While piracy concerns are real, e-publishers face a big challenge in creating a viable marketplace for their products, which are still in search of a technology that will attract consumers in large numbers, recent research suggests.
Fewer than 50,000 electronic reading devices have been sold in the United States, according to Internet researcher Jupiter Media Metrix. Sales will limp along through 2005, the research company predicts, reaching just 1.9 million--far too few to sustain a market.
Locking down content with complicated encryption schemes will only make the task harder, some analysts say.
"There's a risk of (publishing) companies going in the wrong direction right now," said Jupiter Media Metrix analyst Robert Hertzberg. "There's no consumer demand yet, so the book publishing companies have to make assumptions of what's going to sell and where the opportunity is."
Discovering the proper role for encryption and other anti-copying technologies in digital commerce will be key to solving that equation. Many content owners say they won't make their most popular titles available to consumers online without some guarantees that the material is safe from copyright bandits. Others argue that no technology or law can provide such guarantees, forcing media companies to develop new business models that capitalize on the newfound power of consumers to copy and trade such works at will.
The strongest example to date lies in the music industry, where record labels are battling a host of Internet start-ups for allegedly spawning massive online piracy. Free music-swapping site Napster, which is fighting for its life in a copyright infringement case on appeal in San Francisco, has funneled 1.39 billion downloads over its service, according to one recent study.
Those large numbers terrify the record industry but thrill some entrepreneurs, who see new marketing opportunities and revenue streams that could dwarf CD and tape sales through traditional retail distributors.
For now, content owners, including book publishers, are leaning heavily toward the encryption model, which is being pushed by a slew of so-called digital rights management (DRM) companies that promise security to thwart would-be copyright violators.
"The problem with the Internet is the content hasn't got any security around it, so it's easy to distribute it freely to anybody," said Mike Broomhead, senior alliance manager of ContentGuard, a Virginia-based DRM company backed by Xerox and Microsoft. "You can send it out to millions of people instantly, and if it's not protected, then you are losing any chance of controlling the intellectual property."
The threat of e-book piracy was forcefully underlined this summer when hackers cracked an encrypted version of Stephen King's breakthrough e-book, "Riding the Bullet." Still, that experiment, which involved a free promotion, is widely acknowledged as the first powerful evidence that consumers might be interested in reading fiction in digital formats. Web sites offering the novella delivered some 400,000 downloads in the first day of the giveaway.
Some e-publishers admit that encryption technology can be bad for business by making it harder for consumers to use products. But they defend their security bias, saying that authors are reluctant to put their works online without guarantees that they won't be victims of Internet pirates.
Even within the DRM industry, however, executives admit that their technology can't stop all illegal copying. That, analysts say, raises serious doubts about the wisdom of putting security issues ahead of building a market.
"Publishers are worrying too much about security control," said Forrester Research analyst Dan O'Brien. "If this is purely a defensive move, it's probably not going to succeed."