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Netflix, Apple, Adobe. How geoblocks rip you off

How's this for rewarding loyalty?

Netflix is about to come to Australia and as a thank-you to the 200,000 Australians who have been devotedly buying its content for years it is reportedly about to pull the plug.

<i>Illustration: Simon Bosch</i>
Illustration: Simon Bosch 

Until now $US8.99 a month has bought unlimited access to as many 100,000 movies and TV shows for any Australian able to trick the Netflix computer into thinking they're in the US. It's been easy, and it's been legal.

The High Court declared in 2005 that it was legal to circumvent geoblocks. A geoblock is a technological device designed to limit someone's access to a product or service depending on where they live.

The region codes on DVDs are geoblocks. They are intended to stop viewers in some parts of the world watching DVDs intended for viewers in other parts. They cause heartbreak for travellers returning from overseas attempting to play what they've bought, bemusement for workers who move between countries and are required to nominate a single region code, and embarrassment for international figures such as President Barack Obama, who once gave then UK prime minister Gordon Brown a gift of 25 classic American movies that were unwatchable in Britain.

Sony PlayStations were designed so that games bought in some parts of the globe weren't playable on PlayStations sold in others, an absurd restriction that encouraged a Sydney engineer named Eddy Stevens to develop a $45 computer chip that turned any PlayStation into a device that could play any PlayStation game. Sony took him all the way to the High Court, where it lost in a unanimous judgment that held it was legal for Australians to circumvent attempts to prevent them accessing products they had bought.

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He was backed by the Australian Competition and Consumer Commission and later by the Howard government, which took care in implementing the Australia-US Free Trade Agreement to ensure Australians remained free to jump around geoblocks.

The Howard government had an excellent record in fighting geoblocks in whatever form they took - until record companies misused the copyright law to prevent retailers from sourcing legally produced CDs from overseas. They had to buy them from the Australian distributor at the Australian price regardless of how cheaply they could be bought elsewhere. Howard made imports legal – fending off claims from Labor and such musicians as Peter Garrett that Australian music wouldn't survive if Australians were able to buy it cheaply.

Now the draft report of Tony Abbott's competition review wants to go further.

At the moment, in many circumstances it is still illegal for retailers to source books from overseas without the permission of the local distributors. They divide the world into regions, giving each a local monopoly and the right to charge monopoly prices. The Australian Digital Alliance says that, on average, Australian libraries pay 58 per cent more for print books than they would in the US.

The Harper review wants this remaining restriction removed unless it can be shown it is in the public interest. And it backs a recommendation of a parliamentary inquiry that the government educate Australians about the extent to which they can get around geoblocks and the tools they can use to do it.

It sees geoblocks as a restraint on trade, a block on competition, artificially imposed red tape. While companies such as Apple are quite rightly able to shop around the world for cheapest parts and labour, they design their products to make sure that we can't.

The unacknowledged reason such companies charge Australians more is because they can. It's called price discrimination and is one of the most effective ways of turning a profit.

The Apple website prices the latest Taylor Swift single at $US1.29 on iTunes. But use an Australian credit card to buy it and you'll be told it's $2.19. That's a surcharge of more than one-third at the current exchange rate.

Submissions to the Parliament's 2013 information technology inquiry found music was typically 67 per cent more expensive than for customers in the US, games were 61 per cent more expensive and e-books 13 per cent more expensive. Professional software was 49 per cent more expensive and hardware 26 per cent more expensive.

Apple, Adobe and Microsoft refused to take part in the inquiry and so were summonsed – forced to appear. They tried to muddy the waters by talking about the GST, which can only explain a portion of the differences and isn't applied to many internet purchases in any event.

The unacknowledged reason they charge Australians more is because they can. It's called price discrimination and it's one of the most effective ways of turning a profit. The method is to find a group of customers not particularly resistant to high prices (in this case Australians), isolate them and charge them a premium.

The inquiry went further than the Harper review proposes and recommended that the government consider banning geoblocking if other measures didn't bring prices into line. Adobe warned the move would hit business confidence, but Canada has just announced plans to prohibit unjustified cross-border price discrimination and New Zealand has embraced a new internet service provider that disables geoblocks by default.

Even Australia Post is getting into the act, setting up ShopMate, a service that gives Australian customers a US address they can use with a prepaid credit card to buy whatever is offer overseas at the price charged overseas.

It's why Netflix's Australian customers are keen to hang on to their US subscriptions even after the local service launches in March – not necessarily because the local service will be more expensive (the price hasn't been announced) but because it will offer many fewer movies and shows than the one in the US.

The film industry divides the world into regions, doling out rights as if by decree. It's a practice that goes back a century, and for books much longer. It's time it stopped.

Peter Martin is economics editor of The Age.

Twitter: @1petermartin

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