Parallel Importation article for Country Goss Magazine July 1999

Parallel Importation and the Death of Australia’s Music Industry

 

In 1969 and early 1970, there were somewhere around forty live music gigs in and around Melbourne every week. Bands and artists that cut their teeth in that environment included Ross Wilson and Daddy Cool, Billy Thorpe and The Aztecs, Rick Springfield and Zoot, Kevin Borich & the La De Dahs, Glen Shorrock and The Twilights and later with Axiom, Brian Cadd, Max Merritt and The Meteors...([1]). The music produced in those days and the people that created and performed it are still kicking on in one way or another.

 

In Sydney, that scene never really caught on until about eight or ten years later, and names like Sports, The Angels, Midnight Oil, The Cockroaches, Rose Tattoo, Mental As Anything, The Radiators making regular appearances at venues from Narrabeen to Blacktown to Cronulla every Wednesday to Sunday night.

 

Today, we have fewer than a dozen decent venues in Sydney where witness can be borne to the emergence of tomorrow’s stars. Here, bands play music they have created themselves to a handful of family, friends, loyal supporters and the odd punter for a cover-charge of less than the price of a beer. The bands and artists themselves are lucky to see any of that money due to the dodgy ‘door deals’ that are happening but that’s another matter entirely. The venues that support these enterprises are themselves becoming fewer & farther between.

 

For the musicians with a yen to become the next Tim (The Whitlams) Freidman, John (The Angels) Brewster, or indeed the next Billy Thorpe, their chances of emulating the success of their heroes has been dramatically reduced. Not only is it hard for music artists to make a living from playing live, if they can get the work: Thanks to the Federal Liberal Government, it has been made even more difficult for them to earn money from the sale of their music due to the Copyright Amendment Bill 1997.

 

Enterprising young artists who constantly produce, release and distribute their own music at gigs and through even more enterprising and supportive retailers, are not going to suffer under the Bill while they do all this themselves. Once they get signed to a record label, many artists see it as the start of huge things, with the long-sought deal the start of their climb to international fame, fortune and success, and the end of the hard road of rock & roll. 

 

So while music artists might see a record deal as the light at the end of the music business  tunnel as being a key to their future wealth, unless the record company controls to whom they export product, a contract with a multinational recording conglomerate could actually be the start of a band’s demise!

 

The Copyright Amendment argument is about Mechanical Royalties. Mechanical Royalty fees are generated from “the reproduction of musical works onto CDs, tapes or other audio formats”([2]), called sound carriers. The term Mechanical Royalty is derived from when playing a record was actually a mechanical process. These royalties are generated on the sale price of 12", 10" and 7" Vinyl, cassette singles and albums, CDs, mini discs, DATs, compilation releases, and so on. That sale price varies, too, from country to country, from record label to record label, from retailer to retailer. There are budget releases, mid-priced product, double-albums, split singles (two artists with one or two songs on each side of the release)... The Copyright Amendment Bill was designed to reduce the price of sound carriers to Australian consumers and has caused a major fracas both within and without the Music business. 

 

Mechanical Royalty rates differ widely as they are determined by the country where the sound carrier was manufactured. Therefore an American product would attract the rate payable in that country, while a Japanese CD would attract the royalty calculated there. As an example, a list of mechanical royalty rates from around the world, based on the sale of full-priced CDs, is shown below. Much of the information was derived from the BIEM Prices and Methods of Royalty Calculation list of November 1997 ([3]), but those rates marked with a footnote (4, 5, 7, 8) are current at the time of writing, with thanks to the respective people:

 

Country of origin of sound carrier	Mechanical Royalty Rate
Indonesia	3.76%
Japan	5.35%
New Zealand	5.6% of the retail selling price excluding GST ([4])
Australia	6.25% (4)
Hong Kong	6.75% ([5])
South Africa	6.76%
Egypt	8% on tapes only after 20% packaging deduction
Argentina	8.19%
Chile	8.459%
Belgium, Czech Republic, Denmark, Estonia, Finland, France, Hungary, Iceland, Israel, Italy, Lithuania, The Netherlands, Norway, Poland, Portugal, Roumania ([6]), Slovak Republic, Spain, Sweden, Switzerland	9.009% ([7])
Canada	from $C0.066 is paid per track up to 5’00” duration. Longer songs attract a marginal royalty per minute or part thereof over 5’00”
USA	$US0.0695 ([8]) for up to 10 tracks of up to 5’00” duration. Longer songs attract a marginal royalty per minute or part thereof over 5’00”

