Accepting Amazon’s DRM makes it impossible to challenge its monopoly

Amazon was the target of some well-deserved criticism this week for making the anti-customer move of suspending sales of books published by Hachette, reportedly as a hardball tactic in its ongoing negotiations over ebook revenue splits. In an excellent article, Mathew Ingram connects this with other recent bad behavior by Internet giants leveraging their monopolies. Others have made the connection between this move and a similar one in 2010, when Amazon pulled Macmillan books off its digital shelves.

That dispute took place a little over four years ago, and ended with Amazon giving in and issuing a statement that people found a bit strange. Here’s a quote:

We want you to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books.

“Monopoly” was a funny choice of words there. The author John Scalzi, whose piece decrying Amazon’s actions at the time is still very much worth reading, memorably took issue:

And not only a forum comment, but a mystifyingly silly one: the bit in the comment about Amazon having no choice but to back down in the fight because “Macmillan has a monopoly over their own titles” was roundly mocked by authors, some of whom immediately started agitating against Amazon’s “monopoly” of the Kindle, or noted how terrible it was that Nabisco had a “monopoly” on Oreos.

Monopoly, of course, is economically the correct term. Publishers of books that are restricted by copyright have a set of exclusive rights granted to them by law. Their monopoly looks distinct from Amazon’s near-monopoly bookseller position, though, because it’s one agreed to in public policy. In a sense it is also more absolute, and less vulnerable to challenge, because it’s a legal monopoly, and not just a market monopoly.

To the extent Amazon has a monopoly on selling paper books, then, it could be challenged not just by legal action (such as antitrust investigation) but by other businesses competing. There would be some extreme logistical difficulties, and disparities created by economies of scale that might be impossible to overcome, but in principle other businesses are able to compete for Amazon’s market position on physical books.

Copyright behaves differently: when it comes to Macmillan or Hachette’s books, nobody may undercut prices by making production more efficient, or design prettier covers, or edit the text into a more compelling presentation. Where that’s a good thing, it’s because we’ve reached it by public policy. We’ve granted copyright holders an inviolable (if limited) legal monopoly because we as a society like the results.1

A very real danger, though, is if Amazon can take the challengeable market monopoly it has put together, and ratchet it into an unchallengeable legal monopoly. That is exactly what DRM does.

By putting DRM on its digital products—ebooks and audio books—Amazon gets the legal backing of the Digital Millennium Copyright Act’s anti-circumvention restrictions on its products. This isn’t for the advancement of public policy goals, either; Amazon gets to create the private law it wants to be enforced. Thanks to DRM, Kindle users are no longer free to take their business elsewhere—if you want a Kindle book, you must purchase it from Amazon.

Fortunately Kindle software can, for now, read other non-restricted formats. But the functionality is limited, and not guaranteed to stick around. And it’s a one-way street: other software and hardware may not read ebooks in the Kindle format. Customers who amass a Kindle library will find no compatible non-Amazon reader. The fact that individual users can usually circumvent the DRM, too, doesn’t help businesses trying to compete in that space.

Amazon has a lot of fans, and they tend to ascribe its rise as a bookseller for its aggressively pro-customer stance. If it drops that stance, even major fans would probably agree that it no longer deserves the throne. Unfortunately, DRM takes the conditional monopoly that customers like (you get to be the largest bookseller so long as you’re good to your customers) and replaces it with an unconditional one (you once achieved monopoly and that is now permanent).

This week’s sketchy move against Hachette looks like a willingness to throw its customers under a bus in the name of better business deals. If publishers continue to insist on DRM, and if customers continue to allow it, we lose our ability to object.

