How should the publishing industry respond to e-book piracy?

How should the publishing industry

respond to e-book piracy?

Master thesis Business & ICT University of Groningen

2

Table of Contents

1.2. Outline of the thesis and research methods used ... 9

2. The e-book ... 10

2.1. Definition of an e-book ... 10

2.2. History of the e-book ... 11

2.2.1. The first era of the e-book ... 11

2.2.2. The comeback wave ... 13

2.3. (Dis)advantages of using e-books ... 14

2.4. E-book standards ... 16

2.4.1. Industry standard and competing formats ... 16

3. Digital piracy ... 17

3.1. Defining digital piracy ... 18

3.2. A short history of piracy ... 19

3.3. Impact of digital piracy ... 20

3.3.1. Negative impact ... 20

3.3.2. Positive impact ... 22

3.3.3. Summary ... 23

3.4. Motives for piracy ... 25

3.4.1. Economic incentives... 25

3.4.2. Theory of planned behavior ... 25

3.4.3. Theory of low self-control ... 26

3.4.4. Deterrence theory ... 26

3.4.5. Summary ... 27

4. Industry responses to digital piracy ... 28

4.1. Deterrent controls ... 28

4.2. Technological controls ... 29

4.2.1. Digital Rights Management ... 30

4.2.2. Always Online DRM ... 30

3

4.2.4. Fingerprinting ... 31

4.2.5. Tamper-proofing and obfuscation ... 31

4.2.6. Periodic updates ... 32

4.3. Pricing strategies ... 32

4.4. Other piracy responses ... 33

4.4.1. Network pollution ... 33

4.4.2. Takedown notices ... 33

4.4.3. Rethinking business models ... 34

4.5. Piracy responses used in the publishing industry ... 34

4.5.1. DRM ... 35 4.5.2. Watermarking / Fingerprinting ... 35 4.5.3. Periodic updates ... 35 4.5.4. Pricing strategies ... 36 4.5.5. Network pollution ... 36 4.5.6. Takedown notices ... 36

4.5.7. New business models ... 37

4.6. Summary ... 38

5. Measuring the effects of piracy responses ... 39

5.1. Data crawler ... 39

5.1.1. Data extraction from E-book.nl ... 40

5.1.2. Data extraction from Google.nl ... 40

5.2. Results ... 42

6. Discussion ... 46

7. Recommendations and limitations ... 51

7.1. Recommendations for the publishing industry ... 51

7.2. Research limitations ... 52

7.3. Recommendations for further research ... 52

4

Abstract

5

Acknowledgements

Finishing my study has been a lengthy process which I would not have been able to without the support of my loving father Ton. I thank you dad for believing in me, and for supporting me throughout my life. Thank you for keeping tabs on the process of writing my thesis, which motivated me to proceed and finish it. In 2009 I lost my dear mother Dicky, who always provided our family with enormous love and guidance. It is painful that she is not here anymore to experience these major events in my life but her personality is deeply grounded in me and allowed me to be the person I am today. I will never forget you mom.

Special thanks go out to my study counselor Dr. Henny Klein. Her advice and guidance allowed me to choose the right academic path, and allowed me to be where I am today. I would like to also express my gratitude to my supervisor prof. dr. E.W. Berghout for his advice and guidance. His approach to my situation was of great importance, allowing me to do my work mostly autonomously and without me having to travel to Groningen for each meeting. Without this I would not have been able to finish my thesis since I was already working fulltime.

I want to thank Miriam Kiers for her enormous help, not only in supporting and guiding me but also because of her re-reading my thesis multiple times to look for spelling and grammar errors. She has been my muse and was the one that got me to come up with the idea of my thesis by giving me an e-reader for my birthday. Thank you for your loving support.

6

1.

Introduction

When Dan Brown’s novel “The Lost Symbol” was released in 2009 it immediately broke all the sales records. In the first week of its release over 2 million copies of the novel were sold. Less than 24 hours after its release, digital copies were available via downloading websites and within days the novel had been downloaded over 100,000 times (Frisch, 2010).

Digital piracy has proven to be a serious issue for publishers. In August 2011, the German association against copyright infringement Gesellschaft zur Verfolgung von Urheberrechtsverletzungen (GVU), released their study covering 2010 that identified that Germans downloaded 24 million e-books of which 14 million illegally. This accounted for over 60% of all e-book downloads in 2010 (GVU, 2011). A poll conducted by market research firm Gesellschaft für Konsumforschung (GfK) indicated that French download 27% of their e-books illegally (Casassus, 2011). This is considerably less and the difference illustrates a problem that is characteristic of digital piracy: since piracy is an illegal practice it remains problematic to make precise estimates of its scale.

The costs (or missed profits) of digital piracy are also unknown. One way to calculate these costs is to multiply the amount of downloads for each digital product with its price. However, this calculation is hardly sufficient because it does not take into account that people might not buy the product but would download it for free instead. There are also effects of digital piracy that could lead to more profits like word-to-mouth advertisements. In January 2012 the bestselling author Paolo Coelho wrote a blog inviting everyone to download his e-books for free through Torrent websites (Coelho, 2012). Coelho´s reasoning and experience is that more people will buy his books when he also offers them for free. Another positive effect that can occur because of digital piracy are the so-called network effects which have been researched extensively in the software industry (Conner and Pumelt, 1991). Network effects relate to situations where the total amount of users has a crucial effect on its success. A good example of this is the telephone, a product that is only meaningful if other people also possess a telephone.

Fear of digital piracy and its effect is affecting whether or not publishers are entering the e-book market. Schrijvers (2011) interviewed 15 Dutch publishers regarding their opinions on e-book publishing. Almost all the publishers expressed concerns about the threat of piracy. Three publishers indicated that the threat of piracy was an important factor in their decision not to enter the e-book market.

7 industries brought suit to stop this, but the Supreme Court ruled against these industries (Sony Corporation of America v. Universal City Studios Incorporated, 1984). Eventually a new market of prerecorded video emerged which went on to provide the movie industry with revenues that were far in excess of box office revenues (Liebowitz, 2006).

The publishing industry however does not have much experience with digital piracy because the e-book market was virtually non-existent until 2007. Between late 2007 and late 2011 e-book sales doubled or more each year (Shatzkin, 2012). The Association of American Publishers estimated that the total amount of e-books sold in the United States (U.S.) nearly quadrupled between 2009 and 2010 (Curtis, 2010). This growth is probably spiked by widespread adaptation of e-book readers and tablet devices. A survey conducted by the Pew Internet & American Life Project reported that in January 2012, 19% of Americans aged 18 and older owned an e-book reader and the same percentage of adults in America is in possession of a tablet device (Pew Internet & American Life Project, 2012).

