Jim Baen's Universe

Salvos Against Big Brother

Columns

There Ain't No Such Thing as a Free Lunch

Written by Eric Flint

I ended my last essay as follows:

Is it true that modern electronic devices have made copyright infringement "so effortless" that it has become —or threatens to become— a serious menace to legitimate copyright owners?

The answer is "no." In the next issue, I'll explain why.

The reason the answer is "no," in a nutshell, is encapsulated in the subtitle of this essay: There ain't no such thing as a free lunch.

That colloquial expression captures a fundamental economic truth. Nothing that requires labor to be performed is really "free." You're going to pay for it, one way or other. Either by performing unpaid labor yourself, or by paying someone else for it. If not directly, then indirectly.

The real difference between a toll road and a "freeway" is not that a toll road costs you money and a freeway is "free." It most certainly is not "free." That freeway was built and is maintained by the taxpayers' money. The only difference, from the standpoint of cost, is how the money is collected. In the case of toll roads, it's collected directly from the users in the form of tolls. In the case of a freeway, it's collected from the entire population in the form of taxes.

Let's now apply that economic principle to crime. Whatever else it is, crime is also labor. In some cases —what are often called "crimes of passion"— that fact is simply irrelevant. But it is not irrelevant at all when the crime involved is one that is either motivated by a desire for profit, or simply profit's poor second cousin, the desire to eliminate a cost to yourself.

To give an example, most shoplifters do not steal in order to resell at a profit. They steal for their own use— but it's worth the risk to them because they eliminate the cost of paying for the stolen item. The thief's equivalent of the old saw, "a penny saved is a penny earned."

And that's what drives most —not all— electronic copyright infringement. People do not generally "pirate" an electronic text in order to sell it for a profit. They do it in order to get the text itself, for their own use.

There is one major exception to this rule. But that involves people who can operate openly on a mass-production scale in countries that do not enforce international intellectual property rights. And the only thing I'll say about that here is that all the arguments advanced by DRM advocates are silly when you're dealing with this one (and only) instance of mass-scale piracy. For the obvious reason that the only conceivable way to enforce the law is to somehow cajole or coerce the authorities in a foreign country to do it. You might or might not be able to do that, but, if you can, it certainly won't be through the use of DRM laws, which are such a burden to the population in countries that do respect intellectual property rights.

I said "not all" electronic copyright infringement is due to the motive named above, because there is a peculiar variety of a "crime of passion" that you do encounter in this area. There are some people out there, possessed by the firm delusion that "information wants to be free" —as if bits of data had legs and went walking about on their own— who see the deliberate violation of copyright as striking a blow for freedom.

But there aren't many of them, and, taken by themselves, their actions don't amount to more than a social nuisance. Yes, it's irritating to authors to see their work posted up on the Internet without their permission, especially when the deed is accompanied by a virtual raspberry from a superannuated juvenile delinquent bragging about it. But the fact remains that the material damage done to authors by such activity is so minimal that it can barely be distinguished from zero— if there's any material damage at all, which I doubt.

I am not guessing about this. The reason I initially put up my first novel for free online was because I got fed up reading the hysterical howls of some authors in online discussion groups, shrieking that their livelihood was being mortally threatened.

To prove that was nonsense, as graphically as I could, I put up one of my own novels for free. "Pirated myself," if you'll allow me the absurd expression. That novel, Mother of Demons, has been available online for free for almost seven years now. And . . .

It's still in print, and still keeps selling.

Soon thereafter, with Jim Baen's cooperation, we set up the Baen Free Library on Baen Books' Web site, which now has dozens of titles from many authors available at no cost to anyone who wants them. (If you're not familiar with the Library, you can find it by going to Baen Books Web site —www.baen.com— and selecting "Free Library" from the left side of the menu across the top.

The titles are not only made available free, they are completely unencrypted— in fact, we'll provide you, free of charge, whatever software you'd prefer to download the texts. We make them available in five different formats.

And . . .

The sky did not fall. To the contrary, many of those books have remained in print and continued to be profitable for the publishers and paying royalties to the authors. For years, now, in some cases. Included among them is my own most popular title, 1632. I put that novel up in the Baen Library back in 2001— six years ago. At the time, the novel had sold about 30,000 copies in paperback.

