Ebook: The Run For Profit

16 July, 2001. A Russian programmer named Dmitry Vitalevich Sklyarov was arrested by FBI for the violation of Digital Millennium Copyright Act. His fault was that he presented a study in DEFCON 2001 conference on how the DRM technologies in use could be hacked. The DRM technologies which were prawn to hacks included those from Adobe and Microsoft. On 19 July, 2001 Association of American Publishers stated their support for Sklyarov’s arrest. Probably, the publishers thought that piracy could be curbed by suppressing those who point out the flaws of the system. Little did they know that they were digging their own graves.

DRM Free Ebook, Image Credit: WikiMedia

Eleven years later, US Department of Justice filed a lawsuit against Apple and five major publishers of the country for price fixing of ebooks. The defendants were arguing that the move was actually to end the monopoly of the largest ebook retailer Amazon. Power, once bestowed by the publishers themselves.

In a move to curb piracy and protect their titles in the digital format, publishers gave Amazon the right to use DRM with the books sold. This also gave Amazon the power to create a closed ecosystem of ebooks where readers can’t read, lend or borrow books outside of Amazon’s own ebook reader devices or apps – Kindle. The popularity of subsidized Kindle ebook readers along with low pricing on ebooks made Amazon the largest retailer of ebooks.

With the market power, with volume licensing from publishers on titles, Amazon started setting the retail price of ebooks. Amazon’s low retail pricing strategy left the publishers with lower profit margins. And, with the closed ecosystem Amazon created for its clients, it was getting more powerful.

Publishers were desperate to set themselves free of Amazon’s grip. They were searching for an alternative platform for ebooks which can challenge Amazon’s dominance. The idea of creating a new platform was also mulled over. But, all that were pretty though for the people with little grip over the digital media. Hence, when iPads took the world with a snap, a deal with Apple seemed to be the best option to gain their power and profit back.

But, the distributors of knowledge ignored the very knowledge they spread. Just having the power to set the retail price of their books will not lead to higher profits. The use of DRM will not solve their problem either. They failed to see that the use of DRM didn’t help in increasing their profit, it ate that up instead. Pirates are not eating up their profit. Instead the middle men who promised to keep the pirates off the bay are eating up the profit.

The use of DRM didn’t stop the pirates. As Mike Hendrickson of O’Reilly Media pointed out, “It will take a good programmer about an hour to get past most DRM, or a manual shop somewhere in the world will cut and scan the physical book and away it goes. DRM seems a bit like a Neanderthal dragging its knuckles rather than using its larger brain and brawn to move forward and past stuff that did not help the species evolve. As an industry we need to evolve past the archaic DRM that’s retarding growth and innovation in our industry. New DRM technologies are not innovation, they are a Neanderthal-like reaction. We need distribution innovation. We need learning science innovation. We need total immersion with content innovation. We need production and manufacturing innovation.”

It seems that majority of publishers don’t agree with Mike Hendrickson. Their outlooks haven’t changed much from in the last ten years. They are out to take on the pirates with technology, and when technology fails – by force. The latest display was this mindset was the shutdown of ebook sharing site library.nu (formerly known as gigapedia.com) earlier this year.

Did the shutdown of library.nu, which was hosting around 4 million books, increased the sales of ebooks? I guess not. As the research from O’reilly suggests, an illegitimate download doesn’t necessarily mean a lost sale. Someone who downloaded a pirated ebook may not have paid for the book at all. There is a different side of this story too. People in the underprivileged regions simply can’t afford the books. Christopher M. Kelty, an Associate Professor at University of California, has compared this move with profiteering activities of pharmaceutical industry in the 1990s “when life-saving AIDS medicines were deliberately restricted to protect the interests of pharmaceutical companies’ patents and profits.”

However, it seems, some of the major publishers have grasped the idea that DRM free ebooks is not such a bad idea after all. Renowned publisher Macmillan, has decided to move the entire collection of ebooks of its science fiction imprint Tor/Forge into DRM free format recently. Another major publisher O’reilly Media was publishing DRM free ebooks for a long time.

But, the recent move from Macmillan, also a member of the alliance which was behind the shutdown of library.nu, is definitely not due its changed outlook on ebook piracy or its commitment for spreading knowledge to the learners. Instead, it was a desperate move to free itself from Amazon’s monopolistic grip. Macmillan finally realized that the power it, along with other publishers, has given to Amazon encompasses one important element on which the publisher still has some control over – DRM. The use of DRM gives Amazon the power to tie down the customers to its proprietary platform. This realization has led Macmillan betting on the assumption that freeing up its titles from DRM and by empowering its readers the publisher will reduce its dependence on Amazon. This will in turn; give it more power over the readers, and thus on prices.

The question is whether other publishers will follow Macmillan or not? Analysts argue, even if other publishers follow Macmillan for DRM free ebooks by scrapping their present policies , Amazon’s dominance will continue. With the volume discounts on titles Amazon get from publishers, it will continue to be the price leader and will continue to squeeze profit out of the publishers.

Feels like the publishers will have to change their business model upside down to beat the beast they once created. But, the majority of them will probably fail to invent new business models like they do currently. Because, they fail to grasp one of the most common traits of knowledge seekers and innovators – to seek knowledge and to embrace it.

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