Traditional publishing is dominated by the Big Six publishing groups — folks like Hachette, Holtzbrinck, Penguin-Putnam, and so on. In general these publishers and their imprints refuse to publish ebooks without DRM. It’s a major sticking point with them, in no small part dictated by the fact that they’re subsidiaries of huge media conglomerates, which have had bad experiences with movies, TV and music leaking on the internet. In the past I’ve muttered and grumbled about the evils of DRM for a variety of reasons. But now, I’ve got a feeling that there’s a more important reason for griping: the strategy of demanding DRM everywhere is going to boomerang, inflicting horrible damage on the very companies who want it. (Who just happen to be my publishers.) 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. For various reasons the major publishers don’t sell direct to the public themselves — they go via external retail channels. Of these channels, Amazon is the 500kg gorilla of internet sales. Amazon has ruthlessly used its near monopoly of online sales to exert monopsony buying pressure against suppliers, forcing the likes of Holtzbrinck or Penguin or Hachette to give them a deep discount on ebooks. In the past they have de-listed publishers’ paper editions during negotiations, chopping their sales off at the knees in an attempt to force them to grant favourable sales terms. When Amazon extract deeper discounts from their suppliers, they pass some of the discount on to the public — this expands their monopoly position on the retail side by undercutting their rivals. It’s good for customers in the short term, but it’s not good for anyone in the long run: they’re sweating their suppliers, all the way back down the supply chain (read: to authors like me) and sooner or later they’ll put their suppliers out of business. Anyway, my point is that the Big Six’s pig-headed insistence on DRM on ebooks is handing Amazon a stick with which to beat them harder. DRM on ebooks gives Amazon a great tool for locking ebook customers into the Kindle platform. If you buy a book that you can only read on the Kindle, you’re naturally going to be reluctant to move to other ebook platforms that can’t read those locked Kindle ebooks — and even more reluctant to buy ebooks from rival stores that use incompatible DRM. Amazon acquired an early lead in the ebook field (by selling below cost in the early days, and subsidizing the Kindle hardware price to consumers), and customers are locked into the platform by their existing purchases. Which is pretty much how they gained their 80% market share. An 80% share of a tiny market slice worth maybe 1% of the publishing sector was of no concern to the big six, back in 2008. But today, with it rising towards 40%, it’s another matter entirely. 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 …

[*] It doesn’t reduce piracy; if you poke around bittorrent you’ll find plenty of DRM-cracked ebooks — including all of my titles. DRM is snake oil; ultimately the reader has to be able to read whatever they bought, which means shipping a decryption key along with the encrypted file. And once they’ve got the key, someone will figure out how to use it to unlock the book.

Posted by Charlie Stross at 22:07 on November 28, 2011
Found via the folks at BoingBoing.