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Publisher-Library Feud over E-Books Heats Up October 1, 2012

Posted by Bill Rosenblatt in Law, Libraries, Publishing, Rights Licensing, United States.
4 comments

The US trade associations for public libraries and book publishers exchanged heated words last week regarding the growing impasse over e-book lending.  The American Library Association’s (ALA) newly-installed president, Maureen Sullivan, issued an open letter to trade publishers such as Simon & Schuster, Macmillan and Penguin demanding that they license e-books for digital lending.  The Association of American Publishers (AAP) issued a response saying, in effect, “Sorry, our hands are tied.”

An article I wrote last year explains the legal background of this issue.  Thanks to a legal doctrine known in the US as First Sale, libraries can buy print books and lend them without permission from publishers.  But because First Sale doesn’t apply to digital downloads, libraries must get licenses from publishers to acquire e-books for lending.  Thus some of the major trade (consumer) book publishers are refusing to license e-books to libraries or are placing restrictions on lending terms.

But that’s not all.  E-book technology is also enabling companies like Amazon to supplant some library functions in the private sector, while indie authors and publishers are likely to increase giveaways of their content in digital form, in hopes of exposure.  More and more people are reading digitally, while libraries may face a future of lending hardcopy books only.  Library patrons will lose, and it’s far from clear that any (legal) private-sector function will completely fill in the gaps.

The good news is that public libraries are finally waking up from the what-me-worry stance they appeared to affect a year ago; Digital Book World says that Sullivan’s “open letter” was borne out of libraries’ frustration about the way things are going.

The bad news is that this situation is going to get worse before it gets better… if it ever does.

The problem with “open letters” is that they are often tacit admissions of powerlessness.  Sullivan’s open letter is primarily an attempt to explain the value proposition of libraries to publishers.  Yet that aspect of it contains little that publishers haven’t heard before.  It also attempts to convince publishers that they, together with libraries, have a special role in society to spread information and culture that they must maintain.  This aspect of it is likely to fall on deaf ears.

The heart of the problem is that libraries aren’t comfortable acting like businesses, while the major publishers are.  Yet libraries are being forced into discussions with publishers about business terms instead of relying on laws like First Sale.  Many library people find such discussions distasteful or distracting, because they believe (rightly) that theirs is a greater mission than being a “channel” for publishers.  Moreover, the reality is that such discussions are unlikely to lead to satisfactory conclusions for libraries.

Library gurus such as Robert Darnton of Harvard have suggested innovative models for libraries and e-books.  It’s possible that as wireless broadband and connected devices become more pervasive, publishers and libraries may be able to come to some arrangement that involves licensing e-books for time-limited cloud-based reading, instead of relying on downloads of DRM-packaged e-book files as they do now.  But if publishers require that such deals reflect libraries’ true value in book sales, then the numbers may well come up short for libraries.  They can argue (again, rightly) that they help publishers sell books in general by promoting reading, but it’s hard to quantify that benefit sufficiently.

The AAP’s don’t-look-at-us response to the ALA open letter is at least honest.  Trade associations already labor under constant antitrust restrictions.  Not for nothing does every trade association meeting begin with what lawyers call an “antitrust benediction” warning participants not to say anything that could be interpreted as collusion; talks I give at trade associations’ events have to be scrubbed by their antitrust attorneys.  Furthermore, the Justice Department’s recent investigations into collusion with Apple over e-book price-setting have made it even more for difficult for publishers to collaborate, whether under the AAP banner or otherwise.

Publishers’ lack of ability to agree on library lending terms will only lead to more and more confusion and complexity for libraries and their patrons.  In fact, publishers may be loathe to work together to create a workable solution for libraries precisely because it could backfire: if the ALA doesn’t like the terms on offer, it could sue on antitrust grounds.

Libraries may have better luck on the legal front than with technology or business terms.  As I have explained, getting First Sale to apply to digital content in general (so that anyone can lend, sell, or give away lawfully obtained digital content) is virtually unthinkable.  Yet it might be possible to get Congress to pass a narrower change in the law — specifically to Section 108 of the Copyright Act — that would give lending libraries statutory licenses to lend digital content without affecting First Sale rights in general.  It remains to be seen whether the political climate in Washington could entertain such legislation, but it may be libraries’ best hope of survival in the e-reading age.

The IDPF’s Lightweight Content Protection Standard for E-books May 31, 2012

Posted by Bill Rosenblatt in DRM, Publishing, Standards.
2 comments

I am working with the International Digital Publishing Forum (IDPF), helping them define a new type of  content protection standard that may be incorporated into the upcoming Version 3 of IDPF’s EPUB standard for e-books.  We’re calling this new standard EPUB Lightweight Content Protection (EPUB LCP).

EPUB LCP is currently in a draft requirements stage.  The draft requirements, along with some explanatory information, are publicly available; IDPF is requesting comments on them until June 8.  I will be giving a talk about EPUB LCP, and the state of content protection for e-books in general, at Book Expo America in NYC next week, during IDPF’s Digital Book Program on Tuesday June 5.

Now let’s get the disclaimer out of the way: the remainder of this article contains my own views, not necessarily those of IDPF, its management, or its board members.  I’m a consultant to IDPF; any decisions made about EPUB LCP are ultimately IDPF’s.  The requirements document mentioned above was written by me but edited by IDPF management to suit its own needs.

