Part II: Arguments For and Against Parallel-Importing Bans on Creative-Industry Copyright Goods
Part II summarises and analyses arguments for and against the proposed parallel-importing bans. This section includes:
- brief summaries of the key characteristics of each industry under review (such as distribution and local production);
- summaries of the perceived effects on each industry of the removal of parallel-importing restrictions;
- an indication of the requested length of each ban for each industry;
- summaries of the main arguments made in support of bans for each industry;
- the Ministry's preliminary view on each of these arguments;
- a summary of the concerns expressed about the effects of parallel-importing bans on other groups.
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2.1 The Results of the March/April 2000 Consultation
51. Sixty groups, businesses, and individuals made submissions to the Ministry in the March/April 2000 consultation. Thirty-three of the submissions received were against the reintroduction of any form of parallel-importing restrictions for the industries in question, while 18 expressed support for the proposal. Nine submissions expressed no opinion as to whether bans should be introduced. A list of submitters is provided as Appendix 2 of this paper.
52. Support for parallel-importing restrictions was expressed by those who would most directly benefit from the introduction of an exclusive importing right in respect of copyright goods - primarily international copyright owners and authorised distributors of overseas titles. Many of the arguments they put forward to justify bans were, however, somewhat different from the Government's stated objective in considering bans, namely the encouragement of increased overseas investment in, and promotion of, local creative talent. Many of the same arguments had been made in 1998 (prior to the decision to remove the blanket ban), and in 1994 (when parallel importing was extensively debated during the passage through Parliament of the Copyright Act 1994). The arguments advanced by each industry in support of bans also reflected differing industry characteristics and disparate levels of investment by international companies in local talent.
53. The majority of the submissions against the introduction of parallel-importing restrictions were from libraries, retailers and consumers who considered that such restrictions will lead to increased prices, reduced availability of titles, and longer waiting times for new-release titles. These groups expressed considerable doubt that bans would encourage increased overseas investment in, or overseas promotion of, local creative talent in the four industries under consideration.
2.2 The Music Recording Industry and its Arguments
Key Characteristics of the Industry
Distribution
54. New Zealand is a net importer of music recordings. 18
Although the majority of titles sold each year are popular-music titles, mostly by foreign artists, an increasing quantity of sales are reportedly by local artists. Many music industry stakeholders told the Ministry that 1999 was one of the best years for sales by local artists.
55. Most of the major international record companies have subsidiaries or local branches in New Zealand. There are also a number of authorised importers of classical and other types of music for which there is less demand. The primary reason why the major international record companies maintain a presence in New Zealand is to distribute foreign popular-music titles to local retailers. Before the removal of the parallel-importing ban in 1998, these companies had the exclusive right to import music titles in which they or their parent company held the copyright.
56. The local branches or subsidiaries of the major record companies decide when the official release of new titles will take place in New Zealand, and they determine what level of promotion and marketing will accompany a new title. These promotional activities are often undertaken in conjunction with specific music retailers who share the marketing costs.
57. There are also a number of small independent record companies in New Zealand. The majority of these have arrangements with one of the major international record companies relating to the distribution and promotion of their catalogues.
Local Production and Overseas Promotion
58. The Ministry understands that three of the local subsidiaries of the major international record companies produce and distribute local artists in New Zealand in addition to their general distribution activities. Local independent labels also produce recordings of local artists.
59. Local artists signed and produced by the major record companies have usually already achieved a certain degree of success in New Zealand, often through an independent record company. The Ministry was informed that financing the production of an album ranges from $80,000 to $100,000 - and that distribution, promotion and marketing costs reportedly amount to at least that much again for national release of a major New Zealand artist.
60. Music-industry submissions stated that the expectation on which investment in artists is made is that only one or two out of ten recordings will make money, and that those funds are used to off-set losses from recordings that do not break even.
61. Some stakeholders told the Ministry, however, that the cost of producing a recording, some of the marketing and promotion costs, and some additional outlays are usually recoverable from the artist's share of revenues from sales under their contract with the record company. This suggests that record companies guard against the risks taken in producing local artists by ensuring that as much of their investment as possible is recouped from the initial sales of each recording.
62. No evidence has been presented on the extent of overseas promotion of local artists undertaken by the New Zealand subsidiaries of the major international record companies. The Ministry understands that the potential for New Zealand subsidiaries to promote local artists in other markets is limited to their ability to influence affiliated companies. The Ministry has also been advised that those New Zealand artists who have achieved a degree of success in overseas markets have usually signed with overseas companies.
The Effects of Parallel Importing
63. The removal of the ban on parallel imports under the Copyright Act has given music retailers the ability to obtain titles directly from overseas sources that they believe will give them better prices and/or services.
64. Despite the 1998 removal of the parallel-importing ban, music retailers have largely continued to source their foreign-title stock from local distributors - although one retailer stated that they prefer to directly (parallel) import back-catalogue and unreleased titles rather than rely on local suppliers. The same retailer stated that though they had parallel-imported these types of titles before the removal of the ban, the ability to legally parallel-import titles had given them greater commercial freedom to meet the demands of customers whose tastes were less mainstream.
65. Overall, there does not appear to have been as much parallel-importing activity in relation to music recordings as might have been anticipated. The Ministry was told that there has been very little parallel importing of new-release mainstream titles. Music retailers who took part in the consultation earlier this year gave a number of reasons for this.
66. The first reason is the depreciation in the buying power of the New Zealand dollar against the United States dollar since 1998. This has increased the wholesale price of alternative supplies for local retailers.
67. Second, retailers said that they have experienced an improvement in the services offered by the major record companies, including faster and more comprehensive back-catalogue services. Retailers also said that wholesale prices had remained relatively constant, despite the depreciation in the New Zealand currency relative to the United States dollar (which might have been expected to result in wholesale price increases). It was also suggested that, since the removal of the parallel importing ban, record companies were offering more titles in discount lines such as "budget", "mid price" and "chart" - although other stakeholders suggested that larger discount catalogues are an international trend. Retailers were, however, unanimous in attributing improvements in the prices and services offered by the New Zealand record-company subsidiaries to the threat of competition from parallel imports and to the option retailers have of seeking alternative sources of supply.
68. The third reason given was perceived difficulties associated with parallel importing - that is, continuity of supply and the managing of off-shore business relationships. Retailers stated that they generally preferred to deal with local suppliers for the bulk of their titles.
69. Many stakeholders said that the music retail sector in New Zealand has undergone a number of changes since the removal of parallel-importing restrictions in 1998. The most significant change has been the emergence of The Warehouse as one of the largest music retailers, and the significant increase in competition that has developed at the retail level.
