THE 1957 NET BOOK AGREEMENT. ARE BOOKS STILL DIFFERENT IN 19931 AN INVESTIGATION.
by
James Dearnley
A Master's Dissertation, submitted in partial fulfillment of the requirements of the Master of Arts degree of the Loughborough University of Technology
September 1993
Supervisor: Professor J.P.Feather Department of Information and Library Studies
© J.A.Dearnley, 1993. Table of Contents
INTRODUCTION 1
CHAPTER ONE.
CHANGING OR UNCHANGING? PUBLISHING AND BOOKSELLlNG 1962-1992.
1.1 Introduction 5 1.2 Statistical sources. The problems 5 1.3 The publishing industry 1962-1992 6 1.4 Tities published 7 1.5 Publishers sales 8 1.6 Price indices 9 1.7 The bookselling trade 1962-1992 11 1.8 Bookshops - key data 12 1.9 Summary 13
CHAPTER TWO.
RESALE PRICE MAINTENANCE AND THE NET BOOK AGREEMENT.
2.1 Introduction 23 2.2 Resale price maintenance - an overview 23 2.3 Resale price maintenance and the book trade 1829-1940 25 2.4 The Net Book Agreement explained 27 . 2.5 Resale price maintenance & UK law 1895-1962 29 CHAPTER THREE.
ECONOMIC ASPECTS OF THE NET BOOK AGREEMENT.
3.1 Introduction and background 33 3.2 The Restrictive Trades Practices court 1962 34 3.3 The RPC judgement examined. The favourable Judgement 36 3.4 Criticism of the Judgment 39 3.5 Title production and consumer detriment 42 3.6 Book prices 43 3.7 Stockholding bookshops 45 3.8 Summary 48
CHAPTER FOUR.
BACK IN COURT: THE NET BOOK AGREEMENT, UK LAW AND EC LAW.
4.1 Introduction 52 4.2 The Net Book Agreement and UK law 52 4.3 EC law 55 4.4 Background 56 4.5 The Net Book Agreement and EC law 58 4.6 The aftermath 62 4.7 Summary 63 CHAPTER FIVE.
FOREIGN PERSPECTIVES.
5.1 Introduction 68 5.2 Belgium 69 5.3 Sweden 70 5.4 Australia 72 5.5 United States 76 5.6 Summary 78
CONCLUSION 82
REFERENCES 86
APPENDIX ONE
The 1957 Net Book Agreement. 101
APPENDIX TWO
Articles 85(1) and 85(3) of the EC treaty 104 List of Figures.
FIGURE 1. Titles published 1962-1991 17
FIGURE 2. Publishers sales 1972-1991 18
FIGURE 3. CSO price index 1962-1981 19
FIGURE 4. Comparative price indices 1981-1989 20
FIGURE 5. USA I UK comparative statistics 1961 21
FIGURE 6. Bookselling key data 1976-1990 22
FIGURE 7. Booksellers and stationers 1986-1990 22 ACKNOWLEDGEMENTS
My grateful thanks go to my supervisor, Professor J.P.Feather for his opinions and advice on this thesis and to Mr J.W.Sumsion for allowing me to use his archive on the Net Book Agreement.
I would also like to extend my thanks to my mother and father, for their support during this course. ABSTRACT
The 1957 Net Book Agreement is the last surviving example of resale price maintenance in the retail trade. It was last examined at the 1962 Restrictive Trades Practices court, which concluded that the agreement was in the public interest and that 'books are different' from other commodities. It concurred with the Publishers Association that abrogation would cause fewer titles to be published, fewer bookshops and higher prices for books.
In the thirty years since the judgment the bookselling and publishing trades have changed in terms of their structure and practices, yet the Net Book Agreement remains in place. This thesis will examine whether the 1962 decision can be still viewed as relevant to the 1992 trade.
To investigate, the thesis is split into five sections; an analysis of changes in the bookselling and publishing trades between 1962-1992; resale price maintenance and the Net Book Agreement; the economic arguments surrounding the judgment; the relationship between the agreement and UK and EC law, and the experience of counties which have abolished RPM on books. It will conclude that the evidence provided to the court was unsound and that the detrimental effects predicted at the court would not necessarily happen if the agreement was abolished. INTRODUCTION
On the 30th October 1962 the Restrictive Trades Practices Court concluded that the 1957 Net Book Agreement (NBA) did not infringe the 1956 Restrictive Trades Practices Act. In his summary of the proceedings, Mr Justice Buckley concurred with the Publishers Association that abrogation of the NBA would have three direct consequences on the book trade:- i. Fewer and less well equipped stockholding bookshops. ii. More expensive books. iii. Fewer published titles.
The NBA was found to be in the public interest. In the judgement Mr Justice Buckley, alluding to the problems publishers faced in producing books for which there was no guaranteed market commented in his summary:-
"Books are different...may be accepted as true in two respects : for, first, no two literary works are the same or alike in the way in which or the extent to which two oranges or two eggs may be said to be; and, secondly, the production and marketing of books involve problems that are different from those which arise in connexion with most other commodities." (1)
Consequently, the NBA was exempted from further investigation by the Restrictive Trades Practices Court, it has retained this exempted status through three changes to Restrictive Trades Practices law in 1964, 1968 and 1976, it remains as the last bastion of resale price maintenance in the retail trade.
1 It remains to be seen whether the NBA will survive to celebrate its centenary in the year 2000 either in its present form or at all, events in recent years point toward its downfall or a substantially altered agreement; it has been attacked head-on by one major book chain and one major publisher; it has been attacked by the European Commission and it is coming under increasing attack from the growth of book clubs.
So, in 1992 has the book trade changed sufficiently in the thirty year period since the judgement to make the decision outdated? Were the conclusions reached by the court valid in 1962, and can they be viewed as valid in 1992? Do other country's experiences of RPM on books support the conclusions made by the court in 1962? Are books still different in 1992?
To answer these questions, the thesis is divided into five sections:
Chapter one will examine trends in the publishing and bookselling trades between 1962-1992, in particular it will analyze the growth of titles published, publishers sales, book prices during the period and key data on the bookselling trade.
Chapter two will give a brief overview of resale price maintenance (RPM), the book trade's relationship with RPM since 1829, an explanation of the 1957 Net Book Agreement and a summary of UK law relating to RPM up to 1962.
Chapter three will examine the 1962 Restrictive Trades Practices court, how the agreement was defended and criticism of the court's judgement. It goes on to examine the book trade between 1962 and 1992 and whether the NBA continues to be in the public interest.
2 Chapter four will examine the NBA's survival through more stringent RPM laws in the UK and will analyze the European Commission's ruling on the NBA and EC interstate trading laws.
Chapter five will examine the experience of three countries who have had experience of abolishing RPM on books and will analyze the United States book trade, which has never had RPM on books.
I
3 REFERENCES
1. Barker, R.E. & G.R. Davies. Books are different, 1966, p. 4.
4 CHAPTER 1
CHANGING OR UNCHANGING? PUBLISHING AND BOOKSELLlNG 1962- 1992.
1.1 INTRODUCTION
This chapter will examine trends in the publishing and bookselling trades, providing brief overviews of the respective trades between 1962-1992. In addition, it will analyze four major developments over the period:- i) The number of titles published. ii) Publishers sales by category. Hi) Book price indices. iv) Key data on the bookselling trade.
1.2 STATISTICAL SOURCES: THE PROBLEMS
Observation of trends between 1962 and 1992 is made difficult, and in many cases impossible by the lack of statistical measures which encompass the whole period. In 1992 the trade is well provided with a large range of statistical data from different sources. Material in this chapter comes from a variety of sources; The Department of Trade and Industry publishes the twice yearly Business Monitor PO 4753, which gives total sales in the industry and the Retail Enquiry SDA 25 annually, which collects 'key data' on bookselling, including number of outlets, turnover and gross margins. The Department of Employment publishes the index of Retail Prices, based partly on consumer expenditure on books. In addition, 'The Bookseller' publishes the 'Bookseller Price Index' on a six monthly basis, based on Whitakers list of new books and
5 new editions. The Publishers Association (PA) collects data for its PASCS (Publishers Association Collection Scheme), which is used to calculate price indices. In addition, the 'Book Report', published by Euromonitor, 'Book Facts' published by Book Marketing Ltd, and the 'PA Book Trade Year Book' all draw together statistics from the various sources and present them on a yearly basis (except Euromonitor, which is bi-annual).
1.3 THE PUBLISHING INDUSTRY, 1962-92
Evidence given to the 1962 Restrictive Practices Court claimed that 1,750 publishers operated in the UK, leaving a further 2,000 more 'fringe' publishers who published intermittently (1). By 1992 the figure had climbed to an estimated 15,000 publishers, of which there are an estimated 13,000 'fringe' and 'vanity' publishers, who publish intermitantly or on a one off basis (2). In 1992 there were 400 members of the Publishers Association (PA)(3), compared to an estimated 360 in 1961 (4).The reason for the slight growth in numbers is probably due to the more concentrated nature of the trade in 1992. Publishers do not have to join the PA in order to sell books, they are also allowed to charge net prices whether they are members or not, a good example of this is HMSO.
Market share figures for 1962 are unavailable, but by 1992 four firms account for 50% (5) of the total domestic book trade, with 70% of books published by ten publishing houses (6). The top four firms are multi-nationals, comprising of HarperCollins, Reed International, Pearson Group and Random House. Reed International, which includes Heinemann and Butterworths has been the only group to challenge the NBA, it was responsible for de-netting parts of its list for Pentos's assault on the agreement in 1991.
6 The industry has not developed vertical integration over the period, Oxford University Press, who were the largest printer/publisher single firm in the 1960's sold their printing business in 1985, others noted at the Restrictive Practices Court have folded during the period. Horizontal integration has increased, with Harper Collins being owned by Rupert Murdoch's News International group, who have controlling interests in BskyB and 'The Sun' amongst others. Technology in the form of teleordering and desk top publishing have become prevalent in the 1980's, though neither achieved the level of popularity that was forecast.
1.4 TITLES PUBLISHED 1962-92
It becomes apparent when studying figure 1 that the number of books published in Britain has risen steadily since Whitaker's started the index in 1947. 1991's total of 67,704 books represents a 296% increase on 1947 output and a 169% increase between 1962-91 , figures for 1992 are not yet available. The index is one of only a few sources which run throughout the period, but it contains some flaws. Different editions of the same book (which might include hardback, trade paperback, paperback and book club editions) are all counted separately, inflating the total. From 1985 onwards the figures were re-calculated to limit titles being listed on next years total due to late notification by publishers. As a result, post-1985 totals would be slightly higher by an average of 5,000 titles if calculated to pre-1985 standards.
Comparisons between the UK's title output and other countries is made difficult by different methods of collecting information, more reference will be made to this problem in chapter 5. It is notable that the percentage of new titles to new editions/reprints has remained more or less stable during the period, though obviously the overproduction noted by Godfrey Faber in 1960 has continued to
7 rise dramatically. Title production has increased by an average of 16% for every five years since 1950, which is roughly equivalent to the 3.3% increase per annum which Diana Barr predicted in 1972 for the output of titles (15).
1.5 PUBLISHERS SALES
Publishers sales are collected in Business monitor PO 4753, figure 2 shows five year totals from 1972 onwards, when this index was first expanded to collect data from printers and publishers. Publishers sales were collected by the Publishers Association between 1953-60 for defence of the NBA, but comparisons are almost impossible because:- a) the 1953-60 figures do not differentiate between hardbacks and paperbacks, b) they do not state how many publishers made up the sample, and, c) the categories of books measured are not directly comparable with those measured in PO 4753.
PO 4753 has changed considerably in format since 1972, coverage of firms has dropped from firms employing more than 12 people from 1972-83, 25 or more from 1983-90 and 50 or more since 1990, this was done ostensibly to reduce costs and time spent on form filling by publishers, though it now tends to reflect sales of the largest publishers.
Another major problem is the fact that the monitor does not take into account volume of sales, so whilst it is useful to see cumulative totals these are relatively meaningless without the associated actual increases and decreases
8 in books sold. It is apparent from the totals that fiction/literature/classics, along with scientific/technicaVmedical books have risen steadily in sales, though the three latter categories will have have risen because they are much more expensive on average than the fiction/literature/classics category, proving that without book volume sales these figures should not be taken at face value. It is also worth pointing out that the scientific and medical category will account for books which are almost entirely non-net, which points to the assumption that this sector would not be harmed too much by abrogation of the NBA.
Hardback/Paperback sales
The growth of the paperback, the increasing role of trade paperbacks as a middle man between hardbacks and paperbacks has become apparent between 1972-91. Paperback sales represent about a third of all books published in terms of value and about two thirds in terms of volume. The 1987 Book Trade year book listed the respective percentages of hardback/paperback sales based on Business Monitor PO 4753 information. Unfortunately this list was discontinued when the year book was gradually scaled down from a 236 page opus to 1992's 47 page summary. It remains to be seen whether paperback originals will take off in the 1990's and further reduce the margins between paperback and hardback sales, attempts by Heinemann and Secker and Warburg in the late 1980's met with disappointing results.
1.6 PRICE INDICES
It was argued at the Restrictive Practices Court that the NBA held prices down, and that prices could be expected to rise on abrogation. Analysis of book prices since 1962 paints rather a different picture. There are two main price indices,
9 one produced by the Publishers Association (PAScS) and one by the Bookseller, the Department of Trade and Industry's Book Price Index (BPI) was discontinued in 1986. Another index can be constructed from the CSO index, which has run from 1960 to the present. Each index has particular flaws, differences in compilation make comparisons difficult.
For example, the PAS CS data, whilst taking into account volume and price is based on revenue received by publishers, but, because discounts to individual shops vary there is lack of information on what the actual prices of books being sold are. The Bookseller index does not take volume of sales into account, its index is based simply on the price of books recorded per year divided by the total amount of books recorded. As a result for example, expensive medical books with short print runs and high unit costs are given equal parity with mass market paperbacks with long print runs and low costs. It can also be argued that the 'heterogeneity' of books means that comparison of Mills and Boon books with McGraw Hill's technical and educational books is worthless, as both serve entirely different markets. The CSO index is based on the expenditure on books compiled forthe Family Expenditure Survey, the large rise in book prices between 1962-87 is shown in figure 3, showing apparently that book prices have risen by 14.36% per annum compared with an average of 7.59% for the retail price index. This index, compiled by Fishwick to expose its alleged shortcomings was seized upon by Maher to substantiate his claims that 'book prices have doubled in real terms'. The main criticisms of this index was that the sample size was too small to be significant and it took no changes in volume into account, it was discontinued in 1986. In its favour, it was based upon prices paid in bookshops and was calculated on a similar basis to the RPI index.
Figure 4 shows the respective price indices from 1981-91 and their comparison with the RPI index, it can be seen that the CSO index and the Bookseller
10 Average Price Index comfortably outstrip RPI, with the Prima Policy and PASCS indices slightly greater than RPI. It can safely be argued from tables 4 and 5 that the NBA has not kept book prices down.