IDPF is defining a new standard for what amounts to a simple, lightweight, looser DRM.  EPUB is widely used in the e-book industry (by just about everyone except Amazon), but lack of an interoperable DRM standard has caused fragmentation that has hampered its success in the market. Frankly, IDPF blew it on this years ago (before its current management came in).  They bowed to pressures from online retailers and reading device makers not to make EPUB compliance contingent on adopting a standard DRM, and they considered DRM (understandably) not to be “low hanging fruit.”

IDPF first announced this initiative on May 18; it got press coverage in online publications such as Ars Technica, PaidContent.org, and others.  The bulk of the comments were generally “DRM sucks no matter what you call it” or “Why bother with this at all, it won’t help prevent any infringement.”  A small number of commenters said something on the order of “If there has to be DRM, this isn’t a bad alternative.”  One very knowledgeable commenter on Ars Technica first judged the scheme to be pointless because it’s cryptographically weak, then came around to understanding what we’re trying to do and even offered some beneficial insights.

The draft requirements document provides the basic information about the design; my main purpose here is to focus more on the circumstances and motivation behind the initial design choices.

Let’s start at a high level, with the overall e-book market.  (Those of you who read my article about this on PaidContent.org a few months ago can skip this and the next five paragraphs.)  Right now it’s at a tipping point between two outcomes that are both undesirable for the publishing industry.  The key figure to watch is Amazon’s market share, which is currently in the neighborhood of 60%; Barnes and Noble’s Nook is in second place with share somewhere in the 25-30% range.

One outcome is Amazon increasing its market share and entering monopoly territory (according to the benchmark of 70% market share often used in US law).  If that happens, Amazon can do to the publishing industry as Apple has done for music downloads: dominate the market so much that it can both dictate economic terms and lock customers in to its own ecosystem of devices, software, and services.

The other outcome is that Amazon’s market share falls, say to 50% or lower, due to competition.  In that case, the market fragments even further, putting a damper 0n overall growth in e-reading.  Also not good for publishers.

Let’s look at what happens to DRM in each of these cases.  In the first (Amazon monopoly) case, Amazon may drop DRM just as Apple did for music — but it will be too late: Amazon will have achieved lock-in and can preserve it in other ways, such as by making it generally inconvenient for users to use other devices or software to read Amazon e-books.  Other e-book retailers would then drop DRM as well, but few will care.

In the second case, everyone will probably keep their DRMs in order to keep users from straying to competitors (though some individual publishers will opt out of it).  In other words, if the DRM status quo remains, the likely alternatives are DRM-free monopoly or DRM and fragmentation.

If IDPF had included an interoperable DRM standard back in 2007 when both EPUB and the Kindle launched, e-books might well be more portable among devices and reading software than they are now.  Yet the most desirable outcome for the reading public is 100% interoperability, and we know from the history of technology markets (with the admittedly major exception of HTML) that this is a chimera.  (Again, I explained this in PaidContent.org a few months ago.)

To many people, the way out of this dilemma is obvious: everyone should get rid of DRM now.  That certainly would be good for consumers.  But most publishers — who control the terms by which e-books are licensed to retailers —  don’t want to do this; neither do many authors, who own copyrights in their books.

E-book retailers and device vendors can get lock-in benefits from DRM.  As for whether DRM does anything to benefit rights holders by improving consumers’ copyright compliance or reducing infringement, that’s a real question.  Notwithstanding the opinions of the many self-styled experts in user behavior analysis and infringement data collection among the techblogorati and commentariat, the answer is unknown and possibly unknowable.  Publishers are motivated to keep DRM if for no other reason than fear that once it goes away, they can never bring it back.  Moreover, certain segments of the publishing industry (such as higher education) want DRM that’s even stronger than the current major schemes.

The fact is, none of the major DRMs in today’s e-book market are very sophisticated — at least not compared to content protection technologies used for video content.  The economics of the e-book industry make this impossible: the publishers and authors who want DRM don’t pay for it, resulting in cost and complexity constraints.  DRM helps retailers insofar as it promotes lock-in, but it doesn’t help them protect their overall services.  In contrast, content protection helps pay TV operators (for example) protect their services, which they want protected just as much as Hollywood doesn’t want its content stolen; so they’re willing to pay for more sophisticated content protection.

The two leading e-book DRMs right now are Amazon’s Mobipocket DRM and Adobe’s Content Server 4; the latter is used by Barnes & Noble, Sony, and various others.  Hackers have developed what I call “one-click hacks” for both.  One-click hacks meet three criteria: people without special technical expertise can use them; they work on any file that’s packaged in the given DRM; and they work permanently (i.e., there is no way to recover from them).  In contrast, pay TV content protection schemes are generally not one-click-hackable.

In other words one-click DRM hacks are like format converters, like the one built into Microsoft Word that converts files from WordPerfect or the ones built in to photo editing utilities that convert TIFF to JPEG. But there’s a difference: DRM hacks are illegal in many countries, including the United States, European Union member states, Brazil, India, Taiwan, and Australia; all other signatories to the Anti-Counterfeiting Trade Agreement will eventually have so-called anticircumvention laws too.

The effect of anticircumvention law has been to force DRM hacks into the shadows, making them less easily accessible to the non-tech-savvy and at least somewhat stigmatized.  Without the law, we would have things like Nook devices and software with “Convert from Kindle Format” options (and vice versa).  The popular, free Calibre e-book reading app, for example, had a DRM stripper but removed it (presumably under legal pressure) in 2009.  A DRM removal plug-in for Calibre is available, but it’s not an official one; David Pogue of the New York Times — hardly a fan of DRM – recently dismissed it as difficult to use as well as illegal.

