DRM, Greed, and a Deal With the Devil

Three days ago, Tor Books announced they were going to release their entire list of ebooks free of Digital Rights Management (DRM) come July, 2012. As Tor is a subsidiary label of Macmillan Books this certainly carries weight in the publishing industry in general. It is also an indication that Macmillan is probably using this as a test before releasing their entire portfolio free of DRM.

I feel it is only fair to point out that Baen Books, another major publisher of science fiction, has always published their ebook offerings DRM-free. They’ve been doing so for years, even before ebook readers became big!

Digital Rights Management is simply a method of keeping people from copying and using a computer file on another computer. This file could be a game, movie, music, or an ebook. Obviously, my focus here is on DRM and ebooks.

The argument for DRM is easy to understand and makes a valid point. Making a copy of a book requires an extraordinary amount of effort and time. One can either tear the book apart, feed the pages into a scanner and assemble those scans into a file that can be printed, or sit down and start typing. An ebook is a computer file and copying it requires less brain power than farting. Counterfeiting books and selling them overseas is already enough of a problem. I once saw a clearly counterfeited book. I almost bought it for no other reason than it made a good example of a counterfeit. It had a decent cover on it, but all the pages were essentially printed from an old copier. The pages had been stapled together and the cover was glued over it. A quick thumbing through the book showed that some of the pages were out of order. For an ebook, all you need is one file and you could sell perfect copies of that file in perpetuity.

Authors live or die by the number of copies of their books that sell. Authors aren’t paid by the hour or month or year. They are paid by a piece rate—by how many copies of their book sell. Any free copies floating around each represent a no sale.

If you consider things in that light, DRM seems like a good idea.

There are many more arguments against DRM which easily override the above.

One issue that stands out in my mind was driven by pure greed: Lock in.

Publishers were convinced that the moment they started selling ebooks, people would simply copy the files and spread them to all their friends for free, costing them sales. Without stopping to take a look at what was going on in the music industry, they all but demanded that Amazon.com apply DRM to any ebooks they sold.

Amazon.com was all too happy to comply.

What the publishing companies didn’t realize was they had just done the equivalent of signing a contract with the Devil. They handed lock in to Amazon.com on a silver platter, and with it the soul of their business.

To be fair, Amazon.com, Apple, and Barnes & Noble all left DRM to be the choice of the publisher, having a checkbox that had to be selected before pushing up the ebook. The publishing industry left to its naiveté, clicked the box. Only now are the publishers waking up to their mistake.

When you buy a book, in your mind you own that book.

The media companies have been trying very hard to change that notion of the average consumer. They want people to think of it as you only paid to license use of that book, not own it. Ever notice in the warning on any DVD movie, they say you are “licensed” to show that movie in the privacy of your own home? One of the provisions in both the Blu-Ray and HD-DVD specifications allowed the possibility that people would have to pay everytime they wanted to play the movie. This is one of the reasons why some Blu-Ray players have to be connected to the internet in order to play a movie.

A book (or DVD, or ePub file, etc.) is a container for the media within. When you buy that book, you own the container. You don’t own the story contained within. That means you can read it whenever you want, loan it to friends or put it on a table and sell it. You are selling the container. But, you don’t have permission to take the contents of that container and do something else with it, such as make a movie. In my mind, a data file is a container that holds the media within it. (Just to be clear, if you sell a book, then you no longer have possession of that book. Technically speaking, if you sell the computer file, you should delete it from your computer so you no longer have possession of it.)

Once you buy an ebook file, you should be able to read it on whatever device you own. Be it iPad, Kindle, Nook, cellphone, or computer, it should be your choice. Business people figured they could make more money if they forced consumers to buy a different file for each device.

Consumers aren’t that stupid. But it appeared that the publishing industry was.