The Industry's Arguments
70. The Recording Industry Association of New Zealand (RIANZ), which represents the local subsidiaries of the major international record-distribution companies and most of the independent New Zealand record companies, stated that they believe that an importing ban of at least 18 months from the first international release of a new music titles is required in order to:
- help combat piracy; and
- ensure that the local subsidiaries of the major record companies continue to produce local popular music.
71. These arguments are outlined and commented on below.
Piracy
72. Music piracy is a global concern for the recording industry and is perceived as a significant threat to the profit margins of record companies. 19
73. RIANZ believes that the removal of the parallel-importing ban has resulted in a significant increase in the quantity of pirated music present in New Zealand. The reasons given for this belief were:
- the observed presence of pirated music in "flea markets" and other itinerant retail outlets; and
- figures from Statistics New Zealand indicatingthat music recordings were being imported from a greater number of countries than was the case when parallel imports of music recordings was prohibited.
74. RIANZ and others believe that an exclusive right to distribute foreign music titles in New Zealand will allow record companies to ensure that copies entering New Zealand are not pirated.
Ministry Comment on Piracy
75. There is no doubt that piracy is a major concern for the music industry. There is, however, no evidence to suggest that there has been a "flood" of imported pirated music recordings since the removal of the parallel-importing ban. The presence of pirated music in flea markets was observed before the parallel-importing ban was removed, and no evidence of a direct link between reported observations and the absence of a ban has been provided.
76. The Ministry questions whether an increase in the number of countries from which music recordings are imported means that the levels of imported pirated product have increased since the ban was removed in 1998. No evidence has been provided to suggest that titles parallel-imported from certain countries are copies made without the consent of the copyright holder in that country. As well, suggestions that the unit prices of these are low do not prove that pirated copies are involved. This is because parallel importing allows importers to obtain legitimately made stock from other jurisdictions where wholesale prices might ordinarily be cheaper (because of price discrimination or other reasons), or where discounted stock might be available.
77. The availability in New Zealand of inexpensive compact disc writing devices, cheap blank discs, and access to music databases on the Internet raises the question of whether perceived increases in levels of pirated music recordings being offered for sale in New Zealand are the result of domestic, rather than overseas, piracy activities. With recent technological advances, there is an increasing likelihood that the source of pirated music will be domestic rather than international.
78. Regardless of the source of pirated sound recordings, the Ministry is of the view that a ban on parallel importing is a blunt instrument with which to address concerns about piracy. A ban is unlikely to have a real effect on the illegal activities of importers of pirated sound recordings, which are usually hidden in disguised and private consignments. There has been no suggestion that reputable retailers would parallel-import stock without enquiring into whether that stock is legitimately made.
79. Accordingly, the Ministry is of the view that targeted anti-piracy provisions are a more effective means of addressing concerns about piracy than parallel-importing restrictions are. Initiatives to strengthen anti-piracy provisions are in various stages of development, as outlined in Part V of this document. Border protection measures are also in place. These rely on copyright holders lodging notices of their products and labels with the New Zealand Customs Service, so that Customs officers can more easily identify material that might be pirated or counterfeit, alert copyright holders or licensees, and temporarily detain the shipment for inspection.
80. Concerns about pirated products passing across the border could to a certain extent be reduced by record companies' lodging notices with Customs. This would allow Customs to hold suspected infringing product temporarily, so that trade mark and copyright owners can inspect it and take the appropriate legal action to enforce their rights. The Ministry understands that only one major record company has so far lodged notices.
| Request for Information 2.2.1 The Ministry requests: - further information on whether (and, if so, how) a parallel-importing ban would prevent the importation of illegitimate or pirated music recordings;
- any evidence on whether levels of imported pirated music have changed since the removal of the copyright parallel-importing ban in 1998.
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Cross Subsidisation
81. Some submissions from music industry stakeholders asserted the existence of a direct link between a parallel-importing ban and the decisions of major record companies to produce and distribute local artists. Some argued that giving international record companies a monopoly-import right (which protects their profit margins) would ensure that those local subsidiaries that currently produce and distribute local artists in New Zealand would continue to do so. The basis of this argument was the claim that the major international record companies cross-subsidise the production of local artists from profits made on imported titles and that, where these profits are not sufficient, investment cannot be made in local talent.
82. It was also suggested that the production and distribution of local artists by international record companies is an altruistic activity, rather than a commercial investment.
83. Music industry stakeholders did not, however, suggest that a parallel-importing ban would encourage international record companies to increase investment in local artists, or that a ban would encourage investment in a more diverse range of local talent.
Ministry Comment on Cross Subsidisation
84. The Ministry is not convinced that the decisions of international record companies to invest in local talent are based on anything other than normal commercial criteria, including an assessment of the demand for local music and the goodwill and local promotional value that they can derive from signing local artists. The fact that the major record companies do not usually sign local artists unless they have already achieved some degree of success in New Zealand tends to support this proposition.
85. Whether or not the New Zealand subsidiaries of the major international record companies use retained earnings to invest in local talent should not affect this. Retained earnings are not the only means of obtaining capital to finance commercial activities. 20
86. Demand for local music is currently high, despite the absence of a parallel-importing ban. The Ministry does not therefore consider that a ban will necessarily have any effect on the quantity of New Zealand music produced by international record companies, or that it will increase levels of overseas promotion. Nor has evidence been provided to prove contentions that the absence of a ban will result in decreased investment.
| Request for Information 2.2.2 The Ministry requests further information on: - whether (and, if so, how) parallel-importing bans would encourage local subsidiaries of international record companies to maintain or increase levels of production by local artists;
- whether (and, if so, how) a parallel-importing ban would affect overseas promotion of local artists;
- how local subsidiaries of the major record companies finance investment in local artists.
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2.3 The Book Publishing Industry and its Arguments
Key Characteristics of the Industry
Distribution
87. New Zealand is a net importer of books, particularly popular fiction titles.
88. A number of international publishers have New Zealand subsidiaries or offices, which sell international titles to New Zealand retailers. Before the removal of the parallel-importing ban, these local subsidiaries had the exclusive right to distribute their parent's foreign titles in New Zealand.
89. The official New Zealand release dates for new foreign titles are determined by the local subsidiary of the international publisher, by the copyright holder, or bythe authorised distributor.
90. There are also a considerable number of New Zealand publishers, most of which publish and market New Zealand books exclusively for the local market.
Local Publishing and Overseas Promotion
91. Book Data 21 statistics show that, for 1999, international publishing houses published 21% of the books first published in New Zealand. From this it can be assumed that New Zealand publishers publish the majority of books published in New Zealand.
