sensitive bookbuyers gain information directly from the web without hurting the feelings of booksellers. Technologically advanced customers, whether sensitive or not, may use freely available software such as RedLaser and Booko to scan the ISBN of the book into their iPhone or Android and check price and availability from online suppliers (domestic or international) and often find suppliers with a more competitive price than the stock-holding store offering a range of titles.

Table 6: GST and VAT on books in the OECD (selected countries)

Country Rule Rate on books (%) Standard rate (%) Australia Normal rate 1010

BOOK INDUSTRY STRATEGY GROUP 71 Austria Reduced rate 1020 Belgium Reduced rate 6 21 Canadaa Normal rate 5 (plus PST) 5 (plus PST) Denmark Normal rate 2525 France Reduced rate 5.5 or 19.6b 19.6 Germany Reduced rate 7 19 Greece Reduced rate 6.5 23 Ireland Zero rate 0 21 Italy Reduced rate 4 or 20d 20 Japan Normal rate 5 5 Netherlands Reduced rate 6 19 New Zealand Normal rate 1515c United Kingdom Zero rate 0 20 a In Canada the total harmonised sales tax (HST) is the sum of the national GST of 5 per cent (normal rate) plus provincial sales tax (PST – which varies between 0 and 10 per cent). There is a point of sales rebate for books of the PST portion in Ontario, British Columbia, Nova Scotia, New Brunswick, and Newfoundland and Labrador. b The higher rate is for books that have a pornographic character or which may incite violence. c Source: New Zealand Inland Revenue Department website. d The data provided two rates for books. The circumstance in which each rate applies is not made clear in the data.

Sources: OECD 2010 and European Commission 2011.

Some commodities – shoes, designer clothes, jewellery – are being bought online, but they attract VAT or its equivalent in Europe at point of sale. In no product area is the gap so wide – 30 per cent (20 + 10) as in the case of books imported from the United Kingdom. Implausible as it sounds, ordering an Australian book from the United Kingdom, online, can be cheaper than buying it from a local bookshop. A striking example is The Cook’s Companion (Viking/Penguin) by Stephanie Alexander: the hardcover edition sells in Australian bookshops for $130.00. The Book Depository in the United Kingdom offers it, airmail postage included, for $92.83. If Australia imposed 10 per cent GST on books ordered online from overseas, then the price to an Australian purchaser would be about $101.25 – still a substantial margin against the local bookseller. The issue of whether books should be exempt from GST was hotly debated in Australia at the time of the announcement of the tax reform package in August 1998. The government of the day resisted claims for the exemption of books from GST but, in return, developed a compensation package in the form of a book industry assistance plan to help the industry adjust to the new tax environment. The plan primarily focused on compensation for the increase in the cost of books used specifically for educational purposes, but also provided some direct support to the book industry. It committed $240 million over four years, beginning in in 2000–01 ($60 million per annum), and included:

 an educational textbook subsidy totalling $117 million to be paid to retail sellers

 $48 million to enhance the Printing Industry Competitiveness Scheme  $38 million for a scheme to provide further support to Australian authors – the Educational Lending Rights scheme

 $1.2 million to enable the Australian Bureau of Statistics to collect data annually on book publishing and retail sales

 $8 million for a marketing campaign to promote books, reading and literacy  $28 million in grants to all primary schools to upgrade their holdings of

BOOK INDUSTRY STRATEGY GROUP 72 Australian books.

Table 7: Thresholds in other countries

Country Threshold (A$) Threshold ª

Switzerlan 0 All postal items from foreign countries to Switzerland are d generally subject to duty and VAT.

Canada 19 Importer does not have to pay duties and taxes if a parcel is worth Can$20 (A$19) or less except for alcohol, tobacco, and,

United 28 (VAT) Consignments valued at ₤18 (A$28) or less are free from import Kingdom 208 (duty) VAT (but not excise duty). Duty is payable if the value of the goods is over ₤135 (A$208), although the duty is waived if the

Chile 28.04 US$30.

Netherland 30 (VAT) No duty or turnover tax on shipments valued at up to €22 s 201 (duty) (A$30). No duty on shipments valued at up to €150 (A$201). Indonesia 47 US$50.

Japan 115 ¥10,000.

Republic 130 Exempt if the total value of the goods including purchase of Korea price plus freight and insurance is less that W150,000 and Customs recognises that the goods are for personal use.

Malaysia 140 US$150.

United 187 US$200.

Singapore 303 S$400 based on the value of the goods.

New 308 GST and duties not collected if the taxes would be less than Zealand NZ$60 (A$44) — approximately NZ$400 in terms of the value of

Australia 1,000 A$1,000.

Hong Kong Not No entry threshold limit at all – imports of any value come in a Exchange rates as at 31 May 2011. The thresholds quoted often exclude goods such as tobacco and alcohol.

Source: Productivity Commission 2011: 160.

However, it is important to note that since the original compensation package was introduced in 2000, the global marketplace has dramatically changed and is continuing to affect the local book industry. The un-competitiveness of the current book retailing environment has a serious impact on price. The high price of books in Australia is an ‘elephant in the room’, compounded by the VAT/GST factor, subsidised postage on books from overseas, small production runs and the high Australian dollar. The Book Industry Strategy Group is also aware that the Productivity Commission is currently undertaking a review of the economic structure and performance of the Australian retail industry with specific focus on the sustainability and appropriateness of the current indirect tax arrangements. As shown in Table 7, the importation threshold varies between countries. While the book industry would prefer that books were GST or VAT free as they are in many OECD countries, the Book Industry Strategy Group notes that the GST is off the agenda for the upcoming tax forum. The book industry therefore urges the Government to move quickly to implement the draft recommendation from the Productivity Commission’s inquiry into the economic structure and performance of the Australian retail industry

BOOK INDUSTRY STRATEGY GROUP 73 that ‘there are strong in-principle grounds for the low value threshold (LVT) exemption for GST and duty on imported goods to be lowered significantly, to promote tax neutrality with domestic sales’ (Productivity Commission 2011). Noting the Productivity Commission’s caveat that ‘the Government should not proceed to lower the LVT until it is cost-effective to do so – that is, at a minimum, the tax revenue should exceed the full costs of collecting it’, until such time as that occurs, the Book Industry Strategy Group believes that the book industry should be compensated for this obvious inequity in tax treatment, which is having such an adverse impact on local book retailers.

RECOMMENDATION 2 The Book Industry Strategy Group urges the Government to recognise the competitive disadvantage being imposed on the Australian book industry as a result of GST inequity. In recognition of the broad range of considerations for government on this issue, the Book Industry Strategy Group offers three alternative recommendations: a That the Government take appropriate action to abolish the 10 per cent GST on books purchased in Australia, noting that in the United Kingdom and Ireland, and in most OECD member countries, books are either exempt from VAT or taxed at a reduced rate or b That the Government provide greater equity in competition for Australian retailers by applying the 10 per cent GST on books sold by overseas retailers to Australian consumers or c That the Government recognise the disadvantage placed upon Australian booksellers as a result of GST inequity when competing with international online retailers and support the Book Industry Strategy Group’s suite of recommendations.

RECOMMENDATION 3: Postal rates

An increasing number of Australian readers are purchasing their books from online retailers such as Amazon and the Book Depository. The success of these overseas online retailers of print books is based on their ability to deliver books to their Australian purchasers quickly and at a price, including postage, that the consumer is prepared to pay.

Research conducted by the Book Industry Strategy Group through its public submission

BOOK INDUSTRY STRATEGY GROUP 74 process, stakeholder workshops and market research has established that increasingly, Australians are making online purchases and that this trend is likely to continue. A significant factor in the competitive advantage experienced by overseas online retailers is lower postal rates. These lower postal rates apply between the United Kingdom and Australia, making it cost-effective to post books to Australia. However, postal rates within Australia are higher, making it cheaper in some cases to buy the book from overseas online retailers than from a local supplier who uses the postal system to deliver the product. PricewaterhouseCoopers in its report notes that, on the basis of current exchange rates, a business in the United Kingdom posting 100 parcels (of 500 g each) to Australia would enjoy a unit postal cost of $3.04. In contrast, a business in Australia posting the same volume and weight of parcels within Australia would pay an estimated unit postal cost of $575, or 89 per cent more than the business in the United Kingdom pays for delivery to Australia. Comparative postal rates from Australia to the United Kingdom are significantly higher than from the United Kingdom to Australia and therefore provide an advantage to those supplying the Australian market. By way of example, a 10 kg parcel of books posted from the United Kingdom to Australia costs $42.60, whereas to post the equivalent amount from Australia to the United Kingdom costs $237.50 – a 557 per cent differential. Australia Post now concedes that delivering parcels from the United Kingdom is a loss- making activity, which suggests that higher prices on their domestic services are in part compensation for its losses of approximately $1.72 per parcel from the United Kingdom. It is a matter of concern if Australian consumers are compensating Australia Post so that it can continue a contract that only advantages UK online suppliers and thereby diminishes the profitability of Australian book suppliers and many other retailers. Australia Post’s international postal services are based on treaty arrangements with the Universal Postal Union (UPU), the Asian–Pacific Postal Union and the World Trade Organization. The UPU is the primary forum for international cooperation between the postal services of different countries. Under the rules of the UPU, international package postal rates are determined by the rate charged for a 20 g first class priority letter within the destination country. Australia has a flat letter rate of $0.60, which indirectly determines (through the ‘terminal dues’ formula) the price charged for parcels up to 2 kg sent to Australia. Many other countries, including the United Kingdom, have a first class postal rate for letters that results in higher rates for parcels sent to that country. The disproportionately high cost for sending a parcel from Australia to the United Kingdom is determined by the United Kingdom’s rates for international terminal dues, not those set by Australia Post. Conversely, charges to send parcels to Australia are lower because of Australia’s lower letter rate. In this way, Australia Post is indirectly subsidising parcels sent by UK–based companies to Australia. To address this, Australia Post applied to the UPU to register a first class postal rate for letters of $2.60. This request was rejected by the UPU. The trade imbalance created through this system is creating an unfair competitive position for Australian retailers where the delivery costs are weighted against Australian retailers. Australian retailers want a more competitive trading environment – one that puts them on an equal footing with their overseas counterparts. Changes to postal delivery rates could go some way towards addressing this issue.

RECOMMENDATION 3 That the Government initiate negotiations with the Universal Postal Union to secure amendment of the appropriate postal treaties to provide more equitable and competitive pricing for print post delivery, where Australia is currently severely

BOOK INDUSTRY STRATEGY GROUP 75 disadvantaged.

RECOMMENDATION 4: Parallel importation of books

Introduced in 1991 as part of the Copyright Act, the parallel importation restrictions (PIRs) provide protection for Australian book rights holders from the importation and sale in Australia of books published overseas. To qualify, the Australian publication of a book must be released within 30 days of its publication elsewhere in the world and resupply must be maintained within 90 days.

In 2009, the Productivity Commission was requested by the Council of Australian Governments (COAG) to undertake an inquiry into the PIRs as part of the COAG competition reform agenda. The Productivity Commission found that the PIRs placed upward pressure on book prices, restricted commercial decisions for booksellers and were an ineffective mechanism for offsetting cultural externalities for Australian works; but also acknowledged that removal would adversely affect Australian authors, publishers and culture. In conclusion, the commission made three recommendations: (1) to repeal the PIRs over a three-year period; (2) to review the current subsidies aimed at encouraging Australian writing and publishing; and (3) to reinstate industry surveys by the Australian Bureau of Statistics in order to monitor the impacts of these changes. At that time, the Government judged that changing the regulations governing book imports was unlikely to have any material effect on the availability of books in Australia and decided not to change the Australian regulatory regime. However, in making this decision the Government recognised that the operating environment for books was undergoing significant change and that pressure was likely to intensify over coming years. With the rapid growth in online offshore retailing, the marketplace for books has been transformed and consumers now expect immediate access to books published in the English language. The business model for Australian publishers, printers and retailers is now challenged to meet consumer demands for speedy delivery and competitive pricing. The Book Industry Strategy Group acknowledges that the current PIR legislation has done much to bring on an era of rapid expansion for Australian books in all sectors and that many industry operators support the legislation and the Government’s decision to leave the legislation unchanged. However, through its research and consultations the Book Industry Strategy Group notes that over the last two years, the Australian market has become more integrated with international markets. In 2010, Australian consumers purchased around 18 per cent of print books online, of which 53 per cent (or $150 million) was from an overseas online bookseller, thereby placing considerable pressure on Australian booksellers. Through its package of recommendations, the Book Industry Strategy Group has emphasised the importance of interconnectivity between the book industry’s subsectors in developing a prosperous and sustainable Australian industry. In this context, it is to the benefit of the Australian book industry as a whole that an environment is established that supports a thriving bookselling sector. To ensure that they can meet the challenges set by the global retail environment,

BOOK INDUSTRY STRATEGY GROUP 76 booksellers in Australia have been seeking to improve availability and pricing. Many Australian publishers have responded by reducing prices to more competitive levels, but the competitiveness of Australian supply will be significantly improved if the industry agrees to set new standards of performance, including price, availability and speed to market. Digitisation, for both print and ebooks, has elevated the role that the internet plays in book production and consumption and has created a truly global supply chain. This means that the 30/90 supply conditions of the PIRs no longer provide the same level of protection for the Australian industry as they did previously. As consumer expectations about price and availability increase, the PIR conditions may in fact advantage overseas suppliers and steer consumers away from books authored and produced in Australia. The emergence of online sales has created a buyers’ market and expecting consumers to wait 30 days to purchase a book that they can access immediately through overseas suppliers is no longer feasible. This report would not be complete if it failed to acknowledge and address this issue. Consumers in Australia need access to print books and ebooks as soon as they are available in their market of origin and as soon as publishers can realistically get them to our markets. This is a change that recognises the impact that e-retailing and technological change is having on booksellers and publishing. In acknowledging that the market for book supply has changed since the Productivity Commission review and government decision of 2009, the Book Industry Strategy Group advocates that the industry take control of its own environment and agree to a compromise position on the PIR conditions. A reduction in the restrictive period of supply of books will empower Australian booksellers to compete in the global marketplace, while continuing to provide a level of protection for rights holders in the local industry. Importantly, it will also encourage efficiency across the book supply chain and contribute to a sustainable Australian industry in the long term. In facilitating an industry agreement, such as a voluntary code of practice, outside of the legislative protection of the Copyright Act, it is vital that endorsement from the relevant industry associations is secured and that the conditions of agreement are clearly stipulated in all documentation. Gaining whole-of-industry agreement on the PIR conditions represents a significant milestone in creating an environment that will enable individual sectors to thrive and, as a result, strengthen the viability of the Australian book supply chain.

RECOMMENDATION 4 That the Australian book industry (authors, printers, publishers and booksellers) formalise an agreed, industry-wide code of practice that will reduce the timeframe for retention of territorial copyright from 30/90 days to 14/14 days without the need to amend existing legislation. To support this, TitlePage will provide information to booksellers on the PIR status of individual titles. The code will be reviewed at the end of 12 months and subsequently at determined intervals to assess its effectiveness.

RECOMMENDATION 5: Export support

The Australian market for books is small and becoming smaller as international retailers enter the Australian market. In order to

BOOK INDUSTRY STRATEGY GROUP 77 extend their markets and grow their businesses, Australian publishers must look to overseas markets for new opportunities.

