Thursday, July 10, 2014

One Thing Hachette Can Do

There isn't much Hachette can do in their protracted negotiations with Amazon. Simply put, Amazon doesn't need Hachette. Whatever loss in profits Amazon sees from lost Hachette sales is a tiny fraction of their overall corporation. For that matter, even if losing Hachette sales did meaningfully affect its profit margins, Amazon has been comfortable with unprofitably for its entire existence, especially when considering potential growth, so I don't see them miraculously changing that pattern. Really it's like negotiating with someone holding a shotgun who also believes he's bullet proof.

Customer retention? A smile and a blow gun, of course.
If I had to guess, Hachette is holding out until whichever publisher is next in the staggered negotiation begins their own contract dispute. Obviously, Amazon is going to offer them the same terms being offered to Hachette and obviously that publisher will reject them. (Unless Amazon plays some very long divide and conquer technique, giving every other publisher but Hachette acceptable terms, then slowly driving Hachette and Hachette alone into some from of non-existence, but that would be some three-level chess stuff and potentially illegal.) The hope would then be a slow moving, 100% collusion-free compromising of more and more of Amazon's book sales with the result that either, Amazon offers better terms or book buyers begin switching to other retailers in significant numbers.

But I think, in the interim, there is at least one action Hachette can take that might give them something in their next round of negotiations, that also inherently strengthens the diversity of the book economy. Remove DRM from their ebooks.

One of the less talked about reasons from Amazon's dominance of the ebook market is the fact that they produced the first satisfactory, widely available, publicized ereader. You could argue that Amazon actually created the contemporary ebook market. Much of their current dominance has less to do with selling ebooks at a loss as it does just maintaining the head start they got with the first Kindle. Maintaining that head start is partially about prices, but it's also about DRM.

I'm illegally downloading the main ideas into my brain.
DRM (Digital Rights Management) is what prevents people from (legally) changing the format of the ebooks they have bought. (And copying them as well, but if you want to pirate a book, DRM is not going to stop you.) One reason why Amazon does not use the .EPUB ebook file, which has become the industry standard, is to lock customers into their content eco-system. Owning a Kindle essentially forces you to shop with Amazon. But those locks only work when customers are unable to convert their ebooks from one file to another. For example, if a Kindle owner, for whatever reason, wanted to switch to a different e-reader it would be almost impossible for them to (legally) move the library of ebooks they purchased to the new device. Likewise, it would also be (legally) impossible for a Kindle owner to take advantage of a sale Kobo might be running.

But once the publisher removes DRM it gets much, much easier for customers to leave Amazon. There might be lots of Kindle owners frustrated or disgusted with any one of Amazon's transgressions, but unless they are so frustrated that they are willing to give up their existing Kindle library, there really isn't a way for them to express their disgust. (As a reader, I don't think I could ever ask someone to give up their library.) Nor is there a way for them to, for whatever reason, buy an ebook elsewhere (like their local independent bookstore) and read it on their Kindle. In short, innovation gave Amazon a head start and predator pricing gave them dominance, but DRM sustains them.

Removing DRM does two things for Hachette. First, it makes it easier for customers to shop elsewhere. Second, given that DRM is important to Amazon it gives Hachette something (anything) to bargain with. I doubt there will be enough market movement for this to have a major impact on negotiations but something is better than nothing and right now, Hachette has nothing.

Life is an empty publicity stunt.
Which leads us, as nearly everything around this conflict will ultimately do, back to the DOJ's successful suit against publishers. DRM removal will really only have a major impact on the ebooks market if ALL publishers do it. A few customers might go through the effort of finding a Hachette book from Porter Square Books that can be read on their Kindle, but most customers want the books they want. Unless I can tell them ALL the books they buy from the store can be read on the Kindle (with a little help from Calibre) there won't be nearly enough cross-platform purchasing to make an impact. But I don't think any publishers have the stomach to risk another round of allegation, even though it doesn't take a backroom meeting somewhere in Manhattan to realize the value of ditching DRM. Even if they just made the change whenever their negotiations started, when seen from a certain perspective any action taken in common (except further consolidation, of course) will be seen as “co-ordination” or “collusion.” You know, like how early humans colluded over the spread of fire and agriculture. One of the many, many ironies of the DOJ case is that so many of traditional publishing's detractors vaguely argue for it's need to “evolve,” and “move into the future,” but fear of further litigation has essentially removed natural selection from traditional publishing; a good idea (still sticking with removing DRM) will have a much harder time driving innovation and evolution of publishing because the DOJ determined that “adopting best practices” is collusion.

At the very least, removing DRM would be a meaningful gesture (as opposed to an empty publicity stunt) to readers. It will enable debate about how we administer the economy of ebooks and it will highlight how Amazon and others seek to capture customers rather than convince them. And, it's doing something, anything, to demonstrate activity. Hachette right now, needs to be patient, but it will be a lot easier with at least one thing to do.


  1. You mentioned that the Big 5 are scared to do anything now, for fear of being accused of collusion again. This is probably true--I have thought the same thing myself. For instance, if Hachette decided to pull all its books from Amazon and set up its own store, and then the others followed suit, it might be seen as collusion to destroy Amazon, instead of just the best way for them to avoid having to battle to the death with Amazon all the time. But in the case of DRM removal, I think they could all do it and not be accused of collusion. Why? Because the reason they were investigated over agency pricing is because the consumers were angry at the higher prices. DRM removal is something the vast majority of consumers WANT. So I don't think anyone (aside from Amazon) would complain.

    1. Thanks for the comment, Kerry. Though, I think you're right a collusion lawsuit over DRM is unlikely, given how much money publishers lost and how relatively uncertain the monetary gains of dropping DRM would be, I just don't think they'd be willing to take the risk. From the right perspective, individual adoption of the strategy spread out over time could look like collusion. Maybe one of the will be brave enough to try it and see what happens, but I'm not holding my breath. Thanks again for reading.