92. The Ministry was advised that the standard royalty received by authors in New Zealand is 10% of the recommended retail price. Publishers pay authors their royalties twice a year, less advances paid on receipt of the manuscript and on publication. A typical first-print run for a New Zealand work of fiction is reported to be 2000 copies.
93. International publishers sometimes sell the foreign-market publishing rights for New Zealand books to overseas publishers. Some submissions, however, suggested that the only active overseas promotion and marketing of New Zealand books is undertaken by New Zealand publishers and the authors themselves - often with the assistance of Creative NZ.
The Effects of Parallel Importing
94. Limited information was received from book industry stakeholders on the level of parallel importing since the ban was removed.
95. The New Zealand Institute of Economic Research's follow up report on the effects of parallel importing (the 2000 NZIER Report) concluded that, since 1998, the volume of parallel-imported books has remained small. The report observed that retailers appear to have largely remained with existing importers and wholesalers, because of the services they offer.
96. Submissions attributed the low levels of parallel-imported books to the following:
- Parallel imports do not carry with them the services offered by local distributors, such as the ability to return unsold copies to distributors (sale or return).
- The declining exchange rate has made parallel importing uneconomic in many cases.
- Importing is an expensive activity, outside the core activities of most retailers.
97. Despite general agreement about the low levels of parallel-imported books, book retailers reported that some retailers had observed improvements in efficiency and service as a result of the possibility of parallel importing. The 2000 NZIER Report recorded similar observations.
98. The Ministry received a large number of submissions from libraries stating that they have parallel-imported significant volumes of books since the removal of the ban, and are now in some cases parallel importing all of the foreign titles they require. There was some suggestion that libraries were parallel-importing significant quantities before the ban was removed under an agreement with local book distributors dating back "at least thirty years". The reasons why libraries have engaged in parallel importing are discussed below in paras 189 -193.
99. Some stakeholders suggested that there has been some parallel importation of children's books and fiction titles sold in both large book-retail chains and discount stores. Smaller and specialist book retailers also appear to have parallel-imported foreign titles where these were not held in stock by local distributors. It is, however, difficult to ascertain how often smaller and specialist retailers might have been by-passing local distributors and placing mail orders with overseas wholesalers when the ban was in place.
100. Magazine importers and some magazine retailers advised the Ministry that there have been significant quantities of magazines parallel-imported since 1998.
The Industry's Arguments
101. Book publishers claim that a parallel-importing ban of four years or more is needed in order to:
- prevent the possibility of New Zealand titles printed for sale in foreign markets being imported into New Zealand without the permission of the local publisher; and
- protect imported new-release and back-catalogue titles from having to compete with parallel imports, and thus ensure that international publishers can continue to publish local authors.
102. Each of these arguments is outlined and commented on below.
Parallel Importation of Remaindered Books
103. Book publishers claim that a ban is required to prevent the parallel importation of remaindered copies of New Zealand titles that have been printed and distributed in overseas markets. "Remaindered" books are unsold copies of titles that have been supplied on a sale-or-return basis to retailers and are returned to the publisher (who then offers the copies for sale at a discounted price). Depending on their contract, an author might not get a royalty share from the sale of remaindered copies, though they might have a contractual right-of-first-refusal over remaindered copies.
104. Some book publishers are concerned that if retailers sell parallel-imported remaindered copies of some New Zealand titles (instead of selling copies printed for sale in New Zealand), then this could result in lower royalties for local publishers and their authors. Some of these publishers also claimed that the threat of parallel importation of remaindered copies of local titles has affected, or will affect, decisions to sell the rights to New Zealand titles overseas - and that, ultimately, it will affect their decisions to publish local books.
Ministry Comment on the Parallel Importation of Remaindered Books
105. The Ministry is aware of a small number of instances involving the importation of limited quantities of remaindered New Zealand titles that have purportedly been sold at lower prices than local editions. There is, however, no evidence that this is a common occurrence. Publishers' concerns appear to relate to these isolated instances and the possibility of further examples occurring.
106. The effects on authors' royalties are difficult to gauge. While remaindered copies (for which an author will usually not get royalties) might be purchased by some consumers in place of a local edition, it might be argued that many consumers will only buy a particular title because of the substantial discounts on the ordinary retail price. The degree to which remaindered copies can affect revenues derived from local editions is therefore not certain - although it is not denied that some substitution occurs.
107. Remaindering generally tends to occur at the end of the life cycle of a book. The foreign-market rights to print and sell local titles are rarely sold until a book has achieved a degree of local success. Titles supplied in overseas markets on a sale-or-return basis are not, therefore, usually available to be remaindered and parallel imported into New Zealand until at least two years after they have first been released in New Zealand. By this time a New Zealand title should have achieved significant local sales, thereby reducing the possibility that revenues from local editions will be seriously affected.
108. The Ministry has not been presented with any evidence that suggests that the possibility of remaindered books being available for parallel importation into New Zealand has influenced publishers' decisions about selling the foreign-market rights of local books.
109. In exporting or selling the overseas rights to New Zealand titles, local publishers have the contractual ability to limit the volume of copies printed for overseas markets and to insist on pulping or first-right-of-sale-at-cost of any copies remaindered, either for themselves or the author. The Ministry therefore questions why contractual arrangements between both local and overseas publishers, and local publishers and authors, are not able to be used to prevent copies of New Zealand books remaindered overseas from being available for parallel importation.
110. There is also a lack of evidence that established retailers or others (such as libraries) are importing, or are likely to import, remaindered copies of New Zealand titles. In submissions, retailers stated that they would not risk undermining the relationships they have with local suppliers by importing New Zealand titles. It seems that the greatest danger of parallel importing of New Zealand books, therefore, appears to be posed by itinerant traders. 22
111. Libraries and a local Internet trader stated it was their practice to source New Zealand books off shore only when New Zealand distributors could not supply them (for example, if they were out of print in New Zealand). They also emphasised their commitment to supporting local authors and said that they fully appreciated that buying New Zealand titles from overseas sources could adversely affect authors and the local industry.
| Request for Information 2.3.1 The Ministry requests: - further information on whether instances of parallel importation of copies of New Zealand titles printed for sale overseas have seriously affected the sales of New Zealand titles printed for sale in New Zealand and also the returns to New Zealand publishers and authors;
- any evidence that the possibility of remaindered books being available for parallel importation into New Zealand has influenced publishers' decisions about selling the foreign-market rights of local books.
