Should We Condemn DRM to Room 101?

The latest lawsuit to surface in the US has been raised by three independent US book stores and is against Amazon and the major trade publishers. It is done in the name of all independent bookstore and although it would appear little more than a great PR stunt.

At the core of their claim they assert that Amazon has acted with publishers to effectively  create a monopoly in the marketplace and control prices through the use of their proprietary DRM (digital rights management). The logic begs the question as to whether the stores understand the marketplace, technology and also what outcome they are wishing to achieve?

They claim that if a consumer decides to switch to another company's ereading device, they would lose access to any already purchased ebooks. This is a fact no matter which ‘walled garden’ you buy from. Some would suggest that in signalling out Amazon their argument is in fact flawed.

Kobo has its own DRM and ePub render software but also supports ACS4. B&N has ‘passhash’ which it acquired from Fictionwise and can also support ACS4. Apple has Fairplay and the wholesalers in the main have deployed ACS4 and so has Overdrive. Moving from ACS4 to another ACS4 platform is not straightforward. Unless achieved through a cloud approach, moving downloaded files from one device to another often requires patience and a manual! But moving between and walled garden is often if not impossible. This is without the various DRM technologies that can apply to PDFs. The result is that today we have today some five different DRM technologies being used for both ebook  retail and library distribution market. The technologies often demands their own nuances, encrypted licences and even playing in its own environment can be far from user friendly to the novice. Amazon to its credit, has in the main, kept it simple.

We would love to see an end to DRM ebooks full stop but even today see others such as film and broadcasting entities running to try and get it extended to open and important environments such as HTML5.

But let’s wave the magic wand and condemn Amazon’s DRM to ‘Room 101’. What about the DRM environments that remain? ACS4 may be prevalent but is far from user friendly and Adobe has even outsourced its service as it was not capable of managing the payment collections effectively. Do each of the other DRM services also have to go and if not does the same augment and claims fail the test? You either unilaterally remove DRM, or you construct a better argument. This would appear to be as ill conceived as agency pricing and far less robust than that other legal money-spinner the Google Book Settlement.

Let’s envisage a world free of DRM.

Do we honestly believe that the consumers that have bought into the Kindle platform will suddenly say, ‘now I can buy from the local independent so let’s go there!’ Naivety is hard to rationalise with, but the reason consumers like Amazon is not about their DRM. It is about their platform, one click process, thought through download capabilities from literally anywhere, their secondary offers such as Prime, film, games, music, lending and innovations such as FreeTime. All this without the primary offer of next day service on the constantly often best priced physical books. Some would suggest that its not just about ebooks but books and the independents have not seen past the books in print and some the front list, but Amazon offers used, rare and a marketplace for affiliates to compete in.

Then the authors often now recognise that Amazon and their KDP programme offer the only real clean digital self publishing and importantly volume business. The independent bookstores, even put end to end, can’t make offer that today. 

  

Forget the legal claims and potential counter claims and court outcome and assume we suddenly have a DRM free world, much like the MP3 music world that prevails today. Will it make the playing field level? Will independent book store suddenly become digital centres of commerce and a must go to destination to buy ebooks? Are independent book store capable of presenting a compelling digital proposition? The reality is that they sat on their hands too long. Didn't respond to the early messages and often stumbled from one alternative to another and diluted their digital offer to being commissioned based within others walled gardens. Some would suggest that Waterstones are a classic case of a lack of digital strategy and execution and today could be argued are handing over their customers to Amazon. We must also recognise that Apple whose iTunes dominated the music download market before they moved to MP3 still dominate it today post MP3. Independent music stores and even chains are still sitting on their CDs. An MP3 level playing field did little to save HMV.

The other consideration has to be the current digital ‘honesty box.’ Will publishers want open files to be distributed to anyone to sell, or will they demand that distribution is contained and achieved through a limited number of trusted associates? After all you are highly unlikely to hand out open access ebooks to hundreds and thousands of resellers you can’t effectively audit or even monitor. It was a pity that some industry bodies felt it wasn't their business and beyond them to build book community services when, after all , others were only starting themselves. The independents have not collectively or independently invested in their own repositories and distribution environments and are now reliant on third parties such Overdrive, Ingram, Kobo and others. The chains, or B&N, have invested, but have seen that they by themselves struggled to compete and often any success was limited to their home turf. The point is that the independents today can sell through many options, but even if they do, everyone in the chain will want paying and the resultant price may be itself a non-starter with the consumer.

There are basically two parties that add real value the author who creates the initial value and the consumer who puts in the cash. Any market proposition has to recognise this.

We all want book stores to survive and compete. We all want libraries to survive and compete. But the money spent in futile and expensive legal gestures could be invested far better.

The Polarisation of Publishing

Publishing whatever sector, geography and format has always adhered to Pareto’s 80/20 law and in many cases less than 20% have generated even greater than 80% of revenue and unit sales. This obviously leads to a polarisation of the market, with in many cases, no more than a handful of publishers and channel operators dominating each sector. Many don’t like it, cry monopoly, but its not going away and the dilution of one operator will just be replaced by another.

We recently raised the question of the impact of the migration from print to digital revenues and asked what it would mean to organisations, supply chains and the remaining print based operations. We all know digital is happening and continues to accelerate and although we may not be able to predict where the line will be drawn, the impact will be significant and not preparing for it may be like a publishing ‘Pearl Harbour’. Perhaps today’s biggest conference circuit agenda should be on , ‘How to survive in a downsized print world.’

