The corporate drive for DRM is motivated by the fear of ebook piracy. But aside from piracy, the biggest ebook-related threat to the Big Six is called Amazon.com. Until 2008, ebooks were a tiny market segment, under 1% and easily overlooked; but in 2009 ebook sales began to rise exponentially, and ebooks now account for over 20% of all fiction sales. In some areas ebooks are up to 40% of the market and rising rapidly. (I am not making that last figure up: I’m speaking from my own sales figures.) And Amazon have got 80% of the ebook retail market….
As ebook sales mushroom, the Big Six’s insistence on DRM has proven to be a hideous mistake. Rather than reducing piracy[*], it has locked customers in Amazon’s walled garden, which in turn increases Amazon’s leverage over publishers. And unlike pirated copies (which don’t automatically represent lost sales) Amazon is a direct revenue threat because Amazon are have no qualms about squeezing their suppliers — or trying to poach authors for their “direct” publishing channel by offering initially favourable terms.
Two, Jane at Dear Author talks about how publishers are disconnected from actual readers.
[W]hat publishers believe customers should do and how publishers believe they think doesn’t actually matter. It’s what customers do and what customers believe that should be the guideposts. Aside from how wrongly I think [Hachette CEO Armand] Noury views the reader (and this isn’t a surprise because readers aren’t his customers) readers, even those who are willing to buy new Kindles every new product cycle or new iPads aren’t looking at lending as a financial break. Instead, they are looking at trying to get a return on their dollar spent. Free books or low cost access to books increases discoverability. It isn’t about “helping” the pocket book of the reader. (Digital library lending and library lending, in general, sometimes invokes the corporate citizenship concept and the moral responsibility that publishers and those in the publishing ecosystem may have to support the library and I think that is a separate issue. I want to acknowledge that publishers have the right to make a business decision, even a bad one).
Books are simply one of many entertainment option that readers have at their fingertips. It is foolish to think that readers wouldn’t want immediate access to books as they have immediate access to movies, music, and video games. The big problem that publishers have here is not anticipating the moves of the readers. Publishing does not stand alone in a separate silo. Instead, readers’ expectations toward access and price of content is influenced heavily by other entertainment options. Thus if every other entertainment option that is at a reader’s disposal offers digital downloads, publishing needs to offer digital downloads. If every other entertainment option that is at a reader’s disposal offers some type of subscription access to unlimited content, publishing needs to offer that.
Every mass market entertainment industry has had to re-learn the lessons that previous mass market entertainment industries learned. Book publishers have had more of a grace period because their product wasn’t inherently digital until recently. As soon as music was converted to bits and put on CDs, consumers were able to pull those bits back off the CD. The same thing happened with movies when they went to DVDs. Now that books are available as .mobi and .epub files, publishers have moved into the houses next to the music and movie industries.
The publishers are in a battle for their lives with Amazon, and Amazon is cleverly positioning themselves as fighting for the reader and for the author — see their current royalties offer of 70% of net if you publish your book through their Digital Text Platform. The publishers aren’t used to selling books to readers, they’re used to selling books to retailers, and so don’t necessarily think of readers as someone whom they need to win over. That goes double for people who read books on Kindles or iPads.
I don’t particularly want Amazon to win this war. If they lock up publishing in any meaningful way (which, as Charlie points out, publishers are helping them do by insisting on DRM that means an ebook bought from Amazon can only be read through Amazon), I expect them to do what Wal-Mart and other large retailers have done and start driving up prices and lowering royalties. But if publishers can’t evolve faster, it seems likely that Amazon will come out on top.