Figures on the U.S. publishing industry show that e-books comprise 22% of the total trade sales in the first quarter of 2012(Cader, 2012). Expectations are that these figures will keep increasing. E-books have other advantages that make it attractive for publishers to embrace the product. It costs nearly nothing to duplicate an e-book and there is no need to keep a safety stock or to pay inventory costs. The e-book also allows for new business models like selling chapters separately, lending e-books with a subscription or updating to the latest version of a textbook for a price. These new business models however are still developing. The techniques behind some e-book formats allow for interactive e-books through use of computer languages like HyperText Markup Language 5 (HTML5) and Javascript. Interactive e-books could have a major impact on electronic-learning or on how readers are engaged with a book (Itzkovitch, 2012).

Rising demand for e-books has brought uncertainty to publishers. There are a lot of challenges a publisher has to face. How much can a publisher ask for an e-book? A customer is not willing to pay the same amount for a digital version of a product. Industries do not necessarily need to conform to this. Easley (2005) noted: “The record labels are perhaps even exceptional in their resistance to dropping prices in response to reduced costs”. Another challenge is the distribution of e-books. Brick and mortar bookshops are for print editions and online stores like Amazon and Apple’s iBookstore follow their own rules. Recently Amazon announced plans to push down prices on e-books (Streitfeld, 2012). It is known that Apple takes a 30% cut of e-books sold within the iBookstore (Jordan, 2012).

8 This thesis will focus on another challenge that is seen as more pressing (Schrijvers, 2011) to the publishing industry: how to deal with digital piracy. There is no need to reinvent the wheel. The impact and threat of digital piracy on other industries has already been researched by scholars (e.g. Peace et al., 2003; Gopal and Sanders, 2000; Higgings and Makin, 2004). To understand how digital piracy will affect the publishing industry it is important to look at how digital content has affected other industries. Industries like the movie and music industry have come up with multiple responses to the threat of piracy.

Relevance

The aim of this thesis is to provide the reader with a broad understanding of books, digital piracy and e-book piracy. Furthermore this thesis will try to provide the publishing industry with advice as how to respond to e-book piracy.

1.1. Research question

The main research question of this thesis will be:

- How should the publishing industry respond to e-book piracy?

To answer this question the following sub questions need to be answered first

- What is the impact of digital piracy on an industry? - What motivates individuals to conduct piracy behavior? - What are possible industry responses to prevent digital piracy?

9

1.2. Outline of the thesis and research methods used

The field of digital piracy is very broad and complex. An understanding of this field is necessary to answer the main research question. The multiple sub research questions provide the reader with a roadmap for understanding the domain of digital piracy in the publishing industry and also provide the framework for the design of this thesis. Information necessary for answering the research questions is addressed in subsequent chapters with each chapter supplementing the information gathered from preceding chapters. Together these chapters provide the reader with the context necessary for answering the main research question.

The first chapter ‘The e-book’ is the foundation of this thesis, defining e-books and their history. The second chapter ‘Digital piracy’ introduces the reader to the concept of digital piracy and information necessary to answer the following sub questions:

- What is the impact of digital piracy on an industry? - What motivates individuals to conduct piracy behavior?

To address the question on the impact of digital piracy, information is gathered by reviewing academic literature, industry reports and other sources like news archives. The second question on what motivates individuals to conduct piracy behavior is answered by reviewing only academic literature.

The chapter on industry responses provides information necessary to answer the sub question regarding as to what are possible industry responses to prevent digital piracy. The context necessary to answer this sub question is laid out by reviewing academic literature but also by searching for possible industry responses on open sources. The possible industry responses that are found are then also applied to the publishing industry which together with the results of the chapter ‘Measuring the effect of piracy responses’ allow for answering the final sub question regarding the current state of piracy responses in the publishing industry. The information in this chapter is gathered through data mining information which was retrieved using a custom-made data crawler.

In the discussion the sub questions are each addressed and answered. With the conclusions from these sub questions the main research question can be answered. The final chapter ‘Recommendations and limitations’ will then address recommendations to the publishing industry, the limitations of this research and recommendations for further research.

10

2.

The e-book

The earliest attempts to digitalize books are more than 50 years old, but it is only in the last decade that digital books have become very popular. The sales figures for e-books increase each year and have the potential to surpass the sales of traditional books. To understand this sudden popularity it is first necessary to define the e-book and concepts related to it. This chapter will do so and will also look at the history of the e-book. Information is this chapter is gathered from multiple sources, both public and academic.

2.1. Definition of an e-book

The Oxford Dictionary of English defines the e-book as “an electronic version of a printed book which can be read on a computer or a specifically designed handheld device” (Oxford Dictionaries, n.d.). To most people an e-book is a book stored as an electronic file that can be read with a computer, an e-book reader (e-reader) or other portable devices.

Various attempts have been made in academic literature to give a definition of an e-book. These definitions differ in the way they address different aspects of an e-book such as media, content, format, device and delivery. A definition that is accepted by many scholars is that of Armstrong et al. (2002):

[...] any piece of electronic text regardless of size or composition (a digital object), but excluding journal publications, made available electronically (or optically) for any device (handheld or desk-bound) that includes a screen.

Many scholars that write about e-books tend to define the concept in their own way. This has led to many definitions and the term ‘e-book’ variously refers to the hardware, software or content. Vassiliou and Rowley (2008) analyzed existing definitions of the e-book and proposed the following two-part definition:

(1) An e-book is a digital object with textual and/or other content, which arises as a result of integrating the familiar concept of a book with features that can be provided in an electronic environment.

11 This definition is in many ways better and more complete than that of Armstrong et al. (2002) because e-book technologies have evolved a lot since 2002. E-e-books can now be distributed with many different features and multimedia objects (like images and videos) depending on the e-book format.

An e-reader is a device that is used to read e-books. Definitions differ on what constitutes as an e-reader but the consensus is that an reader is a device that is developed purely for the purpose of reading books. Tablet computers are not readers because they offer a lot more functionality than just reading e-books. Another important characteristic of an e-reader is the screen; tablet devices use LCD screens and most e-readers use electronic ink (E Ink) screens. E-readers also have a longer battery life, are smaller and weigh less.

2.2. History of the e-book

In 1971 a student called Michael Hart was given a lot of computer time at the University of Illinois (USA). On Independence Day he keyed in the Declaration of Independence into the mainframe he was using (Lebert, 2008). He shared this file with other users on the Internet and the file (which was 5KB and written in uppercase only because there were no lowercase letters at that time) was downloaded six times. This was the start of a large project called Project Gutenberg and it is often reported that this document was the first e-book ever to exist. Michael Hart decided that he would use his computer time to digitize books that were available to the public domain. In 2012, 41 years after its start, Project Gutenberg offers over 40,000 free e-books with over 100,000 e-books downloaded every day.

