This brief speech was read by Apple Australia managing director Anthony King to Australia’s House of Representatives’ Standing Committee on Infrastructure and Communications last week on Friday 22 March. As far as Delimiter is aware, it represents the longest and most detailed statement technology giant Apple has made with respect to its operations in Australia over at least the past decade, as well as one of the only times King has spoken in public on any occasion. This is why we publish it here in its entirety for the record.
When you read this statement, bear in mind the context in which King is speaking. It was recently revealed that Apple Australia made local revenues of $6 billion in the year to the end of September 2012. Its Australian revenues have grown from a base of $720,000 in 2006. The company paid local taxes last year of just $40 million, off claimed net profit of $98.6 million. Apple’s iPad tablet enjoys close to monopoly market share in the Australian tablet market, and it also has a very high market share in the smartphone and digital music markets. Apple did not voluntarily appear before the committee, but was compelled to do so.
speech Good morning chair and members of the committee. I am here today to respond to the committee’s request to address stated concerns regarding Apple’s hardware and software pricing and to help the committee better understand why there may be differences in the prices of Apple products sold in Australia when compared with other markets, including the United States.
Apple is proud to do business in Australia. Our goal is to provide our customers with the world’s best products and services coupled with an unrivalled user experience. We sold out first computer here over 30 years ago and today have an enthusiastic community of customers and software developers across the country. We operate 18 Apple retail stores nationwide and, combined with our corporate office in Sydney, employ over 2,600 people.
Apple’s main corporate activities in Australia include the sale and distribution of our products through our channel partners located in over 6,000 sites across the country, our Apple retail stores, the Apple online store and the iTunes store. In addition there are over 160,000 app developers in Australia who are enjoying success around the world by selling their applications on the App Store. Many of these are individuals and small companies now competing head-to-head with the biggest names in the global software industry. We are delighted to have played a role in creating this new app economy.
The first point I would like to address today is the pricing of Apple products in Australia. When we launch and price an apple product for sale, our goal is to offer equivalent pricing around the world. Setting aside the daily ups and downs of currency exchange rates, our Apple product prices here in Australia are not materially different from the Apple products sold in the United States. In fact, today the price for the new iPad with retina display and the iPad Mini are within one to five per cent of the prices in the US. The same is true of Apple’s own software titles offered on the Mac App Store, including Final Cut Pro, Logic, iPhoto, iMovie and GarageBand. These products are all priced in Australia within one to three per cent of the prices in the United States.
When comparing prices it is important to remember that the US retail prices do not include sales tax. Here in Australia, of course, a price includes a 10 per cent GST. That fact alone is responsible for a great deal of confusion and has resulted in some inaccurate conclusions regarding our pricing. When pricing Apple products for the Apple online store and at Apple retail stores in Australia, price considerations must go well beyond simply looking up a currency exchange rate. For example, Apple must consider differences between countries in product costs, freight charges, local sales taxes, levies, import duties, channel economics, competition and local laws regarding advertised prices.
This detailed financial analysis results in product pricing that may be either slightly lower or slightly higher than US pricing for the same product. As you can imagine, it would be unduly complex to administer and confusing to our customers to attempt to adjust every product price with the daily fluctuations in the currency exchange rates. Therefore, Apple re-evaluates and adjusts local prices to be in line with the US prices, among others, at the time of new product introductions.
However, primarily because of currency fluctuations on any given day, Apple product pricing may appear higher or lower when compared to prices in the US market. For example, based on exchange rates from last week, all of Apple’s bestselling MacBooks and iMacs in Australia were priced within two to seven per cent of US prices. A few days prior, some of the products were equally priced to the US, including the iPad with retina display. Looking at our entire range of Mac, iPhone, iPad and iPod products, the average differential to the US pricing last week was just five per cent.
The average differential for our Apple software product range was minus one per cent. This, of course, takes into consideration GST. None of this is to suggest that all of Apple’s product offerings are exactly equal in price in Australia as in the United States. It is just that at any given time some Apple products may appear to be priced slightly cheaper or more expensive than comparable US retail prices.
I would also like to clear up some common misconceptions with regard to digital content pricing. As we have explained in person to the committee as well as in our written submission dated 6 July 2012, the retail pricing model for music, movies and TV shows made available on the iTunes store is different from the pricing model for Apple branded products. The iTunes store is a digital media store.
Apple must pay the rights holders of the digital content—the record labels, movie studios and TV networks—to distribute content in each of the territories in which the iTunes store exists. The pricing of this digital content is based on the wholesale prices which are set through negotiated contracts with the record labels, movie studios and TV networks. In Australia they have often set a higher wholesale price than the price of similar content in the United States.
Nevertheless, our own market analysis suggests that the price of digital content sold on the iTunes store in Australia is comparable to other Australian physical and other online stores. This would indicate that the rights holders are offering competitors similar wholesale pricing. The retail price on the iTunes store is based on the wholesale price and includes in part Australia’s own statutory royalty payments, publishing fees and the GST. In both Australia and the US Apple earns a margin from the sale of movies, music and TV shows which is used to pay for the costs incurred to store, manage and serve all of the iTunes store offerings.
To be clear: the iTunes store operates through the local Apple entity in Australia. As I have explained, the retail pricing of digital content is based on many factors and foreign exchange rates are not a major factor. The main differential is the wholesale price as set by the rights holder of the digital content. Our experience is that, if we can lower prices, we can drive a higher number of downloads.
I am here today to represent Apple in an effort to assist the committee in better understanding why there may be differences in the prices of products sold in Australia when compared with other markets. I would like to reaffirm Apple’s strong commitment to provide our Australian customers with the world’s best products coupled with an unrivalled user experience at a fair market price. I will be happy to answer any questions you may have.
Image credit: Apple