 

As shown on this list, our closest Asian neighbour (Indonesia) has the lowest paying rate in the world. There are other countries nearby that have no mechanical royalties at all. Hence the furor! So now there’s one more product that you have to check the “Made In...” label before you buy it, even if you know that the artists are Australian!

 

Then there’s the quality of the product being sold! Philip Mortlock owns and operates Origin Recordings and Origin Publishing with Philip Walker in Sydney. Origin works for such artists as diana ah naid, Eric (Mondo Rock) McCusker, and Don (Cold Chisel) Walker, and in conjunction with Buzz Management([9]). They are also a project-management group that looks after and promotes the release of albums, tours, and other music-related products and activities. Philip Mortlock sees the Amendment Bill as the opening of the floodgates for cheap and nasty products that ultimately erode the perception of the sound carrier as a quality product.

 

“I can imagine consumers, quite rightly, questioning why they can buy a CD at less than $5.00 and yet the full price CDs remain at between $20 and $30”, Philip says. “It costs a lot of money to create the music and yet it requires little investment to ‘recycle’ the music”.

 

I, personally, will not buy a CD that costs less than $10 and have maintained this stance since the idea of cheap CDs was available - long before the matter of Parallel Importation was raised. I have always seen the lower-priced product as inferior, but the higher priced product as too expensive.

 

Colin Seeger is a consultant in the management of intellectual property based in Sydney. He is qualified in the field of copyright law with companies and artists around the country consulting his practice. He has been privy to the whole Copyright Amendment argument since the Prices and Surveillance Authority first called him about their survey in 1990.

 

Colin reports that a number of the multi-national record labels are noting an marked increase of complaints regarding the new CDs or cassette tapes consumers have just bought at the local cheap-music store. The complaints include having other artists' songs in amongst the others on the sound carrier, songs on the track-listing not appearing on the recording and vice-versa. Imagine buying the latest release by Garth Brooks and finding it to contain the Japanese version of the Megadeath "Countdown To Extinction" album instead! There may be nothing wrong with that record or artist, or the sound-alike band that might be featured on it, but it's certainly not what you paid for, or what you wanted! Although you certainly pay for what you get when you venture into these stores with the lure of cheap prices! I casually looked through the cassette bin out the front of one particular George Street, Sydney shop. There I found the labels ‘Made in Indonesia’ and ‘For Sale Only In Indonesia’ on the back of Natalie Umbruglia and Savage Garden cassettes.

 

However, people who are going to pay $10 and less for the music they like are not going to be as worried about the quality of the music they’re buying as those who won't. Those people were in the 70s and 80s buying blank cassettes and, giving them to their friends, asking them to tape the latest Dire Straits CD or Eagles record. Those same people will download sound-bytes from the Net, with their inferior AM quality sound, for the only reason than to have a copy of that song or album to which they can listen at their leisure, and not have to pay full price for it. Some people can physically not tell the difference between an untuned AM radio or a good CD-quality recording so it doesn’t matter to them anyway! Cheap music prices will never determine where these people get their music!

 

Then there is the unauthorised live recordings that were all the rage of the early 1990s: proof enough of my personal cheaper-is-inferior belief. The sound on those unauthorised CDs was far and away inferior from anything you would get from a legitimate record company, or that has been authorised by the artist. These are pirate, illegal or “bootleg” recordings, recorded by the official sound-engineer or through the monitor board on the night in better recordings, or on the bad ones by the pirate holding their personal recorder up above the crowd on the night. The artist sees no income from this at all - the bootlegger, seeing his chance at making a quick buck by running off a couple of copies of the concert, which probably wasn’t going to be recorded by the artist, flogs them off to the highest bidder. This, though, is another matter which has been confused with what the Copyright Amendment Bill is trying to do but is not far from what the outcome has achieved. 