Today, six years after I "pirated" myself, the novel has sold over 100,000 copies.

In the face of examples like this —and this is but one example— all arguments that "online piracy" guts legitimate sales are exposed as pure and simple blather. In point of fact, the exact opposite is true. The real effect of making books available at no cost in electronic format is that it keeps stimulating sales of the paper editions— which is where 95% of the money is, anyway, from an author or a publisher's standpoint.

I'll deal in a later essay with the issue of what would happen if electronic reading became the dominant or even exclusive form of book reading. But we're a long way from that point today. Despite the continually rosy projections regarding electronic books, the fact is that the reading public has stubbornly resisted them and, year after year, continues to demonstrate its great preference for "obsolete" paper books. That's because book-buyers are not morons, as I'll discuss below.

The reason that Baen's policy regarding electronic publishing works goes back to the economic principle in the subtitle: There ain't no such thing as a free lunch. We start off by recognizing that— and recognizing it from both sides of the equation.

Here's one side of the economic equation. Our Captain Morgan wannabe "pirate," when he sets out to swipe an electronic book by downloading an illegal edition rather than paying for a legal one, has to do the same thing any criminal does, except people engaged in crimes of passion. He has to consider whether the amount of labor involved for him is worth the end gain.

One of the things I find genuinely bizarre about this debate is the constant assumption of my opponents that people will do anything just in order to get something for nothing. It's incredible— since that proposition is tested every single day in America by millions of people, and proved wrong over and over again.

Don't believe me? What do you think sustains toll roads, to name just one example? If people were willing to do anything —expend any effort, for any length of time— just in order to avoid paying a few dollars for something, then why does anyone ever use a toll road in the first place? With the exception of a few places —an island, for instance, that can only be driven to across a toll bridge— it is perfectly possible to drive anywhere in the United States without ever paying a thin dime in the form of road tolls.

But, generally, doing so takes more time— and time is money. On some instinctual level, if nothing else, most people understand that. Every extra hour you spend behind the wheel of a car going from Point A to Point B is an hour you've lost either from paying labor or simply from your life span. Unless you have another motive for spending that time —sightseeing, for instance— you're generally quite willing to pay a modest toll in order to get where you're going a little sooner.

Now apply that toll-road principle to the problem of electronic copy infringement. It is absolute nonsense to claim that "pirating" an electronic text means that you got it for "free." Uh, no, you didn't. You may have saved some money— but you did it at the expense of spending time and labor to circumvent the legal process. Your time and labor— not the victim's.

In the real world, criminals do not do everything in a criminal manner. Whatever you or I think of their morals, they are just as capable as anyone else of gauging an enterprise from the standpoint of its cost-effectiveness.

Bank robbers do indeed rob banks. But here's what they don't do, or do very, very rarely:

They don't illegally siphon gas from a neighbor's car to fuel the getaway vehicle. Instead, they buy the gasoline.

They might steal the gun they're planning to use to rob the banks, because guns are expensive. But they're not likely to steal the ammunition— much less try to make the ammunition themselves. Why bother? They're not planning to fight a war, they simply need enough ammunition to load a gun. So they buy the ammunition.

I would think the point is obvious. Pirates rob bullion ships, they don't rob grain ships. Electronic copyright infringement is something that can only become an "economic epidemic" under certain conditions. Any one of the following:

1) The products they want —electronic texts— are hard to find, and thus valuable.

2) The products they want are high-priced, so there's a fair amount of money to be saved by stealing them.

3) The legal products come with so many added-on nuisances that the illegal version is better to begin with.

Those are the three conditions that will create widespread electronic copyright infringement, especially in combination. Why? Because they're the same three general conditions that create all large-scale smuggling enterprises.

And . . .

Guess what? It's precisely those three conditions that DRM creates in the first place. So far from being an impediment to so-called online piracy, it's DRM itself that keeps fueling it and driving it forward.

Let's start with the third point. A DRM-crippled text is a royal pain in the ass for legitimate customers. First of all, because you have to have the right software (and often hardware) to use Product A as opposed to Product B— since the publishing and software industries can't agree on a common standard. And, secondly, because you have absolutely no guarantee that next year those same industries won't make the software you purchased from them obsolete and thereby make the books you bought unreadable.