The various shortcomings of the price indices casts obvious doubts upon their use, this is confirmed by economists and other commentators using individual indices to back up their opinions on the NBA. Fishwick makes great use of . PASCS data to show that prices have remained below those contained in the RPI by using 'bundles' of books and calculating their price increases over a number of years. What he does not do is collect a broad range of books which reflect average price rises, criticism by Alien and Curwen of his estimates rested on the fact that 1985 'bundles' did not contain any mass market paperbacks, which have risen steadily in price compared to academic texts, which were slower to rise in cost.
1.7 THE BOOKSELLlNG TRADE, 1962-92
In 1962, it was estimated that 750 stockholding bookshops carried ranges of between 9-60,000 titles (7), with around 200,000 titles in print (8). The increase of titles in print to an estimated 500,000 in 1991 (9) has been matched with larger bookshops, Oillons average stock level is 100,000 titles, with their Gower . Street 'flagship' store in London holding 250,000 titles (10). The period has seen increasingly well designed bookshops and an increasing amount of 'quality' bookshop chains, which compete on title range, decor, ambience, and increasingly sophisticated customer order facilities for titles not in stock. The late 1980's saw takeovers of many of the multiples which had thrived during the decade, Sheratt and Hughes and Waterstones are now part of W.H.Smith, with only Waterstones retaining its original name. Hatchards, Claude Gill and Athena are now part of the Oillons chain, owned by Pentos.
11 It was accepted at the Restrictive Trade Practices court that if the NBA was abolished supermarkets would become involved in the trade, selling fast and bestsellers. In 1991 they accounted for only 3% of the total trade (11), but this figure will probably rise in the 1990's as supermarkets are beginning to move· more seriously into bookselling. Tesco have started to sell fastsellers with apparent success, my visit to their Nuneaton branch revealed impressive amounts of Catherine Cookson et al.
The period has seen the emergence of 'sale or return' taking some of the risk . out of buying books, but with the proliferation of titles in print this has become necessary for publishers, who need to encourage booksellers to stock a good range of their books. Book distribution remains slow, the 1991 average of eleven days remains on a par with 1961 totals (12), though the advent of telesales with 48 hour delivery for large bookshops has become popular in the 1990's. Stock control has become easier with the introduction of EPOS (Electronic Point of Sale) systems in larger bookshops, which allow inventory control and customer ordering from single terminals.
Book clubs have increased their total market share from 1% in 1960, (13) to an estimated 10% share in 1992 (14). As with supermarkets it would appear that book clubs will continue to grow steadily in the 1990's. In July 1993 UK market leader Book Club Associates announced the opening of three shops for their members, also in July 1993 the American 'discount warehouse' firm, Costco, announced their intention to enter the UK market in 1994.
1.8 BOOKSHOPS - KEY DATA
Evidence presented to the 1962 Restrictive Practices Court suggested that there were between 8,068 to 12,000 book outlets in Britain (16), of which
12 "probably not more than 3,000 are bookshops as such" (17). Research by . Curwen suggested that by 1980 there were 36,000 outlets, of which "the real, or stockholding booksellers almost certainly totals fewer than one thousand, of which perhaps 90% are members of the BA"(18). Membership of the BA in 1992 numbers 3,144 (19), statistics contained in "Books are Different" do not clearly state the amount of members, it was estimated at 3,000 (20). The confusing array of data presented to the RP court on book outlets is reproduced in figure 5, quite how the court made any sense of these figures, or came to any conclusions about the real state the retail trade is open to question. So, once again direct comparison of 1962 with 1992 is made difficult and oblique.
The Retail Enquiry SDA 25 has been operating since 1976, covering key data from stationers, newsagents and booksellers, changes in coverage from 1986 have re-classified newsagents under a different heading, W.H.Smith are classified separately under 'large mixed businesses'. Data from 1976-91 is reproduced in figure 6, it includes newsagents from 1986-91 to provide continuous coverage from 1976. Figure 7 shows booksellers and stationers from 1986-90 separately. It can be seen that the trade remains largely based on single outlets, in 1986 single outlets sold £329 million books compared to £78 million for book chains with between 10-99 outlets, 37% and 9% respectively (21).
1.9 SUMMARY
1. The publishing industry has grown threefold since 1962 mainly due to . the growth of 'fringe' publishing. The increasing market concentration of the large publishers is reflected in total membership of the PA, which has only forty more members in 1992 than in 1962.
13 2. The bookselling industry has become more concentrated, bookshop chains have become increasingly major players in the trade. Supermarkets are beginning to expand as book outlets, and will probably continue to do so in the 1990's.
3. Book club membership has grown tenfold since 1962. Growth in this area in the 1990's would seem likely with Book Club Associates opening retail outlets and the probable entry of the American discount warehouse group, Costco.
4. Proliferation of new titles since 1962 have occured in all categories, particuarly in the scientific, technical and medical categories. The number of new titles published per year has increased by an average of . 3.3% since 1962, and looks set to continue on this level.
5. Book prices have risen on average per annum at up to twice the rate of inflation, this does not support the assumption made at the Restrictive Trades Practices court that the NBA keeps book prices down.
14 REFERENCES
1. Barker, R. & Davies, G. Books are different, 1966, p. 411.
2. Allan, W. & Curwen, P. Competition and choice in the publishing industry, 1991, p. 30.
3. Ibid., p. 30.
4. Barker, R. & Davies, G. ref. 1, p. 413.
5. Allan, W. & Curwen, P. ref. 2, p. 30.
6. Ibid., p. 30.
7. Ibid., p. 55.
8. Ibid., p. 55.
9. Ibid., p. 55.
10. Ibid., p. 57.
11. Publishers Association. Book publishing in the United Kingdom. Key facts 1989, 1989, p. 18.
12. Barker, R. & Davies, G. ref. 1, p. 733.
15 13. Ibid., p. 908.
14. Monopolies and Mergers Commission. Book Club Associates and Leisure Circle. A report on the merger situation, 1988, p. 58.
15. Barr, D. Trends in book production & prices, 1972, p. 3.
16. Barker, R. & Davies, G. ref. 1, p. 921.
17. Ibid., p. 411.
18. Curwen, P. The UK publishing industry, 1981, p. 50.
19. Booksellers Association. The Booksellers Association Annual Report 1992,1993, pp. 18-19.
20. Barker, R. & Davies, G. ref. 1, p. 921.
21. Book Marketing Ltd. Book Facts, 1991, p. 10.3.
16 Figure 1. Number of titles published. 1947-1991.
Total New Books New editions/reprints.
1947 13,046 10,605 2,441 1960 23,783 18,794 4,989 1962 25,079 18,795 6,104 1965 26,358 21,045 5,313 1970 33,489 23,512 9.977 1975 35,608 27,247 8,361 1980 48,158 37,382 10,776 1985* 52,994 41,254 15,484 1990 64,632 48,609 16,023 1991 67,704 49,939 17,765 1992 n/a n/a n/a /' * Totals calculated on a different basis from 1985 onwards. See text. Source: Curwen, P. The UK Publishing Industry, 1981, p. 19. Book Marketing Ltd. Book Facts 1991, 1991, p. 3.1.
17 Figure 2. Publishers Sales 1972-1991.
1972 1977 1982 1987 1991 HARDBACK: Bibles 5,256 10,282 11 ,395 15,700 8400 Reference 93,900 133,100 Sci/tech/med 38,754 56,976 102,465 91400 113,300 Acad/profess 82,500 88,600 Other adult non fiction 186,100 130,900 Fict/lit/clas 24,558 49,958 84,649 107,900 77,100 School txtbks 16,824 29,252 45,878 59,700 69,100 Childrens 17,221 26,756 44,287 63,500 72,800 Other 39,180 99,305 154,089
TOTAL: 141,793 272,349 442,763 700,700 603,300
PAPERBACK: Reference 17,700 22,200 Sci/tech/med 6,504 14,040 65,616 70,400 101,100 Acad/profess 45,100 84,200 Other adult 53,400 43,300 Fict/lit/clas 21,156 55,281 93,795 146,900 131,500 School txtbks 17,255 46,222 64,434 77,100 99,700 Childrens 5,724 10,798 14,570 44,400 51,500 Other 12,834 28,897 50,136
TOTAL: 205,266 427,768 731,314 1,155,700 1,226,800
Source: Department of Trade and Industry, PQ 4753, 1991 .
18 Figure 3. eso price index 1962-1981.*
CSO 800 Books
700
RPI 600
500
400
300
200
100
1962 1965 1970 1975 1981
* Source: Fishwick, F. The economic implications of the Net Book Agreement, 1989, p. 39.
19 Figure 4. Comparative price indices 1981-1989.
30
Bookprice index: #
BooheUer av.price $
Prima policy research +
150 PASCS~ Reta11 price index #
100
$ Source: Book Marketing Ltd. Book Facts 1991, 1992, p. 42.
+ Source: Allan, W. & Curwen, P. Competition and choice in the Publishing industry, 1991, p. 11. # Source: Fishwick, F. The economic implications of the Net Book Agreement, 1989, p. 41.
20 Figure 5. USA/UK Comparative Statistics, 1961. USA
Population. (1960) •...... 181,834,090 52,383,000 Title output: New Books ...•...... •...... 14,238 18,487 New .Edi tions •....•....•..•.•.....•. 3,822 6,406
Total ..••.•...... •..•....•.....• 18,060 24,893
Book outlets: All kinds ••.....•.....•...••...... • 9,236 112,000 (1) { .8,068 (2)
New booksellers .•.••..•.••...... • 5,183 18,068 (2) ? 3,000(3)
Per million capita comparisons: Titles: New Books ..•..•....•..•...... 78 352 New Edi tions .•...... ••.. 21 122 99 474 Book Outlets: All kinds •...... ; .••••...... 51 i229 (1 ) {154 (2) New booksellers .•..•...... •. 29 1154 (2) l 57 (3)
Book outlets (population served per outlet approx.): All kinds ...... •.... 19,700 4,365 (1) {6,500 (2) New booksellers ....•.•...... •.... 35,000 1 6,500 (2) l17,500 (3)
(1) This is the approximate number of accounts operated by Book Centre Ltd. (2) This is the number on the P.A. mailing list (3) This is the number of members of the B.A.
Source: Barker, R. & Davies, G. Books are different, 1966, pp. 921-922. 21 Figure 6. Bookselling Key Data 1976-1990. Booksellers, stationers and newsagents.
gross persons total margin of Businesses outlets employed turnover turnover (OOO's) (Em) 1976 3,655 4,656 28 323 36.1 1978 3,825 5,196 34 493 36.1 1980 4,780 6,325 35 694 35.9 1982 5,089 6,763 34 869 36.4 1984 5,823 7,606 36 1,094 35.3 1986* 5,925 7,746 37 1,250 37.6 1988 5,624 7,862 39 1,546 40.1 1990+ 6,763 9,899 38 1,998 44.3 1992 nla nla nla nla nla
* From 1986 onwards newsagents not included in this survey. These figures include newsagents to show general trend.
+ 'Benchmark' survey. Total SDA figures based on 20,000 firms, compared to 12,000 for all other years.
Source: Department of trade and Industry. Business Monitor SDA 25 Retail Enquiry., 1991.
Figure 7. Booksellers and stationers 1986-1990.
gross persons total margin Businesses outlets employed turnover of turnover (OOO's) (Em) 1986 2,567 3,175 16 669 36.9 1988 2,271 3,096 16 714 40.1 1990 2,323 3,495 18 880 44.3
Source: Department of trade and Industry. Business Monitor SDA 25. Retail Enquiry., 1991.
22 CHAPTER 2
RESALE PRICE MAINTENANCE AND THE NET BOOK AGREEMENT
2.1 INTRODUCTION
The NBA is the most famous example of resale price maintenance (RPM) in the United Kingdom, but the book trade has had an uneasy alliance with it over the last two centuries, current argument over the NBA revisits previous debate during the 1850s, 1890s and more recently examination of the NBA before the Restrictive Practices Court in 1962. This chapter will provide an overview of RPM, a history of RPM in the UK book trade since 1829, an explanation of the 1957 Net Book Agreement and a brief summary of measures taken by the Government to investigate RPM up to 1962.
2.2 RESALE PRICE MAINTENANCE - AN OVERVIEW.
Overstreet compares RPM to the course of religious wars, over time "different sects having more or less influence over the courts and the political arenas" (1). Looking back at the history of RPM on books this would seem to be a fitting comparison, with changing views in both the publishing/bookselling industries and governmental attitudes towards RPM. Arguments over RPM are also rife in the economics world, Overstreet notes that "both the RPM and anti-RPM missionaries have overstated their cases", and "both sides have provided minimal empirical support for their theological (sic) conclusions" (2).
23 Resale Price Maintenance (or vertical restraint), as practised within the NBA is restrictive, it eliminates price competition between bookshops, all books published as 'net' cannot be sold below the stated price except in special circumstances.(See section 2.4 of this chapter}. It stops discount bookshops from passing on lower distribution costs to the customer, effectively creating a barrier for low-cost discount bookshops selling net books.
RPM can be viewed from two perspectives, either as being pro-competitive or anticompetitive. The procompetitive view is that the NBA encourages the publication of books for which there is no guaranteed market and that it encourages booksellers to buy a wide range of books rather than individual fastsellers. The bookseller will also provide services such as customer orders and book tokens which do are not profitable but encourage book buying and further custom. The NBA is procompetitive because it does not allow low cost retailers (discount bookshops) to gain advantage from information given at full cost shops to the detriment of full cost shops. Commentators such as Bork (3) support this view, and argue that RPM has encouraged output, efficiency and consumer welfare in those industries who use it.
RPM can also be viewed as being anticompetitive, in that it encourages retailers with market power to coerce manufacturers into setting prices to the detriment of less powerful rivals, in effect RPM can be viewed as encouraging collusion. Several developments in recent years have drawn attention to the apparently collusive effects of the NBA; the European Commission's view that the PA's regulations on 'allowances' was collusive (4), and W.H.Smith's abortive attempt to secure 60% discounts from several major publishers in 1991.
24 2.3 RPM AND THE UK BOOK TRADE 1829-1940
Organised RPM on books was first applied to the book trade, mainly in London in 1829. It was enforced by the 'Booksellers Committee'. The 'regulations' were imposed by means of a 'stop list', under which "booksellers were to be denied supplies of new books after having been 'admonished of the evil' of underselling." (5). The 'regulations' lasted until 1852 when the Campbell committee ruled that the Booksellers Association (founded in 1848) were unlawfully imposing retail prices and in the interests of free trade RPM was abolished. The Booksellers Association disbanded after the decision. Booksellers proceeded to introduce discounts across their entire stock range, this was on average twopence in the shilling in 1850 and had risen to threepence in the shilling by 1890 (6). The compression of booksellers' margins led to repeated calls for RPM to be re-introduced to the trade in the 1880·s. In 1890, Frederick Macmillan introduced the first net priced book onto the market, bizarrely the "Principles of Economics" by the anti-RPM economist Alfred Marshall. It would appear that Marshall misunderstood that the book would not be discounted. Also in 1890 the London Booksellers' society was formed, it's major objective being the promotion of resale price maintenance in the book trade.
