by: David Vinjamuri
Libraries and big six publishers are at war over eBooks: how much they should cost, how they can be lent and who owns them. If you don’t use your public library and assume that this doesn’t affect you, you’re wrong.
In a society where bookstores disappear every day while the number of books available to read has swelled exponentially, libraries will play an ever more crucial role. Even more than in the past, we will depend on libraries of the future to help discover and curate great books. Libraries are already transforming themselves around the country to create more symbiotic relationships with their communities, with book clubs and as work and meeting spaces for local citizens.
For publishers, the library will be the showroom of the future. Ensuring that libraries have continuing access to published titles gives them a chance to meet this role, but an important obstacle remains: how eBooks are obtained by libraries.
This column is the first in a two-part series about libraries and their role in the marketing and readership of books. This first part addresses the present conflict. The second part will look forward to the future for libraries and publishers and the important challenges that they must address.
The solution to the current pricing problem lies in understanding that the argument publishers and libraries are having is the wrong argument. It is based on the paradigm of the printed book and as such presents a series of intractable challenges for both publishers and libraries. By changing the model for pricing an eBook, both parties could find a clear and equitable resolution to the current impasse.
The Issue
Do libraries increase book sales or cannibalize them? This is the issue at the heart of the struggle between libraries represented by the American Library Association (whose president is Maureen Sullivan) and the Big Six publishers.
The current struggle is taking place in a landscape that will be familiar to those who followed the travails of the music industry over the last decade. Publishing is changing dramatically as it tries to cope with the rise of eBooks and the increasing power of Amazon, the decline of bookstores and a flood of low-priced indie titles. In spite of the good year that Random House is experiencing (anticipating a merger with Penguin and just having paid employees a $5,000 bonus each thanks to the success of once-indie author EL James’ Fifty Shades trilogy), most publishers have found it difficult to maintain sales and profitability in the current environment. Whether they’re doomed or not is debatable, but no mainstream publisher is comfortable in the current environment.
The landscape is also shifting for libraries. The Information Age has posed numerous challenges to the public library, as Steve Coffman adroitly chronicles in “The Decline and Fall of the Library Empire.” Libraries have struggled to understand their role in communities as technology has changed. In addition to encouraging children to read and lending books, they have migrated from providing access to online databases to cataloging the web then providing computer terminals and now broadband access as the needs of the citizenry for information has changed. The shift in reading towards eBooks presents a particular problem for them because it’s happening with startling rapidity and presents significant technological challenges.
In addition to the central issue of pricing, libraries are struggling with the copyright implications of eBooks, their role as curators and promoters of reading in an age where publishing is exploding, dealing with technology intermediaries and gaining access to the newly available wealth of self-published works.
The Library Perspective
The central issue for libraries is simple: they believe that withholding eBooks from libraries entirely, pricing them higher or limiting lends all undermine the library’s core mission. Robin Nesbit, of the Columbus (OH) Metropolitan Library System told me that although her eBook circulation of 500,000 lends annually is only 3 percent of the system’s total, that number is growing by more than 200% a year. “Plus it’s at least 10% of our budget.” Between the cost of eBooks and a technology component, providing access to eBooks is three times as expensive for her as physical books.
This pricing pressure is significant and it’s being felt across the country. Jamie LaRue, Director of the Douglas County Libraries in Colorado told me that,
I saw a decrease in use that was hard to explain because our libraries are busy. Then I looked at our inventory and realized that the problem is that as we shift our dollars to eBooks, I am buying fewer items because the prices are so much higher.
The challenge to libraries is not insignificant. Four of the six publishers are not providing eBooks to libraries at any price. The other two – Random House and HarperCollins lead the industry with two different models. Random House adjusted eBook pricing in 2012. While the prices on some books were lowered, the most popular titles increased in price – some dramatically. Author Justin Cronin’s post-apocalyptic bestseller “The Twelve” whose print edition costs the Douglas County Libraries $15.51 from Baker & Taylor and whose eBook is priced at $9.99 on Amazon was priced at $84 to Douglas County on October 31st.
HarperCollins meanwhile has adopted a different model, selling eBooks to libraries at consumer prices but electronically limiting them to 26 lends and then requiring that the book be repurchased. Robin Nesbitt sees this as fairer to libraries, but she points out that it’s still much more expensive than print books, “I get forty to fifty lends from a bestseller in library binding. But at least they’re playing.”
And that’s the bigger problem. As detailed below, the rest of the Big Six aren’t playing – at least not nationally. That’s a big warning sign for libraries, as fully 80% of lends – and an important part of their traffic – comes from bestsellers. While it seems likely that most of the other publishers will eventually play, the terms may be worse than those offered by Random House and HarperCollins.
