Monthly Archives: October 2011

Kindle Wants to be Free

Graph by Silicon Alley Insider

Years ago it became clear to us that we were heading for a Gillette Event.  That day may be only months away.

The Gillette Event is the day that the price of e-readers drops to $0.00.  The above chart shows that since 2007 the price of a Kindle has slid sharply from $399 to its current $79 (at least for one model). The slope is so steep it’s hard to avoid any other conclusion than that Free is inevitable.

The Gillette Event is named after King Gillette, the inventor of the safety razor and marketing genius who conceived the scheme of giving away the razor and selling the blades.  The analogy to e-readers is clear: give away the device and sell the content.

I’ve never believed that information wants to be free but it looks like the devices that provide it are just begging for gratis status.

Does it make sense for Amazon to go on charging anything at all for the Kindle?  There are compelling arguments in favor of taking the ball across the Zero goal line.

The first is that Amazon has never been afraid to sell the Kindle at a loss in order to undercut the competition. Some observers say that low-end models of the device are breaking even.  So, going into deficit to gain a competitive advantage would not plunge the company into trouble by any means. A million Kindles at $79 per is $79 million – hardly a ding in Amazon’s revenue armor. A free Kindle would give Amazon a decisive lead in the e-reader arms race from which rivals might never recover.

The second argument for free Kindles is that the amount of paid content carried on the e-reader has soared to the point where critical mass sustained by media sales is within reach. As an inducement to consumers the device would come pre-loaded with a starter set of rich content. No charge for your first set of razor blades.

These speculations were prompted by an interesting article by Pascal-Emmanuel Gobry in Business Insider Research, How Amazon Makes Money From The Kindle.

The author discusses the larger Kindle environment he calls the Kindle Ecosystem. At the headwaters of that ecosystem is the device itself.  A free Kindle could create a flood of business that would dominate the marketplace for the foreseeable future.

By the way, the Gillette strategy isn’t limited to Amazon.  Are you listening, Barnes & Noble?

Richard Curtis

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Can Your Kid Be Sued for Dressing Up Like Harry Potter?

If you laughed at the question you obviously haven’t heard that Warner Bros. banned a Harry Potter theme dinner in London because  the studio considered it an infringement of copyright.

Telegraph.co.uk‘s Amy Willis writes that “The not-for-profit event, which has been renamed ‘Generic Wizard Night’, was to have a menu of dandelion wine, pumpkin soup and Dumbledore’s favourite – mint humbugs. Guests would have been led down ‘Diagon Alley’ by the side of the house and been met by a portrait of the ‘Fat Lady’ who would have demanded a password before they could be let in.”

It can be argued that J. K. Rowling’s lawsuit against the person who produced The Harry Potter Lexicon had some merit. But Warner’s action is hard to understand and almost impossible for reasonable people to condone. Does Rowling even know about the studio’s grinchy* pettiness?

Whether she does or not, parents had better start rethinking their children’s Halloween costume and trading those Dumbledore outfits for pirate and fairy princess garb.

Trick or Treat, Tiffany and Johnny! You have thirty days to answer this subpoena.

Read about it here.

*And be careful about saying “Grinch” publicly – you may be infringing MGM’s copyright.

RC

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The Seven Types of Pirate – Which Are You?

Start 'em young

The following article was originally published in October 2010.
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The ability of the human mind to rationalize is extraordinary. Take piracy. Among the many comments we have received in response to our postings on the subject, we have heard every rationalization under the sun, ranging from “I didn’t know it was copyrighted” to “I don’t know what copyright is” to “DRM sucks” to “The e-book wasn’t available on legitimate retail sites” to “Information wants to be free” to “I’m not reselling, just sharing with friends” to “The percentage of pirated books is an insignificant fraction of sales through legitimate channels” etc. etc.

Piracy is something that other people do. When we do it there’s always a good excuse. When other people do it, it’s as heinous as grand theft auto.

Clearly, there is a disconnect between the phenomenon of rampant piracy and the scarcity of perpetrators, and the reason seems to be semantic. If we can develop better definitions we may be able to develop better solutions.

Towards that end we offer the following categories of pirate:

1. The Innocent

Young children, technologically inexperienced individuals and others who know nothing about copyright law or Internet etiquette and don’t realize they may be stealing when they download music or e-books. People who simply don’t know better.

2.The Ignorant

These are downloaders who know enough about copyright law to understand the difference between right and wrong, but choose to ignore or flout it.

Though many who fall into this category are young, the classification includes adults, some of whom are highly educated – business people, computer engineers and other professionals who should know better.

We’re giving Innocents/Ignorants the benefit of the doubt by describing their acts of downloading as “inadvertent” or “improper” rather than “illegal.” But if nothing else they must be aware of the legal principle that ignorance of the law is no excuse. If an aggrieved publisher decides to sue you for illegally downloading e-books – as has been done in the music and movie fields – your case will not be automatically dismissed because you didn’t know it was against the law.

