Controversial Topics, Marketing, Technology, Experimentation, Books, Copyright, Business Models, Commerce, Economics

Thinking Through a Strategy for Digital Rights Management

A stereotypical caricature of a pirate.

A stereotypical caricature of a pirate. (Photo credit: Wikipedia)

Do unauthorized copies of a book take sales away from authorized copies? Or do unauthorized copies serve as promotional tools, actually increasing sales of authorized copies?

Let’s do an imaginary experiment. We build an online store, which is accessible from any PC, tablet, or smartphone. The catalog of books is extensive; the titles number in the hundreds of thousands and cut across virtually every segment of book publishing. There is a very good search engine, and a prospective customer can easily find anything she is looking for. So Jane Doe does a search for “new novel by Beryl Drawbridge” and is brought to a page for “What Comes Next?” The page is clearly laid out, with extensive information about the book and the author. Ms. Doe decides she wants to read the book and is then directed to the appropriate place on the site to get it.

Now things get interesting. Ms. Doe is staring at three buttons. The first says that the print version of the book is available for $14; click here to buy. The second says that the e-book version is available for $12; click here to buy. The third says that the e-book is available at no cost to the user. There is a clear difference between the product offered with the first button and the other two products (the first one is print), but there is no difference between the two e-book versions — except that one is free and one is not. Both e-books have the same text; they both come from a reliable source (and are thus free of malware); they both run on all the devices in Doe’s possession. There are no restrictions on the use of either digital edition. The only distinction is that one costs money and the other does not.

What does Jane Doe do? Although she sometimes purchases print books, she is equally comfortable with ebooks and doesn’t shy away from anything digital. But she doesn’t see why she should pay more for the print experience. So she will get an electronic version. But which one? It’s hard to imagine why she would opt for the paid version when the free version is identical. It’s rare for an experiment that all things are equal, but in an imaginary experiment we can declare it so. Thus, all things are equal, and Ms. Doe is likely to choose the free version.

This is why publishers use DRM — digital rights management software, which makes it difficult to make unauthorized copies of a work. The publishers may be making a business mistake by using DRM, but this is why they do it, right or wrong.

In our imaginary experiment, we have created a friction-free way to get access to the free file. “Friction” is a hot term right now among book publishers. The idea of friction is that if getting free copies of something is very easy (no friction), then prospective customers will opt for free over paid.  Increase the friction for the free and you should increase sales of legitimate copies. Of course, in the real world outside the labs of the Scholarly Kitchen, there are no friction-free exchanges. Tim O’Reilly, arguably the most innovative (and easily the most articulate) publisher working today, has famously described looking for unauthorized copies of books as “dumpster diving.” To get to an unauthorized copy is a difficult hunt and it takes the intrepid user through treacherous terrain, where the desired files may conceal a computer virus or downloads may be monitored by a federal agency or some commercial version of copyright cop, eager to throw Jane Doe into the slammer. Unauthorized copies outside our imaginary lab come with lots of friction and thus do not erode the market potential of the authorized copies.

A word about terminology. I personally don’t like the terms “pirate” and “piracy” as they are used in the copyright realm. In my view, a pirate is someone who not only infringes someone’s copyright but also attempts to profit from it. There are few defenders of pirates of this kind except in the Internet’s most dangerous neighborhoods. Of course, commercial benefit may not be unambiguous. If someone infringes a work and then tries to sell other copies, that is an unambiguous instance of piracy. But what if the infringer uses the copy to sell advertising? And what if the infringer does not monetize the copy in any way, but simply makes it available at no cost to others — as a public service, as it were? (Giving away what belongs to others is a time-honored method for creating public goods.) For the unambiguously non-monetized instances of infringement, I prefer the term “unauthorized use.” We can debate whether this is a distinction without a difference.

The single most astute remark I have ever heard about unauthorized use was by my friend Mike Shatzkin, who distinguishes between large-scale infringement by people who set up and run servers that distribute materials — books, articles, music, movies — around the world and, on the other hand, “casual” copying.  If I make a copy and give it to a friend, that is casual copying. (Note that all these examples are operating outside the realm of education, where fair use claims may apply.) May I see a show of hands, please, of all readers of the Kitchen who have ever engaged in casual copying, either as donor or recipient? No one? That’s what I thought.

Mike’s point is that there is no stopping large-scale infringement, but you could limit casual copying (assuming that this is part of your overall marketing strategy). Large-scale infringement can’t be stopped because it only takes one “liberated” copy to start the process of massive downloading; and heaven knows there has never been any DRM that some motivated hacker couldn’t break. The most striking evidence of this is with the Harry Potter books. The author, J.K. Rowling, famously resisted putting the books into digital form for some time (they have just been launched as authorized e-books) because she feared that e-books could easily be pirated. But pirates are a crafty lot and scanned the print books and made them available in dark neighborhoods. The Harry Potter series became the single most pirated books of all.  So much for fighting piracy by steering clear of ebooks.

