Is piracy something the book business needs to fear?

Posted by Mike Shatzkin on May 13, 2009 at 4:57 am · Under Uncategorized


Motoko Rich was on the front page of Tuesday’s NY Times business section with a story headlined “Print Books Are Target of Pirates on the Web”. She documented growth in piracy at the front (a quote from David Young about increased vigilance from Hachette’s lawyers and from Wiley’s lawyer with stats about a 5-fold increase in takedown notices.) And after an explanation of why the increase might be (people can read ripped files on devices now), she closes with a quote from DRM’s most savage opponent, author Cory Doctorow, repeating the line (which I believe originated with Tim O’Reilly) that he preferred piracy to obscurity.

But what was missing from this piece was any evidence that piracy is negatively affecting sales.

But in the past 24 hours, two reporting efforts have surfaced that seriously looked at that problem.

One is by doctoral student John Hilton and reported on Bloggasm. Hilton tried to track sales before and after an ebook giveaway. He found a lift in sales on books Random House had given away but a decline in sales for books given away by the science-fiction publisher, Tor.

The other study was done by my colleague Brian O’Leary in conjunction with O’Reilly Media and Random House. The methodology was similar to what Hilton employed and was reported by O’Leary and Mac Slocum of O’Reilly at Tools of Change last February. Now they have published a Research Paper with O’Leary’s findings which is available from O’Reilly.

What O’Leary found, using Random House data on ebook giveaways and O’Reilly Media data on books found on pirate sites, was that there was a correlation between free distribution and a sales lift for the books in question. But O’Leary cautions, “correlation is not causality”; the fact that sales rose after piracy and giveaway doesn’t mean sales rose because of piracy and giveaway. Both O’Leary and Hilton say more data is needed to come to any definitive conclusions.

Whatever we find out about the link between free ebooks and the sale of printed books and ebooks will:

1. not necessarily be true for all titles or genres.

2. not necessarily be true for all time.

Although O’Reilly also has a very tech-sophisticated audience and O’Leary found no evidence that piracy damaged sales, one has to wonder whether the difference Hilton saw between a general audience (Random House) and a sci-fi audience (Tor) is tech-sophisticate-specific. Or could it reflect wider use of Kindles or Sony Readers or iPhones among the sci-fi audience?

Cory Doctorow has made a name for himself giving content away and, not incidentally, skewering people who don’t see the virtue to that approach. I share Cory’s opinion that — up to about this moment — sharing of content from narrative books would almost always result in a sales increase. I have always expected that effect to decline when ereading became ubiquitous. When people just don’t want to read on screens, giving them a screen sample could provoke a print-book sale. When people get comfortable reading on screens, then giving them an ebook satisfies their demand.

So the Rich story failed to deliver any analytical data which two other “reporters” managed to construct. But there was another failure in the story and it is really a more serious one.

Rich points to two web sites where pirated material might reside: Scribd and Wattpad. I don’t know Wattpad, but Scribd has been in the news quite a bit lately. Several publishers have made deals to post material with them? Why? Because Scribd is aggressively anti-piracy! If they have cached a copy of a copyrighted text, it will not show up as a pirated edition on their site. So the very best way for publishers to prevent unauthorized posting of their copyrighted material to Scribd is to give them a digital copy. Since several major publishers in New York have made deals with them, which have been reported in the trade press, it is a bit mystifying that this mistaken reporting, potentially quite damaging to Scribd, could have appeared in the Times. 

On a mailing list discussion of this topic, Allen Noren of O’Reilly cited a Norwegian study that indicated that the most frequent downloaders of pirated songs were also the biggest customers for legitimate downloads. In the same list, Jane Litte made the point that pirated ebooks might be available when a legitimate edition is not and, in additon, some of the pirate sites make downloading — acquiring the content — easier than the legitimate vendors do.

The modern thinking about DRM, piracy, and sharing is that lower prices and greater ease of acquisition and use will keep honest people honest without technical barriers. Unfortunately for book publishers, the so-cheap-it-hardly-matters 99 cent unit doesn’t work for us. Record companies are selling albums as digital downloads for a mere 25-30% less than they would cost as CDs, which conveniently translates to 99 cents a song. Selling books for 99 cents a chapter, or 50 cents a chapter, would not produce a similar result because the unit of music appreciation is the song; the unit of book appreciation is not the chapter.

So the fair comparison to music would be books to albums, not to songs. That puts the price at about $9.99, which is exactly where Amazon decided bestseller pricing should be. And that’s a price that could work for publishers too, if they weren’t giving retailers half of it.

