Why DRM hurts eBook sales: A piracy analysis


opinion Ah, the Internet. After discovering that articles I thought no one in their right mind would republish suddenly appear on APCMag.com and iTWire, one of the readers on APCMag.com asked: “What about piracy?”

Ok. One reason I have been tapdancing around the whole piracy argument is that I am trying to get established in the eBook marketplace, and I don’t want to make the industry feel about me the same way my managers and directors feel about me. However, piracy is always going to be a presence in the marketplace, so I need to deal with it bluntly and coherently (no sniggering Renai!).

Piracy of eBooks is real. It is also an element of the Australian eBook marketplace and is market forces at work.

In simple economic terms, there is an assumption that there is always demand for any product. Demand is modelled on the assumption that the cheaper the price, the higher the demand. Supply is modelled on the assumption that the dearer the price, the greater the supply. Supply and demand is the point where demand at a price is met by suppliers willing to meet that demand.

This model shows us a few things. There will always be unmet demand, as the model assumes that there is a demand for a product at a price that is too low for suppliers to willingly meet. Even if a product is being sold at 10c, there will be people not willing to pay this amount.

Now looking at the above graph, we can see that if price equilibrium is set at P1 (Lets say $5 for illustrative purposes) we can see that there is a lot of unmet demand for the product (every point on the Q axis from Q1 onwards). You will capture demand from those who are willing to pay more for a product, but the D line (representing demand) is accumulative, showing people willing to pay the price equilibrium and above. There is more demand for the product at below $5, but there is less suppliers willing to supply at that price.

This is also why the music industry’s assertion that every download is a lost sale is insanely stupid. There will always be people not willing to pay even a token amount for music, and no effort by the music suppliers will ever get them to pay for music, as they have no desire to pay for it. Of course, this assumption is based on the belief is that supply/demand modelling is close to real-world behaviour (but this is high school economics, so I trust my teachers more than I trust the RIAA/ARIA).

So the unmet demand is satisfied in part by piracy. I say in part because you get what you pay for. If you download that big 1000 book torrent file from those BitTorrent pirates (ahoy ye matey!), the price you are paying is not cash, but time, resources and opportunity costs (that is, what you could be using your time and resources on if you where not committing piracy). This is modelled on the supply/demand graph as well, as you do not have infinite demand when a price is zero, as some people do not ever want the product, or are not willing to commit the resources to get the product.

So, we can argue that piracy is only partially meeting the unmet demand for a product. Now add in the opportunity costs and resources needed after the download and the price of that free book increases. For example, say for theoretical argument’s sake, I downloaded a large torrent file of eBooks. After downloading the file, I would likely find that many of the books in the collection were under some sort of Digital Rights Management (DRM) schema, preventing me from accessing the files without stripping the DRM, something I would not be willing to do.

I would then need to spend a couple of nights cataloguing, repairing, downloading covers, converting formats and importing it into Calibre for managing. The time and effort committed in this activity would show anyone that nothing is for free, we just pay for it in different ways (for example, manual cleanup efforts of many hours).

Now an eBook is just text formatted in a way to allow machines to read the text in a way that it is rewarding (or not painful at least) to read by people. So it is insanely easy to copy an eBook an infinite amount of times. In its basic form, Digital Rights Management is a way of preventing copying. One valid reason for this is that while it is trivially cheap to copy a file, there is a real and substantial cost in making the original file.

And the reward for creating the file (and yes, it is called profit) is also the major incentive to making the file available in the first place. So while every unauthorised copy of a file in not a lost sale, in real terms it is a loss on the potential sale. Why I say this, is that a person who was willing to pay for a copy gets a free copy, that demand is sated — however, no payment is made to the supplier.

Now DRM is a factor on the demand of a product. Lets illustrate with a scenario: You are willing to pay $5 on an eBook. However the supplier is not willing to supply the eBook in the format that is appropriate to your particular demand. It may be because it is in a format you do not have a device to read it with, the DRM schema is not supported on your device, or the DRM prevents you using the book the way you want to use it (for example printing hard copies).

This is where I say piracy is a market competitor to the normal supply chain. There is real and unmet demand for a product and the supplier is not willing to meet that demand with an appropriate product. Piracy become more attractive now as it can supply the desired product in a way that the user wishes to use it!

Can you make money out of a free product? Yes. Baen.com has for years supplied free, DRM-free eBooks in a multiple of formats. The Baen Free Library has proven to be an excellent way to promote the Baen catalogue of authors and books. Things like offering the first book of a series for free, or the first few books of a prolific and popular author have increased the paper book sales substantially. Eric Flint wrote an interesting series of articles about the Free Library — the first one can be found here.