The slow move towards RPM in the 1890's was generally opposed by the publishing trade who were unwilling to give better trade terms to booksellers, some booksellers were opposed because the introduction of net prices would effectively destroy the 'odd copy' practice of giving away books with bulk orders. In 1895 the London Booksellers' society was expanded to include the whole country, being renamed the Associated Booksellers of Great Britain and Ireland (AB), a year later in 1896 the Publishers Association was formed. The AB "congratulated themselves that this was the direct outcome of their efforts" in
25 attempting to get the bookselling trade to honour the net system and calling on principle publishers to give better terms on net books to smaller bookshops. (7)
After two abortive plans the NBA was formed in 1899 with sixty three signatories from the publishers trade, it came into force on January 1st 1900. As with the 1829 agreement it was enforced by means of a 'stop list' against booksellers who would not uphold the agreement, this enforcement lasted through until 1957, when the NBA was slightly altered.
The Publishers Association in 1992 are firm advocates of the NBA, but in 1900 their mood was much different, their president in 1900, John Murray commented "we made it very clear to the booksellers that we did not enter on this step through any wish of our own - we should be content to let matters go on as they are" (8). The system grew slowly but surely in the period up to 1920, the initial effect was higher book prices, but this trend declined as the system became more widespread and began to encompass cheaper mass-market books. The system was retained due more to the initiative of the AB than the PA, who tended to reserve their efforts to investigating breaches of the agreement where advised to by the AB. The PA's stance changed after the setting up of the Joint Advisory Committee of publishers and booksellers in 1931, which allowed booksellers more power in enforcing the NBA and making recommendations on the agreement. 1931 marks the point where the NBA in effect became accepted by the two trade organisations, and there was a united front on the NBA.
The period up to 1930 saw the divergence of educational books from price maintenance and the beginning of organised book clubs in 1929. By 1939 the NBA had been adapted into much the same agreement which exists in 1992, incorporating the Library Agreement (1929), the 'regulations relating to allowances in respect of cheap editions, remainders, reductions in price and
26 revised editions' (1936), the 'Quantity book-buying scheme' (1937) and the 'Book Club regulations' (1939).
2.4 THE NET BOOK AGREEMENT EXPLAINED
Apart from stating that publishers are free to set books either net or non-net and the policing of the agreement by the Publishers Association, the NBA consists of 7 main clauses. The full text of the agreement is contained in appendix 1.
Clause i sets out the main provision of the agreement that "with certain limited exceptions, net books shall not be sold at less than their net prices." (9) 'Sale to the public' covers purchases made in bookshops, by direct mail and institutions. Bookshop staff are exempt from this, receiving 'courtesy discounts' normally ranging between 20-40%.
Clause ii allows discounting of books if they have been offered at full price for a year after ordering, taking into account that the bookseller has tried to return the book at cost price to the publisher and has been unsuccessful. This clause is not easily carried out, as different publishers have different criterion for how long their books should remain at full price and an understandable reluctance to accept large amounts of returns. This must be set against the fact that publishers expect bookshops to stock large quantities of new books in times of recession, as became apparent in the stagnant years of 1991-1992. Publishers such as Faber & Faber placed tight restrictions on orders, as I remember a book could not be returned if it was less than 3 months old but not more than 6 months old. Whilst this encouraged good stock control it caused friction between bookshops and publishers, occasionally orders to publishers were suspended until returns were accepted. Generally, slow moving stock and remainders have been offered in the bi-annual National Book Sale, but this has declined in
27 popularity due to the generally poor quality of books offered by publishers and the rise of bargain basement departments in large bookshops, comprising of stock which has not been accepted for return.
Clause iv of the agreement lists purchasers who "may benefit from a relaxation of the system" (10), this generally covers libraries, who since 1928 have benefited from 10% discounts on net books under the 'library license' provision. Libraries who benefit from this service must give free access to the public of books bought, booksellers or book wholesalers are nominated by libraries to provide the service. •
Clause v details various prohibitions on 'offering considerations in cash or kind which may be construed as breaches of the standard conditions'. This includes the provision that whilst it is legal to give away a net book on whiskey with a bottle of whiskey sold, it is illegal to give away a bottle of whiskey with a net book sold on whiskey, this being a 'consideration in kind'. Incentive schemes such as offering a third off a named book when purchasing another book are also banned, Dillons attempted to use this ruse on their 1991 Booker prize . promotion, albeit unsuccessfully.
Clause vi defines net books, net prices and 'the public', it details when and how a publisher can de-net, raise prices or lower prices.
Clause vii remained in force until July 1992, when it was amended following the Court of the First Instance's judgement that application of the NBA in Ireland was infringing article 85 of the EC treaty by restricting trade between member countries. The decision had been delayed four years by the Publishers Association appealing to the Court after the decision had been made by the European Commission in December 1988. In effect, the pre-1992 clause allowed British and Irish booksellers to compete with foreign booksellers on more or less
28 equal terms, the July 1992 ruling allowed Irish booksellers to discount net books imported from the UK. This ruling, and its implications will be considered in depth in chapter 4.
2.5 RPM AND UK LAW 1895·1962
At the same time as the AB was campaigning for resale price maintenance on books in the 1890's, other retail trades began to move toward RPM. The first to come into practice was the 'Proprietary Articles Trade Association', which introduced RPM to chemists goods in 1986, ostensibly to offer 'price protection' to that trade.
RPM became widespread between the two wars, particularly on consumer goods. Two government enquiries into RPM in 1921 and 1931 found in favour of the practice, it was claimed that RPM restricted inflation when demand was in excess of supply and on the other hand 'in times of plenty' it ensured all labour in manufacture and distribution "a fair rate of renumeration for the services respectively performed by them" (11).
The second world war brought a sea change in government opinion, the Labour government elected in 1945 sought to restrict, and in its last year of office in 1951 to completely abolish all RPM. Conservative victory in the election meant the proposed legislation was never passed. The 1948 Monopolies and Restrictive Practices Commission set out to investigate RPM, "seeing no justification for protecting those whose costs are high against their more efficient competitors or for maintaining a system which permits an excessive number of . retailers to persist" (12). The commission was also opposed to collective policies of RPM and collective enforcement of RPM, as in the NBA.
29 In 1956 the commission split into two distinct groups, the Monopolies Commission set out to investigate single firm monopoly conditions, and went on to examine suspected monopolies on cigarettes, electrical equipment and wallpaper, to name three. The Restrictive Practices Court set out to study RPM agreements which maintained an obligation for members of a group to enforce RPM, with the NBA apparently falling into this category it was duly brought before the court in 1962. The Resale Price Act of 1964, passed by the Conservative government formalized legislation against RPM, although decisions made by the respective courts would not be overturned unless material changes had taken place in the industries.
30 REFERENCES
1. Overstreet, T.R & Fisher, A.A. Resale Price Maintenance and distributional efficiency: some lessons from the past. Contemporary Policy Issues, 1985,3 (1), p. 43.
2. Ibid., p. 43.
3. Bork, R.H. The Antitrust Paradox. A policy at war with itself. Basic Books, 1978.
4. Commission of the European Communities. Commission decision relating to a proceeding under Article 85 of the EEC Treaty (IVI27.393 and 1v/27.394, Publishers Association - Net Book Agreements), 12 December 1988.
5. Taraporevala, R.J. Competition and its control, 1969, p. 16.
6. Ibid., p. 22.
7. Ibid., p. 24.
8. Ibid., p. 47.
9. Publishers Association. The Net Book Agreement. 1993, pp. 7-8.
10. Booksellers Association. The Net Book Agreement explained. 1989, p.3.
31 11. Yamey, B.S. Resale Price Maintenance. 1966, p. 253.
12. Ibid., p. 255.
32 CHAPTER 3
THE ECONOMIC ASPECTS OF THE NBA.
3.1 INTRODUCTION AND BACKGROUND
Curwen argues that "continuing justification for the NBA is not primarily . economic... books having a cultural, social and educational role" (1). He goes on to say that these have been the overriding factors in the continuation of the agreement, and that "price maintenance for books needs no other justification" (2).
But, argument over the agreement has primarily focused on the economic implications of abrogation, this is due in part to the following reasons.
The judgement of the RP court was primarily 'cultural', concentrating on the merits of RPM on books, the decision was based in part on overseas experience. The decision came two years before the per se banning of RPM in the UK, subsequently the agreement slipped through various laws banning RPM on the context that no material changes had happened since 1962 to cast doubt on the court's decision. The decision of the court provoked concern from economists, but this was in a period of almost universal distaste for RPM practices, commentators such as Yamey (3) were particularly scathing of the court's decision, more recently Alien and Curwen have adopted the same 'free trade' opinions and have been critical of the economic grounds for retention. Others, notably Fishwick and Marvel & McCafferty have taken a more lenient view of the NBA. There is little material which deals with the middle ground of perhaps retaining the NBA but with alterations.
33 This chapter will examine the RP court, the route which was taken in defending the NBA and criticism of that decision. It will go on to looking at the trade between 1962-92, and whether the NBA has worked in the best interests of the publisher, bookseller and consumer.
3.2 THE RESTRICTIVE TRADES PRACTICES COURT 1962
The 1956 Restrictive Practices Act prohibited collective enforcement of RPM; the NBA apparently fell into this category and was examined over a five week period between June 25th-July 27th 1962, the judgement was delivered on 30th October 1962. The case was marginally different from previous hearings. Although the NBA is an example of RPM publishers have the freedom to impose net prices on any book, at any price and are free to de-net titles, booksellers have the provision to sell net books at reduced prices in certain circumstances (ie the National Book Sale), and the library licence enables suppliers to supply libraries at a discount. It is also apparent that the court was more concerned with the desirability of RPM on books (hence 'Books are different') than the merits of the publishers' collective enforcement of the NBA.
The court judged that the NBA was not against the public interest, "it confers specific and substantial benefits on book buyers".(4) The Publisher'S Association based its defence on two of seven 'gateways' which had to be negotiated to satisfy the court that "removal of the restriction (NBA) would deny to the public as purchasers, customers or users of any goods other specific and substantial benefits or advantages enjoyed .. "(5). After the 'gateway' had been negotiated it was subject to 'balanCing' (or the 'tailpiece') in which the Registrar weighed up who was benefitting from the agreement and who was not. In this case "all classes of purchasers and users were benefited by the operation of the agreement and that the interests of none were thereby prejudiced" (6). The
34 defence was almost entirely successful, the only submission which the court rejected under section 21 (1) (f) was that export earnings could be expected to drop sharply upon abrogation. The court accepted wholly the defence of the gateway 21 (1) (b) in that it would probably cause the following:- a) Unavoidable price cutting. b) Price cutting would be on selected titles and would be occasional.
c) Stockholding bookshops would lose their library supply business to specialist library suppliers.
d) The effect of selective and occasional price cutting and a move from bookshops supplying libraries to specialist library suppliers would probably cause:-
i. Reduction in the amount of bookshops.
ii. Less variety, and less amounts of books stocked.
iii. Reduction in titles published, with probable casualties being books of "probable literary or scholastic value".(7)
iv. Booksellers would seek higher gross margins from publishers, the effects being 'injurious' to the book buying public and to booksellers.
e) The court accepted that abrogation would lead to higher book prices, but with reservations, it concluded that it would "affect the large majority of books and to a significant extent."(a). It was noted that "others would
35 make a different assessment, but that the evidence presented has certainly not satisfied us that on the balance of probabilities retail prices would fall" (9). f) The court rejected the claim that the NBA reduced the incentive to keep down costs and promote efficiency, (Especially in the distribution of books) claiming that "the competitive nature of the publishing industry forced publishers to be efficient in order to survive and because the small profit margin enjoyed by stockholding bookshops left them little latitude for inefficiency"(1 0). g) The court rejected the claim that the NBA kept book prices at unrealistically high prices, and that by protecting margins consumers were forced to pay more than they would upon abrogation.
3.3 THE RPe JUDGEMENT EXAMINED, THE FAVOURABLE JUDGEMENT
The 1962 RP court expected "tremendous ill effects" (11) to the book trade if the NBA was abrogated. It concurred with the Publishers Association that price reductions on selected titles on an occasional basis would result in the "infamous tripod" (12) of fewer bookshops, less variety of stock and a reduction in the numbers of titles published. The Publishers Association presented the court with the probable route which would cause the 'tripod', the court accepted this explanation.
Price reductions would force down the retailers' gross margin, in effect forcing the adoption of 'loss leaders' to spearhead the promotion and encourage . custom for other books in the shop. Many of the major bestsellers of the last
36 decade have been unexpected, (ie Country Diary of an Edwardian Lady, The Secret Diary of Adrian Mole) and as the NBA allows the retailer to take risks for a guaranteed gross margin, abrogation would make the bookseller take less risk on stocking large quantities of books. Abrogation could cause the development of a 'wait and see' attitude between retailers, who would judge the book's performance in other outlets before ordering copies themselves, they would not waste money stocking unwanted books. If a certain title was being discounted they would be even less likely to stock it in any quantity unless they could match the discount or actually afford to discount the same title. The implications of this vicious circle would cause fewer books to be ordered, lower levels of stock in bookshops and reduction in sales of particular titles, particularly those of "probable literary or scholastic value" (13). All these reasons were held to be to the detriment of the bookseller, who would either be forced to diversify into specialist fields and exploit 'niche' markets, or bankruptcy if they could not afford to compete on price cutting. Books which were published would probably be accompanied by less display material due to rising costs at publishers and the public would eventually become aware of rising prices in bookshops and either stop buying books or expect reductions more often. To counter lower sales booksellers would ask for greater gross margins, putting publishers under more pressure to raise prices. The benefitters from abrogation were assumed to be the supermarkets and department stores, who would stock books with an assured demand at discounted prices, presumably on a "pile 'em high sell 'em cheap" principal.
It is in the interests of publishers to sustain the size of the retail trade and to encourage newcomers to the trade, simply because the larger the market the higher the sales and the added inducements of giving less discount to new booksellers. The court accepted that the NBA guaranteed margins for small booksellers and that abrogation would have detrimental effects to the publishers. Less orders from booksellers would cause publishers to implement
37 low print runs on books which were not expected to be bestsellers, this would increase costs which would be passed on to the retailer and consumer in higher prices. This would in turn lead to "work of literary and scholastic value" (14) becoming casualties. Author royalties would rise as a result, the book market would shrink and both bookselling and publishing would become more concentrated. The court accepted that each of the effects noted above would "arise in sufficiently serious degree to make avoidance a substantial advantage" (15). In addition the court overruled the registrar on four other major points. Firstly, it held that the NBA encouraged efficiency in the publishing and book trades because the small retail margins would encourage them to be efficient. The court rejected the claim that the NBA kept book prices artificially high, though it held reservations on the future trends of prices if the agreement was abrogated. Libraries would try to force higher discounts from retailers or would transfer their business to specialist library suppliers, this was expected to lead to bookshops supplying libraries going bankrupt. As book prices were expected to rise upon abrogation the libraries would in effect be gaining higher discounts on higher prices, so in the long term they would gain no advantage, though in the short term they could be expected to seriously damage the book retailers. Because the NBA encouraged efficiency amongst booksellers it was felt acceptable for booksellers to retain their discounts irrespective of services offered to the public.