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Cross Subsidisation
112. Some book publishers claimed that a parallel-importing ban is needed to protect their imported back-catalogue titles and therefore to ensure that the New Zealand subsidiaries of international publishers can continue to publish local authors. This argument is much the same as that advanced by some music industry stakeholders in respect of cross-subsidisation (para 81 ).
113. The key contention here is that New Zealand subsidiaries of international publishers cross-subsidise the publication of local authors from profits made on the distribution of foreign titles in New Zealand. International publishers contend that, without restrictions on competition from parallel importing for both new-release and back-catalogue titles, they will not make the level of profits that allow them to publish local authors in New Zealand. This, they claim, will have a serious effect on the number of New Zealand authors published, because a substantial number of the New Zealand books published each year do not return sufficient revenues to cover costs.
114. The implications of this argument are that it is not profitable for international publishers to publish local authors in New Zealand and that international publishers publish New Zealand titles for publicity and other reasons related to generating local goodwill.
115. An associated argument - made by New Zealand publishers - is that a parallel-importing ban is required because parallel importers free-ride on the marketing and promotional activities of New Zealand-based publishers, thereby adversely affecting their profit margins and their ability to publish local titles.
Ministry Comment on Cross Subsidisation
116. The Ministry questions assertions that international book publishers publish New Zealand books for anything other than commercial reasons, or that decisions are based on anything other than an ordinary assessment of the perceived demand for a new title and the risks involved in publishing it. There is also some doubt about the suggestion that the only possible source of capital for investment by publishers in local books is past profits.
117. The implication of these arguments is that international publishers do not expect a proportion of the New Zealand titles they invest in to be successful and so provide sufficient revenues to cover any loses made on other titles, in the same way as investments are calculated and made in publishing foreign titles. The Ministry, however, has not been presented with any evidence of this.
118. It is to be expected that there will be a substantial core demand for New Zealand books, particularly in respect of non-fiction publications. Where local demand for New Zealand books exists, it is arguable that, if international publishers decided to publish fewer titles, New Zealand publishers would be likely to publish more to meet that demand.
119. Accordingly, the Ministry is yet to be convinced that a parallel-importing ban will have any effect on the number of New Zealand books published, or that the continued possibility of competition form foreign-title parallel imports will result in lower numbers of New Zealand books being published. In fact, there was no suggestion in submissions that the absence of a ban has resulted in the publication of fewer New Zealand books. To the contrary, Book Data statistics show that the number of titles first published in New Zealand increased by 23% from 1997 to 1999.
120. The same statistics show that international publishers brought out only 21% of the New Zealand books first published in 1999 - around the same percentage as they did in 1997. The beneficiaries of a parallel-importing ban (that is, the international publishers who primarily distribute foreign titles into New Zealand) do not therefore appear to be the most significant publishers of local books.
121. Turning now to the free-riding argument, the Ministry observes that free-riding on advertising and other promotional activities regularly occurs at the retail level, where one retailer might advertise a particular title that is also available from a number of other retailers. The fact that retailers continue to advertise books that are also available from other retailers suggests that free-riding is not perceived to be a problem at the retail level. Also, in highly competitive retail markets such as electronic goods, free-riding on advertising financed by overseas manufacturers and retailers authorised to use international brand names does not appear to be a problem. Authorised distributors should, therefore, be able to alleviate any concerns they have about competition from parallel imports by adapting their promotional activities to exclude parallel imports through exclusive tie-ins with the specific retailers. 23
| Request for Information 2.3.2 The Ministry requests further information on: - whether competition from parallel-imported foreign book titles, or the threat of this, has affected the decisions of publishers to publish New Zealand books;
- how local subsidiaries of international publishing houses finance the publication of local authors.
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2.4 Film and Video Distributors and their Arguments
Key Characteristics of Film and Video Distribution
Distribution
122. Motion pictures are commercially exploited by copyright owners in a number of different forms or sequential "windows". The length of (and the spacing between) these windows varies from title to title, but the overall objective is to maximise the revenues obtained from each title in each format. The spacing of each successive "window" is determined by film distributors and is not protected by legislation.
123. The following table summarises the sequence of "windows" in which major motion pictures are economically exploited:
Window | NZ cinema release | NZ video/ DVD rental release | NZ video/ DVD sale and pay-per-view TV | Subscription TV | Free to air TV |
Time From First International Release24 (Months) | 0 - 6 | 4 - 15 | 10 - 21 | 16 - 27 | 24 - 47 |
Approximate Time From Previous Window (Months) | N/A | 4 - 9 | 6 | 6 | 8 - 20 |
124. Although cinema and rental release dates for major Hollywood films in the United States are generally three to six months before New Zealand release dates, many titles are not released in New Zealand until considerably later and a large number of films are not released in New Zealand cinemas at all. Many titles go straight to video/DVD release, while some might only be available for television broadcast.
125. The reasons put forward by film distributors and other film stakeholders for the delay between the United States release and the New Zealand release of new Hollywood motion pictures were:
- the need to test the popularity of new titles in the United States market before determining whether they will be released internationally for theatrical exhibition;
- decisions by international marketing divisions of the major distributors as to when a film will become available for release in New Zealand and other markets;
- the decision of local distributors to wait for secondhand "prints" or copies of films to become available to allow more affordable and wider simultaneous release in New Zealand; and
- differences between northern and southern holiday seasons.
Local Production and Overseas Promotion
126. International film and video companies operating in New Zealand have a distribution rather than a production role. Although their parent companies might be involved in film projects being filmed in New Zealand from time to time, they do not directly invest in local film production.
127. Decisions to use New Zealand as a location for film production are made by parent film companies based overseas. These decisions are based on such things as taxation benefits, scenery, the availability of local facilities and expertise, the flexibility of employment laws, the overall comparative cost advantages of filming in New Zealand, and currency exchange rates.
128. Local subsidiaries of international film and video distributors do not appear to be involved in the promotion of New Zealand films in overseas markets. (The New Zealand Film Commission is sometimes involved with international film-production companies in funding local productions and promoting New Zealand films into foreign markets. The Commission also assists in the sale of foreign exhibition and rental rights to overseas distribution companies.)
The Effects of Parallel Importing
129. Prior to the 1998 law change, foreign films and videos were imported and distributed in New Zealand exclusively by subsidiaries of the major international movie studios and distributors, or by authorised agents.
130. Since the removal of the copyright ban, however, a number of video shops and enthusiasts have parallel-imported DVD copies of motion picture titles not available in New Zealand. These tend to be available for direct importation from other countries (usually the United States) some months before the official release of the same title for rental in New Zealand, and on occasion weeks before the New Zealand theatrical release.