Through the combination of DRM and proprietary file formats, the ebook reader manufacturers were trying to get customers locked into each their own platforms. The Kindle had a head start over all the others, and had gathered a lion’s share of the market. Then Amazon.com began to flex its muscle and force publishers into ebook pricing dictated by Amazon.com. Macmillan in particular tried to resist these demands, and Amazon.com delisted their titles from the listings, making them unavailable for purchase. This was the first proof publishers had that they had created a monster with Amazon.com. It’s been war ever since over the pricing of ebooks.

If DRM is no longer on a given ebook title, it becomes a trivial matter for a consumer to take an ebook in one file format and convert it to another that can be read by anything. This takes control away from Amazon.com and puts it back into the hands of the consumers. It does heighten the risk that the publishers will lose sales to people sharing files, but Apple’s iTunes has already shown that removing DRM from media has not dampened sales in the slightest. If anything, sales accelerated!

Baen Books (linked above) has long championed DRM-free books. They also offer a library of free books you can download in many of the different file formats for various ebook readers. Some of the titles offered are fairly recent as opposed to being out-of-print. If you enjoy science fiction, I strongly recommend you follow that link and peruse. While I have certainly pulled down a number of their free books, I have purchased more. There is a message to be carried to the publishing world!

I admit, I gave it long thought over whether or not to use DRM for the  impending release of my book, Nobody. While intellectually I rejected the use of DRM for many reasons, that nagging emotional fear over people being able to just take my book without any compensation to me still gnawed at me. Yet the evidence in the markets is clearly to the contrary! My own behavior of purchasing more books than taking those freely offered. Apple’s iTunes Music Store clearly shows people will still purchase music, rather than take pirated versions. I’ve come across anecdotes from other authors where people sent them money via PayPal to cover copies of their books that those readers had pulled down for free.

If there is one thing that holds true it is that the vast majority of people want to be honest! The evidence is showing that clearly. For that, I can allow my intellect to override and ignore the fear and just go with what I believe. My books will be DRM free.

The publishing industry should take pause and consider their greed. Writers have been handed a shiny new tool in ebooks that allows them to more easily than ever to self-publish. Keep squeezing writers hard enough on terms, they could slip away.

For the distributors who are putting the squeeze on the publishers, the same warning applies. Currently, many of the big publishers are behind the curve as far as marketing their products on the internet. That’s why Amazon.com has done so fantastically well. They took advantage of a great weakness that the publishing industry was ignoring. It really is not all that difficult to create an online store to sell your products. The publishers just haven’t figured that out yet.

Amazon.com’s only real advantage is that they conglomerate all the selections into one easy place. Any given publisher would only sell their particular lines.

The only way a deal with the Devil can keep you trapped is if the Devil can keep you from realizing you can just walk away from the deal.

The truth will set you DRM-free!

The Business of Writing: The Pendulum is Still Swinging

Following up on my earlier post, the Department of Justice has filed suit against Apple and two publishers, Penguin and Macmillan. Three other publishers—Simon & Schuster, Hachette and HarperCollins—settled with the DoJ out of court.

Apple has chosen to fight the suit before a jury. Pundits who are far better experts at this than I say Apple has a snowball’s chance in Hell of winning this suit. My knee jerk, amateur opinion questions that assumption. We’ll stay tuned to see where that mess goes.

While everyone is wagging their fingers at Apple and the publishers for allegedly price fixing to raise ebook prices, there is another issue going on at the other side of the market: Amazon.com’s predatory discount pricing.

The idea behind predatory pricing is to sell products at a loss so smaller competitors cannot afford to match your prices. Eventually, the competitors are forced out of business because consumers will go for the cheaper prices. Once all the competitors are gone, then consumers have no other choice than to shop at your store. At that point, the you can then raise prices to whatever you want and reap in much greater profits than if you just used competitive pricing.

How on earth can a business survive long enough to pull this off? Simple, by declaring the losses as business losses, they can write those losses off their taxes. Through these write-offs, a business can actually make a profit by pocketing the tax deductions, even as they claim a loss for the year. It appears that big discount you got was actually subsidized by you paying more taxes because some multi-billion-dollar mega corporation doesn’t. Because all that tax money wasn’t available for road maintenance or public services, in the long run, you pay more for the book than its original price.

