How Publishers Repeated The Same Mistake As Record Labels: DRM Obsession Gave Amazon Dominant Position

from the very-predictable dept

One of the more amazing things over the past decade or so is just how clueless legacy content companies are when it comes to the realities of DRM. For years, content creators have misunderstood the issue of online infringement entirely -- assuming that the effort had to be focused on somehow "protecting" works and ratcheting up infringement, rather than giving users more of what they wanted. The dirty secret of DRM is that it does exactly the opposite of what the content companies wanted: rather than protect works, it basically hands all the power in a market to a single tech provider, stripping much of the content companies' abilities to control their own markets.

We saw this in the music market first. Even as Steve Jobs was clear that he thought DRM was a stupid idea for music, he was happy to give the record labels what they "wanted" in the early years: building DRM into the early version of iTunes. Of course, this did absolutely nothing to stop infringement. Because all you need is a single copy to get out in the wild, and then all DRM is completely useless on that particular piece of content. So Apple's DRM did absolutely nothing to stop file sharing... but it did make Apple the most powerful player in the music market. Because the DRM locked people into Apple's platform, and there was no significant competition at the time, once people started using Apple, they were pretty much locked in. And the labels hated it, even though it was their own damn fault in demanding DRM. Eventually, of course, the labels agreed to give up DRM, by which point Apple was already so dominant that no one really challenged their position, though alternatives are finally starting to get more serious.

Three years ago, we noted that book publishers were bizarrely making the exact same mistake with Amazon. Publishers, just like the labels, were so focused on the fear side that they were adamant about having DRM. And, once again, all this has done is lock people into the Kindle platform, and made it (by far) the most dominant player... which people can't really get out of.

I was reminded of this after reading Joe Wikert's call for the end of ebook DRM, noting that all it had really done was give all the power to Amazon:

I often blame Napster for the typical book publisher's fear of piracy. Publishers saw what happened in the music industry and figured the only way they'd make their book content available digitally was to tightly wrap it with DRM. The irony of this is that some of the most highly pirated books were never released as ebooks. Thanks to the magic of high-speed scanner technology, any print book can easily be converted to an ebook and distributed illegally.
Some publishers don't want to hear this, but the truth is that DRM can be hacked. It does not eliminate piracy. It not only fails as a piracy deterrent, but it also introduces restrictions that make ebooks less attractive than print books. We've all read a print book and passed it along to a friend. Good luck doing that with a DRM'd ebook! What publishers don't seem to understand is that DRM implies a lack of trust. All customers are considered thieves and must be treated accordingly.
The evil of DRM doesn't end there, though. Author Charlie Stross recently wrote a terrific blog post entitled "Cutting Their Own Throats." It's all about how publisher fear has enabled a big ebook player like Amazon to further reinforce its market position, often at the expense of publishers and authors. It's an unintended consequence of DRM that's impacting our entire industry.

That Charlie Stross piece is also a great read, and makes the point pretty explicitly that the publishers created their own problem by insisting on DRM'd ebooks:

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. (Which will doubtless get a lot less favourable once the monopoly is secured ...)

If the big six began selling ebooks without DRM, readers would at least be able to buy from other retailers and read their ebooks on whatever platform they wanted, thus eroding Amazon's monopoly position. But it's not clear that the folks in the boardrooms are agile enough to recognize the tar pit they've fallen into ...

What's truly amazing about this was just how obvious it was years ago when we (and many others) pointed this out. I mean, with the music execs you could kind of understand the mistake, because if you really don't think through a few steps out, you could be forgiven for thinking that DRM makes sense as a protectionist measure. But if you're a Big Six publisher, you didn't even have to think ahead a few moves. You just had to look at the monster the labels created by demanding DRM in iTunes (something they'd already started to move away from just as the Kindle was ramping up) and realize that demanding DRM would create the same situation with Amazon. But what's even more amazing is the fact that the big publishers still haven't figured this out so many years later.

If the big publishers end up failing, it's their own damn fault for being perhaps the least perceptive strategists around. I can only imagine how bad they are at playing chess.