Part of my argument hinged on the elimination of the resale market in large part due to the robust DRM (copy protection) afforded by the digital books.  Unfortunately, when I presented this argument a few weeks ago, someone pointed me to a site that shared the (convoluted) steps necessary to break the DRM on the Kindle.  So much for secure. ¹

This forced me to think a bit further.

In this post, I hope to make a case for reasonably priced digital textbooks in an era of “cracked DRM” that can still result in a win-win.

If students can copy textbooks and share them, will they?  Perhaps I have a more optimistic view of the world, but I think that, when given a choice to do the right thing, students will.  That is, if they think they are being treated as adults, and not being unjustly charged.  Let me explain.

I believe that students will buy the textbooks rather than steal them, if the books are affordable.  and by affordable I mean, as one student put it when asked on Twitter “@ steep discount.”  Probably $30 for a textbook that in print sells for $150.  Remember from my previous post that publishers aren’t selling to every student as it is.  Capturing a significantly larger piece of the market, semester over semester, will result in significant revenue increases–without any additional overhead or variable costs.

I also believe that students will buy a reasonably priced textbook if, along with the book, they receive other types of “digital” support.  That support will be available, but may require them to have a “licensed” copy of the book.  Simple enough.  Your digital reader has a serial number/PID, so the licensed copy can access additional licensed material.   The additional materials could include podcasts, video lectures, or video/audio tutorials on working through homework problems.

I also believe students will pay for books, because the system supports the buying of books.  Loans cover tuition and expenses, to include books. Parents buy books.  My students have reminded me that there is a significant amount of “outside” money that comes their way for book purchases.  But that alone won’t be enough to get them to buy the books. What will?

How about providing a way for students to continue to “resell” their books?  Another common criticism from students is that they get pennies on the dollar when they go back to resell the book.  They are more incensed when they see the mark-up the bookstore then places on the book they sold back!² Students currently fight back by selling (and buying) their used books on sites such as half.com, a used book online marketplace.

I think that a technological solution to book resales, that allows the students to transfer digital ownership to another student, will result in more students buying legitimate copies.  Why? In the paragraph above I mention that students get “outside” money for book purchases.  More than a few students pointed out to me that, at the end of the semester, they sell those book back and that money then becomes “theirs.”  A few call it “Beer money” but I am sure there are other uses as well.  Given that this is digital, this doesn’t have to be seen as a competitor to the publisher, but rather as another opportunity for the publisher to “add value.”

Imagine this:  the publisher, who controls the DRM accounts, sets up a clearing house where the student who purchased the book can make the book (and the license to read/use that book) available for resale, setting the sale price themselves.  At the end of the sale, the seller essentially will turn over the digital rights to the book to the new purchaser.  This is half.com made simpler.  There are no shipping costs.  The transfer can be automatic and nearly instantaneous.  And if the publisher manages the site, the publisher can charge a “reasonable” handling fee, just like half.com.  And we know students are willing to pay it–because they already do!

So, in summary, the hacking of the DRM doesn’t have to spell the doom of affordable digital textbooks.  Despite what RIAA and the MPAA may say, we aren’t all criminals.  When provided with affordable content, and a reasonable way to re-sell the content when the semester is over, students will continue to buy books from the publishers, and the publishers can continue to make revenue–even in the resale market!

Win! Win! Win!

¹ For the record, I tried it, and it works.  I broke the protection of a book I bought, and read it in another device that I own. After that, I deleted them.

² (For example, a $180 book was “bought back” at $15. Resold at $80. Yes, that is an extreme example, but it is a true one!)

• Text books have a limited audience, resulting in smaller volumes of sales and prin runs (10′s not 100s, of thousands).  Limited runs mean that the overhead and setup costs of printing a run are spread across a fewer number of books. Historically to make a book cheaper they either had to reduce the quality of the materials, automate the process, or produce larger production runs hoping to sell more of the books.
• The costs associated with distributing books are high (packaging, warehousing, and shipping to name a few key ones)
• The inability to accurately forecast demand for “new” editions at locations, because of the…
• Strong used  book market that publishers compete against

My support for digital textbooks has emphasized that digital textbooks drive out  out the costs associated with physical books, and thus allow for both a reduction in price, and an increased margin for the publisher.  This can be seen because:

1.  Publishers no longer need the overhead necessary to design the packaging (including the covers), presses to print the books, warehouses to store the books, or distribution systems to ship the books.   Oh, and they don’t need the management to manage all of that.  This drives costs out of the process. (hint–what could this do for prices?)

2.  Because the books are delivered, directly to the student through digital means, there is no need to keep safety stocks of book inventories to cover the sales of the books.  No physical inventory drives costs out because it means there is:

• No capital outlay for bookstores to buy a “forecasted” amount of books
• No shelves required for the books
• No possibility of stockouts (I had a class where there were only enough books for 10% of my students well into the second week of class!)
• No need to ship back the unsold books, because the forecast was “wrong” (due to used book sales, borrowed books, or just students “dropping” the class.)

3.  The digital rights management (DRM, or “copy protection”) of digital books appears to be rock solid, so students are not likely to “give” copies to their friends.  Publishers would be guaranteed sales², allowing them to lower prices. This would mean that:

• Publishers don’t compete with a ‘re-sale’ market. Think about this.  Part of the reason the costs are so high for the textbooks is that the publishers know that they will only “fully” sell out in the first semester the book is available.  Every semester after that they are competing with a (rather robust) resale market.
• Publishers won’t have to release new editions every two years “simply” to refresh the sales.  With strong DRM publishers can expect to make sales to nearly every student, every semester.
• New editions will be developed for the right reasons–new, improved content and new knowledge.

Given the above, my argument really focused on the need for publishers to pass on the savings to the consumer (the student) making textbook pricing reasonable again.   The major criticism of students (the high prices of textbooks) could all but disappear.

Affordable textbooks for students, and increased (and guaranteed) revenue for publishers!

One of the key points in my argument had been (yes, had) that the DRM on the Kindle and Sony readers was secure, and thus students wouldn’t hack the books and “share” (illegally give copies) to other students.  That is essential to keeping the revenue model moving forward for publishers and is why the RIAA and MPAA are working so hard to protect their intellectual property.  But alas, sometimes things change, and we know that if anyone can hack a DRM it will most likely be motivated college students.

Thus, I have been spending time thinking about how we can still achieve a win-win, even if students “crack” the DRM market.

Stay tuned! More on this to come!

¹ Unfortunately, there will be near term losers, including the people working at the printing presses, the local bookstores, and the supply chain partners that normally deliver, store, and reship textbooks. More on these folks later.

² Think about it. In a class of 30 students, in the first semester a new book is offered, all the students will buy the book. Let’s say the book costs $100. That is $3000 in sales for the publisher. (Not profit. Remember the high costs of physical books.) Now let’s assume that half of the students with new books decide to resell their books each semester. If in the next semester half of the next class purchases “used: books that reduces the revenue for the publisher to just $1500. If we follow this through, then the 3rd semester, 3/4^ths of the books in the class are used books cutting revenue to $750. by the end of the second academic year the publishers revenue is cut to about $400. In two years, with 120 students going through the class, the publisher would make $5650. If there was no used book market, the publisher could make the same revenue selling the books at $47/book. And that is assuming there was no savings in costs by shipping digitally!