ASHER MOSES July 30, 2012
Why do Australians pay so much more for tech products than Americans - sometimes over 80 per cent more?
The Australian industry body that represents Apple, Microsoft, Adobe and hundreds of other technology firms partly blames retailers and distributors. But one MP today described that as a "convenient excuse".
The comments by the Australian Information Industry Association (AIIA) are at odds with those made by the Australian Retailers Association, which said that for some products suppliers were "artificially" setting wholesale prices high because they feel "Australians should or can be paying more".
Today the parliamentary committee looking into IT pricing held a public hearing at the NSW Parliament, chaired by Labor MP Nick Champion. He said the inquiry had struck a chord with consumers and 81 submissions had been received.
Consumer group Choice told the hearing big global brands were responsible for price discrimination, as they set wholesale prices. It called on the government to investigate whether using "geo-blocking" to stop Australians from buying from overseas sites was anti-competitive.
In a study of more than 200 prices, Choice identified "an approximate 50 per cent price difference between what Australians and US consumers pay for more or less identical products", such as music downloads, games, software and computer hardware.
Choice said for equivalent top 50 songs, iTunes prices in Australia were 52 per cent more than in the US, Nintendo Wii games were 88 per cent more, software titles were on average 34 per cent more and a selection of 12 Dell computers were 41 per cent more expensive in Australia.
AIIA chief executive Suzanne Campbell said some AIIA members sold up to 100 per cent of their products through retailers and distributors, not directly to consumers, and this introduced "significant price difference and significant creative tension ... in both the setting of the recommended retail price and the discounting from the RRP".
The AIIA is the peak body representing more than 400 information communication technology companies including Apple, Adobe, Microsoft, Lenovo, IBM, HP, Google, EMC, Dell, CSC, Canon and Telstra.
Companies such as Microsoft and Adobe have said they do not need to appear before the committee because they have provided responses to the AIIA. But the AIIA refused to comment on individual companies and would only speak in generalities today.
Ms Campbell said price disparity was "clearly not technology-industry specific", pointing to the latest Big Mac Index compiled by The Economist magazine, which "shows a difference of 426 per cent between the lowest price of $1.89 in India versus the highest of $8.06 in Switzerland".
She criticised Choice's research, saying: "Spot comparisons are not useful as prices differ from one country to another based on a range of reasons."
She said the cost of doing business in Australia was higher and pointed to federal and state-based taxes such as GST and payroll tax, superannuation, workers' compensation, wages, penalty rates, tariffs, Australian Consumer Laws, importation and transport costs.
She said a significant factor were "supply chain and channel costs", which were "in many cases set by channel partners" such as retailers and distributors. Specifically in relation to music downloads, she said rights holders were "primarily responsible" for setting the price.
Labor MP and committee member Ed Husic said the industry was using its retail partners as "bureaucratic cover". He said these reasons could not possibly account for the 60 per cent price differences in some cases, and suggested the real driver for higher prices were wholesale prices set by the big global vendors.
"It seems like the channel is being used as a convenient excuse by the industry to be able to point the finger at someone else when in actual fact what it actually comes down to is the fact that your members ... can charge whatever they want here because of the lack of purchasing power that exists in Australia compared with a market such as the US."
He said the GST was a similar rate to state-based taxes in the US, while rents have been found to impact just 3 per cent of the overall price of products. Warranty costs under Australian Consumer Law should also be cheaper than in the US as recently the laws had been harmonised nationally while, in the US, there were various regimes. As for R&D, Mr Husic questioned how much of this was done in Australia for global products.
As for labour costs, Choice said take-home pay in the US retail sector after commissions could be higher than in Australia. Choice said this and other factors such as rent were not enough to explain the disparities.
In response to Mr Husic's criticisms Ms Campbell reiterated her remarks about the differences in costs and said in relation to channel partners, a huge part of the extra costs came from renting the retail outlet. She said even for online sales, costs around R&D, marketing and product management were "no different to bricks and mortar".
Mr Husic left Ms Campbell with a question on notice asking her to explain how advertising, marketing, administration and support costs in Australia justified the huge price differences reported by Choice.
The head of the Australian Retailers Association, Russell Zimmerman, attributed the price differences to wages, regulation, rents and exchange rates but said for some products prices were "artificially set high because it is Australia".
The Department of Broadband of Broadband, Communications and the Digital Economy said in its submission that the primary cause of higher prices paid by Australians were "decisions by international distributors".
Choice agreed, saying the most likely cause of higher prices was "international price discrimination" whereby multinationals were "setting the wholesale cost of their products higher for particular markets such as Australia".
But Ms Campbell said Australian subsidiaries of multinationals "stand alone in their own right" and because costs were higher in Australia and the market smaller, they needed to raise prices in order to "provide a reasonable return on investment".
She pointed to the latest Canon Consumer Price Lifestyle index, which found the average selling price for digital devices in Australia had dropped 13.5 per cent across all categories in the past year. Huge discounts applied to some segments such as students.
Ms Campbell said this was evidence competition in the space was strong and consumers were being well served. "Pricing strategies are complex and varied. They reflect supply and demand and product positioning as well as geography," she said.
But she acknowledged that her members faced "a truly globalised trading environment" and "will need to adjust".
Mr Champion asked about the practice of overseas retailers and publishers locking Australians out of buying from their websites using "geo-blocking", in order to force consumers into paying the higher Australian price.
Ms Campbell responded: "They definitely warrant scrutiny; the challenge for us though is that these arrangements are legacies of other times where we were seeking to protect Australian content.
"So to the extent that we're prepared to be exposed to a global market then there may be a basis for negotiating a different outcome with international providers of comparable content."
Choice called on the government to investigate whether technological measures such as geo-blocking were "anti-competitive" or a form of "privatised tariff".
"The idea that we can stem the tide to overseas retail ... is regressive, would hurt consumers, would hurt productivity and would hurt our economy more broadly," said Choice head of campaigns Matthew Levey.
Ross Gibb, group managing director of Macmillan Publishers, said it was not fair to compare Australian book prices with e-book prices from overseas companies such as Amazon and Apple because one particular "predatory reseller" of e-books - believed to be Amazon - "has openly practised loss leading to secure market share for their devices".
"The majority of e-books sold in Australia are actually very similarly priced to overseas," he said.
Mr Gibb appeared with the Australian Publishers Association, which said at the hearing it was implementing technology to allow Australian book retailers to sell e-books.
He criticised companies such as Amazon and Apple for caring more about selling devices than books.
"None of these companies are content companies. In our inference they're not really interested in books," he said.
"For them to increase their market share at the moment price is a fantastic way to do it. They don't sell you the device cheap but they sell you the book cheap."
Online music sellers such as Apple have pointed the finger at rights holders when explaining differences in music prices between Australia and the US.
Richard Mallett, director of APRA AMCOS, the body responsible for collecting licence fees on behalf of composers, songwriters and publishers, said he took a flat rate of 9 per cent of sales in Australia - about the same rate paid around the rest of the world.
"The split is relatively consistent ... the publisher gets about 9 per cent, the labels get 60 per cent and Apple up to 30 per cent," he said. "Why the price is different, I don't know."
This implies that either music sellers such as Apple or record labels are responsible for the higher prices Australians pay for digital music (for albums this can be a $6 difference). Mr Husic said the committee would seek to call representatives from the record labels to explain further.
Mr Mallett said in 2009 music prices between Australia and the US were "line ball", pointing to the high Australian dollar as the reason for the current price disparities.