But casual copying, that’s another matter. I am no hacker and would never go to the time and trouble to break the DRM on an e-book, so DRM would indeed prevent me from casual copying. I am not alone. DRM can keep the honest people honest. And it does this by frustrating those honest customers, who buy books they can’t view on certain devices and can’t do what we all like to do with a print book, hand it to a friend and say, “I think you’ll like this one.”

I began to think about this topic in earnest a couple years ago when I decided that it was high time that I read Yochai Benkler’s “The Wealth of Networks.” I was attracted to this book by the countless references to it on Twitter and the cheekiness of the title. A search revealed that the book is available online for free. I began to read it, but the experience was dreadful: a poorly formatted book that I could only read on a desktop or laptop computer. Someone with better eyesight may have been able to get this onto a tablet. I was frustrated by this experience and went looking for a formally published copy. (An aside: the book is published by Yale University Press, but when you go to the Yale site, you are met with a notice that the book is out of print — despite the fact that both hardcover and paperback editions are cited and there are links to digital editions. But none of those links open to a page for the book itself but instead bring you to the home pages of Amazon, Barnes & Noble, and Google’s e-bookstore. This is a kind of inadvertent friction for a legitimate commercial version.) Benkler, in other words, was using free copies mixed with friction to help promote his book. A good idea, provided that you keep the friction.

The problem with experimenting like this, even in the ideal environment of the Kitchen’s own laboratory, is that we have real-world evidence that some people embrace friction. I did a survey four years ago that looked at the sales of print university press books from the presses’ own Web sites. All of the books sold on the presses’ sites were also available from Amazon, and almost always at lower prices — not to mention superior customer service. But yet many presses reported meaningful sales from their own sites.  Why aren’t the customers simply going to Amazon? Or we have examples from other media that are hard to overlook. Think of the pledge drives for NPR. You can listen to public radio for free, or you can make a donation. The broadcast is the same either way.  Indeed, there is more friction in paying up then in getting it for free, as you have to get on the phone with a volunteer (who invariably in my experience is poorly trained) or you have to go to a Web site (that is often unresponsive). There is more to commerce than price and service. On the other hand, only about 10% of NPR’s listeners make donations, so a purely economic analysis is largely if not absolutely accurate.

Allowing for that 10% — comprised of the civic-minded, the committed, and the plain lazy — it’s pretty clear that if unauthorized ebooks rival authorized books in terms of friction, publishers have a problem. And here again things get complicated very quickly. The worst disservice that publishers do to themselves is in reporting wildly inflated figures for piracy, as though every unauthorized copy is a lost sale. This is ridiculous. Lawyers drive this, as they hope that the big numbers will result in large judgments against infringers. As PR, however, it makes publishers look like complete idiots — to which I say, Letting a lawyer drive company strategy is idiotic. My own guess, and it is no more than that, is that infringement helps sales when there is lots of friction attached to it (my Benkler example) and hurts sales when friction approaches zero. The trend is in the latter direction. This is likely to result in renewed attempts to restore friction, which in turn means more friction-inducing lawsuits, if only to keep the massive file-sharing sites on the fringe of the overall community and demanding that the honest people remain honest. But the problem is not with the big sites; the problem is with friends and family.

If publishers were to drop DRM, as is being openly discussed nowadays, what would happen? Well, this would have no effect whatsoever on the large file-sharing sites because they already have access to all the books they could possibly want. But in terms of casual infringement, the situation may be different.

Let’s imagine people organized into communities of various kinds. For example, we might have 30 students taking a college course together. Let’s suppose that the course is on contemporary women writers and that one of the required texts is Barbara Kingsolver’s “The Bean Trees.” The book is available as an ebook without DRM. The students are in touch with each other through a LMS such as Blackboard. One student buys it (presumably several students chip in) and posts it to the LMS, and the rest of the class downloads the title from there. So one copy serves the entire class. Or imagine a reading group of 6 women (my wife belongs to such a group). Without DRM, the group members would take turns buying the selected books:  a market of 6 has been reduced to 1. This is the real economic weakness of a no-DRM strategy: the propensity for people to organize themselves (or be organized by others) into communities, where casual sharing can alter the structure of markets.