Worse, when there are no more competitors you can go to affordably, they raise the prices on you.

Science fiction author Charles Stross has an excellent post that explains Amazon.com’s predatory approach to the book market.

What does this all mean for the consumer?

In the short-term, it means that prices on ebooks will drop. Not by much, but they will go lower for a bit. That will be greatly advantageous to Amazon.com, because they have enough cash to continue their program of predatory pricing to squeeze out the competition.

The downside is in the long term. With no competition, Amazon.com could become the one-stop place to buy books. That means, the only place you can buy a book would be online via Amazon.com. At that point, prices on books can be raised significantly, because there would be no competition to set lower prices.

It also would mean for ebooks, the Kindle could be the only game in town. If you are an independent author, wanting to self-publish your story as an ebook, Amazon could force you to accept their dictated terms.

Amazon would have both a monopoly and a monopsony in the book market. (Don’t know what “monopsony” means? Go to the link I supplied above where Charles Stross explains it very well.) They would control both the supply and the distribution of stories. This would be very bad for you the consumer.

But this business model comes with a significant weakness. The weakness is, the Kindle cannot use the ePub file format.

The ePub format provides an opportunity for a small competitor to do to Amazon.com what Amazon.com is appears to be doing to the publishing industry. ePub files can be read by any device that supports it: iOS devices, Android devices, desktop computers, ebook readers other than the Kindle. The problem for Amazon.com is if they open the Kindle to the ePub format, then consumers would be able to buy ebooks from any distributor and not just Amazon.com. Amazon.com would lose the customer lock-in to the Kindle; an unacceptable condition for Amazon.com at this time.

What we are seeing here is the forced evolution of the publishing industry. While the traditional publishers have stumbled badly, they still have done a better job at adapting to the new paradigm brought about by advances in technology than the music industry. As Amazon.com’s 650-pound gorilla battles it out with the 350 pounds of chimps, monkeys and lemurs of its competitors, I find it interesting that they all seem to be ignoring the 14,000-pound elephant that has entered the room: R.K. Rowling’s Pottermore Shop.

Both Amazon.com and Barnes & Noble redirect purchasers for Rowling’s ebooks to Rowling’s own ebook store. The purchases are not made through the third parties. Consumers buy directly from her store. The distributors are kowtowing to Rowling because to do otherwise could result in them losing distribution of Harry Potter-related products. Rowling has essentially told and demonstrated to the world that she does not need distributors or publishers. As an author, she’s decided to go it entirely alone selling her ebooks.

This 14,000-pound elephant is what the publishing and book distribution industries should be fearing. The fact that authors can go directly to the consumer and forego both publishers and distributors.

That doesn’t mean that every established and aspiring writer is going to rush off and publish themselves. In all honesty, it takes some technical knowhow to create an ebook. It takes even more technical knowledge and skill to create an ebook that takes advantage of special features found in Apple’s iBook format or Kindle’s KF8 format. And then there is the issue of creating a web site and online store for people to purchase your ebooks. 

I’m lucky enough to actually have these skills. Many writers don’t.

It also takes time to set these things up. It means setting aside writing for a period of time to work out all these things. Not writing means not earning your wages because you aren’t creating product.

In my opinion, the DoJ suit against Apple, Penguin and Macmillan won’t force them away from the Agency Model where the publishers dictate the retail price and Apple takes a cut from that price. However, it will have the “no lower prices” clause removed from those agreements, which will free up Amazon.com to once again offer ebooks at a loss. In turn, the DoJ will probably turn its attention to Amazon.com and its current market practices of predatory pricing and the potential of creating a monopoly or monopsony.

I would like to see the removal of the pricing policy. Part of that clause dictates that I cannot sell a special edition of my ebook on my own web site at a different price. (Or at least, that was my take on the wording.) I want my ebook, Nobody, to sell for $4.99. I would like to create a special edition which would include detailed maps, histories and maybe even the raw notes I wrote in creating the story, and sell that version for $7.99. (Keep in mind, it will take me quite a while to set up the special edition, so don’t wait for it.)

