Eliminating DRM Is the Greatest Competitive Hammer Against Amazon
One thing that I’ve heard repeatedly from any publisher is that Amazon is a bad business partner. It doesn’t matter if the publisher is an agency pricing publisher or a low priced digital only publisher. Amazon treats everyone poorly. Amazon needs competition. Amazon has no motivation to keep prices low, innovate their retail site, improve their reading software and devices, and provide high margins to writers if there is no competition. Currently Amazon acts as if there is no competition. Apple and the publishers who are involved in the DOJ lawsuit maintain that Amazon’s monopoly hurts the publishing culture and by extension readers. The problem, however, isn’t that Amazon has a monopoly (which at 60% of the trade ebook market it is not a monopoly) but that the publishers are using price as the only competitive tool.
Publishers haven’t helped to develop a robust independent retailer market for ebooks. I wrote a few weeks ago about the lack of competition that was fostered during the two years of publishers and Apple setting the price for ebooks. The sad truth is that while Barnes & Noble has gained market share, independent booksellers have not.
When Google pulled its affiliate program, most every independent bookseller has been left without a digital option. Google’s relationship with those booksellers will end on January 31, 2013. Currently the independent booksellers are awaiting the American Bookseller’s Association for a solution. Two booksellers have attempted to explain the current state of independent ebook bookselling. Ruth Curry of Emily Book writes
Publishers told us that if we did not have digital rights management (DRM) technology, they weren’t interested in letting us promote and sell their products. DRM is the set of technologies that encrypt and prevent the reproduction of e-book files. A new bricks and mortar bookstore, even the tiniest one, could have easily opened accounts with all the major distributors. But to sell electronic versions of those exact same books, publishers told us that you have to be a mega corporation. We were confused, and set about finding out why this counterintuitive business practice has taken root.
DRM is supposed to prevent piracy and illegal file sharing. In order to provide DRM, you need at least $10,000 up front to cover software, server, and administration fees, plus ongoing expenses associated with the software. In other words, much bigger operating expenses than a small business can afford. By requiring retailers to encrypt e-books with DRM, big publishers are essentially banning indie retailers from the online marketplace.
Lori James of All Romance eBooks wrote:
There was much talk originally about how Agency would level the playing field for the little guy who couldn’t hope to engage in the kind of loss leader pricing Amazon was doing. Instead, we could compete based on “service”. Yeah! We’re great at service. It sounded good. Then the content was pulled. It was many months before contracts were even available for initial review. Meanwhile – it’s back on Amazon and B&N. It’s on Apple. Getting Agency back was a priority but it took over a year to get those titles back due to numerous delays. And, this also required significant IT build-outs.
KoboBooks pointed out that under this new Apple pricing scheme by publishers, loyalty programs, coupons and the like are not allowed:
We lose most of our ability to issue coupons, promotions, special discounts, kickbacks, buy-X-get-one-free. We could still do it for non-agency titles, but then we end up in a weird situation of “Get $1 off, but only on these books, and definitely not on these other ones.” That’s not fun. And worse, it’s confusing to consumers. We’re sad about that, obviously. Not just because they’re a great way for us to drive sales, but because they help us focus attention on specific great books, reward our loyal customers, and celebrate the launch of new features, apps or services.
There are three things that need to be accomplished:
- A standard formatting for ebooks should be implemented. This is permitted explicitly by DOJ Settlement terms.
- DRM should be removed. There is no way to sell books to the Kindle readers with DRM.
- Publishers should start sourcing books for independent booksellers.
Let me make the case for no DRM. I have heard that because I advocate against DRM, I am pro piracy. I am not pro piracy. However, I know that there is no way to effectively compete against Amazon unless there is some way to deliver books to Kindle readers. The only way to do this is to remove DRM.
DRM does not prevent piracy. I heard this claim during the week at Romantic Times being proclaimed by some authors. I’m uncertain where this myth started, but it is a myth. From the inception of ebooks, DRM has existed and so has piracy. Even before ebooks were prominent, piracy existed. Piracy will exist tomorrow if DRM was eliminated.
DRM only hurts legitimate purchasers of books by preventing readers from moving from one platform to another (like from a Kindle to a nook). Major players in the publishing industry recognize this:
In a speech this afternoon at the Digital Book World Conference in New York, Berlucchi [CEO of London-based social e-retailer Anobii] argued that digital rights management technology, or DRM as it is known, prevents more readers from buying e-books and may actually encourage piracy of copyrighted material.
and Maja Thomas who heads up digital for Hachette says:
“There’s a misconception that somehow the digital format of books has made piracy increase, or become logarithmically more serious. But piracy was always very easy to do, because scanning a physical copy of a book [takes] a matter of minutes. A physical book doesn’t have DRM on it.
“Coming from the audio business, where I started, we had DRM on our audiobooks when music had DRM on it, and as that changed, a lot of audio publishers started to drop the DRM on their audiobooks. We were one of the last ones to drop it, and I was asked to monitor the destruction of my business. The business was not destroyed. If anything, it became more robust.
“You could argue that taking the DRM off e-books would be in the benefit of consumers, and possibly even publishers, because then you wouldn’t have the device lock-in you have now.
About the only thing that DRM does in terms of preventing piracy is that it may reduce the casual sharing of digital books between acquaintances. One way to eliminate that worry is to institute social DRM. Social DRM is what JK Rowling is doing with Pottermore. A special code is inserted into a book that is tied to a person’s account. If that book is shared, the book can be tracked back to the original purchaser. Another way to institute social DRM is to incorporate small invisible html changes or, as Amazon once proposed, to change a word here and there within the text of the story. The goal is to be able to track an uploaded file to the original purchaser. This can serve to reduce the amount of casual sharing of digital books that worry some publishers, authors and agents.
If publishers are serious about competing with Amazon, price is not their only or their best tool. Getting rid of DRM is. With DRM eliminated, competing retailers can finally serve Kindle customers. With DRM in place, Amazon will maintain a hold on its place in the industry and if price wars are ahead, then it may only strengthen its position.