The twitter news was verified by both RPGNow and Paizo. In fact, Paizo sent me an email reminding me to re-download any products that were not currently on my hard drive. The email read as follows:
Wizards of the Coast has notified us that we may no longer sell or distribute their PDF products. Accordingly, after April 6 at 11:59 PM Pacific time, Wizards of the Coast PDFs will no longer be available for purchase on paizo.com; after noon on April 7, you will no longer be able to download Wizards of the Coast PDFs that you have already purchased, so please make sure you have downloaded all purchased PDFs by that time.
At the time, Wizards had given no reason for the cease and desist on all sales, but it quickly came to light that it was response to rampant piracy of their products. Wizards has recently taken eight individuals to court for illegally distributing their recently published Player's Handbook II.
While I am disappointed in Wizards' decision, unlike a lot of people on the internet, I am not angry. In fact, I understand and think that in the long run this choice may be good and bad for Wizards and just plain ol' good for the industry as a whole.
Before I begin my analysis, you should know that I am a strong advocate for creator rights. This means that I am very much pro-copyright and anti-piracy, though it also means that I am highly critical of corporate "work-for-hire" agreements. I understand some need, in a company like WotC/Hasbro, for "brand ownership" of a property for the purpose of continuity, but I think most writers should receive royalties based on current and future sales of IP they helped create. The fact that Gygax and Arneson saw little money from D&D after they were no longer directly contributing to new editions was a tragedy, as is the fact that Wolfgang Baur sees no royalties from Dark * Matter. The gaming industry could learn a lot from the film, tv, and music industries (particularly the film and tv industries) when it comes to acknowledging creator rights.
In addition to being pro-copyright myself, a friend of mine is former Senior Counsel, Content Protection Litigation at Fox. Not only do I think that he isn't evil for suing the hell out of pirates, I think he was right to do so. This is especially true since Section 512 of the DMCA affords Internet service providers with general immunity for transmitting, routing, or providing connections for materials through their networks. The law prevents companies like Fox from attacking the "deep pocket" highways that allow for the illegal transmission of data, and forces Fox to go after the actual criminals who -- lacking deep pockets -- are often sympathetic compared to big companies like WotC and Fox.
I think Section 512 is good and necessary (because I am a fan of free speech and I don't want corporations deciding what I can and cannot write...as I wrote I am a fan of creator ownership and control), but that the current environment forces corporations to act as "law enforcement" which is potentially bad for everyone. By making corporations the enforcers, the law forces corporations to act against their own interests while acting in their own interests. This is the situation that WotC/Hasbro find themselves in. They must defend their property, because no one else will, but in doing so they will alienate fans and cost themselves money.
So, what do I think they should do? According to Landslide (the American Bar Association's IP trade publication), entertainment piracy is "estimated to cause $18 billion in trade losses around the world last year." The ABA information was based on the International Intellectual Property Alliance's Special 301 Letter to the U.S. Trade Representative dated February 11, 2008. This isn't an industry ending problem, but it is a significant one. There is very good news regarding the majority of IP providers cooperating with IP holders when there is alleged infringment, (according to the same source) "ISP compliance rates remain high even in jurisdictions where the framework of intellectual property laws generally is perceived to be weak." But there is also bad news in that there are (once more according to the same source) "rogue sites and ISPs that refuse altogether to play by the DMCA's rules. One of the most notorious examples is the Swedish torrent index site The PirateBay...it has been estimated that The PirateBay enables more than 40 million downloads of protected content every month."
We have a serious problem, and it's a problem that doesn't merely affect big corporations. I have been a patron of Wolfgang Baur's Open Design Project since its inception and have contributed to every project he has worked on so far. The purpose of the project was to create a product that only the funders would have the ability to use. It isn't cheap to participate at the "Patron" level, and I have never felt so used as a consumer when I discovered Open Design Projects listed in bit torrent indexes. While it is true that small companies can actually benefit from file sharing, it can replace advertising for these firms, it is also true that word of mouth without file sharing could work just as well. There is such a thing as fair use and while the particulars of fair use are vague, it certainly includes reviews on websites and message boards.
This problem isn't limited to entertainment either. The AP recently announced that it will be taking a more active role in enforcing the proper use of its content on the internet. For years, people have been cutting and pasting AP articles without paying for the right to publish them and have been contributing to the strains on the news industry. The news industry certainly has other problems as well, but it is still true that the "information wants to be free yo" crowd are helping to nail the coffins in on that industry. And if you think that web ads are going to pay for everything and allow for all the free content you want, you might want to read this article in The Register. Apparently, YouTube "will lose parent Google $470m this year, because it can't generate worthwhile income from advertising." And if advertising won't make up the difference for what is given away free, Atlas will Shrug and the content will go away.
And that is exactly what happened with WotC. Atlas Shrugged and essentially told the world that it was taking its digital toys home and not letting anyone else play with them. This has made a lot of fans very angry. And while it certainly won't stop pirates, it will allow WotC to look for ways to better predict the impact of piracy on their profit margin and provides them an opportunity to look for alternate ways to offer the products digitally.