The pricing and distribution of ebooks is a complex and moving target, which I’ve discussed in prior posts on several different occasions.  Clearly Amazon, which creates and sells a proprietary reader through a closed system is a different animal than everybody else. They start out with a stronger hold on their customers which could provide leverage to demand  more margin than everybody selling epubs and pdfs that can come from a variety of retailers and play on multiple platforms. That’s perverse from the standpoint of people who believe in industry standards, but it’s probably not an enduring advantage. To exploit it, you have to be willing to pass up titles that don’t meet your margin requirements.

But people who read their Kindle books on an iPhone (and Michael Cader’s recent analysis suggests that the recent Kindle sales spike might be due to that being a large number of people) can readily access other ebook platforms as well. If they have the title and Kindle doesn’t, it loosens Kindle’s grip on that audience. 

Sorry, I’ve strayed a far bit from the piracy question. But you can’t contemplate piracy and what to do about it without analyzing ebook pricing. And you can’t discuss pricing without discussing the mushrooming complexity of the ebook supply chain.

Defending the margins from ebook sales is a big current challenge f or publishers, but getting to a point where they monetize eyeballs rather than IP is the long-run challenge. I’ll be discussing that one in a talk called “Stay Ahead of the Shift” at BEA at Javits Center, 11 am on Thursday, May 28.


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  • It's impossible to prove whether e-book sales "help" or "hurt" sales of paper books. Nobody can do an A/B test. You can't globally launch a book two different formats, then try to figure out which format affected the other, how much, and in what ways -- unless you survey every buyer who considered buying the book in both formats. As soon as the numbers are large enough to be meaningful, conducting the survey would be impossible. So, all the "results" being discussed here are really opinions and observations.

    Having said that, if you consider e-books as "free samples" that can stimulate the other 98 percent of the book trade, then it makes sense. Free samples are a no-brainer in every other industry, why not publishing?

    Free advertising works a lot better than paid advertising, and it's a lot cheaper, too.
  • I don't agree that it is impossible to know anything. You're right that you can't launch a book two different ways, but both of the experimenters in this case tried to use books that had a bit of history, so they could look at pre-promotion sales and post-promotion sales to see if there was any lift. As Hilton pointed out, even that method isn't conclusive (because you could show a lift after promotion, but how do you know it wouldn't have been a GREATER lift if you hadn't done the promotion?) but seeing similar results repeatedly would seem indicative of something.

    You're quite right that free samples will promote some sales. But when free samples become sufficiently common, and particularly if somebody helps out by aggregating the free sample offers so people can shop them conveniently, the free samples eventually must depress the overall market. People can't read more than one book at any one book-reading moment. That's the tragedy of the commons here: the free samples help promote a targeted product but overall the free samples provide substantial supply which satisfies at least a chunk of the demand.
  • There's a joke I've heard about how to stop gun violence. You can have any gun you want, but the bullet's cost a thousand dollars each. The obvious idea is that if you price something high enough, people will go without it. In real life, that logic is applied for taxes on less-than-acceptable vices like alcohol and tobacco, pricing them high enough to make people quit, or at least get the state some serious cash on those who strongly desire to imbibe.

    Sadly, I think this is the same logic that many publishers are attempting to apply to eBook prices - by placing them at or above rates charged for hardcover books. The fear there isn't whether piracy affects sales, but whether a shift towards the electronic medium has an adverse affect on the highest medium currently on the book totem pole. I've yet to see a single study or court case which can come close to connecting either piracy or digital distribution to cannibalization of physical sales, least of all hardcover sales.

    I personally think that the eBook sits not as a rival to the hardcover, but at a step down from mass market paperback. Using some simple napkin math, and estimating the price difference between the various book formats (hardcover, trade, mass, and electronic) this puts the average price for an eBook around $4.55. (http://www.fictionmatters.com/2009/04/08/ebook-pricing-math/)

    It seems that if publishers are serious about making eBooks successful, than they might need to look at the price people are willing to pay and then structure cost accordingly. The current stance, of having price reflect the highest possible cost, simply seems to be an attempt to push potential sales away and enact a strict conservative control. Sadly, the appearance of pirated electronic copies of works appearing in the wild is a sign that genie is out of the bottle. We might quickly be approaching the time when publishers face that terrifying Napster moment.
  • Bradley, I don't think publishers "are serious about making eBooks successful." That's not their purpose. Their purpose is to maximize the revenue from a piece of intellectual property. That's what authors hire them to do.

    Staged release of IP, with pricing that is specific to timing and format, is nothing really new. Books are different in this context than the other major IP (music and cinematic) because the consumption experience is changed when it goes digital, not just the distribution method. What should be learned from the other arts that went before books is that "enhanced" is a key. There are "directors' cut" movie versions that can command a premium. Bands put bonus tracks onto CDs when they found they had more room for sound than there was on a record. Enhanced ebooks are a way to bridge the gap between the publisher's desired revenue and the consumer's willingness to pay.