The US has a rich case history around anticircumvention law that has made the boundaries of legal acceptability reasonably clear.  It has shut off the availability of hacks from “legitimate” sources and ensured that if your hack is causing enough trouble, you will be sued out of existence.  I am not personally a fan of anticircumvention law, but I accept as fact that it has made hacks less accessible to the general public.

The foregoing line of thought got IDPF Executive Director Bill McCoy and me talking last year about what IDPF might be able to do about DRM in the upcoming version of EPUB, in order to help IDPF further its objective of making EPUB a universal standard for digital publishing and forestall the two undesirable market trajectories described above.  We did not set out to design an “ultimate DRM” or even “yet another DRM”; we set out to design something intended to solve problems in the digital publishing market while working within existing marketplace constraints.

So now, with that background, here is a set of interrelated design principles we established for EPUB LCP:

  1. Require interoperability so that retailers cannot use it to promote lock-in.  This is what the UltraViolet standard for video is attempting to do, albeit in a technically much more complex way.  The idea of UltraViolet is to provide some of the interoperability and sharing features that users want while still maintaining some degree of control.  Our theory is that both publishers and e-book retailers would be willing to accept a looser form of DRM that could break the above market dilemma while striking a similar balance between interoperability and control.
  2. Support functions that users really want, such as “social” sharing of e-books. Build on the idea of e-book watermarking, such as that used in Safari Books Online for PDF downloads and in the Pottermore Store for EPUB format e-books: embed users’ personal information into the content, on the expectation that users will only share files with people whom they trust not to abuse their personal information.
  3. Create a scheme that can support non-retail models such as library lending and can be extended to support additional business models (see below) or the stronger security that industry segments such as higher ed need.
  4. Include the kinds of user-friendly features that Reclaim Your Game has recommended for video game DRMs.  These include respecting privacy by not “phoning home” to servers and ensuring permanent offline use so that files can be used even if the retailer goes out of business.  They also include not jeopardizing the security or integrity of users’ devices, as in the infamous “rootkit” installed by CD copy protection technology for music several years ago.
  5. Eliminate design elements that add disproportionately to cost and complexity.  Perhaps the biggest of these is the s0-called robustness rules that have become standard elements of DRMs such as OMA DRM, Marlin, and PlayReady where the DRM technology licensor doesn’t own the hardware or platform software.  Eliminating “phoning home” also saves costs and complexity.  Other elements to be eliminated include key revocation, recoverability, and fancy authentication schemes such as the domain authentication used in UltraViolet.
  6. Finally, don’t try very hard to make the scheme hack-proof.  The strongest protection schemes for commercial content — such as those found in pay television — are those that minimize the impact of hacks so that they are temporary and recoverable; such schemes are too complex, invasive, and expensive for e-book retailers or e-reader makers to consider.  Instead, assume that EPUB LCP will be hacked, and rely on two things to blunt the impact: anticircumvention law, and allowing enough differences among implementations that each one will require its own hack (a form of what security technologists call “code diversity.”).

With those design principles in mind, we have designed a scheme that takes its inspiration from two sources in particular: the content protection technology used in the eReader/FictionWise e-book technology that is now owned by Barnes & Noble, and the layered functionality concept built into the Digital Media Project‘s IDP (Interoperable DRM Platform) standard.

The central idea of EPUB LCP is a passphrase supplied by the user or retailer.  This could be an item of personal information, such as a name, email address, or even credit card number; distributors or rights holders can decide what types of passphrases to use or require.  The passphrase is irrecoverably obfuscated (e.g. through a hash function) so that even if a hack recovers the passphrase, it won’t recover the personal information; yet the retailer can link the obfuscated passphrase to the user.  The obfuscated passphrase is then embedded into the e-book file.  If the user wants to share an e-book, all she has to do is share the passphrase.  Otherwise, the content must be hacked to be readable.

Other aspects of the draft requirements are covered in the document on the IDPF website.  Apart from that, it’s worth mentioning that this type of scheme will not support certain content distribution models unless extensions are added to make them possible.  Features intentionally left out of the basic EPUB LCP design include:

  • Separate license delivery, which allows different sets of rights for a given file
  • License chaining, which supports subscription services
  • Domain authentication, which can support multi-device/multi-user “family accounts” a la UltraViolet
  • Master-slave secure file transfer, for sideloading onto portable devices, a la Windows Media DRM
  • Forward-and-delete, to implement “Digital Personal Property” a la the IEEE P1817 standard

Once again, we set out to design something that meets current market needs and works within current market constraints; EPUB LCP is not a research-lab R&D project.

Again, I’ll be discussing this, as well as the landscape for e-book content protection in general, at Book Expo America next week.  Feel free to come and heckle (or just heckle in the comments right here).  I’m sure I will have more to report as this very interesting project develops.

A Nail in Public Libraries’ Coffins May 20, 2012

Posted by Bill Rosenblatt in Libraries, Publishing, Services, United States.
2 comments

There it was, on the entire back page of the A section of the New York Times a few days ago, at a likely cost of over US $100,000: a full-page ad from Amazon touting free “lending” of all of the Harry Potter e-books for members of Amazon’s $79/year Amazon Prime program who own Kindle e-readers, starting next month.

I wrote last December about the challenges that public libraries face as e-reading becomes popular and major trade book publishers increase restrictions on public library e-lending of their titles.  Copyright law allows publishers to set license terms for digital content, so instead of giving e-book buyers the standard “copyright bundle” of rights, publishers can dictate whatever terms they want — including refusal to license content at all.  Currently five of the Big 6 trade publishers restrict library e-book lending in some way, including two of them that don’t allow it at all.  Libraries have little leverage against publishers to change this state of affairs.