According to Austrade, the growth of Australian book exports over the past 20 years has been a major success story. Australian publishers now make more than 13.5 per cent of their income from exports, with the United Kingdom, the United States and Germany the major buyers of Australian book rights. The PricewaterhouseCoopers study found that Australian book publishers exported books valued at an estimated $225 million in 2010. While the overall picture for book exports is positive, the export market has been described as volatile over much of the past decade. On the one hand, the value of educational books has declined from approximately $122 million in 2001 to $80 million in 2010. On the other, the value of trade book exports increased from approximately $40 million in 2001 to $144 million in 2010. China, the Republic of Korea and the eastern European countries lead as up-and-coming markets for Australian books, with Asian countries increasingly interested in what Australia has to offer. In 2008–09, some 60 per cent of Australian rights deals were for foreign languages. The Australian industry is largely positive about the future for Australian book exports, due mainly to the rise of India and China as major global economies, their large and growing numbers of English language speakers and their relatively close proximity to Australia. The rise of ebooks and online retailing could also enable Australian retailers to sell directly to new markets, thus overcoming one of the traditional barriers to exports from Australia – the tyranny of distance. The Australian Publishers Association welcomed the opportunities for exports that online sales and ebooks present in its submission to the Book Industry Strategy Group. However, the increasingly fierce competition means better targeted and more effective strategies must be developed to capture these opportunities. The PricewaterhouseCoopers study suggested that one strategy for enhancing export opportunities is for industry to establish a common mechanism for promoting Australian authors and books overseas. The pooling of resources for international market development is seen as an important strategy in creating export success. Market development opportunities could include attendance at international book-fairs and promotional tours by key Australian authors in strategic and emerging markets. The Book Industry Strategy Group is aware that the Australian Government, through Austrade, supports Australian exporters, individuals, companies or groups to develop export markets by providing financial assistance through the Export Market Development Grant (EMDG) scheme. The book industry has received support over the last few years (see Table 8).

Table 8: EMDG support for publishing, 2006–07 to 2010–11

2006–07 2007–08 2008–09 2009–10 2010–11

No. of Value of No. of Value of No. of Value of No. of Value of No. of Value of Industry class grants grants grants grants grants grants grants grants grants grants

Book publishing 26 $777,421 17 $498,533 25 $1,076,7 22 $972,21 20 $663,95

Directory and 1 $23,225 mailing list publishing

Internet $1,035,4 $944,96 $683,80 16 $966,055 15 $703,114 21 22 28 publishing and 76 6 2 broadcasting

BOOK INDUSTRY STRATEGY GROUP 78 Magazine and $448,78 $343,88 10 $317,870 15 $533,698 13 $636,952 12 12 other periodical 4 9 publishing

Other publishing $322,73 $312,84 (except software, 7 $454,088 5 $160,978 5 $257,051 7 7 music and 8 1 internet)

Software 65 $3,613,9 206 $9,488,2 189 $11,333, 223 $12,761 165 $6,807,

Total 124 $6,129,41 259 $11,407,8 253 $14,339,9 286 $15,450,1 232 $8,811,91

Source: Austrade.

The EMDG scheme only provides support for promotional activities and, in many instances, the threshold for support is beyond the capacity of smaller players in the market. Austrade acknowledges that restrictions on eligibility (that is, only the principal owner, not an agent, is eligible) prevents literary agents from applying for support on behalf of their clients. To counter difficulties posed by size, one suggested pathway is to undertake an industry-wide promotional campaign through the auspices of an approved body (for example, an industry association). This approach has worked well for a number of other industries. In addition to the EMDG scheme, there are other programs within Austrade that may be accessed to provide export support to the Australian book industry. These include:

 Getting into Export program: This is designed to help small and medium enterprises that are new to exporting or have limited experience in exporting.

 Exporting online: This program provides online information and collaboration tools dedicated to help Australian exporters better understand and utilise the internet to support and develop their export endeavours.

 Exporting for the Future: This provides teaching and learning resources for those who wish to enter export markets.

 Brand Australia: This is a four-year program to sell Australia to the world by broadening perceptions of Australia in the international marketplace.

 Creative Australia: Literature is one of the creative industries targeted under this 2009 initiative to promote the diversity of Australia’s industries. The Book Industry Strategy Group believes that, in order to increase the participation of the book industry in the EMDG scheme and other export support programs, there is a need to improve the book industry’s knowledge and understanding of all aspects of these programs, including the EMDG scheme. This will require the book industry to work closely with Austrade. Austrade assumed responsibility for international marketing and promotion of Australian education and training on 1 July 2010. A framework for international marketing and promotion of Australian education and training has been developed by Austrade. The framework identifies three strategic objectives and five key priorities that guide Austrade’s work in international marketing and promotion of Australian education and training. (A copy of the framework is available on the Austrade website.) While this framework focuses primarily on promoting educational institutions, there is merit in the book industry working with Austrade to expand this strategy to include the promotion of educational materials.

BOOK INDUSTRY STRATEGY GROUP 79 Most Australian businesses that are exporting or investing internationally know that it takes more than a competitive product or service and a keen buyer to succeed overseas. Turning business prospects into sales or investments often depends on securing finance. The Export Finance and Insurance Corporation (EFIC) can assist exporters in overcoming the financial barriers associated with exporting. EFIC’s finance solutions for individual export transactions and broader export activities can help to free up a company’s working capital and to finance production. As such, any export marketing strategy also needs to ensure the book industry is aware of EFIC’s range of products.

RECOMMENDATION 5 That the proposed Book Industry Collaborative Council work with Austrade to improve the support provided to the book industry to enter export markets. This may include working with Austrade to develop a long-term book industry export strategy to promote Australian books, including educational material, to the world, especially the Asia–Pacific region.

BOOK INDUSTRY STRATEGY GROUP 80 Improving supply chain efficiencies

RECOMMENDATION 6: Book distribution network

Distribution of trade books in Australia is decentralised, with the bulk of major trade publishers managing distribution out of their own warehouses. Through this system, large publishers enjoy the lowest cost of distribution and are generally the most efficient. The few remaining major publishers and numerous smaller publishers contract the large publisher/distributors to undertake distribution on their behalf. This provides the larger distributors with the capital base to invest in major equipment and technology, passing these benefits on to their third-party clients. Small publishers pay more for their distribution as a result of the lack of economies of scale. Within the education publishing sector, those publishers that are not part of a larger company generally distribute their product through a third-party distributor.

There has been a consolidation of distribution over the past 10 years; many responses through a survey of publishers conducted on behalf of the Book Industry Strategy Group indicated that further consolidation may reasonably be expected over the next five to 10 years, and probably sooner. Market forces and competition will drive much of this consolidation. Improvements in speed, efficiency and effectiveness in Australia’s distribution system are urgently required if the local book industry is to remain competitive and deliver the service consumers increasingly demand. The key issues concerning the current distribution network for print books are as follows:

1 SPEED TO MARKET In order to be competitive, the Australian book industry must be able to deliver to consumers the title they want in a timely manner – international competitors are not only able to provide a greater range of titles, they are also able to deliver them to Australian customers much quicker and often at a cheaper price than Australian suppliers can. A list of issues concerning speed to market follows:  Titles need to be available. Less than 90 per cent of books ordered by booksellers’ orders are available to be delivered to store.

 Retailers need to be able to order titles efficiently. The upgrade of TitlePage, which enables online ordering of a range of formats and sources, needs to progress urgently.

 Warehouse dispatch needs to be faster. It is suggested that the book industry needs to set a target of 48 hours turnaround from order to shop.  Local printers need to be competitive to keep printing from going offshore and need to upgrade print on demand capacity to assist in covering the fulfilment

BOOK INDUSTRY STRATEGY GROUP 81 problems currently plaguing the industry.

2 STOCK HOLDINGS The Australian book industry, particularly publishing, incurs considerable costs because of an inefficient distribution system. These costs not only affect the bottom line but also the price that consumers must pay for books. The range of costs includes:  managing distribution centres is a substantial supply chain cost and adds to the un-competitiveness of Australian retailers

 holding inventory  processing returns  pulping stock.

3 DIRECT-TO-CONSUMER SUPPLY CHAIN The Australian industry must develop the capacity to compete on equal terms with international competitors. The experience of local consumers in their interaction with Amazon and the Book Depository is currently that they are getting value for money. The range of available books is significantly greater than is available locally and books can be shipped to Australia quickly and cheaply. There is therefore an urgent requirement to offer the seamless online shopping experience currently offered by offshore competitors.

4 PRINT ON DEMAND CAPACITY Print on demand facilitates the timely delivery of books by retailers, printers and publishers to consumers and would help local retailers to compete effectively with overseas suppliers. It is important that print on demand becomes embedded in the industry supply chain in order to meet single-order and back list requests and, above all, improve speed to market.

5 CONSOLIDATION OF DISTRIBUTION OPERATIONS Over the past decade significant rationalisation has occurred in the distribution system for print books. Publishers have invested heavily in modern technology to improve the efficiency of their warehouses and systems. However, further changes are required to achieve greater efficiencies, including:

 rationalisation to bring further market benefit  standardisation to gain efficiencies in the supply chain and improve information for booksellers and consumers – the goal would be a 48-hour turnaround

 consolidation over a two- to four-year timeframe. The Book Industry Strategy Group notes that the industry will, under the auspices of the proposed Book Industry Collaborative Council, undertake as a matter of priority the process of rationalising and improving current distribution systems, setting new targets in agreement with booksellers and seeking to create an environment that will sustain a competitive industry in to the future.

RECOMMENDATION 6 That the book industry establish a goal of 48 hours turnaround for fulfilling Australian reseller orders. In seeking to achieve this, the Government should support the proposed Book Industry

BOOK INDUSTRY STRATEGY GROUP 82 Collaborative Council in its task of improving the efficiency of the book distribution network through rationalisation, standardisation and consolidation, as its key priority over its first three years.

RECOMMENDATION 7: Digital infrastructure

Of total Australian book sales in 2010, Australian published content made up 37.3 per cent of trade books, 41.8 per cent of children’s books, 86.5 per cent of primary and secondary school texts, and 44.5 per cent of academic/tertiary texts.

These sectors provide a broad range of diverse content that is critically important for promoting social cohesion and a confident and distinct Australian identity. Diversity of content must be maintained and developed and not lose out to imported product. Additionally, Australian book publishing provides significant remuneration to writers, creators, illustrators, designers and editors as well as employment in areas such as the advertising, printing, retail, and transport and distribution industries. Direct employment in the publishing sector is 5,000 people and the book industry supply chain employs in excess of 25,000 people, with many more indirectly benefiting from the industry. Australian-published content created export revenue in 2010 of $225 million. Australian consumers are shopping online in ever-increasing numbers and books sales rank highest in overall spends. With the added growth of ebooks, this trend is certain to accelerate. According to data provided by PricewaterhouseCoopers in 2011, the value of sales of print books currently being lost to offshore online retailers is estimated at $280 million or 12 per cent of the market value in 2010. With the demise of REDgroup Retail and the continued strength of the Australian dollar, it seems certain that the sales lost in this way will grow strongly in 2011. Ebook sales by Australians were estimated at $35 million in 2010 and forecast to reach between $150 million and $490 million by 2014. The Australian book market is dominated in the online space by retailers such as Amazon, the Book Depository, AbeBooks, Apple, and Kobo, which are owned and based in the United States, the United Kingdom and Canada. Australian retailers operating in the marketplace, including Bookworld, Booktopia and Dymocks, appear underfunded and under-resourced when compared to the likes of Amazon and Apple. Current Australian distribution services have been recognised as slow and do not supply direct to consumers, which impedes the competitiveness of the Australian book industry. The costs of creating a viable and competitive online retail site to match the customer experience, range and service of offshore retailers are too high for most Australian booksellers to achieve without industry assistance and funding, particularly at a time of declining sales and profits. It is imperative that booksellers compete with offshore retailers by providing an online service and shopping experience to Australian and possibly overseas consumers in the supply of print and ebooks. The Book Industry Strategy Group predicts that, without an enhanced digital supply chain solution, by 2014 at least $500 million and potentially upwards of $800 million in print and ebook sales could be lost from the local industry to offshore retailers. In 2004, the Australian Publishers Association established TitlePage, an online

BOOK INDUSTRY STRATEGY GROUP 83 information service that provides a single-search repository of titles available in Australia. However, with the influx of online sales, industry needs have significantly outgrown the services currently offered and extension of the program to include a robust Australian supply chain solution is now urgent. To be fully effective in ensuring that local booksellers, publishers and authors are able to compete in the global marketplace, the following key priorities need to be addressed: (i) minimising print book sales leaking to offshore suppliers and resellers by providing efficient and cost-competitive Australian alternatives (ii) increasing the availability, range and speed to market of Australian produced or sold books (iii) establishing a competitive local ebook solution that is able to be accessed by all Australian booksellers.

TITLEPAGE ENHANCEMENT – STAGE ONE As the first stage in achieving these goals through an extension of TitlePage, the Australian Publishers Association has partnered with RR Bowker, a leading global bibliographic service provider to the retail book industry. This collaboration recognises the need for an industry partner with expertise in this technical field and capital resources to invest. This private sector investment, of an estimated $2 million plus in-kind support, will enable development of a central corridor of technologies to bring efficiencies and economies of scale to the book supply chain and provide local consumers with a competitive alternate to international suppliers and resellers. Stage one will see the linking of the existing TitlePage platform to other technologies in the supply chain. These are:

 a centralised ecommerce system to manage trade across the supply chain to the benefit of publishers, point of sale providers, libraries, booksellers, authors and consumers

 an electronic data interchange order tracking system accessible by publishers, booksellers and warehouses

 integration with print on demand services to facilitate supply to booksellers and their customers of single-book delivery for low-demand books, backlisted books not currently in stock, and fulfilment of small-volume orders from booksellers of books temporarily not in stock in warehouses pending print runs

 integration of the distribution warehouses for orders placed into the system  integration of ebook warehousing, order processing and supply to consumers via booksellers through counter sales and their online stores.

TITLEPAGE ENHANCEMENT – STAGE TWO While the industry-funded stage one of the TitlePage upgrade would enable the Australian industry to achieve efficiencies through online processing and sales, it would not provide the full suite of services that are needed for Australian booksellers to be online enabled. Australia has one of the few remaining viable independent bookselling sectors in the world. As the book retail market becomes increasingly global and corporatised, the role of independent booksellers becomes vital to the proliferation of Australian books. Independents can provide a customised high-quality service to consumers that actively promotes Australian material – a service that is highly unlikely to be provided through large overseas retailers, such as Amazon. The independent bookselling sector is predominantly comprised of small businesses that are unable to afford the capital investment or to have the technical skills to develop a secure ecommerce website.

BOOK INDUSTRY STRATEGY GROUP 84 Building on the infrastructure established through the stage one TitlePage upgrade, the stage two enhancement will provide the following five components:

 development of a white label website that enables Australian booksellers to establish a secure ecommerce website at minimal cost

 development of point of sale system integration to bookseller websites  development of a replacement electronic data interchange system for the book supply chain

 implementation training for book supply chain users  redevelopment of TitlePage and ONIX 3.0 upgrade. These facilities will empower Australian independent booksellers to compete effectively and maintain a crucial link to consumers wishing to access Australian books. However, the stage two initiative provides benefits to the whole industry that are not able to be captured by a private sector investor and therefore require government support. By providing this support, the Government would ensure that the Australian industry can compete with the well-resourced and -funded international competitors that are rapidly capturing Australian consumer book purchases. Such development is a national imperative to secure a strategic industry. Stage two of the TitlePage enhancement will enable the Australian book industry to build the right infrastructure to meet its future needs. Establishing this infrastructure as a collaborative project will benefit all parts of the industry, from Australian authors, publishers and printers to booksellers and librarians. As a result, the Australian book industry will be better placed to be globally and domestically competitive and provide Australian consumers and institutions with faster access to the widest possible range of books in print or digital form. Development of TitlePage stage two will be overseen by a steering committee in which the proposed Book Industry Collaborative Council will have an active role to ensure that the interests of all book industry sectors are appropriately considered and incorporated. It is important to note that Titlepage will be non-exclusive, with its aim being to provide access to the market to a wide variety of suppliers of books, including ebooks, resellers and service providers.