It will be argued that the promotional value of free copies outweighs the lost sales due to sharing. I don’t think so; the NPR example is telling us something about the propensity for people to pay for things that they don’t have to. And NPR has to work hard even to get 10% compliance, with relentless pledge drives and appeals to civic-mindedness, supplemented with salving premiums (an NPR T-shirt, etc.). Promotional friction can take many forms (providing excerpts, civic appeals, special features), but it’s an important element of this economy. Some argue as well that dropping DRM would challenge Amazon’s market dominance, something that many publishers dream of. I am not persuaded. A no-DRM strategy may have prevented Amazon from achieving its staggering market share for e-books, but now that Amazon is there, many other things hold people to Amazon’s store. I suspect that many people cling to the idea that DRM is a publisher’s worst enemy simply because they hate DRM and that’s that, and they look for anything that could remotely support their position.

With this analysis, one might assume that I am in favor of DRM. I am not. I am simply being realistic. A publishing strategy to move away from DRM requires a great deal of thought and contingency planning. Can we afford to lose our course adoption sales? How do we monetize reading groups? And what about the used-book market, from which we currently derive no revenue? Can we come up with new ways to monetize books so that we can recapture some of that lost revenue? The issue concerning DRM is falsely thought to be a technological one. It is not; it is a marketing issue. What is the best way to reach markets, and does DRM help or hinder that goal?

Publishers are faced with a few broad options (but countless sub-options):

  • They can play hardball and fight infringement at every turn. This more or less is the current situation for most, though definitely not all, publishers. Let’s call this the legal enforcement strategy.
  • They can play softball and learn to tolerate a certain degree of file-sharing, punctuated with the occasional outburst (e.g., the targeted lawsuit against a major infringer) to restore some friction to the economy. Some publishers are gravitating to this position now. Let’s call this the editorial strategy, with publishers being highly selective about asserting their positions, but insisting on their prerogatives whether or not they are asserted.
  • They can move to a strategy of full engagement. They can appeal to their readers in various ways, be responsive to their questions and challenges, and portray their company as being a part of the civic infrastructure. We can call this the NPR strategy.

These four strategies build on one another. Few established publishers are in a position today to work with #4 (innovation), but start-ups may indeed begin there. I think softball is better than hardball (but only in metaphor: I root for the Yankees), and that NPR is superior to looking the other way. Tolerance over resistance, engagement over tolerance, innovation over all.

But the real issue with DRM, piracy, file-sharing, and whatever else you want to call it is that none of these things are binary policy options. They are all complex management tasks, that require a great deal of thought, a management team with sufficient bandwidth, and a view to where the business ultimately is headed. Piracy is not a technology problem. But whatever it is, it requires a management solution.

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About Joseph Esposito

I am a management consultant working primarily in the world of digital media, software, and publishing. My clients include both for-profits and not-for-profits. A good deal of my activity concerns research publishing, especially when the matter at issue has to do with the migration to digital services from a print background. Prior to setting up my consulting business, I served as CEO of three companies (Encyclopaedia Britannica, Tribal Voice, and SRI Consulting), all of which I led to successful exits. Typically I work on strategy issues, advising CEOs and Boards of Directors on direction; I also have managed a number of sticky turnarounds. Among other things, I have been the recipient of grants from the Mellon, MacArthur, and Hewlett Foundations, all concerning research into new aspects of publishing.

Discussion

17 thoughts on “Thinking Through a Strategy for Digital Rights Management

  1. Great article Joseph. As the founder of a small publishing company, BigInScience.com, I have yet to encounter a more informative and helpful summary of DRM and piracy. Our publishing company is currently working on the release of its first book, “Rush: Science and Technology in our Acceleration Age” and we are very interested in exploring innovative ways to deliver content. Do you have any recommendations for learning more about ‘innovative strategies’ such as texts that are dynamic and interactive. Thanks, and great article again!

    Posted by Brian Gabriel | Apr 23, 2012, 8:41 am
  2. Joe, you didn’t include a fifth option: adopt open access as a way of publishing. With upfront costs all covered, you don’t need to worry about who makes copies for whatever reason. Indeed, that is the whole purpose: to maximize distribution. This is, ultimately, the best way to combat infringement. It’s akin to legalizing drugs, which takes away the booming market for illegal drugs.

    Short of full OA, some of us have run experiments with partial OA, as you know. At Penn State Press books on Romance studies are freely accessible online. Anyone can read them in their entirety; they just can’t be downloaded and printed out in their entirety. That creates enough friction for some users to encourage them to buy the POD edition. (Unlike the National Academies Press, we did not attempt to sell PDF versions.) The sales have not been quite as robust as they were for books when the series was print only, but they have been enough to generate a significant income stream to support the venture in part. Probably what is lost is mainly income from multiple copy sales for classroom use, since all an instructor needs to do is to give all the students the URL for each book and they can read it online.