131. Parallel-imported DVDs are generally sold to movie enthusiasts for higher prices than copies obtained through authorised distributors after their official release for sale in New Zealand. Parallel importers appear to be meeting the demand for new-release DVDs from a small but growing group of consumers who would otherwise be likely to order titles over the Internet. The Ministry is aware that parallel-imported DVDs are, however, now being supplied to video rental shops that offer parallel-imported copies for sale or rental to the public. This includes both small specialist rental shops and the also the major national rental chains.
132. The Ministry is not aware of any parallel importing of film prints for cinema exhibition.
The Distributors' Arguments
133. Authorised film and video distributors believe that a parallel-importing ban of at least nine and preferably twelve months from the first international release of new film titles is required in order to:
- protect their planned theatrical "window" for the cinema exhibition of motion picture titles from having to compete with parallel-imported DVD copies, and to therefore guarantee the viability of provincial cinemas in New Zealand; and
- help combat concerns about motion picture piracy, particularly on DVD and video compact disc (VCD) formats.
134. Both of these arguments are considered and commented on below.
Parallel-Imported Rental DVDs as a Perceived Threat to the Viability of Cinemas
135. Film and video distributors assert that a ban on parallel importation is required to ensure that they can continue to supply film prints to provincial cinemas. It is claimed that without a ban that prevents the rental of parallel-imported DVD copies of titles not yet released in cinemas in New Zealand, many cinemas in provincial centres and small towns will be forced to close. This issue has been the focus of considerable media attention.
136. Central to these claims is the assertion that the rental availability of parallel-imported DVD copies of titles not yet released or showing in New Zealand cinemas is directly affecting cinema attendance. Distributors have recently blamed the presence of parallel-imported DVDs in rental shops as the main reason for box office takings having fallen 9% for the January to October 2000 period against the same period in 1999. 25
It has been suggested that, rather than attending or waiting for the theatrical release of motion pictures, consumers with DVD players are choosing to rent DVD copies of new releases.
137. This argument is based on concerns about potential competition between the theatrical exhibition of films and the rental of parallel-imported DVDs. Distributors who confirmed this also stated that they were not concerned about competition from parallel imports after the official rental release of titles (within the rental "window"), as they believe they have a better service to offer rental shops.
138. Film and video distributors claim that, unless a parallel-importing ban on motion picture products is provided in legislation, they will be forced to bring forward the theatrical release of new films (that is, closer to their first international release) in order to avoid competition from DVD rental copies. This in turn means they will only be able to buy new prints of new titles, rather than the mix of new and used prints that they can obtain if they delay the New Zealand release.
139. The film and video distributors also consider that, if they decide to buy more new prints instead of less-expensive used prints, they will be forced to buy a smaller number of prints for the New Zealand market. They argue that this will mean that fewer cinemas, and probably only those in the big cities, will screen first-run films - and that this will restrict the opportunities for provincial theatres to show new-release films before video and DVD rental release. It is also suggested that the distributors will not be able to supply films to new multi-screen cinema complexes planned for major suburban centres.
140. Alternatively, the distributors argue, supplying the same number of theatres as they currently supply with prints for first-run screenings will require them to purchase all new prints; and this will increase the cost of releasing a major film in New Zealand and mean that ticket prices will go up.
141. A further claim made by some film distributors is that any effects on the viability of provincial theatres will reduce the opportunities for New Zealand films to be shown in New Zealand and, therefore, reduce investment in local films. An example given in support of this was the reported parallel importation of DVD copies of the New Zealand film Once Were Warriors distributed under licence in the United Kingdom, which is said to have affected the income of local investors in that particular film.
Ministry Comment on Parallel-Imported Rental DVDs as a Perceived Threat to the Viability of Cinemas
142. The Ministry is yet to receive conclusive supporting evidence on a number of aspects of the above arguments.
143. First, information on the volume of parallel-imported titles available for rental in DVD format is yet to be supplied. Some stakeholders suggested that only a small percentage of those available for hire in mainstream video stores are parallel imports. The majority of copies of new-release titles, including titles for which large numbers of rental copies are available, are said to be copies supplied by local distributors.
144. Second, it is debatable whether theatre attendance and rental of the same title are closely substitutable (interchangeable) goods. The Ministry has to date received no evidence to support contentions that a significant number of consumers will rent a DVD in preference to attending a cinema screening of the same film. The Commerce Commission did not accept a similar proposition when it considered a proposed merger between the two largest motion picture theatre companies, Hoyts and Village Force. 26
And, overall, submissions appeared not to support substitutability between DVD and cinema viewing. For example, industry representatives emphasised the unique nature of the cinema experience in comparison to home rental as one reason for the success of cinema multiplexes in New Zealand over the last ten years. 27
Other submissions emphasised the unique features DVD technology offers in respect of motion picture viewing, including extra scenes and index cueing. "Uniqueness" would seem to preclude substitutability.
145. Third, there seems to be some uncertainty about whether local film and video distributors have the authority to bring forward the theatrical release of Hollywood-produced titles to match United States release dates. Some stakeholders stated that this would not be possible as these dates are determined by international marketing divisions of the United States production studios and distribution companies. Some of the rationales given by local film and video distributors for New Zealand official release dates being three to six months behind the United States (for example, the need to first test the popularity of new titles in the United States before international release) support this.
146. Claims about the effects of parallel-imported DVDs on box office takings so far this year appear premature. The Ministry was not presented with any quantified evidence that parallel-imported DVDs are contributing to reported lower returns. The Motion Picture Distributors' Association's statement that parallel-imported DVDs are the main reason for a 9% drop in box office revenues was not accompanied by any supporting evidence.
147. The reported drop in revenues also needs to be evaluated in the context of other factors that have been identified as possibly contributing to it - including the lowering of the drinking age, and increased Internet usage. 28
It is also worth noting that the figures for the reported year to October 2000 appear to be much the same as 1998 figures, which were themselves an 8% increase on the previous year and reflected an increase for the ninth straight year. 29
148. The largest chain of video stores in New Zealand, which was recently reported as having dismissed claims that parallel-imported DVDs are responsible for the drop in box office takings, suggested that the main reason for the drop in revenues was the combined cost to families of tickets, refreshments and petrol. 30
149. It is clearly difficult to ascertain the relative importance of any of these possible reasons for lower ticket sales.
150. A general point to be considered is the potential effects of the importation of DVDs for private and domestic use (which would not be banned), and the likelihood that digital "video-on-demand" delivery initiatives will soon allow access to compressed digital copies of motion pictures via the Internet. These factors are likely to have an effect on the future growth of cinema revenues.
