This is one in a series of posts on the challenges of ebooks. Conversation about the topic is hosted by the Books in 2025 group. See the discussion topic there.

opinion by Tim

A recent blog post at Dear Author raised the issue of ebooks and ownership rights. Ebooks are redefining ownership toward access rights. New models are emerging, like advertisements in books. Jane concludes:

“I’m sure that there are other possibilities but with the amelioration of ownership and comparable media prices, digital books will come down from their current position and this, in turn, will create new business models and new pricing models. Could publishers resist the downward pressure of ebook pricing by coming up with a business model which would result in increased sense of ownership and thus value to the consumer? Is cloud access that model? What other ways could publishers and authors increase the value of ebooks to consumers?”

I suspect the answer is nothing. The loss of ownership creates a downward spiral in value, and erodes the very notion of paying for books at all.

Defining ownership down. We used to own our books. With most ebooks we own them in name, but effectively we lease them. As Jane documents, the slide toward more and more attenuated concepts of ownership continues.

The process is gradual. Mental models change slower than technology. If the Kindle had debuted with an access-based “faucet” model, it would have failed. Consumers would not have traded true ownership for a tethered, metered and monitored product. But we’ll get there soon enough, as each step away from ownership makes the next step more acceptable. Once you realize your Kindle book is not fully yours, you’ll accept it being mostly not yours. Google Ebooks are a further step away from ownership. Eventually you get to a faucet model, as music has done, either low-price (Netflix) or free (Pandora, YouTube).

By itself, such changes might be culturally and economically neutral. Ownership of paper books wasn’t so much a consumer preference as a side effect of their physical nature, and law followed and solemnized that state of affairs. Maybe the faucet model will produce more readers, more reading, more good books, more paid authors, etc. Or maybe it will produce less. Who knows?

The role of piracy. I think we know. And the trends are negative, for both readers and authors.

Unfortunately, digitization and the faucet model tends to encourage a third option–piracy. Digitization makes it possible, but the faucet model encourages it. This happens in two ways.

First, people who love autonomy and personal freedom rebel against metered and monitored access to reading. They don’t want inconvenient DRM, monstrous and opaque licenses, transfer limitations, constant access requirements or icky, opaque monitoring. These people will turn to piracy to avoid it. (Or at least that’s what they’ll say they’re doing.)

Second, the more ownership is devalued, the less people care about the rights of the seller. When someone sells you something they made, or through a small number of simple intermediaries, it’s easy to see what’s wrong about cheating them. When authors’ work is reduced to a limitless soup, available through shiny digital spigots at cheap, but limited, rates, it’s hard to see where problem with piracy really lies, and easier to rationalize cheating authors.

As devalued ownership feeds piracy, rising piracy in turn devalues ownership. Anyone with an internet connection can rapidly assemble a “library” of books it would have once taken years to build–so why bother building one?

As the logic churns, content sellers will increasingly seek other ways of “monetizing.” Authors will charge for readings, or merchandise. They’ll try advertisements. They’ll start leveraging all the user data they’re collecting to create even better ads. None of this will replace more than a fraction of the book economy, but they will definitely send a message to consumers: You’re being screwed enough to pay for the privilege.

from “Music’s lost decade by David Goldman, CNN Money

Look elsewhere. Does impaired, devalued digital access encourage piracy? Many ebook pundits dismiss ebook piracy. “New models” will emerge. Piracy is better than obscurity. People will pay once everything is available for a “fair” price. The arguments are familiar, and have an air of ritual now. Hip conferences urge publishers to do a swan dive into an empty swimming pool.

Don’t need to take my word for it. Just look at all the other industries that have gone digital. Take music. Physical music sales have been declining steadily for more than a decade, and while digital sales rise, they make up only a fraction of the loss. (They’re not even rising much anymore either.) Revenue from Pandora, Spotify, YouTube ads and the like are loose change next to CD sales declines.

What’s the shortfall? All told, the United States recorded music industry is worth less than half of what it was a decade ago, and the downward slope is only getting steeper. Outside of the big markets, the declines are greater. The Spanish music industry fell 55% in the last five years alone. In China rampant CD copying and file sharing have left a nation of 1.3 billion people with a $75 million recorded-music industry. As a recent Economist report put it, the “worst-case scenario has already come to pass.”