The inventor of the e-book is not widely agreed upon. Although Michael Hart is often called the inventor of the e-book there are quite some people and projects that would qualify for this status, even before 1971. Although technically an index, one of the earliest mentions of an electronic book is the Index Thomisticus, an annotated digital index of the works of the priest Thomas Acquinas prepared by Roberto Busa in 1949.

Some consider that the first notion of an e-book emerged in 1963 with the oN-Line System (NLS) project headed by Doug Engelbart or in the late sixties with the Hypertext Editing System (HES) and File Retrieval and Editing System (FESS) projects headed by Andries van Dam. Van Dam is thought to have coined the term ‘electronic book’ (Reilly, 2003).

2.2.1. The first era of the e-book

12 Standards and Technology (NIST) and National Information Standards Organization (NISO) in 1998 (Herther, 2005). The emergence of the e-book industry was accompanied by much enthusiasm by industry pundits, computer and publishing executives and many in the information field. Unfortunately it did not turn out well for the book. Even though the book industry was embraced by multiple companies the e-book market did not live up to initial forecasts.

Notable examples that illustrate this failure:

- Book retailer Barnes & Noble launched an e-book store in 2001. In September 2003, Barnes & Noble announced that it would stop selling e-books; which they reopened in 2009.

- Adobe Digital Media Store, launched in 2003, ceased operations in 2005.

- Sony’s Librie failed to take off in Japan in 2004 because high prices and draconian anti-piracy technology; it was only possible to rent a book for sixty days (Daniels, 2006).

So why did the e-book market not follow through on the high expectations? The e-book market was held by a multitude of circumstances:

- Only a small percentage of books was available as an e-book: Even now there is still only a small percentage of books available as an e-book. When the first e-books hit the stores only selected (popular) titles were chosen. There are also e-books that are only available in one format, for example the works of Robert Heinlen are not available in the Kindle store but they are available in the store of Barnes & Noble’s (Mace, 2010).

- E-books were expensive: In 2000 e-books were priced the same as regular books and consumers feel they get extra value when they buy a hardcover book (Mace, 2010).

- Strong anti-piracy measures due to fear of piracy: Less than twenty-four hours after Harry Potter and the Goblet of Fire was released, there was a pirated version available on the Internet (Burk, 2001). The fear of piracy made publishers cautious and insist on tight DRM which was very user unfriendly.

13 - E-book technology was still in its infancy: There were many competing standards and a need to standardize e-book protocols, schemes and services (Diaz, 2003). Magazines and newspapers were not ready for e-readers.

- Young (2007) noted that the failure of the e-book until then was not an indication that they would always fail. But something changed, although the publishing industry was now very skeptic, and the spark brought forth by the high expectations did eventually catch on.

2.2.2. The comeback wave

It turned out that the consumers needed time to get used to the e-book. Figures indicated that sales did rise every year, albeit in small steps. Between 2002 and 2003, the number of e-books sold rose 71 percent (Glazer, 2004). The tide turned since late 2007 and between then and late 2011 e-book sales doubled or more each year (Shatzkin, 2012). The Association of American Publishers estimated that the total amount of e-books sold in the United States nearly quadrupled between 2009 and 2010 (Curtis, 2010). This growth is partially spiked by widespread adaptation of e-book readers and tablet devices but also because of technological advancements like an improved industry standard and superior e-readers. In 2007 the International Digital Publishing Forum (IDFA) released the free and open EPUB (short for: electronic publishing) standard that had support for Digital Rights Management (DRM), styling options, images, resizable text, metadata and ‘reflowable content’ (allowing text to be optimized for different displays). In an article in the New York Times Brad Stone states that the Sony Reader was crucial for the comeback of the e-book (Stone, 2007). This device, launched in 2006, was the first major user of E Ink. This technique led to major improvements in contrast and resolution, mimicking the reading experience of regular ink. Subsequently the releases of the Kindle by Amazon and the Nook by Barnes & Noble led to price and technological competition, making e-readers ever more attractive to consumers.

Electrophoretic ink (E Ink)

During a vacation Joe Jacobsen, professor at Massachusetts Institute of Technology (MIT), ran out of books to read. Instead of reading books he devised the idea of a book that could refresh itself with new content. When he returned to his laboratory after his break he began to work on a concept he called ‘radio paper’ (Harris, 2010).

14

2.3. (Dis)advantages of using e-books

One explanation of why e-books did not have an initial success is that the pros of using e-books did not outweigh the cons. Many advantages of the e-book come from the devices that e-books are read on. These devices add features and flexibility that are impossible in printed books (Rao, 2003). But there are also advantages due to changes in distribution, and costs in duplication.

Advantages of the e-book include:

- Distribution of the e-book: Once a book has become digitalized it can be distributed throughout the internet. It can be accessed from virtual any location and since e-books itself are large text files the size of an e-book is relatively small. The contents of an e-book can easily be converted to different formats. Also it is very easy to integrate the available list of e-books into a library’s online catalog (Ballard, 2000).

- Economic advantages: The overhead of publication and distribution of an e-book is considerably lower than with regular books. There is no cost for paper, ink, binding, wrapping, postage, transport or storage (Rao, 2003).

- Increasing capabilities of hardware: The Sony PRS-T2 reader can store as much as 1200 e-books, a small library. It is possible to update the contents of an e-book (for example when changes to the book are made). Other capabilities by e-readers include text search, interactive dictionaries with instant access to the definitions of highlighted words, adjustable fonts and font-sizes, text highlighting and the possibility to add notes.

- Interactive books: The e-book formats iBook and EPUB3 allow for interactive books with the same capabilities as websites have through the integration of popular programming languages like HTML5 and JavaScript, although not all e-readers that support EPUB support these programming languages. The possibilities are endless for publishers, author and readers: direct feedback to the author, social sharing of notes taken, asking the readers for a review when they reach the last page of the e-book.

- Convenience: E-books are always in stock and there is no need to wait until an e-book is available. When the e-book is lost a new one can be ordered within a minute.

- Environment friendly: There is no need to cut down trees to make an e-book.

- Ability to improve literacy and education in less developed countries: Hardware costs for e-readers are gradually decreasing. Before not too long it would be possible to provide poor countries with virtual libraries.

15 As with the advantages most of the disadvantages have to do with the devices that e-books are read on. Disadvantages of the e-book include:

- Initial investment for consumer: An e-reader requires an initial investment from consumers and there is a risk of buying a soon-to-be-defunct e-reader (Rao, 2003) since the e-reader manufacturers are releasing new versions of their products on a regular basis. After the initial investment e-book prices tend to be cheaper.

- Limited availably of titles: One can imagine that since e-books are a recent development only a small percentage of books is available as an e-book. This will probably change, popular artists and recent books are readily available and more publishers are jumping on the bandwagon. - Availability of e-readers: E-readers are still not available throughout the entire world.

