In November, when Penguin abruptly announced it was pulling its frontlist e-books from library lending programs, the move was widely perceived as a response to Amazon—and a warning that, whatever the outcome of this latest struggle over e-books, libraries are poised to become collateral damage.
The sudden pullback of Penguin from the library market meant that, of the “Big Six” publishers, only Random House supports unfettered library lending.
Library organizations, including ALA, have repeatedly indicated a willingness to discuss a variety of potential business relationships between publishers and libraries, yet those discussions have not been persuasive to publishing executives, who fear the erosion of their e-book markets from library lending. That fear, however, is misplaced.
The economics of how libraries can offer free access to e-books is a legitimate question. But it’s also part of a larger issue, because the entire sales environment for books has been transformed; technological innovation permits companies to rethink established models of supply and revenue. If nothing else, Amazon’s creation and promotion of new library-style e-book lending programs is an excellent example of that.
The Amazon Way
Lending e-books makes complete sense for Amazon. From the perspective of a cloud-based platform player, the company gains user data and drives traffic to its site, which in turn drives book and Kindle sales, as well as sales of movies, games, shavers, GPS devices, clothes, cellphones, and toys. The move into e-book lending demonstrates that Amazon “understands the power of libraries to promote sales,” observes technology blogger Eric Hellman. It also demonstrates, he adds, “that Amazon is not content to leave libraries to libraries.”
What dismays publishers most about Amazon’s e-book lending program is that the e-books it lends are sourced directly from Amazon—an opportunity enabled by its proprietary Kindle format. When Overdrive launched its Kindle lending partnership last September, it appears to have bet that allowing Amazon to deliver e-book files directly, or, more accurately, delivering library users to Amazon, would be a reasonable trade-off given the additional business Kindle e-books would bring. But it also had another impact: the popularity of Kindle lending in just a few short months has alerted publishers that the demand for library e-books is significantly larger than they previously believed. And Overdrive is inadvertently rewarding Amazon’s dominance rather than furthering a more competitive, open e-book market.
That has publishers, many of which were never entirely sold on e-book lending in the first place, in a quandary. “When Overdrive was distributing content to libraries on its own platform, publishers were able to view Overdrive, and libraries in general, as a counterweight to Amazon,” Hellman explains, “but the extension of Overdrive lending to the Kindle has flipped libraries into the Amazon column.”
If there is an overarching takeaway from Penguin’s recent decision to pull its new e-books from Overdrive, it is this: in playing tactical games with Amazon, rather than close ranks, publishers are willing to throw trusted partners under the proverbial bus—in this case, both Overdrive and libraries. Withholding titles from Overdrive weakens a trustworthy distribution partner, whose product has helped grow the e-book market in a controlled way. And it starves publishers’ best customers—libraries and their patrons—of e-book access.
New Ideas
If 2011 began with cautious optimism, the erosion of publisher support for library e-book lending has mobilized library organizations to consider the future with greater urgency. In the first part of 2012, several scheduled meetings, including a plenary of the newly formed Digital Public Library of America, will bring stakeholders together to discuss the future of e-books in libraries. Although it means a sometimes awkward debate about business models, it’s clear that innovation in library services is requisite to getting serious publisher involvement.
Whether that means endorsing a model of “marketing partner/sales front” or working out the pricing and policy kinks with e-book rental systems, libraries recognize that they are in a difficult position: trying to persuade publishers to provide e-books for lending. We may prefer to see the doctrine of first sale enshrined for digital books through legislation, but political reality suggests that isn’t going to happen. And while some librarians may be willing to consider the possibility that offering access to frontlist e-books is not an absolute necessity for libraries, no one has a desire to go gentle into that good night.
Neither should publishers, because libraries provide a unique storefront for literature. Publishers must recognize that an important strategic sales opportunity now rests where it has never before existed: libraries may be their best retail outlet. The question is: how can we turn this opportunity into a mutually beneficial reality?