The acceptance of the Publisher's Association's defence of the NBA was met with jubilation in the industry, in effect they had upheld the agreement which had forced them into existence in the first place in 1896. But, the judgement was greeted with criticism from economists, the following section examines on what grounds the decision can be regarded as unsound.
38 3.4 CRITICISM OF THE JUDGEMENT
The RP court judgement was not based on any direct evidence of the effects of abrogation in the UK, the court based its attitude on price cutting on the Canadian book trade's banning of RPM on books in 1951 and the UK book trade prior to the NBA in 1900. As a result the judgement is based more on assumptions than actual precedents and so obviously has to be judged in this light.
In his summing up Mr Justice Buckley commented that "we are satisfied that the cessation of RPM for net books would be likely to produce results in this country broadly similar to those experienced in Canada" (16), though he qualified this with "the fact that social and commercial considerations in this country may differ in some relevant respects" (17). The evidence for the first statement was based on the evidence of the bookseller J.Hoare, who had owned a bookshop in Montreal between 1946-55. It was his assertion that "occasional and selective price cutting" (18) had caused an adverse condition to the trade in Canada after abrogation in 1951. The evidence given provided no concrete evidence on the state of the Canadian book trade, there was no reference to the amount of bookshops, the amount of titles published, average size of print runs or the volume and value of books sold. It was his description of the role of department stores and the more permanent price cutting used in supermarkets which led the court to believe that "this kind of thing could happen here"(19). The acceptance of foreign evidence before the RPM court was a first, as lack of data to support comparisons and the differences in trading practice (ie distribution, book imports) make such exercises pernicious and unreliable. But, the court obviously felt able to be innovative in accepting this evidence, and along with analysis of the British book trade before the NBA came into force in 1900 both formed the backbone of the court's favourable decision.
39 The court viewed the UK book trade before 1900 as being unstable due to general and permanent price reductions. Although books were published generally with a recommended retail price and were subject to discounts booksellers implemented the NBA to raise their gross margins, which were felt to be too low. As in the court's view price cutting in the 1960's would be "occasional and selective" there is no real comparison between the two periods. The central point of the judgement, based on Canadian experience was that occasional price cutting on selected titles would cause serious damage to the book trade. This points to the paradox of occasional discounting (with slight benefits to the consumer) causing tremendous ill-effects to the industry.(Completely against the consumer's interest). It could logically be expected that damage caused to the industry would be related directly to the amount of change incurred. Price reductions were generally promoted twice a year in Canada on titles which had an obvious appeal to customers, in this case the risks of discounting selected books which would sell would not seem to necessarily cause the ill-effects which the court predicted. In fact reductions could encourage customers who would not otherwise use bookshops to frequent them. Reductions on selected titles would also probably cause them to be more widely stocked, and so would benefit publishers with more sales and longer print runs. The promotion of bestsellers would not necessarily effect the sales of books of "probable literary or scholastic value" (20), since it is very unlikely that these would be used in price cutting promotions.
The court accepted that on abrogation "we feel no doubt that specialist library suppliers would probably be better to compete for such business than local stockholding booksellers" (21). This in effect says that library suppliers are more efficient at supplying books than booksellers, though the court did not delve any further into this matter. It also felt that libraries buying 1/10 of all net books and 1/20 of total book output (22) would seriously effect the trade, even though library suppliers had some (unquoted) proportion of the trade. It was not
40 readily apparent exactly what the effects to the book trade would be, as there was no data on what proportion of booksellers served libraries and what proportion of their trade was taken up with libraries. It held that on average the UK's booksellers had 1/8 of their trade with libraries, but as this takes no account of the size of bookshops it is impossible to see whether removal of that trade would put the retailer in jeopardy. Once again the court felt able to form opinions on the trade on little firm evidence, whilst estimates make no means of telling the actual magnitude of probable changes.
The court accepted that "there is no reason to expect high (price) elasticities to be a general characteristic of the market" (23). This point is contestable as some books will have inelastic demand, such as school textbooks, dictionaries and the Highway Code. Others, such as works by new unknown authors will be price elastic as there will be no certain demand for their works. New books produced in a saturated market, of which educational and business books are prime examples (see figure 2, chapter 1) will also be price elastic as they will have to sell in markets with established competitors. Authors such as Archer and Mayle will have relatively inelastic demand for their books, as people will tend to buy them on name alone.
A problem the RP court faced was that in effect there was no failsafe method of knowing what the exact effects would be to the trade of abrogation, and as a result the court's decision could be right or wrong. But it can certainly be argued that the RP court was based on spurious evidence and data, if this is accepted and the decision was unsound what does the agreement stand for in 1992?
The following three sections will examine the book trade between 1962-92 from the three 'tripod' aspects which would apparently lead to consumers' suffering upon abrogation, number of titles, book prices and the state of the bookselling
41 industry.
3.5 TITLE PRODUCTION AND CONSUMER DETRIMENT
The RP court held that in all probability the number of titles published on abrogation would fall, particular casualties being books of "scholarly and literary value" (24). In the last section my contention was that abrogation would not necessarily cause these books not to be published, as they would not be used for price promotions anyway. However, the promotion by Dent in 1992 of a cheap range of classics ranging from 20p to £1 (net) points to the fact that price cutting could be a success on books of literary value even though in this case the quality of the books in terms of printing and presentation was inferior to Penguin's established classics collection. The NBA has probably caused the . proliferation of titles seen in the table in figure 1, chapter 1, comparable figures for the United State's output shows that in 1990 53,446 titles were published compared to 63,980 in the UK, this in a market four times the size of the UK's (25). It is in the interests of publishers, booksellers and consumers to have a publishing industry which produces a large range of books, but it can be argued that the 1992 industry is plagued by overproduction and duplication of books which break no new ground and are often substitutes for available titles. An example of this can be seen in the science fiction and fantasy genres, where the vast majority of books almost blatantly copy 'worlds' thought up by Asimov or Tolkien, the potential for continuing re-cycling of plots seems endless. If abrogation did cause less titles to be produced it is arguable that the consumer would not be too much harmed by the large lack of near substitutes, narrowing of the market would allow publishers to produce larger print runs at lower cost to tem and consumers. It is also arguable that if less books were printed that books which were ground breaking would be more likely to be published, but on the other hand publishers would probably publish what they knew they
42 would sell.
Proliferation has caused there to be 500,000 titles in print in the UK in 1992 (26), as the average bookshop holds 20-30,000 titles it seems senseless to continue to publish in such quantity as bookshops will not have enough space to stock a fair selection of books available. Paradoxically, it might be the case that works of 'literary and scholastic' value are under more threat from the overproduction caused under the NBA than without it. Pointers to this are the continuing decline of 'literary' publishers such as Gollancz, who were finding extreme difficulty in selling their upmarket list of fiction and literary criticism during 1992. Faber and Faber have also fared less well in the 1990's, but have the safety net of royalties from 'Cats' to help subsidize their collection of poetry and fiction.
As a result it is questionable whether the NBA's abrogation would cause considerable detriment if title output dropped when it seems that with it in place the consumer stands little chance of ever seeing a good selection of those books in print and will statistically have little chance of finding a book at an averagely sized bookstore of 20-30,000 titles.
3.6 BOOK PRICES
Under the NBA book prices have risen faster than the retail price index, (see figure 4, chapter 1). When it is taken into account that the RPI does not include mortgages and poll tax costs the actual book price increases are probably well above RPI. Although over the period the industry has been able to control and lessen costs in book production (ie authors submitting their work on disk, saving publishers time and money on keyboarding), the proliferation of titles with small, expensive print runs coupled with a shrinking market during the last recession
43 has caused price increases. This can be laid at the door of the NBA, which has encouraged publishers to produce an ever growing output to a saturated market, the greed of some publishers has probably caused the job cuts and buy outs which have been seen increasingly over the last few years.
Selective price cutting would tend to be introduced on fastselling fiction and on popular technical books, the substantial increase in popularity for business books would make it a prime target. Price reductions would probably be balanced by selective increases on slow moving titles and books concentrating on specialist niche topics. In this case it can be argued that this would be in the consumers' best interest because the greater majority of buyers would stop subsidising a minority interest, hence lowering prices for the majority at the expense of the minority. This argument cannot take into account who buys books and how regularly, as the down side would be that the serious buyer of upmarket slow turnover books would be paying higher prices to subsidise more irregular purchasers of mass-market books. In effect abrogation of the NBA might not benefit 'scholarly and literary' works, it could offer the "best choice and value to the lowest common denominator, namely the buyer of pulp fiction" (27).
Whilst it is questionable to suppose that prices would drop on abrogation it can certainly be contested that the NBA has raised prices over the period, this is not in the consumers' best interest. It is worth noting that in 1962 the average paperback cost the equivalent of a pack of ten cigarettes, in 1992 the average price of ten cigarettes was £1.10, the average price of a paperback £4.99. This is all the more surprising when it is considered that cigarettes are subject to VAT.
44 3.7 STOCKHOLDING BOOKSHOPS
The period 1962-92 has seen the rise of two practices which were not prevalent in 1962, they are the almost universal rise of sale or retumand the increasing implicit discounting offered by book clubs and own brand books.
Sale or return removes the element of risk which accompanied book buying on an 'unseen' basis during the 1950's, it allows booksellers to take risks when buying stock and provides a safety net for inexperienced booksellers when buying books. With the increase in books published it is in the publishers best interests to provide sale or return, the bookseller is more likely to take the risk of stocking titles. It is a costly practice in terms of time spent re-packaging unwanted books, it ties up capital which could be put to better use and the cost of returning the books lies with the bookseller. With more titles being published during recession the amount of sale and return has increased, it is a waste but sadly necessary if publishers are to get their product onto the shelves.
The rise of book clubs and the growth of own-brand publishing have increasingly put the NBA in an incongruous position. In 1962 book clubs held 1% of market share, this had increased in 1989 to 11 %, with the Monopolies and Mergers Commission estimating a 12-19% share of the total value of books sold. The book clubs have much to lose if the NBA was abolished, consumers would probably be able to buy reduced titles cheaper in bookshops than through clubs. The clubs offer the reader the chance to buy new hardbacks (generally between 3-6 months old) at large reductions as 'sweeteners'. Beyond the opening offer they offer small discounts on a limited range of hardbacks, the club member also pays for postage, which further reduces the actual discount. It remains in doubt whether book clubs could survive abrogation, they would probably only appeal to those who had no easy access to a bookshop. But, evidence from the United States shows that book clubs, some of which operate
45 in bookshops have continued to grow even without RPM on books.
The other form of implicit discounting is the growth of 'own-brand' books, of which W.H.Smith has become the market leader. It is worth noting that own brand retailing on books has not reached the same levels as seen in supermarkets, though the one thing they do have in common is that they are generally not all original products. The PR court decision ostensibly helped to avoid concentration in the retail sector by upholding the NBA, this was done to protect a trade which was largely based on single outlet firms from the probable rise of supermarkets' selling books and the undercutting of existing outlets. The trade in 1992 is less diverse, it is more concentrated, W.H.Smith and Oillons account for 33% of the trade (28). In the cases of multiple bookshops, abrogation would probably not cause dramatic ill-effects as these firms generally are horizontally integrated, (ie the controlling companies have other profitable interests) and are robust enough to withstand price competition. Supermarkets have not claimed considerable market share under the NBA, this is due to the fact that they would generally require much larger sales per square foot than booksellers and could not afford to stock books which were not guaranteed bestsellers. The use of franchising for bookstores in department stores could point to future developments in supermarkets, which are increasingly turning towards the concept of one-stop shopping.
Price cutting could lead retailers going out of business where they are unable to compete on price reductions due either to low/negative profit margins or inefficiency. It can be argued that booksellers who do not pass on good services or any discernable benefits to their customers should not enjoy the guaranteed margins which the NBA gives them. In these cases the customer is paying higher prices to support inefficiency. This argument has been the most powerful amongst critics of the NBA, in that is has encouraged other
46 parts of the retail trade.
The RP court held that discounting would cause high cross-price elasticity of demand between outlets, that is discounting would CJ1,l!_~(;u:;u§Jomers to shop
a~und tQ find..p.Ettter_ql~~9J~n!§,-df1.PJ'.illin.g-shQP'~...Qf ing.9Jmt!lfl!:fJ!l.§Qme....Qe2.~ c~using buyers not to 1lJ_a.,!S!!.J~_l![qhl:l~!ls. In the case of t~'!Y!:!~~i!.~.~I!I.E.~ r§1aHers this would, in my opinion be the case, in t~....&-~~!1e,,822.lssell~r buyers would be less likely to go further afield to get discounts as time and travel would make this unduly expensive. B.etailers operating~UnonoPOIy.jD__ Sl to_ViII wQuld not be bound to.give..any-discountS_Jl!llessJh~Ly!~EL~ble to afford them or wanted to gain extra sales at the expense of lower margins. Curwen - ...... --.,~------.-.--.~ ..... ~-,-.----.;;;-- asserts that "saving made on one discounted book is insufficient to warrant much search effort" (29). But whilst this may be the case for customers who buy in certain outlets for vanity purposes, there is no reason to suppose that the public would react any differently to book price cutting than, for example buying records/cd's. The limited price cutting 'war' of 1991 gives no firm evidence to support that the model of high cross-price elasticity was a factor in the successes which were apparently gained in the exercise. It was held on a
limited range of Reed's hardbacks which had b~n de-net1ed-sp.ru:ially.....1!J.g
retaileI~j.nllolveclallgave.sLmilaLdis.GQlJnts. Whilst the 'war' did show the public the 'advantages' of lower prices it did not provide a level playing field for scrutiny, it did show that in Dillon's case that book price elasticity was less than unity, that is a 1% reduction in price could be expected to gain a 1% increase in quantity sold. Figures provided by Dillons on three titles show that 25% discounts were balanced by relative increases in quantities sold (30). Unfortunately figures for the other titles in the promotion are not given, the three titles shown are also annual titles, (eg Millers Antiques Guide) which would be expected to sell in greater quantity than the core of the promotion, which was upmarket fiction and non-fiction. Good use of advertising was said
47 to have made the promotion a success, Oillon's c.Q!JcludedJhat customers spent ~-' £29 on average compared to £10 befoif3 t~e_~""'?IJ31).
3.8 SUMMARY
Economic analysis of the RP court decision and the NBA is made difficult by the lack of direct evidence on what exactly would happen if it was to be abrogated. It seems that the 1962 judgement helped guard the trade which existed then, the benefits which the agreement was supposed to have in keeping the trade unconcentrated and book prices down have not happened.
The rise of sale or return, book clubs and the move towards price 'wars:JnJhe ------~-- '-"~,,- --" 1990's have further undermined the NBA, the trade remains far behind other ------~------_.. _- '" .- ... -,- _... _-----._-
Book prices have risen above inflation due to excessive amounts of books ~ ._------published. Innovg!iQ!!Jl~§._been stilled because bookshops_can!JQ!J?'~f3.!.isks_~.r!
~ice cutting, whilst in elfect bJlok.clubs..andjjJms .. produQLog~Q't,-"-brand' ~QOJ5S can.