151. The Ministry is also yet to be presented with evidence that parallel-imported DVDs are having an effect on investment in the production of local films. The example of DVD copies of the New Zealand film Once Were Warriors being parallel-imported was explained by some video stakeholders as the result of the film, like most older New Zealand films, not having been officially released in New Zealand on DVD format - but this has not been confirmed by distributors.
152. It should be noted that film and video distributors currently have the ability to prevent unauthorised rental of parallel-imported DVDs by enforcing the rental rights provided under the Copyright Act. The Act gives copyright holders of motion picture videos and DVDs the exclusive right to authorise rental of their titles. While the removal of the copyright prohibition on parallel imports means that DVDs can be parallel-imported and sold in New Zealand without the permission of the local distributor or copyright holder, unauthorised rental of parallel-imported titles will still, in the Ministry's view, amount to copyright infringement. Distributors therefore have the ability to prevent the unauthorised rental of parallel-imported DVDs copies of new-release films at any time. This should allow them to protect their revenue streams and ensure that rental of parallel-imported DVDs does not undermine the viability of the cinemas they supply.
153. The Ministry understands that authorised distributors have to date taken only limited action to prevent unauthorised rental of parallel-imported DVDs, and that this has been predominantly against small independent rental operators. The Ministry is not aware of any resulting Court proceedings having been taken by copyright holders. It has been suggested that distributors and copyright holders have not taken action to enforce their rental rights because of uncertainty as to the outcome of proceedings. There is, however, always a degree of uncertainty associated with enforcing any intellectual property rights on the facts of a particular situation - and such uncertainty would also arise in enforcing a parallel-importing ban against suspected infringements.
154. The Ministry's preliminary view is that normal commercial means are available to restrict the rental of parallel-imported DVDs. If the scope of the rental rights granted under the Copyright Act as they apply to parallel-imported products proves to be uncertain in litigation, there would be grounds for reconsidering the drafting of those aspects of the Act.
155. In addition, the integrity of the sequential "windows" marketing system used by film and video producers and distributors is under threat from changing consumer expectations (which in turn arises from new technologies such as DVD and the Internet). It is inevitable that the windows system will have to evolve to meet these challenges. On the information supplied to date, it is questionable whether government intervention is required to protect an industry marketing mechanism that was designed to maximise profits for overseas shareholders.
| Request for Information 2.4.1 The Ministry requests: - evidence of the effects, if any, that parallel-imported motion picture DVDs have had on cinema revenues;
- evidence of whether (and, if so, how) a ban on the parallel importing of film products would:
- guarantee the viability of provincial cinemas; and
- encourage investment in, and overseas promotion, of New Zealand films;
- information on the potential risks that parallel-imported DVD copies of new-release motion pictures pose for existing levels of investment in New Zealand films;
- information on why copyright owners have not used the rental rights provided to them under the Copyright Act, to prevent the unauthorised rental of parallel-imported motion picture DVDs.
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Piracy
156. Film and video distribution representatives claim that a ban will also help prevent the importation of pirated and counterfeit motion picture videos, DVDs, and VCDs. The sale of these is perceived to be a major problem in New Zealand, particularly in flea markets. There is also concern that pirated DVD and VCD copies of motion pictures, believed to be produced in some Asian countries, will make their way to New Zealand.
157. Industry representatives have told the Ministry that they believe that pirate copies of motion picture products are entering New Zealand in parcel mail and personal baggage.
Ministry's Comment on Piracy
158. The Ministry has not been supplied with evidence that the removal of the copyright parallel-importing ban has resulted in a dramatic increase pirated copies of motion pictures. It is understood that pirated VCD and, to a lesser degree, DVD copies of new-release motion pictures can be found in flea markets. However, the extent to which a parallel-importing ban will have any effect on pirated and counterfeit copies of motion pictures entering New Zealand through illegitimate and private channels has not been determined. The Ministry has not been presented with evidence that a parallel-importing ban will address this problem, particularly in light of the belief that pirated material is entering New Zealand in parcel mail and personal baggage. It is also unclear whether illegitimate material is being domestically produced.
159. In addition, pirated and supposedly counterfeit copies of new-release films appear to be easily distinguishable from copies available from legitimate importers. This suggests that purchasers of illegitimate copies of motion pictures are (or should be) aware that they are buying pirated or counterfeit copies. The fact that authorised distributors do not release motion pictures in New Zealand in the VCD format should also raise consumer suspicions about the legitimacy of product available for sale in flea markets.
160. Concerns that illegitimate DVD and VCD copies made in some Asian countries will make their way to New Zealand in large numbers are yet to be supported by clear evidence. The Ministry understands that some illegitimate copies observed in markets bear Asian titles, but evidence that these copies have entered New Zealand disguised as legitimate parallel-imported copies has not yet been presented. The fact that they do not have English titles should suggest to consumers that they are not copies authorised by local distributors.
161. The Ministry is of the view that the taking of action against importers and dealers in suspect product under the anti-piracy provisions of the Copyright Act, and the lodging of notices with Customs at the border, are a more effective means of addressing concerns about motion picture piracy than parallel-importing restrictions are. Customs advises that only one motion picture distributor has so far lodged notices.
| Request for Information 2.4.2 The Ministry requests: - further information on whether (and, if so, how) parallel-importing bans might prevent the importation of illegitimate copies of motion picture products;
- any evidence on whether the volume of imported pirated motion picture products has increased since the removal of the copyright parallel-importing ban in 1998.
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2.5 The Software Industry and its Arguments
Key Characteristics of the Industry
Distribution
1621. The major software production companies distribute product in New Zealand through local subsidiaries or through authorised importers.
163. Nearly all of the consumer software products sold in New Zealand are imported, including home and business operating systems and applications, games, and educational products such as electronic books, journals and encyclopaedias. A number of local industries also rely on more specialised imported software to assist in the manufacture of consumer goods, to use as components in goods, and to provide commercial and social services.
Local Production and Overseas Promotion
164. The Ministry has received no evidence that international software companies and computer-game producers that distribute product in New Zealand make any investment in the local software industry. Commodity or "off-the-shelf" software is not generally developed in New Zealand. The specialised software developed by New Zealand innovators is largely produced with private finance, although the developed product might be sold to off-shore software companies.
The Effects of Parallel Importing
165. Limited information was provided by software stakeholders on the perceived effects on software imports of the removal of the parallel-importing ban. The 2000 NZIER Report concluded, however, that the following has occurred in respect of software products:
- Significant volumes of software products have been parallel-imported since mid 1998.
- Some titles are now available at lower prices than when a ban was in place - in part because retailers' ability to parallel-import stock from alternative sources means they can obtain better wholesale prices from local distributors.
