Tim O'Reilly Gets It When It Comes to DRM

Seldom do you hear as sane and logical a perspective on DRM as those said by Tim O’Reilly in this Forbes.com article. I’ve got two pieces of advice for publishers of eBooks, one is on pricing, the other is on DRM.

DRM

Tim O’Reilly says in the Forbes article about DRM:

Let’s say my goal is to sell 10,000 copies of something. And let’s say that if by putting DRM in it I sell 10,000 copies and I make my money, and if by having no DRM 100,000 copies go into circulation and I still sell 10,000 copies. Which of those is the better outcome? I think having 100,000 in circulation and selling 10,000 is way better than having just the 10,000 that are paid for and nobody else benefits.

What is more relevant is that legitimate customers are inconvenienced by the DRM and publishers paint themselves into a dependency corner with DRM. By having publishers insist on DRM they are essentially handing control over to the narrow range of dominant DRM providers, namely Amazon, Apple, B&N and a few others.

Look what happened when music publishers insisted on DRM for their music. Apple was the first to provide an integrated solution for buying and listening to DRM-protected music. Because the music was DRM-protected, it couldn’t be played on non-Apple devices. This (and other reasons such as superior execution) lead to Apple essentially becoming a monopoly controlling the market, including pricing, because the content wasn’t portable and users were locked in. This worked great for Apple, but the recording industry lost a great deal of its power around pricing and distribution.

Pricing

Tim says about piracy and pricing:

I have a very deep experience here, and the fact is that piracy is not a significant problem. The vast majority of customers are willing to pay if the product is widely available and the price is fair. The people who are pirating are most likely the people who would never give you a nickel to begin with. Piracy serves people on the fringes who are not being served adequately by legitimate markets.

Pricing an eBook through legitimate channels at anything over 50% of the price of a hard copy is nuts, particularly when consumers can often get a discounted paperback for the same or lower price. Instead consider the opportunity afforded by offering bargain eBook prices. O’Reilly occasionally runs flash discounts on technical eBooks. I’ve bought a number of these books just to have on hand in the event I need them as reference, but I would never have bought them otherwise. Selling to hoarders such as myself is all upside for publishers since publishing costs in these purely electronic transactions is negligible.

For publishers it’s a simple volume x price equation and I’ll bet if prices drop dramatically and publishers maintain ease of purchasing and use you’ll see a significant increase in purchasing.

Summary

Publishers, drop your prices to 25 to 40% of retail, and scrap the DRM. Fair and low prices means consumers are less hesitant to buy and they won’t consider looking for pirated copies. No DRM means portability and ease of use for consumers and publishers won’t be bound to a merchant’s terms. If publishers start doing this en masse their market should explode. Their revenues might or might not be higher in the short term, but they will at least be in control of their own destiny.

Update

Valve writes that “software piracy is caused more by convenience than it is by the cost of games”. This reflects my perspective as well. Make digital content easily and safely available (as Apple did with iTunes) and at a reasonable price.

Tim O’Reilly commenting on SOPA legislation says that “the vast majority of customers are willing to pay if the product is widely available and the price is fair. … Any company that is providing great content online in a way that’s easy to use with a fair price has a booming business right now. The people who don’t are trying to fight that future.”

Some in the publishing industry are beginning to realize that DRM is doing to them what iTunes DRM did to music. “DRM is a way for the Amazons of the world to create lock-in to their platforms.” Read here too.

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