  1. Of course, that is only as true as copyright policy reflects the will of the public, which it doesn’t, but it’s something to aspire to. []

4 Comments

  1. Rudy
    Posted 26 May, 2014 at 16:38 | Permalink

    amazon does NOT unilaterally “put DRM on its digital products”–except those it publishes itself. It puts DRM on at the request [insistence] of the publishers. I have purchased a LOT of e-books from amazon; many many of them have no DRM, including those from the Macmillan imprint Tor and its sub-imprints as well as many small publishers that choose not to request DRM or can’t afford it. And I buy DRM-free books in mobi format from several other vendors (Baen, Weightless, Book View Cafe, to name a few). Note that it’s easy to convert DRM-free e-books to other formats for use on other e-readers. So don’t fault amazon on the DRM issue. Publishers should abandon DRM altogether or at least adopt a device-independent form (digital watermarking, which is used, for example, by J.K. Rowling’s Pottermore store). Otherwise, you’re right. I’m not about to buy copy-protected e-books from other vendors that I can’t read on my current e-readers. However at fault amazon may be in this dispute with Hachette, this is a problem the publishers made for themselves.

  2. Don
    Posted 27 May, 2014 at 10:26 | Permalink

    It is and is not accurate that no other readers will read Kindle files. It is correct that the ones with DRM encumberance cannot be opened by anything else (though a machine with Calibre and the Kindle desktop reader can get to non-DRMed versions; which is largely irrelevant unless you’re a very dedicated geek) but the underlying file is mobi and there’s plenty of things that will open and read it.

    Amazon bought and effectively shelved one of the few high-profile independent mobi readers out there for other platforms and I’m sure that’s no coincidence. They also de facto assume the implementation of DRM on independent offerings in the Kindle store, though they offer to leave it off by request.

    I’m not sure the fact that the Kindle can read non-DRM mobi is really all that fortunate or not fortunate. The hardware lock-in there seems pretty minor to me. The inertia factor of being able to buy and receive on the device itself seems to be a way bigger advantage for Amazon than they’d ever gain by making the device read fewer formats.

    People who use the device to read non-Amazon purchases are a small group and Amazon has the advantage of a long horizon; no matter how long someone uses the physical Kindle to read their own materials it will ALWAYS be able to buy more things from Amazon at some point in the future. That ubiquity – the operational monopoly – will always give them more advantage than removing some twiddle of an inconvenient option would.

  3. asotir
    Posted 29 May, 2014 at 06:14 | Permalink

    Wow, so “monopoly” is both a “funny term” and the “correct term” … huh?

    Others above have corrected you as to DRM, but I echo those corrections.

    As far as Amazon has announced, I can still buy Hachette books from Amazon. Amazon just doesn’t let me preorder them, and doesn’t fill warehouses full of Hachette books, so I might have to wait awhile before Amazon can send me a copy. Also, Amazon no longer discounts Hachette ebooks – which is what Hachette has been desiring ever since the Kindle editions started selling – that desire is what led Hachette and the other publishers into an illegal collusion with one another and with Apple to conspire to raise the prices of their ebooks.

    So, I wonder why you are critical of Amazon and not of Hachette, which really does look like the villain here.

    • Parker Higgins
      Posted 29 May, 2014 at 08:37 | Permalink

      Yes, I maintain Amazon made a funny choice of words even where it was not blatantly incorrect. I hope you might acknowledge that was not an uncommon reaction, given that I quote somebody who in turn quotes two more people all sharing it.

      Yes, other people were very willing to correct an error I did not make; I say explicitly in the last line that publishers insist on DRM. Those books that are wrapped in DRM are wrapped in DRM, those that aren’t aren’t. Amazon does not even reliably tell you which file is which during the purchase process, and for most customers losing a half or 2/3 of their library unpredictably when switching devices would be considered a major problem, Some Internet Guy’s smugness notwithstanding.

      Your analysis of who the “villain” is here (and let’s be clear, this is a business negotiation, they’re not taking over an island shaped like a skull) is fine, but you should factor into your wondering the idea that most commentary out there, some of which I’ve linked to, is pretty unambiguously calling Amazon a bully here.

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