Minority Report
by Labor Senators
Hon Nick Bolkus - Jim McKiernan - Shayne Murphy
Introduction
This Committee has been asked to report on the necessity for the Copyright
Amendment Bill (No. 2) 1997, and in particular, on the benefit and
detriment that is likely to flow from the legislation.
We have been assisted in our deliberations by almost 200 written submissions
and by public and private hearings over the course of 7 days.
This is of course indicative of the broad interest which the subject
matter of this Bill - the removal of the prohibition on parallel importation
of music CDs - has in government, amongst interest groups and to the general
public.
This fact that the overwhelming majority of submissions were opposed
to the Government's proposed legislative change is also indicative of
the strength and breadth of feeling there is against the removal of the
parallel import restriction.
It is very important to note that of the 192 submissions that were received
by the Committee, less than 20 were supportive of the Government's Bill,
and over 160 were opposed.
Indeed, support for the Bill could only really be found amongst major
retailer chains and amongst some familiar advocates for the Government's
cause, most significantly and predictably, Professor Alan Fels of the
Australian Competition and Consumer Commission.
Although we regard it as important that opposition to the Bill is well
founded across a broad range of the community, and that the Government's
support derives from a very narrow sectional base, this, in itself, has
not been decisive in leading us to conclude that we should oppose the
Government's proposed Bill.
Rather, Labor Members of the Committee firmly believe the Copyright
Amendment Bill (No. 2) 1997 should be rejected by the Senate because
it is bad policy.
The Bill is bad policy at its core because it proceeds from an entirely
erroneous assumption that parallel importation is an issue about industry
protection, free trade and monopoly privilege. The evidence overwhelmingly
demonstrated that parallel importation is in fact an issue about the protection,
development and enhancement of intellectual property rights, especially
of copyright in musical works and sound recordings.
The Bill is bad policy because it fails properly to take into account
the inevitable damage which it will inflict on the Australian music industry.
The evidence clearly proved that most, if not all, the players in the
Australian music industry will have their interests damaged or destroyed
by this legislation.
The Bill is bad policy because it is highly unlikely to deliver anything
like the reductions in CD prices that have been suggested by the Government
in the popular press. The evidence on the price issue demonstrated one
overwhelming certainty - that the prospects for any fall in CD prices,
or of any substantial fall, are uncertain.
In short, the Bill is bad policy because it fails to strike the appropriate
balance between potential damage to the music industry and potential savings
to the consumer.
We are pleased to note that government members of the Committee have
also reached the same conclusions that the Bill is bad policy, and that
it's foundations are flawed. Labor members are disappointed that the government
members of the Committee sought to disguise these facts by recommending
that the Bill be passed with reservations and suggestions for other actions.
Even if the government accepted the majority's recommendations and implemented
then, all the defects contained in it would not be corrected.
We cannot and will not support a Bill which seeks uncertain benefit for
the consumer at the expense of certain detriment to the music industry
and to Australian cultural development.
Parallel importation is about intellectual property, not industry
protection
The issue
During the course of the evidence, and indeed in the broader public discussion
of this issue, there has been a constant debate about the nature and effect
of the prohibition on parallel importation, and therefore of the Government's
proposal to remove that prohibition.
The written submission by the Australian Music Publishers Association
Ltd probably best encapsulated the two sides of this debate when it stated:
"The provisions in the Copyright Act in question are viewed
by the Government as a form of industry protection. But copyright cannot
be viewed through the narrow perspective of industry protection. It
is the lawfully established, internationally accepted way of defining
and protecting creative intellectual products in the global marketplace.
The Australian music industry is not seeking protection in the sense
of special treatment. It is seeking to operate on exactly the same basis
as our competitors in the English speaking world". (AMPAL,
Sub 147, p16).
In other words, the Government - and indeed Coalition members of the
Committee - tend to regard the prohibition as a form of music industry
protection, which hinders free international trade in music CDs.
Removal of the prohibition is therefore viewed by the Government as a
trade liberalisation measure which will increase competition in the Australian
CD music market, thus allowing the forces of supply and demand to force
down the prices of CDs.
On the other hand, participants in the music industry emphasise that
the prohibition is an integral and intrinsic aspect of intellectual property,
and that it is a necessary part of the property right known as copyright.