Music has it easy compared to writing. Musicians have always relied on other revenue sources. Performance is the big one, but merchandise and licensing matter too. Authors don’t have the same options. Dickens engineered a profitable reading tour of the United States, as new-model enthusiasts always point out. But how many authors could do that today? How many could fund themselves on t-shirt sales. And will anyone pay authors to read sentences from their novels over an Audi advertisement? The ringtone market holds limited prospects.

The unashamed future. As William Gibson said, “The future is already here; it’s just not very evenly distributed.” I saw that future at a recent technology conference, hosted by NYU. Of course, the participants were all well down the digital road. All read digital books, and many had given up paper entirely. (In certain circles announcing that you haven’t read a physical book in X months is a boast, and people compete to have the highest number.)

But one individual stood out. In a mixed crowd of peers and professors this brave futurist shared her decision to stop buying book altogether. She loved books. She read a lot. But she could find everything she wanted to read on BitTorrent. Nobody objected. It may have been my imagination, but I thought I saw a mystical crown settle squarely on her head. She was the coolest person in the room. She was the future.

Publishers and authors, meet that future. And know that with every move away from ownership you are hastening its arrival.

This publisher has pledged to support eBook lending for libraries.
(Find out more.)

The idea arose from an email I wrote on Web4Lib, which argued the rather dismal economics of ebooks in libraries, and noted that if “advocacy” was going to get anywhere it had better happen soon. After all, the ebook market is already about twice the size of the library market.

Anyway, my one constructive suggestion was to start the public campaign, to get publishers to commit publicly to a slate of lending rights for libraries.

To assist that effort, libraries (ALA?) should establish a “Good Housekeeping”- or “Organic”-style sticker that authors and publishers can slap on their books and webpages. By doing this they would get something in return for continuing First-Sale-style rights when they sell ebooks to libraries. They’d get a halo, a way for libraries to know what ebooks to buy and what publishers to support, and a way for regular readers to show their love for libraries in an ebook age.

Anyway, an idea. Lots to work out, of course.

“How big will ebooks get?” A lot hangs on that question. Right now ebooks represent perhaps 7% of the total book market. A world where they rise to 20% or 25% and stop rising differs substantially from one where they rise to 50%, 70% or 90%.

Without arguing the point, I see a 20% market as one in which bookstores continue to survive in significant numbers, publishers continue to have an important role in the book world, and public libraries mostly carry on as usual. At some higher level I see most bookstores vanish, non-academic publishers largely disintermediated away, and public libraries in crisis. (For libraries see my posts on ebooks in libraries.)

Feedback loops. My contention is that ebooks rise far above 20%, becoming the dominant book format, because the logic of ebook success has built-in feedback loops. You can call it “success breeds success” or “vicious cycles” as you like. Same idea.

I’ve never seen someone lay out ebook feedback loops in detail, and I’ve recently run many people who seem to think ebooks will “stall out,” so here’s my attempt at articulating the logic as I see it:

1. Ebooks win on convenience above all; you can download something and start reading it immediately. Bookstores win on browsing and socializing. As ebooks cannibalize print sales, booksellers will go out of business, making paper books increasingly hard to find, and therefore less convenient, harder to browse and less socially rewarding (see also 7). Ebooks kill bookstores and dead bookstores drive ebooks–a classic feedback loop.
    
2. Paper books depend upon economies of scale. As you print and distribute more books the cost per book goes down rapidly. The physical-book industry depends upon these economies. But when scale shrinks, everything runs in reverse. As ebooks take off paper-book costs will rise, making them relatively more expensive (3), and others will become unprofitable, eliminating the choice altogether (4).
    
3. Ebooks are already cheaper than printed books, and bound to get cheaper still. If popular print books are cheap because the marginal costs are low, digital books have no marginal costs. They’re not free to produce; even apart from money to the author and publisher there is a substantial cost associated with preparing the digital file. That cost is “baked into” the ebook price. But it’s a fixed price, divided over the total number of copies sold. As volume increases that price will be spread out further.
    
