The Department of Justice earlier this week sued several large publishers and Apple over alleged collusion surrounding the agency arrangement for the sale of ebooks.  The legal situation here is quite complicated as should be evident from the fact that Random House which does have agency agreements with both Apple and Amazon was *not* sued.  This suggests that agency agreements in and of themselves are not the issue.  Rather it would seem to be the combination of agency agreements together with some collusion around price.  Instead of diving deeper into that legal issue, I want to point out something else though: we wouldn’t be here if it were not for DRM.

The book industry, much like the music and movie industries, continues to shoot itself in the foot with their insistence on Digital Rights Management (DRM).  The open Internet (thankfully) cannot deliver DRM and so if you insist on having it you inevitably need a separate platform provider such as Apple or Amazon.  Those platforms will have to be closed – again so that they can provide DRM. Building a closed platform requires and getting it into the market is capital intensive and so only a small number of these gets created.  The net result: instead of having commoditized distribution, the publishers have enabled just a couple of highly concentrated distributors who have huge power in the market.  The only chance that publishers then saw to break Amazon’s power was to collude with Apple.

Now imagine by contrast a world without DRM where anyone with a web site can sell books easily.  There is no distribution choke point!  Publishers could have gone direct and through many resellers (and/or affiliates) and set the price they want to charge.  Yes, on the margin this might have resulted in some illegal downloads.  And yes, this would have brought book prices down faster.  But it would have had publishers in the drivers seat instead of fighting the very distributors they helped to create. 

The Department of Justice earlier this week sued several large publishers and Apple over alleged collusion surrounding the agency arrangement for the sale of ebooks.  The legal situation here is quite complicated as should be evident from the fact that Random House which does have agency agreements with both Apple and Amazon was *not* sued.  This suggests that agency agreements in and of themselves are not the issue.  Rather it would seem to be the combination of agency agreements together with some collusion around price.  Instead of diving deeper into that legal issue, I want to point out something else though: we wouldn’t be here if it were not for DRM.

The book industry, much like the music and movie industries, continues to shoot itself in the foot with their insistence on Digital Rights Management (DRM).  The open Internet (thankfully) cannot deliver DRM and so if you insist on having it you inevitably need a separate platform provider such as Apple or Amazon.  Those platforms will have to be closed – again so that they can provide DRM. Building a closed platform requires and getting it into the market is capital intensive and so only a small number of these gets created.  The net result: instead of having commoditized distribution, the publishers have enabled just a couple of highly concentrated distributors who have huge power in the market.  The only chance that publishers then saw to break Amazon’s power was to collude with Apple.

Now imagine by contrast a world without DRM where anyone with a web site can sell books easily.  There is no distribution choke point!  Publishers could have gone direct and through many resellers (and/or affiliates) and set the price they want to charge.  Yes, on the margin this might have resulted in some illegal downloads.  And yes, this would have brought book prices down faster.  But it would have had publishers in the drivers seat instead of fighting the very distributors they helped to create.