10 October 2011

Athol Kay Gets Robbed

Athol Kay posted about how he “lost” $300k in royalties due to having the PDF version of his book pirated and, being both unduly concerned with other people’s business and interested in IP, I thought I would comment on this.  As readers know, I’ve written quite a bit about IP already, believing it to be nothing more than a legal abstraction that exists to give certain people unmerited monopoly powers, hence the reason for my licensing terms.

Anyway, Athol Kay starts his post by saying that he expected his book to be stolen, but that he expected foreign sales of his eBook to counteract the loss of sales due to theft.  Anyone familiar with torrent sites knows that this expectation is highly unrealistic, and Athol quickly came to the same conclusion, figuring that he is only getting paid for 5% of the digital copies of his book that exist.  It’s probably less than 2%, I would guess, because not everyone who downloads a torrent stays continues seeding it, and those who download my seed it on different sites or share directly.  From his estimates, Athol has figured that he’s been deprived of roughly $300k in royalties.

Unfortunately, his estimate is completely wrong.  There is no way that he would even recoup one percent of the book’s sales from piracy because his book is priced too high.  This is the same problem music artists face.  They offer one product (a song) at one price regardless of customer, but much of their product is pirated because their price is higher than most people are willing to pay.

This is, of course, very basic economics.  In economics, there is a concept known as a demand curve, which represents the relationship between price and demand.  In general, there is an inverse relationship between price and demand, which means that as price decreases, the quantity demanded increases.  In general, then, more people demand a product at a lower price than at a higher price.  Athol’s strategy for his eBook, then, should have been to drop the price of his book incrementally over time (by, say, fifty cents every other week, which effectively means that people would exchange time for money).  Alternatively, he could have instituted a variable-pricing model (basically, pay-what-you-want with a price floor of, say, one dollar).  This would have more than likely ensured higher overall sales, as there would undoubtedly be people who would be willing to pay for the book, but only if the price were somewhere below ten dollars.

But that aside, the fact that it’s being pirated would suggest that most people who download the book don’t value the information to be anywhere near ten dollars.  (Bear in mind that value is subjective.)  Information is not costless, although the internet makes it very cheap, so the fact that it’s being downloaded so widely suggests that most people don’t place more than a rather small amount of value on it.  As such, it’s unlikely that they would be pay more than a dime or so to download the book.  As such, these sales are foregone, and never existed in the first place, for the most part.

Now, it’s not very smart of him to take down the PDF of the book because doing so will not eliminate the illegal copies from being transferred.  His costs are sunk and cannot be recuperated.  The PDF will not be going anywhere, and since all the capital costs have been incurred there’s no point in foregoing additional profit.  At this point, the wiser thing would be a price reduction.

In the future, though, it would probably be wise to avoid releasing a PDF of whatever books he releases.  Though a Kindle version is hardly more secure than a PDF, in terms of susceptibility to piracy, it is slightly more difficult to pirate, and that’s enough to effect demand for pirated versions.  However, it will still likely be widely pirated, and some sales will be foregone as a result.

Now, if I can give some completely unsolicited advice, it would be this:  Athol Kay needs to adopt a rock star mentality.  Rock stars, at least the wise ones, realize that giving away music for free is a very good business plan.  Sometimes free music means radio plays, sometimes it means free downloads, sometimes it means free streaming.  The foregone sales are made up by merch sales and tours, which are now more profitable because of the increased exposure.

For Athol Kay, his blog serves as free music, enticing people to buy more.  However, he should view digital books in a similar manner and either giver them away , sell them at low prices (I would suggest under five dollars, but that’s just me), or couple them with a tip jar.  The paperback and/or presumable hardcover should be thought of as merchandise.  He should also consider finding a way to brand some other merch, like t-shirts (or, better yet, a ladies lingerie line) and mugs and other trinkets.

He should also, once doing so becomes feasible, consider doing weekend marriage seminars.  Again, the music industry provides a perfect model for this.  Like an up-and-coming band, he would start by doing regional shows, then, as he breaks onto the national stage, he could do national tours.  I assume that this isn’t particularly appealing to him seeing as how he’s happily married and has a family, but this is nonetheless one way to monetize his blog.

I do want Athol Kay to succeed in his endeavors.  He is, along with a handful of other bloggers, one of my primary influences.  But he needs to understand that piracy is here to stay, and it’s going to get worse for him as he becomes more successful.  Though his gut reaction is to fight piracy, doing so is futile and often counterproductive. What he needs to do, then, is find a way to make piracy work for him.

PS:  I searched The Pirate Bay for both “married man sex life” and “athol kay” and did not get any hits.  I view TPB as the gold standard for piracy prolificacy, so I suspect that his book is not as widely pirated as he thinks.  Still, even if it were, he would not be foregoing much revenue, practically speaking.