The pendulum is still swinging. We’ll just have to see where the publishing market goes.

A Simple Matter of Time

I’ve commented before that my most creative time for writing is in the evening. Usually between five o’clock and eleven o’clock. That’s when I’m at my most intense focus. It appears to me there is a certain calm that settles over the world at that time. The sun sets. The air itself seems to relax.

More importantly, I am less likely to be interrupted by people or phone calls during this time. Heck, my telephones are programmed to stop accepting calls after a certain time. Then, they simply shunt any calls directly to voicemail.

Times when I know I will not be interrupted are the times I am most productive.

Mornings I usually use for reading the news, correspondence, or other mental activities. Then I’ll take care of any running around. With all that out of the way, there is nothing to distract from the work at hand.

As anyone can tell you, life is never really that neat and convenient.

April was a complete blowout as far as writing was concerned. I had far too many things on my schedule—and all of them at the wrong times. Everything came up. There was one weekend where six different groups scheduled events on the same day. Two of which were mandatory!

The worst thing I can do to myself is schedule something for the evening.

I noticed long ago that I disliked working the evening shift. As a teenager—that age where one pretty much can only get jobs that happen during evenings—I disliked working evenings. As young and inexperienced as I was as a teenager, I thought my disinclination for working evenings was odd. It didn’t quite strike me as normal. By the time I reached my twenties, that dislike had grown into a hatred. When I had an evening shift ahead of me, I felt like I spent the entire day getting ready for work.

Oddly, I loved working the graveyard shift. Sure, it sucked socially because I turned into a pumpkin whenever the sun went down; I would fall asleep whenever my butt touched a horizontal surface. Still, I loved the graveyard shift. When that shift ended I and stepped out into the glorious morning sunshine, I had the entire day in front of me!

That feeling was and is the crucial clue to why I hate working evenings. The other clue, though not as clear, was my feeling that I had to waste the entire day getting ready to go to work when I had an evening shift in front of me.

It wasn’t until I decided to throw myself full-time into writing that I realized just why I didn’t like evening activities. Or rather, why an evening activity would completely throw off my productivity.

When I start on a project or task, I don’t like to stop. It takes me about 40 minutes to get into flow state; once I’m there, I will stay completely focused on what is before me until I am too tired to continue. The slightest interruption is enough to keep me out of this high state of productivity. Even the threat of interruption has the same effect.

And if I have something scheduled ahead of me, that is the ultimate interruption. 

This is why the evening shift always left me feeling like I was spending the whole day getting ready for work. It was because I couldn’t allow myself to drop into flow state and work on a project until I started falling asleep. I couldn’t get myself to get started on a project knowing that I would have to stop right after I felt I had gotten into the zone working on it. The opposite was getting out of the graveyard shift. I truly did have the entire day in front of me to sit down and work on some given project, without having to artificially stop.

This April has been one of those months where everything seemed to pile up. Too many activities requiring too much of my attention, something had to give, and that something was my writing schedule.

I am not a multitasker.

I do best when focusing on one thing at a time. My full concentration can be brought to bear on a particular problem without hindrance. But, it takes a certain amount of time to become fully focused on what is before me. If I am dividing my attention on two different things, then each time I switch my focus there is a delay of time until my concentration is at full steam. To me, that is a waste of time.

The process of mentally switching gears from Project-A to Project-B consumes so much time, that trying to do things at once results in it taking twice as long to complete both projects than if I merely set one aside for when I finished the other.

Life is not so convenient.

I keep to a certain work schedule. Monday–Thursday are reserved for writing. Friday is my official day off. Saturday and Sunday are optional days for me, either for taking time off or working on some other project.