4. As books drop out of print, ereaders become a necessity. Ereaders today are a choice. Some prefer them, but nobody needs one. As books drop out of paper, ereaders will become necessary for people who don’t want to be constrained in their purchases. This will drive device adoption and therefore ebook purchases (5).
    
5. As ereaders proliferate, ereading does too. eBooks suffer from a relatively high initial cost, but ebooks are generally cheaper. Once a consumer gets over that cost and has an ereader all subsequent book-buying decisions are influenced by that sunk cost.
    
6. Ereaders become more powerful as you buy more books. First, on a personal level, there is a big difference between a device that has a few books you bought since Christmas and a device that has everything you’ve read since high-school–all in in one place and searchable. Right now most ebook people people have the former. Soon they will have the latter.
    
7. Second, we will soon discover that ereaders are a networked good, like the telephone or the internet. As more people use them, they become better. Ebook “sharing” features are intentionally crippled, but they gain in value as more of your friends and family have the devices. The same applies to the possibilities for “social reading.” We have only begun to explore this, but, as LibraryThing and its immitators have shown, social reading shows great promise. It will be even more valuable when fully integrated into the book.
    
8. As ebooks take off, we will figure out what they’re good for. Five hundred years of development have shown us what paper books are good for, but we’re still learning about ebooks. As ebooks become a larger share of the book market ebook-only advances will become worth pursuing. “Enhanced Ebooks,” like The Elements, will be part of the answer. But I suspect the real gain will come in genres that didn’t work as well in print. Nothing about short stories or poems requires they be bound together into anthologies or sold in tiny and expensive editions. The economics of print did that. Ebooks will change the market logic, and then change expectations. I don’t see someone accustomed to buying short stories on their Kindle reverting to the print-book model of buying anthologies.
    
9. Right now–and I believe for a long time–ebook success accrues to a small number of companies, with Amazon in the lead. Concentrated power of this sort is bad news for publishers struggling to retain high ebook prices. Last year, MacMillan could afford to lose all Amazon sales for a time in order to put presure on Amazon’s pricing model. As eBooks rise, Amazon’s share of the book market will only increase. This would be true of ebooks even if the death of physical bookstores didn’t give Amazon a larger and larger share of physical book sales. A rising share is not going to make it easy for publishers to keep pricing power, and thus delay ebook adoption.
    

Any I’ve missed?

A publisher counts its library ebook money.

Ebooks are hot, and libraries are noticing.

The public library conversation about ebooks is also heating up. Unfortunately, much of the conversation ignores a critical factor that makes ebook lending problemmatic. That factor is not luddism, but the simple fact that, for libraries, ebook economics doesn’t make sense.*

The $0.50 Circ. I’ve written on this topic in the past. My contribution today was for me to spend some time trying to figure out what it costs to take out a paper book from a public library. What, in other words, is the cost per circulation?

I did some quick work at the Institue of Museum and Library Services’ Library Statistics, which collects statistics from some 9,000 public libraries, and presents them in a simple, searchable interfact.

The data is pretty sparse, but it does include two critical data points: Total Collection Expenditures and Total Circulation. From these you can derive a third statistic, Cost per circulation.

For example, if the South Portland Public Library spends $78,038 per year on materials, and those materials are taken out 249,431 times, we can see deduce that the cost per circulation was $0.31.

All told, I surveyed 25 libraries, running down town names—eg., Portland, ME ($0.54), Portland, OR ($0.29), Portland, CT ($0.51), Portland, IN ($0.31)—as well as including a few big systems—eg., Dallas, TX ($0.48), Charlotte Mecklenberg ($0.50). You can see my spreadsheet here.

The average of all comes out at $0.50. I don’t think a much larger survey would change that by more than a dime in either direction.** (If you want to run the full numbers, and have a copy of Microsoft Access, ILMS has the data files.)

Unfortunately, this doesn’t get us all the way to a book circulation number. But it gets us close. Print circulation still makes up the majority of circulation transactions. And books are not the most expensive materials libraries circulate. So whatever the number, it’s near $0.50.

Come and get your half-buck! Cost-per-circulation is a critical number because it shows how much libraries are spending to satisfy their patron’s reading needs–ignoring staff, building, etc. If the switch to ebooks causes that number to rise, we can expect library budgets to rise as well. If it rises a lot, library budgets will rise a lot.