Can we say "eight-track tape?" "Beta-Max?" "Vinyl LPs?"

The buying public, by now, has long and bitter memories of the way the entertainment industries have shafted them over and over again, by introducing one technology, forcing everyone to adopt it— then scrapping that technology in favor of yet another.

It's no wonder the reading public had so stubbornly resisted electronic reading. As I said above, they are not morons. Contrast the ridiculous demands that the publishing industry tries to place on their electronic text customers to the joys and splendors of buying a paper book:

You do not need an "end user license." Nope. Just buy the book with legal currency and you own it outright.

You do not need to buy separate software or hardware to read it. Nope. The only "software" you need is a pair of functioning eyes and a knowledge of the language the book is written in. Thazzit.

You now own a product that you can do any damn thing you want with. You can lend it to a friend, donate it to a library, use it for a doorstop or to swat a fly.

And, finally, you are in possession of a product whose technological durability and reliability has been tested and proved billions of times, and for centuries. Even a cheap paperback, with any degree of reasonable care, will still be readable half a century after you bought it— whereas not one piece of software has yet demonstrated that it can last much more than a few years.

Now let's move to the second point. Precisely because DRM has made electronic reading such a distasteful idea for most of the reading public —even a loathsome one, for many— it has strangled the market in its crib. Despite all the rosy projections and predictions, year after year after year, the electronic reading industry has remained miniscule compared to the paper book industry. Is it any wonder?

But certain things go along with that. If you can only sell a few units of a product, you will have to charge more per unit to cover your operating costs and hope to make a profit. So . . .

We now have the grotesque phenomenon that publishers typically charge more for an electronic book than they do for a paper book— even though everyone knows perfectly well that electronic texts are far cheaper to produce and distribute. That's mostly because the distribution costs that typically swallow about half of all income generated by paper books sales —and a higher percentage for paper magazines— is relatively tiny for an electronic publication.

And, so, dragged by the inexorable logic of this DRM lunacy, we arrive back at point one. Because electronic books are disliked by most of the public, and are then further constricted in terms of the market by being overpriced, they also become relatively rare. And it's probably rarity more than anything that fuels most book-stealing, whether of paper or electronic editions.

The truth is this. Books simply aren't that valuable —in any format— that they'll ever serve as a major target for criminal enterprises. That's especially so because, with a very few exceptions, books don't have the advantage of being sellable in large numbers. There's a logic to criminals' hijacking a truck loaded with cartons of cigarettes, even though any single carton isn't worth much more than a book. But the sheer volume of the cigarettes involved makes up the difference— because there just aren't that many brands of cigarettes to begin with, so they're easy to sell. Whereas books . . .

There are literally hundreds of thousands —no, millions— of "brands" of books. No gangster with the brains of a squirrel is going to hijack a truck full of books. To whom and how would he sell them? Two books over here, one book over there, week after week. . . .

The main reason people swipe books —or do the equivalent, like buying a paperback with a stripped cover that they probably know is not a legitimate copy— is simply because they can't find a legal copy. Not, at least, for anything they consider a reasonable price or in a format they find acceptable. But if they could, they would, ninety-nine times out of a hundred.

On a cold-blooded economic level, it is the understanding I've laid out above that guided Jim Baen from the beginning of the electronic publishing era. Jim always understood all this. (In fact, I learned a lot myself from watching him and talking to him.)

From the beginning, Baen Books has always consistently followed a course of action that is diametrically opposed to the one advocated by DRM enthusiasts.

Baen's policy can be summed up using the same three points I enumerated above:

1) Electronic editions of Baen's titles are not rare. In fact, they're almost ubiquitous. With less than a handful of exceptions —those usually involve contractual restrictions on electronic publication insisted on by a few estates— all Baen titles will be produced in an electronic edition as well as a paper edition.

2) The books are priced cheaply. Where most publishers insist on selling e-books at a higher price than paperbacks, Baen sells them at a lower price— and a much lower price if you take advantage of their monthly Webscription service. You can buy a Baen title in electronic format for as little as $2.50— and almost no title is priced higher than $5.

3) Finally, the books are designed to be as user-friendly as possible. Baen will provide the text in any one of five popular formats, some of which are completely unencrypted. No restrictions are placed on the customers' use of the books thereafter. They can do whatever they want with them, just as they can with paper books.