So what can I say without another bunch of crazy graphs and economic gobblygook occluding my words? Simple. DRM prevents sales as it imposes a barrier to sale for people who would be willing to give the supplier money for the product. Piracy will always be there to meet demand for a product that is not met by the supplier. The best way to minimise piracy is to make it simple and easy to get and consume the product at the lowest affordable price. Any attempts to gouge prices will only encourage more piracy.

In short, just like normal books.

Darryl Adams is a government worker and internet tragic. A former IT worker, he still pines for the days of IBM keyboards that go CRUNCH and the glow of green screens. He can be found on on Twitter or on Facebook. Check out his site oz-e-books.com for more articles about e-book readers, retailers, formats and news (or will have when Darryl can be drawn away from reading Delimiter).

The views expressed here do not reflect the views of his employer, the ATO.

Image credit: Creative Commons, Matthew Schubert, royalty free


  1. To quote Ke$ah: stop talking your blah blah blah.

    Your supply & demand argument breaks down because non-DRM’ed books can be infinitely copied (ie, infinite supply)

    To avoid the book market collapsing, you can make eBooks so difficult to copy people pay instead of pirating them (ie, DRM), or you can avoid releasing them all together – at least until you’ve milked everyone who wants to read a book ASAP after release (ie, market partitioning 101 aka what book sellers do now).

    So as far I can see all you’ve done is suggest publishers do more advertising in the form of free eBooks. Good luck with that plan for saving the publishing market.

    • In the short-term, the experience of the music market would seem to suggest that there is a solid market in providing DRM-free eBooks. It is the argument of convenience. Most people want to do the right thing, and will only break the law (eg pirate) if the price or conditions of sale are unsatisfactory.

      If publishers start providing ubiquitous, DRM-free eBooks at a decent price, a lot of people will buy them to stop feeling guilty about pirating — the same situation was witnessed with iTunes.

      In the long-term, of course, the younger generation will simply move with the technology and embrace the philosophy that all content should be free. Ask your children how much guilt they feel about downloading MP3s. You won’t find much. It’s their normal distribution method. I’m not sure what long-term future authors will have (thinking decades out here), but I suspect it may be based around community somehow.

  2. Not at all None, did you actually read my article?

    You can still sell Non DRM books and still get sales. Baen is my poserchild in this market, and Eric Flint deals with that point in his articles.

    What DRM does is make it harder to sell a product at a price point. What I said is make the product by reducing barriers to consumption. A product with good content, no DRM, all the metadata and at a reasonable price is more compelling than a poorly trascribed pirated version even when free

  3. What Baen Books does works. After reading books from their Free Library, I’ve then gone on to read whole series, plus other series from the same authors. I wouldn’t have bought their books otherwise.

    I get books from Baen for preference, because they don’t use DRM and thus don’t restrict the format or use of the book. This has also worked for them.

    Make it easier, keep it at a reasonable price, and people will buy books. Currently, buying ebooks in Australia is unnecessarily complex. Can you find the titles you want? Once found, are you allowed to buy them? Can you get all of a particular series? If so, can you get it all in the same format? Can you read most of your books on the same device or in the same program? Is the program accessible and effective? Can you backup and access individual titles? Can you transfer titles between devices? Can you even find titles on your device? Can you share or lend books? Can you annotate books and save notes? Can you print excerpts? Can you use Text-to-Speech? Can the retailer arbitrarily delete titles from your Library or device (this has happened on Kindle)? Can you read your purchased books when a company buys up popular formats or readers and refuses to supply support for a major device (Mobipocket for iPhone, Stanza for iPad)? How much choice are you actually getting for your money?

    Honestly, I started out reading ebooks because I became disabled and couldn’t read paper books anymore. I had absolutely no interest in the politics or background processes of publishing and retailing ebooks. I just wanted to buy ebooks and read them! Over the succeeding years, I’ve had to put in so much extra time and effort (particularly difficult in my situation), just finding out how to deal with all the barriers. These barriers are fuelling piracy. It’s certainly not just people who don’t want to pay for others’ effort. It’s also people who are perfectly willing to pay for books, but can’t access them. This is all the more exasperating when you are shown the titles but told you can’t buy them. One recent example for me is when I found that a series I liked finally had three earlier volumes released in ebook. (I had laboriously acquired all the other volumes in various formats from various retailers. I had a whole journal page dedicated to reminding me where I bought each one, where it was on my disk, in which format it was, and how to read it on which device.) So I immediately went to buy these titles. All three were released on the same day, by the same publisher, and were consecutive volumes in the same series. I bought two of them, then was told I wasn’t allowed to buy the third. WTF?