Why take Fridays off? Because over the years, that was the evening when most of my friends wanted to blow off steam after the workweek and go out for either dinner or drink. Saturday evenings were a close second, but those activities were usually more structured activities such as going to a show or a special scheduled event. Long ago when I worked very odd hours and schedules, I missed out on a lot because I had to work when my friends wanted to play. When I was able to get into a career path that allowed me normal work schedules, I declared weekends to be sacred.

But life does not follow a schedule. Things come up. Some evenings are more convenient than others for some activities and projects. My cat—an animal that is purported to be supposedly aloof—has an urgent need to be snuggled or draped over my arms while I’m trying to type.

April proved to be one of those months. In the midst of all this, I was forced to set aside writing for the month. Not a good thing for the various deadlines hanging over me!

Time management is a must and it only works with good self-discipline. There will be times, however, when a rigid schedule and iron self-discipline must be thrown out the window. Flexibility is important, too.

Structure your time. Remember the good ’ole days before you became a writer when you worked 9–5, M–F? That’s structured time. During that time, you knew you had to focus on work in the work environment and that is exactly what you did. By structuring your time, you set the foundation for your self-discipline to ensure you use this time to write or at least work at related functions to writing. You can say, “This is the time I work.” It also gives you the necessary explanation to tell people not to interrupt you during your work time and thereby avoiding the interruptions that could cause you to lose your train of thought.

The absolute last thing you want your family or friends thinking is, “Oh, Bill is a writer. He’s not doing anything, I’ll call him to [insert favor or errand to be asked].” I suggest turning off your telephone if this happens a lot. You can always check voicemail when you pause to take a break.

Figure out the times when you are most productive. Set up your daily schedule based on this. Turn off your telephone/cellphone. (Telephones are my nemesis.) If this time of creativity changes over time, then adjust your schedule to match.

Once you have your work schedule figured out, determine which days you will have off. I suggest you schedule your off days to coincide with off days of friends and family. What good is having a day off if you cannot enjoy it with those closest to you? Even the most introverted of individuals needs to socialize with friends and family. Stick to your off days religiously.

You do not do your best work if you are constantly driving yourself.  Even God, according to the Bible, needed a day off. God created Heaven and said it was good. He create Earth, the trees and animals and said it was all good. Then he created Man and said, “Whoa! I seriously need a day off!” Then, after a day off, he was able to think of a lot of improvements and created Woman. Clearly, taking time off is important to the creative process and the quality of your work.

If God needed a day off, so do you. Do it.

By carefully and strictly structuring your time, you will find that you can be a lot more flexible with your time. Knowing when to work and when not to work allows you know when to put other activities on your calendar. It will also make adjusting your schedule a lot easier. Getting yourself in the habit of working certain hours and resting during others will also help you avoid the issue of burn out from writing too much.

Carefully managing your time will not always prevent blowouts to your calendar like I had this month. But it will make it easier to adjust and return to a regular working schedule when such things happen.

The Business of Writing: The Pendulum Swings

A settlement is brewing over an investigation by the Department of Justice into a practice by Apple and five publishers to control and inflate the prices on ebooks. Essentially the deal they created was the publishers would set the prices on ebooks, and Apple would require them not to sell ebooks at other publishers for less. This meant if another sales outlet decided to sell a title for less than as sold at Apple, then the publisher would have to cease sales with that distributor.

The result of this pact formed between Apple and Simon & Schuster, Hachette, Penguin, Macmillan,  and HarperCollins was it allowed the publishers to set higher prices on ebooks and force Amazon to either accept the higher price or lose out on selling their books. This resulted in many ebooks selling for almost as much as the hardcover editions, easily more than the paperback versions. I’ve commented before that I felt there was no justification for an ebook costing more than a physical book—hardcover or paperback—as there were almost no production costs associated with an ebook once the file was completed and ready for readers to purchase.

Never mind that Amazon and Barnes & Noble also make similar demands for price matching. It’s probably a result of the above-mentioned agreement.