I also discussed Amazon’s Kindle Owners’ Lending Library (KOLL), which is one of the benefits of Amazon Prime membership (along with free shipping and access to streaming video content), as a step toward the private sector invading the turf of public libraries.  In case anyone doesn’t see this, Amazon makes it quite clear in its press release:

“With the Kindle Owners’ Lending Library, there are no due dates, books can be borrowed as frequently as once a month, and there are no limits on how many people can simultaneously borrow the same title—so readers never have to wait in line for the book they want.”

In other words, Amazon has implemented a model of “one e-book per user at a time, not more than one per month.”  It can configure any such model on its servers and enforce it through its DRM.

KOLL’s selection had been limited to a few thousand titles from smaller publishers.  Recently Amazon has been moving aggressively to increase the KOLL catalog, despite lack of permission from some publishers and authors; it now claims a catalog of over 145,000 titles.  Amazon did make a deal with Pottermore, the organization that distributes J.K. Rowling’s Harry Potter titles in digital form, to include those titles in KOLL.  Pottermore admits that Amazon paid it “a large amount of money” to do so.  Taken together, these steps take KOLL to the next level.

Of course, there are several reasons why the Harry Potter case is exceptional.  The only way to purchase Harry Potter e-books is on the Pottermore site, and Amazon wanted to find some way of luring Potter fans back to its own site; Harry Potter is a series of seven books, and Pottermore believes that allowing users to borrow one title per month will lead to increased sales of other titles; The Amazon Prime and public library demographics may not overlap much.

But still, this deal is an example of Amazon using content to make its devices and seo services more valuable.  The company is subsidizing a bestselling author’s work to induce people to buy Kindles and Amazon Prime memberships.  This kind of arrangement is likely to become more commonplace as authors, publishers, and retailers all get more information about the value of private-sector e-lending and learn how to make such deals strategically.

This is nice for already-famous authors, but it doesn’t benefit the multitude of authors who haven’t made it to J.K. Rowling’s rarified level.  It’s not something that libraries are able to replicate — neither the subsidies nor the full-page ads in the New York Times.

Library E-Lending with DRM-Free E-Books? May 6, 2012

Posted by Bill Rosenblatt in Law, Libraries, Publishing.
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A recent decision by Tor/Forge Books to make their e-books available without DRM caused something of a stir in the book publishing world. Tor/Forge is the largest science fiction/fantasy publisher in the world.  Although Amazon and other major e-book retailers allow publishers to decide whether they want to use DRM or not, most commercial publishers use it.

This led to some speculation on Library Journal’s TheDigitalShift website about whether Tor will still require DRM for library e-lending, where I said that retail and library lending are two completely different channels, and if a publisher drops DRM for retail, it probably has no bearing on whether it will drop DRM for e-lending.  Indeed, the tech publisher O’Reilly & Associates is known for its anti-DRM stance but uses DRM in e-lending (and uses a form of watermarking in its downloadable PDFs).

In fact, Tor’s official policy on library e-lending is not to allow it at all, because its corporate parent Macmillan (one of the “Big Six” trade publishers) doesn’t allow it.  But what would happen if a library purchased a Tor e-book and made it available for lending?

First of all, that’s not how the vast majority of public library e-lending works.  Public libraries use OverDrive’s system, which is a “white label” service that packages e-books in DRM and handles all of the aspects of the website and lending.  (OverDrive currently offers a choice between the Mobipocket DRM for Kindles and Adobe DRM for just about everything else.)  So OverDrive would have to make the DRM-free e-book available, and that’s not how its system works .  In other words, libraries tell OverDrive which titles they want and pay for them, then OverDrive does the rest.

Secondly, even if a library ran its own system (which a handful do, such as the Douglas County public library system in Colorado), it would be violating the Terms of Service of the retailer from which it bought the DRM-free e-book.  That gets us back to the legal concept of Digital First Sale.

The concept of First Sale (known outside the United States as “exhaustion”) in copyright law says that once you lawfully obtain a copyrighted work, you can do what you want with it: sell it, lend it, throw it away, etc.  The applicability of First Sale to physical media products is straightforward, but its applicability to digital downloads, such as e-books, is as clear as mud.  The U.S. Copyright Office was asked for an opinion on Digital First Sale over ten years ago; its 2001 report essentially said “Not now, maybe later.”

Digital First Sale is currently a rather arcane topic in copyright law, but a showdown over the concept may be coming soon.  E-reading is exploding in popularity, and publishers in certain genres (at the moment, mainly science fiction and tech, i.e. genres for tech-savvy readers) are DRM-free.

The third development that may lead to a Digital First Sale showdown is a project at the Berkman Center for Internet and Society at Harvard called the Digital Public Library of America (DPLA).  Remember all those millions of e-books that university libraries digitized for Google, which led to publishers’ and authors’ huge lawsuit against Google — which is still unresolved?  The DPLA intends to aggregate them — as well as other sources of material, such as the Internet Archive — and put them to use at the service of public libraries nationwide.

The DPLA is expected to launch next year.  The current plans are still taking shape, but it seems clear that it needs Digital First Sale in order to have any impact at all; otherwise publishers can continue to forbid e-lending, and DPLA won’t have much content to offer other than public domain material that’s available for free anyway.

As I’ve said before, the forces arrayed against Digital First Sale are formidable: they include authors, publishers, and retailers.   For example, the DPLA’s proposal to make works available that are at least five or ten years old seems like it will meet stiff resistance from all of those camps.  But there are few (if any) entities on earth better equipped to fight for Digital First Sale than Berkman Center, with its Harvard Law professors and its corporate sponsorship from the likes of AT&T, Google and Microsoft.  In fact, if and when the showdown over Digital First Sale comes, it will be interesting to see what side of the issue Google takes — as both a beneficiary of looser copyright laws and an e-book retailer.