RECOMMENDATION 7 That the Government provide funding of $5 million for the development of the stage two TitlePage enhancement to develop the digital infrastructure required for an efficient, cost- competitive and secure online service to consumers that is comparable in promotion, range and functionality to that of the main offshore retailers.

RECOMMENDATION 8: National university press network

The Australian Government provides substantial support for research in the humanities and social sciences through agencies such as the Australian Research Council and higher education funding mechanisms such as the research block grant and the

BOOK INDUSTRY STRATEGY GROUP 85 higher degree research allocation. Universities provide further support from their own resources. Annual expenditure on research in the humanities and social sciences runs at several hundred million dollars.

Until recently, the dominant outlet for this research has been books. The recent findings of the Excellence in Research for Australia initiative provide the fullest analysis of patterns of publication in the humanities and social sciences. They reveal that journals are of principal importance in fields such as economics and psychology, but books and book chapters remain the most influential form in many of the social sciences and most of the humanities. However, a great deal of government-funded and university-funded research remains unpublished, especially when it is not suited to being reported and analysed in (necessarily short) journal articles. This research, much of which takes the form of higher-degree theses, may be found by specialists in digital repositories, but fails to reach a larger readership. A small investment in support of publication would unlock this large investment in research, in terms of both readership and impact. The Australian Government has dramatically increased spending on research and innovation in recent years, with a 25 per cent increase in the 2009–10 Budget alone. But there has not been a relative increase in the research sector’s capability to disseminate the outcomes of newly funded research. In fact, researchers whose field of research is reliant on the book as the primary form of dissemination face commercial constraints that have severely reduced their opportunities to publish their work. Consequently, other researchers and end users are unable to access published material in many specialist fields of knowledge. Scholarly endeavour has been considered for centuries as the upper echelon of a society’s knowledge hierarchy. In the humanities and social sciences, where the monograph is still the primary form of dissemination, the public good that arises from such endeavour is severely at risk. As scholarly monographs become increasingly unviable commercial propositions, so does the public good become equally diminished. This market failure also threatens many specialist and niche forms of knowledge, such as the preservation of Indigenous language and culture. The burden of this market failure currently falls heavily on a declining and small number of universities and their presses. The dramatic fall in academic library expenditure on monographs compared to serials, most of which are now electronic, has contributed significantly to this predicament. In 1994, according to Council of Australian University Librarians statistics, $43 million was spent on monographs (non-serials) and $69 million on serials by Australian and New Zealand academic libraries. By 2010, monograph expenditure grew to $85.5 million while expenditure on serial subscriptions more than trebled to $222.5 million. This equates to a substantial and growing deficit in the volume of quality Australian scholarly content available for research, teaching, and learning purposes. The establishment of a centralised body, such as a national university press network, would enhance Australia’s standing in the international research community with a significant increase in the volume, and market reach, of Australian scholarly monographs. The proposed network’s functions be twofold: to facilitate a subsidy program that will enable publication of many of the 200 or more valuable and worthy scholarly manuscripts that are rejected each year, for economic reasons alone; and to oversee the establishment of a production and distribution infrastructure, which will promote and disseminate Australian monographs to domestic and international audiences. Strategically, this initiative has the potential to underpin the Australian book industry’s transition from being predominantly reliant on ‘print manufacturing’, to becoming an engine for growth in the wider digital and knowledge economy. Coupled with the promise of directly boosting the promotion of Australia’s research excellence locally and overseas, the proposed network offers a broad set of benefits for all

BOOK INDUSTRY STRATEGY GROUP 86 Australian book businesses, and to the research community. In its first two years the network will consist of a $12 million publication subsidies scheme and a $4 million infrastructure development program. The subsidies will seed a ‘born-digital’ content bank of more than 450 scholarly monographs, which will grow by more than 200 new titles every year thereafter. This represents a necessary and robust increase in the volume of scholarly monographs being published. The infrastructure will reduce the cost per publisher for producing, marketing and distributing book content in print and electronic formats, and will form a comprehensive suite of tools for any publisher producing scholarly and specialised content targeted at small but global audiences. Simulating many aspects of journal content aggregation and distribution models, the proposed will serve as a portal where scholars can publish, promote and buy monographs. Once established, this infrastructure will be self sustaining and managed as a not-for-profit enterprise. It will specifically enable scholarly and specialist publishers to compete online with the stronger international players in the international library market, rather than in the general trade market, which other BISG proposals are addressing. Collaboration with complementary initiatives, where viable, will be a key principle of development. For example, the new network’s titles will be listed on TitlePage to ensure that booksellers have accurate information and immediate access.

RECOMMENDATION 8 That the Government provide financial support to establish a National University Press Network of $10 million over a two-year period, matched by $6 million from the university sector, for three related projects: a a publication subsidies scheme – $6 million over a two-year period; 97 per cent of these funds will be used to subsidise scholarly publications in the humanities and social sciences b marketing and distribution infrastructure – $2 million over a two-year period c production infrastructure – $2 million over a two-year period.

BOOK INDUSTRY STRATEGY GROUP 87 Rewarding and protecting creativity

RECOMMENDATION 9: Digital copyright protection

Content creators and producers have strongly articulated their need for a secure and predictable copyright environment to ensure their work will be protected and remunerated. The thousands of Australians that make their income, or a substantial part of it, from writing are feeling the challenge of the expectation that digital content should be free and are looking to government to play a role in ensuring their work will continue to be rewarded fairly in the digital era ahead.

In submissions to the Book Industry Strategy Group, the importance of such a secure and clear copyright environment was put forward and strongly supported by the industry, represented by authors, agents and publishers, as a way of securing income for writers and investment from the publishing sector. The Australian Publishers Association notes that Australian copyright law, including the protection of territorial copyright for books, provides a secure investment environment and that this has fostered the development of a strong and vibrant industry in publishing print books. The importance of copyright protection is underlined by the significant economic contribution made by Australia’s ‘knowledge industries’, which depend completely or partly on copyright. The Australian Publishers Association notes that, in 2006–07, Australia’s copyright industries:

 employed 837,507 people, or 8.0 per cent of the Australian workforce  generated $97.7 billion in economic value, or 10.3 per cent of Australia’s GDP  earned $6.873 billion in exports, or 4.1 per cent of total exports. Adjusting for inflation, between 1995–96 and 2006–07 Australia’s copyright sector grew at an average of 4.7 per cent a year, with core copyright industries (those that exist only because of copyright) growing at 5.1 per cent a year compared to an annual rate of 3.6 per cent for the economy overall. Spurred by digitisation, copyright industry employees have significantly increased their productivity and earnings. Between 1995–96 and 2006–07, the value generated in Australia’s copyright industries increased in real terms from $85,512 to $116,742 per employee. Over the same period, real average wages in these industries increased from $51,572 to $61,355. At the same time, Australia remains a significant net importer of copyright goods and services. Exports have grown in real terms by 0.6 per cent a year while imports have grown by 2.1 per cent a year, creating a trade deficit of $20.8 billion in the copyright sector. Like all industries, book publishing is subject to technological change. For many years, it has adopted new technologies to better meet the needs of readers, authors and booksellers. In the second decade of the 21st century, however, its capacity to keep doing that is under question because of new technologies that are fundamentally altering the industry’s business models.

BOOK INDUSTRY STRATEGY GROUP 88 Ebooks currently constitute a relatively small proportion of the market in the world’s advanced economies, but this will change as ebooks gain a greater share of the market for books. Adjusting to these changes is posing major challenges for all sectors of the publishing industry globally, with additional challenges for book publishing in Australia because of its small market size. The idea that Google would attempt to produce digital editions of every major published work without seeking the author’s or publisher’s approval, for example, has created debate and legal action across the world that remains unresolved. Google is not alone in its attempt to make copyright work available digitally and much of this activity has created grey areas and issues that are now being seriously debated. The free content movement argues fiercely that anything on the internet should be deemed free for use. Obviously those whose works have been made available on the internet may or may not have had that intent. Further distribution systems, including search engines, clouds and other mass networks, were barely envisaged a decade ago but are at the heart of copyright issues today. The Australian Copyright Council notes that, just as digital technology has provided increased opportunities to access copyright works, it has also generated the expectation that if a work can be made available, then it should be made available. In turn, this expectation has placed pressure on governments to expand the provisions of copyright law that grant special concessions, or exceptions, for certain users of copyright materials to accommodate the new possibilities offered by digitisation. There is broad acceptance in the industry that digital delivery presents problems for capturing copyright royalties. However, there is much debate about the most effective way to manage piracy of digital works. Some believe that regulation should be tightened to enable prosecution of those that illegally copy digital works; others feel that piracy and viral marketing are an opportunity for attaining profile that should be exploited. Still others believe that a systems-based approach to monitoring use and capturing royalty payments should be employed. Within the educational sector, all agree that licensing arrangements must be revised to capture the use of digital objects. However, how use of this material should be paid for is the subject of considerable debate among government policy makers and within the book publishing industry. The Australian Content Industries Group has expressed concerns about the impact of online copyright theft and notes that governments in a number of countries, such as Chile, Finland, France, the Republic of Korea, Malaysia, New Zealand, Taiwan, and the United Kingdom, have adopted or are in the process of implementing a range of graduated response measures to encourage consumers to access legitimate content and to grow the digital economy. The Book Industry Strategy Group is aware that Australian governments have made an effort to ensure that copyright law keeps up with technological change. For example, the Copyright Amendment (Digital Agenda) Act 2000 implemented major reforms to the Act in order to update Australia’s copyright regime to take into account the rapid development of new technologies. The amendments were to ensure that copyright law continues to promote creative endeavour while at the same time allowing reasonable access to copyright material through new communications technologies. Further amendments, such as the Copyright Amendment Act 2006, introduced reforms to strengthen owners’ rights and provide more certainty for users in the digital environment. On 1 January 2007, a range of copyright enforcement measures commenced as a result of this Act, including the creation of a tiered system of criminal copyright offences incorporating indictable, summary and strict liability offences. More recently, on 25 February 2011, the Attorney-General for Australia, the Hon Robert McClelland MP, restated the Government’s support for copyright and its role in providing an economic incentive for the creation of new works. He noted that governments around the world are facing challenges in adapting copyright systems to the realities of the digital economy and further, that governments are being asked to

BOOK INDUSTRY STRATEGY GROUP 89 find national solutions to a global problem. The Book Industry Strategy Group supports the Minister’s view that it is time to revisit the digital agenda amendments to the Copyright Act in order to assess if the policy settings remain right. The announcement of the Minister’s intention to provide a reference to the Australian Law Reform Commission on copyright is welcomed by the book industry.

RECOMMENDATION 9 That, as copyright is fundamental to the viability of the book industry: a issues relating to digital books form part of the Australian Law Reform Commission’s upcoming review of digital copyright b the Australian Law Reform Commission consult directly with the book industry through its author and publishing associations.

RECOMMENDATION 10: Lending rights for ebooks

In their 2003 study, David Throsby and Virginia Hollister found that the mean income of Australian writers in 2000–01 was $46,000, of which $19,700 was non-arts income. Research conducted for the Book Industry Strategy Group by PricewaterhouseCoopers has corroborated this finding, though the mean ‘creative income’ for writers in 2000–01 (at $23,000) was found to be substantially less than that found by Throsby and Hollister. Nevertheless, the critical issue is that, by 2007–08, the mean creative income had fallen to $11,000, representing a decline of 52 per cent.

Australian authors generate income from a number of sources including:

 advances by publishers for unpublished works  royalties paid as a percentage of sales revenue, calculated at about 10 per cent of the recommended retail price for domestic sales

 payments made from the Public Lending Rights (PLR) and the Educational Lending Rights (ELR) schemes

 distributions from the Copyright Agency Limited  grants, prizes and fellowships. The PLR and ELR schemes are intended to compensate authors and publishers for the potential loss of sales from their works being available in public libraries. In their report to the Book Industry Strategy Group, PricewaterhouseCoopers estimates that lending rights comprise about 11 per cent of the total income received by authors which amounted to $19 million in 2010 paid directly to authors. The lending rights schemes are highly valued by authors. However, while the application of PLR and ELR to print books is well understood, there is a considerable degree of uncertainty surrounding the application of ELR and PLR to digital works. Authors and publishers are concerned about the potential provided by ebooks for the exploitation of works without an appropriate level of compensation for authors and

BOOK INDUSTRY STRATEGY GROUP 90 publishers. While there are 29 countries that currently have a working lending rights scheme in place, they have all been cautious about extending the scheme to ebooks. The United Kingdom is the only country that indicated its intention to include ebooks in its scheme but subsequently decided against doing so. PLR has not been extended to ebooks in Europe for a variety of reasons and a recent review undertaken for the Canadian PLR scheme to access the viability of the inclusion of ebooks found that it would not be feasible to extend the program at the present time. The Canadians have decided to continue to monitor the situation, as the current publishing and library environments are in flux (if not upheaval) and this is likely to continue to be the case for an extended period. The caution adopted by other countries is against a background of uncertainty in the commercial arrangements for the sale, licensing and loan of books and the immature nature of these arrangements. Whereas a print book is owned by the library and can therefore be loaned as many times as possible, this is not necessarily the case with an ebook. There are currently a number of commercial arrangements, including purchasing, subscription and licensing of ebooks, all of which have different implications for the application of ELR or PLR. In a licensing arrangement, it could be argued that the application of PLR/ELR amounts to double dipping. Evidence of this complexity and the uncertainties in the nature of the commercial relationships between publishers and libraries is provided by the recent case where HarperCollins in the United States has put a 26-loan ceiling on ebooks and, once this limit has been reached, the library will have to repurchase the title. There is also information which suggests that the price of a book varies widely based on the terms of use. The complexity surrounding how ebooks will be used in libraries needs to be removed and clear business models that satisfy all parties need to be established. This, of necessity, needs to be done by industry. In the meantime, it may be appropriate for government to review the application of ELR and PLR to ebooks and establish an agreed framework and guidelines under which these works will attract support from the schemes.

RECOMMENDATION 11: The statutory licence for education

A statutory licence for education was initially introduced into the Copyright Act in 1980 following a government inquiry into the effects of photocopying on authors and publishers (Franki Committee 1976). While concerned about the effects of unauthorised photocopying on their businesses and livelihood, authors and publishers acknowledged the countervailing public interest of enabling educational use of material, provided they received some compensation for their lost opportunity to prevent or license the copying.

The statutory licence has since been expanded on a number of occasions, significantly in 2000 to apply to digital content, including internet content. It now allows much more extensive use of material for education, with much simpler compliance arrangements, than schemes elsewhere in the world. In addition, the assessment of the equitable remuneration payable under the licence is tied to data about actual usage, collected by independent research companies.