The agreement set two years ago between Apple and the publishers is what is called an agency model. This essentially allowed Apple to control the pricing agreements between publishers and Amazon, even though Apple had nothing to do with whatever contract was between the publishers and Amazon. This way the publishers had an excuse to force Amazon to charge higher prices for ebooks. This leveled the playing field for Apple’s then new iPad and iBookstore service, with the intent of breaking Amazon’s control over the market.

In simple terms, they created a corporate trust in order to fix prices. Good for big business and the 1% that benefit from sucking the money out of the economy unfairly; very bad for consumers and society in general.

So what is going on here? Are ebooks really all that big a deal?

In some ways, yes. An ebook is the perfect product. Once you’ve thrown a small pittance of money at that whiney and sniveling thing over there (the author), an ebook has almost no production costs! You could sell millions of copies with a 99.99% profit margin. That’s literally printing money, without the cost of paper, ink, or even running the presses.

But that isn’t it.

Apple made $100 billion in revenue last year. Only $50 million of that was in ebook sales. Ebooks accounted for .05% of Apple’s bottom line! A bump in their revenue stream roughly equal to a steamroller running over a marshmallow.

Clearly, there is something far more valuable that these companies are after. It is far more valuable than an ebook.

That something is control of the market.

It isn’t just Apple. It’s the publishers. It’s Amazon. It’s Microsoft, Nokia, Samsung, Toshiba, Philips, and NuvoMedia—just to name a few. NuvoMedia? That was the company that created the Rocket eBook Reader. One of the first ebook readers. NuvoMedia no longer exists. More about that later…

DVD, CD, RTF, TXT, DOC, PNG, MKV, JPEG, GIF, MP3, AAC, EPUB. These should all sound familiar to you,because they are all technology standards that we use. Movies, music, images, and text are all encoded into the above formats for our consumption. In order to use these, you need a device or program that can decode them. Some of these standards are open, so anyone and any company can use them. Some of these are proprietary, which means that any one that wants to make a product that can use proprietary standards must pay for that privilege.

If you create the standard, then the world must beat a path to your door. For every movie, song, book or picture that uses your standard, you get paid a small fee. Bill Gates became one of the wealthiest people in history by licensing his operating system. Every time someone bought a computer running a Microsoft product, a fee was paid to Microsoft. Any time a company wanted to create a program that used a format owned by Microsoft, a fee had to be paid for licensing for permission to use that format.

It’s called “Lock-in”. If you create the standard, everyone has to buy from you in order to use the product. If a competitor creates a product that uses your standard, they still have to pay you to use it. If your competitor creates a product that might be superior to yours, then you can play the “patent violation” card to force the competitor out of the market or at least delay their entry. Whatever happens, you will always get a piece of the action.

The best money-making condition any company or person can have in a monopoly. But, because monopolies usually result in abuse of consumers and corruption, monopolies are illegal. Still, businessmen tend to throw ethics aside and strive for monopolies.

Lock-in is essentially as close to a legal monopoly that the law will permit.

This is why we read so many news reports about one company suing another company. These lawsuits generally serve one of two purposes, either to force another company to pay up for licensing/patent violations, or to have the proprietary standard overruled so they can get into the market with impunity.

The most famous battle over standards and formats was that of VHS vs. Betamax. VHS eventually won and Betamax disappeared. People who paid the higher price for Betamax got burned when VHS took over. There were other struggles between one technology vs. another, but the VHS vs. Betamax is one that most people are familiar with.

Vinyl records fell to the CD in the mid-80’s. VHS fell to the DVD in the 90’s. CDs were fatally wounded by the MP3 players. USB replaced the serial port. HDMI replaced RCA-jacks, but is now already being touted as going out of use just a few years after the public adopted it.

The “standard” format changes were coming too fast. People were starting to stand on the sidelines and waiting to see which would be the prevailing standard before they threw their hard-earned money into either camp.

Blu-Ray vs. HD-DVD suffered greatly from this. Rather than throw good money after bad, people waited until industry finally decided to go with one or the other. Despite this, Blu-Ray is still struggling to catch on. Media companies trying to force consumers to pay a premium for it isn’t helping.

This has everything to do with ebooks.