Given all that, who is going to bother to steal a Baen title? How many people with enough intelligence to read a book in the first place are going to go through the time and effort to find a pirated edition of something that they could have obtained legally —very easily and quickly, at a stable and well-known Web site— for five dollars or less? An edition, furthermore, which has been professionally prepared and doesn't carry the same sort of frequent OCR-scanning errors that most pirated editions do?

Some, sure. There are always a few fruitcakes here and there. But not enough ever to be anything more than a minor nuisance, at worst.

The kind of thing you run across —very occasionally— is exemplified by a case that happened about four years ago. A well-meaning person sent me and Jim Baen a somewhat breathless e-mail warning us that some rascal had taken one of the free CDs containing many electronic texts that Baen often distributes in hardcover editions and had put it up for sale on eBay for $100.

I called Jim on the phone to see if he wanted to do anything about it. Not to my surprise, however, his reaction was the same as mine. "Why the hell should I waste my valuable time trying to prevent someone from earning the Darwin award? If somebody out there is stupid enough to pay $100 to get an illegal copy of something they could have gotten perfectly legally by buying a $25 hardcover, let 'em and be damned."

My attitude toward so-called electronic pirates —these virtual Bluebeard wannabes— is one of cheerful contempt. Contempt, because they're jerks. Cheerful, because their periodic vainglorious boasts about "destroying copyright" are the equivalent of so many mice chittering at an elephant.

Don't bother pirating my books, you pipsqueaks. I automatically put all of them up for free online about three months after the paperback edition comes out anyway. Because I know perfectly well that I'm generating far more sales from the wonderful —and dirt-cheap— promotional value than I'm losing to so-called pirates.

That's the key to the whole thing— as we will see, again and again, in the essays that follow. The way you deal with the problem of electronic copyright infringement is not by a futile —and politically dangerous— attempt to place greater and greater legal restrictions on the public's access to reading material. The way you do it is by recognizing, cold-bloodedly, certain fundamental economic principles and guiding yourself accordingly. By doing so, you cut the ground right out from under the problem.

Two other things will happen if you do so. The first is that, in purely and immediately financial terms, you will generate a lot more income than you will by following the Pied Pipers of DRM. It is a fact that Baen's way of selling e-books generates more income per unit sold for the publisher —and royalties for the authors— than the DRM methods used by other publishers. Those profits and royalties are still small, of course, compared to the profits and royalties earned by paper editions. But that's inevitable, so long as the electronic market as a whole remains stunted and tiny.

The second thing is that you will generate a lot of goodwill among your customers, where DRM policies infuriate those same customers. And while it's not easy to assign a precise value to "goodwill" in a balance sheet, no one with any sense doubts that it's a very real —and major— asset for any business.

We couldn't have launched this magazine without that asset. We knew from the beginning that we'd have an uphill struggle, trying to create a successful online science fiction magazine that paid better rates to authors than any other magazine, given the small size of the electronic market. But we also gauged that Baen Books had, over the years, generated enough goodwill and trust among its core customers that we could get the support we needed for the Universe Club— given that we'd be publishing the magazine along the same well-established anti-DRM principles that Baen has always followed.

And so it proved. About half the income the magazine receives comes from the Club, with the other half being provided by subscriptions. That's what has so far enabled us to weather this very hard initial period in the magazine's existence— and the reason we're confident we're going to be successful in the long run.

Everyone should understand one thing, if nothing else. The only reason this debate over DRM as it applies to electronic text is still going on is simply because our opponents have what amounts to a quasi-religious and sometimes downright hysterical blind faith in the magic powers of DRM. As a test of competing business strategies in the real world of economic intercourse, the debate is over.

Finished. Done.

We won, they lost— and it was a rout.

In my next essay, I'm going to pursue this question further— by "question," meaning the whole issue of how electronic publishing should be used. In this essay, I only dealt with it negatively, so to speak, by exposing the logical absurdities of the arguments advanced in favor of DRM. What I want to do next is look at the positive ways in which electronic publishing can —if you follow the right strategy— serve as a counterbalance to many of the difficult economic problems that are today facing the publishing industry and its authors and readers.