Digital Media Shake-Up Needed to Attack ‘Australia Tax’

By Rory Betteridge | 30 May 2014

Australian consumers wait longer, pay more, and get less bang for their buck when it comes to digital products. Now two successive Federal Governments have looked for ways to right the ship for the local market.

The latest salvo in a growing conflict between vendor and customer was fired recently, with entertainment software publisher Ubisoft increasing the price on their latest opus Watch_Dogs by 25 percent on digital marketplace Steam over the weekend, barely a week before the title was due for public release.

Before their more recent PR debacle, Ubisoft, in an unusual and welcome move, directly addressed the price adjustment through social media.  “Ubisoft Australia & New Zealand is a part of the European business group,” explained a representative, “We buy and sell product at euro-based cost of goods and royalties, as does the UK, France and most of continental Europe.”

Ultimately Ubisoft shifts the blame on to retailers.  “All retailers are free to sell below the recommended retail price for less profit, if that’s their strategy.  Ultimately, we recommend shopping around for the best deals.”

While admitting that Australia’s relatively small market, high minimum wage and cost of living understandably drives physical retail costs up, like many other consumers Kotaku Editor Mark Serrels is growing tired of excuses from digital vendors, calling Ubisoft’s move another example of ‘one of the worst and most unfair aspects of playing and buying games in this country’.

“When it comes to digital I can’t understand it,” Serrels writes, “particularly when consumers are first given US pricing only to have it snatched away at the last second.  Ubisoft are calling it a pricing error, but it’s an error we’ve seen all too often in Australia, and an error that makes the unfair pricing we have to deal with in Australia all too transparent.”

While the Australian software connection to Europe stemmed from shared power supply standards and thus electronics models in previous hardware generations, Serrels asks why the connection still exists; asserting that it has become obsolete.

“It’s meaningless to a consumer,” Serrels writes, “We live in a global economy, where digital products are sold sans middlemen.  Consumers shouldn’t be expected to wear the same old costs.”

And indeed, many Australian consumers don’t wear those costs.  Local online games retailer Dungeon Crawl has carved itself a sizable slice of the market by importing physical stock from the larger Japanese, American and British games markets, offering the same product with markdowns of up to 20-30 percent on the local recommended retail price.  This, of course, cuts local publishers out of the loop entirely, putting the Australian representatives of international developers against the wall.

The ‘Australia Tax’

Australian gamers are just one local audience that has complained long, loud and often about the existence of an ‘Australia Tax’; the practice of lifting prices on digital products to match the increased cost of importing and distributing their physical counterparts, resulting in significant disparity between what Aussies pay compared to other international markets.  This ‘tax’ translates to other value-subtractions across other markets as well: Australians pay a greater adjusted price for their digital media than other comparable markets, be it games, music, television or film, and often wait longer for distributors to make it available.

The issue is made many times more complicated in Australia, with a variety of factors affecting the perceived and dollar values to the customer of a digital product; the current Goods and Services Tax loopholes make it easier to find a cheaper solution online, the mediocre quality of the nation’s digital infrastructure hampers fulfilment speed and represents lost value for the digital product, the buying power of brick-and-mortar stores drives publishers to ensure the price gap isn’t too large, the list goes on.

It was this unique level of complication that led to the Rudd Government launching an inquiry into the pricing of IT products in Australia, headed by MP Nick Champion, which saw representatives from technology heavyweights Apple, Adobe and Microsoft grilled over alleged price gouging.  The inquiry found Australians were paying anywhere between 50 and 100 percent more for their IT products than other similar economies.

Taking Action

While the election late last year robbed the Government of the chance to act sooner, a new review headed by economist Ian Harper intends to put IT pricing back in the spotlight as part of an examination of competition laws and policy.  It’s widely expected that the review will reach one of three conclusions for the matter: closing the GST loopholes on offshore purchases; introducing new laws clamping down on price discrimination; or recommending retailers and publishers find other ways to add value to their products and entice customers to bear the higher cost.

Closing the GST loophole is a popular option for state governments, starved of revenue following an aggressively austere federal budget.  The Financial Review reported that a drastic lowering of the GST threshold from $1,000 to $20 would see state governments recoup up to $997 million in the next financial year.  While this would be great news for local retailers in other fields, raising already-exorbitant prices on digital goods would only drive more Australians to software piracy, an illegal practice in which Australians are sadly already world leaders.

Price discrimination laws are currently being tabled in Canadian government to fight a similar discrepancy between US and Canadian prices, specifically targeting higher Canadian prices that do not accurately reflect legitimate higher supply costs.  Opponents of the reforms in Canada claim it would discourage vendors from attempting cross-border retail at all, arguing that the effort of justifying price discrepancies would drive foreign traders away. With that said, it’s worth noting that the US/Australia price gap dwarfs that between the US and Canada; a more drastic discrepancy demands a more drastic action.

While user-end retailers rely on pawnbroker-style ‘pre-owned’ product business models and loyalty programs to attract shoppers, the added-value deal is something a number of publishers are already moving towards in the Australian market; major player Sega has offered special editions of key products exclusive to Australia, most notably bundling 2010’s cult action adventure title Bayonetta with artbooks, soundtracks and other memorabilia.  While sales figures specific to Australia are difficult to locate, the game itself was a success, selling over two million copies worldwide and warranting a sequel due later this year.  Considering the relatively small size of the Australian market, however, such a process is unlikely to be profitable for every publisher.

Something Has To Give

Digital media is a market in which Australian consumers in particular suffer disproportionately in terms of price and product satisfaction.  As long as that dissatisfaction goes unaddressed, more and more Australians will turn to cheaper alternatives, even if that means breaking the law.  But that doesn’t necessarily mean the consumers are malicious thieves, or that current digital piracy laws are flawed; producers of digital media simply need to stop treating the Australian market with such contempt.  The prevalence of piracy in Australia is proof that there is a massive market for digital media; all Australian consumers want is the colloquial Australian fair go.

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