Pul:lll(;.heJs_hav~~~.pprted the NBA i!.1Jh~ir_o\IV.!l.~e.(;Linterest~ .. ?llcLnot the consumers. besUnter~st.Consumers.---<------are. forcedJo.' pay.JoL publishers'-."''''''''---''-'''''- greed-., ..... ". through higheU)~c~s. It seems that the vast majority of the book trade are content to conform to the status quo, w,-"it,-,h-,-Hc:.a.!~er,??lli.~_s:.c?1119!.~.tra.d_e §'~!!I!l1i! on the NBA perhaps the time has come for re-examination 01 the agreement. --_...... '_. . .•...... _ ... _ ...• _-_ .. _---_ .. ---_...
48 REFERENCES
1. Curwen, P. ,The UK Publishing Industry, p. 51.
2. Ibid., p. 51.
3. Yamey, B.S. The Net Book Agreement, Modern Law Review, November 1963.
4. Barker, R. & Cavies, G. Books are Different, p. 67.
5. Ibid., p. 67.
6. Ibid., p. 72.
7. Yamey, B.S. ref. 3, p. 691.
8. Ibid., p. 693.
9. Ibid., p. 693.
10. Barker & Cavies, ref. 4, p. 64.
11. Maher, T. Resale Price Maintenance in Britain: The decline and fall of the Net Book Agreement, Logos, 2 (2), 1991, p. 1.
12. Ibid., p. 4.
13. Barker & Cavies, ref 4. p. 34.
49 14. Ibid., p. 35.
15. Ibid., p. 28.
16. Ibid., p. 28.
17. Ibid., p. 345.
18. Ibid., p. 28.
19. Ibid., p. 34.
20. Yamey, 8.5., ref. 3, p. 694.
21. Ibid., p. 694.
22. Ibid., p. 696.
23. Allan, W. & Curwen, P. Competition and choice in the Publishing Industry, p. 43.
24. 8arker & Davies, ref. 4, p. 34.
25. Allan & Curwen, ref. 23, p. 49.
26. Ibid., p. 49.
27. Curwen, P. ref. 1, p. 50.
28. Allan & Curwen, ref. 23, p. 56.
50 29. Ibid., p. 43.
30. Dillons. The Results of Dillons Autumn Promotion 1991,1992, p.5.
31. Ibid., p. 1.
51 CHAPTER 4
BACK IN COURT: THE NBA, UK LAW AND EC LAW
4.1 INTRODUCTION
The 1962-1992 period has seen a toughening stance by successive governments on RPM agreements, this has been complemented since 1973 by EC laws on restrictive practices. As a result the PA has had to deal with renewed calls for abolition from within the trade, from politicians and has fought . the EC on their decision to outlaw the NBA from being applied to interstate trading within the EC. This chapter will examine the NBA's survival through more stringent laws in the UK and secondly, will analyze the EC's ruling on the NBA, it's decision and the effects of that decision.
4.2 THE NBA AND UK LAW
The 1962 RP court decision to uphold the NBA was one of the few cases in which a restrictive practice was decided to be in the public's best interest. The 1956 Restrictive Trade Practices act was successful in ending "endemic formal price fixing and market sharing prevalent in the 1950's" (1), abandonment had "generally led to an increase in competition, to lower prices" (2), and the legislation "achieved its primary objective by contributing to improved industrial efficiency" (3). The success of the RP court in banning many agreements caused many to be abandoned voluntarily, as organisations were unwilling to spend time and money defending them.
The NBA survived the 1968 Restrictive Trades Practices Act due to the fact that
52 material changes had not occurred since the 1962 judgement, this legislation allowed the Secretary of State to "bring information agreements about goods under control of the legislation" (4), and the registrar could allow small restrictions not to be referred to the court. In 1973 restrictive practices legislation and proceedings against restrictions was transferred to the Office of Fair Trading (OFT) under the direction of the Director General of Fair Trading, it was this office which was to re-investigate the NBA in 1989. The Fair Trading Act of 1973, (under which the above change of proceedings was included) and the Restrictive Trade Practices Act of 1976 have become the two main regulatory laws, along with the 1980 Competition Act to regulate RPM agreements.
The three tier legislation received criticism for its complexity and inflexibility, the fact that it was more based on the form agreements took rather than the effects, (though this was certainly not the case in the 1962 RP court) and the lack of compatibility with EC Competition law. In addition, registration was complex, legalistic, rigid and protracted, as was seen in the four year period it took for the NBA to be examined by the RP court between 1959-1962. Negotiation between the OFT and affected parties was time consuming and the Director General of Fair Trading did not have adequate criterian on which to base restrictions. The upshot of these problems was the Review of Restrictive Trade Practices Policy consultative document in March 1988, which recommended the alignment of UK law with EC law to stop the large amount of UK restrictive practices which the EC was having to deal with, the general prohibition of anti-competitive agreements, stopping registration and the re-appraisement of all practices which were exempt. All of this was aimed at streamlining the workload which the OFT faced in overseeing 6,600 agreements on the register of restrictive practices (5). The consultative document was expected to lead to changes in the law, but this has not happened.
The scrutiny of restrictive practices led to Dillon's pressing for re-examination of
53 the agreement in May 1989, their ultimate hope was to get the agreement directly re-submitted to the RP court, but the Director General of the OFT, Sir Gordon Borrie, restricted the examination to obtaining material to clear up "conflicting evidence on a number of points" (6). These relevant points were ... a} Structural changes in the publishing and bookselling industries; b) technological changes; c} changes in the number of titles published; d} changes in price of books; e} the profitability of publishing, and to what extent the risk of publishing and bookselling had changed.
On a matter of "fact, partly of analysis and partly of judgement" (7), Borrie did not re-submit the NBA to the RP court. Whilst agreeing that there had been many changes in the publishing and retail trade he did not agree that changes "are of such magnitude as to lead to a different conclusion on the effects of ending the NBA" (8).
So, in effect the latest OFT enquiry still supports the preposition that "Books are Different". It would be interesting to know if Borrie's decision would have been . different had it been known at the time that the 1988 Review of Restrictive Practices document would not become incorporated in law. As the NBA would have been re-examined anyway this is presumably why Borrie did not feel it necessary forthe NBA to be re-submitted to the RP court. The decision was met with relief by the PA and BA, Maher dismissed the investigation as "timid" (9).
54 Maher, perusing one avenue of his four pronged attack on the NBA (Government, OFT, EC and the book trade ), brought up re-investigation of the . NBA to the OFT in June 1991 on the grounds of "materiality of change" since the 1989 decision (10). He was particularly concerned with "publishers being put under pressure by booksellers" (11). This is particularly ironical, as Dillons are legendary in the trade for their slow payment of invoices. The inquiry was once again rejected, Maher's main point was asked by Borrie to be clarified "by firm evidence of any threats made to publishers" (12). None were forthcoming.
In 1993 the OFT, and by tacit approval the government still support the 1962 decision unambiguously. Whilst there has been uncertainty surrounding the implementation of new laws it is strange that the obvious changes in the trade, for example increasing prices of books, concentration in both publishing and bookselling have not at least persuaded the OFT to either refer the NBA back to the RP court or recommend changes to the agreement. It might be the case that the OFT is not prepared to invest time and money looking at an agreement which might be "withering on the vine" (13) and be abandoned voluntarily if VAT were to be introduced on books.
2.3 EC LAW
The NBA was notified as being a restrictive trade practice to the EC Commission in June 1973, soon after Britain's secession to the European Community. A year after the communication by the Commission to the Council on the "European dimension with regard to books" (14) in 1985 the decision to take proceedings against the PA's stewardship of the NBA was announced in October 1986, The Commission's decision was given two years later in December 1988. The decision was not favourable with regard to the enforcement of the NBA in Ireland, as this represented a violation of EC competition law. The PA appealed
55 against the decision, but was unsuccessful. In July 1992 the NBA was altered in respect to trade with Ireland, though it remained in full force in the UK.
Background
In November, 1985, the Commission to the Council published its communication on the European dimension with regard to books. This represented the first official publicati~'l-otguidelines foOl]e publis~iI!g_i.!lg_~.l>~rles l~the EC r~gfl!ding book trade between EC member states. It owes its origin in part to the .-.. -.--~--- controversial banning of RPM on books between the Netherlands and the Flemish speaking part of Belgium in 1982 (15). It was an attempt to discuss the problems of interstate RPM agreements in particular to the three main language ---'- --- -.----.~ .--.. ---,,- ~.-- , .. _--,--' "-- ---..- -~" .. _--, .. " ",,--- - '". - ....' -"-, -.- .. " .. --,--_. ._- groups within the EC, UK-Ireland, Netherlands-Belgium and France-Belgium. --~-.--" ---"._"'--"'--""'.'.' .. __ .... __ .. ,,--,-' .. __ .-.. ... - . . Germany's links with Austria and German-speaking Switzerland are not covered because the latter are not EC members yet. Whilst stating that "The Commission has no intention of intervening in the cultural policy choices made by member states, always provided of cause that these choices do not result in measures being taken which conflict with community law" (16), the Commission could not formulate a framework for EC book pricing itself. This would be against the general principles of the treaty because such a framework "could not avoid modifying one or other aspect of the existing schemes" in member states (17). Accordingly the Commission set out to offer a 'pragmatic solution' which would ensure all member states would work within the law. The Commission was satisfied that RPM agreements on internal trade within countries were satisfactory, and that legislation regarding individual countries was "neither necessary nor advisable" as long as agreements were compatible with EC law (18).
The Commission studied the three basic pricing systems which operate in
56 Europe for books and their respective merits and drawbacks as regarding interstate trade. It sets out examples of how agreements could be altered to fit in with EC law, it was strongly in favour of all EC publishers setting fixed prices which would be charged throughout the community "according to a mechanism to be determined" (19). A major obstacle for this 'mechanism' would be the levelling of VAT on books, which varies from 0% in the UK to 22% in Denmark. The Commission was in favour of a fixed price representing a minimum price which booksellers could raise or a 'prescribed price' on which booksellers would be allowed to discount on a fixed and strict basis. This represents a cross between the NBA and France's RPM system. The NBA is in effect, though never used a minimum price agreement, commentators such as Curwen have suggested that booksellers could raise prices above the Net price when demand is high, though this would probably cause outrage amongst publishers who would no doubt lower discount to booksellers if the practice was noticed (20). The ability for booksellers to discount books is borrowed from the French law which imposes on publishers the need to fix retail prices on all books, but allowing the bookseller some flexibility, they are generally allowed to lower prices by up to 5% in fixed cases. In addition, the Commission was willing to impose exemptions on paperbacks, book club editions, school books and library suppliers from the proposed system.
The system has not been implemented for the following reasons:- a) Most EC Governments are unwilling to impose changes on their own publishing/bookselling industries. b) Infringements of EC competition law can be dealt with when necessary by the Commission. c) Consumer organizations (including The UK's) within the EC are all
57 strongly opposed to RPM agreements on books. d) Major contravention of EC law are only seen at present in five EC counties with a common language.
As a result, the EC Commission continues to investigate RPM agreements on books, within a year of the suggestion of a 'pragmatic solution' the PA was notified that the NBA would be re-investigated, unlike 1962 it was not to remain unscathed.
4.4 THE NET BOOK AGREEMENT AND EC LAW
On the 12th December 1988 the QOlllrnissiol'lofJhe European Cornrn u!:1.ities decided t~~~the NBA represented an infringement of Article .. 85 (1 ) of the Treaty of Rome "to the extent that they cover the book trade between member states" -- -- - ... --...... -.-. ,._--' - -. --'---"-'---~' -. '-"'-~----~--"'-"¥" -- (21). lbejnfringement does not extend to enforcementQfJhe. f\JE3A)ntbeUK. The Commission ruled thaUhe.NBA was illegal in EClaw in respe.ctof:- a) ThePA's decisions relating to library discounts, book agents, and quantity discounts; .-- ,. ' - . b) The code of allowances published by theJ:'A; .-,-,- '-,' "'-- - - _. -_.,' . -- .. - , , , c) Book clubregulatiol'ls;
d) Tbe governing of the nationa.1 book~~le; e) The conditions for allowing booksellers into the Directory of Booksellers.