 

Floyd Vincent, although he doesn't quite welcome the new initiative, has not been effected either. Floyd is a local music artist in Sydney who, with his band the Child Brides, is signed to Universal Records, a multinational music label. The band and Floyd travel the world, playing their music at venues from small clubs to large outdoor arenas, and sells the music directly to fans and punters at those shows. In a way, Floyd is an exporter of Australian music as much as any multi-national label or export-company. So far, the law has not effected Floyd as his main income is from live performances, but he is worried about piracy as are many other artists, and the effect of the new law on his future. Fiona Horne, radio announcer and former music artist who is still deriving royalties from her band Def FX, took the cause to her listeners recently.

 

"Someone can just take a CD to (another country), run off 50 000 copies and bring them back", Fiona said. "There just doesn't seem to be the same control any more. We were earning $1 per CD sold, and this law will reduce even that." While the idea of running off CDs overseas to try to make money back on the record deal is appealing, and certainly will be quicker than waiting on recoupment under your contract, it is theft as much as someone else doing it to you! Hence the other casualties to the Amendment - local record labels.

 

With income from locally manufactured sound carriers being reduced more and more, the record companies are now claiming they can no longer invest money in local talent. This was shown by our largest independent distributor Shock! Records closing one of their smaller labels once the Bill was passed. Labels that whose roster is 100% local talent, like ABC Country, will suffer just as much as the bigger names. Gina Jeffreys is reportedly making her next album in the United States with an American label. When that recording comes back here as an import, the ABC will get nothing back from the time and effort they have invested in the creation of a multi-platinum winning music artist.

 

The original intent of the Bill was to make CDs cheaper to consumers. This particular debate was started by a report by the Prices Surveillance Authority in 1990 which, in some 200 pages, came to the conclusion that Australian CD prices were too high due to the importation provisions of the Copyright Act 1968, and the absence of domestic price competition ([10]). Has anyone actually seen a fair reduction in the price recently? If anything they have increased, with 3-track CD singles now retailing in one major chain for around $9 as an example. But there are also more stores now selling CDs ‘from $2’, advertising on hoardings on main roads and during prime time television. These imported versions are actually the current releases I spoke of earlier and sell for about $6.95, while the $2 CDs were deleted titles or compilations - recycled music as Phillip Mortlock puts it.

 

Andrew Walker is director of Mr Walker’s Company in Melbourne. His firm manages music acts including Jo Camilleri’s The Black Sorrows, The Jaynes and Colin Hay with Men at Work. These acts are not effected by the law as neither of them have overseas record deals, but by the same token they are just as open to piracy as those other musicians who have. Andrew made the point: “Why do you think $30 is too much to pay for a CD when you would not baulk at paying $100 for a pair of name jeans?” he asked. “The clothing industry has not been taken to task over issues like these, however the music business has been the target of many Governments.” Your clothing says more about you as an individual than your choice of music, because your dress sense is more often more visible that your music preference. Would you buy $30 Levi's, though, from a stall in Denpasa or Phuket?

 

The main bone of contention is the fact that artists are not going to be paid as much in royalties as they were in pre-Bill times. One artist of note has already felt the pinch of the reduced royalty income. His band has been selling records the world over since 1983 but has seen fit to take legal action in order to try to regain some of his losses. It will be interesting to see the outcome of that action! ([11])

 

The other side of the argument is those in favour of the new law. Rob Caruso is the managing director of Seeing Ear Records in Perth, WA. The label markets Australian-made music, among others, to an overseas market, given local apathy toward local product. Rob actually welcomes the new law as he sees benefits to his business.

 

"Parallel Importing has not effected our label at all not has it affected any other (independent) label that I associate with", Rob says. "We gave up promoting Australian music in Australia and have taken our music overseas where it has been received extremely well and is selling like hot cakes. Should any company that I have licensed material to decide to export our music to Australia I would be ecstatic as it is only when this happens that any Aussie becomes interested." Hence the term 'brain drain' which is probably unique to Australia in many ways, but is yet another matter.