    As for “what if the infringer uses the copy to sell advertising? And what if the infringer does not monetize the copy in any way, but simply makes it available at no cost to others — as a public service, as it were?” we have the suit Viacom brought against YouTube that raises the first question, and we have the No Electronic Theft Act that Congress passed in 1997 to deal with the second question (occasioned by MIT student LaMacchia’s sharing of copyrighted software through his bulletin board).

    Posted by Sandy Thatcher | Apr 23, 2012, 10:27 am
  3. I think your dismissal of a DRM-free startegy to counter Amazon dominance is a bit rushed and based on the assumption that Amazon has already won the battle for ebook domination. Quite frankly I dotn think they have yet. We are still quite far from the tipping point for eBooks and there is therefore plenty of scope for a healty and competitive market for many retailers if they are just being given a chance. I do agree that it is not enough to just open the flood gate of DRM-free but it does require a careful combination of new business models to keep consumers happy to spend and away from copying. For instance if I could trade-in my eBook and use the money to buy more. That may be a clever way to get a kick back from second hand and a lesser reason to pirate (to me copying is piracy regardless of the scale, sorry). And we can go on with different ideas perhaps taking them from our sister industries in digital space such as music (see last.fm or spotify). To conclude I truly hope that the DoJ, perhaps unjust (we shall see), attack to the big 5 has rattle their cages a bit and made them thinking about clever ways to bring back the balance to the market hopefully contemplating a DRM-free startegy.

    Posted by fullmounty | Apr 23, 2012, 11:34 am
  4. DRM does nothing but annoy your paying customers. The way to beat free copies floating around the net is through offering your customers a better experience than they get with the free. iTunes and Amazon both offer a better music purchasing experiences than fumbling around on torrent sites. You don;t offer a better experience by putting “friction” between them and the books they have supposedly purchased from you. You give them better experience by giving them a high quality product, bonus services (whisper sync, online discussion forums, etc) and make it as easy as pressing a single button to buy.

    What happened when the music industry dropped DRM? Sales went up. It’s one of the things that took digital downloads from the fringe into the mainstream. So much for your theory that everyone is going to share their books with all their friends. When you stop treating your customers like children or criminals and give them great experience its amazing how readily they will open their wallet.

    Posted by cgarness | Apr 23, 2012, 1:52 pm
    • Maybe the purchased copy of an ebook could be all shiny and new, but the more you copy it for your friends the tattier it gets? Pages get ripped, the print fades and there’s suddenly a digital jam splat on page 108…

      Posted by Tim Vines | Apr 23, 2012, 4:34 pm
  5. There are really a number of issues (questions?) in here that need to be separated in order to be made “whole” again.

    The first is competing against Amazon, Apple and others in the eBook arena. The way to compete against these companies isn’t by removing DRM. Rather, it’s by building the best possible discovery and reading experiences on the planet. Once these are in place, true competition can begin. I realize this is a tall order – but competing against super successful, multi-billion-dollar organizations is never easy. Retailers, publishers and authors need to start on the fringe and work their way towards the middle, taking one small step at a time – with each subsequent step being built on the rock sold foundation of doing everything humanly possible to support the reader.

    The second is DRM. Whether DRM exists or not is irrelevant. The size of the file sharing sites that enable distribution of “cracked” files is irrelevant because these services are extremely cumbersome for consumer’s to use – and repeated research has shown that consumers will GLADLY pay when the process is frictionless.

    Consequently, with or without DRM, if the process to find, buy and read isn’t magic – there isn’t a business to be had competing against Amazon and Apple. They will invest tirelessly invest money, time and people to deliver magic … so the bar has been set.

    Posted by Chris Rechtsteiner | Apr 23, 2012, 2:05 pm
    • An avenue to improving discovery is through the proliferation of independent ebook sellers who will never be able to build a device-based ecosystem, which is the only true advantage Apple and Amazon have right now. Indies will flourish by super-serving customers/niches and by selling DRM-free publications with which they can make a decent margin and deliver a similar one-click purchasing experience.

      Posted by brendajwalker | Apr 24, 2012, 10:03 pm
  6. Thanks–enjoyed reading about DRM issues as a practical matter. This is usually portrayed in dramatic fashion, handwringing, finger pointing –demise, innovation– lots of whining on both sides. Also, I kept thinking about a p book my cousin told me about yesterday and how she will save it for me after a few others read it! Boundfilesharing – Yes – Guilty Curious to see where we are a year from now.

    Posted by Barbara Miller | Apr 25, 2012, 8:13 pm

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