Did The Publisher's Own Insistence On DRM Inevitably Lead To The Antitrust Lawsuit Against Them?

from the the-DRM-they-required dept

We've discussed in the past how it was the book publishers' own stupidity that put them in a position of demanding DRM from Amazon when Amazon wanted to launch the Kindle. The end result, of course, went exactly against the publishers' best interests, because it locked everyone in to Amazon as the platform. Because buyers can't easily switch to another platform and take their books with them, they have to keep using the Kindle (or Kindle app) if they want to continue to have access to the books they've bought in the past (because, remember, you don't own what you think you "buy" with ebooks).

Making Amazon such a dominant player in the market was a huge mistake -- and it was totally avoidable. We'd already seen the exact same thing happen with music and iTunes, where the labels originally required DRM, and Apple complied, locking many people into iTunes (a lock-in that was eventually taken away). We couldn't figure out why the publishers were so stupid to give Amazon such power, but it sounds as though it was a combination of technological illiteracy and an irrational fear of "piracy" trumping business sense.

Author Charlie Stross has a great blog post discussing a variety of issues around the history of Amazon and how it became such a dominant player in the market, in which he notes:

However, as subsidiaries of large media conglomerates, the executives who ran the big six had all been given their marching orders about the internet: DRM restrictions would be mandatory on all ebook sales, lest rampant piracy cannibalize their sales of paper books.

(This fear is of course an idiotic shibboleth—we've had studies since 2000 proving that Napster users back in the bad old days spent more money on CDs than their non-pirate peers. The real driver for piracy is the lack of convenient access to desirable content at a competitive price. But if your boss is a 70 year old billionaire who also owns a movie studio and listens to the MPAA, you don't get a vote. Speaking out against DRM was, as more than one editor told me over the past decade, potentially a career-limiting move.)

Once the publishers realized (way too late) that they'd turned Amazon into something of a monopsonistic buying power, they struggled to figure out what to do -- and the end result appears to look something quite like collusion -- which is why they're being sued today by the Justice Department. As the details of the lawsuit make clear, the deal with Apple wasn't just a deal to bring another competitor into the market, but one that was explicitly designed to increase prices for consumers.

As Stross notes, this was plan B. And it has now failed. That means that it's time for Plan C -- and the only reasonable plan C to get out from under Amazon's thumb is to drop DRM:

It doesn't matter whether Macmillan wins the price-fixing lawsuit bought by the Department of Justice. The point is, the big six publishers' Plan B for fighting the emerging Amazon monopsony has failed (insofar as it has been painted as a price-fixing ring, whether or not it was one in fact). This means that they need a Plan C. And the only viable Plan C, for breaking Amazon's death-grip on the consumers, is to break DRM.

If the major publishers switch to selling ebooks without DRM, then they can enable customers to buy books from a variety of outlets and move away from the walled garden of the Kindle store. They see DRM as a defense against piracy, but piracy is a much less immediate threat than a gigantic multinational with revenue of $48 Billion in 2011 (more than the entire global publishing industry) that has expressed its intention to "disrupt" them, and whose chief executive said recently "even well-meaning gatekeepers slow innovation" (where "innovation" is code-speak for "opportunities for me to turn a profit").

And so they will deep-six their existing commitment to DRM and use the terms of the DoJ-imposed settlement to wiggle out of the most-favoured-nation terms imposed by Amazon, in order to sell their wares as widely as possible.

I know there's been some talk about whether or not Apple or Amazon is the more "evil" party in the ebook world -- but it really seems like the publishers dug their own graves here. In their desperation to avoid the dreaded word "piracy," they never bothered to understand the real issues or the obvious results of focusing so strongly on DRM. Handing Amazon so much power was stupid. Colluding with Apple to try to get away from that original stupid decision was potentially even more stupid. The only real path to fixing things is to go back and fix the original stupid decision, and recognize that piracy is a hell of a lot less of a "threat" than handing over the entire market to a single player (or even just two major players).

