The Octoclause of Doom

The Octoclause of Doom

UPDATE (Feb 07, 2011): Thomas Abraham (TA) corrected a number of significant bloopers in my original post and clarified some points. I’ve included his comments below.

India’s Ministry of Human Resources Development (HRD), or Hurdle, as its fondly known, is up to its usual mischief, namely: progress. This time, progress comes in the form of an amendment to Clause (2m) of the Indian Copyright Act.

TA: No, the copyright Act 1957 is being amended, and proviso 2m of the proposed amendment is what’s hitting us.

This clause clarifies the notion of an “infringing copy.” Hurdle decided that it would best serve the interests of desi publishers, authors and reader if the clause were amended to say:

…a copy of a work published in any country outside India with the permission of the author of the work and imported from that country shall not be deemed to be an infringing copy.

Right. Riveting stuff. What’s for dinner?

The Indian publishing industry, that’s what. At least, that’s what Thomas Abraham, industry veteran and Managing Director of Hachette, India suggested in his recent article in the Hindustan Times. The article is a must-read. So is the rebuttal by Pranesh Prakash, and the detailed re-rebuttal by Thomas. They are thoughtful and persuasive pieces that force one to take the issue seriously.

I’m wondering if the Ministry of HRD’s sudden enthusiasm for work is due to Obama’s recent trip to India. Terry McGraw of McGraw-Hill was one of the approx 200 CEO delegates to accompany Obama. When President Bush visited India, ostensibly to sign the US-India nuclear treaty, his delegation had included representatives from Monsanto, Dow, Bayer, and Dupont. India signed off on a lot more than just a nuclear treaty (update: TA: McGraw-Hill is also opposing the amendment. Damn it. Nothing like ugly fact to ruin a beautiful conspiracy).

Thomas’ arguments convinced me he was right, and so to be fair, I’ll only present his side of things.

The crux of the matter is captured, I think, in this scenario:

Consider this scenario: a book by author x is successful in India, but fails in the US. By the fourth month with no legal territorial protection it is dumped into India at lower prices through a distributor. This is a completely ‘legal’ purchase transaction by both seller and buyer, but is against the author’s consent and in violation of a contract that exists between author and Indian publisher. Now add remainders to the mix and multiply this exponentially with the number of new titles every year and try and imagine what the market is going to turn into.

Thomas discusses many subtleties, and if I’ve understood his arguments correctly, he sees four major consequences:

  1. Lower prices for the reader on globally distributed books.
    TA: No just the opposite actually. There will be short term spoiler pricing as undercutting happens but over the medium and long terms prices will stabilize back to present norms—it’s not really possible to function profitably on lower pricing levels. An imported thriller like Grisham or Archer sell at Rs 195-Rs 250. Remainders can’t bring these levels down any further in the long run. In the short term yes, spoiler distributors will bring in books to get those editions in.
  2. A small bump in royalty income for the author but only if opportunity costs are discounted (the author could have earned greater royalties on domestic sales).
    TA: Quite a big dent actually. Because not only do you get lowered royalty on export edition, you lose your due local royalty.
  3. Desi publishers will increasingly focus on India-specific books (since this reduces parallel trade).
    TA: Yes and No, because even this is not risk free. With squeezed and reduced margins desi publishers—here I include all those functioning in India not just companies of Indian ownership—will have less capital to invest in local authors the way they do now. So publishing programmes will shrink, and the ones you have you will have less money to market/promote. Local Indian authors—who also hope that they will be sold abroad—will have that diminished too, as local publishers won’t want to sell books that will come back to bite them.
  4. Desi publishers compensate for the increased uncertainty by controlling risk, for e.g. by focusing on relatively sure-bets.
    TA: But there will virtually be no sure bet.

There are some similarities between Thomas’ arguments that parallel imports will stifle creativity and the arguments made by US pharmaceuticals that allowing cheap drugs to flood the market will stifle R&D. In both cases, there’s a free rider advantage for the importer. The Indian publisher (US pharma) does all the hard work of developing a native talent (a new drug), and then along comes Mexico or China or India flooding the home market with a cheap substitute. There are a few economists– notably, Horst Raff and Nicholas Schmitt— who think parallel imports could actually raise producer profits for certain industries.

That’s the question. Is the book business like any other? Pranesh doesn’t seem to think the books are any different (or at least, very different) from other consumer goods, whereas Thomas seems convinced– as anyone who’s tried to make a living selling books probably would be– that it’s a total unicorn.

I think there’s some merit to Thomas’ claim of exceptionalism for the industry. The economics of the so-called “creative industries” is strikingly different. As far as I can tell, the book business is a business in the same sense a horse is a car. It’s a business that operates in the “suicide quadrant”, namely, markets governed by high-uncertainty and low-control. Albert Greco, Clara Rodriguez and Bob Wharton remark in their recent opus that:

Our research indicates that seven out of every ten frontlist hardbound books fail financially (that is, they do not earn enough to cover the author’s advance, and other editorial, marketing and administrative costs), 2 books break even, and 1 is a hit. Coincidentally, this is the same ratio found in the motion picture industry.

This is true of Indian publishing too (Thomas pegs it at 80/20 rather than 90/10), so Indian publishers also survive on the basis of a few profit-makers. Typically, the foreign rights to these money makers are sold to companies in the US, UK and other English-language markets. Now, if those books find their way back to India, then the publisher’s few profit makers are suddenly not so profitable.

