Why Australians unfairly pay more for software and digital entertainment

Australia’s Department of Broadband Communications and Digital Economy has just provided a submission to the government’s Inquiry into IT Pricing.

I was interviewed on ABC24 about the findings, and more generally the reasons why Australians pay more for digital goods. Click on the image to view the video of the interview.

The government report runs through some examples of pricing disparities. Fortunately the extortionate pricing experienced by Australians for much hardware and software has abated somewhat, however some software, and more prominently digital entertainment including movies and music, is still very expensive.

For example Australians pay A$24.99 to buy Toy Story on iTunes compared to the A$10.10 paid by Americans for exactly the same product. The Beatles Anthology costs A$20.99 compared to A$13.09.

As I pointed out, it is not transparent how much of this disparity is due to different regional licensing costs imposed by movie studios and music companies, and how much by Apple’s pricing structures, but the likelihood is most of the difference is from licensing.

For entertainment products, we are beholden to the copyright owners. Other movies and music are not substitutes for the ones we want to watch or listen to.

While the shift to digital content opens up global markets, license holders would prefer to break down markets as far as possible, with the aim of maximizing pricing in each one. One of the primary ways of enforcing those barriers is to require a credit card from the country within which you are buying. For now, it is hard for most people to circumvent that.

So while globalization affects almost every market, ironically it is impacting digital entertainment less than many product markets, with massive price disparities.

The final question in the interview on ABC was whether these prices would lead more Australians to piracy. My reply was that the unfairness of the pricing rather than the fact of having to pay would indeed draw some to illegal downloads.

There is little the government can reasonably do to legislate on pricing. Let us hope further forces of globalization, including freer payment structures, give non-Americans fairer access to digital content.

Here is the conclusion of the government’s report:

There remains an ongoing role for the market in restoring the balance of costs across international borders. The digital economy offers consumers an unprecedented opportunity to act as independent rational agents on a global scale, with enormous potential to benefit from lower prices and a much larger market of goods than is available in Australia alone.

Australian consumer law protections serve a valuable purpose and should continue to be available to consumers when they purchase locally. There remains a role for Government in ensuring consumers are adequately protected against predatory and unethical commercial practices. However, the Government must also act within limits; some measures, such as requiring foreign retailers to apply Australian laws and taxation arrangements, are unlikely to prove benefits in balance with the required expenditure of resources.