58 Exemption. under. article .. 85 (3).for. the ..... NBA .was refused. The Publishers -., --. ,- --_... _--- Associationwere then required to ;'icii The NI3A-'!IIa~.cllug~t by tberules.of competitiollllndJreemovement of goods .------' '" -- . -- , _.- '-"""-."--~ .~.',.",. ~!hi!l the comrTlunity, in particular articles 85 (1) and 85 (3), the full text of these articles are contained in appendix 2. The.. ~BAJalls.underarticIEl .. 85 (1) in the respect that l!. rElpresents ."directly or indirElctlyJixing purchase or selling prices o~any ~~herJrClding conditions".. (23). The PA could attempt to make article 85 (1) inapplicable with regard to interstate trading by arguing that the NBA "contributes to improving production or distribution of goods or to promoting technical or economic progress" (24), and that it is 'indispensable' to the trade. Although tl!e.GomrTlission~s.dElcisionwas onlyrelevant to interstate trade it was " ~ _. . -,'.. ~ ", ~~rply. critic&otthe.NB.A, the PA's stewardship of the agreement and the restrictiveJlatureoUhe agreement in theUK. Unlike the 1962 RP court the Commission was not concerned with whether books should be generally exempt ---.--."---.----.. ---~.--~-"-- ","" '-".'" . . ,,,,,.. -.."."" '--'" .,- . ,"" from RPM, but concentrated on the collusive nature of the. NBA and .. how it --'-- " - - -.. -. effected the trade. The Commission's decision in respect to article 85 (1) The Commission felt that the ~arJ.dC!l:g conditions otsale focnet books denied b()()~se"er~_the right to departJn .. any. respect from the. net price and.th.?t ~~ksellers_had.no ..freedom . because discounts were .made .within .. "wholly uniformrates" (25). (This refers to the basic minimum 33.3% discount given to registered booksellers, the 10% library discount etc.) Although the Commission agreed that the NBA did protect small booksellers from booksellers with higher discounts the agreement .did.notgiye booksellers the rightto explore theJull rang!'l.o!.=-~omfle.!!!!"ElP()s~ibilities otherwise available"(26). In relation to Book 59 Clubs the Commission was critical ottheJimeJimitsJrnposed by the PA before ~ -_.,.- b()9..!s~LC9Uld be discounted and did not approve of the fact that BQo~ Clubs,had ~~~_~gistered with the PA and abide by their regulations; it being almost impossible to operate a Club without respecting the regulations. The National Book Sale was seen as reinforcing the "net price system and its restrictive effects as efficiently as possible" (27). In addition "conditions to be observed during the sale have as their object and effect the canalization of ways in which publishers, and especially booksellers might want to eliminate those negative effects" (28). This alludes to the fact that the sale only includes books nominated by publishers, (which in my experience are generally inferior, slow moving titles. The NBS has not done well in'the last few years.) and does not allow the bookseller to reduce others. The ,PA's Directory of Booksellers was felt to be restrictive as it was "intended and considered to be a guide of bona fide booksellers" (29), and that IlQ.Lqeing included was agoJ!lpem,i"sdisac!"l;lotage. Bo()~seJIEHs who did not want to subscribe to an obligation to respect and enforce net book prices would be at a disadvantage. The PAwas, seen as too " o·~,·,.,•• ""., "' "'''.",,__ • - .,. • ROvterful, and the directory being an efficient means of enforcing compliance . . ,.. _. , - .-- .... ---.,-~-.. -".-.--.--.. "-.'." .-.,,' ... - Thus, "The Commission considers that the agreements and the implementing and related rules as well as the Directory of Booksellers have enhanced (and still do) the transparency and certainty for a publisher as to the market behaviour of other publishers and of booksellers as to the discounts which may be offered ... " (30). A§.JI1.~ sa"!l,e_c()ndit_iClns app_I¥,t() !heyade with Ireland, (IheP_A and BA both to,clude Irish publishers and boo~sellers) the NBA :'clearly,C3.~tually and potentially__ effecttrade between member states to an appreciable extent" (31 ). The Commission's decision In respect to article 85 (3) The PA attempted to defend the contravention of article 85 (1) by arguing that 60 the NBA was indispensable both for the UK trade, Ireland and other exports. In terms of the restrictive nature of the NBA the PA argued that it would not be practical for individual publishers to give individual conditions of sale to booksellers, this being expensive and time consuming. Booksellers would not be confident that competitors were subject to the same terms, vertical agreements could give unfair advantage. (A publisher setting terms would be a 'vertical' agreement, as this would apply only between two firms, the NBA is a 'horizontal' agreement due to the fact that all parties are subject to the same terms and it is centrally enforced by the PA.) The PA felt that compliance could only in reality be handled by them, any other arrangement would cause chaos. It continued to argue that the NBA was 'indispensable' on the grounds that without it the "infamous tripod" of higher prices, fewer bookshops and fewer books would ensue, "the PA considers it essential that the retail price of a book is the same in all shops and that no price competition takes place as to the same title" (32). The Commission rejected the case for 'indispensability' out of hand, it saw no reason why it was impractical for booksellers to comply with a large number of different price conditions, especially as the increased concentration of publishers would mean that bookshops dealt with a relatively small amount of publishers. In addition, the difference would generally be felt in large stockholding bookshops who would generally be able to afford extra administration. The Commission felt that the book trade was not different to other retail trades which would have to deal with individual price conditions from manufacturers. It rejected the PA's argument that booksellers would not feel confident dealing with individual publishers as it could not understand why the PA could not trust publishers to act individually. No evidence was given as to why the PA's enforcement of the NBA was indispensable, therefore the Commission disregarded their appeal as being irrelevant. They dismissed the argument that the UK and Ireland's trade would be greatly harmed by banning the NBA from being enforced in Ireland. "It is not the subject of this case to decide which kind of distribution system in a particular national market is best suited by the 61 objectives invoked by the association" (33). The Commission summed up with two main criticisms:- a) "We are convinced that the parties could use less restrictive means to improve the publication and distribution of books" (34). b) "In order to achieve an improvement in the publication and distribution of the books in question, a collective resale price maintenance scheme entailing the imposition of restrictions on competition in trade between member states such as contained in the agreements in question is not indispensable" (35). 4.5 THE AFTERMATH The PA immediately appealed against the decision to the European Court of the First Instance, but this was finally rejected three years later on the 9th July 1992, forcing the ~JoadoptJmmediatechanges to the .. NBA in relation to int~rstate trac!e. The affect was to ~IL!rJsh_booksellersfrom.ar1y ,UK impose~ price restriction:;; .. o!:LflE!tbooks,JJKpublishers could not enforce. net prices on books ---" ' '-'.'. ill1he_9_Qmmuoity.as.a whole. and re~importe.d n~~ books would not be subject t~net pri,c.es.• in t~e~~, unless the PA could prove that they had been re imported purposefully to circumnavigate the agreement. On the 21 st September, 1992, the PA lodged an appeal against the Court of the First Instance's decision, arguing that the original decision did not consider evidence presented to the UK courts in 1962 and 1968 which felt the NBA to be in the public interest. The PA was also concerned that the decision did not uphold the principle of subsidiarity, whereby decisions are taken at the lowest possible level within affected countries. 62 The decision against the NBA provoked widespread interest in the UK, the PA decided at a meeting in July 1992 after their appeal had been rejected to continue to fully back the NBA on the grounds that it had "enormous support from booksellers, authors, librarians and book buyers" (36). The decision was subject to some misinterpretation from both the press and protagonists such as Maher, who claimed "it has lost its provisional validity in EC law. As a result it is no longer enforceable in the UK court of law even for transactions within the UK" (37). This is untrue, article 87 (2)(e) of the Treaty of Rome states that "The Council has power to determine by means of regulations or directives the relationship between national law of member states and community rules on competition and their application" (38). This power has never been used, it is very unIiK~JY..Jb~Ube. EC .. \,\/oulcl .. rnake.the NBA. iIIElgal.irLBritain.without.also havlogJo ..do .. the.sameJoJhe. ~J .. o!her, member states wh(). 0PEl!.Clte,'3~~ on 1;>0Q1 4.6 SUMMARY The OFT will not examine the NBA whilst there is uncertainty as to whether the 1988 Review of Restrictive Trades Practices Policy will be incorporated into law. This rules out any serious investigation of the NBA by the OFT until this is decided. EC:Jaw.canonly.challengei[1diyidual agreelTlElnts which .infringe. EC .trade.lalNs, the.E<2 ..c.ElnnO!!I11Pose a price system for books.withinJhe community_without changingjodividual.counties:. agreements, it is. unwillingJo .. dothis. - ' ...... " ...... The E.!:l_~()p§!an_Commission's. decision ... under. Article .. 85(1) .was. Dot .based.on whether books should be exempt from RPM, it concentrated on the alleged .' -- --_. --" ••" ".-••• _. <,'••. ,. -."., ."-,',-" •• - ....,- -~,.. .,- --- -: collusive effects of the agreement and the effects on interstate trade . • ------•• ,,- - ,.-,~-' • " •• -_.... .•. " - ' .. -.-> .- ... 63 IJILIlUsUhe European. Commissioo'.s._.decision_has not resulted in the· NBA's ~l:!mi~.e.J~.t~e UK it is an. open question as to what. might happen if UKlaw changes to come into line with EC law and the NBA is re-investigated. 64 REFERENCES 1. Department of Trade and Industry, Review of Restrictive Trade Practices Policy, A Consultative Document, 1988, p. 1. 2. Ibid., p. 34. 3. Ibid., p. 34. 4. Ibid., p. 34. 5. Ibid., p. 27. 6. OFT to examine NBA. [Editorial), The Bookseller, 5th May 1989, p. 1539. 7. The OFT's decision. [Editorial), The Bookseller, 18th August 1989, p. 465. 8. Ibid., p. 465. 9. NBA victory. [Editorial), The Bookseller, 18th August 1989, p. 465. 10. Borrie rejects NBA investigation. [Editorial), The Bookseller, 28th June, 1991, p. 1819. 11. Ibid., p. 1819. 12. Ibid., p. 1819. 13. Borrie rejects NBA investigation, ref. 10, p. 1819. 65 14. The Commission of the European Communities, Communication by the Commission to the Council on the European dimension with regard to books, 27th November 1985. 15. The Commission of the European Communities, Commission Decision relating to a proceeding under Article 85 of the EEC Treaty (IV/428 - VBBBNBVB), 25th November 1981. 16. The Commission of the European Communities, ref. 14, p. 6. 17. Ibid., p. 7. 18. Ibid., p. 8. 19. Ibid., p. 17. 20. Allan, W. & Curwen, P. Competition and Choice in the Publishing Industry, lEA, 1991. 21. Department of Trade and Industry, ref. 1, p. 36. 22. The Commission of the European Communities, Commission Decision relating to a proceeding under Article 85 of the EEC Treaty (IV/27.393 and IV/27.394, Publishers Association - Net Book Agreements), 12th December 1988, p. No L 22/24. 23. Department of Trade and Industry, ref. 1, p. 36. 24. Ibid., p. 36. 66 25. The Commission of the European Communities, ref. 22, p. No L 22/19. 26. Ibid., p. No L 22/19. 27. Ibid., p. No L 22/19. 28. bid., p. No L 22/19. 29. Ibid., p. No L 22/20. 30. Ibid., p. No L 22/20. 31. Ibid., p. No L 22/24. 32. Ibid., p. No L 22/25. 33. Ibid., p. No L 22/22. 34. Ibid., p. No L 22/22. 35. Ibid., p. No L 22/22. 36. 1985 Leclerc judgement plugs NBA loophole, says PA. [Editorial], The Bookseller, 31 st July 1992, p. 311. 37. Pentos Press Information, Press release: The end of the NBA, 9th July 1992, p. 2. 38. Department of Trade and Industry, ref. 1, p. 38-39. 67 CHAPTER 5 FOREIGN PERSPECTIVES 5.1 INTRODUCTION Great Britain is not the only country in which 'books are different', it is also not the only country to face problems operating and justifying RPM on books. This chapter will examine four countries who have differing policies and experience of RPM on books, in the case of the United States it will examine a system which has never operated RPM on books. Both Sweden and Australia abolished RPM on books in 1970 and 1972 respectively, they replaced net prices with a recommended retail price system, both continue to use this system in 1992. Belgium banned all RPM agreements in 1981, publishers are not allowed to follow an RRP system nor are they allowed to name prices on books. It is alone in Europe in having no formalised structure for book pricing. Greece, the only other country with no RPM has a basic RRP system in place. Comparisons and contrasts with the UK's NBA will be made where there is a safe basis for doing so, a major problem between comparing different countries is making invalid, and therefore meaningless comparisons. For example there is no comparison between looking and measuring distribution methods in the UK and the USA, it is more centralised in the USA, the two main players being Baker and Taylor and Ingrams. Most of the large bookshops get free delivery. In the UK publishers still do much of their own distribution, for example HarperCollins and Faber and Faber. It is also worth noting that the geographical nature of Australia, Sweden and the United States is much different to the UK's; this explains the historical rise of book clubs serving isolated and rural readers with no access to a bookshop, and the unconcentrated nature of the book trades in these countries. In addition, it becomes apparent when observing other . 68 countries that the UK is well served by literature on the NBA. However, in some other countries details of RPM agreements are sketchy and opinions strongly biased either for or against their agreements. It is for this reason that France has not been included in its own right in this chapter. 5.2 BELGIUM. NO RPM. NO RRP The problems of RPM on books in Belgium have not been thoroughly examined or adequately measured since RPM was banned per se in 1981. Belgium is split almost equally between Flemish and French speaking communities, The publishing industry is small, accounting for 20% of total book sales (1). Imports from the Netherlands and France make up most of the remaining 80%. On the 25th November 1981 the EC Commission ruled that the relationship between the Dutch 'Vereeniging ter Bevordering van de Belangen des Boekhandels' (VBBB) and the Flemish 'Vereeniging ter Bevordering van het Vlaamsche Boekwezen' (VBVB) contravened Article 85 (1) of the Treaty of Rome. As with the PA's case in the previous chapter the charging of Dutch net prices in Flemish Belgium was made illegal. Added to this was the new law in Belgium as a whole that publishers were not allowed to name recommended retail prices on book covers. The Belgian Booksellers Association (BBA) argued at the time to the Belgian government that abrogation would cause:- i. Fewer stockholding bookshops. ii. Less books published. iii. Reduced services to customers. iv. No market growth. v. Higher book prices. vi. Fewer opportunities for authors. 69 This is an identical turn of events to those predicted by the PA at the RP court in 1962. In 1988, Marcel Mertens, president of the BBA reported that the detrimental effects they had predicted in 1981 had all been realised in the intervening seven years. Proof of this is hard to find, research by Fishwick points to the conclusion that price reductions have been more prevalent in Flemish Belgium, whilst bookshops in French Belgium have had sporadic price cutting but have generally kept book prices on the same level. As a result, book clubs in the Flemish area have suffered due to discounting in bookshops whilst in the French area Belgique Loisirs increased membership to about 20% of the populace between 1981 and 1988 (2). There is no firm evidence on the effects to bookshops, in book prices or publishing totals. In 1992, eleven years after abrogation the BBA was attempting to persuade the government to re-impose RPM on books, the Minister of Economic Affairs was . urging the EC to consider the 'floor price' model for books in the EC. (Publishers setting a minimum price for booksellers, which they could raise to take into account gross margins.) The BBA and the Belgian government obviously feel the need to secure the book trade. Taking into account the national make-up of the country, its reliance on imports and lack of direct evidence since 1981 comparisons between the UK and Belgium cannot be made with any safety. 