BOOK INDUSTRY STRATEGY GROUP 91 Publishers have adapted to the licence in a number of ways. While the statutory licence delivers a lower rate of payment to them than the custom publishing operations in countries such as the United States, they now tend to regard it as an effective, efficient and fair alternative to the management of copyright clearances, both for publishers and for educational institutions. Having said that, there are situations in which publishers continue to find it difficult to accept loss of control over the use of their content. The Book Industry Strategy Group is aware that the education sector has voiced concerns about the copyright fees that they pay under the statutory licence, particularly for content sourced from the internet. Under the statutory licence, where agreement on rates payable has not been reached following negotiation, the Copyright Tribunal can determine the equitable remuneration payable. The last determination for schools was nearly 10 years ago, when the tribunal set rates for photocopies and other hard copies, but declined to set rates for digital content given that the extension of the statutory licence to digital content was relatively recent. The fees paid by schools have since then been reached through agreement at a fixed per capita rate. The rate payable under the current three year-agreement – $16 per student for all hardcopy and digital content – is slightly less than the rate under the previous three-year agreement. The fixed per capita rate is unaffected by the usage data collected during the period of the agreement (which is used to distribute the fees collected), but past usage data is taken into account when negotiating the rates for new agreements. Under processing protocols agreed between the Copyright Agency Limited and schools, however, usage data for directly licensed material is excluded. This includes material that has been notified to the Copyright Agency, as well as material published on websites with certain terms of use, such as Creative Commons and Free for Education. Without the statutory licence, educational use of copyright material would be either much more limited, or infringing. This would benefit neither the education sector nor the creators and publishers of educational material. While the concerns of schools are acknowledged, educational publishers feel that the use of their material is under- reported, and the Copyright Tribunal is available to determine fair remuneration in the event that it cannot be agreed through negotiation. However, the ways in which educational and other content are being created and disseminated, and the ways that content is used for education, are changing rapidly. So far, these changes have been largely accommodated in the management of the statutory licence, including through new mechanisms to measure digital use and processes for excluding directly licensed internet material from payment.

RECOMMENDATION 11 That the Government actively monitor the implementation of the statutory licence for education to ensure that it meets its dual objectives of enabling instant use of material for educational purposes while ensuring the ongoing development of materials used in education.

RECOMMENDATION 12: Protecting copyright online

Illegal digital copying presents a real threat to the works and income of Australian authors. The Australian Copyright Council noted in its submission to the Book Industry Strategy Group that the book industry had an early taste of illegal copying and the

BOOK INDUSTRY STRATEGY GROUP 92 commercial damage that this can cause with the introduction of photocopiers in the 1970s. Currently the music, film and television industries are suffering the worst effects of illegal copying (for example, peer-to-peer file sharing), but as digital book consumption becomes more widespread, the book industry faces the same risk to revenues. The music and film industries have had to fight to recover lost ground as various piracy models have emerged and won a substantial share of the market from copyright owners. The book industry believes that acting now can avoid the book industry having to fight similar battles as ebooks and other digital forms gain more popular sway.

The Australia Council in its submission to the Book Industry Strategy Group expressed similar concerns about the loss of revenue in the industry. This potential loss of revenue to the content industry has been quantified by the Australian Publishers Association in its submission, which estimates that: unless internet copyright infringement is curtailed, 6 million Australian internet users will access online content illegally, the annual value of lost retail to Australian content providers will be $7.5 billion, 66,000 jobs could be lost in the sector as a result and the annual impact of internet piracy on government revenues will be $1.7 billion. The issue of online piracy, particularly peer-to-peer file sharing, has been the subject of intense scrutiny worldwide, resulting in a range of actions and recommendations. In Australia, one of the aims of the Copyright Amendment (Digital Agenda) Act 2000 was to clarify, and in certain circumstances limit, the liability of carriers and internet service providers for copyright infringements committed by third parties while using their facilities. The Act provides that a person will not be held to have authorised a copyright infringement merely by providing the facilities involved in the infringement. It also provides a list of factors for a court to consider in determining whether authorisation has occurred. These include:

 the extent (if any) of the person’s power to prevent the infringement  the nature of any relationship between the service provider and the infringer  whether the service provider took any reasonable steps to prevent the infringement – this may include compliance with an industry code of practice. The Book Industry Strategy Group supports the development of the proposed industry code of practice as one approach to addressing the issue. However, the Book Industry Strategy Group also notes that the development of the proposed industry code of practice to ensure that reasonable steps are taken to prevent infringement of copyright is at a difficult stage of negotiations. The Commonwealth Attorney-General’s Department has been working, over a period of years, with the relevant parties to develop the code of practice; negotiations are currently in abeyance following the instigation of legal proceedings by the Australian film industry. The responsibility of internet service providers to monitor use and abuse of copyright is currently before the High Court and has been a matter of ongoing discussion both in Australia and overseas. While the decision will resolve the application of the law to the facts in the case, it is widely acknowledged that it will not resolve all issues in this area. Internet service providers should provide an opportunity for copyright owners to be identified and appropriately remunerated for any use of their copyright. The Book Industry Strategy Group understands that there have been recent discussions between representatives of content owners, including publishers and authors, and internet service providers, with a view to adoption of an agreed industry code. The Book Industry Strategy Group supports the development of the industry code of practice

BOOK INDUSTRY STRATEGY GROUP 93 and is keen to see progress in this area as one step towards addressing the issue of piracy.

RECOMMENDATION 12 That the Government: a work, through the Attorney-General’s Department, with the content and internet industries to ensure adoption of a binding industry code on copyright infringement by internet service providers and their customers in accordance with the legislative framework in order to combat and defeat piracy b consider facilitating discussions between copyright owners and internet service providers over remuneration for copyrights accessed through the internet service providers.

BOOK INDUSTRY STRATEGY GROUP 94 Supporting the business environment

RECOMMENDATION 13: Digital skills development

The emergence of a global and digitised marketplace for books has irrevocably altered the skills needed for book authoring, production and sale. Many participants in the Australian book industry lack the 21st century skills necessary to make the transition from the ‘p’ world to the ‘e’ world – creating a significant vulnerability for the industry as a whole as digital delivery increasingly becomes the dominant medium.

The issue of making the transition successfully into the digital environment is not only about skills development, but also about new business models and practices. An industry survey conducted in mid 2011 by the Copyright Agency Limited found that only 15 per cent of publishers and 4 per cent of authors had a clearly defined digital strategy that differentiated them from competitors. Nearly 80 per cent of publishers indicated that lack of technical expertise and digital marketing skills were their primary concerns about moving to digital delivery. Retraining and the acquisition of new skills are essential for the Australian industry to remain competitive and to expand into the global marketplace. However, the lack of appropriately targeted training programs, nationally agreed standards and accreditation is an increasing issue. Over recent years, courses in the book industry have proliferated, but standards vary greatly and there is an increasing disconnect between the needs of industry and the skills level of graduates. The urgent need for digital skills training and accreditation has been a consistent theme throughout the BISG consultations. The digital skills gap is being felt across the book supply chain, with authors, publishers and printers all naming it as a priority for strategic action. Booksellers too have a pressing need to develop skills in ecommerce and digital marketing. The importance of evolving skills and business models to adapt to the digital era is well recognised by government. The Cultural Ministers Council’s report Building a creative innovation economy (2008) names the development of technical capability as a priority for all government jurisdictions, and states that the potential to improve program delivery, audience reach and business efficiency could be significantly improved if more senior managers and executives had a better understanding of the full impact of new and emerging technologies in the digital environment. The Australia Council has recognised the urgent need for integration of the arts sector into the digital era in its strategy Arts Content: the Digital Era, which nominates ‘linking arts content and commerce’ as one of its four priority areas. The Government provides a number of funding and support pathways for development of skills, such as Skills Australia and the newly announced National Workforce Development Fund. In addition, industry-based accreditation programs, such as that run by the Australian Publishers Association, can provide a mechanism by which to standardise graduate skills. However, in order to gain maximum advantage from programs such as these, the book industry will benefit from the development of an integrated strategy and implementation plan that clearly identifies agreed priority areas and ensures relevant skills sets are met through vocational and higher education training.

BOOK INDUSTRY STRATEGY GROUP 95 RECOMMENDATION 13 That the proposed Book Industry Collaborative Council develop a comprehensive skills strategy, which addresses training needs for all parts of the book supply chain as a matter of priority and that it then works with peak industry associations, employers and unions to progress implementation and ensure alignment with relevant industry training packages.

RECOMMENDATION 14: Statistical data

The Australian Government initiated statistical data collection for book retailers and publishers in 2000–01 as part of the book industry assistance plan, a $240 million package aimed at assisting the book industry to adjust to the introduction of GST. Through this package, $1.2 million was committed over four years for annual collection of statistics by the Australian Bureau of Statistics (ABS).

Since the ABS ceased collecting book industry data in 2003–04, the book industry has struggled to collect the statistics required for businesses to understand the operating environment – particularly during this time of rapid change driven by digitisation and globalisation of the market. Statistics enable businesses to understand what has happened and how to anticipate and plan for the future. Individual businesses cannot collect the data necessary to reveal trends and analyse trade and consumer patterns; yet whole-of-industry material is vital to understanding the changes occurring with the market. While book sales data are collected by Nielsen BookScan, this survey does not capture the business performance of the book retail sector, which limits its application for business planning purposes. The Australian Publishing Association runs an annual benchmarking survey; input into this study is through self-disclosure from individual firms, however, which restricts use of the data due to confidentiality and verification limitations. The lack of reliable industry-specific data was regularly raised during the BISG consultations as a key inhibitor for industry investment. The capacity of researchers to undertake a full industry analysis during the BISG process was also influenced by the absence of data. Similarly, the Productivity Commission review conducted in 2009 relied heavily on the 2003–04 ABS data. As time goes by, the validity of and capacity by industry to utilise the 2003–04 ABS data is declining, leaving the industry highly vulnerable at a time of increasing pressure imposed by changing market conditions. The industry’s ability to attract investment and to innovate is severely curtailed by lack of reliable, certified data. This situation is reaching crisis point and becoming increasingly urgent with the pressure being experienced by bricks-and-mortar bookshops. The Book Industry Strategy Group recognises that responsibility for statistical collection should be shared and advocates that the cost of reinstating the ABS book industry collection program be split between government and industry. A cost-effective approach could entail collection in a base year (say 2012), with follow-up surveys run every two to three years from that point. Government funding provided in 2000 for collection of industry statistics was $1.2 million over four years, but the cost of

BOOK INDUSTRY STRATEGY GROUP 96 data collection is likely to have increased since that time; however, preliminary quotes from the ABS indicate that costs have risen substantially. Coordination of this statistical collection has been identified as a key priority for the proposed Book Industry Collaborative Council.

RECOMMENDATION 14 That the Government and the book industry share the cost of reinstating collection of book industry statistics by the Australian Bureau of Statistics and that survey collection commence in the 2012–13 financial year.

RECOMMENDATION 15: Small business development

Australian authors, independent booksellers, and new small publishers are experiencing a variety of challenges and opportunities brought about by the new business environment. For each to make a positive contribution and find a place in the markets of the digital era, substantial re-engineering of their operations will be required.

For authors, there are doubts about the levels of future income from ebooks; for booksellers, the issue is how to access ebooks in the first place, as well as how these might best be delivered to customers; and for new digital publishers, the key challenge is how to acquire the ecommerce and epublishing skills needed in this business environment.

AUTHORS As there is no regular or regulated income of the kind associated with more ‘formal’ employment, authors are and remain, in essence, piece workers. They are most commonly paid for the specific bit or book they produce – by publishers for books, by media companies for casual or freelance journalism, and so on. To the traditional vagaries are now added uncertainties generated by seismic shifts in publishing and bookselling. The trend towards more and more, cheaper-than-print, ebooks immediately reduces earning potential for authors. Current business models have long performed well in satisfying authors’ publishing and bookselling needs. Constrained forward income from print books in a burgeoning digital environment, and in some cases unsatisfactory remuneration for ebooks published by print publishers, however, will have the potential to compromise authors’ productivity and financial health. Authors who otherwise have a history of productive writing will, in the circumstances, be less inclined to make the investment in time and personal resources needed to create work. Authors are beginning to adapt to these changes, and a distinct new, digital-oriented business model has begun to emerge: the author as self-publisher. Authors need to be encouraged to take advantage of new and evolving digital technologies to create potentially valuable self-publishing activity, including the possibility of upscaling to as small business entities where feasible. New author self-publishing enterprises could be productively supported through:

BOOK INDUSTRY STRATEGY GROUP 97 a a specialist business advisory service or services dedicated to digital book self- publishing. This could be funded and managed through the Australian Society of Authors through its professional digital development program b commercialisation services for taking their work to the ‘small enterprise’ level, through (i) direct funding support to authors via small grants to aid commercialisation, (ii) relevant small enterprise skills and knowledge development.

SMALL PUBLISHERS Most innovation in book publishing begins with the small enterprise, usually one or two or three individuals with a passion for a niche. This is a historical pattern in print book publishing, as seen in the initiation and development of individual ‘imprints’. As imprints grow, they become of interest to larger publishing organisations who often buy and then take them into their own, better capitalised environment and thus allow them access to larger markets. There is every reason to see the pattern repeated in electronic publishing. In the digital environment, many small publishing outfits and individuals lack the capacity to undertake capital investment in infrastructure that won’t yield immediate results. They need access to funds to advance their operations in a new area where traditional business funding is unknown or uncertain. Meanwhile, bodies awarding grants for cultural reasons are typically insensitive to initiatives that are commercially innovative. This means that there is no pool of funds available for development in these areas. Small presses, including those wishing to serve niche markets, are thus under particular pressure. Small business grants provided by government would help to finance innovative projects of long-term benefit and would enable such entities to take advantage of digital delivery methods. Grants of up to $15,000 that help to finance innovative projects of long-term benefit (such as website and ecommerce development, for example) could be offered to enable such entities to begin delivering products and services. An appropriate industry association, such as the Small Press Underground Network Community, could administer the grants. Such an organisation could be responsible for processing both applications and acquittals of grants. The benefits for government are multiple: > These grants would fill a direct need that is not currently subject to other forms of grant money. > These grants would be awarded purely on criteria related to innovation and commercial development. > Each pool of funds could produce up to 70 separate business initiatives, meaning that there would be a large amount of material delivered for a relatively low government spend.

BOOKSELLERS Equally, many small and independent booksellers continue to struggle with developing an effective use of ecommerce. Successful independent, small- to medium-sized bookshops generally have loyal customer bases, built up through ‘hand-selling’ and the specialist knowledge and service offered to customers. However, small- to medium-sized bookshops do not have the financial or technical ability to develop their own ecommerce facilities and therefore, in the digital environment, lack the ability to provide ebooks to customers.

BOOK INDUSTRY STRATEGY GROUP 98 There are a number of solutions that would provide booksellers with ecommerce capacity, with cost estimates being between $9,000 and $12,000 per business. One of the key concerns is that many of these businesses lack the technical expertise to maintain ecommerce websites once they are established. Training in ecommerce and emarketing is essential to ensuring that the high-quality customised service traditionally provided by the independent bookselling sector is extended into the digital realm. Most independent booksellers are small businesses, often operating with minimal staff and limited opportunity to invest in training. While it is vital that skills development in ecommerce be a key component of the whole-of-industry skills strategy proposed within these BISG recommendations, support in the form of training grants is needed to enable small independent bookselling businesses to take advantage of skills development opportunities.

RECOMMENDATION 15 That the Government, through new or existing grants programs, support the introduction of (a) business development programs for new and proposed digital enterprises, including for authors, publishers and booksellers, and (b) training grants to enable small business to invest in digital skills upgrading for staff.

RECOMMENDATION 16: Book print industry reform

The Australian book printing sector historically flourished in tandem with the emergence of a vibrant Australian based publishing industry in its ‘post-colonial’ era. The printing of books in Australia was seen as economically and culturally important. The government actively supported the sector through the now abandoned Book Bounty scheme and the maintenance of territorial copyright for publishers. This period saw book printing become an important manufacturing employer, particularly in both regional and outer metropolitan areas of Australia. The economies of scale required to achieve efficient production have resulted in the existence of only three major specialised trade book printers, accompanied by several medium-sized competitors and a myriad of smaller book printers spread across the nation.