The Publisher Perspective
Publishers worry that library eBooks will hurt their eBook sales. They have less friction than physical books. When they speak of friction, publishers mean that borrowers don’t hold eBooks late, they arrive instantly for the next patron in line, they never wear out and they don’t even require a trip to the library. To some extent, publishers may also see eBooks as a way to improve a situation that they were never really happy with: unrestricted lending of retail-priced books (more on this later).
I talked to Skip Dye, the VP of Academic & Library sales and marketing for Random House. Dye seemed genuinely supportive of the mission of public libraries and very sophisticated in his desire to use research to determine the amount of friction that actually exists in library systems. He said that the Random House is “format agnostic” but acknowledged that,
We went through and looked at our pricing and wanted to make sure that the right value conversation was happening between our library patrons and us. Some titles went up as much as 200%, some went down in price.
Dye and others who work for big publishers and deal with eBooks have another challenge that library directors do not: layers of management that already believe that eBooks may kill large publishing houses and view their growth as more of a threat than an opportunity. A big part of the problem is data – there’s a paucity of it. Dye has reviewed the Pew Report on library usage extensively to inform pricing decisions. But if the institutional bias among publishers is to see eBooks as more threat than opportunity, title and library-specific data will be needed to prove that either friction or cannibalization are less than expected in order to justify consumer pricing for libraries.
Where the Big Six Publishers Stand Today:
Random House – Sells eBooks to libraries through multiple distributors. Prices were adjusted in 2012. Although some prices were lowered, the distributor price to libraries for some popular titles such as 50 Shades Of Grey range up to $84 for a single eBook copy – over 8 times the price of the eBook on Amazon.
HarperCollins - Sells eBooks to libraries through multiple distributors. On some popular titles it has restricted eBook usage to 26 “lends” after which the library must repurchase the book.
Penguin – Penguin (slated to merge with Random House) is conducting a test of eBook sales to libraries (through a single distributor, 3M) with the New York Public Library system. eBooks will become available six months after their publication date. While pricing will be similar to physical books, the books will only be available to the library for one year, after which they will need to be repurchased.
Hachette – Only sells older eBooks to libraries (through the distributor Overdrive). Hachette increased prices for these older eBooks by an average of 220% in October.
Macmillan – Does not currently sell eBooks to libraries. Macmillan has announced a test of eBook sales to libraries but not announced details.
Simon & Schuster – Simon and Schuster does not yet sell ebooks to libraries. According to Carolyn Reidy, CEO, “We have not yet found a business model that makes us happy. That’s why we’re not in it.”
Evaluating the Arguments
“In the absence of data people say either what they fear will be true or hope what will be true.” – Robert Wolven, Columbia University Libraries
Publishers make three basic arguments for either raising prices on eBooks or limiting their distribution:
•eBooks Don’t Wear Out – This argument is overstated. The libraries I spoke to said that print bestsellers see more than 26 lends over their lifetime, up to 50 or more before the book would need to be retired.
•eBooks Lend More Frequently – Publishers may not have checked out a popular book from their library recently. After signing up on a list, a patron gets a call when the book becomes available and if she doesn’t get to the library that same day someone else on the list may get the book. At the end of her rental period she will also get a call if the book is not returned precisely on time. The librarians I spoke with said that a book in high demand would spend very few days in limbo. This may account for one or two additional eBook lends over the course of a year, but not more.
•You Can Borrow eBooks Without Visiting The Library – Here the publishers have a more valid argument. The removal of the need to visit the library could attract an entirely different consumer to borrow eBooks. In a survey conducted by the ALA and Overdrive, 31% of eBook library borrowers say that they “rarely or never” visit the physical library. While 36% said that they had purchased a book after borrowing the same title from the library, over half said that they’d consider purchasing an eBook from an online retailer if it was not available from a library. While libraries are very customer-service oriented, it’s not clear to me why they would want to disintermediate themselves from the lending transaction. Borrowers will be more reluctant to visit the library but that necessary visit gives the library the opportunity to promote a variety of other services.
Libraries have three counter-arguments to publisher concerns:
•Libraries Also Buy Duds – Libraries have a valid point when they suggest that all the margin analysis done by publishers on their most valuable books ignores the fact that libraries buy thousands of titles each year which see few or no lends. Unlike physical booksellers, they do not pulp or return these titles. Unlike Amazon, they have to pay the publisher when they purchase the title, not just when they lend it out to their readers. As customers, libraries feel that their risk profile has not been adequately appreciated by publishers.
•Libraries Stimulate Sales– This is partly true. The libraries point to data I’ve already quoted showing that a significant number of readers go on to buy books they’ve borrowed. I’ve examined the data and it suggests two things.
