Last month, senior executives from Adobe, Apple and Microsoft were summoned to appear before an Australian Parliamentary inquiry into IT pricing policies. It was alleged that Australian consumers can pay up to 70% more for comparable products and services sold in other markets.
Leaving aside the additional costs of distributing and shipping physical goods to Australia, at the heart of the pricing disparity is the practice of “geo-blocking” whereby customers in one location cannot purchase digital or physical products direct from vendors outside their country of residence. It’s the sort of industry practice that prevents Australian consumers buying some print books and CD’s from Amazon.com or Amazon.co.uk (and neither store sells MP3’s to Australian customers).
When asked to explain the apparent disparity in market pricing, the tech execs responded with comments such as, “the inclusion of Australian sales tax in the retail price is confusing”, “it’s a reflection of the cost of doing business in Australia” and “it’s all because of the content owners’ and copyright holders’ archaic territorial licensing practices”.
Their answers were variously described as “evasive“, “unbelievable” and “failed to impress“. The suggestion by one CEO that Australian consumers should fly to the USA to buy cheaper products overseas, was frankly ludicrous, especially as sales warranties given in America would likely be invalid once the goods were brought back to Australia.
When it can be cheaper to buy a CD copy of an album from an on-line music retailer in the UK rather than download the MP3 version from a vendor in Australia, clearly there is something wrong with this picture.
“Parallel imports” and “grey goods” are terms used in the fashion, cosmetic and other retail sectors to describe situations where wholesalers and distributors import branded goods that are technically subject to strict territorial sales and distribution licenses held by third parties. Alternatively, consumers in one country purchase goods direct from a retailer or distributor located in another country, who does not have the rights to sell or export the products to the consumer’s country of residence. The license holders can seek to block these unauthorized imports/exports, but in cases where the license holder has chosen not to distribute those specific goods, these “grey” imports could possibly be deemed legitimate (under the “use it or lose it” principle).
Whatever the legal interpretation of territorial licensing, when it comes to digital content, is geo-blocking still appropriate? Let me offer an illustration:
Imagine you are an Australian traveller on a business trip to New York. You visit a local book shop, to pick up a copy of the latest novel by your favourite author.
Unfortunately, the salesperson tells you the book is not in stock, because the publisher does not distribute that particular title to independent stores; instead, you have to go to the mega book store across town.
After making your way to the mega store, you find out that before you can make any purchase, you have to open an account, submit your credit card details and other personal information (and sign a contract that says things like “you must always keep books bought from our store in our proprietary and specially designed book shelves”).
Just as you are about to make your purchase, the shop assistant asks you for your passport. “Oh, I’m sorry, we don’t sell our books to people from Australia. You have to go to our mega store in Sydney.”
On the way back to your hotel, you phone the publisher (whose office is on your route) to see if you can buy a copy direct from their sales department. The conversation goes something like this:
“You sound Australian. Sorry, but we can’t sell it to you. You have to buy it from our Australian distributor.”
“OK, can you tell me who the Australian distributor is, or which shops stock your titles?”
“I’m not sure. I think it depends on who the author is. Or whether it’s the hardback or paperback edition. Or whether our distributor is importing that particular title. Maybe we only sell it through the Australian branch of the mega book store that wouldn’t sell you it to you while you were in town. Have a nice day.”
Great. With nothing to read on the 20-hour flight back to Australia, you catch up on a lot of episodes of “Bored to Death”, because you don’t expect them to be shown on Australian TV for at least a year. (But that’s another industry scenario…)
Back home in Australia, you visit the Sydney branch of the mega book store. “I’m sorry, we don’t have that title in stock, because we haven’t had enough customer requests to justify importing any copies…..”
Is it any wonder, with these sorts of restrictive commercial practices common in the software and digital content industries, that Australia has the highest level of illegal music downloading by capita, not because all Australian consumers are unwilling to pay for content, but often because customers cannot legitimately buy it.