Maximising income

Originally published, um, sometime in 2011? Can’t find a date.

I am not an economist. Please don’t blame the recession on me.

But in the dim and distant past, I did study economics for a couple of years at school. One of the few things I remember is the supply and demand diagrams (they have a name, don’t they?). It seems to me that this basic method of determining how to maximise profit has been forgotten by many people. Let me give you two, wholly unrelated examples.

The M6 Toll Road
Most roads in the UK are not subject to tolls. A few bridges/tunnels and other odd bits of road do charge for use. There is one part of the major M6 motorway near me which is notoriously busy and a few years ago, an alternative road was constructed which does charge tolls for use. I’ve used it a few times and it is always empty, or nearly empty. I try not to use it because it is expensive (£5.50 for cars, each way), but I travel that route a lot and often I’m a bit tired or running a bit late. The last time I drove down the M6, I noticed that they were announcing increases to the toll charge. Again. I’m not at all surprised that they want to increase their income from the road, since there’s so little traffic on it. I just think they’re going the wrong way about it. I think that if they were to drop the charge to, say £3.50, they would find that they doubled the amount of traffic and thus increased their income.

Okay, this is a lot harder to pin down, since it is a huge and complex industry with lots of different sectors. But the issue I want to focus on is one which affects the whole industry: piracy. Since the introduction of digital books, which have the potential to be copied and distributed electronically, publishers have been panicking about how to prevent pirates from doing this. Piracy is both wrong and illegal and readers ought not to download pirated copies of books.

However, I still think that publishers ought to concentrate more on maximising their income (and thus authors’ royalties) than preventing piracy. It’s true that there is a relationship between piracy and loss of profits. A person who downloads a pirated copy of a book which they otherwise would have bought is taking away from publishers’ profits. The issue for publishers is whether to prevent this by spending money on expensive (and so far wholly ineffective) methods for preventing piracy OR to minimise it by making their books cheaper/more accessible/geographically unrestricted.

You see, I don’t think that it is in the publishers’ (or authors) best interests to make it their goal never to have a single book pirated. I actually think that will not maximise their income. It will require a lot of money to be spent on security and it’s already actively turning customers away. I think it is in the publishers’ (and authors) best interests to maximise their income. Like the toll road, this may be counter-intuitive, but it’s not rocket science. More customers can mean more income, even at a lower price. Don’t price yourselves out of the game.

But even if they’re not prepared to compromise on price, publishers can ensure they get more customers simply buy making it easier for readers to buy their books legally. Get rid of DRM* and geographical restrictions. Give your customers confidence that when they buy one of your books, they’ll always be able to read it. More customers = more purchases = higher income.

Sure, tackle piracy when you see it. Issue DMCA notices. Fine people who misuse their purchased content. But concentrate your efforts on the business you are in. There is HUGE potential for the ebook market to spiral beyond your wildest dreams. Why would you want to do everything in your power to prevent that?

*There’s another point about DRM which I really don’t get. As far as I understand it, publishers are the ones insisting on DRM. But surely it’s the booksellers (especially Amazon) who benefit most from it? If I’ve bought a Kindle, I have to buy Kindle format books. Which, by and large, means I do my shopping at Amazon. Without DRM, I could buy books elsewhere, even if I had to use a tool like Calibre to convert the format. In fact, I could even buy books direct from publishers, cutting out the middle man altogether. I used to do this a lot with Harlequin/M&B before I got the Kindle. But now I have to wait for a month, get the Kindle version, and give Amazon some of the profit which could have gone to the publishers and authors. How is this a good idea?