Mass Transit, DRM, And Counting the Cost

04.02.2013 Nate Hoffelder 8 Comments

DRM is a topic with entrenched positions on both sides, and in all the years I have been watching the debate I have read arguments about whether DRM was necessary, useful, and effective at preventing piracy.

But there’s one argument that I have not seen debated, and that would be the cost-effectiveness of a small ebookstore maintaining a DRM system.

I can’t recall that anyone has discussed to what degree DRM can increase the sales of a title in a small ebookstore by limiting piracy, and in particular whether that marginal increase in revenue exceeds the cost of the DRM system.

I’m not sure how you would answer this question when it comes to content, but a similar debate has come up before in relation to mass transit systems. It raises some interesting questions.

This past week found me in Phoenix for Flextech 2013 conference, and while I was there I encountered Valley Metro’s light rail service. Maricopa County had finally put in the rail line that they’d been debating ever since I lived there 20 years ago (in addition to the extensive bus system).  It’s only a single line, and it stretches from the north side of Phoenix, past the convention center, past the airport, through the ASU campus, and east to Tempe.

I’m cheap (and also formerly a huge railfan), so naturally I made sure that my hotel was close enough to a rail station that I could take the train to and from the airport.  As I was standing on the station that first day, I realized that Valley Metro light rail service could be used as a metaphor for DRM on ebookstores.

The thing is, the rail stations don’t have the turnstiles I would expect to see on any major mass transit system (NYC, SF, London, Paris, to name a few). Instead the stations are open and airy, with no walls. There’s literally no way to force you to pay before you ride the train.

Like a DRM-free ebookstore, that rail service is operating on the honor system. And like some of the smaller ebookstores, the rail service is on the honor system probably because the cost of guaranteeing payment was probably too high to justify the expense. Building stations which would keep non-paying freeriders out was probably too expensive (possibly in ways other than monetary cost).

My point is that the cost of installing and maintaining turnstiles in a mass transit system could be used as a metaphor for the funds an ebookstore might expend to maintain a DRM system. Like the train service I rode on last week, a small ebookstore needs to consider whether using something like DRM or turnstiles)to try to guarantee payment results in revenue which is greater than the expense of installing and maintaining the DRM or the turnstiles.

Allow me to explain it a different way. Let’s say that you would sell X copies in an ebookstore without DRM, and if the ebookstore had DRM you would sell X+Y copies. Do the additional Y copies bring in revenue that is greater than the cost of maintaining the DRM system?

This cost-benefit analysis is a detail that has been raised numerous times in relation to paywalls for newspapers, but I’m not sure anyone has considered how it relates to ebookstores.

And given that there are now multiple services that will help someone set up a small store on their own website and sell their own content, now is the time to ask whether the more expensive services  which include DRM are worth the extra cost.

Take EditionGuard, for example. They have just put out a press release touting a service which lets you sell as few as 1 to 5 ebook titles on your website. The DRM provided is the same Adobe DE DRM found on many Epub and PDF, and the minimum cost is $39 a month (plus $.45 per file download).

If you choose to go the sans-DRM route, you could also set up a store using GumRoad. This service costs little more than credit card processing fees, and all it offers is payment processing and handing the file over to the customer. The cost is a whole lot less but there is no DRM.

Now that we have these 2 options side by side, let me state the question again. Assuming DRM actually does boost sales, will that increase in sales exceed the added cost of the more expensive service?

I don’t know for sure, but I will note that the 45 cents per download fee will likely render EditionGuard uneconomical for most authors. In any case, this is a question that everyone who signs up with either service needs to consider.

Thoughts?

images by Phil Sexton, Nick Bastian, by Mrs Logic