The two largest Australian book printers are major employers in Maryborough, Victoria and the outer northern suburbs of Adelaide. The combined direct employment of these two printers is around 450, with associated indirect employment at least this figure again. In the case of Maryborough, book printing is the largest employer of labour in a town ranked the worst (79th) of all local government areas in Victoria in terms of disadvantage. It is worth noting that the average sales revenue flowing to book printers for the production (including paper) of a mono ‘read for pleasure’ trade book represents around 6 to 7 per cent of a book’s recommended retail price.

BOOK INDUSTRY STRATEGY GROUP 99 Australian print mono ‘read for pleasure’ books are currently predominantly printed on locally (Australian or New Zealand) produced papers sourced from reliably certified forests. Combined with the environmentally responsible book production methods adopted, an Australian print book represents a favourable environmental outcome compared with an imported book. Australian book printers are currently facing a challenging market with book volumes down, pricing down and market service level requirements up. The major book printers, with their high volume–dependent infrastructures, are particularly exposed. Australian book printers predominantly depend upon demand from book publishers based in Australia or from their offshore parent entities. These publishers are responsive to the Australian retail demand for books and may source books from either Australian printers or offshore printers. The key issues driving Australian book print production volumes are therefore the health of the Australian book retail market and the proportion of it printed locally. A convergence of negative influences are currently affecting sales turnover in the Australian retail print book market, including the growth of overseas online alternatives, the collapse of REDgroup Retail and the emergence of ebooks. This, combined with publishers switching to imports on the back of a very high Australian dollar, leaves the Australian book printing sector in a potentially parlous state. The market is forcing publishers to require more frequent, quicker, shorter print runs to reduce their inventory and obsolescence costs and to satisfy the retail order turnarounds now required by consumers. This presents further challenges for conventional long-run book production facilities. However, these conventional facilities are still required to sustain large-scale printing infrastructure and to service blockbuster titles and other longer runs for publishers. These new market requirements are forcing major printers to invest in newly developed high capital cost solutions (such as inkjet) without an increase in overall available book volumes to justify the increased production capacity. Single print book orders require a different model to genuine short-run solutions and are typically serviced by smaller, toner-based digital machines. This relatively minor sector of the market in Australia is already provided as a low-margin service by the major and some smaller printers and will be potentially further overserviced and underpriced with foreign book printers entering the Australian market on the back of globally driven agendas (for example, Lightning Source, RR Donnelley). The total cost of a printer printing, binding and shipping a single copy of a book will always be greater than the unit cost of producing multiple copies of the same book. The retention of a viable significant book printing industry in Australia is in both the national interest and the interests of the local book industry supply chain. A strategy to achieve this requires affirmative action by both the industry and government.

COMMITMENT BY INDUSTRY 1 The industry supports consolidation of major book printing participants and will not oppose such activity leading to the survival of at least one large-scale trade book printing operation in Australia. 2 The Australian publishing sector will continue to support a price-competitive local print industry as their major source of mono ‘read for pleasure’ books. 3 The industry will actively promote the environmental advantages of the print book and the employment and service advantages of printing a book in Australia. 4 Major Australian book printers will commit to the large capital investments in new technology (including inkjet-based production) required to service the quick turnaround, short-run production service now required by the market while retaining the conventional capacity to print longer-run titles. 5 Book printers will retrain and upskill their workforces to ensure best use is made

BOOK INDUSTRY STRATEGY GROUP 100 of new technology investments and minimise job losses wherever possible.

RECOMMENDATION 16 That the Government recognise the significant structural shift occurring within the Australian book printing sector and provide a structural adjustment program to facilitate the transition of the sector into the future. As part of the structural adjustment process the Government should: a allow necessary industry consolidation for large-scale book printers b introduce a support package for displaced employees and regional communities impacted by labour reductions inherent in new digital production technologies and industry consolidation c where appropriate, adjust the eligibility criteria of relevant existing industry support programs to improve access for the book printing sector d make the printing of a book in Australia a condition of receiving government assistance for developing and publishing a book e assist the industry to promote the environmental and employment advantages of buying a book printed in Australia f provide financial support for printers encouraging technology reinvestment and facilitating business transformation in response to a digital future incorporating print on demand and short-run printing.

RECOMMENDATION 17: Digital content for schools

Digital content, in all its components and multimedia platform options, provides considerable benefits for teachers and students. A key attribute is that digital content allows for different learning speeds and styles and can increase student engagement. Interactive learning objects offer a vastly superior platform for teaching concepts that are abstract or are difficult to grasp. It allows demonstration of complex processes that are not demonstrable in the school environment, can reduce health and safety risks, and allow simple experiments to be demonstrated that are not otherwise possible.

The importance of digital material for foundation to year 12 education has been recognised by the Australian Government and supported through significant investment

BOOK INDUSTRY STRATEGY GROUP 101 in programs such as the Digital Education Revolution with the provision of netbooks to students; rollout of the National Broadband Network; investment in school infrastructure through the Schools Building Fund; and the development of a national curriculum, in which digital learning is fully integrated into every syllabus and in every year of learning. There is general agreement across industry and governments that the Australian schools market is now at a tipping point. Digital teaching and learning content is no longer viewed as a necessary add-on to traditional print textbooks; rather, it is now a mainstream approach to teaching and learning in the classroom. The $2.4 billion investment by the Australian Government into equipping Australian schools with an appropriate digital infrastructure is prudent in building the nation’s future capacity. However, this potential can only be realised if the infrastructure is complemented by provision of high-quality digital learning materials that are tailored to achieve the learning objectives of the national curriculum. The funding base for school classroom teaching resources has been reducing in real terms over the last decade. Concurrently, interest, need and value of digital interactive teaching and learning materials have risen exponentially. The lack of funding for obtaining digital objects pushes teachers to acquire legally free digital content through the internet. While the internet can provide access to low-cost information that can be used for teaching purposes, the majority has not been developed or designed for educational purposes, let alone tailored for the new national curriculum. Teaching and learning resources are currently funded through a combination of school and parent contributions. Either students purchase resources from a booklist that has been compiled by the school or the school buys a class set, which is then shared by all students in a relevant teaching stream. While this system of funding has functioned well for print textbooks, it is not easily applied to digital material that has licensing barriers. This is a significant hurdle for schools to overcome in order to be able to fully utilise their electronic hardware. The introduction of the national curriculum presents an ideal opportunity for the Australian Government to promote the benefits of its investment in a digital infrastructure. However, for a high proportion of schools, the concurrent introduction of new curriculums for the four key subjects of English, maths, science and history across all years, primary and/or secondary, is a massive task and will require a considerable injection of funds for classroom resources. Current school budgets are insufficient to provide new materials for all required subject curriculums, particularly in the area of digital content. This is likely to result in compromises being made on provision of material – with some subjects being overlooked, to the detriment of students. The annual spend on teaching and learning resources in Australia is around $280 million, with approximately $110 million going to primary education and $170 million to secondary. Of this amount, approximately $210 million is funded by schools and $70 million by parents; the latter is almost all for secondary student resources. For all classroom literacy and numeracy in primary schools, the spend by schools averages a mere $55 per student per annum. In secondary, covering between five and eight separate subjects a year, schools spend only $68 per student on learning resources with parents spending on average a further $47 per student per annum. The average government school recurrent costs, published by the Department for Education, Employment and Workplace Relations, were $8,380 per primary school student and $10,646 for every secondary school student. Enrolments in 2010, as published by the Australian Bureau of Statistics, were 2,010,327 primary students and 1,476,552 secondary. There are 10,338 schools, of which 7,643 are primary schools and 2,695 secondary. In 2000, the Australian Publishers Association recorded sales of $61.3 million by schools publishers in primary materials and $82.6 million in secondary – a total of

BOOK INDUSTRY STRATEGY GROUP 102 $143.9 million across all schools. In 2010 the amounts were $57.4 million primary and $96.9 million secondary – a total of $154.3 million. Across 10 years, sales increased 7.3 per cent – a compound annual growth rate of a mere 0.7 per cent. In real terms over the same period, based on ABS data, the CPI increased at a compound annual growth rate of 2.6 per cent – an obvious decline in spending on classroom resources for students over the last decade. Funding within each school has been directed away from teaching and learning classroom resources and used to fund a rise in photocopying, the purchase of interactive whiteboards, ICT infrastructure, furniture and fittings for new classrooms built under the federal School Buildings initiative, and rising broadband costs. Without an injection of specifically targeted funds from the Australian Government, schools and parents are unlikely to commit already scarce resources to purchasing digital material to meet the program requirements set by the new national curriculum. By reallocating a portion of current funding from computer infrastructure to educational content creation, the Government can ensure that its investment is achieving the goals of the new national curriculum. The introduction of a market mechanism, such as the Electronic Learning Credits voucher system used in the United Kingdom, will enable individual schools to test and buy digital educational content that best suits their specific needs. Such a system is able to effectively target government spending directly to the purchase of educational materials, as it is not transferable to other school purchasing needs. The Australian educational publishing industry has developed, and continues to add to, a vast bank of both digital and print teaching and learning materials. Under a voucher system, educational publishers will compete in an open market and all suppliers will need to demonstrate the value of their digital and print content offerings. A voucher system approach is an efficient, measurable and controllable platform for ensuring educational value, support and learning outcomes for students. Funding of $30 million over three years has been reallocated from the existing Digital Education Revolution program to enable schools to purchase quality digital teaching and learning resources that correlate exactly to the ICT requirements of the national curriculum as it is rolled out. This represents around $2,000 per primary and $5,000 per secondary school, which can enable purchasing of relevant digital content that can then be leveraged for use by students for a number of years.

RECOMMENDATION 17 That the Government reallocate $30 million over three years from the existing Digital Education Revolution funding for the purchase of digital teaching and learning resources administered through a market-based mechanism that directs government spending to the purchase of digital learning materials.

RECOMMENDATION 18: Tertiary education materials

The creation of high-quality content by experienced and highly motivated academics is of vital importance to the quality and efficiency of teaching within the tertiary sector, particularly as Australia is moving into a period of uncapping of courses, expanding student enrolments, and increased distance education.

BOOK INDUSTRY STRATEGY GROUP 103 Higher education academics are under increasing pressure to focus on research to support the goals of their institutions for funding and for individual promotion at the expense of time and effort spent on creating quality teaching and learning materials, such as textbooks and digital learning resources. The Excellence in Research for Australia (ERA) initiative provides a comprehensive framework for assessment of research quality; however, no equivalent system is in currently in place for excellence in the development of learning materials. In February 2011, the Government recognised the value of teaching and learning practice through the establishment of the Promotion of Excellence in Learning and Teaching in Higher Education program. However there is no stated focus on recognition and reward for the vitally important area of content creation – that is, contributing to the creation of learning resources, including textbooks and digital resources. From January 2012, the newly formed Tertiary Education Quality Standards Agency will be responsible for developing the higher education standards framework, including teaching and learning standards. Academics are constantly under pressure to use and find teaching and learning material to engage students and rely on commercial publishers to provide these high-quality and peer-tested materials. Most undergraduate courses rely on the use of quality, tested content from commercial publishers who invest primarily in the development of text and digital teaching and learning materials for both students and academics. In addition, many of the assessment tools used in higher education are provided to academics as part of the service. Academics that have contributed or written teaching and learning materials in the past are increasingly reluctant to participate in new work or revisions as the pressure to produce research, in particular, dictates promotion and institutional recognition. The most experienced and capable authors have no incentive to continue this work as competing demands and compensation for their efforts are not aligned between research and teaching. The Australian higher education market is small in size compared to that in most advanced countries, with few market-driven incentives for authors. Therefore, government policy that motivates academic authorship is vital to ensuring the development of quality learning materials for Australian students. Academic publishing is an industry central to the cultural development of Australia – it provides rich cultural content, and creates thousands of jobs and estimated revenue of around $200 million. This is seriously put at risk due to the lack of authors to write content. Increasingly, current authors are unable to commit to revising their work into new editions as they struggle with the research and teaching loads that take up their focus. Academics are constantly demanding high-quality teaching and learning materials with the latest research, case studies and examples to engage students. Content more than three years in age is often viewed as outdated and students will not relate to older examples, in particular, which have little or no current relevance. Technological advances, case studies of companies, the impact of global warming, sustainability, new areas of scientific discovery – all need constant updating. Typically, in many subjects, a cycle of three years is the maximum acceptable level of age for quality, up-to-date content. Academics are so heavily focused on research requirements that they are unable or unwilling to participate in textbook or learning resource creation. The ability to source, motivate and sign quality authors has diminished significantly in the last five years precisely the time when demand for courses and requirements has increased. More than 50 per cent of the products in use by Australian academics for undergraduate teaching and learning are resources developed by Australian academics and educators.

BOOK INDUSTRY STRATEGY GROUP 104 These products are developed because there is a clear need to provide students with books that feature Australian research, case studies and practical examples that students can relate to and that help to drive engagement. In key disciplines the evidence of the value of Australian content is clear; approximately 80 per cent of the first year undergraduate student cohort in business faculties, biology, sociology and politics use textbooks and digital products developed by Australian academics for use by Australian higher education lecturers and students. Government initiatives such as ERA (or its predecessor, the Research Quality Framework) channel academic output away from the development of quality teaching and learning resources and into research because that is where the institutional funding and personal promotional opportunities are best realised. If there are no incentives for academics to author or contribute to teaching resources, over time there will be fewer and fewer products available for academics to base their teaching programs on. Students will lose the continuity of the Australian context in areas where this is vitally important for regulatory, legislative or policy content. Students who are enrolled in disciplines such as law, accounting and politics will suffer, and academics will be forced to waste time (which they could be productively spending on research) scrambling notes together from a wide variety of sources to give students access to the right materials to pass their courses. There are both teaching quality and research productivity issues. The Australian Government has clearly recognised the importance of improving and promoting quality teaching standards and learning outcomes in higher education. As part of the Bradley Review’s recommendations on wider student participation, engagement and completion, the Government has committed $50 million over the next four years to the Promotion of Excellence in Learning and Teaching in Higher Education program.

ERA plays a vital role in driving the research quality agenda, which is in turn a key factor that underpins quality in teaching and learning. However, some concerns have been expressed that ERA may act as a disincentive for the creation of high-quality teaching and learning materials. To ensure greater balance with the research quality assessment processes of ERA, it is proposed that a framework be established within the remit of the Promotion of Excellence in Learning and Teaching in Higher Education program that is not limited to recognising excellence in individual teaching awards, but encompasses a broader pedagogic contribution to teaching practices and methods, and to learning outcomes in a discipline area. The introduction of a grants system that is devoted to improving learning outcomes will stimulate competition between institutions, raise the profile and incentives for the development of quality teaching and learning materials and provide sustainable outcomes for the production of educational content for the higher education sector. The criteria for grants should include print publications and textbooks, digital applications and innovative learning solutions. Many of the most successful Australian textbook authors are already the recipients of excellence in teaching awards (it is often their exceptional teaching skills, which they are able to translate beyond the face-to-face experience through print or another format, that makes them great educational authors). Getting an award provides some prestige for the individual educator and their institution, but doesn’t translate into additional funding for the institution or promotional opportunities for the individual. As the Promotion of Excellence in Learning and Teaching in Higher Education program is currently in the midst of a consultation process, this is the right time and vehicle to introduce a new grant or award stream that advances and supports the promotion of excellence in authoring learning and teaching content for higher education.

RECOMMENDATION 18 That the Government, in order to stimulate the development of

BOOK INDUSTRY STRATEGY GROUP 105 quality higher education teaching and learning materials: a allocate 10 per cent of the $50 million funding from the Promotion of Excellence in Learning and Teaching in Higher Education program to a grants program that supports the development of quality, innovative teaching and learning resources for the higher education sector b develop a reward/recognition system which promotes teaching excellence and authoring of quality educational materials and thereby creates greater balance with the research focus of the Excellence in Research for Australia (ERA) program.