3. The Customer

These are people who paid for one version of a book and feel entitled to acquire other versions without paying for them. A good example is the case of a consumer who buys a hardcover edition of a bestselling novel and feels justified in downloading a pirated e-book because the publisher’s legitimate e-book version has not yet been released. No less a personage than the New York Times‘s own ethical arbiter felt that a customer has the right to do this. (See NY Times Ethicist Condones Ripping Off E-Books). In other cases, consumers impatient with DRM restrictions will download a ripped off version of a file instead of paying for it and dealing with customer support.

4. The Philosopher

The Internet era has spawned a generation possessing a strong sense of entitlement, including entitlement to online content whether is is copyright-protected or not. Some members of this generation have rationalized their sense of entitlement and promote it not merely as an abstract concept but as a template for action. (See When Did “Free” Become a Four Letter Word?)

These philosophers collectively march under the banner “Information Wants To Be Free.” Others, taking Robin Hood as their role model, deliberately and defiantly hack protected files or download pirated content to get around the law, asserting their right to liberate it from capitalist exploiters.

What these philosopher-pirates don’t seem to understand is that, in capitalism as in Newtonian physics, for every action there is an equal and opposite reaction. If you’re getting something free, someone else is paying for it.

5. The Recreational Thief

For some people acquiring and sharing files is more of a sport than a business or criminal activity. Since filesharing is technically not illegal, it’s a way of belonging to a community. Recreational pirates gain acceptance from peers and notoriety from sharing files. Some forums even have a “thank you” module where other members encourage sharing,. Thank-You’s are displayed like battle ribbons by prolific uploaders.

Another form of recreational pirating is file-hoarding. Like hoarders of material things, digital hoarders collect and save terabytes of pirated files. Their motivation? “Hey, you never know when you’ll need 10,000 fonts.”

6. The Facilitator

This type is analogous to the owner of a head shop that sells bongs, cigarette papers and drug paraphernalia – everything but the drugs themselves – and thus skirt the law. Similarly, many IT professionals knowingly link to pirated material for a variety of reasons that fall short of hardcore criminality.

A common example are webmasters seeking to boost traffic for their websites. They attract traffic from customers looking for stolen files or seeking links to hot pirate sites. Savvy webmasters load up on as many ads as possible to cash in on that traffic. They are well versed in the ways of piracy but aren’t active in file sharing.

7. The Professional

Professional pirates don’t merely steal and sell software. They use pirated files as bait to smuggle phishing software into the computers of their victims. These programs then steal personal information like credit card numbers and bank account logins. Some of these pirates have been linked to organized crime groups. They employ software hackers to crack DRM, program key generators and penetrate security systems.

You can always tell who the professional pirates are: they’re the only ones who don’t mind being called pirates.

Like any community, the ecology of piracy is complex and interwoven, but it’s clear from a glance that the activities of innocents and amateurs enable the sharks to feast on stolen material and prey on the public. By defining each type we can immediately see what sanctions are in order – who needs a tap on the wrists, who needs to be educated and who needs to be tried in civil or criminal court.

For more postings about piracy visit E-Reads’ Pirate Central.

Richard Curtis and Anthony Damasco

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When Grokster Walked the Earth

Among the many ways that copyrighted texts are misappropriated, none is more prevalent than peer-to-peer file sharing.  Nor is any more pernicious, for it flagrantly flouts the law without appearing to break it.

Though P2P (as it is called) started in the music and video businesses it has spread to e-books.  While pundits scoff at the notion that the e-book industry could be plundered as thoroughly as the music industry, the extent of the outlawry is staggering and is the Number 1 threat to the growth of this nascent field. (See A Bootleg E-Book Bazaar Operates in Plain Sight)

The concept of peer-to-peer file sharing was developed around the turn of the 20th century by a number of brilliant programmers determined to get their hands on the treasure of music that had become abundantly available when the record industry went digital.  The Internet offered a powerful tool for sharing musical files if only a path around copyright laws could be found. Perhaps these enterprising people were inspired by head shop owners who sold the wherewithal for drug use but not the drugs themselves. There was nothing technically illegal about selling cigarette papers, roach clips, bongs and the like. By the same token, a computer through which friends exchanged files should not be considered unlawful, they contended.

By the end of the 1990s the music industry was being ravaged by file-sharing, fueled in some measure by popular anger against a recording industry that was thought to be gouging customers.

The principle is simple: a computer is used as a conduit for persons to share music, video, or texts with each other free of charge.  The downloaders cannot be said to be infringing because they are for all intents and purposes friends sharing content they like, and there is nothing illegal about that.  Nor can the computer owner be said to infringe because he does not possess the property; he is simply introducing friends or managing a channel between them and facilitating their sharing activities.

