Digital downloads in Oz
commentary / p2pnet: One of the great consumer success stories of the late 1990s was the introduction of parallel imports in the music industry. Parallel imports allow retailers to import authorised CDs from anywhere in the world. Retailers can legally sell these CDs in Australia if it is commercially worthwhile, and many do, delivering cheaper CDs and more variety to more consumers. Parallel imports are the reason we can purchase chart albums in some Canberra shops for a lower cost than was the case in the past.
Parallel imports are the reason your local retailer will order a CD for you if he doesn’t have it in stock – even if he has to make the order from overseas. Parallel imports are even the reason you can legally order CDs from international companies like Amazon. Artists benefit from parallel imports – they receive sales royalties whether or not the CD is manufactured locally or is imported from say the US into Australia.
Despite protestations by the recording industry that parallel imports would kill the local music industry, local artists have continued to thrive since the introduction of parallel imports. A ‘’snapshot” of a post parallel imports marketplace finds local acts like the Veronicas, Shannon Noll, Missy Higgins, the Rogue Traders, Ricki-Lee, Pete Murray and Anthony Callea near the top of the ARIA music charts. All of these artists became successful after the introduction of parallel imports.
Given the success of parallel CD imports, why have we allowed digital resellers of sound recordings and record companies to turn back the clock, and profit from the absence of parallel import laws in the Australian digital music market? The international recording industry has proudly proclaimed that there are over 300 international resellers of digital music downloads. Yet only a handful of these resellers operate in Australia, including Apple, Telstra, Destra and ninemsn, and the prices charged by these services typically range from $1.69 to $1.89 per track. In the US, digital download prices are as low as $US0.88 per track ($A1.20) for the Wal-Mart service.
Effectively Australian digital download prices are up to 55 per cent higher than US prices. In addition, the range of tracks available for digital download in the US far exceeds the range available in Australia. For example, unlike Apple’s US iTunes service, the local iTunes service lacks Sony/BMG repertoire. Other Australian digital download services lack many ”chart” titles. Under current legislation, if physical CDs were 55 per cent more expensive in Australia than the US, or were unavailable in Australia, retailers could simply import the CDs from the US and sell them in Australia. However, parallel import laws do not operate in the Australian market for digital music downloads.
As a result, consumers are forced to accept the excessive prices and limited range foisted on them by local digital download services. In an absurd example, digital downloads by Australian artists Delta Goodrem and INXS are available on the US iTunes service, but are not available on the Australian iTunes service. Further, Australians are locked out of the US service unless they have a US issued credit card. This ”lock out” takes place because the world has been divided into different territories or music markets.
Each territory has its own pricing for digital downloads, and its own available repertoire range. In this way the digital download market operates the same way as the market for physical CDs in the days prior to the introduction of parallel imports. In effect, the music industry has been able to surreptitiously resurrect territoriality.
Territoriality was lost by record companies in the late 1990s when parallel imports were introduced. With territoriality resurrected, consumers again face the twin banes of excessive prices and limited choice. As a result, local digital music resellers are protected from international competition, record company profits are maximised, and consumers are left to gaze across the Pacific in envy. In the past ”major” record companies have been criticised for being large, oligopolistic organisations focused on
maximising shareholders returns. So, when did we allow digital music resellers to become the new all powerful music oligopolies? Why did we allow record companies and traditional retailers – who are bound by parallel import laws, to cede control to on line resellers who are not bound by parallel import laws? Who permitted this cosy arrangement to take place?
Has anyone else noticed the irony that while the leaders of the digital revolution were proclaiming the democratisation of the music industry as a result of the impact of new technologies, these same new technologies were being used to create a closed, uncompetitive market place? The operation of the Internet was supposed reduce the cartel powers of record companies, which have long disadvantaged consumers. It was supposed to create a democratic environment, thereby delivering cheaper music and a wider range of repertoire to consumers.
The power of the record companies has now been passed on to digital download music providers who have adopted a technological regime which allows them to circumvent the spirit of Federal Parliament and turn back the clock 10 years.
The Federal Government and the ACCC should conduct a thorough and open review of the financial and legal arrangements between record companies and digital resellers of sound recordings. An inevitable result of such a review will be a recommendation that parallel import laws be extended to not only cover the market for physical CDs, but also cover the digital music market.
This is the only way to ensure that consumer rights are protected in the digital age. However, the real danger is that in this complex market of excessive prices, as well as competing and incompatible technologies, the digital revolution may be allowed to by-pass consumers entirely.
Alex Malik
[Alex Malik is a lawyer, music industry commentator, and PHD researcher at the University of Technology, Sydney, Australia.]
November 22nd, 2005 at 2:16 pm
Quote From ARTICLE:
The operation of the Internet was supposed reduce the cartel powers of record companies, which have long disadvantaged consumers. It was supposed to create a democratic environment, thereby delivering cheaper music and a wider range of repertoire to consumers.
End Quote:
It has reduced the power of the cartels. Let them continue to restrict those who are willing to buy overpriced downloads, because there is another choice. For the minimum risk of being selected for extortion, one can now get the music that he or she was not allowed to pay for or had to pay an excessive amount for, from the Internet at no cost. It has also turned the cash cow consumers back into customers. The customer is the boss, not the cartels, and the sooner they realize this, the sooner they can go back to business.
November 22nd, 2005 at 3:16 pm
I know of one digital download company that would welcome paralell imports in non US markets becuse at the momnet they have to negotiate with the rights holder in every country they wish to operate .
November 24th, 2005 at 11:59 pm
Quote:
The Federal Government and the ACCC should conduct a thorough and open review of the financial and legal arrangements between record companies and digital resellers of sound recordings. An inevitable result of such a review will be a recommendation that parallel import laws be extended to not only cover the market for physical CDs, but also cover the digital music market.
My Comments:
Nice idea, but for this to work the Federal Government would somehow have to force iTunes USA to accept payments from non-USA credit cards. This is out of their jurisdiction, so this will never happen unless they strike some sort of agreement with the US Government to pass such a law.
What I find hard to understand is why the record companies (well the majors in particular) ever desired to go down the path of maintaining territories. I can only ponder that it comes from the dinosaurs at the top who are fixed in that mindset. Territories make good sense when you are dealing with distribution of physical goods, but with the borderless internet they could have achieved tremendous efficiencies by having a single point of downloads for the whole world. Having geographically dispersed retailers is unecessary and really makes no sense when it comes to digital downloads. This would be very anti-competition of course, but they had the opportunity of being the sole download outlet for their own releases where they were free to set their own prices and policies (according to the variable pricing model they want Apple to adopt, for example). They had the opportunity of not needing any retailer taking a cut of the revenue. The only task needed is to have a local promotional presence in each territory.
Instead we find ourselves with this curious beast of a proliferation of download retailers, for whom the work of uploading files, maintaining databases, DRM encoding tracks etc.etc. has to be repeated for each one, incurring unecessary duplicated costs every time. Aggregators have begun to emerge to help reduce some of this duplication and work for the owners of tracks, but then a further cut of the revenue is gobbled up and presumably the portion flowing back to the artists is reduced.