CHAPTER 5
CONCLUSIONS AND RECOMMENDATIONS
Introduction
5.1 The purpose of this Chapter is to set out the Committee's conclusions
about the Bill and its recommendations to Parliament. These conclusions
have been drawn from the evidence made available during the inquiry.
Competition
5.2 In principle, and in practice, competitive markets yield the best
possible prices for consumers. As the Australian Chamber of Commerce and
Industry pointed out, this approach has underpinned Australia's trade
and industry policies in recent years. In the recorded music industry,
Australia currently has competitive markets in CD manufacturing, in music
retailing, and also in contracting, promoting and managing musicians.
Individual CDs compete ferociously for the attention and the wallets of
consumers. The only segment of the industry that is not fully exposed
to competition is the wholesale distribution of CDs.
5.3 This market segment is not exposed to competition as a result of
the operation of the Copyright Act. This Act provides a series of necessary
protections for composers, musicians and others designed to ensure that
third parties do not `free-ride' on their creative output. However, as
an ancillary consequence, the Act also enables copyright owners to restrict
the distribution of otherwise legitimately produced copies of their work.
This is an unnecessary and undesirable protection. While it is a territorially
based protection of long-standing, it is inappropriate given the structural
changes taking place in markets – principally the growing integration
of the world economy, and the effects of technological change. A better
principle in these circumstances is that put forward by the ACCI: `legal
to produce; legal to import'.
5.4 This has been recognised by a growing number of countries. As the
Department of Communications and the Arts pointed out, Singapore, Malaysia,
Japan, Canada and Korea all permit parallel importing in some form. Member
countries of the European Economic Area can import from other member countries.
The US Supreme Court recently decided that goods manufactured in the US
and exported could be re-imported without the consent of the US copyright
owner.
5.5 In Australia, this protection is being used to deny Australian consumers
the full benefits of price competition.
The import monopoly and consumers
5.6 As indicated in Chapter 2 of this report, the issue of the parallel
import of CDs into Australia has been debated and considered, both academically
and politically, for more than 10 years. The debate has sought an appropriate
balance between the protections necessary for the creative work of musicians
and composers, and the rights of consumers.
5.7 As a result of this debate, which has continued during its inquiry,
the Committee concludes that:
- the Australian record industry is dominated by a handful of major
foreign-owned record companies which predominantly wholesale foreign
music;
- parallel import restrictions enable these companies to practise international
price discrimination;
- as a result of this price discrimination, prices for CDs in Australia
are higher than they are in many countries, and higher than they would
otherwise be – the fact that Australians are major users of facilities
for on-line purchasing over the Internet graphically indicates this;
and
- removing the import monopoly and encouraging competition will provide
an incentive for CD prices in Australia to be reduced, and will also
make available to Australian consumers a much greater range of music
than is presently released in Australia.
5.8 In proposing to remove the import monopoly, the Committee concludes
that the Copyright Amendment Bill (No 2) 1997 will achieve its stated
aim of seeking to benefit consumers. In coming to this conclusion, the
Committee has had regard to (among other things) the evidence of retailers
such as Woolworths, the evidence of consumers as put forward by the ACA,
and the ACCC's analysis of internationally available purchase prices for
CDs.
5.9 The Committee considers it likely that such price reductions will
occur as a result of the threat of imports rather than any flood of imports.
It is similarly likely that parallel imports will be an additional rather
than an alternative source of supply of CDs.
5.10 While the Bill will clearly benefit consumers, as the Explanatory
Memorandum observes, others may be adversely affected.
The Australian music industry
5.11 During the inquiry, claims were made that the Bill might adversely
affect the health of Australia's music industry. Music is not a philanthropic
or benevolent undertaking. It is an essentially speculative, high risk,
high return business. All participants may be involved in this industry
for love but, in general terms, they are also in it for reward.
5.12 Unfortunately most recording artists are never appropriately rewarded
for their music. Copyright in a sound recording is usually owned by a
record company. Musicians receive advances against which costs and royalties
are recouped. As the PSA discovered, and as was asserted to the Committee,
most musicians remain `unrecouped' throughout their artistic lives. They
will remain unaffected by parallel imports. Some musicians may achieve
considerable local success, with international success - while significant
and desirable - remaining rare. These musicians are likely to remain unaffected
by parallel imports.
5.13 Musicians who achieve international success, or who are `recouped,'
or who own their own copyrights, may in some circumstances be affected
by parallel imports. These musicians and their representatives can best
pre-empt any possible implications of parallel imports (eg, the dumping
of deletions) in their contractual negotiations.
5.14 All musicians will be advantaged where price reductions bring about
increased demand.
5.15 The Committee was continually presented with instances of industry
exploitation in its various forms. The implicit argument often seemed
to be that the major record companies should be permitted to exploit consumers
through the import monopoly because everyone else in the industry was
exploited in some other way. The Committee was not persuaded of the logic
of this approach.