- The Warehouse and other discounters are now selling parallel-imported software titles. These are mostly education-related titles, and older titles that have been rendered obsolete by new versions.
The Industry's Arguments
166. In written submissions, Microsoft (NZ) Ltd and the ISANZ 31 requested a permanent ban on the parallel importation of software and computer games on the grounds this would prevent pirated and counterfeit product entering New Zealand. A second reason given for a ban in respect of consumer software products was to prevent free-riding on marketing and customer support services.
Piracy and Counterfeiting
167. Software distributors argue that a parallel-importing ban will ensure that product sold in New Zealand is legitimate, because only authorised distributors will be able to import product.
Ministry Comment on Piracy and Counterfeiting
168. The Ministry is not convinced that a ban on parallel imports will have a real effect on piracy. Contrary to Microsoft's claims, there is no evidence to suggest that there has been an increase in the importation of pirated software since 1998. The industry also states that imported pirated and counterfeit software enters New Zealand in private and disguised consignments, increasingly as the result of orders made via Internet auction sites. A ban is unlikely to prevent this activity.
169. Piracy is a global problem for software manufacturers. Recent statistics from Business Software Alliance indicate, however, that New Zealand is considered to have one of the lowest levels of software piracy in the Asia Pacific region and one of the lowest levels in the world. 32
170. Some stakeholders advised that levels of domestic piracy in respect of business and home software and computer games are difficult to measure. Some stated, however, that domestic piracy could have increased in the last two years.
171. In relation to software piracy, the Ministry believes that enforcement action under the anti-piracy provisions of the Copyright Act are a more effective means of addressing concerns about piracy than parallel-importing restrictions are.
| Request for Information 2.5.1 The Ministry requests: - further information on whether (and, if so, how) parallel-importing bans will prevent the importation of pirated or counterfeit copies of consumable software products;
- information on the extent of domestic piracy in relation to software products;
- any evidence that suggests that the volume of imported illegitimate software has changed since the removal of the copyright parallel-importing ban in 1998.
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Free-Riding on Customer Support and Marketing
172. Software distributors cited the potential for parallel importers to free-ride on customer-support and marketing activities financed by licensed distributors as another reason why a parallel-importing ban should apply to software products. It was also suggested that any refusal by New Zealand copyright holders or licensed distributors to provide after-sales support to parallel-imported product might damage the reputation of the brand and/or product.
Ministry Comment on Free-Riding
173. Concerns about parallel imports affecting brand perception are a customer-awareness issue. Software is a product that is well suited to distribution through licensed distributors, as customers generally demand after-sales technical support and access to upgrades. Customers are likely to be aware that parallel-imported product might not be supported by authorised distributors, and they can be expected to factor this into the price they pay. Where consumers value services that are additional to requirements under consumer-protection law, they will generally be prepared to pay the additional cost for such services, either at the time of purchase or when the services are required. Many consumers prefer not to pay the cost of such services, because they do not believe they will require them. There is a strong argument that parallel imports allow consumers to make this choice.
174. The Consumer Guarantees Act 1993 requires parallel importers to ensure that the goods that they import comply with their description and are of acceptable quality. Where parallel-imported software is found to be defective, it is unlikely to be of acceptable quality or match its description. In such a case, a consumer is required to exercise their rights under the Act against the parallel importer, unless the manufacturer has an ordinary place of business in New Zealand. (Subsidiaries of the manufacturer would not be responsible under the Act.)
175. Conduct misleading a customer into believing that parallel-imported software has help-desk support from a local licensed distributor would be likely to amount to misleading and deceptive conduct under the Fair Trading Act. Consumers can lay a complaint with the Commerce Commission, which has the power to investigate suspicious conduct and impose fines for breaches of the Act.
176. In general, where a parallel importer (or a retailer of parallel-imported goods) misrepresents the source of the goods or suggests that an association exists with an authorised distributor, the authorised distributor could have recourse to an action based on the common-law tort of "passing off" and/or an action based on misleading or deceptive conduct under the Fair Trading Act. Trade mark infringement would also be involved if the retailer of parallel-imported goods used the registered trade mark of another company to suggest an association.
177. Arguments about parallel imports free-riding on the advertising and promotional activities of authorised distributors have not, to date, included an analysis of the perceived effects of this activity. Authorised distributors have the ability to adapt their advertising activities to exclude parallel imports - for example, through marketing collaboration and official tie-ins with specific retailers. Overall, it is difficult to contend that authorised distributors are disadvantaged in their ability to compete against parallel imports for customers and retail shelf-space.
| Request for Information 2.5.2 The Ministry requests: - further information on whether parallel-imported software products are free-riding on the marketing activities or services offered by authorised distributors;
- information on the effects of any perceived free-riding.
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2.6 Effects of Parallel-importing Bans on Other Groups
Effects on Consumers Generally
178. A number of submissions received by the Ministry expressed concerns about the implications of the proposed parallel-importing bans on consumer welfare. Three particular concerns were:
- potential price increases;
- reduced availability of titles; and
- longer waiting periods for new releases.
Price Effects
179. It was suggested that retail prices would be likely to increase as a result of a ban. The argument here was that intra-brand competition, real or threatened, would be removed and that this would allow authorised distributors to increase profit margins.
180. It is difficult to predict the price effects of a ban. While a ban would certainly remove the threat of competition from parallel imports, its effects on price would depend on a number of factors - and the presence or absence of a parallel-importing ban is only one of these. Other factors include the degree of competition at the retail level, the price sensitivity (elasticity) of local demand, and exchange rates. Some consumers might also be able to avoid paying higher prices by buying over the Internet from other countries, though low-income consumers will be less likely to have this option available to them. Overall, however, it is probable that the likelihood of reduced competition would impose upward pressure on retail prices.
Reduced Range of Titles
181. Most local distributors do not release or stock the full range of titles they hold the local distribution rights to, preferring to concentrate on new titles and high-selling back-catalogue titles that are perceived to have the greatest chance of being sold and therefore of generating the most revenue. Many submissions suggested that bans will result in New Zealanders having reduced access to the full range of titles available overseas.
182. Some submissions stated that parallel importing has allowed specialist retailers, particularly in respect of books and music, to by-pass local distributors and obtain titles that local distributors cannot supply or source as quickly through authorised channels. These concerns are closely related to the concerns expressed by libraries, outlined below (paras 189 -193 ).
