Will e-books fall into music's piracy trap?

The hottest topic at the book industry's recent annual convention wasn't the latest installment in the Harry Potter series or the new nail-biter from Mary Higgins Clark.It was the music industry.
Written by Matthew Rose, Contributor

The hottest topic at the book industry's recent annual convention wasn't the latest installment in the Harry Potter series or the new nail-biter from Mary Higgins Clark.

It was the music industry.

by Matthew Rose

22 June 2000 - Book publishers have been watching anxiously as their peers in the music business have been upended by digital file-trading programs like Napster that allow Internet users to pass around free copies of CDs. Seeing their recording brethren caught flat-footed as Napster use surges has book executives adopting the mantra: Don't let it happen to us.

"We don't want to be in a reactive mode the way the recording industry is," says Peter Jovanovich, former chairman of the Association of American Publishers and chief executive of Pearson PLC's Pearson Education unit. Instead, publishers are trying to control the direction of electronic books themselves and to establish piracy protections

Anticipating the problems
Publishers say it's only a matter of time before copying programs like Napster start penetrating their industry, making unauthorized copies of electronic books just as publishers expand their e-book offerings.

A free program available on the Web called FreeNet has the potential to be particularly troubling, publishers and industry executives say. Touted as a way to defeat censorship, FreeNet lets users anonymously trade any sort of file, including text and pictures. Unlike Napster, it works without a central server, meaning it's much harder to police its use and for authorities to pull the plug to shut it down. On the other hand, the lack of a central directory means the system isn't very user-friendly: Users have to know the exact name of a FreeNet file in order to retrieve it. FreeNet's designer, Ian Clarke, says an easier-to-use version should be available within months.

Other programs that could pose problems for book publishers industry include Wrapster, an outgrowth of Napster created by Napster users that lets people share text, video and other files. Another program, Gnutella, functions similarly but like FreeNet, doesn't rely on a central server.

Such copying programs aren't likely to have a major on sales of print books, industry observers say. The time and effort needed to type or scan in text to create digital versions of printed books is far greater than to copy a music CD. But if the programs prosper, book publishers could stand to lose a chunk of revenue in the fast-growing e-book market.

An Andersen Consulting study done for the publisher's association figured that by 2005, electronic books will account for 10% of consumer book sales, which excludes such things as textbooks and manuals, or about $2.3 billion. The study estimated that about 70% of those sales would be adding to, rather than replacing, sales of traditional printed books.

Will print sales fall?
Publishers worry that if e-book piracy catches on, print sales could eventually be threatened as well. If getting unauthorized e-books through the Web becomes widespread, "that starts to make people who buy the hard-copy books feel foolish: 'Why am I paying for it when I can get it for free?"' says Ken Mifflin, a media-industry consultant at Andersen Consulting, which is advising the publisher's association on digital publishing strategy.

Library books, of course, can already be checked out for free, but it's a much more controlled environment than digital file-sharing programs. A library might be able to loan out a handful of copies of a book, but a program could distribute hundreds of pirated copies with the click of a mouse.

To avoid that scenario, publishers are taking a different approach from their music peers. Instead of fighting digital distribution, publishers are embracing the technology early on. "There wasn't an effort by the music industry to develop this [electronic] industry so they left themselves open to the black market," says David Steinberger, president of corporate strategy and international for HarperCollins Publisher, a unit of News Corp.

The publishing industry is also trying to establish the rules of their digital world, rather than having renegade software programmers or even companies like Microsoft Corp. and Gemstar International Group Ltd., which owns two popular e-book reading devices, set the terms. This month, the publisher's association and seven major publishing houses agreed to create a set of universal standards for formatting books for digital publishing. The aim is to figure out how to make books available digitally so that they're difficult to copy but easy to access.

To prevent unauthorized copying, publishers are using encryption technology, but even that is vulnerable to hackers. For example, some versions of Stephen King's e-novella "Riding the Bullet" were illegally distributed to six Web sites and chat groups.

One source of comfort for the publishing industry is that so far, at least, the universe of people wanting to read books online is still small. At least 500,000 copies of "Riding the Bullet" were ordered within its first two days of sale in March. And handheld e-book readers such as Gemstar's Rocket eBook and SoftBook Reader have a growing base of users. But so far, complaints about the awkwardness of reading on a screen -- or printing a tome off a Web site -- have prevented e-books from exploding, at least in the mass market.

"Over time, sure, there's going to be something that captures the mass market in this way, but it's not here now," says Richard Sarnoff, chief financial officer at Bertelsmann AG's Random House Inc. and president of Random House Ventures LLC, a subsidiary that invests in technology companies.

Indeed, fans of various authors have for years posted versions of books, often classic texts, onto Web sites. So far there's been no stampede to download and share copies of "Jane Eyre."

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