That said, I suspect Indian publishers won’t be quite so affected from the amendment as they think. Publishing is an odd industry partly because readers are such odd consumers. They hoard, they are impulsive, they have nutty interests, they are informed, they are passionate and they are intractable. Western publishers have a hard enough time appeasing their own odd bods.

Perhaps the debate obscures a deeper issue. Thomas mentions that there are some 17,000 registered publishers and also that there are just 450 trade bookshops.

TA: is correct but to clarify: These are 450 ‘trade bookshops’—the kind that keep English language general and consumer books—fiction/non fiction. From the chains to the small indies. The 17,000 publishers are all inclusive figure (language, trade, educational) but the 450 excludes all the educational and ‘janta’ bookshops that sell cribs and railway timetables as also the language bookshops.

That’s a great many fingers around a very small pizza! Good lord, where do we cram all our books? Our distribution bottlenecks already ensure that most readers will mostly see only bestsellers. And when everyone is making a living from a few dozen titles (if at that), then we’re much more vulnerable to small price differentials in those titles.

So the real challenge is not how to make a larger pie– which we must of course– but on how to make making a larger pie easier. Life in the suicide quadrant needs entrepreneurs, not businessmen. And entrepreneurs need more mechanisms for growth, not more ill-considered policies. Perhaps leapfrog tech like POD publishing and digital paper could be helpful here. So too, I suspect, fewer visits by American presidents. But most definitely, it’d be helpful if Hurdle would focus its energies on being a little less helpful.

  • A wholly perverse argument. The relevant economic theory, in this regard, relates to price discrimination which is a method of extracting consumer surplus in favor, not of the author, but the monopolist publisher. This means that a badly produced, badly marketed, product which some Indians have to buy- perhaps for professional reasons- nets the publisher a monopoly profit (not the author) and grants him immunity from price and quality competition.
    Clearly, in a poor country with a non-ageing demographic, price-elasticity of demand is high. Hence, what the author of this post is advocating is (sheer madness!) less books, less volume, no incentive for publishers to open new markets or increase penetration in poorly served areas.
    Notice only the publisher, not the author, can do things like marketing, quality and price competition and so on.
    Another point about books for a market like India, is that they have high consumption externalities- the more books you buy the more you want to buy- the more effort publishers put into reducing cost and pushing sales the better the outcome for everybody involved.

    What Mr. Menon is advocating is bad for Indian publishing, Indian authors, and the Indian reading public. Why is he doing so?
    He says ‘Life in the suicide quadrant needs entrepreneurs, not businessmen. And entrepreneurs need more mechanisms for growth, not more ill-considered policies.’
    Mr. Menon does not understand that businessmen are supposed to be entrepreneurs. Perhaps he is thinking of monopolists with posh accents flitting from cocktail party to cocktail party- but that is a description which better fits Mr. Abrahams, not to mention the glib pieties he invokes in his article, rather than the ‘faceless bureaucrats’ who are merely catching up with International best practice in this regard.

    Entrepreneurs do not ‘need more mechanisms for growth’. If they do, they are not entrepreneurs. Entrepreneurship is a sort of arbitrage. Where markets are highly segmented, neither entrepreneurship nor arbitrage gain scale and scope economies- thus ceasing to be dynamically efficient.

    Mr. Menon is using economic arguments in this post. He writes as though he understands them and is qualified to comment. I cast no aspersions on his intelligence or his way with words. But, this is a truly lamentable post.

    • Polypubs

      Anil, what happened to you? Were you always a Gandhian under the skin?
      I read your book- you’re not utterly stupid. Why must your Indo-nostalgia take such irrational forms?

  • vivek

    Seriously, what happened Anil?
    Yes, I’m a nutjob, abusive, illiterate, what have you. But real literature ignites precisely from this sort of attrition of abusive illiterates. You have genuine talent. So did Ramesh Mahadevan. You can’t make literature in a programmatic and politically correct way.
    You’re as bright as all get out. You are the snake charmer of sentences.
    Yet futile. Why?
    I’ve looked at what you’ve written- this is a perfection of courtesy, of good breeding, that shuts more doors than it opens.
    Yours is the most educated, the most cultured- but also the most alcoholic- of Provinces.
    You are a highly intelligent inheritor of Sanskrit and Tamil- Malyalam itself is a manipravaly- yet, you have written fashionable but false crap about Sanskrit- your own paternal ancestral language. Your ‘Speculative Ramayana’ project is just as bad, or good, as anyone else’s. It just didn’t engage with the Ramayana.
    Can you not dare to dream?
    I’m a bad tempered Dravidian drunk. By disengaging with me, not your art was profited, nor your world-view lifted to a more orient horizon, a small niche of humorlessnes was created, a commitment to India’s all to many availability cascades of meaningless meretricious shite, Boss you’re repeating a pattern. Academically you were over here. You didn’t want to stay on that level or go forward. You re-position yourself. It’s all good. You could do something worthwhile.
    You don’t.
    Why?
    On the evidence of this post- people might think you’re just stupid. You defend an indefensible proposition with much felicity of language and pretended pediatric innocence of rhetoric- but, more than that, the unwary reader might think you actually knew better Economics than people in India who actually have post grad qualifications in the subject.
    What is wrong with you? Do you think that people who didn’t get an American degree are just stupid? Surely, your own shining example illustrates the reverse?!

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