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They out competed their rivals by physically producing cheaper books.
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Actually they didn't, they outcompeted their rivals by tailoring to the needs of the demographic. Big luxurious leatherbound editions to the wealthy, cheap paperbacks to the common workers.
I think your both right and wrong in the example of the picture book. Right in that it's being sold as a luxury object, being a picture book which makes it emminently more suitable for just this kind of thing.
Wrong in that it's immune to piracy, people are copying cartoons left and right. Also, selling a copy of the book as luxury goods is not the only deriviative they are getting from it.
I think we're talking a bit past each other here, so let me end this by saying:
There's already a thriving content creating community giving away their works for free, in the hopes of getting a broad fanbase. Be it books, music, services or programs.
People can already get (in some cases) superior products for free of ebooks etc. easily downloadable in a few clicks.
Really all thats making people pay currently, is because they either want a physical product (an object) that you can tailor and compete with other industries copying or because they believe in contributing to the authors/industry or finally for ease of use, getting all ebooks from one single bookstore. These are the same things you'd tap into, to do well in a market without copyright.
Btw just to clarify my position, I am probably not for an abolishment of copyright due to adverse effects on industries with a high cost initial research investment (pharmaceuticals for ex.). But I think at the moment that copyright acts like a stopgab slowing down the development of creative industries market models.
I think alternative models work, I think they might actually be more lucrative for the individual authors and less lucrative for the publishing industry, which is fine with me. Thats just speculation though. However in my experience, whenever there is a need, people always find a way to make money on it.