- User experience: E-readers do not provide optimal user experience, especially e-readers using E Ink. E Ink is fairly slow when a page is turned and at the moment e-readers only supported grayscale and no colors.

- Customer apathy: Seems to be one of the greatest barriers to acceptance and use (Lam et al., 2009). Consumers are uncomfortable with the idea of e-books and are not willing to consider reading with a strange device (Worlock, 2009). Although they do acknowledge various advantages of e-books, they continue to favor some characteristics of paper books (Shin, 2011). - Piracy: Since e-books are digital products they can be distributed over the Internet. Most of the

large torrent websites and Usenet Indexing Sites have a separate e-book category in which files can be found that assist in downloading illegal copies.

- Price setting: Because books are digital and not physical consumers expect to pay less for an e-book as to a regular e-book. Subsequently parties that get a percentage of the total profit (authors, distributers, publishers, illustrators etc.) receive less.

- Vendor lock-in: Consumers cannot easily change their preferred e-reader because most distributors use copy-protection that bind an e-book to a specific e-reader.

16

2.4. E-book standards

The e-book conference in 1998 formed the Open eBook Authoring Group; a consortium of publishers and e-book (device) manufacturers that tried to form an industry standard. In his keynote speech, Dick Brass of Microsoft called for the development of a common e-book format as a way to avoid the “standards ware” phase that new products go through (Coyle, 2001). Microsoft stated in a press release that “Without a common standard, publishers would have to format e-book titles separately for each electronic device and the number of titles available would be small. This would be a recipe for disaster” (Microsoft, 1999).

2.4.1. Industry standard and competing formats

The Open eBook Authoring Group released the first Open eBook Specification, OEB 1.0, in 1999. The consortium was later superseded by another consortium, the International Digital Publishing Forum (IDFA). The IDFA continued to work on improving the OEB standard and released the EPUB (short for: electronic publication) standard in 2007. Most dedicated e-book readers support the EPUB format except the industry leader Amazon. Amazon’s e-readers use other, proprietary formats, like Kindle Format 8 (KF8) and Amazon Word (AZW).

Another file format has been the de facto standard for exchanging electronic documents and electronic forms for a long time: the Portable Document Format (PDF). This open file format, developed by Adobe, represents documents independently of software, hardware and operating system used to create them and also independently of the output device on which they are to be displayed or printed. The PDF format is not optimal for e-books since the text is not reflowable.

17

3.

Digital piracy

The term piracy has long been used to describe the act of stealing one’s intellectual property. Piracy was once only able for those who possessed the tools to copy such property, like printing presses that were used to copy books. Technological advancements brought upon new media (like the VHS and CDs) but also tools that made copying intellectual property stored on these media easy and cheap. Although distributors and copyright holders tried to stop people from pirating, they had little success in doing so. The digital revolution made this problem even wore, as people were now able to store traditional media in digital formats, compress them to small file sizes and distribute them easily on the Internet. Techniques like peer-to-peer networks brought digital piracy to the masses as applications like Napster provided an easy-to-use interface to share and download media.

This chapter will introduce the reader to the concept of (digital) piracy and its history. It will also provide the basis for answering two research questions: “What is the impact of digital piracy on an industry” and “What motivates individuals to conduct piracy behavior”.

The context necessary for answering the research question “What is the impact of digital piracy on an industry?” is provided in Chapter 3.3. Information is gathered by searching academic databases on the following queries:

- Impact of (digital) piracy - Effects of (digital) piracy - (Digital) piracy sales - (Digital) piracy revenue

The results from these queries are then saved and categorized by year and journal. The results are also categorized by industry, because the impact of digital piracy on one industry could be different from the impact on another industry. Because a lot of research papers refer to industry reports on the impact of piracy another search was conducted on reports by organizations representing industries representatives (for instance: the Motion Picture Association of America released several reports on the impact of piracy on the movie industry). These sources of information are then combined.

18 - (Digital) piracy behavior / behaviour

- Intention to pirate

- Motivation (digital) piracy

The results from these queries are then saved and categorized by year and journal. The results are also categorized by the industry they are describing. The multitude of different motivational theories found related to piracy behavior suggested that not one motivational theory was singled out as being the most efficient in describing as to why people conduct piracy behavior. Because of this the results were also categorized by motivational theory. To gather more information on each motivational theory and its link to digital piracy a ‘snowball method’ is used.

3.1. Defining digital piracy

Digital piracy has been defined in many ways. Gopal (2002) defines digital piracy as the illegal act of copying digital goods for any reason other than backup, without permission from or compensation to the copyright holder. Van Wijk (2002) states that digital piracy involves the unauthorized replication of copyrighted intellectual assets. Recurring in these definitions is that digital piracy mainly relates to copyright infringement and not infringement of intellectual property rights (IPR).

IPR can be defined as any potential valuable human product (broadly: information) that has an existence separable from a unique physical embodiment (Landes and Posner, 2003). It refers to creations of the mind: inventions, literary and artistic works and symbols, names, images, and designs used in commerce (World Intellectual Property Organization on Understanding Copyright and Related Rights, n.d.).

The term IPR can be defined into two main categories:

- Industrial property rights: This includes patents, trademarks, industrial designs and geographical indications of source.

- Copyright: Literary and artistic works such as poems, novels and movies.

Although industrial property rights can also be the subject of piracy, e.g. patent trolls and trademark piracy, they do not directly refer to tangible products. Peitz and Waelbroeck (2006) argue that books, software, music and video files are the main targets of digital piracy. These products are subject to copyright.

19 While copyright may need to be registered to take legal advantages it does not need to be registered to exist. A copyright automatically comes into existence the moment the work is created in a tangible form (Fishman, 2008). Unlike patents, copyright only covers tangible expressions. It lasts for as long as the author lives plus seventy years or for a total of ninety-five years when an employer owns the copyright.

3.2. A short history of piracy

The usage of the word piracy as a synonym for intellectual purloining started around the end of the sixteenth century (Johns, 2010). According to Johns the term originates from the book trade in London and was later appropriated to other domains. Charles II of England (1630-1685) was worried by the unregulated copying of books and passed the Licensing of the Press Act in 1662 by Act of Parliament. (Patterson, 1968). This Act entailed that printing presses became regulated and that one that wanted to publish a book had to register it first. These actions prevented unlawful copies of books and penalties were given to those who disobeyed these requirements. It was the beginning of the notion of copyright.

Until Gutenberg invented the printing press (around 1440) there was no easy and cheap way to duplicate paper works. His revolutionary invention brought books and other printed materials to the masses but was also a landmark in the history of piracy since the printing press made it possible for anyone to duplicate content. Other technological innovations have had the same effect in other industries. Known examples are the VHS tape and the cassette tape which gave consumers the possibility to record video and audio on to cassettes, this technique was later substituted by technology as CD, DVD and Blu-ray.