If only they'd realized this originally -- just as tons of people had warned them.

Filed Under: antitrust, charlie stross, doj, drm, ebooks, kindle, publishing
Companies: amazon, apple, macmillan

If Publishers Can't Cover Their Costs With $10 Ebooks, Then They Deserve To Go Out Of Business

from the you-don't-price-based-on-your-bloated-infrastructure dept

With the legal dispute over ebook pricing going on, one thing we've heard over and over again from the traditional publishing industry and their supporters is that higher prices for ebooks make sense because of all of the "costs" that the publishers have to cover. This is a fundamental error in how pricing (and economics) works. It reminds me of the MPAA folks who demand to know the business model for making $200 million movies. Years ago, someone who understood these things taught me why cost-based pricing will always get you into trouble. If you start from the overall pricing, including overhead and other fixed costs, then you're not basing the price on what the consumer values -- and, more importantly, you're taking away your own incentives to become more efficient and decrease costs. Instead, you're just "baking them in." But the most important reason not to base pricing on overhead costs is that your competitors won't do that, and they'll under cut your price and then you're in serious trouble.

That moment of reckoning is coming for book publishers, even if they don't realize it yet. David Pakman, who watched all of this happen in the music industry for years, is pointing out that publishers are fooling themselves if they keep trying to rationalize higher ebook pricing:

In all the discussions about why book publishers demand that eBooks should be $15 and not $10, they say it is because they cannot afford to sell books at $10. That is, they cannot cover their legacy cost models on that number. Right. Which is why you must rebuild your cost structure for a digital goods industry with far lower prices. You start by paying your top execs much less than millions of dollars a year. Then you move your offices out of fancy midtown office buildings. Why should eBooks cost $15? Amazon is far more of an expert on optimal book pricing. They have far more data than publishers, since they experiment with pricing hundreds of thousands of times a day across millions of titles. Amazon can tell you the exact price for a title that will produce the most number of copies sold. Amazon is pretty sure that number is closer to $10 than to $15. Yes, they want to sell more Kindles. And they believe that lower eBook prices mean more eBooks sold which means more demand for Kindle. The negative coverage of Amazon is centered on them selling eBooks below cost in order to reach the $10 price point. But that is a function of publishers setting the cost higher than $10. If the profit-maximizing price for an eBook is $10, then publishers must adapt to set a wholesale price lower than that, even if it means your legacy cost structure doesn’t allow it. And that’s the rub.

The public seems much more interested in lower prices, not higher prices. You can understand why the publishers don't like it, but they really ought to learn how pricing elasticity works. They can make a lot more money with more optimal pricing.

Filed Under: ebooks, fixed costs, pricing, publishing

Another Reason Why DRM Is Bad -- For Publishers

from the self-foot-shooting dept

As a way of fighting unauthorized sharing of digital files, DRM is particularly stupid. It not only doesn't work -- DRM is always broken, and DRM-less versions quickly produced -- it also makes the official versions less valuable than the pirated ones, since they are less convenient to use in multiple ways. As a result, DRM actually makes piracy more attractive, which is probably why most of the music industry eventually decided to drop it.

Sadly, the world of ebooks seems unable to learn from that experience, and insists on making the same mistakes by using DRM widely. But it turns out that there are even more problems in the publishing domain, as this fascinating tale of how DRM acts as a barrier to entry in the online bookstore market makes clear:

In June of 2011, my friend Emily Gould came up with an idea for a new kind of online bookstore: one that would sell only e-books, but would strive to offer the personalized customer service and curation of a local independent bookshop.

But there was a problem:

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.

That's because DRM is not only annoying for the readers, it's also expensive for the online booksellers that are forced to use it:

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.