Will Harry Potter Break the E-book DRM Spell? March 28, 2012

Posted by Bill Rosenblatt in DRM, Publishing.
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The Harry Potter franchise has been the major digital holdout in trade publishing, the analog (until recently) of the Beatles in music.  No more: the Pottermore Shop features all of the Harry Potter titles in e-book and digital audiobook formats.  The e-books are available in the standard EPUB as well as Amazon Kindle formats, and the audiobooks are in MP3.  The EPUB and MP3 files are DRM-free.

Some major-publisher audiobooks are already DRM-free.  But does this mean the end of DRM for major-publisher e-books?

No.

First of all, it’s possible to buy Harry Potter e-books on all of the major e-book retail sites (or through them via affiliate links).  At least the Kindle and Nook format e-books use DRM.  Only the EPUB-format files are DRM-free.

Furthermore, Harry Potter is highly anomalous in the world of book publishing: it’s a goldmine of revenue from many sources, far beyond the books themselves.  Harry Potter has more in common with Disney cartoon movies than with most other books or book series.  The animated features that Disney has released in recent years are all part of vast orchestrated campaigns of ancillary revenue sources: books, toys, theme park rides, ad-revenue-bearing TV shows, Broadway musicals, and on and on.  Think The Lion King, Cars, or Toy Story.  In fact, Harry Potter ancillary revenue streams have more than doubled book revenues already.

In other words, J.K. Rowling doesn’t need to maximize revenue from selling e-books, especially since she does not plan to write any more Harry Potter titles.  Instead, her strategy is surely to use e-books — and print books, for that matter — for their marketing value, to induce her vast audience (and their parents) to purchase the stream of Potter-themed products that her organization will release for years to come.  When viewed that way, DRM becomes a liability.

Instead, Rowling is launching an entire site devoted to All Things Harry: Pottermore Shop is part of the overall Pottermore site, which is currently in beta.  This will enable the Rowling team to establish relationships with their customers that are far richer and more lucrative than if the e-books were available only on Amazon, Barnes & Noble, or other retail sites.  Pottermore will add new content and features on a regular basis and, of course, include lots of social features for Harry fans.

Pottermore is likely to be a popular destination site; Harry Potter is perhaps the only publishing property that doesn’t need Amazon or B&N.  The trade publishing industry would love to have more blockbuster franchises like Harry Potter, but given the way the industry and authors work, such properties are likely to be fewer in number than those found in the movie industry.  (Incidentally, Scholastic, Rowling’s publisher, may have its hands on the next blockbuster franchise: Suzanne Collins’s The Hunger Games.)  Those rare mega-properties don’t need DRM, but that has nothing to do with the question of whether the rest of the publishing industry does.

In addition, publishers have much more limited ability to monetize big franchise properties than movie studios do, for the simple reason that authors own the copyrights to most trade books.  Of course, publishers can negotiate rights that go beyond print books or e-books.  But it’s instructive to note that the word “Scholastic” appears exactly nowhere on the Pottermore site.

 

Who’s Subsidizin’ Who? February 9, 2012

Posted by Bill Rosenblatt in Business models, Music, Publishing, Services, Uncategorized, United States.
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Barnes & Noble has just announced a deal offering a US $100 Nook e-reader for free with a $240/year subscription to the New York Times on Nook.  Meanwhile, MuveMusic, the bundled-music service of the small US wireless carrier Cricket Wireless, passed the 500,000 subscriber mark last month.   MuveMusic has vaulted past Rdio and MOG to be probably the third largest paid subscription music service in the United States, behind Rhapsody and (probably) Spotify at over a million each.

MuveMusic isn’t quite a subsidized-music deal a la Nokia Ovi Music Unlimited, but it does offer unlimited music downloads bundled with wireless service at a price point that’s lower than the major carriers.  (The roaming charges you’d incur if you leave Cricket’s rather spotty coverage area could add to the cost.)  Cricket is apparently spending a fortune to market MuveMusic, and it’s paying off.

It looks like the business of bundling content with devices is not dead; on the contrary, it’s just beginning.  The fact that both types of bundling models exist — pay for the device, get the content free; pay for the content, get the device free — means that we can expect much experimentation in the months and years ahead.  Although it’s hard to imagine a record label offering a free device with its music, we could follow a model like Airborne Music and think of things like, say, a deal between HTC and UMG offering everything Lady Gaga puts out for $20/year with a free HTC Android phone and/or (HTC-owned) Beats earbuds.  Or how about free Disney content with a purchase of an Apple TV?

As long as someone is paying for the content, any of these models are good for content creators. device makers, ane consumers alike.  Bring them on!

Public Library E-Book Lending Must Change to Survive December 4, 2011

Posted by Bill Rosenblatt in DRM, Law, Libraries, Publishing, Uncategorized.
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A few events over the past few weeks illustrate the downward arc that I have suggested is in store for public libraries in the e-book age.  First, Amazon introduced its own e-book “lending library” for members of its $79/year Amazon Prime service, which allows users to “borrow” one e-book at a time, with no due dates.  Second, yet another major trade book publisher, Penguin, got into a spat with public libraries over e-book lending.  Penguin stopped offering new titles and withheld Kindle access to all titles, out of unspecified security concerns with OverDrive (the service that powers most U.S. e-book library lending) and Amazon. (Penguin subsequently restored access for existing titles, but not for new ones.)