The Digital Revolution enhanced the way piracy was conducted. Inventions and new techniques made it possible to compress media and to distribute it to whoever wanted via the Internet. Audio and video compression formats like MP3 and DivX made it possible to largely reduce the size of a video or audio file enabling widespread file sharing.

On June 1st, 1999, a computer program was released that would revolutionize digital file sharing and piracy: Napster. Napster facilitated the sharing of media between users of the software, specializing in music. The software was free to download and presented a user-friendly interface. Napster was the start of systematic file sharing (Hong, 2011). The Recording Industry Association of America (RIAA) launched legal proceedings against Napster in December 1999 (King, 2002). It did not have the expected effect; the high profile court case turned Napster into a global phenomenon (Van Hoorebeek, 2003).

20 servers: nodes (computers) in a P2P network can both send and receive data to other nodes directly. Successors of Napster like Gnutella, Freenet, KaZaA and even BitTorrent also use this P2P network technique. P2P networks are problematic for lawmakers because their decentralized design makes litigation difficult.

3.3. Impact of digital piracy

The Recording Industry Association of America (RIAA) reported that the total real value of compact disc shipments reached its peak of $14,270 million in 1999, the year that Napster was released. Between 2000 and 2005, the number of compact discs shipped in the United States fell by 25 percent to 705 million units (RIAA, 2006). There has been a lot of research as to what the role of Napster was in this sales decline. Fader (2000) argued in the A&M Records, Inc. v. Napster, Inc. case that this sales decline was caused by the advent of new substitutes for recorded music, such as video games, DVDs and chat rooms, along with a downturn in GDP growth. On the other hand Liebowitz (2004) analyzed the effects of a variety of reasons that could explain the drop in music sales, including income, price of albums, prices of complements and substitutes, recording formats, interest in music, demographics and distribution channels. He found that these alternative reasons did not explain the observed reduction in sales.

Basic economics suggest that the substitution of a downloaded copy for a purchased original should have a negative impact on legitimate sales. While concerns about digital piracy are widespread, the theoretical effect of file sharing is ambiguous. Research on piracy can be split into two opposing groups. The majority of empirical studies have found that digital piracy has a negative impact on sales but there are also studies that find non-negative effects of piracy.

3.3.1. Negative impact

To the extent that duplicated material available through file sharing is a substitute to legal purchases, basic economic theory predicts a negative effect of piracy on music and movie sales (Adermon and Liang, 2010). Although there may be some non-negative effects of piracy the expectation that digital piracy would harm copyright owners appear to be far more realistic (Liebowitz, 2005).

21 In 2011 the Motion Pictures Association of America (MPAA) issued a press release stating that digital piracy costs $58 billion in actual United States economic losses and that piracy was responsible for 373,000 lost jobs in the United States. On their website RIAA (n.d.) refer to a study conducted by the Institute for Policy Innovation from 2007 that indicates that as a consequence of global and U.S.-based piracy the U.S. economy loses $12.5 billion in total output annually. These numbers are also widely criticized (Reid, 2012). The incentive for these trade groups are obvious, they want to reduce digital piracy. These figures have been used to support anti-piracy legislation like the Stop Online Piracy Act (SOPA).

Most research on the effect of piracy has focused on the music industry. For music sales, most empirical studies find an overall negative effect of piracy on the industry (e.g. Peitz and Waelbroeck, 2004; Bounie et al., 2006). Piracy is often perceived as a threat to the development and creation of information goods because it undermines the suppliers’ intents to recoup their development costs (Andrés, 2006).

It is important to note that the United States has one of the lowest piracy rates in the world (25%); the main problem areas include Eastern Europe, Latin America, and the Asia-Pacific region. The percentage of pirated copies is estimated to exceed 90% in countries such as Russia, China, Indonesia, Vietnam, Lebanon and Oman (Moores and Dhillon, 2000).

A term which is often used to describe the negative effects of digital piracy is the substitution effect. This effect occurs when the downloaded copy directly substitutes the original product (Liebowitz, 2004). Consumers are more likely to choose for a cheaper product than a more expensive product. If a copy is identical or close in quality to the original, and the cost of making the copy is low, the copy for a price of zero (free) dominates the original (Liebowitz, 2004).

22 3.3.2. Positive impact

Research done on piracy in the music industry also names non-negative effects of piracy. Oberholzer (2004) argues that piracy allows individuals to download music which they otherwise would not have purchased. It also allows individuals to discover music they would otherwise not be exposed to. Individuals can use file sharing to sample music, which will increase or decrease sales depending on whether users like what they hear (Shapiro and Varian, 1999). McKenzie (2009) also names the word-of-mouth effect as a way to boost sales. Anderson (2005) names the penetration effect which could increases sales, as the spread of an artist’s work helps to make the artist more well-known throughout the population.

These effects are also mentioned in relation to other industries. In the software industry it is especially important to have a large user base. The value of a software product is related to the number of people using it; this is also called the network effect. Haruvy et al. (2004) found that piracy can be essential for new software since it can establish this initial user base. Revenues in the movie industry responded in a different way to piracy; in the United States movie theater ticket sales grew by 75 percent between 1999 and 2009 (Adermon and Liang, 2010). Innovations like pay-per-view (PPV) even more increased these revenues while traditional video rental shops saw a decrease in their revenues. Smith (2009) suggests that companies should use product differentiation and market segmentation strategies to compete with freely available copies of their content. Giving away content in one channel can stimulate sales in a paid channel if the free content is sufficiently differentiated from its paid counterpart.

23 Research on sampling is ambiguous on whether sampling is a suitable marketing strategy for experience goods that can be pirated (Chellappa and Shivendu, 2005). Peitz and Waelbroeck (2006) show that sampling leads to higher profits in presence of product diversity and consumer heterogeneity. In an analysis of 200 US college students, Gopal et al. (2006) found a strong positive association between downloading from free MP3 sites and the intention to subsequently purchase those same songs as part of a CD or as electronically-delivered music tracks. Liebowitz (2005) has argued, however, that sampling in the market for music files has an ambiguous impact on record sales.

Piracy might also have a beneficial effect on demand when strong network effects are operating in a market (Conner and Rumelt, 1991). These network effects are particularly important in the software industry where the value of owning software products in an increasing function of the number of people who own the same product. Microsoft Office is a good example; the ability to swap files with other users using Microsoft Office creates value for the owners of the product. Givon et al. (1995) conjectured that the success of Microsoft’s Excel over Lotus 1-2-3 may have been due to a higher tolerance for software piracy. The same goes for other industries, when the circulation for a movie increases the more money can be charged for product advertising.