5.16 Major record companies are identified as potentially disadvantaged
by the Bill. If this happens, it will simply involve the replacement of
monopoly profits with normal profit levels.
5.17 Investment in the industry is unlikely to stagnate in the new climate.
Investment is generally undertaken on a speculative or commercial basis.
Investment by the majors generally occurs only after an artist has already
demonstrated some commercial potential. The majors may occasionally be
developers of talent, but they are rarely discoverers or nurturers of
talent – this is a thankless task left to smaller, more dynamic independent
record labels and publicly funded radio. The health of these organisations
is not directly related to the profits reaped by the majors.
5.18 Nevertheless, the Committee sees the possible merit in an inquiry
which establishes the economics and `work practices' of the industry more
definitively and in more detail. Such an inquiry, by an organisation such
as the Productivity Commission, would provide useful information in any
discussion of the need for a music industry policy as advocated by some
who provided evidence to the Committee.
Composers
5.19 The Committee received much evidence on the potential effect of
the Bill on Australian composers. With some exceptions, the majority of
royalties received by Australian composers are derived from recordings
of their work by Australian artists – usually the bands of which
they are members. These recordings will usually not be internationally
released. In only a small number of cases will Australian recordings be
made overseas and then imported into Australia.
5.20 Falls in royalty income as a result of lower priced CDs are likely
to be compensated for through increased sales.
5.21 Nevertheless, the Committee noted the possibility that composers
might be unfairly disadvantaged in some particular circumstances: where
CDs containing their work were imported from a country with no copyright
law, or from a country with a copyright law which did not protect foreign
rights holders, or from a country which enabled copies to be made under
a compulsory licence. The Committee considered that the Government should
examine any disadvantage that the passage of the Bill might produce for
composers in these circumstances.
The relationship of the Bill to the TRIPs agreement
5.22 While the TRIPs agreement clearly permits member countries to authorise
parallel imports, a question was raised as to indirect breaches of the
TRIPs agreement by the Bill. These alleged breaches involved imports of
CDs containing musical works in circumstances similar to those outlined
above. As part of its examination of the impact of the Bill on the rights
of composers, the Attorney-General's Department should be formally asked
to advise on the issue of indirect breach of TRIPs.
CD manufacturers
5.23 The Committee concludes that the Australian CD manufacturing sector
is highly efficient and world competitive. It operates successfully in
an unregulated environment in which record companies are currently able
to source their product from anywhere. The fact that 95% of CDs sold in
Australia are manufactured in Australia is indicative of the industry's
efficiency and strength. While imports may affect production levels to
some extent, as noted above, it is likely that the threat of imports will
prove effective, and that this industry will continue its strength.
CD retailers
5.24 The Committee has already concluded that lower CD prices will bring
about an increase in demand. This should benefit all CD retailers, who
will also have access to a larger range of product through a number of
alternative suppliers.
5.25 Many of the problems specifically faced by smaller CD retailers
are typical of the problems faced by all small businesses which compete
with larger businesses. They are often also typical of the problems encountered
by all businesses forced to confront the realities of the global market
place. The Committee believes that CD retailers will be able to differentiate
themselves on service, product knowledge, and their ability to satisfy
niche music markets or sub-markets. The problem of obtaining access to
retail shelf space (adverted to by Shock Records and the Country Music
Association of Australia) should become less of a problem.
Piracy
5.26 It is clear that Australia currently has a low level of piracy.
This is a result of the structure of the Australian retail market, and
because Australia has a culture of compliance. It is also because the
import monopoly makes it easy to detect pirated copies. However, it is
no argument for the continuance of a monopoly that it is easy to enforce.
5.27 The Bill deals only with legitimate CDs. Nothing in its provisions
will permit pirated CDs to be imported; indeed its onus of proof provision,
and its increased penalty provisions, should of themselves assist in minimising
piracy.
5.28 In the short term, piracy will be minimised through concerted international
action. Ultimately the same technology that has made copying easier is
likely to make the detection of copying easier.
Recommendations
5.29 The Committee recommends that:
- the Copyright Amendment Bill (No 2) 1997 be passed;
- the Government seek advice from the Attorney-General's Department
confirming there are no potential indirect effects of the TRIPs Agreement
on the Bill;
- the Government examine the desirability of applying uniform laws to
govern the importation of all forms of intellectual property;
- the Government consider the desirability of the Productivity Commission
undertaking a comprehensive inquiry into the music industry to determine
whether there is a need for an industry policy or industry assistance;
and
- the Government examine the effect that the passage of the Bill might
have on composers where a CD containing their work is imported:
- from a country with no copyright law, or
- a country with a copyright law that does not recognise foreign
copyright owners, or
- a country with a copyright law that provides for compulsory licences.