RECOMMENDATION 19: Tax support for authors

Remuneration for authors is currently problematic in at least two ways, each of which may be usefully addressed and improved through the tax system. These are: > the low levels of remuneration for authors > fluctuations in their remuneration.

LOW LEVELS OF REMUNERATION Authors derive income in a variety of ways in addition to royalties paid by publishers. ‘Working authors’, that is, those who take a craft or semi-professional or professional approach to their activity (as opposed to hobbyists, or ‘oncers’) often try to establish a notional ‘basket’ to which they add their variously sourced income, or else work to build a series of small income streams, the sum of which hopefully adds to some meaningful amount of remuneration per year for their efforts. Some authors write across genres and forms, producing TV and commercial scripts, and/or non-fiction works, casual journalism, freelance writing, or corporate writing; they may also make money from engagements at schools associated with their work, or take on casual teaching or editing work. Those who concentrate on books alone may receive income via publishers’ advances and (where these are earned out) further royalty payments; such authors commonly also derive some further, usually minor income from PLR/ELR payments; and, for those whose works are copied in educational/institutional settings, payments from the Copyright Agency Limited are added to the pot. With the exception of a very few successful specialists in a single book genre, such as the commercial novel, most practising authors operate on an art-and-craft basis, and find they are working hard for little material return. Authors’ income is not as regular as in other forms of employment and authors are, and remain in essence, piece workers. They are most commonly paid for the specific article or book they produce – by publishers for books, by media companies for casual or freelance journalism, and so on. Operating on a paid-for-the-piece basis, and augmented by additional writing-related work, authors’ average income appears not to have moved positively at all between 2001 and 2010 (see Throsby & Hollister 2003; Throsby & Zednik 2010). In other words, over a

BOOK INDUSTRY STRATEGY GROUP 106 decade in which most Australians’ incomes have risen significantly, authors’ incomes have been in both absolute and relative decline. This level of income does not constitute a living wage for citizens whose contribution to shaping the Australian identity can be measured both for its economic and cultural impact. Authors’ income is not and never has been a matter of certainty. Among the factors influencing variation in income is the market ‘worth’ of a given author’s work – some authors are more skilful and popular than others. Complicating matters still further, Australian authors’ income is today more fragmented and uncertain than it has been for some time. Our authors are labouring in an increasingly complex and challenging digital environment, which will see:

 traditional royalty schemes changing and possibly declining as a source and means of distributing income

 a likely increase in the sale of international rather than local content  a decline in direct funding and support from cultural agencies  fewer remunerative opportunities as publishers reduce their publishing programs  as authors endeavour to respond to the above, financial risks in attempting unskilled self-publishing in print and in electronic formats. In this context, the nation’s system of literary awards, prizes and grants – even if these are limited in number and value and none is worth more than $80,000 – is a vital component of the reward structure for Australian authors. But while quality authors look to augment their income through winning the occasional such prize, they then find they lose a considerable part of the potential income it represents to tax. For the many dozens of authors around the country who win the various literary prizes, awards and grants funded by local, state and Commonwealth bodies, it would be enormously beneficial to have the tax impost on these lifted. There is already a precedent for taking such a step, in that the Prime Minister’s Literary Awards have been granted tax-exempt status. It is important to appreciate that awards and grants encourage literary endeavour that is particularly Australian. They therefore constitute a reward for an important cultural contribution. The issue of low levels of remuneration could be addressed through government legislation to grant tax-exempt status to all government-funded and administered literary prizes, awards and grants, whether local, state or federal.

FLUCTUATIONS IN REMUNERATION The second issue of ongoing concern for authors is the periodic, annual and longer- term fluctuations in income that they experience. The impact on personal tax of variations in income may currently be managed by authors to a degree through the current ‘average taxable professional income’ provisions of the Income Tax Assessment Act 1997 for ‘special professionals’. This scheme is based on calculations over four years of past income.2 For many authors, the reductions that may be achieved through such a scheme are of value for tax payable purposes. But that is a post facto benefit – such a scheme does not assist in dealing with managing income as it arrives. In order to better understand the financial situation of Australian authors, whether professional or semi-professional, it may be useful to compare them to rural producers. Like many who work the land, authors experience fat years as well as lean. There are years of unexpected earnings and years that provide very little or no income at all. Although they may spend much time producing a given work, authors nevertheless have

BOOK INDUSTRY STRATEGY GROUP 107 little certainty as to whether that work will find favour and be taken up by a publisher or other institution. When this occurs, an unexpectedly large tranche of income may arrive, either in the form of a sizeable publisher’s advance for a book yet to earn royalties or a flat fee. If their personal circumstances are conducive, it may be in the author’s interest not to take the money as income that year, but to bank it to draw on in the future. This problem could be resolved with the development of an income equalisation scheme for authors similar to the one that exists for primary producers. The current farm management deposits scheme allows participants to claim a deduction for farm management deposits made in the year they deposit. If a participant withdraws a farm management deposit, the amount of the deduction previously allowed is included in their assessable income in the year of repayment. Farm management deposits are a mechanism for primary producers to hold over income from years of good cash flow (deferring the payment of tax on these amounts) and draw down on it in years when additional cash flow is required. Broadly, this is achieved by allowing the primary producer a deduction for the amount of a farm management deposit in the year in which it is made provided the farm management deposit does not exceed their net primary production income for that year (and including the amount in their assessable income in the income year in which it is repaid). To be eligible for a farm management deposit deduction, a taxpayer must (among other things) be an individual who carries on a business of primary production in Australia when the farm management deposit is made. In the case of authors receiving unexpected income or an above-average tranche in one year, it would be of significant assistance if they were able to deposit part or all of these funds in a participating institution (a bank, credit union or the like), and also claim a deduction on these funds in that same year. A scheme such as this would provide authors with an important risk management tool. It would greatly assist in dealing with the impact of uneven income that flows from the nature of their activity and that of the book industry itself. There is no structural or philosophical impediment to the introduction of such a scheme. It would be complementary to the ‘special professionals’ income averaging provisions in the Income Tax Assessment Act. Its establishment would require the nomination of appropriate participating financial institutions and the development of associated tax act relief provisions, following the precedent and methodology of the farm management deposits scheme. An authors’ scheme could, in broad outline, be based on the current farm deposits scheme (which began in January 1999), which replaced an earlier income equalisation deposits scheme. (The current legislative provisions are as per Division 393 of the Act.)

RECOMMENDATION 19 That: a the Government legislate to make tax exempt all literary prizes, awards and grants that are funded and administered by government, whether local, state or Commonwealth b the Government implement an income deposits tax measure, following the precedent of the rural (farm management) deposits scheme, to assist with management of fluctuations in artists’/authors’ incomes over time.

BOOK INDUSTRY STRATEGY GROUP 108 Supporting Australian culture

RECOMMENDATION 20: Literature Board review

Significant support issues have arisen for Australian literary authorship in recent years and these have affected the further development of our literary and broader culture.

The reduction of author income described elsewhere in this report is the first and major obstacle. Where value is placed on growing Australian content – a culture that is reflected ‘in’ and also created ‘out’ of books and writing – the recent declines evident in print book publishing and bookselling are detrimental to the authorship that produces that content. A reduced ‘pot’ of available income does not encourage production of more and better books. As marginal amounts of income are not conducive to authors’ productivity, barriers arise to the further contribution they can make to our writing and reading culture, and therefore also to Australia’s overall cultural development. Reduced literary sector output has an economic flow-on effect for one of our major creative industries. A contraction in print-based literary publishing due to restructuring of operations, formats and delivery systems, affects literary authors via a reduction in the total pool of advances and royalties, as well as in the number of opportunities for publication. Commonwealth-funded grants through the Australia Council are of assistance to publishers, in taking some of the pressure off their royalty accounts and advance budgets. Over time, however, there has been an absolute and relative decline in the total amount of Literature Board grant funds allocated directly to authors. The Literature Board appears to have lost significant efficacy as a practical agent of literary creativity. Many talented individuals do not bother applying for grants to buy time to write because there are fewer of them and less money available. This continues a longstanding pattern of decline: In 1995–96, 192 grants were awarded, totalling $2,423,408. In 2005–06, 127 grants were awarded, totalling $2,476,707. In 2009, meanwhile, the Literature Board awarded a total of $1.69 million to individual writers. To arrive at this, the Board processed 303 applications and awarded only 36 grants for new work and one fellowship. The stated goals for the Literature Board in 2011–12, relevant to author income, are as follows:

 Provide income-generating opportunities for writers  Maintain number of new work grants offered to sector  At least two promotional activities for literary journals  At least eight writers attending overseas festivals  Establish a three-year partnership with Edinburgh International Book Fair  Establish three-year poetry tour of Ireland. (Australia Council, literature sector plan 2011–12) The Australia Council has failed to identify the potential benefits of a substantial funding boost to literature, or to commit to a program to realise that benefit. Such support, on past evidence, is almost certain to nurture an array of new authors

BOOK INDUSTRY STRATEGY GROUP 109 capable of producing long-form narratives in the traditional genres – history, biography, the novel – and other forms for which there remain substantial markets. Where the Commonwealth takes a ‘hands-off’ approach to how the Australia Council makes its internal allocations, significant issues arise for literary authors. Internal Australia Council processes mean that authors must compete with more high-profile and better-funded sectors for funds. The main focus of the Literature Board is described as ‘excellence in the creation of literary work’. But the pursuit of excellence is a given for literary authors, while the mere valuing of ‘excellence’ of itself provides no formal mechanism for supporting time-critical authorship. The fundamental investment authors make lies in the time they are able to set aside for the work involved: good books take time to write – authors need time to write them. Throsby and Zednik (2010) note that writers reported financial assistance as providing them the highest ‘stimulus’ quotient of all. More than finding ways to provide authors with ‘time out’, we need to find ways of affording them ‘time in’. Funding that is long term and that is conceived as an ‘investment’ rather than ‘gift’, whatever it does materially for the individual author, will ultimately be of the greatest benefit to readers, our education system and Australian culture overall. The development of a more confident and productive Australian literary scene (and local film and television output) received a dramatic boost through the early 1970s via an expanded and expansive grants and fellowship program delivered through the Literature Board of the Australia Council. In its first year of operations, 1973–74, the Literature Board of the Australia Council was ‘aware of the value of declaring initiative and foresight, as well as establishing a climate of expectation and confidence’ (Shapcott 1988: 30–31). Following its first call for applications, the Board received 1,147 applications and provided 230 grants. Importantly, there was an emphasis on longer-term funding in the form of a ‘Guaranteed Income’ scheme and Three-Year Fellowships. By contrast, the reduced number of and dollar value of grants provided through the Literature Board in more recent years has also constrained output of higher-end literary and creative work. Many of the most important contemporary names in Australian culture and literature were assisted to find their footing at that time, including such luminaries as David Malouf, Helen Garner, Peter Carey and Roger McDonald. There are strong arguments for an overall re-resourcing of the Literature Board of the Australia Council. A doubling of its budget to approximately $9 million, would allow it to more effectively deliver on its currently stated obligations. This boost should also include a rise in direct grants to authors, from the current $1.7 million to approximately $3–3.5 million. A reinvigorated overall Literature Board program, judiciously promoted and managed across both traditional book formats and new digital formats, would ensure an increase in the number of applications and a significant boost to local, quality literature. Allowing that around half the overall Literature Board budget is currently, and should continue to be, spent on marketing and the support of key organisations and other priority measures as outlined above, the increase in funding sought here should be allocated directly to the support of ‘artists’ careers’ – a stated goal of the Australia Council overall – by making available a greater number of time-buying author grants and fellowships. An overall funds boost could then be articulated across an additional number of author funding categories to allow for: a more new work b an increased number of single and multiyear fellowships c additional opportunities to encourage production of original content for digital platform delivery. (Regarding (c), the Australia Council’s ‘Story of the Future’ project (2006–09)

BOOK INDUSTRY STRATEGY GROUP 110 represented both a precedent and platform for this, but the opportunities to support young artists capable of presenting challenging, new-form narratives online have not yet been fully explored or satisfied.) In the context of Australia’s trillion-dollar economy, the funds required for new exercises of this kind are extremely modest.

RECOMMENDATION 20 That the Government encourage a review of the Australia Council’s Literature Board grants allocation processes and criteria, aiming to provide substantial additional funding directly to authors to a minimum $3.5 million per annum thus ensuring the ongoing support of creative authorship in a period of declining remuneration.

RECOMMENDATION 21: National Book Council

In the critical area of supporting book authorship and more and better general Australian content, a significantly scaled and focused resource and support mechanism is missing. While the Literature Board of the Australia Council operates to underpin traditional literary creativity, no separate and distinct body functions to support general Australian local content in book genres other than literary.

Philanthropic or personal investment in Australian-centric writing and illustrating is currently negligible. The Australian Business Arts Foundation has no serious role in the development of Australian authorship and content. Current arts sector support, through the means of the Literature Board of the Australian Council, is very limited and been in decline for some years. Meanwhile, support for the creation of Australian content is an incidental rather than a key aim of many book publishers, who tend to focus on the delivery of ‘internationalised’ genre titles (which may also be locally produced) for local audiences. This is a regrettable situation, economically and culturally, at a time when our society is focusing on the development and implementation of a National Curriculum, which will require more and better titles of local cultural value; when local branches of multinational publishers are culling and reducing their locally originated publishing lists, including for Australian-themed works; and, paradoxically, when we are beginning see evidence of increasing interest in Australian-created works of general fiction and non-fiction in export markets. The overall ‘store’ of Australian works—literary and general—has been affected by the relative decline in the number of new authors entering the field, in part due to the reduction in available grants funding for literature, in part due to the impact of cheap imports. Consumer tastes have also moved to favour a greater range of book genres, whether local or imported. Publishers have successfully supplied these markets in fiction and non-fiction genres—celebrity and sports biographies, and self-help, cookery, mind/body/spirit books and others. Numerous books of these kinds have been self-supporting in publisher revenue and profit terms and, in some cases, author royalty remuneration; some titles have also achieved significant export sales for the local branches of the large multinational

BOOK INDUSTRY STRATEGY GROUP 111 publishers and mid-sized publishers. However, the financing of distinctive Australian content has also been drawn from the capital available to be applied by a limited number of book publishers. In addition to publisher-driven marketing, support for the reading of Australian books has been undertaken through government-sponsored promotional programs such as Books Alive and Get Reading! These have been acknowledged as worthwhile exercises, but limited resourcing and other factors have caused them to lack sufficient scale and impact. As publisher capital and other support is currently applied, and as market factors influence authorial creativity and remuneration, opportunities to continue to build the supply and place of local books in the Australian market are increasingly at risk. There is a huge disparity in types of funding and the dollars available for different art forms which is not necessarily related to their economic impact … the bulk of government funding is directed to art forms heavily dependent on broadly based access (film and broadcasting) or venues (galleries and performing arts venues) … literature lags at the bottom of the funding table. (Clayton & Travers 2009: 11, 15) And yet the book industry is a significant component of Australia’s ‘creative’ and broader economies. While Australian book buyers have remained loyal to and keen on local authors’ and publishers’ output, the challenges to further growth and productivity are substantial. The question of who should deliver to the market more and better Australian stories, in all their forms and meanings, is a question for innovative and dedicated publishing enterprises to address. To ensure that these enterprises are most effective, the financial wherewithal and promotional support for local works need to be lifted above the present constrained levels. The book Industry Strategy Group recommends the establishment of a new and additional financing and promotion mechanism, a national book council, to redress the current decline in the creation, production and reception of vital Australian cultural content in book form. The proposed council’s approach will lie in encouraging, securing and facilitating significant private sector investment in the output of Australian authors and in building markets for their works. Operations of the National Book Council will be based on three inter-related funds: a Manuscript Fund, a Production Fund, and a Marketing Fund. The Manuscript Fund would provide for a variety of interesting and useful small- as well as large-scale commercial and investment arrangements. The Production Fund would encourage an individual benefactor or investor to partner separately – perhaps on a tax concession basis – with publishers for a proportion of production costs on certain authors and titles, as supported through the Manuscript Fund, in anticipation of a successful commercial outcome and a share of final profit. To build receptivity and maximise exposure to works created through the programs of the National Book Council, we also propose a Marketing Fund that can be used for a range of book- and industry- supportive promotional activities. The book industry sees the establishment of a National Book Council as additional to, not as a replacement for, the work of the Literature Board of the Australia Council. It is intended to support books across the broadest range of subject categories including, but not limited to, the formal ‘literary’ book genres within the purview of the Literature Board.