They therefore see the removal of the prohibition as the direct removal
of private property rights in the intellectual property they have created,
namely, the sound recording or underlying musical work - the song.
The evidence
There may be some superficial attraction in the Government's view that
parallel importation is an industry protection issue. In short, a prohibition
on imports looks and sounds like an industry protection issue.
However, the evidence which was placed before this Committee overwhelmingly
demonstrated that such a view is ignorant in the extreme, and reflects
a fundamental misunderstanding of the nature of copyright and of the importance
of the private property rights it provides.
That evidence clearly proved, at least to anyone who had an open mind,
that the prohibition on importation is fundamentally an issue about intellectual
property, and specifically, about copyright.
Indeed, the fact that the Bill being proposed is an amendment to the
Copyright Act would seem to provide a fairly big hint that the
Bill is fundamentally about copyright, not industry protection.
This was a point that was well made by Mr Dobe Newton in a somewhat ironic
observation:
"We have the government on record as saying endlessly, and
to the great chagrin of me personally and a lot of other people I know,
that this is not an intellectual copyright argument but an argument
about prices. . . . As you will see in my submission, and as a lot of
other people have said, if you are going to amend the Copyright Act,
how could it be about anything other than a matter to do with copyright?"
(Newton, Hansard, p145).
However, whilst this is no doubt important, more important in demonstrating
that this Bill is essentially about intellectual property and copyright
was the overwhelming evidence of the serious, adverse effects the Bill
will have on the rights that protect the intellectual property in music
CDs; that is, on the copyright in music CDs:
the Bill will establish a different copyright regime for music CDs
compared with other forms of intellectual property;
the Bill is inconsistent with the government's approach to copyright
in other countries; and
the Bill is inconsistent with the copyright regime for music CDs in
most other countries.
The Bill abolishes private rights protecting intellectual property in
music CDs
As was pointed out by AMPAL above, copyright is the lawfully established,
internationally accepted way of defining and protecting creative intellectual
property - such as sound recordings, musical works, literature and computer
software.
Copyright does this by describing the bundle of rights which inhere exclusively
to the owner of the copyright, and then proscribing the infringement of
those rights.
Importantly, copyright generally, and the specific rights attached to
it, are private property rights held exclusively by the owner (or by any
licensee). This means that as a matter of law and economics, copyright
is as much a piece of property as land or goods. It is a right that can
be, and is, bought and sold. It is a right that can be, and is, licensed
to others.
It was the man behind the success of Savage Garden, Mr James Woodruff,
who reminded the Coalition members of the Committee that:
"What you guys are calling a monopoly are the exclusive rights
to the band. Buying rights is a monopoly. That is what happens when
people buy rights . . . . It is a purely rights based argument".
(Woodruff, Hansard, p138).
In the case of music CDs there are actually 2 types of copyright.
One is the copyright in the sound recording, which is generally owned
by the record company and/or artist.
The other is the copyright in the underlying musical work - the song
- which is generally owned by the music publisher and/or composer.
Under the existing copyright law in Australia, the bundle of rights that
inhere to the copyright owners of both musical works and sound recordings
include the right to authorise the making of copies of their copyright
material, and - most importantly for the purposes of this Bill - the right
to authorise their importation into Australia.
It is this latter right that will be abolished by this Bill.
In practical terms, this means that copyright material (both in the sound
recording and the underlying musical work) will be able to be parallel
imported into Australia without the necessary permission of the respective
Australian copyright owners.
In terms of the private rights that protect the intellectual property
in the sound recording and musical work, this means that a fundamental
aspect of those rights, and of the protection they provide, will be abolished.
As Mr Emmanuel Candi noted in evidence on behalf of the Australian Record
Industry Association, this is a central point the Government appears to
have missed:
"These rights we are talking about today and that the Senate
has been asked to contemplate to wipe out are private property rights.
They are individual pieces of private property owned by various people
resident in Australia . . . . I do not think it has been grasped that
this is about negativing longstanding property rights that people have
purchased, have paid for, have invested in - they have paid for it in
advance as well - have based their business on and have promoted supply
of material to the public. . . . .We want you to understand that publishers,
record labels, artists and composers own property rights, and this Bill
is talking about taking them away". (Candi, Hansard, p20).