5.3 SWEDEN. RRP SYSTEM Sweden abolished RPM on books in 1970 and adopted an RRP system, once again, direct evidence of the malaise in the trade is sketchy, but it would appear that the 'tripod' of fewer bookshops, more expensive books and fewer titles published has happened in the last twenty years. Book sales have stayed at much the same level of between 33-34 million copies per year (3), book prices have risen by 50% in real terms (4). Competition in the book trade has become 70 increasingly limited to promoting bestsellers, this has been heightened by the growth of direct sales and book clubs, many of which are owned by publishers. Book clubs and direct sales have increased their share of the market to a massive 60% of total sales against 40% for booksellers (5). The adoption of RRP has allowed book clubs to use this system as a 'false price front', using recommended prices to emphasise their low book prices. The respective Publishers and Booksellers Associations have no trade agreement to allow them to give priority for promoting Swedish cultural books in bookshops. The rise of discounting bookshops and greater use of price-cutting promotions has played into the hands of the two largest publishers, the Bonnier Group and the Liber Group. Both are able to impose terms on bookshops, including extra discount for promoting individual titles. The entry of the Liber Group (owned by the Dutch firm Kluwer) into direct sales in 1993 would seem to put more pressure on Swedish booksellers. Sweden's 'business doctor', Ulf af Trolle has concluded that "free prices have caused mass distribution of bestsellers, reduction of retail dealers and a reductiori in the range of books"(6), supporting the 'tripod' theory when RPM is abolished on books. There is no direct evidence on the changes to the retail trade in terms of bookshops closing, the extent of discounting in bookshops and the amount of returns which bookshops generally have to make when primarily promoting bestsellers. It would appear from available evidence that the trade has changed, but has not been decimated by the abolition of RPM. However, Forslund dryly states that "the free pricing of books in Sweden has turned out to be an unsuccessful experiment"(?). 71 5.4 AUSTRALIA. RRP SYSTEM The Australian Trade Practices Tribunal rejected the book trade's defence of 'The Statement of Terms' in 1972, leading to a system of RRP to be introduced. The effects on the book trade have been well documented, in particular by Zifcak (8), and to a lesser extent Nieuwenhuysen (9). The pre-1972 'Statement of Terms' required booksellers to sell books at prices set by publishers, it also incorporated a 'price schedule' for imported books. Abolition of the 'Statement of Terms' followed a hearing on the agreement at the Trade Practices Tribunal, the book trade was unsuccessful in gaining exemption from the 1971 Resale Price Maintenance act. Exemption would have been granted if:- a) Quality of goods, and variety of goods would be substantially reduced to the detriment of the public as consumers/users of goods. b) Shops would be reduced to the detriment of the public as consumers/users of goods. c) Prices would be increased to the detriment of the public as consumers/users of goods. d) Services provided would cease to be provided or be reduced to the detriment of the public as consumers/users of goods. In defence of the agreement, the trade argued that abrogation would cause:- i. A reduction in stockholding bookshops. ii. Concentration on bestselling books. iii. Discounting bookshops to become more prevalent. iv. Price cutting to become widespread. 72 v. Charging on special orders. vi. Increasingly low margins for booksellers. The President of the Tribunal rejected all the arguments put forward by the trade, mainly on the court's narrow definition of what was in the 'public interest'. He concluded that abrogation of the agreement would cause:- a) Reduction of prices of all books. b) Variety and quality of books would not be reduced. c) Booksellers would continue to offer the same services. d) Booksellers would not reduce orders of books which were likely to be used in price-cutting promotions. e) Price cutting would be sporadic. The decision came as a shock to the trade, who had expected the tribunal to come to the same decision as the UK's 1962 RP court decision. Obviously the grounds for exemption and the defence of the agreement have strong parallels with the UK's experience but in this case the tribunal came to exactly the opposite conclusion, it did not regard books as being different, it did not accept the trade's assertion that the 'tripod' of fewer bookshops, fewer books published and higher prices for books would happen upon abrogation. The industry has seen wholesale changes since 1972 in its structure, this has been spearheaded by the emergence of a 'new breed' of book outlets, most of which have either been discounting and remainder bookshops, there has been a growth of books being sold in other retail sectors. Fishwick notes that 40% of . 73 booksellers trading in 1971 had closed by 1983, numbering some 74 shops (1 0). This was compensated by the opening of 'new breed' outlets, remainder bookshops have been able to advance strongly due to overproduction of books in Australia, the UK and USA. Zifcak observed imported titles being marked up by between 200-400%, this enabled shops to supplement low profits being made on discounting bestsellers. Booksellers who were unwilling to discount books had to compete on services given and stock range, it would seem that those booksellers who have used good planning and marketing have survived and claimed their 'niche'. Fishwick does not elaborate on how many of the 74 bookshops which closed between 1971-1983 were stockholding bookshops, but it can be assumed that some of those which went out of business were inefficient and those who have survived have done so by promoting good services and stock range. The trade has seen, along with the USA and UK the movement of bookshops to prime retail sites in city centres and out of town developments, an example of this success was the growth of Bookworld, which was founded in 1986 and gave discounts of between 10-50% on all new titles, had well designed shops and extensive advertising (11). It was able to secure discounts of up to 60%, compared to the standard 40% given to other bookshops, it was given 66% discount if books were promoted in-shop (12). The merger of Bookworld with Angus and Robertson in 1990 gave the merged group 22% market share and 167 shops in Australia. The rise of discounting and remainder bookshops has had serious side-effects on the viability of Australian publishing, most apparent has been the steady rise in prices of publishers backlists, which have been raised to counteract discounts given on bestsellers. The Literature Board of the Australian Council has been forced to subsidise the publishing of books which promote Australian culture, which in many cases makes the difference between the book being published at all. This is complemented by promotion subsidies, Zifcak "believed this to be the only promotion scheme in the world which gives retail booksellers direct 74 subsidies" (14). Heker states that "in Sweden, the Government has to subSidise the production of certain books" (15), but produces no examples, no mention is made by Forslund in his article on this trait (16). In addition, the average stockholding bookshop has reduced titles from an average of 40,000 titles in 1972 to 20,000 in 1992 (17). The educational bookselling business in Australia suffered in the 1970's, mainly as a result of price cutting between the three main suppliers who were able to increase business up to threefold, but at the expense of decreasing profit margins. All three had gone out of business by 1980. Bookshops have been forced to charge for special orders, but this has been offset to a degree by increased use of the service due to bookshops holding less stock. Booksellers have saved money by employing fewer, unqualified staff. The Sydney Morning Herald said in 1990 "bookshops are staffed by semi-literate fly by night staff, whose literary ability does not extend beyond putting a paperback into an attractively printed bag" (18). Much the same could be said for the UK's bookselling trade, which has a high staff turnover rate, low pay and increasingly long hours. The Trade Practices Tribunal's conclusions have not been borne out:- a) Book price reductions have not been sporadic, but widespread. b) There has been a growth of discounting and remainder bookshops. c) The Australian government has had 3 enquiries since 1972 on the high prices of books. d) Stockholding bookshops stock less books than they did in 1972. e) Customers are forced to pay for services which were free in 1972. 75 f) The government has been forced to subsidize the production of 'cultural' books. Abrogation of RPM on books has not decimated the Australian book trade, in fact the growth of chains such as Bookworld has shown that abrogation has caused the proliferation in the trade not seen before 1972. Zifcak concludes that "bookselling in Australia has not suffered from the abolition of RPM. The public interest has" (19). And, "Australian booksellers today know more about economics than they did before 1972, and less about books" (20). 5.5 THE UNITED STATES. RRP SYSTEM The USA has never had RPM on books, but parallels can be drawn with Australia's experience since abolishing RPM in 1972. The bookselling industry has become increasingly concentrated in the 1980's on producing bestsellers, bookshops have moved to prime retail sites, there has been a growth in companies providing books as well as other consumer products, a growth in book clubs and direct selling and the trade has become increasingly reliant on sale-or-return. The move away from city centre shopping to out of town shopping centres has encouraged the growth of discounting bookshops dealing primarily in bestsellers. Two chains, Dalton and Waldenbooks have become the market leaders in the country, both pursue aggressive price reduction policies on books. The effect of concentrating on bestsellers has had similar effects to Australia's trade. Booksellers have been able to reduce the labour force to an unskilled minimum, customer orders are subject to a handling charge but have increased due to shops holding fewer backlist titles. Sale-or-return is vital for the wellbeing of discount bookshops, it induces booksellers to stock titles which they might or 76 might not sell. With a monthly cycle of 'bestsellers' bookshops have to take the risk of stocking titles most of which do not sell, they cannot afford to be without books in case they do sell. The effect of this has been the soaring in the amount of returns, which in 1991 was 25% on average (21). This compares to Dillons allowing a maximum of 1% returns per year, the French bookselling company, FNAC also limits returns to 1% of turnover (22). The large amount of returns has caused the growth of remainder stores, who provide little revenue to publishers. Large increases in remainders have put publishers in a difficult situation, as they cannot raise prices to counteract lost revenue because customers will wait until they reach remainder bookshops. The vicious circle of returns and remainders has been completed by the growth in advances for authors, most of which the . publisher will not recoup in sales. Publishers have become heavily reliant on one or two bestsellers cross-subsidizing their other authors. Increased concentration is one reason why title output in the USA has remained static during the 1980's, growing slowly from 1983's total of 53,380 to 1990's total of 53,446 new titles (23). Although the trade faces problems it has seen a growth of outlets in the 1980's, the number of bookshops grew by 12% between 1980-90, 7,000 of the 10,000 new bookshops were independently owned (24). It is not apparent from Allan and Curwen's above estimate whether this includes book outlets (ie newsagents, department stores) as well as bookshops. If there is a link with Australian experience this probably does include book outlets.' Stockholding bookshops such as Waterstones have been able to successfully set up business in the USA, this is perhaps due to the fact that books have become more widely available and advertised in the 1980's, helping the trade in general. Although price discounting amongst bookshops dealing in bestsellers is widespread, it does not seem to have effected the role of book clubs, who in the USA in 1987 had a 17% market share compared to 21 % in the UK (25). There 77 has been a growth of book clubs operating from in-store locations, firms such as CostCo have successfully introduced books into their discount warehouse business. CostCo are currently having discussions with the PA on setting up a UK operation in 1994. 5.6 SUMMARY It would appear from looking at the four countries covered in this chapter that abrogation of RPM on books has not caused the bookselling industries to be decimated as has been confidently predicted by pro-NBA commentators in the UK were it to go. But it can be seen that in the three countries which have abolished RPM that structural changes in the retail trade have taken place, notably the rise of discounting and remainder bookshops which deal exclusively with promoting and selling 'bestsellers'. It can be observed that in Sweden and Australia's case the production and promotion of 'cultural' books has suffered, and both countries apparently subsidise the production and promotion of 'cultural' books. In the United States the opening up of bookshops in prime retail areas has led to a more general widening of the market into 'stockholding' bookshops in the early 1990's. It is apparent in the USA, Sweden and Belgium that book clubs and direct sales have retained, and increased their market share without RPM, the growth of book clubs opening shops fortheir customers seems to becoming increasingly popular, at present there is some panic in the UK book trade about Book Club Associates opening three shops in 1994. It would seem that allowing bookshops to compete on price and marketing has 'levelled the playing field' in those countries and has not had particularly adverse effects on any part of the industry. The overall picture does remain incomplete, there is no conclusive evidence of changes in retail prices in any country nor how stockholding bookshops have 78 coped with change. This is not made easier by commentators being vague on their definition of bookshops and book outlets, for example Fishwick's total of 74 closures between 1971-83 implies that these were all stockholding bookshops when it is likely that casualties were educational booksellers and remainder dealers as well as stockholding bookshops. Fishwick is pro-NBA, and this figure was included in a book published by the PA. On the other hand, Alian and Curwen are anti-NBA, which perhaps explains their total of 10,000 new . bookshops in the USA, many of which are probably book outlets rather than stockholding bookshops, it is obviously in their interests to present a picture in which bookshops flourish without RPM. 79 REFERENCES 1. Belgians call for the return of r.p.m. [Editorial), The Bookseller, 13th September 1991, p. 683. 2. Flshwlck, F. The Economic Implications of the Net Book Agreement, 1989, p. 29. 3. Forslund, J. Variable Book Prices, The Author, Summer 1993, p. 55. 4. Ibid., p. 55. 5. Ibid., p. 55. 6. Ibid., p. 55. 7. Ibid., p. 55. 8. Zlfcak, M. Australia without resale price maintenance: Who were the losers? The Public. Logos, 1991, 2 (4), 204 - 208. 9. Nieuwenhuysen, J. Competition in Australian Bookselling. Melbourne University Press, 1975. 10. Flshwlck, ref. 2, p. 30. 11. Zlfcak, ref. 7, p. 206. 12. Ibid., p. 206. 80 13. Ibid., p. 206. 14. Ibid., p. 206. 15. Heker, H. Resale price maintenance in the European Community: The view from Germany. Logos, 2 (4), 200. 16. Forslund, ref. 3. 17. Zifcak, ref. 7, p. 207. 18. Ibid., p. 207. 19. Ibid., p. 208. 20. Ibid., p. 207. 21. Allan, W. & Curwen, P. Competition and Choice in the Publishing Industry, 1991, p. 64. 22. Fishwick, ref. 2, p. 32. 23. Allan & Curwen, ref. 21, p. 49. 24. Ibid., p. 66. 25. Flshwick, ref. 2, p. 29. 81 CONCLUSION So, are books different in 1993? According to the BA, PA and the OFT books still are different in 1993. It is my contention that changes in the structure and practices of the publishing and bookselling trades have effectively nullified the 1962 Restrictive Trades Practices court's decision for the following reasons:- The 1962 RP court believed abrogation would result in fewer bookshops, more expensive books and fewer published titles. It based these conclusions mainly on the limited evidence of Canada's abrogation of RPM on books and the UK book trade before the NBA was introduced in 1900. In its defence the RP court had no fail safe way of knowing what the exact effects on the trade would be of abrogation. The court accepted that if the NBA was abolished the book trade would become more concentrated to the detriment of small bookshops and the consumer. It is apparent in 1992 that both the publishing and bookselling trades have become more concentrated during the period. Sale-or-return has become standard in the trade since 1962. Therefore the risk of stocking titles is less than it was in 1962, where buying on an unseen basis was prevalent. With the huge growth in new title output sale-or-return has become necessary for publishers to encourage bookshops to stock titles. The market is saturated by new titles, many of which effectively duplicate books already in print. Saturation is not in the trade's or the consumers' best interest as it is unlikely that shops can provide a good selection of books with 500,000 in print and with over 60,000 new titles a year. 82 Book clubs have grown to the extent that BCA are able to open shops for their members. Implicit discounting has aided the rise of book clubs, but it is not reasonable to accept that book clubs should be able to offer discounts in their own outlets. This creates an unlevel playing field for the bookselling trade. It would appear that the growth of book clubs in 1993-4 will force a re-investigation of the NBA within the publishing trade. The industry has been able to reduce costs in relation to book production, but this has been offset by new titles being produced in profusion. Book prices have risen steadily against the RPI, it cannot be safely argued that during the 1962-92 period that the NBA has kept prices down as was accepted at the RP court. Abrogation of agreements in other countries has not produced the ill-effects to their trades which the RP court envisaged in the UK. There has been structural change within the trade in all counties, with discounting bookshops and book clubs both gaining market share ,stockholding bookshops have survived. UK legislation on restrictive practices has not been seriously changed since 1968, the failure so far to put into effect proposals given in the 1988 Review of Restrictive Trades Practices has probably saved the NBA. If the review does get . incorporated into law the NBA will be re-examined, it would seem unlikelythatthe NBA would be judged in the same light in the 1990's as it was in 1962. EC law has forced the NBA to be altered in relation to interstate trade although it has not affected the NBA within Great Britain, the Commission was sharply critical of the PA's policing of the agreement and the alleged collusive effects of the NBA in the publishing and bookselling trades. It appears that the 1990's recession has led to an unofficial consensus that the NBA must be changed, but not necessarily abolished. Both Bell (1), and Graham 83 (2), have called for re-investigation of the NBA within the trade. Searching for a middle ground within the trade by, for example, introducing a 'third' category of RRP on fast- and bestsellers whilst keeping net prices on more slow moving 'cultural' books is appealing. Unless it is accepted that the time is right for change the trade will continue to be stuck between two extremes; the PA firmly advocating that the NBA is fine as it stands and abolitionists who want the agreement to go completely for purely selfish reasons. 