One possible idea is for libraries to form a collective to facilitate the provision of e-books. The creation of a next-generation “public library collective” would present some distinct advantages for both libraries and publishers.
A collective could explicitly encourage book purchasing by library patrons, in addition to borrowing; however many copies of a popular e-book are acquired, there will always be a deficit of the most attractive titles. “Buy links” in library catalogues have already been endorsed by some library organizations, including Overdrive, and this could be integrated at an even deeper level by a collective. It would also allow publishers to redirect the retailing of e-books to their preferred point of sale—whether a local bookstore, a chain, or the collective itself, creating a counterweight to Amazon.
With a strong library collective, the publishing business would not be left to commercial technology firms, for whom content is ancillary, to serve their customers. Instead, they would also have the ability to conduct business through a not-for-profit collective that reaches into nearly every single community in the country.
Content aggregation on a single platform would also enable an unparalleled collection of data. Publishers could wind up with something they have not previously possessed—reader analytics. Although there are obvious privacy concerns, let’s recognize that library users are sophisticated enough to make decisions about the data they generate when they browse, borrow, subscribe, and buy from the library. Even when scrubbed to preserve user privacy, publishers could discern patterns of book acquisition and consumption. Users would benefit, too. A collective would enable rich recommendation utilities and content discovery—think Small Demons—and encourage social reading services, such as ReadMill, which could be driven through APIs, such as Spotify’s.
Another prominent alternative involves rental, or “pay-per-use,” scenarios in which the library picks up the rental fee for the reader. A collective could facilitate this, but a for-profit company might also develop this business. Overdrive currently maximizes revenue by encouraging distributed title acquisition by individual libraries and small consortia. In a centralized model, Overdrive could optimize revenue by encouraging affiliate sales over an aggregated library, in which some access is provided for free. In other words, lending as a loss leader—a strategy eerily similar to Amazon’s.
Realizing any of these options, of course, will not be easy. Industry consultant Bill Rosenblatt has suggested that e-books may soon split the publishing industry into the equivalent of the music industry’s major and indie labels. If such a split occurs, he concludes, libraries could be “squeezed out” of lending popular e-books, because without a change in the law, a nonprofit library model will likely be unable to compete with commercial alternatives.
Rosenblatt suggests that explicit support for renting e-books could come via statutory licensing. “If publishers acknowledge the promotional value of library e-book lending, they might be willing to accept a statutory license to lend e-books,” he writes, “if they can negotiate a per-loan royalty rate in lieu of upfront purchase prices.” The Copyright Clearance Center could manage these payments and royalty disbursements, “not unlike ASCAP, BMI, and SoundExchange do for music.”
Another observer, Joshua Greenberg, author of From Betamax to Blockbuster, notes a historical congruence between the e-book market and the emergence of video rentals. In 1987, the Rentrak Company revolutionized access to movies with a trusted auditing platform that served as a mediator between the studios and stores. A similar shift to “subsidized rental” of frontlist e-books could actually benefit libraries, Greenberg says, allowing them to develop algorithms for better rationing their collection budgets. Mechanisms like hold times, meanwhile, would create “speed bumps” where necessary.
Actions
None of us have fully conceived of the model that might deliver a future library, but we can agree that the status quo is not acceptable. Publisher withdrawals from the library market carry serious consequences. Withholding e-books from libraries is an unprecedented denial of access. It also undermines efforts to discuss longer-term business models with libraries and adds to the threat against public institutions, in disregard of their cultural benefits. Ultimately, cutting out libraries reduces the overall demand for e-books—and for reading—especially in comparison to video games and movies.
Could an organization like the Digital Public Library of America serve as a Rentrak, or as a collective, for e-books? Perhaps, though young and saddled with a grand vision at birth, it will be months before DPLA grows into its ambitions. As the sun sets on a difficult year for e-books in libraries there are shadows on the ground of something that could be made to work for libraries, publishers, and readers.