And in a similar vein on behalf of the owners of copyright in musical
works, Mr Jeremy Fabinyi observed:
"The Bill renders valueless rights which publishers have spent
tens of millions of dollars acquiring. . . . You pay a lot of money
to acquire those rights. Those rights become meaningless if you cannot,
as the Australian copyright owner, collect the royalties flowing from
the exploitation of those rights in this territory. Therefore, the rights
for which you paid large sums of good Aussie dollars evaporate".
(Fabinyi, Hansard, p81).
In short, the Bill has the effect of abolishing private property rights
- copyright - that protect intellectual property in sound recordings and
musical works.
It is always a serious step for any government to abolish private property
rights by legislation.
In this present case, we believe it is outrageous that this Government
is preparing to do precisely that, yet appears to be ignorant that it
is doing so, or at very best for them, simply does not appreciate the
nature and seriousness of its proposed action.
We also note in passing that the Majority Report suggests that the private
property right that is being abolished by this Bill - the right to authorise
importation of a copyright work - is in some sense a secondary right.
If this is an attempt to minimise the importance of the right in question
it is sadly misdirected. The fact is that as a matter of law, and as a
matter of economics, the import right is a property right which gives
value to an owner's copyright by preventing that copyright being undermined
by unauthorised imports. To abolish it is to inevitably and seriously
diminish the value of copyright, both generally, and in the hands of copyright
owners.
The Bill will establish a different copyright regime for music CDs
It is important to understand, as was alluded to above, that copyright
does not only provide protection for the intellectual property in music
CDs.
This point was forcefully made by Mr Brett Cottle of the Australasian
Performing Rights Association when he said:
"There seems to be a prevailing philosophy running through
those who support the contents of the Bill that the existing importation
rights are some form of special treatment or special subsidy for the
music industry in this country. Nothing could be further from the truth.
This is a right which is granted in relation to all forms of copyright
material. It is a right which is granted in relation to films. It is
granted in relation to software. It is granted in relation to all forms
of literature, including books and printed materials. It is granted
in relation to videos. It is not a special subsidy for the music industry
at all. It is considered to be a core right in relation to intellectual
property, and certainly in relation to rights of copyright. It is also
considered to be a core right around the world. Very few countries in
the world have dismantled this right". (Cottle, Hansard, p57).
As Mr Cottle mentions, the right which is proposed to be abolished by
this Bill in relation to music CDs - the right to authorise importation
of the copyright work into Australia - will continue to exist in relation
to all other forms of intellectual property.
In fact, as Mr Cottle pointed out in evidence and in his written submission,
if the Bill is enacted there will be 3 discrete regimes of treatment of
importation under the Copyright Act:
one for books, with a limited right of parallel importation based on
availability;
one for music CDs, with no protection against parallel importation;
and
one for other forms of intellectual property, including software, with
full protection against parallel importation. (Cottle, Hansard, p57
& APRA, Sub 145, p5).
But one could certainly be forgiven for asking: if it is good policy
to remove this right in relation to music, why isn't it good policy to
remove it in relation to other forms of copyright? What is it that so
distinguishes music CDs from other forms of intellectual property that
justifies the remarkable difference in legislative treatment?
We can only wonder whether, during the recent meeting between Mr Bill
Gates of Microsoft and the Federal Cabinet, the issue of copyright protection
was raised with him. We wonder whether the Prime Minister or Communications
Minister raised with him the prospect of removing the right enjoyed by
Microsoft to authorise importation of intellectual property in software
into Australia.
We suspect not.
And we doubt that the Government is able to give any rational justification
for treating copyright in music CDs so differently - indeed, so much more
adversely - than copyright in other forms of intellectual property.
The Bill is inconsistent with the government's approach to copyright
in other countries
Labor Members of the Committee were surprised to hear evidence from a
number of parties that Australia has recently been involved in a determined
effort to encourage better standards of copyright protection in other
countries.
We were surprised because, as the written submission by the Australian
Copyright Council demonstrated, this Bill - which reduces copyright protection
in Australia - is inconsistent with these international efforts (ACC,
Sub 164, p6).