The Penguin incident is only the latest in what will undoubtedly be a long series of squabbles between publishers and libraries over e-book lending.  In fact, five of the “Big Six” U.S. trade book publishers are now either limiting their e-book licensing to libraries or not licensing at all — and the sixth (and largest), Random House, is reportedly reconsidering its library e-book licensing policies.  Such spats may well lead to a world of off-putting restrictions and confusion for libraries and their patrons.

Libraries have two fundamental problems here: they have less control over the situation than publishers do, and they are about to get some serious competition from the private sector.  An article in Publishers Weekly gives an overview of Amazon’s e-book lending feature and its implications for publishers and authors.  In a nutshell, the program is currently limited to a few thousand titles that originate either from Amazon itself or from smaller publishers that still sell e-books to Amazon under a wholesale model, as opposed to the “agent” model used by most major trade publishers, which forbids such activity.

But the Publishers Weekly piece only covers the impact of e-book lending on publishers and authors, many of whom are raising a fuss about Amazon’s program.  It says nothing about the program’s impact on public libraries.  The executive director of the American Library Association (ALA), Keith Fiels, has publicly expressed a lack of concern over the impact of Amazon’s lending program, given its limited range of titles and that it’s part of a subscription program that includes other features such as streaming video and free expedited shipping.  The ALA is more concerned about major-publisher moves like Penguin’s.

Indeed, public libraries are experiencing major growth in e-book lending, especially since Amazon joined the e-lending world by opening up its DRM to enable lending and integrating it with OverDrive’s library lending service.  Another piece of evidence that library e-lending is expanding is the entry of a Seattle-based startup called BlueFire Productions as the first serious competitor to OverDrive in the public library space.

At bottom, this is about two things: ways to make e-books available legally for free, and the promotional value of free distribution.   That’s why libraries should be worried.  First, consumers generally don’t care where they get free legal e-books, as long as they are available conveniently and can be read on their favorite devices.  Second, what Amazon has started as a limited service that’s only available to an elite tier of customers will surely become more widely available and with more titles, especially with competitors like Barnes & Noble constantly looking for ways to differentiate themselves from the market leader.

Amazon subsidizes the wholesale cost of e-books that it lends to Amazon Prime members. It does this to make its own services and devices more attractive, not to spur sales of those e-books. If and when B&N offers an equivalent feature, it will undoubtedly do the same.

If I were Keith Fiels at the ALA, I would be very, very afraid.  The e-book publishing world may be about to split up into the equivalent of the music industry’s major and indie labels: major labels tend to make deals that maximize revenue and limit free promotion, while indies try for maximum promotion in hopes of getting revenue later.  When you apply this dichotomy to publishers and e-books, you will see that libraries will inevitably get squeezed out.

The majors will make life increasingly difficult for public libraries through refusal to license or restrictive and confusing licensing terms.  Meanwhile, smaller publishers will “lend” their titles through Amazon and other e-book services — and will most likely be happy with the arrangement for the promotional value it gets them.  And some indie publishers will give their e-books away outright — through e-book retailers or through sites like Facebook — in hopes of getting exposure for their authors and selling hardcopy titles, just as thousands of indie musicians used to give away MP3s on MySpace.  And let’s not forget that e-book prices are often much lower than their hardcopy counterparts to begin with.

Then it will only be a matter of time until some publishing industry equivalent of Michael Robertson (the music industry’s digital provocateur) will create a search engine for finding free e-books from all of these sources in a single convenient place, storing them in an online locker, sharing them with friends, etc.

If you extrapolate from these changes, you can see how public libraries could become virtually irrelevant for e-book readers.

It’s all because publishers get to decide what e-book titles libraries may lend and (to some extent) under what terms.  Again, think of this in music terms: radio stations get the right to play whatever music they want under a license granted by law — a so-called statutory license.  Online equivalents of radio (e.g., Pandora, iHeartRadio) get similar rights.  Library lending of digital music is virtually nonexistent; radio remains the primary promotional channel for record companies.  Perhaps it’s time to think more carefully about public libraries in this light for e-books, as I’ll explain.

There is no equivalent of a statutory license for e-books that would allow libraries to lend them without explicit, title-by-title permission from publishers.  As I’ve discussed previously, libraries do get rights under Section 108 of the copyright law to lend e-books under certain conditions.  But because most publishers only give libraries e-books to lend as DRM-protected files with license terms attached to them, and Section 108 requires libraries to abide by those license terms, libraries can’t exercise those rights.  In effect, those rights have no value for libraries.

Libraries simply do not have enough leverage against major publishers and retailers to improve this situation in the private sector.  If they are to remain relevant in the e-book age, they are going to need to push for significant legal reforms, which both publishers and retailers will undoubtedly resist.

I previously suggested one option, albeit in a somewhat tongue-in-cheek manner: push for the Copyright Office to define an exemption to the law that criminalizes hacking of DRMs (Section 1201 of the Copyright Act) so that public libraries can legally remove DRM for the purpose of lending e-books if they repackage them with DRM to enforce lending terms.  However, this has two disadvantages: exemptions to Section 1201 only last for three years, until the Copyright Office considers a new set of exemptions, and publishers could push for stronger DRMs that are harder to hack.

The “cleanest” solution to this problem would be to enact Digital First Sale, i.e., an extension to Section 109 of the copyright law that lets anyone do whatever they want with digital downloads once they have acquired them legally.  (We had a great discussion on this subject at last week’s conference.)  Public libraries owe their existence to First Sale (on physical goods) in the first place.  But that won’t help for e-books as long as publishers distribute them with DRM and DRM hacking is still illegal; and anyway, as I discussed recently, Digital First Sale isn’t likely to happen anytime soon. Therefore it would be worth libraries’ while to investigate changes to the law that help them lend e-books while leaving Digital First Sale off the table.

