Last Friday March 22nd, representatives from some of the world’s biggest IT companies were brought before a government inquiry in Canberra to explain why Australian consumers were paying up to 50% more for digital music, and the “Australian-Tax” that’s applied to many digital products, but a representative from Apple has blamed the inflated pricing on record labels, not its own pricing policies.
The iTunes owners were just one of several computer companies, including Microsoft and Adobe, dragged before the government inquiry, spearheaded by Sydney Labor MP Ed Husic after several months pursuing the IT companies who were avoiding invitations to submit their case and refusing multiple requests to appear before the committee.
By mid-February, the government had stepped in to say ‘enough is enough’ and forced Apple, Microsoft, and Adobe before the inquisition. “This is an important move but one we shouldn’t have to take,” Mr Husic said at the time. ”These firms should have cooperated and been prepared to be more open and transparent about their pricing approaches.”
The IT pricing inquiry’s main goal was to understand, and make transparent to the general public, how large computer firms priced their digital content, and explain why the price of products was so much higher in Australia compared to the US.
The public transcript from the Friday 22nd March hearing has yet to be published, but according to Computer World, a representative from Apple has blamed the inflated pricing in Australia on the record companies that provide the music, saying that the rates they charge on iTunes reflect those they must pay to rights holders in Australia.
Tony King, Vice President for Apple Australia, New Zealand and South Asia, told the hearing that, “Apple must pay the rights holders of the digital content, being the record labels, movie studios and TV networks to distribute content in each of the territories in which the iTunes store exists.” “The pricing of this digital content is based on the wholesale prices which are set through negotiated contracts with the record labels… In Australia they [often] set a higher wholesale price…” – Tony King, Vice President for Apple Australia, New Zealand and South Asia
“The pricing of this digital content is based on the wholesale prices which are set through negotiated contracts with the record labels, movie studios and TV networks,” King said. “In Australia they have often set a higher wholesale price than the price of similar content in the United States.”
King noted that iTunes pricing for digital content is similar to the retail pricing of CDs, DVDs, and other physical media, urging the committee to ask rights holders, and not companies like Apple, why they charge more in Australia.
The VP also pointed towards higher prices for Apple software and hardware being due to distribution costs. “Apple must consider differences between countries in product costs, freight charges, local sales taxes, levies, import duties, channel economics, competition and local laws regarding advertised prices.”
Speaking to Tone Deaf in response to the issue, AIR General Manager Nick O’Byrne says that “the current inflated Australian price is a function of the strong Australian dollar, not label greed.”
Adding that, “owners of recordings (artists and labels) should be able to choose their own price-points for music. Intervention on pricing by government in this case would be extremely unwelcome for the small businesses that we represent.”
Mr O’Byrne continued to say that consumers should instead be voting with the choice of where to spend, and in supporting independent music. “Most independents release their music through several channels; bandcamp, iTunes, and streaming services – so if the consumer is unhappy with an iTunes price then they are easily able to find a different mode of consumption which suits their budget,” says Mr O’Byrne.
AIR ran their own feature on the pricing issue last June, noting the disparity between American and Australian iTunes (for the cost of a single) has grown since the launch of the Australian iTunes store in October 2005, but also notes:
Between October 2005 and today, the lowest exchange rate we’ve had is US $0.65 (in February 2009). This meant that the equivalent price for a song on Australian iTunes was AU $1.099 per song. If we take into account 10% GST (which is not charged on US iTunes) then we find that Australian iTunes prices matched US prices almost EXACTLY.
Despite the fluctuation in the Aussie dollar, Independent consumer watchdog, CHOICE undertook an investigation of its own into inflated prices, revealing that the percentage hike was closer to 67%, while their report also contained one particularly revealing case for a Microsoft development product, finding that “an Australian shopper was better off paying for return flights to LA to buy the item in the US instead.”
Executive director of The Australia Institute, economist Richard Denniss has genuine concerns over whether consumers are aware of such pricing discrepancies. ”I don’t know that many people realise just how ripped off we’ve been,” he said in a recent News Ltd interview. All of this, in spite of Australia’s powerful dollar, currently buying $US 1.03.
The government and the inquiry pricing committee are hoping that the light shed on the dynamics of digital pricing system will help ascertain how to develop fairer pricing policies, that will help inform any future legislation, placing pressure on digital distributors and retailers to pass on some of the savings they’re experiencing with the growing economic strength of the Australian dollar.
Tone Deaf also reached out to ARIA Chief Executive Officer Dan Rosen for comment, but he was unavailable at the time of print.
