The business model that has served major players in the entertainment, media and software industries for decades is under threat following the recommendations of Australia’s IT pricing Inquiry.

Unsurprisingly, the Committee undertaking the inquiry found that Australians pay more than US and UK consumers for apps, movies, music, games and software and that industry justifications (such as small market size, high wages, onerous warranty obligations, exchange rates etc) do not adequately explain the difference.

In what are game-changing recommendations, the Committee urged the government to:

  • change the Copyright Act 1968 to allow Australian consumers to get around the digital “geo-blocking” technology often used to prevent them from purchasing products at a cheaper price from online stores targeted at overseas markets;
  • repeal section 51(3) of the Competition and Consumer Act 2010 which allows copyright holders to include terms in license agreements which would otherwise be misuse of market power or resale price maintenance; and
  • amend the Competition and Consumer Act 2010 to essentially ban contractual provisions which seek to enforce geo-blocking and prevent Australian consumers accessing digital content and products from elsewhere.

The Committee went as far as recommending the Government help Australian consumers to access a “cheap, global marketplace” by actually educating them on how, and to what extent, they can circumvent geo-blocking.

If the Committee’s recommendations were taken up in full it would be a catalyst of major change for the incumbent content and software distributors in Australia. Local licensees would be forced to compete with their overseas counterparts for the dollars of Australian consumers. Local prices would fall and content availability would broaden as local distributors try to match the international offering.

What is “geo-blocking”?

Geo-blocking is a digital incarnation of a business model that has been the foundation of the media industry for a hundred years. In years past, it was too difficult for the owner of copyright in a recorded piece of music who was based in the United States to invest significant capital trying to exploit that recording in Australia. It was much easier to licence a company here in Australia to exploit that recording (for a fee). The “territorial” business model was born and subsequent industries (including for software) have since adopted the same model.

Geo-blocking is designed to protect this business model from the internet and what would otherwise be instant access to content from around the world.

Restricting access to content based on geographic location is popular with global tech giants so they can set different prices in different regions of the globe. For Australian consumers this means they are often charged more for products based on their IP address.

Geo-blocking ranges from the region coding on DVDs that prevents them being played in players coded to foreign regions, through to credit card and IP address tracking that tells a vendor that you’re dialling into the app store from Australia (and to stop you accessing content in the US store).

Geo-blocking has legal backing

This business model is backed up by both law and contract too.  For example, the Copyright Act 1968 makes it illegal to circumvent technological protection measures (Division 2A), the US Free Trade Agreement limits exceptions to the outright ban on circumvention of technological protection measures to a limited number of categories (Article 17.4) and intellectual property rights holders are exempt from certain competition provisions of the Competition and Consumer Act 2010 (section 51(3)).

On top of this, the terms of the typical contract between local licensees and foreign rights holders will restrict distribution rights to a particular region (either Australia or Australia/New Zealand). The related end user licence agreement will often also require end users to agree that use of the service outside of the specified region is prohibited.

A range of international agreements further enforce the territorial model, including the US Free Trade Agreement, Berne Convention, TRIPS and WIPO Copyright Treaty.

What happens now?

The Inquiry’s recommendations are transformative but there is a long way to go yet. There is no word on whether the  Committee’s recommendations will actually form the basis of any legislative reform. The Committee admits that a co-ordinated international effort is needed to properly pull apart the international agreements that underpin the incumbent territorial business model.

Detailed thought is also needed on how the controversial Trans Pacific Partnership trade agreement (currently being negotiated) would affect any such reforms –the Committee noted in their report that bureaucracy prevented them from considering details of any copyright terms of the draft TPP agreement.

For the moment, the Committee’s report is one sign that the attitude of lawmakers is changing. Where lawmakers were quick to reform copyright and competition legislation a decade ago to protect the business model from the threat of a global internet, they are now considering unwinding these protections to give consumers access to the so-called “global marketplace”. And for those who already access foreign content through proxy servers or by using foreign credit cards this is merely the law playing catch up.