Wednesday, October 5, 2011

What's the Bigger Threat, Piracy, Distribution Monopolies--or Refusal to Give Customers What They Want?

Miramax CEO: our biggest threat is online distribution monopolies, not piracy – Boing Boing:

'via Blog this'

Mike Lang, the Miramax CEO, says piracy isn't really any big deal, but distribution monopolies are, because they create chokepoints that limit the consumer's ability to get the product, thus limiting potential sales. He's got a valid point, but where it breaks down a bit is that he cites Apple's iTunes as an example. iTunes has too much control of the music market, so music companies can't influence pricing, packaging, merchandising.

But the reason iTunes has such control is because the music companies clung to their image of themselves as "record companies," drastically overpriced CDs, and bitterly resisted  digital distribution of music in forms consumers wanted and found useful and worth paying for. Had they been able to do so, they would have permanently blocked any digital distribution of music, allowing fear of piracy to override the far more central consideration of how to make money by selling their customers what they wanted to buy. They decided what they wanted to sell us, and tried to make us like it--and it didn't work. Apple controls the distribution of music because Apple created a way to give customers what they wanted and make a profit at it, while the music companies were still fighting digital distribution.


The movie studios have done a little better, but not a whole lot, and only after losing the battle over video recording. They prioritized the threat of piracy, which as iTunes has demonstrated is a low level problem if consumers have a legal way of getting what they want, and tried to ban an entire technology to prevent it. They've accepting digital distribution of their content with only slightly better grace--and consequently, again, are largely dependent on other companies for the distribution pathways that get the content to the customers, when they could be cutting out the middle man and selling content directly.

So why is this of interest to a book blog? Because we're seeing some of the same pathology in the book industry with regard to e-books. Publishers want to limit the devices you can read your e-book on, they don't want to let you lend your e-book to anyone else even though both Barnes & Noble and Amazon have provided the technology to make lending e-books very similar to lending a print book in the way that matters to publishers: while the borrower has it, the lender doesn't have access to it. Simon & Schuster won't sell e-books to libraries at all; HarperCollins, as I discussed in February, has decided that library e-books will go poof after only 26 checkouts, despite the fact that physical books can remain in circulation in libraries for decades. Publishers want to keep the prices of e-books high, so that they won't cannibalize the sales of print books--but e-books, unlike print books can't be given away or resold on the used book market; the buyer isn't getting all the same rights that they do with a print book. And of course, if your e-book reader of choice is the Amazon Kindle, you're limited to Amazon as your e-book source; for e-books, there's the Kindle format and formats everyone else uses.

All of this is prioritizing the sellers' fears of piracy and desire to maximize profits over what the customers really want to buy and what they want to be able to do with it. They've worked hard to ensure that you the reader do not have the same "fair use" rights you have with a print book, and that the "first sale" doctrine does not apply. You can't legally break their digital rights management in order to do things with the book, or the content of the book, that would be legal if you owned the print edition.

This is contributing to limiting e-book adoption and e-book sales. A few writers and a few publishers--publishers as different as Baen Books and National Academies Press--have discovered, by taking some risks, that accepting the risk of some piracy boosts sales far more than the "lost sales" of the pirated copies. In the long run, this is the model that will prevail, but we're all losing--even the publishers--because the publishers are fighting technology and their customers, rather than working with them.