Ebooks came out over twenty years ago! The first commercially successful ebook reader was the NuvoMedia (later, Gemstar) Rocket Ebook Reader. I came across it for the first time and was really excited by it. But I noticed a fatal flaw in their approach, and it was one that also caused a number of other ebook reader companies to fail.

The flaw was a proprietary file format. All books had to be in the format used by the Rocket, and only NuvoMedia (Gemstar) was the supplier of these books. The books were also expensive, even compared to print books. I didn’t want to invest in one until I knew that they were going to be around for a long time. What would become of my expensive library should my reader be damaged?

The Rocket disappeared from the market. Anyone who had invested their hard-earned cash were screwed.

A few other companies tried to jump in, but they had the same approach of trying to lock in customers to a proprietary format and having only one source for their books. They all failed, too.

Enter Amazon.com, Inc. in 2007, when they brought to the world the Kindle ebook reader.

Amazon did stick with the idea of getting people locked in to their platform by going with a proprietary file format. But, they had a few advantages over previous wannabes in the ebook reader market. For one thing, they were already well established and well known. More importantly, instead of a limited offering of titles, Amazon hit the market running with a large selection of authors, titles, and genres. The battle was won when Amazon.com began offering the ebooks at reasonable prices.

People jumped on the ebook wagon in droves!

And the publishers panicked!

Amazon was already the 800-pound gorilla in the room when the Kindle hit the markets.

As I said above, proprietary standards lock people into a single platform and limit their choices of where they can make their purchases. But open standards give consumers the choice of where they want to purchase something and the flexibility to enjoy their purchases where and how they want.

The the publishers got together and created a free and open format for ebooks, based on HTML, the markup coding that makes the World Wide Web work.

This format is called ePub (for electronic publication).

An ePub file can be read on practically anything. It can be read by a web browser on a computer, by a program, on a smart phone, even on a regular cellphone! Of, course, also on any ebook reader that supports it.

Because it is an open standard, ePub files can be created by anyone without having to pay licensing. Consumers can buy their ePub ebooks from anyone and read those ebooks using any device that can render an ePub file. If worse comes to worse, you can rename your ebook from Story.epub to Story.zip, unzip the file and read the text from the HTML files embedded within.

ePub reintroduced competition into the ebook market. Amazon could no longer completely control the sales of ebooks. It also opened the door for other ebook reader manufacturers to enter the market, no longer needing to worry about paying Amazon.com for licensing of their file format in order to make devices that could read those files.

Barnes & Noble introduced their Nook and Apple introduced their iPad, both of which could load and read ePub files. Then the above named coalition got together to try and game the markets to artificially inflate ebook prices.

Amazon.com had been selling ebook titles at a loss, using low prices to lure readers into adopting ebook readers over paper books. It was working. Kindle sales took off.

Publishers were upset that Amazon.com was selling ebooks at such a discount, because they didn’t want consumers thinking ebooks were cheaper. (Keep in mind, ebooks represent 99% profit margin for publishers, so the word “gouging” comes to mind.) Then Apple came about with the agency model contract, and the coalition got on board.

Amazon was forced to go away from a wholesale model—where the retailer sets the final price—and accept the terms the publishers demanded. As a result, prices on ebooks went up a few dollars.

When the Department of Justice has settled things with this group caught with their hands in the cookie jar, Amazon.com will be able to return to selling the ebooks as wholesale. This means prices will drop, and consumers will get much better deals on books. To stay competitive, other distributors will have to drop their prices. Consumers win!

Will Amazon.com start selling ePub-file ebooks? Probably not. Amazon.com’s goal is to get consumers to buy products through them, not go elsewhere for those products. The more people buy from Amazon.com, the more leverage Amazon.com has in negotiating the wholesale price from suppliers on items that they sell.

That’s what concerns me.

To be a professional writer, I need to make enough money to survive. I need to be able to pay my bills, put food on the table, buy clothing I need, etc. To do that, I need to be able to sell enough copies of a book so I make enough money to make a living. I have a tough fight in front of me, trying to get enough people interested in buying my book so I sell enough copies.

