Introduction 

On February 6, 2014 the Law for the Protection of Literature and Authors in Israel (Temporary Provision), 5773-2013 (the “Authors Act” or the “Act”) will come into effect. The Authors Act is expected to revolutionize the Israeli book market by introducing new regulatory requirements with respect to publishing, distribution, sales and profit allocation across the book supply chain. This essay provides an overview of the main provisions of the Authors Act, its goals and the arguments for and against its enactment.

The Basics 

  • The Protection Period: Under the Authors Act, book prices will be subject to ‘protection’ for a period of 18 months starting from the date of publication of the first edition (the “Protection Period”).
  • Retail Price: During the Protection Period publishers must set for each book a retail price, which will be marked on the book. The common practice prior to the Authors Act was to mark a book with a “recommended price.” The retail price for printed books may be different from the retail price for e-books. A publisher may not change the retail price during the Protection Period.  
  • No Discounts: During the Protection Period, bookstores may not sell books at a price different than the retail price set by the publishers. This prohibition obviously covers discounts but it also includes special offers such as “buy one get one free” or promotions such as “four for 100” that are prevalent in Israeli bookstores. This ‘no discounts’ rule and its ‘unbundling’ effects are, together, the one single provision that drew the most fire from the Act’s critics and most of the public debate concentrated on this clause. There are, however, some exceptions to the “no discounts” rules:
  1. A discount of no more than 20% of the retail price may be granted during the annual Hebrew Book Week (interestingly, another exception with respect to discounts during the holidays season was originally included in the bill but was omitted from the final version);
  2. A discount of no more than 10% of the retail price may be granted by an online bookstore; and
  3. A discount of no more than 20% of the retail price for a bulk sale of over 100 copies to one person, without the possibility of returns.
  • Minimum Royalties to Authors: During the Protection Period a publisher must pay an author no less than 8% of the retail price for each of the 6,000 first copies sold, and 10% of the retail price for each copy sold over 6,000 copies. For his/her first book, an author will only be entitled to minimum payments equal to 80% of the aforementioned percentages. During the seven years following the Protection Period, a publisher will pay an author no less than 16% of the actual payment received by the publisher for the books sold.  
  • Annual Margin Agreements: Once a year, publishers and bookstores will enter into a written agreement setting the discount at which the books will be sold by the publisher to the stores during the relevant year. Bookstores are prohibited from requesting, and publishers are prohibited from granting, any further discounts beyond the margins set in the annual agreement.  
  • Limited Duration: The Authors Act has a limited duration of three years that is intended to serve as a trial period, at the end of which its impact will be assessed and the Act will be re-examined. 
  • Other Provisions: The Authors Act contains other provisions, such as a prohibition on remunerating salespersons for recommending a specific book or a specific author; allocation of shelf space and display space between books published by different publishers, oversight, enforcement and sanctions.

The Goals of the Authors Act

The formal goals of the Authors Act, as stated in Section 1 of the Act are:

“to ensure Israeli authors proper pay for their creations, to promote literature in Israel, to preserve cultural diversity in publication and distribution of books… to provide readers an opportunity to choose among a wide range of books according to their wishes and tastes and enable competition between publishers and bookstores with respect to quantity, variety and the quality of books offered to the consumer.”

The explanatory notes to the bill-proposal provide the background to the legislation:

“Books and literature are regarded as product[s] of a definitive cultural value that many countries in the western world recognize the need to preserve. These countries rejected the approach pursuant to which a book is a commodity that should be subject to free market conditions. In the State of Israel there exists a unique situation in which the conduct of the book market is dictated by a duopoly composed of two chains of bookstores that controls 80% of the market. One of the chains of bookstores is…controlled by a book publishing company… This situation causes serious harm to the principle of free competition… a serious failure in the book market was caused…” 

Arguments in Favor of the Authors Act

Proponents of the Authors Act make three compelling arguments in favor of the ‘no discounts’ rule:

  • The people who bundle books in the “buy one get one free” or “4 for 100” promotions are not literature experts and their decisions on such promotions derive mostly from business considerations. Therefore, these promotions slant the public’s selections and force high-quality literary works out of the public eye. 
  • Since the publishers do not know in advance which books will be included in the promotions, they usually set a higher “recommended” price for all books, a practice that eventually leads to an increase in the “recommended” prices of the books that are not included in such promotions. The expectation is that the price of books that are not bundled will decrease significantly as a result of the Act.  
  • Since the large chain bookstores will not be allowed to give discounts and new books will be sold for a fixed price, small independent bookstores will have a better chance to compete with the large bookstores and as a result more independent bookstores will survive.

Arguments Against the Authors Act

Well, no one likes to pay more…and we kind of liked it when a book cost less than a sandwich…

Everyone, including the Act’s proponents, agrees that book prices will increase and, as a result, book sales will decrease. Other commentators point out that the variety of books will decline, most likely at the expense of new authors. The Israeli consumer, who is accustomed to purchasing books at approximately NIS 25-30 per book for bundled books, will now have to pay approximately NIS 50-75 per book when it is un-bundled. As a result, consumers are likely to purchase less books and will tend to purchase the works of known authors (or prefer other content channels).

Lower prices make books accessible to segments of the population that would not normally consider books a viable purchase, for instance when shopping for gifts for various occasions. The accessibility of books results in more reading, by both adults and children, which is a positive trend that society should encourage, not discourage by means of enforcing higher prices.

Conclusions

The impact of the Authors Act on the book market is yet to be seen. However, the immediate effect of the Act on book prices appears to be adverse to the ultimate readers, especially those who cannot afford books at higher prices, which is a negative result both in commercial and cultural terms. Against the backdrop of the ongoing social protest against the high cost of living in Israel, the Authors Act seems out of step. In this respect, we are doubtful that the act will be entirely successful in fulfilling its stated goals. There is certainly a need to protect authors and to promote literature, but there must be ways to achieve these goals that are not at the expense of readers and reading. As readers, we tend to be uneasy about the implications and results of the Authors Act. We are not convinced by the arguments in favor and apprehensive about the arguments against. We hope that the Act will indeed benefit authors without significant detriment to the book-consuming public, but are not overly optimistic.

Following is a quick scorecard mapping the various players in the Israeli books market and our estimate as to whether the Authors Act will improve or weaken their market position:

Click here to view table.