The forerunner of the file sharing movement was Napster, and for several years it seemed unstoppable. According to Wikipedia, “Napster users relayed search requests through a central server owned by Napster (the Napster central server also maintained an index of users and files available on the network at any given time).”

The centralized computer was Napster’s Achilles heel, because it meant that the company was in a position to block access or remove infringing material when a copyright owner complained. When it would not or could not do so under court pressure, the company went out of business.

The creators of Napster’s successor, Grokster, found a way around the problem of a centralized repository for files and user information. In a 2003 article by Chris Sprigman, the scheme was described thus:

When a user boots the software, his computer is directed to sign on to a “root supernode” …which then directs the user to a “local supernode.” The “local supernode” is some user’s computer, which has been temporarily designated to route file-sharing requests among a large number of other users. (A particular user’s computer may function as a local supernode one day but not the next; the process is largely invisible to the user).

Suppose a Grokster user requests a certain file – it could be a song, a movie clip, a video game, or an e-book. His search request is relayed among a large number of local supernodes and on to individual users. Once the requested file is found, it is transferred directly between the users.

Subsequent programmers engineered the user-to-user concept until it was almost impossible to find a computer, or operator, responsible for disseminating unauthorized files. Nevertheless, a lawsuit was brought against Grokster by MGM Studios. The battle that raged through the court system is well worth reading in Wikpedia’s account, especially because lower courts and appeals supported Grokster.  Finally the US Supreme Court ruled against Grokster and the company ceased operations.

Today if you visit the company’s website you will find the following message:

The United States Supreme Court unanimously confirmed that using this service to trade copyrighted material is illegal. Copying copyrighted motion picture and music files
using unauthorized peer-to-peer services is illegal and is prosecuted by copyright owners.

There are legal services for downloading music and movies. This service is not one of them.

Napster and Grokster were driven out of business because angry rights holders took legal action and had the time, money and determination to press their case to the limit.  Those cases dealt with music and videos.  No parallel case has yet been brought against book infringers. Should one be?

Richard Curtis

For a full archive of E-Reads postings about piracy, visit Pirate Central.

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Authors: Careful What You Wish for

“Authors are like mushrooms,” a writer once told me. “They’re fed a lot of horseshit and kept in the dark”

That observation served as my slogan when I launched a campaign in the 1980s to make royalty statements more transparent.  Authors today take for granted that their publishers’ royalty statements will provide vital details such as the number of copies returned or royalties withheld as a reserve against returns.

But thirty years ago that information was not provided unless an author or his agent or lawyer made a colossal pest of himself. A typical statement simply reported that you had sold, say, 1000 copies and here’s a check for $1,000.  When you asked how the publisher arrived at that figure you were given no explanation.  I likened it to being told that a baseball player had 150 hits without being told how many times he had been at bat.

After other agents joined in the assault on publishers’ accounting practices the barriers finally crumbled and publishers at last started telling authors what they needed to know in order to assess the performance of their books.

I am telling you this because we are about to enter a new phase of transparency in royalty reporting.  To their great credit, Simon & Schuster,Random House and Hachette Book Group announced initiatives to open their sales database to authors and agents, who will be able to access the publishers’ websites and view recent and cumulative activity in their account.

You would imagine that I greet this new as the fulfillment of a lifelong dream. Yet I wonder if it’s such a hot idea. I’m thinking of the burden it puts on the publishers.

Authors as a whole are more enlightened about royalty accounting than the mushroom people of a few decades ago.  Nevertheless there is a great deal of data to understand, and if an author cannot penetrate such mysteries as reserves against returns, net-price versus list-price royalty rates, or the effects of high discounts on royalty calculations, he or she is going to  hit the phones or emails and demand answers.  Multiply that by hundreds if not thousands of perplexed authors and you can imagine that the bookkeeping departments of publishers could be besieged.

This is a Law of Unintended Consequences just waiting to happen.

Publishers should not be punished for the good deed of offering transparency, but before they lift the veil on their accounting they must make sure that their statements are crystal-clear and every term unambiguously defined. That said, we wish Simon & Schuster Random House and Hachette the very best of success in this commendable initiative.

Read Authors to Get Sales Data Online From 3 Big Publishers by Julie Bosman in the New York Times.

Richard Curtis

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Have You Kissed a Snail Today?

Are there any occasions when a letter is more appropriate than an email?

It would appear that few people think so. The number of pieces of mail processed has plummeted from 213.1 billion pieces in 2006 to 171 billion in 2010, according to New York Times‘s Randall Stross, with stamped mail down almost 50% in the last ten years (except for junk mail which has declined only 8%). The US Postal Service projects a loss of $10 billion this year and the deficit grows larger every year. Proposals are on the table to cut service in one of the largest and most resource-intensive bureaus in the nation.