My goal is to sell 10,000 copies of my first book.

Go ahead and do the math. If you are feeling lazy, here is the reality:

Each copy of my book sells at $4.99, meaning I will have $49,900 in gross sales.

The distributors take 70%, leaving me with $34,940 that goes into my pocket. That is a pretty nice number for an annual income!

But wait! There’s more!

That $35K doesn’t actually land in my pocket. I have to pay both federal and state taxes, 35% and 5.25% respectively. That whittles down my useable income to a little over $20,000.

Twenty grand ain’t all that much for an annual income. However, it is something! At least I’ll be able to keep the lights on and reduce my debt load. There will be enough left over to keep paying the monthly bills while I hunker down and work on book number two, Dragontalker. It does mean my lifestyle [of having no life] will have to continue status quo.

With distributors losing their little money-making game, they are going to look elsewhere for where they can keep their profit margin. Let’s face it, how often do we hear of CEOs laying off thousands of workers and then getting paid a bonus that would have kept three times as many of those workers on the job? You know they are going to look for the easiest place to cut their costs.

And the easiest place is to cut the royalty they pay the author. That 70% could be cut to 40%. That would be pretty devastating on my bottom line. Or, they could simply state they won’t sell my ebook at the suggested retail price I set and choose a much lower number. Or, they could raise the price on my ebook, which would cause readers to forgo reading taking a chance on a new author which could cost me sales and keep me from reaching my sales limit.

I’m not sure what action the distributors are going to take after the DoJ makes its judgement. I recognize that I need to be ready with my contingency plan: sell my book on my web site directly and forget going with the big distributors. Same thing that J.K. Rowling just did last week.

On the plus-side, all the money I make through gross sales on my web site is mine to keep. Plus, the costs incurred with doing direct sales are deductible as business costs. The downside being I have to deal with the nitty-gritty of managing a retail operation.

One problem with selling via my own website is people not trusting my intentions with their credit cards. That could cost me sales. People trust Amazon.com, Apple and Barnes & Noble with their purchases.

There is the loss of free promotion. Not going through those three will mean that my title doesn’t appear in the monthly “What’s New?” emails they send out. If a new title has strong sales numbers, the retailers begin promoting it aggressively. More sales means more money in their pocket. A hot seller actually becomes more popular when people perceive that other people think it is good. Promotion from the retailer is a good message to a buyer that this is a good product. Rergardless of whether that is a fact or not.

I will also miss out in another area: perception of legitimacy. Selling through Amazon.com, Apple, or Barnes & Noble lends a certain illusion of legitimacy to my book and to me as an author. It tells people that an intermediary agent thought my book was worthy enough to sell. People too easily overlook that those businesses are merely retail organizations, distributors. They are not publishers. Distributors and retailers don't vet the ebooks they sell. Anyone looking through the volumes of 99¢ crap being sold will realize that the distributors don’t really care about how legitimate one author is from the next. Don’t get me wrong! There are some real gems among the 99¢ ebooks. Some are so good that I think the authors were selling themselves way too short by setting such a low price on their books. There are many others that were such awful drivel that I couldn’t get past the first page or two. Thank God you can download samples before buying ebooks!

Will people be willing to purchase my book through my web site, rather than through a retailer? It does mean I have to step up and be more aggressive in promoting my books. I need to encourage people who know me to share links about my book on social networks, as well as people who become fans of my writing.

The pendulum is swinging. But in whose favor will it swing? Consumers are certainly going to benefit from lower prices. But how will the new and independent authors fare in this change to the market? If distributors decide to put the squeeze on the authors/publishers in order to avoid eroding their profit margin, will authors/publishers turn to self-retailing? That could cause greater long-term damage to the distributors than having to adjust retail prices to the consumer in the short term.

Hope for the best, prepare for the worst. Whatever fallout comes from this, I’ll just have to make sure I look at my options and prepare.