183. The degree to which bans will reduce consumer choice depends on three things:
- the ability of authorised distributors to efficiently supply titles they do not stock locally;
- the numbers of consumers who have Internet access and the price competitiveness of Internet retailers; and
- whether authorised distributors allow specialist retailers to continue to parallel-import stock or refrain from taking legal action to prevent them from doing so.
Longer Waiting Times for New Releases
184. Concerns about bans resulting in longer waiting times for new-release books, motion pictures, music titles and software products relate to the fact that local distributors determine the official release dates of titles in New Zealand. Parallel-importing bans would mean that official release dates for new titles could be held back without fear of copies being parallel-imported from countries where they have already been released.
185. Stakeholders stated that New Zealand release dates for new titles have moved closer to first international release dates in the last few years, and that many popular titles in the book, music and software industries are now the subject of global release dates. In some cases, however, New Zealand's geographic isolation from the main manufacturing centres of some creative-industries goods (books in particular) means that release dates for some products in New Zealand are inevitably later than some overseas markets.
186. Access to the Internet is also relevant to concerns about release dates. While parallel-importing bans will theoretically give local distributors the power to hold back release dates, decisions to do so would need to be assessed against the potential for overseas Internet retailers to meet large demand for new titles via mail order before local supplies are released.
| Request for Information 2.6.1 The Ministry requests further information and evidence on what effects, if any, parallel-importing restrictions on creative-industries goods would be likely to have on consumers in terms of price, range and availability of titles covered by those restrictions. |
The 2000 NZIER Report on the Effects of Parallel Importing
187. The 2000 NZIER Report on the effects of parallel importing in New Zealand concluded that the removal of the ban in mid 1998 has had the following effects:
- New Zealand prices for books and music CDs now compare more favourably with the rest of the world; and prices have largely held around the same levels since 1998 despite a depreciating dollar.
- There have been some price reductions for software, especially in respect of older titles.
- Release dates for new title books and music CDs have substantially improved, as has speed of delivery, with customer orders now being filled in days rather than weeks or months.
- There has been an improvement in availability. This is the result of retailers being able to order directly (electronically) from overseas sources, thereby having access to a wider range of titles.
- Because they nowhave the ability to parallel-import if they believe that their needs are not being adequately met by local authorised distributors, retailers have been able to obtain better prices for stock and improved service from distributors. These benefits have generally been passed onto consumers.
188. With the re-imposition of parallel-importing restrictions on the above goods, there is arguably potential for such benefits to disappear.
| Request for Information 2.6.2 The Ministry requests: - information on how the benefits identified by the NZIER in respect of parallel importing would be affected by parallel-importing restrictions on creative-industries products;
- further information and quantified evidence on the effects of the 1998 removal of the ban on parallel importation of copyright goods.
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The Effects on Public and Educational Libraries
189. Libraries believe that they and their clients will be substantially affected by parallel-importing bans on creative-industries goods. The Library and Information Association of New Zealand Aotearoa (LIANZA) and its members claim that a ban on books will reduce the range and number of books they will be able to purchase, and that it will therefore have a major impact on national information resources.
190. Parallel importing allows libraries to source a greater range of foreign titles at cheaper prices from specialist library-suppliers based in the United States. These suppliers deliver titles by (free) air freight, and also offer "value added" services such as binding, shelf-ready processing, and electronic tracking of the customer's order. The ability of libraries to parallel-import books from specialist library-suppliers means that they can purchase a greater number of books within their budgets, and that they can have these on shelves and available to users earlier than they would if the titles were purchased from local retailers.
191. Parallel-importing restrictions on books would force libraries to buy through New Zealand book stores and local distributors. Libraries believe that local sources cannot provide the same services as specialist library-suppliers overseas. LIANZA and its members believe that, under a parallel-importing ban, the range of books stocked by New Zealand libraries would be reduced - both because of increased book costs (associated with higher prices of books and the increased cost of getting titles "shelf ready"), and because of the potential unavailability of some titles through New Zealand distributors.
192. University libraries were particularly concerned that a ban for books would affect the price and availability of overseas academic books, and related serials and journals, which are required to teach many technical and professional qualifications at tertiary level. It was suggested that this could have some effect on the achievement of Government education policies that are aimed at increasing the skills and knowledge of New Zealanders in particular vocational areas.
193. Some library stakeholders referred to an agreement or "understanding" that existed between local distributors and libraries before the ban was removed, and that recognised the inability of local distributors and retailers to meet the needs of libraries by allowing them to parallel-import foreign titles. They are concerned that, if a ban was re-introduced, a similar arrangement would not be possible with local distributors of overseas titles.
| Request for Information 2.6.3 The Ministry requests: - information on whether local distributors would be able to meet the needs of libraries if parallel-importing restrictions are introduced;
- further information on and quantified evidence of the effects on libraries of the 1998 removal of the ban on parallel importation of copyright goods.
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Local Internet Retailers and the Development of E-Commerce
194. Some submissions also stated that the re-imposition of parallel-importing restrictions would adversely affect New Zealand Internet retailers and the investment being made towards the establishment of an e-commerce infrastructure in New Zealand.
195. Like specialist retailers, local Internet retailers aim to meet the needs of consumers with minority tastes by offering a wider range of titles than conventional retailers provide. One local Internet retailer stated that the ability to parallel-import book titles directly from wholesale suppliers overseas allows them to do so at a price, and in a time period, that is competitive with international Internet retailers (such as Amazon.com). 33
196. Local Internet retailers are therefore concerned that bans will effectively remove their ability to compete with overseas Internet retailers in supplying foreign book, video/DVD, software, and music titles by mail order to New Zealand and overseas consumers. One New Zealand Internet retailer claimed that they would be forced to move off shore if bans were introduced. The same company argued that parallel-importing restrictions will mean that New Zealand will not provide the same incentives as other countries to develop the distribution channels required for encouraging electronic commerce in New Zealand.
197. The presence of local Internet retailers was said to be important to New Zealand's economy for two further reasons:
- because New Zealand-based Internet retailers charge GST on all purchases made within New Zealand, whereas GST is collected by Customs on books ordered from overseas Internet sites only where the value of the GST exceeds $50; and
- because Internet retailing has the potential to develop further as a cost-effective means of marketing New Zealand creative-industries titles (especially books and music) to overseas markets.
| Request for Information 2.6.4 The Ministry requests further information on whether parallel-importing restrictions for creative-industries goods are likely to adversely affect the development of e-commerce in New Zealand. |
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33 This Internet retailer also stated that they attempt to source as many titles as possible from New Zealand distributors where these are in stock in New Zealand, but that local distributors generally cannot supply titles required to fill specific orders as quickly or at as low a price as the Internet retailer can obtain them by parallel importing.
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