When Chris Anderson first coined ‘long tail economics’ in 2006, many were cynical and merely asked where the money was. It challenged the fundamental principles of the economies of scale and scope on which the 20^th century was successful. However, today no one can deny that the long tail is here and not only has it arrived, revitalised the forgotten back list, inspired many authors to do it themselves, but it has challenged the industry’s obsession with front list. Penguin’s recent acquisition of self publishing operation Author Solutions, is not just about feeding the machine, it also about trying to accommodate the new long tail world and get involved in a mass movement. Amazon have once again shown great strategic vision and application with their Kindle DP programme, which could now become a significant jewel in their crown and although other players are trying to emulate it, they are playing catch up and are clearly behind the curve. Open research and access is also going to have a significant impact on some markets and change the balance of power across the value chain. However, we still to see some more moves and there are some real opportunities today that are just begging to be taken.

Only this week we read in Publishers Weekly about the demise of print back list sales which is in part down to reduced shelf space and also part down to digital offering what we believe is a more logical and better home for these works. This again impacts the balance of the market both in terms of front versus back list and also physical versus digital. the interesting question is, if the physical back list market becomes less predictable and attractive does this give publishers the confidence to digitise their back list or raise the risk that digital migration may not be rewarding? Will they merely sit on their assets, revert them, digitise them with no marketing effort, or let them slide into an orphanage? Digital may only be seen to be worth the effort if it generates sales and if the digital shelves are full how do readers find and differentiate the back list from the rest?

We are no longer talking about ‘long tail’ economics but ‘long market’ economics.

So what will be the organisational and economic impact of the seismic changes that are taking place today?  It is not just a case of responding and generating new revenues, but one of managing and protecting old ones too. We and many others believe that the 80/20 law will still prevail but that the market will become even more polarised and middle ground will change radically. One of the leading thinkers and a Director at Bloomsbury, Richard Charkin, recently is quoted as saying that, ‘publishers should now start to act and think as start-ups.’ A very scary thought for some, but a stark reality for many.

In some media sectors competitors are now working together to share investment and importantly risk and reward. Do we see a similar collaborative publishing environment, or a continuation of the ‘winner takes all’

Many still believe that digital is just about pouring the physical book content into a digital container. Whilst others believe that digital wizarderly and extras will prevail and digital content will become a full blown multi media experience. Reality will be somewhere in the middle but what is clear is that publishing will continue to polarise and in doing so create some exciting opportunities which will demand market and organisational change.

The democratisation of reading and writing is happening and the question is who will be prepared, fit, and responsive and succeed in the Brave New World of digital and physical content?

Some say the today’s weather is becoming more volatile, extreme and unpredictable. Welcome to publishing tomorrow.

We are not Alone

The driving forces that we see changing publishing may appear to be different but are very similar to those being experienced by others.

In a new book that is to be published next year by Oxford University Press, Richard Susskind argues that lawyers and the legal profession face extinction, or are “on the brink of fundamental transformation”. He sees a future, where “conventional legal advisers will be much less prominent in society than today, and, in some walks of life, will have no visibility at all”.

The driving forces are: information technology and what Susskind calls ‘the market pull towards commoditization – carving up a lawyer’s job into identifiable and discreet pieces that can be outsourced and done more cheaply by others.’

When we step back and think about the roles across our value chain we can see similar forces, the question is which roles survive, which are commoditized and which become extinct through technology?

'eBooks are Coming' - a response

As I returned from my annual break where nothing was digital or remotely ebook to find some interesting news and some usual ‘August noise’.

The Bookseller wrote a feature article about the coming of the ebook. Did it say anything? Well unfortunately very little and it used a games industry practitioner as its catalyst. Yes, it went through the usual doom and gloom, the question of what will be the tipping point and gave the usual suspects their 15 minutes of free advertising. But did it say anything or did it merely raise the fear bar in the market one notch more?

I found the one paragraph about Continuum interesting. It alluded to the issues of where a publisher starts and where the greatest return is, as opposed to what has to be tackled in the longer term. Yes we know publishers aren’t ready, we know that there isn’t a reader today, we know that there isn’t an effective channel today and we know that the majority of publishers are at square one. But if you where a publisher what would you do and where would you start?

What Ken Rhodes raised is the need for a strategy that enables manoeuvrability and the ability to respond to demand. So who runs the strategy? Marketing will have a huge input as emarketing is closely aligned with all things digital. Sales will have an input as revenue return is always a driver. Production will have a say as it’s their domain, processes and relationships that are being turned upside down.

Editorial will have a say in that it is about content development as well as content delivery and merely changing things at the back door isn’t the long term solution. Finally, rights must have a say as that’s what publishing is and where the greatest challenges are both with authors and consumers.

In the ‘Brave New World’ report we wrote a chapter on the music industry. There were many lessons to be learnt. We all assume that the music industry was digital – after all we all had, or could create digital copies of music. The reality was that they weren’t. The inherent processes and contextual information was far from being digital. What they had was huge libraries of content that couldn’t be searched, accessed or sold digitally. Forget the digital content the digital context was missing and the channel was still in the dark ages thinking in terms of albums and singles. Napster, Kazzaa and iTunes all blew the market apart faster than anyone had thought possible and the industry today is still trying to reposition and recover. Why is this relevant to book publishing? Well we still think of content in books - sheets within a jacket. We still market and promote the same way with the same context, even to sending out a significant volume of review / inspection copies in physical format – like - throwing confetti to the wind. We still have not addressed many of the thorny rights issues – rights reversals, customised content.

The book industry is not one but many industries once joined by a common format - the book. As digitisation evolves these will diverse and move at different speed and in different directions. We are currently trying to predict a market in a vacuum – there is no or little digital content or context. We are not looking at the processes but more at the finished product.

What we need to look at is the end to end value chain, from author to reader and understands what needs to be done, where the quick wins are and how to support the existing business and channel.