    But there is NO POINT to trying to manage retail prices intelligently as long as publishers are overpaying (as they are now) for the retailer component of the supply chain. All of the economies that alert consumers point out benefit publishers in digital (no inventory, no physical goods to deal with) also benefit retailers.
  • Hi Mike,

    I'm late to this thread but thought I'd pipe in.

    You wrote, "Their purpose is to maximize the revenue from a piece of intellectual property. That’s what authors hire them to do."

    While your statement is correct, it's time for publishers to take that thinking to the next level. The purpose should be about maximizing profit for the publisher and author. It's possible for publishers to make greater profits with ebooks while still offering consumers lower prices than they're seeing today.

    If the big online ebook retailers maintain their P-era margins, then of course publishers don't want to see ebook list prices drop. See the new Motoko Rich story out today with publishers decrying Amazon giving away their books as $9.99 loss leaders. Of course, the reason many publishers fear this (other than it cannibalizing print, which is another debate), is that the move sucks the oxygen out of the air from other ebook retailers who can't absorb the losses AMZN can, which in the long run gives AMZN greater ownership over ebook retailing, which gives AMZN the leverage to go back to publishers and demand that ebooks should list for $5.00 so AMZN should only pay $2.50 or whatever, and then publishers see low ebook prices essentially wiping out their revenues, killing print, killing their profits and killing their business.

    The move to digital books means there's now opportunity to re-imagine the ebook supply chain, rather than remaining hostage to the old models. Publishers have an opportunity to get closer to their customers, and should demand better margins from retailers. AMZN should remain a valued partner for every publisher, but publishers should develop relationships with other retailers and distributors as well (of course, I am not an impartial party with this self-serving opinion!). Once publishers negotiate better margins, they have the power to set lower prices (and they should), reap higher per-unit margins and net with lower prices than under the old model with higher prices, and in the process dramatically expand sales opportunities by making their product more affordable to more customers. Lower prices will also discourage piracy, the original topic of your post.

    One final thought on revenues vs. profits. Publishers are in the software business now with ebooks (ebooks are software!), and software businesses, properly managed, should have dramatically higher profit margins. A future is possible where publishers see their top line revenues decline (from lower priced ebooks) but see their bottom line profits increase (from higher margins + greater volume of lower priced goods).

    @Bradley, thanks for the shout out!
  • Mark, I'm in agreement with you. You are absolutely echoing my belief that the division of the customer's dollar across the supply chain has to change. I am writing a piece later today about the Motoko Rich column you reference. You've put your finger on the opportunity for publishers: take costs out of the interim step between them and the consumer to enable lower prices and margin preservation. I know your company is pushing in that direction. Let's hope the publishers can navigate this tricky change.
  • I am certainly with you on the last point, which is why I think that the Smashwords announcement last week should have been far bigger news than the Kindle DX.

    My intent with the bit about making ebooks successful deals not with eBooks above other formats of the same IP, but rather in allowing the publisher to take advantage of that format. Much of the focus of the New York Times article was on eBooks being available on Scribd which are not currently legally available in electronic form. You commented these non-available ebooks popping up with "That’s not piracy; that’s WORK!" ( http://www.idealog.com/blog/a-few-thoughts-some-near-heretical-about-drm/comment-page-1#comment-110 )

    With the advent and slow proliferation of ebook reading devices, people are starting to come over to the idea of taking their book libraries with them, as they did with their music and film libraries. The choice then posed to publishers is whether they want to adequately represent their IP in that format, or if they wish to cede the ground to others.

    While you are correct that there is a general difference in medium shift from print to digital in books, I would argue that at the current point, this isn't any more pronounced than the difference experienced with both music and film. The current eBook is simply shifting from one form of printed text to another in the same way that a song shifting from LP to CD or MP3 is merely changing delivery means. Does the technology exist to allow the new format to do more than the older analog variety? You betcha. Do people take advantage of that? Yes, but to a very limited extent.

    The majority of extras packed into special editions go unused. This is perhaps most noticeable with digital films than any other medium. Some, but not most, watch deleted scenes. Fewer than that are those who listen to audio commentaries. These have been DVD standards since the technology was first publicly available well over a decade ago. And how many do you think take advantage of ultra-modern technologies like the video chatting while watching a movie or infilm net-connected extras?

    Investing in these technologies for eBooks might appeal to those who wish to push the technological means, but at the current point they don't seem like they'd pass muster on the P/L front. Rather, a few failings in this area, say an expensively produced (and thus priced) vook or digi-novel might just push a risk-adverse publisher away from the electronic medium instead of towards it.

    As far as an enhanced, more expensive version of a book, a director's cut or overseas import, we already have those - they're called hard covers.
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