That might just sound like typical big-company indifference to the plight of small startups, but it's actually worse -- it's suicidal. Techdirt has already written about one reason why that's the case: DRM helps lock readers into Amazon's platform. But the article quoted above provides us with yet another: lack of competition in ebook retailing.

there’s an even more compelling reason that we need indies to exist in the e-book market: The Amazon/Apple near-duopoly on e-book sales is cripplingly destructive for readers, writers, and publishers. Once one of the big "A"s can freely set the price of e-books, they can determine the conditions of the market for everybody. They can charge consumers anything, pay publishers very little (for who will exist to sell their products otherwise?), and leave writers hoping for some small crumb of the pie. Everyone who reads or writes or cares about books has a reason to support the existence of a viable alternative.

And yet the big publishers are doing the opposite. Their insistence on the deployment of DRM with their books is making it hard for independent online booksellers to thrive, which increases the power of the two giants of the sector, thus weakening the bargaining power of the publishers and writers. So DRM turns out to be not only stupid, ineffectual and unfair, but also doubly bad for the very companies who blindly insist on its use.

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Filed Under: drm, ebooks, publishing
Companies: amazon, apple

Breaking: U.S. Sues Apple, Publishers Over eBook Price-Fixing

from the fresh-news dept

Ever since the Justice Department announced that they were investigating Apple and several publishers over allegations that Apple's agency model for ebook pricing violates antitrust law, we've been waiting for the other shoe to drop. Last night, Reuters reported that a lawsuit was imminent, and now Bloomberg has the news that the government has filed a lawsuit against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster in New York district court.

Details are still scarce, but sources say Apple and Macmillan refused to participate in settlement talks while some of the other publishers are still hoping to avoid a drawn out legal battle, and may settle soon. Update: Bloomberg is now reporting that S&S, HarperCollins and Hachette have settled. It will be interesting to see what kind of defense Apple brings, because the evidence of collusion doesn't look good for them at all. Despite Authors Guild president Scott Turow's self-serving claim that this will somehow hurt culture, this is good news for readers: busting Apple's and the publishers' iron grip on ebook prices will likely reduce them across the board.

Here is this the government's complete filing (pdf and embedded below).

Filed Under: agency, antitrust, collusion, ebook, publishing
Companies: apple, hachette, harpercollins, macmillan, penguin, simon & schuster

Tell Paypal To Stop Playing Morality Cop With Booksellers

from the let-payments-go-free dept

We recently wrote about how Paypal was pressuring Smashwords to drop any books that included sexual content that Paypal didn't like. This seemed ridiculously over-aggressive. You can be completely against rape without that meaning that no books shall exist that include a rape scene. But according to Paypal's rules, books that include themes around rape, incest and bestiality -- even if such books were there to raise awareness around those things, not to encourage them -- simply were not allowed. Smashwords claims that Paypal is passing the blame on to the credit card companies, but others have questioned how accurate that really is. And, even then, it seems that Paypal should stand up to the credit card companies if that is, indeed, the case.

In the meantime, the EFF has put together a letter writing campaign to tell Paypal to stop censoring books:

Recently, PayPal gave online publishers and booksellers, including BookStrand.com, Smashwords, and eXcessica, an ultimatum: it would close their accounts and refuse to process all payments unless they removed erotic books containing descriptions of rape, incest, and bestiality. The result would severely restrict the public's access to a wide range of legal material, could drive some companies out of business, and deprive some authors of their livelihood.

Financial services providers should be neutral when it comes to lawful online speech. PayPal’s policy underscores how vulnerable such speech can be and how important it is to stand up and protect it.

The topics PayPal would ban have been depicted in world literature since Sophocles’ Oedipus and Ovid’s Metamorphoses. And while the books currently affected may not appear to be in the same league, many works ultimately recognized for their literary, historical, and artistic worth were reviled when first published. Books like Ulysses and Lady Chatterley’s Lover were banned as “obscene” in the United States because of their sexual content. The works of Marquis de Sade, which include descriptions of incest, torture, and rape, were considered scandalous when written, although his importance in the history of literature and political and social philosophy is now widely acknowledged.