•Bestsellers Probably Do Cannibalize: Though survey research is notoriously poor at predicting actual purchase behavior, the ALA/Overdrive study shows that over half of e-borrowers might consider buy a bestseller they couldn’t find at a library. Even if this number is smaller in practice, libraries probably don’t increase sales for books already on the bestseller lists.
•Libraries Help New Authors and Older Titles: Most Big Six publishers are hopelessly unsophisticated with pricing. They perversely discount bestsellers and end up charging a higher price for new and unknown authors. By removing the price hurdle to full-book sampling, libraries can help these authors build following and word-of-mouth sales.
•Libraries Deserve Big Customer Pricing – This argument is true but irrelevant under current law. Libraries assert that although they are smaller than Amazon, Barnes & Noble and distributors like Ingram, they are still big customers. They deserve lower prices than individual consumers rather than higher prices. The problem is that this is an argument that assumes that libraries own what they buy. It’s true for physical books – which is why libraries receive preferential pricing to ordinary consumers. But it is not true for eBooks. Libraries license eBooks rather than buying them. Thus, libraries are treated like resellers rather than end users.
The Real Problem – Both Sides Are Having the Wrong Argument
The argument between libraries and publishers has proven so difficult to resolve for a simple reason: both sides are using a faulty paradigm in their negotiations. They are treating eBooks like physical property, not software. This compels them to create difficult and complicated schemes for reproducing the ownership experience. But the data to determine an equitable price to sell eBooks to libraries in this scenario are almost impossible to collect. So the sides remain deadlock and guided by their own pre-existing beliefs rather than fact. The simple fact is this:
eBooks are Licensed, not Sold
Physical books are sold to libraries under the First Sale Doctrine, established under the Supreme Court ruling in Bobbs-Merrill Co. v. Strauss in 1908. In this case a publisher, Bobbs-Merrill, sued Macy’s when they violated the publisher’s copyright (and a collusive industry pricing practice) by pricing a book eleven cents under the publisher-mandated retail price of one dollar. The court ruled that certain aspects of copyright do not survive the first sale: in particular, the owner after the first sale may resell or lend the book for any price. (Caleb Crain writes a much better summary of the law and its current implications than I can in his blog Steamboats are Ruining Everything) It is this First Sale doctrine that allows bookstores to discount and libraries to lend.
Under current law, though, eBooks are not books – not under copyright law, at least. Instead, they’re sold under a use license, just like software. This issue gets a little complex because the pricing rights of the copyright holder are not absolute – as the Justice Department has recently established – but they do currently include the right to treat libraries as resellers rather than a buyers. While I believe that libraries should promote a test case to challenge this law, the law will not change soon. In the meantime, though, thinking of eBooks as software points to a simpler, and surprising more equitable way to settle the current publisher dispute.
Solution: Charge Libraries Per Lend Based on Cost-per-Circ
There is one number that libraries can easily calculate which publishers will understand: the cost-per-circulation. This number is simple to calculate. It is the number of lends and divided by the cost of the books lent. This number is somewhere in the 50 cent to $1.00 range according to both publishers and libraries. It can be calculated separately by publisher and even split between bestsellers and older titles.
Even though libraries might naturally fear this, the per-use model has huge advantages to both libraries and publishers under the current copyright law.
Advantages to Publishers:
Measurability – Cost per circ is easily calculated. It requires no assumptions about borrower behavior. Calculating it requires only data that the least sophisticated library system already collects.
Flexibility – The ability to discount doesn’t disappear the moment a book is sold. Although libraries are not historically price sensitive, pricing becomes a valid tool for publishers as they manage the lifecycle of a book.
Equity – Publisher’s stated goal is to control the sale and avoid cannibalization. This model assures equity with current physical book sales.
Advantages to Libraries
Better Access – Every library could have instant access to every title sold by every publisher.
Lower Risk – Libraries would spend a fraction of their current cost for titles that attract few borrowers but still be able to catalogue them.
Better Financial Control – Libraries can make intelligent decisions about how to use limited resources. Rather than trying to predict borrower behavior they can react to it.
Fairness – Digital books would not increase the current cost per circ for the library.
Big Six publishers and libraries recognize that eBooks present new and difficult issues to each party. For better or worse, Big Six publishers are unlikely to adopt a pricing model for eBooks that mirrors how print books are sold to libraries. But current pricing and lending restrictions unfairly penalize libraries to the detriment of publishers and readers. A system based on actual use would more fairly allocate cost and risk as long as eBooks are not governed by the First Sale doctrine.
NOTE: This article is part 1 of a two-part series. The second part will focus on the future of libraries. The next part will cover concerns with technology, small publishers and self-published authors and how the publishing industry and libraries can symbiotically grow together.
from: Forbes
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