One option would be to push for additional rights for libraries under Section 108.  At a minimum, Subsection (f)(4) would have to be relaxed so that libraries may lend e-books even if the licenses they come with forbid this activity.  This would be tantamount to a statutory license for libraries to lend e-books without explicit permission from publishers.

As a practical matter, this wouldn’t really change the way things are done today.  Libraries lend e-books through third parties like OverDrive, which already get e-books from publishers without DRM and package them with DRM — just like music and video retail services.  And provisions already exist in Section 108 that hold libraries liable if they make their own unauthorized copies of e-books.   OverDrive and its ilk use DRM to enforce one-copy-at-a time lending as well as the lending time limits that are in libraries’ own best interests.

This change in the law would improve the situation for libraries substantially.  However, the economics may have to change to make it palatable to publishers.  For example, libraries acquire e-books for their collections by paying for them title by title, just as they pay for printed books. Radio stations, on the other hand, typically get free copies of recordings from record labels but pay royalties to the music industry for playing them on the air.

If publishers acknowledge the promotional value of library e-book lending, then they might be willing to accept a statutory license to lend e-books if they can negotiate a per-loan royalty rate in lieu of upfront purchase prices.  The Copyright Clearance Center, for example, would be in a good position to manage these payments and royalty disbursements, just as ASCAP, BMI, and SoundExchange do for music.

This type of arrangement would enable libraries to maintain huge collections of e-books (through service providers like OverDrive and BlueFire, which would actually house and distribute the e-books) and thus serve the public well.  At the same time, the negotiations would have to resolve questions of how many copies of an e-book a given library could lend out concurrently; one copy per library doesn’t reflect the fact that big libraries acquire multiple copies of popular titles.  Is it possible for the numbers to defined so as to be fair to both publishers and libraries?  That would be a good question for the Section 108 Study Group, the venue for recommending changes to that section of the copyright law, which used to convene every five years but was disbanded by Congress after its last report in 2008.

A limited form of just such a statutory license-type solution has actually been suggested in the private sector already, in the proposed settlement to publishers’ and authors’ lawsuits against Google.  It includes giving public libraries rights to make every book scanned on Google’s behalf — over 12 million titles at last count — available on a single terminal within each library.  Libraries would not even have to pay for this.  However, this doesn’t allow e-books to be available outside of libraries’ physical confines, it doesn’t allow libraries to acquire multiple copies of e-books they want to make available to more than one patron at a time, and Google can withhold up to 15% of its scanned titles at its discretion.

The Google book settlement is still unresolved, but the terms in it show that publishers may be willing to grant libraries some limited e-book lending rights.  Libraries have complained about the “table crumbs” offered to them in the Google book settlement.  But unless they take action similar to what I’ve described here, those rights may be the best that public libraries can hope for as the e-book market expands.

Irdeto Acquires BayTSP October 24, 2011

Posted by Bill Rosenblatt in Fingerprinting, Publishing, Services, Video.
2 comments

Irdeto announced on Monday that it is acquiring the antipiracy services company BayTSP.  Terms were not disclosed, but this is the culmination of a “strategic alternatives exploration” process that BayTSP had been engaging in for some time.

BayTSP monitors P2P networks, file-sharing services, and other places where unauthorized content might lurk and generates evidence that content owners can use to support legal action against infringers.  It uses a range of technologies, including sophisticated network traffic analysis and fingerprinting.  It has been one of a shrinking number of providers of such services as the industry has consolidated.

This is a good strategic fit for Irdeto in various ways.  First, BayTSP will boost Irdeto’s existing antipiracy services; this will strengthen the company’s competitive positioning particularly against NDS, which is known to have robust antipiracy services to complement its content protection technologies.  Second, BayTSP has made some recent forays into e-book antipiracy services, which will complement Irdeto’s own new content protection technology for the e-publishing market.

Yet the consolidation of antipiracy services within a major content protection company has interesting implications for the economics of content protection.  Typically, copyright owners pay for antipiracy services such as those of BayTSP, Peer Media, and Attributor, but downstream entities such as network operators, online retailers, and device makers pay for content protection technologies such as conditional access and DRM.  At the same time, pay TV operators are starting to launch services in which the content can go beyond the customer’s set top box, possibly onto their tablets, mobile handsets, and PCs.  The question is: do pay TV operators believe it’s their responsibility to protect the content beyond the STB?

Irdeto will have to decide the answer to this question.  Specifically: will it continue to charge content owners for BayTSP’s antipiracy services, or will it attempt to add to the fees it charges its operator customers?  To put it more cynically, have Hollywood studios encouraged Irdeto to acquire BayTSP (as they encouraged Irdeto to buy BD+ Blu-ray content protection technology from Rovi just three months ago) so that they no longer have to pay for it?

Seen in this light, Irdeto’s acquisition of BayTSP becomes part of the company’s overall strategy to offer more comprehensive and higher-grade content protection services to pay TV operators, on the theory that they will pay more to get better protection.  This is a risky strategy, but given the growing footprint that Irdeto has in the overall content protection market, it’s a risk that Irdeto can probably afford to take.