In addition to network effects and the sampling effect, reputational mechanisms like the word-of-mouth effect (also referred to as the penetration effect) should also been taken into. Experience products may exhibit an effect where digital piracy can increase the number of people who are knowledgeable about the products. Consumers value a particular product more highly when they learn that other people also use the same product (Peitz and Waelbroeck, 2006). Givon et al. (1995) suggested that piracy provides word of mouth advertising for software products and that it will lead to future purchasing. (Givon et al. 1995).

3.3.3. Summary

The majority of empirical studies have found that digital piracy has a negative impact on sales. Consumers are unlikely to pay for experience goods (books, audio, and video, etcetera) after they have experienced the product. When these goods are available for a lower price than its originals, and the quality is comparable, then the substitution effect explains that consumers are more likely to choose for the lower-priced good. Studies also show that piracy is much higher in less-developed countries than in Western countries. Although controversial, reports by industry trade groups on the impact of digital piracy all claim huge amounts of profits that are missed due to digital piracy.

24 Researchers also name non-negative effects of piracy. Piracy allows individuals to discover goods which they otherwise would not have purchased. Sharing downloaded goods, or promoting them to friends, can then boost sales as the spread of an artist’s network helps to make the artist more well-known throughout the population. These effects are also called indirect network effects. Direct network effects are especially important in the software industry where it can be essential to have a large user base.

Allowing consumers to experience products, and finding a possible fit, without having to buy them is also called the sampling effect. The sampling effect can be a powerful tool for promoting products and this effect can be further enhanced when used with product diversity and market segmentation. Giving away content in one channel can stimulate sales in a paid channel if the free content is sufficiently differentiated from its paid counterpart.

25

3.4. Motives for piracy

Digital piracy is a complex phenomenon; it is an illegal act yet a lot of people seem to conduct the behavior. It turns out that there are multiple incentives as to why people conduct digital piracy. Researchers have found that research done on piracy in an industry (e.g. software piracy – audio piracy, Gopal et al., 2004) is applicable to other industries.

3.4.1. Economic incentives

The high cost of software is often cited as a motivating reason for pirating software (Douglas et al., 2006; Moores and Dhaliwal, 2004) and studies have found a strong negative relationship between economic wealth and the level of software piracy. For instance, Gopal and Sanders (2000) demonstrated that a negative correlation exists between piracy rate and per capita gross national product (GNP). The lower a country’s annual per capita GNP, the higher the rate of software piracy; especially in countries with an annual per capita GNP of less than $6,000. Individuals in very poor countries cannot afford relatively expensive software packages. Cosovanu (2006) suggests that selling software products at a lower price, reflecting the marginal costs and local purchasing power, could displace even the most resilient pirates without hurting diffusion, as the new discount clients would be encouraged to abandon the blackout market for the legal one.

3.4.2. Theory of planned behavior

The theory of planned behavior (TPB) has been applied to various domains and has proven to be a useful theory for explaining an individual’s behavior. TPB has been developed by Ajzen (1985) from the theory of reasoned action (TRA; Ajzen and Fishbein, 1975). The theory of reasoned action proposes that, excluding impulsive actions, the actions of an individual are the result of intention which is in turn derived from rational thinking. The attitude an individual has towards an action, and subjective norms dictated by their significant others, are determinants of one’s intention.

The TRA model is not suitable for explaining behavior not under complete volitional (conscious choice or decision) control. Ajzen (1985) thereby extended the TRA model, as the TPB model, by including another factor: perceived behavioral control. Perceived behavioral control refers to people’s perceptions of their ability to perform a given behavior.

26 behavioral control. Peace et al. (2003) found that individual attitudes, subjective norms, and perceived behavioral control are significant precursors to the intention to illegally copy software.

Behavioral attitude: behavioral attitude is defined as an individual’s feelings regarding a specific behavior (Ajzen, 2002). Multiple studies have shown that individuals who do not think of piracy as immoral are likely to perform the behavior (Wagner and Sanders, 2001; Kini et al., 2003). Research done on idolatry supports this; Wang et al. (2009) found that an individual’s attitude towards an idol moderates the relationship between the intention to illegally download music and the intention to buy music. Research has found that most people perceive piracy as harmless, and the victims are seen as far removed and impersonal (Logsdon et al., 1994; Simpson et al., 1994). Therefore, unauthorized copying of intellectual properties is perceived as socially acceptable and not at all unethical (Shang et al., 2007).

Subjective norms: is defined as the expectations of significant others, perceived as social pressures (Ajzen, 2002). Research on subjective norms shows a direct relation with piracy behavior (Al-Rafee and Cronan, 2006; Peace et al., 2003). If the individuals’ significant others, such as their friends, encourage them to conduct piracy or if these significant others also showing piracy behavior, they will also have a higher intention to do so.

Perceived behavioral control: Subjects who have the skills and resources to pirate digital media have a higher intention to perform this behavior (Cronan and Al-Rafee, 2008; Wang et al., 2009).

3.4.3. Theory of low self-control

Another theory that is often linked to piracy behavior is that of the self-control theory of crime, also referred to as the general theory of crime (Higgins and Makin, 2004). The self-control theory of crime (Gottfredson and Hirschi, 1990) states that an individual with low self-control is likely to commit crime and deviance. They are more likely to perform simple and easy acts that provide maximum pleasure with little effort and are less likely to consider the long-term consequences of their actions. Gottfredson and Hirschi (1990) argue that an individual’s self-control is his ability to resist temptation when an opportunity presents itself. Low self-control is the time-stable individual difference that regulates behavior. The majority of the empirical research indicated that low self-control has at least a moderate link with criminal behavior (Pratt and Cullen’s, 2000). Multiple researchers found a link between low self-control and digital piracy (Higgins and Makin, 2004; Wilson and Fell, 2005).

3.4.4. Deterrence theory

27 perceive as painful or costly (Higgings et al, 2005). Central to the increase in cost perception is an individual’s belief that his or her criminal behavior will be detected (i.e., certainty), will be harshly punished (i.e., severity), and that discovery and detection will occur quickly (i.e., swiftness).

Peace et al. (2003) found that punishment severity and punishment certainty have direct effects on the individual’s attitude towards software piracy. Hill (2007) attributes the high piracy rates in Asia to the lack of long established intellectual property rights regimes. He also argues that the weak enforcement of existing laws is another problem.

Wang (2004) studied IPR protection in China and argues that there is lack of sufficient, effective, intensive and extensive enforcement of IP. Priest (2006) also attributes the proliferation of piracy in China to a lack of will on the central government’s part to confront and eliminate piracy.

3.4.5. Summary

The motivational theories mentioned in previous chapters all try to explain as to why people tend to perform piracy behavior. Although these theories have commonalities they also name unique factors that influence the motivation to conduct piracy behavior. These factors are:

- Economic incentives: When the cost of a product is too high, but an individual still wants to obtain the product it will turn to piracy behavior.