    It’s no wonder that prospective ebook purchasers are frustrated, confused and looking for something they can read. Currently, piracy fills that need. That means ebook publishers and retailers aren’t doing their job.

    • Thanks Clytie!

      Couldn’t say it more eloquently if I tried (and you can see the evidence of that above).

      I would be interested for more details of your e-book odyssey. Given that disabled readers IS a prime market, you would think that publishers would be putting less, not more barriers up to them (I know that Baen has free e-books for disabled readers, but do not know if they sell to OS disabled readers)

  4. It’s probably too long a story (being an odyssey ;) ) to put in a post thread, but in summary I’ve been reading ebooks for 18 years, starting with Mac laptops, then Palm devices, then recently moving to my current iPhone (I plan to buy the iPhone 4 this year, and later on, an iPad). Ebooks were easier for me because I couldn’t hold a hard-copy book for long. As time went on, I became unable to hold one at all, and my vision fluctuated. Ebooks make it much easier to get the book in front of your eyes (prop it up, tap it to turn the page) in a readable format (choose background colour, font size/type; to do this on webpages use Readability).

    However, accessing ebooks hasn’t turned out to be an easy path. I was an early user of the Adobe ebooks store, and bought quite a few ebooks which Digital Editions now refuses to open. (Please see my MobileRead post about the joys of dealing with Adobe and their Digital Editions.) Ooh, early-adopted Adobe ebooking was fun and profit (for Adobe), but frustration and bewilderment for the the customer. Anyway, I went on to Palm ebook formats, .pdb and .mobi, but I bought Mobipocket for choice, because it was demonstrably the best format on Palm. Eventually I moved my hundreds of Palm ebooks to iPhone, only to find that while eReader was present on iPhone, Mobipocket was not. Amazon had bought the format for their own DRM use, and refused to support it for other users. They even refused Lexcycle a licence to read Secure Mobipocket in iPhone app Stanza. (Then they bought Stanza and shelved that: no Stanza for iPad… but that’s another story.) So I had hundreds of Secure Mobipocket ebooks I couldn’t read on my iPhone, nor on my Mac or Linux machines because Mobipocket Reader was only ever released for Windows.

    Having mostly got over my initial Adobe woes (by avoiding Adobe) during my long and happy tenure with Palm reading (sic), losing access to all my Secure Mobipocket ebooks was a nasty shock. That was when I started reading fora and articles about ebooks, trying to find out WTH was going on.

    However, I settled in pretty comfortably at Fictionwise, buying heaps of ebooks (although I couldn’t buy titles which were only released as Secure Mobipocket) and supporting the ebook industry industriously (of course). Then, suddenly, the geolimitations curtain was dropped, and the nutritious flow of ebooks became the dribs and drabs we could scrape up here and there. I was really confused. Part of my neurological condition is confusion, so I really didn’t need the ebook industry suddenly throwing a wrench into the machine like that. WTF???

    This began what I think of as The Underground Ebook Era, where ebooks are burnt in public to avoid them coming into the legal, paid possession of non-U.S. readers. Since then, I’ve spent most of my reading and buying time just trying to work out (again) WTF is going on. I’ve spent so many hours just searching for books I’m allowed to buy. This eats up all my concentration, so I have none left for reading. I have to coordinate accounts at a dozen different ebook stores, books in multiple formats from different sources even in the same series, and all sorts of weird locations on my hard drive. I spent entire weeks just trying to get all this sorted out in Calibre (without which I would be completely lost). I’ve been participating more on fora like MobileRead and sites like these, firstly to find out WTF is going on, and secondly to monitor the situation and hopefully help make sense of it.

    In particular, I’ve written to Amazon and HarperCollins to protest at their inconsistent use of geolimitations, and to object at the way it discriminates against disabled people. I am unable to read paper books, even if someone holds them for me and turns the page. I can’t read any longer off a white background, even if the print size is the one I am able to read at the time. So stopping me buying ebooks doesn’t help the print market, it only hurts ebook sales. It also hurts the disabled person, since we need books to distract us from our frankly appalling quality of life, and it alienates disabled people, who are a much larger proportion of the customer base online than offline. Unproductive strategy, anyone?

    Currently, I’m buying very few ebooks (although I’m supporting Borders’ new offering whenever I can) and spending all my reading time looking for good news such as “Yes! You are allowed to read books.” However, news about the U.S. closing school libraries, and wanting to close community libraries, isn’t exactly encouraging. How many of us found our love of books in a library?

    Anyway, that’s the summary. ;)

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