RECOMMENDATION 21 That the Government work with key industry sectors and associations to create a National Book Council as a new, specific

BOOK INDUSTRY STRATEGY GROUP 112 partnership. The National Book Council’s roles would include: a provision of additional funds to writers for the creation of new Australian works b the development of attractive financial investment models with potential return to government and individual investors c funding of a multiyear marketing campaign for the promotion of Australian writers both nationally and internationally.

BOOK INDUSTRY STRATEGY GROUP 113 Appendix Appendix A

The Book Industry Strategy Group

Chaired by the Hon Dr Barry Jones AO, the Book Industry Strategy Group comprises representatives from across the book supply chain.

Publishers Ms Louise Adler: Deputy Chair; Melbourne University Publishing Mr David Barnett: Australia/New Zealand, Pearson Education Australia Mr Ross Gibb: Macmillan Publishers Australia Mr Emmett Stinson: Small Press Underground Network Community

Booksellers Mr David Gaunt AM: Gleebooks Mr Graeme Connelly: Melbourne University Bookshop; Australian Campus Booksellers Association

Printers Mr Alan Fahy: McPherson’s Printing Group Mr Philip Andersen: Printing Industries Association of Australia Ms Lorraine Cassin: Australian Manufacturing Workers Union

Authors Mr Angelo Loukakis: Australian Society of Authors Mr Chris Warren: Media, Entertainment and Arts Alliance

Copyright Mr Alexander Grant: Copyright Agency Limited

Information Communication Technology Mr Tom Crago: Tantalus Media

Libraries, represented by the Australian Library and Information Association and/or the Council of Australian University Libraries, attended the Group’s meetings as observers and were invited to contribute to its deliberations. Secretariat support was provided by the Department of Innovation, Industry, Science and Research.

BOOK INDUSTRY STRATEGY GROUP 114 Appendix B

Addressing the Book Industry Strategy Group terms of reference

This section details how the Book Industry Strategy Group responded to its terms of reference, and:

 responds to questions raised about the status of the Australian book industry  recommends how to strengthen the Australian book industry in the global digital marketplace.

1. What digital platforms for books are available in Australia, how they work, what features they offer, and how extensively they are used. The conventional printed book is now part of a continuum that includes:

 digital files printed in small or even single numbers  pay-per-view files where a single item may be purchased  audiobooks  ‘enhanced’ ebooks in which text is linked to video, sound and interactive elements. Books in all these forms, including print, are increasingly available through digital platforms. Retailers and libraries are the primary agents in this process, though publishers and other parties in the supply chain also play a role. Digital technologies are almost universally employed at all stages of the Australian book supply chain. To date their primary use has been in streamlining print production, but the same technologies are being adapted to supply electronic resources. Digital technologies are used at each stage in the book supply chain:  Authors: Qualitative research indicates that authors generally prepare their books as digital files, and most perform research online as well as using print. Some also make use of technologies such as digital photography, scanning and voice recognition. It is difficult to quantify the extent of authors’ digital technology use, however, because the category ‘author’ is itself elastic.  Agents universally use digital technologies in communications with authors and publishers, and often secure authors’ digital files against illicit copying before submitting them to publishers for consideration.  Publishers in most sectors make extensive use of digital technologies to streamline print production. The publishing process is based on a single set of digital files, which is transformed into a print-ready book by editing, proofreading, indexing, illustration and book design, using word-processing software in the first instance and desktop publishing software in the latter stages. Publishers can also integrate these processes with the production of electronic resources, including ebooks. – This integration has proceeded furthest among higher education and professional and reference publishers, which together accounted for 11.4 per cent of industry income at the last ABS industry survey in 2003–04. – The use of digital processes to integrate print and electronic production remains a work in progress in the two largest sectors of the industry, school textbook

BOOK INDUSTRY STRATEGY GROUP 115 publishing (23.2 per cent of industry income in 2003–04) and trade and consumer publishing (65.4 per cent). – While no quantitative information is available about the extent to which publishers are integrating print and electronic production, qualitative information from interviews suggests that most major firms are actively reviewing their processes. This may be at odds with the result of a recently conducted survey by Copyright Agency Limited, which indicated that only 15.3 per cent of publishers have a digital strategy. – The largest global publishers are also employing sophisticated publishing software to manage and monitor operations such as budgeting, scheduling and royalty payments. These technologies are mostly beyond the means of small and independent publishers.  Book printers use computer-to-plate technology to produce print books, and have invested extensively in digital printing technologies that allow books to be economically printed in small numbers. Printers also supply a range of other digital services, including file storage and archiving.  Book distributors have used digital technologies to streamline the supply of both print and electronic materials, especially through the use of online searching and ordering. In trade publishing, the major global publishing firms have invested heavily in computerised distribution facilities for print books and have made these facilities available to selected independent publishers.  Book retailers employ computerised stock management and database searching throughout their operations. The most recent ABS survey of book retailers in 2003–04 found that 75 per cent of specialist bookshops had computerised stock control, almost 90 per cent were recording transactions by barcode, and just under half had online ordering services.  Libraries have invested heavily in digital technologies at every level, including providing computer and internet facilities to people without private access. Electronic resources are a large and growing component of expenditure in university libraries, where they accounted for 62 per cent of expenditure in 2008. The public libraries’ acquisition of electronic resources is less even; the proportion of library budgets spent on electronic resources ranges from 20 per cent in the Australian Capital Territory to 3 per cent in South Australia and New South Wales. The supply chain information infrastructure has greatly benefited from the introduction of digital technologies and internet-based communication, with the provision of online bibliographical information through Thorpe-Bowker’s Books in Print, price and availability information through the Australian Publishers Association’s TitlePage, and sales data collected by Nielsen BookScan.

2. How fast the market for digital delivery of books will grow in Australia and internationally, what factors might slow or hasten that growth and what is the relative position of printed books.  Based on assumptions about the Australian economy, consumer demand for books and the expected growth in ebook readers, the total market for books in Australia is expected to be approximately $2.8 billion in 2014.

 Australians purchased approximately $35 million worth of ebooks in 2010, which was 1.5 per cent of the total value of book sales for that year.

 The ebook market is projected to reach between $150 million and $700 million in 2014, representing between 5.5 per cent and 24.3 per cent of total estimated book sales.

 Of the projected value of ebook sales in 2014, $500 million will be trade ebooks representing 25.7 per cent of the trade ebook markets, and $200 million will be educational ebook sales representing 21.4 per cent of the educational book market.

BOOK INDUSTRY STRATEGY GROUP 116  PricewaterhouseCoopers projects that global ebook sales will increase from $4.7 billion in 2010 to $10.7 billion in 2014 – an annual average increase of 22.5 per cent. This will represent 6 per cent of the total value of all book sales in 2014.

 In the United States, the value of ebook sales is projected to increase from an estimated $2.6 billion in 2010 to $4.8 billion in 2014 – an annual average growth of 16.4 per cent.

 In the United Kingdom, the value of ebook sales is projected to increase from an estimated $82 million in 2010 to $500 million in 2014 – an annual average growth of 57 per cent.

 In Canada, the value of ebook sales is projected to increase from an estimated $77 million in 2010 to $154 million in 2014 – an annual average growth of 19 per cent.

 In New Zealand, the value of ebook sales is projected to increase from an estimated $11 million in 2010 to $35 million in 2014 – an annual average growth of 33.6 per cent.

 The factors that are likely to slow or hasten the growth of the ebook market in Australia include: – the state of the Australian economy – consumer preferences – ereader penetration – availability of ebooks – potential substitution of print books for ebooks.

 Studies in Germany, Greece and Turkey have shown that the ebook market has not cannibalised the print book market but that in some instances, the growth of ebooks has driven the growth of print books.

 Surveys in the United States show that only 13 per cent of ebook readers were not planning to buy a printed book over the next 12 months.

 A significant but unrepresentative sample of Australian readers who responded to the call for public submissions to the Book Industry Strategy Group stated their desire to continue to see and use the printed form of the book.

 Industry experts believe that both printed and ebooks will coexist and only in certain cases, such as special interest or travel books, will the printed editions be replaced by the digital editions.

 In May 2011, Amazon reported that less than four years after introducing Kindle books, amazon.com customers are now purchasing more Kindle books than all print books – hardcover and paper – combined.

 PricewaterhouseCoopers concludes that, in the short to medium term, ebook sales are likely to expand the total market for books and only slightly cannibalise print book sales; however, the long-term future for print books remain uncertain.

3. The potential size and structure of the Australian digital and printed book markets, taking into account (a) demand from individuals, libraries, government agencies, and research, educational and cultural institutions; (b) the needs of the aged and people with disabilities; and (c) the needs of regional and remote communities.  The total book market in Australia is expected to grow to approximately $2.8 billion in 2014, 24.6 per cent (or $700 million) of which will comprise ebook sales. – Of this $700 million, $500 million will be trade ebook sales (representing 25.7 per cent of the total trade book market).

BOOK INDUSTRY STRATEGY GROUP 117 – $200 million will be educational ebook sales (representing 21.4 per cent of the total educational book market).

 The market for print and ebooks is likely to increase in the short to medium term, although the ebook market is likely to grow at a much faster rate than the market for print books.

 Australians have shown a willingness to adopt digital book technology, and there is a sizeable demand for ebook readers in the short to medium term. The TNS Global Survey revealed that for those who had previously purchased an ebook, 40 per cent would prefer to purchase another ebook version, 31 per cent would prefer a printed version, and 24 per cent would purchase both.

 The market for digital books is likely to increase with generational change. The TNS Global Survey showed that of all the respondents who purchased an ebook in 2010, 51 per cent were aged between 18 and 34 years old.

 The availability of ebooks in Australia may slightly constrain the market for print books in the short to medium term.

 Demand for ebooks will likely expand the total volume of books purchased in Australia, but also lead to a slight reduction in the value of print book sales.

 The market for digital books is projected to grow to approximately a 25 per cent share of the Australian book market by 2014.

 Based on the findings from the public submissions as well as the research reports, much of this growth will occur in educational institutions and libraries.

 However, trends showing the increased uptake of ereaders, greater access to the internet, and greater use of ecommerce by individuals also point to growth in ebook purchases.

 The results of the public submissions have revealed considerable benefits to a range of consumers (individuals and organisations) of ebooks over the printed book. – Government agencies and research institutions already have a high uptake of digital material and this is likely to continue. – Libraries see benefits of ebooks in greater accessibility and better solutions for disabled and visually impaired readers. – Educators see benefits in greater access for students in regional and remote locations and benefits for distance education. – Vision Australia, which represents approximately 300,000 Australians, sees considerable benefits in ebooks for the visually impaired. – The Association of Independent Retirees notes that retirees overwhelmingly prefer print books but remarked that retirees who live in remote locations, who do not have physical access to a library, or those who are no longer able to drive, may prefer an ebook.

 While the book market is expected to show overall growth, it is likely that there will be changes in the structure of the book industry arising from digitisation of content delivery. These include the following: – The number of authors could increase if the self-publishing business model is widely adopted. However, unless the overall incentives to create increase, the impact of self-publishing is likely to be small, therefore resulting in very little growth in author numbers. – If the current regulatory environment remains, publisher numbers are unlikely to be negatively affected by ebooks. This, however, depends on the rate of adjustments made by Australian publishers to the new digital environment. In the Copyright Agency Limited survey of May 2011, only 15.3 per cent of publishers had

BOOK INDUSTRY STRATEGY GROUP 118 a ‘clearly defined digital strategy’. – There is likely to be further consolidation in the number of print book distributors and an increase in digital distributors. – Technology firms that are involved in digital conversions and support for publishing are likely to become more integral to the supply chain. – Significant stress will continue to be placed on book printers. However, there is likely to be a significant increase in print-on-demand facilities, such as US firm Ingram’s Lightning Source . – An expanded ebook market is likely to place great stress on bricks-and-mortar booksellers and further reduce the number of physical bookstores in Australia. This trend has commenced, with the closure of a number of Borders and Angus & Robertson outlets.

4. How the supply chain for trade, educational, scholarly, scientific and technical books has been and will be affected by digital technologies, taking into account the impact on authors, publishers, printers, wholesalers, retailers and consumers.  Digital technologies have changed every sector of the book supply chain and facilitated a shift in the balance between supply and demand. Consumers are now empowered to influence the format, price, choice and availability of book titles through use of online retailers.

 While globalisation and digitisation benefit consumers, they bring significant challenges for industry. These include competitive pricing, protection of intellectual property rights, piracy, territoriality, lack of industry skills, changing business models, market domination by international operators and format interoperability.

 Ebook sales are likely to expand the total market for books in Australia and may slightly reduce print book sales in the short term. The long-term impact of ebooks is yet to be determined.

 Digital technologies enable access to backlist titles through print-on-demand production, thereby providing new opportunities across the supply chain.

 Younger consumers are more likely to embrace digital technologies, and influences such as social media, instant demand, media consumption patterns and changing reading patterns are likely to increase in significance over time.

 Digital technologies reduce barriers for people with disabilities and those living in regional and remote areas in accessing book titles. However, transition to digital books brings obstacles for consumers, such as the myriad of ebook formats, device interoperability, high start-up costs, lack of available titles in Australia and ebook pricing models.

 The digital learning environment provides greater access, more certainty of availability and faster delivery for teachers and students. Issues emerging for the acquisition of digital material in libraries and educational institutions include equality of access, affordability, copyright and digital rights management.

 Digital delivery enables authors to self-publish and market themselves online, bypassing the traditional book supply chain. However, author set-up costs have increased, and the expectation of electronically submitted works and visibility in the crowded online environment present many challenges for Australian authors and publishers.

 Digitisation and globalisation bring concerns for authors and publishers around protection of intellectual property rights, relevance of territoriality, digital rights management, piracy and remuneration.

 Trade publishers are increasingly moving to integrate digital and print book workflows to include metadata, content management, digital distribution and

BOOK INDUSTRY STRATEGY GROUP 119 marketing.

 Educational publishers have been producing digital content to supplement and integrate with print materials for over a decade, using XML tagging for indexing and repurposing content.

 High costs are borne by higher education publishers in developing digital material to supplement textbooks, staff training and labour, digital conversion and ecommerce technology. However, as universities increasingly offer online education, customised textbooks are being digitally printed, with print on demand for ‘top-ups’.

 Commercialisation has eroded the publication of scholarly monographs. Most Australian journals are produced and sold commercially and are only available digitally. Higher acquisition costs have reduced the capacity of libraries to purchase scholarly monographs, to the detriment of university presses.

 Digital technologies have reduced the capital costs for small presses and enabled increased productivity for this sector.