- Behavioral attitude: Individuals who do not think of piracy as immoral are likely to perform the behavior. Most people perceive piracy as harmless, and the victims are seen as far removed and impersonal. Therefore digital piracy is socially acceptable and not at all seen as immoral or unethical.

- Subjective norms: Someone will have a higher intention to perform piracy behavior if an significant others, such as their friends, show piracy behavior or encourage them to conduct piracy.

- Perceived behavioral control: Individuals who have the skills and resources to pirate goods have a higher intention to perform this behavior.

- Low self-control: An individual with low self-control is likely to commit criminal behavior.

28

4.

Industry responses to digital piracy

The previous chapter showed why people tend to conduct piracy behavior and how digital piracy impacts industries and copyright holders. Digital piracy is generally seen as having a negative effect on an industry and copyright holders although there are some positive side-effects. Fighting piracy has been a struggle to industries, and new pirated goods still come available on the Internet every day. Industries are faced with a sustainable problem of piracy and have adopted a number of technical, legal and economic responses to curb piracy and to limit the resulting losses.

This chapter will give an overview of possible responses towards digital piracy and will then review these from a publishing industry’s viewpoint. Information from this chapter will be used to answer the research question: “What are possible industry responses to prevent digital piracy?”. Because industry responses are often innovative, reported on, and invented by organizations protecting intellectual properties, academic literature on some responses is not sufficient enough to provide a clear picture on the (current) state of industry responses. Therefore not only academic databases are used but also other open sources, using the following search queries:

- (Anti)-piracy responses - “Preventing (digital) piracy”

- Piracy technological controls, piracy deterrent controls - Piracy price controls

The information found from these searches is then categorized and further researched to provide the reader with more specifics on each response. The types of industry responses can be broadly divided into three categories: deterrent, technological and pricing responses. Other responses that do not belong in one of these categories are grouped in the category ‘Other piracy responses’.

4.1. Deterrent controls

Deterrent controls refer to the use of legal sanctions to prevent piracy. It does not directly relate to the cost or effort of piracy but rather dissuades piracy by the perceived threat of sanctions. Deterrent controls relate to the before mentioned deterrence theory, that assumes that individuals will perform behaviors they perceive as pleasurable or beneficial and avoid behaviors they perceive as painful or costly.

29 Adermon and Liang (2010) investigated the effects of The Swedish implementation of the European Union directive on intellectual property law. This implementation increased the risk of being caught and prosecuted for file sharing. Their research showed that the reform decreased Internet traffic by 18 percent during the subsequent six months. They also found an increase in sales of physical music by 27 percent and digital music by 48 percent.

Introducing stronger anti-piracy regulations has proven to be quite difficult. When a United States representative introduced the Stop Online Piracy Act (SOPA) bill, it was met with wide-spread opposition. Large technology companies like Wikipedia, Facebook, Twitter and Google publicly opposed the bill and tried to raise awareness against the bill. Arguments against the SOPA bill were that it would limit the online freedom of speech and could lead to Internet censorship. The bill was postponed in 2012.

4.2. Technological controls

Technological controls attempt to decrease piracy by forcing the copier to expend resources in the pursuit of piracy, and include software and hardware schemes to prevent the actual copying of the software (Gopal et al, 2004). Technological controls are often referred to as preventive controls (or technological deterrence). The simplest example of a technological control is the ‘license key’ which must be entered in order for the product to work.

Technological controls are less effective than deterrent controls (Blumstein et al., 1978; Gopal and Sanders, 1997) and often necessitate a direct reduction of the value of a legal product for consumers. For instance, e-books bought on Amazon.com contain a technological control that discourages consumers from reading the e-books on other devices than Amazon’s e-reader. This control is easily bypassed by consumers with above average computer knowledge, which already have a higher intention to perform piracy behavior (Cronan and Al-Rafee, 2008; Wang et al., 2009). This is a problem with technological controls: if they do not stop the consumers with more computer skills, their only effect is that it will reduce the value of the legal product for consumers, perhaps even igniting their intention to download pirated products without these technological controls.

30 4.2.1. Digital Rights Management

Digital Rights Management (DRM) is a broad term used to describe a range of technologies that grant control and protection to content providers over their own digital media. DRM is used in a number of media, but is most commonly found in e-books, software, video and music files. The specification of a DRM technique is called a DRM scheme. From the content's point of view, there are three key components to its life cycle: the creation of content, the distribution and upkeep of content, and the use of content. A good DRM scheme should account for all three components and effectively define the interactions between the user, the permissions and the content itself (Zhang, 2011).

One of the first used DRM techniques was that of Content Scrambling System (CSS) developed by the DVD Forum which encrypted DVD movie files. The encryption key was only released to hardware manufacturers that did not include features like digital-out (which would allow a movie to be copied easily). The technique was released in 1996 and was cracked in 1999 which lead to an influx of software programs that allowed users to copy DVD movies although this was prohibited by the law in many countries.

The usage of DRM is controversial and many parties oppose it, mainly because almost all DRM techniques can be bypassed and therefor only affect end-users in a way that is often found undesirable. Consumers do not like that they cannot make copies of a product that they bought or that they cannot share their product with a friend or relative. Another negative effect of DRM, user-wise, is that DRM protection is often accompanied with vendor lock-in, e.g. music bought on iTunes or e-books downloaded on the Kindle by Amazon. Kingsley-Hughes (2012) states: “Apple only offers iBooks on the iOS platform, so when one day your favorite iDevice goes the way of all electronic devices, you either have to buy a new device or lose your entire iBooks investment”. Because of its controversy traditional DRM techniques like encrypting and encoding data are slowly losing popularity among content providers and are being replaced by DRM techniques as Always Online DRM, fingerprinting, watermarking or adding metadata.

4.2.2. Always Online DRM

31 provide an effective measure against digital piracy it also minimizes the sampling effect (although users could still experience trial versions) and it requires additional costs for the necessary servers.

4.2.3. Watermarking

Watermarking refers to a technique where content providers provide files with unique characteristics which can be traced to the owner. It does not stop the file from being copied but it allows the content provider to identify the person that has spread illegal copies of the file. The most basic classification of watermarks is that of visible versus invisible watermarks (Hickok and Rowe, 2007). Visible watermarks are often used on the Internet and mostly consist of a logo or text embedded on the file stating the owner of that file. Invisible watermarks do the same but are embedded in the file so that they cannot be seen by humans. A clear advantage of the latter is that invisible watermarks cannot be removed as easily and do not disrupt the quality of the file.