You can go to the link above and add your name to the campaign and let Paypal know that this is not the role of a payment processor.

Of course, what this story is really highlighting is just how ridiculous it is that there are choke points like Paypal who can solely dictate morality based on their own views of what is and what is not art. What we need are a lot of alternatives, so that if Paypal makes decisions like this, people can simply route around them.

Filed Under: books, free speech, morality, publishing
Companies: paypal, smashwords

Elsevier Backs Down, Removes Support For Research Works Act As Elsevier Boycott Grows

from the boycott's-work dept

While it never got as much attention as the GoDaddy boycott, it appears the growing boycott of academics, refusing to publish papers in any Reed Elsevier journal, has caused the company to back down. It has now announced that it no longer supports the Research Works Act. That's the bill -- for which Elsevier was a major backer -- that would bar the government from requiring open and free access (after a period of time) to government-funded research:

While we continue to oppose government mandates in this area, Elsevier is withdrawing support for the Research Work Act itself. We hope this will address some of the concerns expressed and help create a less heated and more productive climate for our ongoing discussions with research funders.

Of course, then it immediately complains about the kinds of mandates that the Act would have disallowed:

Cooperation and collaboration are critical because different kinds of journals in different fields have different economics and models. Inflexible mandates that do not take those differences into account and do not involve the publisher in decision making can undermine the peer-reviewed journals that serve an essential purpose in the research community. Therefore, while withdrawing support for the Research Works Act, we will continue to join with those many other nonprofit and commercial publishers and scholarly societies that oppose repeated efforts to extend mandates through legislation.

That's pretty ridiculous actually. None of these mandates "undermine" these journals in any way -- unless you consider their insane set up (free writing, free editing, full copyright ownership, and subscriptions that cost tens of thousands of dollars) some sort of divine right. The mandates refer to federally funded research, which should be accessible by the public since they paid for the research in the first place. Elsevier doesn't pay for the research. Hell, they don't even pay the researcher for their paper. Or the peer reviewers for their work. So forgive me for not shedding any tears if Elsevier has to learn to adapt to only being able to have the exclusive rights to a paper for a year.

Still, with Elsevier dropping its support, hopefully it means that the original backers of the poorly thought out bill, Reps. Darrel Issa and Carolyn Maloney will drop the bill entirely. Instead, I'd very much like to see much greater support for Rep. Mike Doyle's counter-proposal, which would mandate that federally funded research be made available to the public.

Update: And.... now Issa has said that he won't move forward on the bill and (more importantly) that he now understands the importance of "open access" and how it's "the wave of the future."

Filed Under: academics, boycotts, darrell issa, journals, open access, peter suber, publishing, tim gowers
Companies: elsevier

DailyDirt: It's Time To Open Up Access To Academic Journals

from the urls-we-dig-up dept

It's kind of ridiculous when researchers actually have to pay to read journal articles about their own research online, but that's how academic publishing works. Even worse, the costs of access are obscenely high, limiting the readership to mostly people with access to libraries that can afford to pay the high subscription fees for journals. However, academics are starting to push back, and the good news is that there are at least a few efforts underway to create open-access online journals. Here are a few interesting links on the subject.

• Did you know that in order to get access to the Arts and Sciences journal collection at an academic search engine company, like JSTOR, university libraries pay a one-time fee of $45,000, and then an annual fee of $8,500 to maintain that access? With tools like Google Scholar available, academic search engines just seem unnecessary. [url]
• A new open-access, online-only journal for biomedical and life science research will be launched this summer. Plus, the journal promises a faster turnaround time for the peer review process, which typically takes several months. [url]
• A website called "The Cost of Knowledge" has been set up so that researchers can take a stand against scientific and medical publishing company Elsevier's business practices. Elsevier also supports SOPA/PIPA and the Research Works Act, which aims to limit the free exchange of information. [url]
• To discover more interesting education-related content, check out what's currently floating around the StumbleUpon universe. [url]  

By the way, StumbleUpon can recommend some good Techdirt articles, too.