Amazon Kindle Cloud Reader Lowers the Speed Bump for E-Books August 31, 2011

Posted by Bill Rosenblatt in DRM, Publishing, Services.
9 comments

Amazon launched Kindle Cloud Reader a few weeks ago.  This version of the Kindle e-reader app runs within web browsers and therefore on a wider variety of platforms than its hardware Kindle devices and pre-existing e-reader apps for platforms such as Apple iOS and Android.

The main intent of Kindle Cloud Reader is to get around app stores, so that Amazon can make e-books available on iPads, iPhones, and Android devices without having to pay Apple or Google — both competitors in the e-book space — a percentage of its revenues.  Yet Kindle Cloud Reader is different from the others in a way that could turn out to be just as important as its interoperability: it doesn’t encrypt e-book files.

Various people have discovered that Kindle Cloud Reader is a straight HTML5 app and that the server sends it unencrypted content a chapter at a time.  It would be fairly easy to build a program that captures the HTML and stores it locally.  This would be roughly equivalent to “stream capture” for audio and video, except that the result would be a perfect browser-renderable copy of the e-book.

This means that Kindle Cloud Reader does not operate in the same way as other web-based e-readers, such as Google Editions or Amazon’s older Amazon Pages technology.  These display page images that would have to be fed sequentially to an OCR engine in order to capture the text – a higher “speed bump” than Kindle Cloud Reader uses.

E-book DRM technologies have generally been hacked, but this move by Amazon lowers the e-book copying “speed bump” significantly — not as low as DRM-free music downloads, but getting there.

Furthermore, Kindle Cloud Reader lacks certain functionality that other e-readers have, such as copy-to-clipboard.  Google Editions allows copy-to-clipboard with limits.  Ironically, the lack of copy-to-clipboard in Kindle Cloud Reader has inspired hackers to figure out how to add this functionality and thereby stumble upon the fact that the content is not encrypted.

Three questions arise out of this development.  First, why is Amazon doing this?  Second, do the publishers that license material to Amazon know about it?  Third, would a program that captures e-book content in Kindle Cloud Reader be illegal under anticircumvention law (DMCA 1201 in the United States)?

The first question is most likely answerable.  This development indicates that Amazon is confident enough about its leadership position in the e-book market that it does not feel as much need to lock customers into its platform, as it has done (more strongly) with its DRM.

It also shows that Amazon intends to make its e-book money more on e-books themselves than on reader devices.  This is in line with analysts’ projections that the tablet market will grow faster than e-reader devices and therefore that e-readers will come under increasing price pressure.  Amazon’s intention to launch a tablet device of its own by the end of this year corroborates this.

The third question is an interesting one.  The anticircumvention law was designed to place liability for hacks to “technical protection measures” (TPMs) on hackers themselves rather than on the suppliers of the TPMs. This has led to the question of how strong a TPM has to be in order to qualify for protection under this law.

The 7th Circuit appeals court addressed this question in Universal v. Reimerdes (2000) regarding the hacked CSS encryption scheme for DVDs: the defendants in the case suggested that CSS shouldn’t qualify for legal protection because it was so easily hacked.  The court did not want to establish a test for TPM effectiveness, so it declined to address that issue.

More recently, a company called SunnComm that made CD copy protection technology threatened to sue a researcher for discovering that its technology was trivially easy to circumvent: just press the Shift key on a PC when inserting a protected CD into the PC’s drive and the copy protection mechanism could be bypassed.  SunnComm withdrew the lawsuit.  One reason for this could have been fear of the repercussions of an adverse court decision — which would most likely have resulted in just such a test for TPM effectiveness.

If a publisher sues someone under the anticircumvention law for making a program available that extracts e-book content from Kindle Cloud Reader, then we’ll see what the answer to the third question above is (if the suit goes to trial). Or, if a publisher sues Amazon for breach of licensing agreement over the lack of encryption, we’ll know the answer to question number two.

Of course, there is also a fourth question: is this the beginning of the end of DRM for e-books?  I suspect the answer is yes, although this should happen more slowly (or not at all) for certain segments of the publishing market, such as higher education and expensive professional/technical content.  In general, I don’t believe it will happen as quickly as it did for music.

The digital music industry is moving from a model based on file ownership to one based on cloud storage.  Storage of content on servers instead of on users’ devices goes hand-in-hand with elimination of file encryption.  This transition is just beginning and will take years to complete.  Even so, cloud-based e-reading seems like more of a stretch than cloud-based music: although the “celestial jukebox” model has been available for several years, its uptake has been slow.  People are only just now starting to envision a world without physical music ownership.  It will take them considerably longer to envision a world without physical books.

Good News for the New York Times July 22, 2011

Posted by Bill Rosenblatt in Business models, Publishing, Services.
6 comments

A short postscript to yesterday’s article on the strong recent uptake in paid subscription music services:

Today the New York Times revealed that 281,000 users are paying to receive its content digitally, including 224,000 in its new Digital Subscriber program and the remaining 57,000 paying for Times subscriptions through e-readers.   The Digital Subscriber service launched in March.  The Times has already beaten its stated goal of 200,000 digital subscribers by the end of the first year. 224,000 is 26% of the paper’s daily print circulation; the figure does not include the 756,000 print subscribers who also have digital subscriptions.  The 26% ratio is about the same as the percentage of digital to print subscribers to Cook’s Illustrated.

To put those numbers in context: the goal that the Times surely has in mind is 400,000.  That’s the number of paid online subscribers to the Wall Street Journal.  The other interesting number in the periodical publishing space is that of Consumer Reports, which is the largest paid online publication at 3.3 million online subscribers (as of November 2010).  Neither Consumer Reports nor Cooks Illustrated carries advertising.

Different subject: How do you like the new site layout?

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