4.2.4. Fingerprinting

Fingerprinting is a specialized form of watermarking. The fingerprint acts as a unique identifier for each copy of the media. A typical watermark can identify who owns a specific media file, normally by the use of an embedded logo or copyright text. A fingerprint goes one step further and can identify exactly which copy of the media file it is, normally by the use of a unique ID number (Hickok and Rowe, 2007). This technique is sometimes referred to as Social DRM and is utilized increasingly with e-books.

4.2.5. Tamper-proofing and obfuscation

Commercial software is often well protected against digital pirates that want to make an illegal copy of their work. An understanding of the inner workings of the software is needed to remove this protection. For instance, most software programs use unique keys to prevent illegal usage which are only provided to users that actually bought a license to use the product. To check the validness of an entered license key the program must call a specialized method. Software pirates try to find this method through a complex process known as reverse engineering. When the method is dissected it can be replicated to create a key generator.

32 Software producers can use several techniques to prevent these threats:

1. Tamper-proofing: Refers to adding secret variables in the source code and adding methods that check the existence of these variables. The program will fail if these variables are tampered with.

2. Obfuscation: By transforming the source code or program into an equivalent one that is harder to reverse engineer.

3. Software as a Service: By delivering software as an online service the software cannot be dissected.

4. Watermarking / fingerprinting

4.2.6. Periodic updates

Another defense against piracy that is often used in the software industry relies on periodic product updates. Updates offer bug fixes and new features to users as well as keep programs in sync with other software on which they depend.

4.3. Pricing strategies

Product pricing is an important and complex element of a marketing strategy. An ideal pricing strategy is to maximize profit through measurement of supply and demand; the price should equal what consumers are willing to pay. Choosing the right pricing strategy depends on multiple variables like market conditions, different consumer segments and costs. Research (Gopal and Sanders, 1998; Png and Chen, 2003; Sundararajan, 2004) shows that pricing strategies can be seen as an instrument a seller can use to manage piracy and that pricing policy and technological controls can be complementary instruments for piracy deterrence (Png and Chen 2003).

Pricing strategies depend on the value a consumer attributes to a product. Piracy can affect the value of a product in multiple ways:

- Piracy can lower the value of the legal product: Implementing (DRM-based) technological deterrence often necessitates a direct reduction in the value of the legal product (Sundararajan, 2004).

- Piracy can increase the value of the legal product: Pirated good are often an inferior substitute (Chellappa and Shivendu, 2003). Software is a good example: some users place great value on manuals and online support (Peitz and Waelbroeck, 2006).

33 adjustment in response to a higher threat of piracy often induces legal purchasing by a new set of customers who were previously priced out of the market.

While establishing a pricing strategy sellers should be aware of network externalities. Network effects can be encouraged by lowering technological controls, making piracy possible. When more users get familiar with a product there are also more potential customers who purchase the product legally. To level the loss in income sellers can increase the price of a product, charging a higher price to high-value consumers (Peitz and Waelbroeck, 2006).

4.4. Other piracy responses

There are several other piracy responses that are noteworthy to mention.

4.4.1. Network pollution

Network pollution reduces content availability and decreasing the confidence of users have in file-sharing methods (Costa et al., 2007). There are not a lot of examples of companies actively pursuing this anti-piracy response. One example is that the television network HBO tried to limit anti-piracy of its popular series Rome by running systems on P2P networks that advertised that they have a portion of the pirated file but that send the wrong data to downloaders (Castro et al., 2009). Network pollution is difficult since most file-sharing platforms have taken measures to prevent it. These measures include feedback systems, abuse report forms and the ability to up or down vote a file. Implementing techniques such as done by HBO requires lots of technical knowledge while the effect is possibly marginal.

4.4.2. Takedown notices

34 4.4.3. Rethinking business models

It is often suggested that industries should rethink their business models. A good example of this is Spotify, a service where users pay a monthly fee to listen to as much music as they please. Companies like Hulu and Netflix provide the same services for movies and television shows. These kind of streaming services negate

These services take away the incentive to pirate. When television network NBC removed shows from Hulu piracy spiked not only for NBC shows but for other network as well (Roberts, 2012). Copyright owners do not prefer changes in their traditional business models, which are mostly based on ‘artificial scarcity’. Artificial scarcity refers to scarcity of items even though the technology and production capacity exists to create abundance.

Changes are often accompanied by uncertainty as well as possible lower expected. A new business model can coincide with the old business model as is noticeable in the video game industry where more games are free-to-play although additional content be bought through additional micropayments.

4.5. Piracy responses used in the publishing industry

The publishing industry cannot use all the before-mentioned responses since some only apply to specific industries but lessons can be learned from these strategies. Table 1 gives an overview of possible piracy responses and their usage in the publishing industry. Deterrent controls are omitted because these controls are outside the scope of an industry.

Response Industry Used in the publishing industry?

DRM Multiple Yes Always On DRM Video game industry,

Software industry

None Watermarking / Fingerprinting Multiple Yes

Tamper-proofing / Obfuscation Software industry Not applicable Periodic updates Software industry Minimal Pricing strategies Multiple Minimal Network pollution Multiple Minimal Takedown notices Multiple Increasing New business models Multiple Minimal

35 4.5.1. DRM

A popular anti-piracy response in the publishing industry is using DRM to protect e-books from being copied or spread illegally. There are several DRMs used to protect e-books of which Adobe’s DRM and Amazon’s DRM are the most used. Their future is unclear since there seems to be an increase protest, by different stakeholders, against the use of these techniques. There are a multiple reasons for this protest:

1. Adobe’s and Amazon’s DRMs devaluate the product for consumers. For instance: more work is necessary to put the e-book on an e-reader, sharing the e-book with friends or a relative is not possible and vendor lock-in is inevitable.

2. The DRMs do not work, they can easily be removed from e-books thus they only affect consumers that do not have this knowledge.

3. Libraries lending out e-books cannot use these techniques.

4. Bookstores fear a monopoly by Amazon because of their vendor lock-in. A lawsuit has been filed in 2013 by three independent bookstores against Amazon and so-called Big Six publishers (Random House, Penguin, Hachette, HarperCollins, Simon & Schuster and Macmillan; Losowsky, 2013).

There seems to be a trend towards the use of fingerprinting, often called Social DRM.

4.5.2. Watermarking / Fingerprinting

These techniques are also referred to the publishing industry as Social DRM or EPUB Watermark. The technique works by adding a fingerprint to an e-book that identifies the owner of the e-book. Whether or not the identifier is visible is depends on the implementation.

Social DRM fixes a lot of the problems associated with traditional DRM schemes and poses almost none limitations for consumers. Removing the fingerprint from the e-book is not hard but it is harder to automate because the fingerprint placement can alternate. The main critique against Social DRM is that it is the same as having no protection although it allows prosecution of violators.

4.5.3. Periodic updates