This was painted in the most graphic terms by Mr Cottle of APRA:
"There is no question that this (the Bill) is considered throughout
the region and further afield as an overall diminution in the level
of property protection accorded to intellectual property in this country.
It comes at a time when I have received correspondence from the government
urging me to participate in APEC talks, discussions and workshops to
raise the level of intellectual property protection throughout the region.
The two issues are absolutely inconsistent". (Cottle, Hansard,
p59).
And by Mr Fabinyi of AMPAL:
"The Bill, as it is currently drafted, would be considered
throughout the world as one of the most radical and draconian attacks
on authors' rights ever perpetuated by a developed nation".
(Fabinyi, Hansard, p81).
This evidence makes it clear that in comparison to the copyright standards
Australia is asserting for the rest of the world the proposal in this
Bill moves in completely the opposite direction.
We also mention briefly that there was a strong suggestion made in the
evidence before us - for example, by AMPAL - that this Bill will place
Australia in breach of its international obligations in relation to protection
of intellectual property (under the TRIPs Agreement). We did not find
the evidence that was presented on this issue conclusive in any way and
therefore prefer not to pass judgement on this issue.
Suffice to say for present purposes that, irrespective of whether the
Bill is in breach of TRIPs, one could be forgiven for accusing the Government
of telling the rest of the world, and our region in particular, to do
as it says not as it does.
The Bill is inconsistent with the copyright regime for music CDs in
most other countries
One of the most extraordinary features of the arguments put forward by
the Government in support of their Bill has been their reference to cheaper
CDs prices in other countries which, ironically, have the same prohibition
on parallel importation that this Bill is seeking to take away in Australia.
The hypocrisy of these references did not surprise us.
What did surprise us was the lack of appreciation by the Government that
these references effectively broke any alleged nexus between the prohibition
and price (we will discuss the price issue later); and that they illustrated
all the more starkly how important the prohibition is regarded in other
countries as part of their copyright regime.
The examples of countries with a prohibition on parallel importation
are numerous.
All major countries concerned mainly with Western music have import provisions
in their copyright law - most importantly, the USA, but also the UK, Canada,
New Zealand and the European Union. (ARIA, Sub 153, p36).
Indeed, the UK specifically preserved their import provisions after a
1994 Inquiry by the UK Monopolies and Mergers Commission. The Commission's
Report found that repealing the parallel import rights would be inconsistent
with international developments in intellectual property. (ARIA, Sub 153,
p3)
More recently, Hong Kong moved to strengthen laws prohibiting parallel
importation of intellectual property, even though it is regarded, and
regards itself, as probably the most free trade country in the world.
And even as this Senate Inquiry was collecting evidence, we learned that
the Norwegian Parliament has voted down a proposal by the conservative
party to lift Norway's current ban on parallel imports of recorded music.
Indeed, the only significant countries that have adopted the path Australia
is proposing to tread are Japan (which is largely dominated by Japanese
language music and protected because it is in the Japanese language) and
Singapore (which we will see later is suffering from an epidemic of piracy).
Put simply, we find it extraordinary that the Government can be so blind
to the importance of copyright in music CDs when the practice in the rest
of the world provides such a shining example of that importance.
We also note in passing that the Majority Report suggests, and attempted
to show, that the parallel import issue remains a live issue internationally.
Unfortunately however, the example that were chosen could not have been
more inappropriate. The UK and Norway we have already dealt with. Both
have recently confirmed their support for a prohibition on parallel importation.
As for the United States, it is true that a recent Supreme Court case
has reflected on the issue.
However, as the correspondence from the US Ambassador to this Committee
shows (it is quoted in the Majority Report) the opposition of the US Government
to this proposed Bill remains as strong as ever.
The Conclusion
The evidence before the Committee overwhelmingly demonstrated that the
parallel importation issue is fundamentally about intellectual property
and copyright.
Quite frankly, when regard is had to the very nature of the Bill and
to the immense damage the Bill will do to intellectual property rights,
it is extraordinary that the Government could continue to believe that
parallel importation is about industry protection and prices.
