Apple was first to hit the House of Representatives Standing Committee on Infrastructure and Communications inquiry into IT pricing. What does Apple have to say about its price practices in Australia?
Today, the federal government's House Committee inquiry into IT pricing sees Apple, Adobe and Microsoft all make formal statements and take questions about their pricing practices in Australia. First up is Apple, at 9.30am AEDST, followed by Adobe at 11.00am and Microsoft at 12.30pm. We'll be following each company's statements and question sessions and updating each story as the sessions develop.
9.35am AEDST: Apple's opening statement reveals for the first time that Apple employs 2,600 staff and has 160,000 developers in Australia.
9.40am AEDST: Tony King, Vice President, Apple, for Australia, New Zealand, and South Asia, is the representative for Apple.
9.50am AEDST: While pointing out that Apple branded products are set each time a new product is released and is based on balanced pricing around the world. Yet when it comes to content pricing in the iTunes Store, the biggest factor is the wholesale pricing set by movie studios, the music industry, and TV rights holders.
9.54am AEDST: Tony King says "We would love to see cheaper prices on content in the Australian market. The difference in a price will stem from the difference in the wholesale price as set by the rights holders."
9.58am AEDST: Stephen Jones MP runs with an analogy that Apple is like Woolworths, and as a major player in their market they should have some influence over the prices they are charged. Tony King suggests they are not Woolworths, and that they do not purchase products but they hold a license to distribute content based on wholesale prices set by the rights holders.
10.00am AEDST: Tony King reiterates that he feels all parties in the food chain should be brought in to answer these questions about pricing differences and that he is not qualified to answer some of the questions regarding why prices for content are different at a wholesale level.
"It is difficult for me to walk into this room and talk on behalf of the labels," says King. "I am not the labels."
10.04am AEDST: Mike Symons brings up parallel importation. A physical retailer can buy from other markets, but digital is back to the old world where you must distribute only content directly within the territory as though it was made here. Tony King returns to his answer that this is a great question, but a great question for the rights holders and not Apple.
10.08am AEDST: Each time King points out their own hardware and software is essentially at parity or close to it, the committee members state that he has made that point well. They then return to asking about the products King feels he doesn't control and can't answer on behalf of. Who's right here — Apple or the committee members?
10.10am AEDST: Earlier points made by Tony King state that last week the price differential for iPad and iPad mini was within 1-5 percent of the US, MacBook and iMac was 2-7 percent of the US price, and the whole hardware range was within 5 percent of the US price. Average price for software is within -1 percent of US prices.
10.14am AEDST: We're now seeing Paul Neville MP talk through the difference in prices for songs between Australia and the US. He asks if those prices are a direct correlation between the difference between wholesale prices Apple is being charged. Tony King says, "Yes, if you were to lower the wholesale price to be the same as the US price we would see the prices of content in the iTunes store drop to a closer parity level."
Neville uses Carly Rae Jepsen and Led Zeppelin as his music examples. I guess his music tastes could be considered 'eclectic'.
10.20am AEDST: Paul Neville MP asks why the Time Capsule costs almost 30 percent more than in the US. That doesn't fit with the claim all prices are close to parity. Tony King explains that each product price is set at the time of release but the price stays the same until end of life or refresh.
We just checked the prices of Time Capsule 3TB. In Australia it is $529 and in the US it is $499. Removing GST that makes it -3 percent, not +30 percent.
10.25am AEDST: Ed Husic MP is questioning Apple on why Apple hardware prices are so well harmonised. Tony King states that Apple absolutely does not control the prices charged by retail partners. "Apple is interested in the font and presentation," says King. "But the price that appears on that sign is at the discretion of the retail partner. It is their decision alone."
10.30am AEDST: Ed Husic MP is now questioning on the way Apple accounts for its business costs in Australia and how these costs may be charged internally across the company's regional offices. Heading into the territory of some of the wider discussions around whether Australian taxation is being played through territorial accounting practices.
"We have a global team who looks after pricing all around the world, worldwide, from Cupertino," says King. "With input from the local teams for factors that might be different. We set global equivalent prices through that process."
Ed Husic is unimpressed with that answer. "I don't feel like I'm getting an answer."
10.35am AEDST: Paul Neville MP asks what proportion of Apple's international market Australia represents. Tony King reveals that while Apple does not break it out as a practice, Australia would roughly represent three percent of Apple's market.
10.40am AEDST: Neville asks how much tax Apple pays in Australia. King points out that, like other companies, this information is not on the public record but speaking in generalities he feels they pay their share.
10.44am AEDST: Paul Neville MP comes back to content price differences in music. Asks King what his take is in why Australia is being singled out by the music industry for special attention with higher prices? King again suggests this is a question for the content industries, that he would love to see prices be lower in the Australian market, and he feels that through ongoing with discussions with the rights holders there has been some reduction in the typical digital prices on iTunes.
10.48am AEDST: Ed Husic MP comes back to revenue versus tax. That Apple generates around $6 billion in revenue here but paid around $40 million in tax. Is such a slim tax level because of internal transfer prices that pushes high levels of revenue back to the US? Tony King argues ASIC and ATO are the arbiters of what is appropriate and he feels they pay everything they must.
10.50am AEDST: Stephen Jones MP asked for clarification on whether Apple has a policy of setting market pricing in the way it arranges its transfer pricing around the world. That is, to only charge what a product is worth without any loading. King felt he could not say there was a specific policy in place on that matter.
10.53am AEDST: Ed Husic MP asks why a global company like Apple cannot deal with global companies like those in the music industry to set global pricing. King suggests content pricing is not controlled in a global capacity "and that is why we urge you to speak to those companies about their wholesale pricing practices."
10.50am AEDST: That wraps the evidence from Apple at the House Committee Inquiry into IT Pricing. Some interesting discussions and a very clear press from Apple for the committee to speak with the music, movie, and TV industries about the signficant pricing issues found on the iTunes store. King made clear that Apple would genuinely like content prices to be lower. Committee members believe Apple surely wields more power of pricing than it lets on, comparing it to a Woolworths.
More to come shortly as Adobe and then Microsoft take the same seat in front of the committee.