And here's where I finally write how this is good and bad for Wizards, and just good for the industry.
THE GOOD AND BAD FOR WIZARDS
The good is that Wizards is protecting their intellectual property and is showing a genuine desire to proactively go after pirates. The music industry lawsuits may have been onerously expensive and cost the labels a lot of goodwill, but they also reduced piracy. The lawsuits work. People are actually rational actors and weigh the costs of paying a small fee for a song or potentially getting sued. Wizards actions will likely reduce the amount of piracy they are suffering.
The bad, well...it's the same as the good. Wizards' fans are beginning to feel as if they are the ones being attacked. I don't personally understand how any non-pirate could ever feel this way, but many do. Add to that the fact that Wizards' isn't just suing the fans who are pirates, they are punishing fans who have done no wrong by removing the product from the internet and you have a public relations disaster. This is bad for WotC/Hasbro and is more evidence that the current legal team at WotC have no idea how to deal with their consumers. The first was their awful attempt at a Game System License for 4th edition -- it was too restrictive and like yesterday's action seemed to punish those who wanted to work in WotC/Hasbro's best interest.
I think it is a good thing that WotC/Hasbro removed all of their newer product from digital availability. They still have publishing costs on most of this stuff. They have physical product, which is far more expensive to produce than digital, that needs to "turn over." The 4th edition stuff, contrary to naysayers, is selling well, but it would sell better if piracy were minimized. This is moderately sound business.
I think it is a bad thing that WotC/Hasbro have removed access to all of the out of print product. The bandwidth costs for the products was being absorbed by the online stores, so these were nothing but a revenue stream for WotC/Hasbro. Now the only way to get these products is through second hand distribution, legal and illegal. Either fans hunt the books down on eBay or fans download them illegally. They have no other options. This is bad business.
What WotC/Hasbro need to do is make the old and new available in ways that minimize, because you cannot eliminate, the affects of piracy. The first thing they can do is use a World of Warcraft/Music Subscription model for their digital content. By using a Flash based reader they can allow DDI subscribers to access all of the 4th edition books currently available. They should do this at two fee levels, the player fee and the DM fee. "Players" would be able to access, with an internet connection, any and all player oriented books that are currently in publication -- in addition to other DDI materials -- anytime they want. They will be allowed to read the books for no additional charge. When the core books were the only books, this would have meant just the Player's Handbook, but as time passes it includes more and more books for the same fee. "DMs" should be allowed to read all publications, on Flash Paper, that are in publication for the current edition. It is up to Hasbro whether they want to allow the printing of these books, rather than just the reading of them, but I would recommend that they do.
They should also make available Kindle editions of the books...just for me.
Second, they should allow the purchase of all older editions through either traditional channels or their own pdf store. Piracy is no more, and actually less, a problem with these products when they are available for sale. Currently, you can get the entire catalog on various bit torrents, but you cannot buy them. Let consumers buy them and minimize the damage that piracy is doing to your bottom line. Do this now!
This may be what they are planning, but WotC/Hasbro have been silent on the issue and this is costing them loyalty and goodwill. This also provides a wonderful opportunity for small businesses to fill the gap.
JUST GOOD FOR COMPETITORS
By pulling out of the digital marketplace, WotC/Hasbro have left a large number of legitimate consumers in search of a product provider. Smart companies like Paizo (they are offering their Pathfinder PDFs for 35% off the regular retail price through the end of April), Rogue Games, Louis Porter Jr. Design, are immediately seizing the opportunity. With lower overhead, and lower advertising budgets, than WotC/Hasbro they have much to gain through goodwill and less to lose from piracy. Companies like WorldWorksGames still worries about pirates, but they beg their fans to not become them. They use their small size as a marketing tool to dissuade piracy, and it works...a little (see Open Design comment above). Companies like Pinnacle Entertainment Group couldn't have survived some pretty rough patches if it weren't for digital sales. They still suffer piracy, but their rules and products are also inexpensive so hopefully many pirates become customers in the long run. As I wrote earlier, piracy can serve as word of mouth for these companies. One imagines that few people are so callous as to acquire all of their products through piracy. But it is still true that the same word of mouth could be achieved without piracy.
Nothing will stop these smaller companies from risking the seas of piracy, as they have less to lose than WotC/Hasbro -- and that is a good thing. It is good for the hobby if more companies are competing for your dollar, it leads to innovation in gaming. Savage Worlds, Pinnacle's excellent RPG, wouldn't exist if they hadn't needed to find a new way to compete. The Indie Press Revolution is filled with excellent games, available digitally, looking for your gaming dollar. As long as WotC/Hasbro stay out of the digital market, these companies will have a chance to grow, and that is good for the industry.
It might be bad for WotC/Hasbro, but that depends on what they do in the next few weeks. And I think that is all they have before to announce where they are going digitally before the ill will will overwhelm them.