Indeed, we are reminded of a statement made by the Prime Minister at
the time the Government's decision was announced:
"It is not an issue involving copyright, there is proper protection
of copyright, there is proper protection against privacy, this is an
issue of whether you want cheaper or dearer CDs". (John Howard,
Press Conference, 16 October 1997, Sydney).
The kindest thing Labor Members of the Committee can say about this comment
is that it was ill-informed. To be less kind would be to accuse the Prime
Minister of being even more deceiving than even we in the Opposition had
believed.
The relevance of this misguided belief is that it means the Bill is bad
policy at its core because it proceeds from an entirely erroneous assumption.
It means that the Government is blind to the damage the Bill will inflict
on the music industry generally, and on participants in the industry specifically.
And it means the Government's hopes for a substantial fall in CD prices
are highly unlikely to be realised.
The Bill will damage the Australian music industry, and participants
in it
The importance of copyright to investment
Generally
In order to understand the damage this Bill will inflict upon the Australian
music industry, and on those who are part of it, it is necessary to appreciate
the importance of copyright to investment in the industry generally, and
in sound recordings and musical works in particular.
The simple fact which came through time and time again in the evidence
is that if copyright protection in intellectual property is diminished
so too will future investment in that property be diminished.
This simple fact was elegantly explained to the Committee by Ms Baulch
of the Australian Copyright Council:
"The copyright system operates by giving a person legal rights
in a work that enable that person to sell or otherwise derive income
from the work. It is this ability to derive income from the rights in
the work which is intended to foster the creation of new work and investment
in publishing and distributing the work. . . . The value of Australian
rights and the investment based upon them are diminished if parallel
imports are allowed". (Baulch, Hansard, p64).
There are in fact two important points to be derived from this explanation.
The first point is a general one: the rights held by copyright owners
in intellectual property are the reward for the owner's investment in
and creation of that property. In other words, if a composer composes
a song, the rights enjoyed by the composer under copyright - that is,
the exclusive right to reproduce the song and the exclusive right to authorise
importation of the song - are the composer's reward, both as a matter
of law and economics. It is this right which the composer can sell, licence
or otherwise exploit in order to obtain a monetary reward for the creative
effort that has produced the song.
Thus by undermining this right this Bill will actually undermine the
potential for reward that the right provides.
We would note in passing that this Government claims to be passionately
committed to turning Australia into the clever country, when at the same
time it is proposing to undermine the very rights that reward people for
creating and investing in intellectual property. This is an extraordinary
inconsistency, and we can only wonder whether the Government, and in particular
whether Senator Alston, has even thought this issue through sufficiently
to understand this.
The second point is a specific one: the proposal contained in this Bill,
the abolition of the right to control imports of music CDs, will in itself
significantly diminish the value of copyright in recorded music in Australia.
The reasons for this is obvious. The right which this Bill does not propose
to abolish - the exclusive right to reproduce the work - becomes an almost
meaningless economic right if the copyright owner cannot control imports.
There is almost no point in a copyright owner being able to stop someone
else reproducing the work if that other person can in any event import
the work.
Thus, the copyright owner will know that the more he or she invests in
promotion, marketing and distribution of a music CD, the more likely it
is that someone else will seek to capture some of the success of the music
CD by importing copies at a later time. Potential returns on the investment
are compromised, and the value of the property is diminished. (APRA, Sub
145, p3).
This depressing outcome was neatly summarised from the perspective of
an independent record company by the CEO of Shock Records, Mr Nicholas
Caldas:
"If we are not secure in the knowledge that we are the only
people in the market who have that record, we certainly will not be
paying large advances out and we will not be spending large amounts
of money on advertising . . . . to back records that we are not guaranteed
to make the final sale on". (Caldas, Hansard, p127).
It is also interesting to note that James Woodruff provided a specific
explanation of the importance of copyright to investment in the context
of Savage Garden.
Labor Members of the Committee found this explanation particularly instructive
given the Government's frequent claims during the debate about this Bill
that Savage Garden and Mr Woodruff's own business are prime examples of
why their policy is correct.
Mr Woodruff pointed out in no uncertain terms, both in his written submission
and in his oral evidence, that these claims by the Government were wrong.