Filed Under: academics, copyright, google scholar, journals, publishing, research
Companies: elsevier

Will Academics' Boycott Of Elsevier Be The Tipping Point For Open Access -- Or Another Embarrassing Flop?

from the is-it-different-this-time? dept

It's now widely recognized that the extreme demands of SOPA/PIPA catalyzed a new activism within the Net world, epitomized by the blackout effected by sites like Wikipedia on January 18. But as Techdirt has reported, SOPA and PIPA are not the only attacks by the copyright industries on the digital commons: another is the Research Works Act (RWA), which attempts to remove the public's right to read the articles written by tax-funded researchers in open access journals form.

But, like SOPA/PIPA, RWA may have been an intellectual land-grab too far. It has provoked a rebellion by academics that might provide the final push needed to move academic publishing from its current mode, dominated by hugely-profitable corporations that require payment for most of their output, to one based around open access journals, with smaller profits, but whose articles are freely available online to all.

Things started when Peter Suber, who is widely regarded as one of the unofficial leaders of the open access movement, pledged on January 7 not to work with any publisher that accepted the Association of American Publishers' position supporting RWA. But it was a blog post two weeks later by the British mathematician and Fields Medallist (think Nobel Prize of mathematics) Tim Gowers that provided the spark for the explosion of anger that followed:

I am not only going to refuse to have anything to do with Elsevier journals from now on, but I am saying so publicly. I am by no means the first person to do this, but the more of us there are, the more socially acceptable it becomes, and that is my main reason for writing this post.

He singled out the giant publisher Elsevier (disclosure: I used to work for one of its sister companies) for three main reasons. First, for its scholarly journals' high prices; secondly, for its use of "bundling" -- forcing libraries to sign up for large collections of journals, whether they wanted them all or not; and finally, because of its support for SOPA, PIPA -- and RWA.

Gower's gesture was born of personal exasperation, but one that he knew many others shared. The question was how to mobilize people so that their collective action would have an effect. He wrote:

It occurs to me that it might help if there were a website somewhere, where mathematicians who have decided not to contribute in any way to Elsevier journals could sign their names electronically. I think that some people would be encouraged to take a stand if they could see that many others were already doing so, and that it would be a good way of making that stand public.

Within a couple of days, Tyler Neylon had set up just such a site, "The Cost of Knowledge: Researchers taking a stand against Elsevier", which repeats the three main objections that Gowers raised, and invites people to refrain from working with Elsevier. At the time of writing, nearly 2,000 academics from a wide range of disciplines have pledged their support for the boycott.

This is certainly the most visible revolt in recent years against the exorbitant profits of companies like Elsevier, and their tight control of the academic publishing process, but it's not the first or the biggest. Back in 2000, right at the dawn of open access, the Public Library of Science (PLoS) was created with the same aim of making research more widely available. To achieve this, the three founders of PLoS circulated an open letter calling for "the establishment of an online public library that would provide the full contents of the published record of research and scholarly discourse in medicine and the life sciences in a freely accessible, fully searchable, interlinked form", which contained the following passage:

To encourage the publishers of our journals to support this endeavor, we pledge that, beginning in September 2001, we will publish in, edit or review for, and personally subscribe to only those scholarly and scientific journals that have agreed to grant unrestricted free distribution rights to any and all original research reports that they have published

Nearly 34,000 scientists signed that letter, but only a handful of publishers committed themselves to making their articles available as the letter requested; worse, few signatories followed through with their promised boycotts of the publishers who refused. Will things be any different this time, in the post-SOPA world?

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Filed Under: academics, boycotts, journals, open access, peter suber, publishing, tim gowers
Companies: elsevier