Before you shrug, consider that there are numerous occasions when snail mail is more appropriate and far more effective than email.  A blog called WiseGeek reminds us of some: “If you are writing to elected officials, such as members of Congress, a written letter will more than likely get you a response. A well-structured letter sends the message that you have taken the time to think through your complaint or request, and it will be a more compelling argument than an email could ever be.” Wedding invitations, holiday cards, letters of recommendation, love letters and condolence notes touch the heart in ways that emails cannot possibly achieve.  Add junk mail and parcel post and you will realize how heavily you depend on the US Postal Service.

The postman is an endangered species. “We have a delivery service whose raison d’être is rapidly vanishing before our eyes;” says Stross.

Though the USPS is not subsidized by the government, it is too big to fail and will eventually be relieved by some sort of support by congress.  But perhaps the best way to rescue the institution is to remember to reach for pen, paper and postage stamp the next time snail mail is appropriate.

Read about the struggling USPS in Reading the Writing on the Envelope

Richard Curtis

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How’s Your Book Doing? New S&S Service Lets Authors See Sales

Simon & Schuster has announced a new service for its company’s authors that will enable them – and their agents – to view recent sales, monitor the performance of their books, and create blogs, videos and news bulletins about their books.

Publishers Weekly Reports: “In addition to providing sales data–information which many in the industry say has become murkier as e-books sales increase but an outside player, like BookScan, has yet to release tracking information on e-books–Author Portal allows for the creation of everything from blogs to videos to news about books. The Web site also features tips on how authors can use things like Twitter and Facbook to gain more readers, and better interact with their existing readers.”

The royalty information service, free to authors of S&S, Pocket Books and other S&S imprints, is called MySales. Password-authorized content owners will be able to see sales aggregated by channel (such as print, e-books etc.).  We recently reported on S&S’s cumbersome royalty reporting procedures but we know they have earnestly been working with agents and authors to improve reporting, and hopefully the MySales initiative will contribute to that goal.

For details see this page on the S&S website.

Richard Curtis

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Virtually Browse a Book Rack via Chrome

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Are E-Books Returnable? Why?

Alfred Knopf coined the classic bon mot about returns in the book business: “Gone today, here tomorrow.” Having expended some of the best years of my career railing – in vain – against the ruinous practice of returnability in the book industry (See A World Without Inventory, Part 1 and Part 2), I greeted the advent of e-books with the ecstasy of a pilgrim beholding the shrine he has sought all his life.

But after extolling the zero returnability of e-books I am slightly abashed to report that –  at one venue at least –  e-books are indeed returnable for full refund, no questions asked.

How abashed am I? 1.15330021291%  That happens to be the rate of returns viewed on the retailer record of one publisher’s  sales database over a one month period.  The retailer was Amazon Kindle.

A 1+% return rate is infinitesimal compared to that of the conventional trade book industry, where returns of 50% are not uncommon and even 75% is not unheard of. So we are definitely not complaining.  But we’re curious to know how e-book returnability works and who besides Amazon offers it.

To answer the second question first, it is not easy to ascertain the returns policy of Amazon’s rivals, but from what I have been able to ascertain, Barnes & Noble, Random House, Wiley and Simon & Schuster explicitly prohibit return of e-books. The policies of Kobo, Sony and Apple are not clear.

Amazon’s policy is stated clearly on its website:

Content you purchase from the Kindle Store is eligible for return and refund if we receive your request within 7 days of the date of purchase. Once a refund is issued, you will no longer have access to the item. To request a refund and return, click the Customer Service button in the Contact Us box in the right-hand column of this page to reach us via phone or e-mail. Please make sure to include the title of the item you wish to return in your request.

No strings seem to be attached to Amazon’s policy,  But I wondered why anyone would return an e-book.  Fantasy author Lindsay Buroker speculates that customers simply order the wrong book. “It’s very easy to buy ebooks (one-click) straight from your device,” she writes. “The Kindle also promptly asks you if it was a mistake and you want to return the ebook. My guess, based on the fact that my returns usually pop up simultaneously with corresponding new sales, is this is what happens most of the time.”

Other reasons include excessive typos, formatting issues, and the old standby: someone just didn’t like the book. The latter may not be as prevalent as you would imagine because of look-inside-the-book sampling that helps consumers judge a book before clicking the Buy button.

And of course, some people may download the book, read it before the seven day deadline expires, and return it.  The low returns rate suggests either that only a tiny percentage of Amazon customers are moochers, or more of them would be if they could only read faster.

However negligible Kindle returns may be, accepting them is good policy and another example of Amazon’s customer-friendly approach to retailing.

Richard Curtis

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