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Territorial Rights

April 13, 1999 by Mike Shatzkin Leave a Comment

I want to thank the BA for the opportunity to address this meeting today. At my only other opportunity to meet this group, at the Dublin meeting two years ago, you were the most stimulating and responsive audience I can remember. It is a pleasure to be here again. I also want to thank Vista Computer Services for both suggesting and sponsoring my appearance.

The erosion of the English-language publishing “territory” controlled from London has been accelerating for about three decades. Whether or not this erosion is an inevitable consequence of the end of what once was the British Empire, it is, of course, disconcerting to the publishers who once controlled more than half of the global English market.

The first serious shot across the British publishing bow took place in the early 1970s, when American publishers were apparently compelled by the US Justice Department to discontinue the extant practice of respecting the British publishing territories as a routine in contract after contract. This effectively trumped the enforcement of that policy by the British Publishers Association, which acted in defense of its local industry in a manner quite legal and respectable in Britain but considered a “combination in restraint of trade” under American law.

The growth of global companies and the understandable self-interested behavior of the Canadians, Australians, and New Zealanders to protect their own home industries are also forces hastening this erosion. Now you’ll rarely control Canada from London, and you have to meet stringent delivery requirements to maintain control in Australia and New Zealand, even if the British publisher buys those rights under contract.

Recently, British publishers feel themselves under assault in their own home territory. The new Europe brings the threat that American editions could be imported by British stores from Continental wholesalers. The American online retailers cheerfully serve a global market, mostly with copies purchased from American publishers and wholesalers, with little apparent regard for what the rights situation might be in their customer’s home country. And American wholesalers, who are seeing their entire marketplace shift domestically as their terrestrial retailer market shrinks and their online retailer market grows, are looking to export increasing numbers of American editions, taking advantage of lower American prices in the still-frequent cases when they exist.

And British retailers seem to be among the most attractive growth customers to these wholesalers.

The changes wrought on English-language distribution over the past three decades have all had perceived self-interest at their core. Although the American Consent Decree was overtly a case where the US Government “ordered” American publishers to do something, they actually placed the power of the US Government against the power of the British Publishers Association. Until the Consent Decree, no British publisher could do a deal that didn’t include Australia, say, without running afoul of the powers-that-be within the publishers’ own industry. After the Consent Decree, no American publisher could routinely accept that requirement without running afoul of the US Government.

And, of course, Canadian-ownership laws and the more recent requirement in Australia and New Zealand that controlling publishers must get copies into the country promptly upon availability anywhere else or forfeit their control are totally logical when viewed from a local perspective.

There is an evident nostalgia among British publishers for what really were, by comparison, “the good old days.” That it was “better then” is not just a figment of somebody’s imagination. There is no doubt that the most direct impact of three decades of globalization has been to redistribute market share and wealth that once belonged to London. But the genie can not be jammed back into the bottle. It is out. The world not only HAS changed, but it will continue to change in some predictable ways. The digital revolution is still in its infancy.

The biggest changes coming in the short run will be caused by digitally-driven production and distribution changes. The basic tools to drive these changes are in place. One is the hand-held reader, or what some people called the “electronic book”, which exists in at least two commercially viable forms now, the RocketBook and the SoftBook. Content archives for each of these hardware choices are too small have much impact yet, but they are growing.

The second big digitally-driven change is the new “print-one” option. The early leader in this area is Ingram’s Lightning Print system. Tying the “print-one” capability to a wholesaler makes so much sense that Baker & Taylor is doing it too. What “print-one” is doing is fostering a whole new publishing model, which may often be author-driven, and which has some of the characteristics of what we used to call Vanity Publishing. But tied to Internet promotion capabilities and the easy supply of Internet retailers like Amazon by the wholesalers who can print the copies, this can suddenly become a model with commercial potential.

Both of these new technologies, which will, I predict, become obvious to nearly everybody as forces to be reckoned with by the end of this year, 1999, further accelerate the trend toward a global, rather than territorial, publishing model. They will, over the next couple of years, be joined by “print-in-store” and “print-at-home” models.

The combination of “no inventory” publishing and Internet retailer distribution turns the historical economics of publishing on its head. Economies of scale become increasingly elusive; the relative value of capital in relation to knowledgeable effort is seriously diminished. The economies of scale that remain in this context relate to subject-specific marketing and, increasingly, making repeat sales to prior customers.

Not that centrally-printed and -distributed books are about to disappear; that eventuality is at least ten, perhaps twenty, years away. The issuance of the infamous Starr Report in the US demonstrates how far we have to go before that occurs. The Starr Report was available free on the Internet before, a week later, bound copies made their way into bookshops. Competing publishers with slightly differentiated editions sold hundreds of thousands of copies. Perhaps some of them were sold to people who still don’t have Internet access. But many were sold to those who do, but who were happy to pay a fair price for the convenience of a centrally-printed-and-bound version.