 

Graeme Reagan is a director of Hot Records in Australia and the president of the Australian Independent Record Labels Association([12]). Hot Records distributes music throughout the world and includes in its local stable such acts as Wild Pumpkins at Midnight, Celibate Rifles, The Saints, Ed Kuepper and The Apartments. Graeme says that Hot and their affiliated labels around the world are very careful not to sell music to exporters.

 

“Artists sell their copyright to the record company who now control the product,” Graeme explains, “but the Label controls the product carefully. Say for example Big Name Band signs to Multinational Record Label. That label has offices in Korea, in Indonesia, in Thailand, all over Asia. The label issues a directive to those offices not to sell product to known exporters. When the new Big Name Band album is released in Australia only and sales in Korea, Thailand and other Asian countries hit the roof, the people in the offices  in those countries would be sacked”.

 

Then there are the exporters, importers, and retailers who don’t have royalties to consider – their main concern is the bottom line: how to make the most money. The exporters/importers are selling their product to those shops with the hoardings and TV ads. And why shouldn’t they? They are in business to make money and the best way to do that is to sell more product at a higher profit margin. Graeme says that this is the outcome of the new law.

 

“Retailers are now free to source their product from whomever they choose, thus making smaller business more competitive with the larger chains,” Graeme says.  It is these people who have commenced the importation and resale of these CDs to the public and who have not reduced their prices so that the original intent of the Bill is followed through. And the country of origin of those CDs almost always indicates the quality of that product as well.

 

However, the idea of copyright has to be approached in new ways nowadays, with or without the Parallel Importation issue being applied. “Eventually, due to the computer age, CDs are going to be a thing of the past”, says Graeme. “With the internet, the idea of intellectual property is changing, with more people having access to it.”

 

Andrew Walker agrees. “The whole thing is  a matter of publishing, which is the strength of the music business,” he said. “But Parallel Importation was always inevitable”. From the onset of the original Copyright Act which made it possible to make a living out of making music in Australia to the Amendment Bill last year, it may have been inevitable, but not completely necessary. So when next you’re going through the local street press or Evening News gig guide, spare a thought for the musicians out there each weekend playing their music for a measly sum. The pay they get tonight could well be the most money they will see from their music for a very long time.

PG (Jacky) Gleeson

 

Source Material (Footnotes)

[1] Billy Thorpe “Most People I Know” (Pan McMillan 1998)

2 AMCOS web site http://www.amcos.com.au/Amcosweb/general/mechanic.html 02 Mar 99

3 Provided by Judi Moore, Director Mechanical Rights Division at AMCOS

4 AMCOS web site http://www.amcos.com.au/Amcosweb/audiorec/royalty.html 02 Mar 99

5 The Composers and Authors Society of Hong Kong Ltd. (CASH), 11 Mar 99

6 It is interesting to note that Pirate CDs were in 1997 freely available in Roumania at a price markedly reduced in comparison to official record company release. An official PolyGram release was priced at ROL100 000 (Roumanian Lei), while a pirate copy of the same CD would go for ROL25 000! Asian pirate copies (unofficially) were also widely available at market stalls and from street-vendors around Sydney in the early 1980s and were also considerably cheaper. But it was also quite obvious that these tapes were pirates, both in appearance and sound-quality!

7 Ulrich Jensen, Commercial Operations Division, NCB Denmark 16 Mar 99; Raul Mendes, Assistant Director Mechanical Royalties, SPA Portugal 19 Mar 99; Marc H Huiskamp, BUMA Holland, 16 Mar 99

8 ASCAP web site http://ascap.com/artcommerce/money-mechanical.html 02 Mar 99

9 AustralAsian Industry Music Directory #22 (Immedia Pty Ltd 1999)

10 The Australian Law Journal Volume 65, November 1991, article on Arts & Entertainment Law by Colin Seeger

11 Due to legal reasons we are unable to name the artist

12 Graeme was quick to assure that he was giving his own opinion on the matter, as AIR members are as divided on the issue as the rest of the industry.