 Publishers and retailers are facing increased pressure to supply books in multiple formats and the integration of digital with print production is costly.

 Book marketing has universally been digitised across the educational, scientific and technical publishing sectors.

 Book printers are diversifying and providing digital archiving services and ordering systems. Larger printing firms offer both offset and digital printing options. While ebook production excludes printers, opportunities exist for digital and economical shorter-run printing.

 The digital publishing supply chain bypasses traditional distributors and printers but engages digital converters and new distribution models.

 Digital inventory systems can provide processing and warehousing efficiencies for distributors and booksellers. However, for these to be effective, metadata and coding must be standardised across the industry.

 Local retailers have to compete fiercely in the global market. Despite several Australian online-only booksellers enjoying rapid growth, 53 per cent ($150 million) of Australian 2010 online book purchases were from overseas booksellers.

 Operating costs are lower for online booksellers, which enables lower prices, convenience and comprehensive listings.

 Parallel importation restrictions benefit Australian authors, publishers and printers but constrain timely access to titles for booksellers. However, online sales enable consumers to bypass both the restrictions and Australian booksellers.

5. Options for encouraging efficiencies in the supply chain for printed books, integrating it with digital delivery of books on a global scale, and increasing the overall competitiveness of the Australian book industry. Research undertaken by the Book Industry Strategy Group has found that the competitiveness of the Australian book industry is negatively affected by the following:

 lack of cohesion and collaboration along the supply chain  a relatively inefficient print book distribution system  lack of a comprehensive digital distribution system that provides reasonable access for small booksellers

 uncompetitive postal rates within Australia and between Australia and external sources and destinations

BOOK INDUSTRY STRATEGY GROUP 120  the differential tax treatment of books sold by Australian booksellers and those by online overseas retailers who do not pay the GST

 the comparatively high cost of printing books in Australia compared to Asian countries such as China

 the lack of digital skills along the supply chain  the parallel importation restrictions, which curtail the choices open to booksellers and put them at a competitive disadvantage with overseas online retailers. The Book Industry Strategy Group has proposed a number of recommendations, which, if adopted in a strategy for the book industry, will help to integrate the print and digital book supply chain and improve the overall competitiveness of Australian books. These recommendations include: Recommendation 1: That the Australian Government establish a Book Industry Collaborative Council with membership from all parts of the book value chain, which is tasked with implementing the industry reform priorities identified by the Book Industry Strategy Group and other issues as they emerge. Recommendation 2: The Book Industry Strategy Group urges the Government to recognise the competitive disadvantage being imposed on the Australian book industry as a result of GST inequity. In recognition of the broad range of considerations for government on this issue, the Book Industry Strategy Group offers three alternative recommendations:

a That the Government take appropriate action to abolish the 10 per cent GST on books purchased in Australia, noting that in the United Kingdom and Ireland, and in most OECD member countries, books are either exempt from VAT or taxed at a reduced rate or b That the Government provide greater equity in competition for Australian retailers by applying the 10 per cent GST on books sold by overseas retailers to Australian consumers or c That the Government recognise the disadvantage placed upon Australian booksellers as a result of GST inequity when competing with international online retailers and support the Book Industry Strategy Group’s suite of recommendations. Recommendation 3: That the Government initiate negotiations with the Universal Postal Union to secure amendment of the appropriate postal treaties to provide more equitable and competitive pricing for print post delivery, where Australia is currently severely disadvantaged. Recommendation 4: That the Australian book industry (authors, printers, publishers and booksellers) formalise an agreed, industry-wide code of practice that will reduce the timeframe for retention of territorial copyright from 30/90 days to 14/14 days without the need to amend existing legislation. To support this, TitlePage will provide information to booksellers on the PIR status of individual titles. The code will be reviewed at the end of 12 months and subsequently at determined intervals to assess its effectiveness. Recommendation 6: That the book industry establish a goal of 48 hours turnaround for fulfilling Australian reseller orders. In seeking to achieve this, the Government should support the proposed Book Industry Collaborative Council in its task of improving the efficiency of the book distribution network through rationalisation, standardisation and consolidation, as its key priority over its first three years. Recommendation 7: That the Government provide funding of $5 million for the

BOOK INDUSTRY STRATEGY GROUP 121 development of the stage two TitlePage enhancement to develop the digital infrastructure required for an efficient, cost-competitive and secure online service to consumers that is comparable in promotion, range and functionality to that of the main offshore retailers. Recommendation 13: That the proposed Book Industry Collaborative Council develop a comprehensive skills strategy, which addresses training needs for all parts of the book supply chain as a matter of priority and that it then works with peak industry associations, employers and unions to progress implementation and ensure alignment with relevant industry training packages.

6. (a) How business models are likely to change in the digital environment; (b) how this is likely to affect business models for printed books; and (c) what can be done to facilitate these changes. The increasingly global nature of the book market and the impacts of digitisation are forcing all parts of the book supply chain to examine how it conducts its business. Changing business models are being driven by the wider options available to consumers and by new technologies. Examples of this are print on demand, which allows printers to play a stronger role in the distribution of books; and authors delivering content directly to consumers through self-publishing (especially ebased publishing). As the industry changes, pressure will increase on booksellers (unless they have the capacity to sell online); printers (who do not have a role in ebooks); and print book distributors (as volumes of print books decrease). Industry-wide changes are required to support authors, booksellers, printers, publishers and agents and so forth in addressing the opportunities and challenges posed by digitisation. Improvements should include: consolidating print book distribution to facilitate a speedier and more reliable distribution system; establishing an industry body charged with improving the supply chain efficiency; and establishing an industry-owned ebook wholesaler.

AUTHORS:

 Authors are generators of content and intellectual property for books of all types. For income, authors rely on publisher-paid royalties and advances against royalties, as augmented by government schemes such as Public and Educational Lending Rights schemes and through statutory copying licences administered by the Copyright Agency Limited.

 Authors have experienced a tightening of access to large and medium print publishers in recent years.

 For cost-saving and other reasons, such publishers have come to rely less on unsolicited manuscripts and ‘open door’ editorial policies in favour of working through literary agents, or designing and commissioning their own titles.

 With the arrival of digital self-publishing options, many authors are turning to their own resources to secure publication and remuneration, and so become a distinct business model of their own.

PUBLISHERS:

 With respect to the printed format of the book, many of the parties involved in the Australian book supply chain – publishers, distributors and retailers in particular – have built their business model around a mix of local production and importation in a small, dispersed market remote from its major suppliers.

 Many of the largest Australian publishing companies are offices of global conglomerates providing some that support of a business model where publishing

BOOK INDUSTRY STRATEGY GROUP 122 locally originated books alongside Australian editions of international titles while also directly importing books published elsewhere can add overall value to the business.

 The basic business model employed by publishers is to take the risk on an author’s work and to bring it to market. In addition, publishers seek to create further value by licensing the rights of authors’ works to other parties and purchasing the rights of international authors and publishers and then publishing those works exclusively in the Australian market. A number of large Australian publishing houses also engage in importing, exporting and distributing for third parties.

 This basic model is unlikely to change in the digital environment as some local publishers are ‘using the infrastructure already established by their international parent companies’ to manage the digital supply chain. Journalist Eloise Keating (2011) reports that Hachette Australia has chosen to manage its ebook business through the infrastructure of its international counterpart because of the large-scale investment associated with the production of ebooks.

 Other major publishers such as Pan Macmillan are also reported to be working with a conversion house to produce its ebooks and have been investing in new staff to work on the digital side of the business.

 Technology firms are increasingly becoming a part of the supply chain for digital books. For example, the software company SAP offers publishers a range of software products to manage the demands of digital publishing, including digital asset management, media sales management, subscription management, and tools to analyse how customers are using their content.

 These technology providers are also helping publishers to manage their online presence in an industry where social media tools are becoming increasingly important marketing tools.

 Keating also reports that small publishers are seeking to manage the sales and distribution of digital content in-house. For example, Text Publishing recently created a position of digital manager to take advantage of the emerging market. While a third party may be used for digital conversions that are released simultaneously with printed versions, the publisher manages the sales and distribution directly with retailers.

PRINTERS:

 Australian printers adopt either of two business models. Larger printers offer publishers a comprehensive suite of services based on offset and digital printing. These printers need to be responsive and have the ability to establish effective working relationships with publishers.

 The second business model is targeted at smaller book publishers and self- publishers. The suite of services tends to be more limited or specialised based on either offset or digital printing.

 Business models in printing need to change to create greater efficiencies. This may involve consolidation across the industry.

 Printers should also consider embracing print-on-demand as a business strategy as this will improve the responsiveness of book printers to consumer needs. Other advantages include the ability to print short runs, including back-list titles at a reasonable cost.

DISTRIBUTORS:

 Some book distributors (who are also publishers) seek to increase the volume of books distributed to add value. They increase volume by distributing the books of their parent company and for third-party publishers.

BOOK INDUSTRY STRATEGY GROUP 123  New business models for book distribution in Australia may include: – the continued rationalisation of existing distribution systems – the better use of digital technology to improve the tracking of printed and digital books – the development of capacity in Australia for the distribution of digital books.

RETAILERS:

 The business model adopted by booksellers directly reflects the type of channel that is used to retail books.

 Chain booksellers generate profit through economies of scale and through franchises. They attract customers by offering the promise of a range of titles.

 Independent bookstores seek to create value by offering a specialised range of titles, diversifying into associated goods, and engaging directly with the local community.

 Discount department stores focus on a limited range of mass-market books that they buy in significant volume and at considerable discount, while online booksellers generally enjoy lower operating costs than bricks-and-mortar bookstores and lower prices, convenience and a comprehensive listing.

 A number of booksellers are now seeking to sell ebooks and to sell print books online, but ebook sellers are hamstrung by a lack of the appropriate digital infrastructure to store and distribute digital books.

 Recent shifts in retail strategy are resulting in Australian online merchants moving to shipping systems where stock is warehoused offshore and shipped on demand, rather than utilising more expensive domestic channels, such as Australia Post. This trend is being driven by an increase in offshore retailers attracting Australian consumer dollars by reducing or eliminating shipping costs, thereby stifling competition in the local retail sector.

 A few retailers may also consider print-on-demand as is being offered by Campus Booksellers.

7. Opportunities for the Australian book industry to participate more actively in the global marketplace for printed and digital books over the next decade, including by creating, adopting, and using new technologies.  The value of Australia’s book exports increased in nominal terms by an annual average of 3.6 per cent over the decade 2001–10 and there are opportunities for the Australian book industry to continue to increase the value of exports.

 Australia’s English-language heritage gives it an important advantage in global markets, as books can easily be consumed by readers in the United States, the United Kingdom and Canada, as well as the vast number of readers in other countries who read in English.

 In addition, Australian book producers have access to two of the fastest growing global markets – India and China – with GDP that is projected to grow by an annual average of between 8 and 10 per cent over the next five years. Both countries also have large numbers of English speakers, many of whom received their education in Australian institutions.

 Educational publishers have been successful in forging exports to Asia–Pacific countries and the United States. There are opportunities to continue to grow these markets and forge new ones in Africa and Asia.

 Ebooks and online retailing give Australian book producers access to a global market while negating the traditional costs associated with Australia’s location in relation to major global markets.

BOOK INDUSTRY STRATEGY GROUP 124  Ebooks open an opportunity for Australian authors to sell their rights globally as it becomes more difficult to track and manage territorial restrictions.

 Australian publishers may seek to enter into agreements with international publishers to share global rights.

 Australian book producers must improve their competiveness and efficiency, particularly in the speed and cost of delivery, to take advantage of global export opportunities for the online sale of print books. This may involve negotiating postal deals with Australia Post.

 To participate effectively in the digital online market, Australia must develop the appropriate infrastructure to deliver digital books with correspondingly aggressive marketing of Australian-produced material.

 Opportunities to market Australian-produced material must be pursued through social networking sites along with other traditional marketing media.

8. How existing Commonwealth programs and activities can be refocused to support the industry’s adaptation to new technologies. The Book Industry Strategy Group has identified legislation and a number of Australian Government agencies, programs and activities that may assist the industry in adapting to new technologies. These have been reflected in the recommendations and include:

 the Copyright Act 1968, the Copyright Digital Amendment Act 2000, and the Copyright Amendment Act 2006

 the Income Tax Assessment Act 1997  Austrade’s suite of export support programs  Public Lending Rights and Educational Lending Rights schemes

 the Digital Education Revolution  statistical collection by the Australian Bureau of Statistics

 Australia Post  the Literature Board of the Australia Council for the Arts

 small business development programs  Skills Australia and the National Workforce Development Fund.

BOOK INDUSTRY STRATEGY GROUP 125 Abbreviations and acronyms

ABS Australian Bureau of Statistics AM Member of the Order of Australia AO Officer of the Order of Australia BISG Book Industry Strategy Group CEO Chief Executive Officer CPI consumer price index ebook electronic book ELR Educational Lending Rights ereader electronic reader GST goods and services tax ISBN International Standard Book Number ISP internet service provider OECD Organisation for Economic Co-operation and Development PDF portable document format PIRs parallel importation restrictions PLR Public Lending Rights PwC PricewaterhouseCoopers TAFE technical and further education TOR term/s of reference VAT value-added tax XML Extensible Markup Language

BOOK INDUSTRY STRATEGY GROUP 126 References

Reports commissioned by the Book Industry Strategy Group provided the main source of data for this final report. Extracts from these sources have not been individually referenced in the body of the report. The reports listed below are available on the website of the Department of Innovation, Industry, Science and Research. Department of Innovation, Industry, Science and Research 2011a, BISG research findings: Australian books in the digital era. ——2011b, Review of public submissions. Eichhorn, Peter 2011, Book distribution research project. Lee, Jenny 2010, Digital technologies in Australia’s book industry. Neville Freeman Agency 2011, Final analysis report, stakeholder workshops. PwC (PricewaterhouseCoopers) 2011, Cover to cover: A market analysis of the Australian book industry, prepared for the Department of Innovation, Industry, Science and Research, May.

Other sources Accenture 2001, Ad rem – The Australian book industry: Challenges and opportunities, Australian Publishers Association and Printing Industries Association of Australia. ACMA (Australian Communications and Media Authority) 2011, Implications of research into consumer issues, consultation paper 4. Australian Bureau of Statistics 2009, Arts and culture in Australia: A statistical overview, cat..4172.0 no. Bilton, Nicholas 2010, I live in the future & here’s how it works, Crown Business, New York. Carr, Nicholas 2010, The shallows: What the internet is doing to our brains, W.W. Norton & Co., Inc., New York. Clayton, Janet & Travers, Mary 2009, Arts plus: New models new money, Centre for Social Impact/Arts Queensland. Cultural Ministers Council 2008, Building a creative innovation economy: Opportunities for the Australian and New Zealand creative sectors in the digital environment, report from the Cultural Ministers Council Creative Economy Roundtable, February. Deloitte Access Economics 2011, The connected continent: How the internet is transforming the Australian economy, Google Australia Pty Ltd, August.

Doidge, Norman 2010, The brain that changes itself: Stories of personal triumph from the frontiers of brain science, Scribe. Dyson, Freeman 2011, ‘How we know’, New York Review of Books, www.nybooks.com/articles, March. Epstein, Jason 2011, ‘Books: Onward to the digital revolution’, New York Review of Books, www.nybooks.com/articles, February. Ernst, O., & van der Velde, W. 2009, ‘The future of eBooks? Will print disappear? An end-user perspective’, Library Hi Tech, 27 (4). Este, Jonathan, Warren, Christopher & Murphy, Flynn 2010, Life in the clickstream: The future of journalism, Media & Entertainment Alliance, December. European Commission 2011, ‘VAT rates applied in the member states of the European

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