I would like to make one more point before I propose the principles that I think should govern each country’s individual response to the question of territorial rights in this period of rapid transition. It is simply this: many of the complaints that one hears about how market protection needs to work today can be addressed from publisher-to-publisher. Surely, if the prices of US and UK editions are reasonably close to the same and if those two editions are first available at the same time, a number of the concerns one hears expressed would quickly evaporate.

And, indeed, that is the direction we seem to be headed. Rights traders I have spoken to suggest that these questions, which used to be ignored, are now frequently the subject of discussion and coordination, even if not made a contractual issue.

It is important to remember that retailers and wholesalers are NOT party to contracts with the copyright-holders, authors or publishers. In the United States, there are laws PROHIBITING manufacturers from telling purchasers how or to whom they may resell what they buy. So it is futile to suggest that Random House or Penguin “control” Ingram or Amazon, at least in the United States.

In Britain, publishers feel their position slipping and are looking for relief however they can find it. Booksellers recognize increasing competition from global competitors, and will feel increasing pressure from their own customers to provide globally-competitive prices and service. And British authors will want access to the full global market, and will wonder whose side their publisher is on if they hear that British publishers are doing anything that would tend to reduce the sale of their books, in any edition and to any customer.

So, recognizing that continuing governmental and collective action within local components of the English-language market are both reasonable and inevitable, I would urge initiatives to conform to two principles, which are very much inter-related:

1. Nobody not a party to a contract should be asked to abide by it, or, put another way, nobody should be asked to live up to a contract they never signed.

2. Nobody in the supply chain should be drafted into the role of “rights police”. It is the proper function of the market to fill orders and satisfy customers; it is an improper demand on intermediaries to ask them to research rights, effectively putting forth extra effort to find orders to turn away.

The advice I offer here apparently has at least one virtue: it coincides with the reality of British bookselling as it was reported by respondents to some questions the BA posed in the past 60 days at my request.

Fifty-four percent of responding booksellers say they are increasing their ability to source books from offshore English-language publishers.

Sixty percent have detected awareness from their own customers of international pricing differences.

Thirty-eight percent feel competitively driven to obtain books at the lowest possible price, even if that means foreign rather than domestic sourcing.

But only fifteen percent put much effort into determining the underlying rights situation for books they obtain offshore.

Fortunately, our survey of publishers showed that most of them are not sticking their heads in the sand, or passively expecting marketplace rights enforcement to preserve their profit margins.

Although only fifteen percent of responding publishers think agents are changing their demands in regards to rights;

thirty-five percent say they are proactively changing their contracts concerning rights, forty-three percent have changed policies about what rights they seek to control, and *sixty-five* percent have changed internal policies to improve publishing efforts in markets other than where the book originated.

Forty percent say that internet bookselling and globalization have changed the way they price their books.

Fifty-five percent of publishers say their English language rights revenue is rising, and seventy-five percent say their export sales are growing.

Obviously from these responses, many come from global companies, but they all come from UK headquarters and a UK perspective. Publishers seem, consciously or not, to be responding to the booksellers’ realities. They are not beating their heads against the wall to increase the paltry 15 percent of booksellers who even claim they worry about doing rights research that could cost them a sale. They are responding to the same marketplace conditions the booksellers are experiencing, rationalizing pricing and publishing policies to reflect a globalizing world.

And they also seem to be saying, overwhelmingly, that the markets offshore are growing. We didn’t ask the question, but if we did, I’d bet we find that means one thing: Europe.

There are great inherent strengths to British publishing. The home market it serves and can reach the best is clearly the second-largest in the world. Britain has a natural opportunity to be dominant in Europe, perhaps the fastest-growing English-language market. And British publishers are more experienced and comfortable with co-edition publishing than their American counterparts, so the books that benefit from that kind of publishing, which, as it happens, will be the last part of the market affected by hand-helds or print-one models, constitute another market niche of natural advantage.

Building on these strengths and developing the capability to publish global-interest books themselves in the US market, is the path to a new prosperity for British publishing. Bemoaning the changes that must come and squandering industry resources and efforts to preserve old ways whose time has past is a waste of resources and energy that will, in the long run, not pay off for British publishers, booksellers, or authors.

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Mike Shatzkin

Mike Shatzkin is the Founder & CEO of The Idea Logical Company and a widely-acknowledged thought leader about digital change in the book publishing industry. Read more.

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