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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.