The Australian book industry is hurting and it's not online shopping or a high Australian dollar to blame - it's the industry itself.

On Wednesday, Borders book store in the US filed for bankruptcy. One day later REDGroup Retail - the owner of Angus and Robertson and Borders in Australia - went in voluntary administration.

How is it in an age where we can read in more places and on more devices than ever before, the book industry is struggling to make money? By making some really bad decisions.

The first mistake the industry made was ignoring the lessons of its music counterparts.

Throughout the late 1990s, music file-sharing websites sprung up, allowing strangers to share music with each other. It was illegal (like copying an LP record onto a cassette was in the 1980s), but it was easy and convenient.

Instead of embracing this new medium, the music industry resisted, sticking with the traditional model of selling CDs out of bricks and mortar shopfronts. They then invested time and effort hunting down those who breached copyright, instead of looking at why these websites were so popular.

In mid-2003, Apple opened its iTunes store - a one stop 'website' for buying music - and proved that most people would pay for music as long as it was easy to purchase, and in their eyes, good value. Eventually, the music industry woke up to the new paradigm and embraced it with open arms.

The popularity of eBook readers, such as the Kindle and iPad, shows a similar evolution in the publishing sector is taking place. But once again, the publishing industry has been slow to react and Australian consumers have had to wait longer their US and European counterparts to receive them.

The second lesson, that some within the industry have ignored, is online retail.

Amazon.com has been selling books online since 1995 - more than 15 years ago. Its growth has been extraordinary, with an estimated net income of US$1.152 billion in 2010.

By keeping its business online, Amazon.com has been able to slash its costs and reduce the price of the products it has on sale. UK online book retailer The Book Depository is following a similar path. Strangely, this model hasn't been widely adopted by the big retailers in Australia.

One of the reasons may be because they are protecting their bricks and mortar shopfronts. If a shop offers a book for $50 in store, but offers it for $25 online, it will almost certainly cannibalise the market.

It will be interesting to see how Dymocks copes with this conundrum after it announced late last year that it would be moving its online business offshore.

Admittedly, the Australian dollar hasn't helped the industry. From its nadir of around 50 US cents in 2000 to parity in 2011, the temptation to buy products from overseas is too great to ignore. Consumers would be stupid to pay $30 for a book in Australia that costs $15 from an online store.

This is a big hurdle for Australian book retailers, in particular smaller stores, which don't have the bulk buying power of the big chains. And imposing the 10 per cent GST on these purchases, when the difference can be between 30 per cent to 70 per cent, isn't likely to change the situation.

For REDRetail Group, the problems may also be the result of the US recession, which has hit many retailers hard on the other side of the Pacific, including Borders.

But the biggest nail in the coffin comes from the Australian publishing industry.

In July 2009, the Productivity Commission released a report entitled Copyright Restrictions on the Parallel Importation of Books.

The study looked into 'parallel import restrictions' (PIR), which prevents retailers importing and selling books that are released in Australia when at a price below the mark set in this country.

In its submission to the Productivity Commission, the Australian Library and Information Association wrote:

"The restrictions upon parallel importation simply have the result of excluding Australians who are less 'internet savvy' from obtaining more competitively-priced books, and putting Australian brick-and-mortar book sellers in a less competitive position than online UK and US bookstores."

The final report from the Productivity Commission found PIR was "preventing booksellers from sourcing cheaper or better value-for-money editions of those titles from world markets".

It recommended a phasing out of PIR over a three-year period.

Intense lobbying from a number of high-profile Australian publishers and authors soon followed. They argued reduce prices would lead to the downfall of the Australian publishing industry and an avalanche of overseas imports, resulting in a loss of Australian voice, culture and diversity.

Four months later, the Government announced it would keep the restriction in place.

At the time, competition minister Craig Emerson said, "If readers are unhappy with the timeliness or the price of a book they have the option of going online. And that itself provides competitive pressure to Australian publishers, to Australian book sellers."

It seems Australian consumers took his advice.

Darren Osborne is News Editor for ABC Science Online and was National Technology Writer for Australian Associated Press.