(Woodruff, Sub 144, p1)
Mr Woodruff in effect posed a simple proposition:
"This (copyright) is fundamental to business. If you own the
rights to something and you pay for them and you develop them and you
promote them, you should be able to protect them. . . . . If any of
you owned or controlled exclusive Australian rights to any property,
be it music, Nike or McDonalds, and a licensee from an international
territory was allowed to export into this country over the top of you,
then you would never invest again. I find this argument astoundingly
simple and cannot understand which part of this Coalition does not comprehend".
(Woodruff, Hansard, p136 & Sub 144, p2).
Thus, in the case of Savage Garden Mr Woodruff explained that Village
Roadshow own the rights to Savage Garden in Australia. Mr Woodruff then
did a deal with Sony in relation to rights offshore. 800,000 Savage Garden
records have been sold in Australia and New Zealand. Under the regime
being proposed by the Government some of the 800,000 albums, probably
well over half of them, would have originated through the Sony offshore
deal, not the Australian rights holder. Mr Woodruff continued:
"In other words, the person who paid for the Australian rights,
promoted the Australian album and paid for the Australian videos would
only be allowed, under the new suggested regime of lifting the parallel
importation restrictions, to pick up half the sales that were due to
them out of the Australian marketplace . . . . This company that did
not pay for the Australian rights, the Australian promotion and the
Australian videos (would make) over half the sales out of the marketplace".
(Woodruff, Hansard, p136).
We believe this evidence alone should make it obvious to any objective
observer that the diminution in copyright protection for music CDs proposed
by this Bill will lead to a significant diminution in the level of investment
in Australia in music CDs, and in the music industry generally.
We note, in passing, that Government members have quoted Mr Woodruff
in the Majority Report. They have heard his evidence but abjectly failed
to understand or comprehend its significance.
In case there is any doubt, however, Labor Members of the Committee propose
to give some detail about the two core reasons why this will inevitably
by the case. Those core reasons are:
The "free-rider" problem
The free rider problem was alluded to in the comments of James Woodruff
quoted above.
The problem arises where parallel importation is permitted because the
Australian copyright owner of a sound recording or musical work cannot
prevent other people from importing that sound recording or musical work
into Australia. Thus, whilst the Australian copyright owner may have invested
considerable sums in Australia developing and promoting the recording
or work, if other people are able subsequently to import the recording
or work into Australia they enjoy the benefits the development and marketing
have secured without having to bear the cost. In effect, these people
"free ride" - ie. secure the benefit of - the investment the
copyright owner has made in Australia to secure the success of the recording
or work in the marketplace.
Clearly this outcome is problematic on a number of levels.
First, it is clear that the "free rider" will have a considerable
advantage over the Australian copyright owner. As Mr Woodruff pointed
out, somebody who has not paid for the Australian rights or the Australian
promotion is definitely going to be able to put a CD into the marketplace
cheaper than somebody who has. (Woodruff, Hansard, p138).
Indeed, in these circumstances we find it very easy to accept Mr Emmanual
Candi's prediction that with parallel imports there will be free-riding
on the considerable promotion activities, especially in regard to the
Top 40; ie. in the demand generation industry where heavy promotion must
occur to generate Top 40 sales. (Candi, Hansard, p19).
Second, as Mr Candi also stated, it is simply unfair to have companies
spending hundreds of thousands of dollars to promote a new Australian
or international act to create sales, just to have another person - be
it a retailer or anybody else - coming in and capturing sales based on
that free riding aspect on their promotion:
"We say it is clearly a disincentive to spend as much money
in promotion, if at all. It will not help expand the market, It does
lead to less unit sales, therefore higher unit costs. . . . it will
definitely affect local activity". (Candi, Hansard, p21).
Finally, it is apparent that the free-rider problem will actually provide
a disincentive to export. If an Australian company records, develops and
promotes an Australian disc it may be unwise to license that disc overseas.
The danger would be that foreign discs could be imported back into Australia
to compete with the Australian ones. The foreign disc would have the advantage
of free-riding on the Australian investment. The only way the Australian
company could protect itself from these foreign free -riders would be
if they didn't license the disc overseas. (AMPAL, Sub 147, p22).
Given these problems we were not surprised when even Mr Phillip Dwyer,
who tended to support much of the Government's arguments, stated that
he has always had sympathy for the "free rider" argument against
parallel importation. (Dwyer, Hansard, p101).