84 REFERENCES 1. HarperCollins chairman calls for trade summit on NBA. [Editorial], The Bookseller, 18 June 1993, p. 7. 2. Graham, G. Resale price maintenance - a worldwide conundrum, The Bookseller, 2 July 1993, pp. 22-25. 85 REFERENCES Allan, W. & P. Curwen. Competition and choice in the publishing industry. London: Institute of Economic Affairs, 1991. Barker, R.E. & G.R. Davies. Books are different. London: Macmillan, 1966. Barnes, J.J. Free trade in books: a study of the London book trade since 1800. Oxford: Clarendon Press, 1964. Barr, D. Trends in book production and prices. London: N.C.L., 1972. BCA retail tactics anger booksellers [Editorial], The Bookseller, 16 July 1993, pp. 7-9. Belgians call for the return of r.p.m. [Editorial], The Bookseller, 13 September 1991, p. 683. Book Marketing Ltd. Book facts 1991. London: Book Marketing Ltd, 1992. 86 Book publishing: the diseconomies of scale [Editorial), The Economist, 7 April 1990, pp. 21-24. Booksellers Association. Annual report 1992. London: Booksellers Association, 1993. Booksellers Association. The net book agreement explained. London: Booksellers Association, 1989. Booksellers Association. The net book agreement: what booksellers should know about it. London: Booksellers Association, 1989. Bork, B.H. The antitrust paradox: a policy at war with itself. New York: Basic Books, 1978. Borrie rejects NBA investigation [Editorial), The Bookseller, 28 June 1991, p. 1819. Britain's book publishers turn over a new leaf [Editorial), The Economist, 27 April 1985, pp. 89-90. Calvanl, T. &J. Langenfeld. An overview of the current debate on resale price maintenance. Contemporary Policy Issues, 1985, 3, 1-8. 87 Centre stage for the pro-NBA view [Editorial), The Bookseller, 6 September 1991, p. 613. Clark, I. A Thatcherite view of the NBA debate. The Bookseller, 3 February 1989, pp. 383-389. Commission of the European Communities. Communication by the Commission to the Council on the European dimension with regard to books. CEC documents, 27 November 1985. Commission of the European Communities. Commission decision of 25 November 1981 relating to a procedure under article 85 of the EEC treaty. (IV/428-VBBBNBVB). Official Journal of the European Communities. 25 February 1982, pp. No L 54/36-54/50. Commission of the European Communities. Commission decision of 12 December 1988 relating to a procedure under article 85 of the EEC treaty. (IV/27.393 and IV/27.394, Publishers Association - Net Book Agreements). Official Journal of the European Communities, 26 January 1989, pp. No L 2211 2-22/24. Commons question on NBA [Editorial), The Bookseller, 19 January 1990, p. 171. 88 Consumers' Association attacks NBA [Editorial], The Bookseller, 1 April 1978, pp. 2094-2098. Consumers' Association to make submission to Price Commission [Editorial], The Bookseller, 18 February 1978, pp. 1429-1431. Costco, giant American warehouse club, targets UK [Editorial], The Bookseller, 23 July 1993, pp. 5-6. Court challenge date set for Pentos and PA, The Bookseller, 26 October 1990, p. 1204. Curwen, P.J. The UK Publishing Industry. Oxford: Pergamon, 1981. Davies, G. The NBA case recalled. The Bookseller, 15 October 1977, p.2296. Dear Paul, Dear Terry [Editorial], The Bookseller, 31 July 1992, pp. 315-316. The debate over net pricing [Editorial], The Bookseller, 15 February 1986, pp. 583-590. 89 Department of Trade and Industry. Business monitor SOA 25: Retail Enquiry. London: Department of Trade and Industry, 1991. Department of Trade and Industry. Review of restrictive trade practices policy: a consultative document. London: HMSO, 1988. Dillons. Press release: Oil/ons' promotion signals end of road for NBA. 27 September 1991. Dillons. Press release: Oil/ons' unstoppable momentum for NBA abolition. 30 September 1991. Dillons. Oil/ons' submission to the Office of Fair Trading on the Net Book Agreement. 13 February 1989. Dillons. Statement on Waterstone's price promotion of books. 7 October 1991. Dillons. The results of Oil/ons' autumn price promotion 1991. London: Dillons, 1992. Dillons denies breach of NBA library licence [Editorial], The Bookseller, 9 October 1992, p. 1069. 90 Dillons price promotion fails to provoke competitors [Editorial], The Bookseller, 17 April 1992, p. 1131. Dillons promises future cut-price campaigns [Editorial], The Bookseller, 10 January 1992, p. 63. Dillons support for Graham proposal on NBA [Editorial], The Bookseller, 27 July 1990, p. 233. The discount factor [Editorial], The Bookseller, 10 January 1992, pp. 80-81. Dutch unruffled by NBA ruling [Editorial], The Bookseller, 24 July 1992, p. 232. Early day motion calls for scrapping of NBA [Editorial], The Bookseller, 24 June 1988, p. 2447. Euromonitor. The book report 1991. London: Euromonitor Publications, 1992. European Commission investigates interstate aspects of NBA Editorial], The Bookseller, 12 December 1986, p. 2325. 91 Evans, R. Campaigners fail to abolish fixed-price agreement on books. The Times, 4 August 1989, p. 5. Fishwick, F. EEC research into resale price maintenance. The Bookseller, 20 February 1982, p. 633. Fishwick, F. The economic implications of the Net Book Agreement. London: Publishers Association, 1989. Fishwick, F. The EEC and the Net Book Agreement. The Bookseller. 20 February 1982, p. 682. Fishwick, F. Who fixes the price? The Bookseller. 1 May 1987, pp. 1693- 1696. Fishwick, F. Why Cranfield backs rpm. The Bookseller. 29 January 1983, pp. 306-310. Forslund, J.E. Variable book prices. The Author, Summer 1993, p.55. Future of NBA a major concern, says PA [Editorial], The Bookseller, 1 April 1988, p. 1363. 92 Gedln, P.I. Abolishing resale price maintenance: lessons from Sweden. Logos, 1993,4 (2), 84-87. The gloves come off in Dublin [Editorial], The Bookseller, 7 December 1990, pp. 1703-1705. Graham, G. Resale price maintenance - a worldwide conundrum . The Bookseller, 2 July 1993, pp. 22-25. Grlndley, M. A short and bloody history of the free market in books. The Bookseller, 22 April 1988, pp. 1610-1615. Grlndley, M. NSA: the turning tide against Terry Maher. The Bookseller, 19 April 1991, pp. 1160-1162. HarperCollins chairman calls for trade summit on NSA [Editorial], The Bookseller, 18 June 1993, p. 7. Heker, H. Resale price maintenance in the European Community: the view from Germany. Logos, 1991, 2 (4), 199-203. Industry Secretary blocks SeA-Leisure Circle merger [Editorial], The Bookseller, 29 January 1988, pp. 319-320. 93 'Joy of Sex' reduced by 25 per cent [Editorial]. The Bookseller, 4 October 1991, pp. 937-938. Librarians back NBA [Editorial), The Bookseller, 7 September 1985, p. 986. Maher, T. The impact of change in bookselling and publishing. The Bookseller, 20 May 1988, pp. 1995-1997. Maher, T. Resale price maintenance in Britain: the decline and fall of the Net Book Agreement. Logos, 1991,2 (4), 5-11. Marvel, H. & S. McCafferty. The political economy of resale price maintenance. Journal of Political Economy, 1986,94 (5), 1074- 1095. Marvel, H. & S. McCafferty. Resale price maintenance and quality certification. Rand Journal of Economics, 1984, 15 (3), 346-359. Marvel, H. & S. McCafferty. The welfare effects of resale price maintenance. Journal of Law & Economics, 1985, 18 (5), 363-379. Minor surgery for NBA after Luxembourg judgment [editorial]. The Bookseller, 17 July 1992, pp. 157-159. 94 Monopolies and Mergers Commission. Book Club Associates and Leisure Circle: a report on the merger situation. London: HMSO, 1988. Nazrozov, A. What price literature now? The Times, 3 February 1989, p. 58. NBA caught in MMC net [Editorial), The Bookseller, 29 January 1988, p. 321. NBA question in the House [Editorial), The Bookseller, 12 January 1985, p. 81. NBA referral unnecessary [Editorial), The Bookseller, 28 July 1989, p. 281. NBA tide turns against Pentos [Editorial], The Bookseller, 3 May 1991, pp. 1289-1290. NBA victory [Editorial), The Bookseller, 18 August 1989, p. 465. NBA - what price the Graham plan? [Editorial), The Bookseller, 27 July 1990, p.232. Net book disagreement goes public [Editorial), The Bookseller, 15 April 1988, p.1363. 95 1985 Leclerc judgment plugs NBA loophole, says PA [Editorial), The Bookseller,31 July 1992, p. 311. The non-net trade book is coming [Editorial), The Bookseller, 15 February 1991, p. 397. Norrle, I. My own and other sacred cows. The Bookseller, 1 September 1979, pp. 1076-1079. OFT to examine NBA [Editorial), The Bookseller, 5 May 1989, p. 1539. The non-net trade book is coming [Editorial), The Bookseller, 15 February 1991, p. 397. The OFT's decision [Editorial), The Bookseller, 5 May 1989, p. 1539. Overstreet, T.R. & A.A. Fisher. Resale price maintenance and distributional efficiency: some lessons from the past. Contemporary Policy Issues, 1985, 3 (1), 43-49. Peat Marwick McLlntlock. Book prices in the UK: a study by Peat Marwick McLintlock. London: Peat Marwick McLintlock, 1989. 96 Pentos. Press release: The end of the NBA. 9 July 1992. Pentos poll finds buyers opposed to NBA [Editorial], The Bookseller, 8 September 1989, p. 740. Pentos turns to Europe for help against NBA [Editorial], The Bookseller, 30 . November 1990, pp. 1609-1610. Pickerlng, J.F. Resale price maintenance. London: AIIan & Unwin, 1966. Pickerlng, J.F. Would prices rise without rpm? Oxford Economic Papers, 1969, 21 (2), 248-267. Poll finds 60 per cent of publishers support NBA [Editorial], The Bookseller, 1 July 1988, p. 8. Price war loses momentum [Editorial], The Bookseller, 8 November 1991, pp .. 1353-1354. Publishers act to stop Booker discounting by Pentos [Editorial], The Bookseller, 19 October 1990, pp. 1131-1132. 97 Publishers Association. Annual report 1992-1993. London: Publishers Association, 1993. Publishers Association. Interim amendments to standard conditions of sale . of net books. London: Publishers Association, 1992. Publishers Association. The Net Book Agreement. London: Publishers Association, 1992. Publishers Association. Statement of reasons why the Director General of Fair Trading should not seek leave of the Restrictive Practices Court to apply for an order to discharge its previous decisions in the cases In re Net Book Agreements 1957. (1962, 1964 and 1968). London: Publishers Association, 1989. Pybus, R. The library case for the NBA. The Bookseller, 26 February 1988, pp. 744-750. Rudnick, D. What price books if NBA is abolished? The Times, 16 November 1989,p.31. Sir Simon commits W.H Smith to future support of NBA [EditOrial], The Bookseller, 15 May 1992, p. 1415. 98 Taraporevala, R.J. Competition and its control in the British book trade 1850- 1939. Bombay: Taraporevala, 1969. Three country pricing awaits EC approval [Editorial], The Bookseller, 20 November 1992, p. 1542. Waterstone speaks out for NBA [Editorial], The Bookseller, 19 May 1989, p. 1682. Waterstones, Books Etc join 'price cutting charade' [Editorial), The Bookseller, 11 October 1991. pp. 1011-1012. Waterstones finds little interest in discounting [Editorial), The Bookseller, 15 May 1992, p. 1414. Waterstones, WHS unmoved by Dillons' discounting challenge [Editorial]. The Bookseller, 23 October 1992, p. 1205. Winford, J. The Net Book Agreement: an economic assessment. London: Consumers Association, 1991. Wyndham, M. What the papers didn't say. The Bookseller, 26 October 1990, pp. 1210-1211. 99 Yamey, 8.S. Notes of cases: the Net Book Agreement. Modern Law Review, November 1963, pp. 691-699. Yamey, 8.S. Resale price maintenance. London: Weidenfeld & Nicholson, 1966. Zifcak, M. Australia without resale price maintenance: who were the losers? The public. Logos, 1991, 2 (4), 204-208. Zifcak, M. NBA - an Australian view. The Bookseller, 24 September 1977, pp. 2156-2157. Zifcak, M. The NBA debate - a view from Australia. The Bookseller, 24 June 1988, pp. 2459-2460. 100 APPENDIX 1 THE 1957 NET BOOK AGREEMENT. We the undersigned several firms of publishers, being desirous that in so far as we publish books at net prices (as to which each publisher is free to make his own decisions), those net prices shall normally be the prices at which such books are sold to the public as hereinafter defined, and in order to avoid disorganisation in the book trade and to ensure that the public may be informed of and able uniformly to take advantage of the conditions under which net books may be sold at less than the net prices, hereby agree to adopt and each of us does hereby adopt the following standard sale conditions for the net books published by us within the United Kingdom. STANDARD CONDITIONS OF THE SALE OF NET BOOKS i) except as provided in clauses (ii) to (iv) hereof and except as we may otherwise direct net books shall not be sold or offered for sale or caused or permitted to be sold or offered for sale to the public at less than the net published prices. ii) A net book may be sold or offered for sale to the public at less than the established net price if a) it has been held in stock by the bookseller for a period of more than twelve months from the date of the latest purchase by him of any copy thereof and 101 b) it has been offered to the publisher at cost price or at the proposed price whichever shall be the lower and such offer has been refused by the publisher. iii) A net book may be sold or offered for sale to the public at less than the net published price if it is second-hand and six months have elapsed since its date of publication. iv) A net book may be sold at a discount to such libraries, book agents, quantity buyers and institutions as are from time to time authorised by the Council of the Publishers Association of such amount and on such conditions as are laid down by the instrument of authorization. Such amount and conditions shall not initially be less or less favourable than those prevailing at the date of this agreement. v) For the purpose of this clause (i) hereof a book shall be considered as sold at less than the net published price if the bookseller a) offers or gives any consideration in cash to any purchaser except under licence from the Council of the Publishers Association or b) offers or gives any consideration in kind (e.g card indexing, stamping, reinforced bindings, etc., at less than the actual cost thereof to the bookseller). vi) For the purposes of this agreement and of these standard conditions: Net book shall mean a book, pamphlet, map or other similar printed matter published at net price. Net price and published price shall mean the price fixed from time to time by the publisher below which the net books shall 102 not be sold to the public. Public shall include schools, libraries, institutions and other non-trading bodies. Person shall include any company, firm, corporation, club, institution, organisation, association or other body. vii} The above conditions shall apply to all sales executed in the United Kingdom and the Republic of Ireland whether effected by wholesaler or retailer when the publisher's immediate trade customer, whether wholesaler or retailer, or the wholesaler's immediate trade customer,is in the United Kingdom or the Republic of Ireland. We the undersigned several firms of publishers further agree to appoint and each of us does hereby appoint the Council of the Publishers Association to act as our agent in the collection of information concerning breaches of contract by persons selling or offering for sale net books, and in keeping each individual publisher informed of breaches in respect of such net books as are published by him and we further hereby undertake and agree that we will each enforce our contractual rights and our rights under the Restrictive Trades Practices Act 1956 if called upon to do so by the Council of The Publishers Association, and provided that we shall be indemnified by the Publishers Association if so requested by us in respect of any costs of such action incurred by us or by the Council of the Publishers Association on our behalf. 103 APPENDIX 2 ARTICLES 85(1) AND 85(3) OF THE TREATY OF ROME. Article 85(1) prohibits as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market. Particular examples of agreements which are prohibited are namely those which: directly or indirectly fix purchase or selling prices or any other trading conditions; limit or control production, markets, technical development, or investment; apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Article 85(3) states that the provisions of Article 85(1) may be declared inapplicable in the case of: 104 any agreement or category of agreement between undertakings; any decision or category of decisions by associations of undertakings; any concerted practice or category of concerted practices;which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. 105 • I . I