In short, it is the classic reason why parallel importation - and this
Bill - will inevitably diminish investment in the Australian music industry.
The "deletions" problem
The "deletions" problem was also supported by Mr Dwyer as a
very sensible and valuable argument in opposition to parallel importation.
(Dwyer, Hansard, p101).
Indeed, even Professor Fels felt compelled to admit that "you
can point to individual cases where it (the deletions problem) could happen".
(Fels, Hansard, p13)
So what is the deletions problem?
Put simply, it is a problem which will arise because in the US immense
quantities of albums are made prior to release. As soon as the title starts
to fall down the charts these are sold off as deleted product at a minimal
price in respect of which no royalties are paid.
In the absence of a prohibition on the parallel importation of music
CDs this will pose an immense problem for the Australian copyright owner.
They face a depressing scenario if there is an unsuccessful attempt to
break the Australian recording or musical work in the US. As the recording
or work becomes successful in Australia there will be a huge stock of
deleted stock waiting in the US. In the absence of an import restriction,
these stocks will come flooding back into the Australian market, without
the permission of the Australian copyright owner, and without any proceeds
of sale finding their way to the Australian copyright owner.
Unfortunately, this scenario will be all too common because there is
frequently - indeed, some might say almost inevitably - an attempt to
break into the US by an Australian act which has been successful in Australia.
The risk to the Australian copyright owner if that attempt fails is that
huge quantities of deletions will come flooding back into the Australian
market, without reward to the Australian copyright holder.
This consequence was succinctly summarised by Ms Sarah Longhurst, of
the International Managers Forum and herself a manager of some up and
coming Australian bands:
"There is a depressing irony in the fact that the Bill creates
a circumstance for Australian artists and investors wherein the harder
they work and the more successes they have internationally, the more
they are likely to endanger their home market" with deletions and
piracy. (IMF, Sub 171, p2)
In this light, it is little wonder that both Mr Dwyer and Professor Fels
conceded that the deletions issue was a very real problem for parallel
importation.
Indeed, it reinforces the conclusion that this Bill - and its attack
on copyright - will inevitably lead to a diminution in investment in the
Australian music industry.
Why invest in an industry where your investment can be legally undermined
by "free riders" and by deletions?
The importance of investment to the industry
Labor Members of the Committee regard it as self-evident that if investment
in sound recordings and musical works is discouraged by this Bill it is
inevitable that investment in the music industry as a whole will be considerably
diminished, to the obvious detriment of the growth and vitality of the
industry.
This was articulately put by Ms Longhurst from the perspective of those
who need the investment most, the artists:
"If the potential for return on . . . investment (in local
music industry) is seriously limited, then we should and do expect that
there will be significantly reduced amounts of investment in Australian
talent and this diminished investment will inherently result in a radical
shrinkage of the domestic music industry to the disadvantage of all
Australians". (IMF, Sub 171, p5).
Given this, we should all be vitally concerned about some of the estimates
given of the reduction in investment that would follow this Bill.
In its written submission ARIA estimated that the Bill would reduce copyright
owners' sales by a minimum of 30-40% and profitability by double that,
if not more. A 30% decrease in such trade would effectively gut the industry's
profitability and thus its ability to continue to invest in generating
demand, local activity (artist and capital), exports and consumer services.
(ARIA, Sub 153, p40).
Similarly Shock Records, the largest independent record company in Australia,
estimated in their written submission that they would be forced to reduce
their investment in Australian repertoire by around 50%. (Shock Records,
Submission 90, p3).
If this estimates are true - and we have seen no evidence produced by
the Government or anyone else to dispute them - it is obvious that there
will be significant damage to the Australian music industry.
We find it extraordinary that the Government would even propose a measure
that will so obviously damage an industry which is not only the source
of thousands of jobs and export earnings, but which is also so fundamental
in identifying and explaining, to ourselves and others, Australia's cultural
identity.
We are mystified and appalled that the Government fails to heed the serious
concerns that have been express by virtually all the participants in the
industry about the damage this Bill will do to their individual interests.
We now turn to those various participants.
To Part 2 of Labor's Minority Report