Unfortunately, to keep library budgets the same, ebook sellers will need to accept $0.50 for each library loan. That’s not just the publisher’s money. The same $0.50 must compensate the publisher, the author and the ebook seller—all of whose costs were figured into the previous $0.50 calculations. (You can perhaps begin to understand why publishers and authors have never liked libraries, although few will say it openly.)

This princely $0.50 is compared to what ebooks go for, on average, in the consumer market. Of course nobody knows the answer there, but Amazon has tried to get everyone to adopt a $9.99 price point for popular titles and the average must be on this order. So, in order to keep library budgets in line, ebook sellers will have to be willing to accept 1/20 of the revenue they could get from the consumer market.*** Even assuming some library buyers buy less than they would have loaned, that’s a daunting ratio.

The magic is over. Will ebook sellers accept the $0.50 deal? Of course not. To think optimistically in the face of such numbers is to avoid the problem. Publishers, authors and ebook sellers aren’t stupid.****

Libraries at least are smart. Libraries are so great because aggregated lending is a wonderfully efficient thing, wringing high value from low cost. By buying books for the whole community, and making them generally available, libraries managed to reduced the cost of reading to a paltry half-dollar, far less than a paper book ever cost. That was a magical time.

With ebooks, that time may be over.

Reply to “How is this in anyway different from the case with pbooks? Hardbacks normally retail well over $9.99, yet library shelves are filled with them. Somehow the publishers manage to survive with this.”

The difference is that publishers have never been able to stop lending–by libraries or anyone else. Like reselling, giving and inheriting, lending is a basic right we have so long as its not taken away. The only way to take it away is through a law (as applies to software rental) or a contract. Publishers actually did try posting notices inside books, preventing resale (see Bobbs-Merrill Co. v. Straus), but it was stopped. A real contract requires both sides to explicitly agree, and notices like that were ruled not to constitute a contract. In theory, bookstores could start requiring real contractings, only selling you a book on the condition you didn’t sell or lend it to someone else. Obviously, this would outrage people, so it’s never been tried.

eBooks make theory a reality. All the ebook licenses constrain gifting, reselling and lending, and most prohibit it entirely. The media change has largely obscured the shift. People know they can’t lend software, and indeed it makes a certain amount of sense. Digital goods are so frictionless an unlimited ability to lend, even constrained by a one-at-a-time rule, would quickly give rise to a massive lending clearinghouse, and a publisher would only sell as many copies of a book as were being read simultaneously at its peak.

As far as surviving, my post made no claims whatsoever about surviving. Publishing has always known that lending and resale cut into revenue, just as people who make snow blowers know that, if nobody could lend or sell a snowblower, more people would buy them. In the world of physical sale, lending and reselling are normal and, ultimately, built into the prices we pay. Just as snowblower manufacturers don’t go under even though my wife and I exclusively borrow our neighbors’, Publishers don’t either.

* This post only deals with public libraries. The issues are different for an academic library. Academic publishers have a much smaller “consumer” market, and academic libraries have much high cost-per-circulation. I suspect that academic libraries will transition to ebooks more easily.

** Obviously, real circulation involves books bought in previous years, but assuming neither number swings wildly around, you can estimate the cost per circulation very well from the collection expenditures and total circulation.

*** The only escape is in the notion that libraries don’t canibalize consumer sales. There’s certainly some effect there. If everyone had to buy their books, some people wouldn’t buy as many books as they used to take out for free at the library. But is this effect sufficient to overturn a 20-to-1 pricing disparity?

**** We have, of course, completely ignored the cost of the devices themselves. If libraries also lend the devices, their costs will go up still further.

The conventional rejoinder here, after calling me a luddite, is to argue that publishers are already willing to let Overdrive lend out some ebook titles in libraries. I contend that they were willing to experiment with it, especially considering how limited Overdrive is as a platform, and that in any case, when you add up all the fixed and variable costs, and divide by actual usage, Overdrive is actually quite expensive. It’s also worth noting that a recent COSLA report on ebooks noticed Overdrive is now refusing larger agreements, speculating:

“OverDrive won’t sell to the LYRASIS consortium and has begun to balk at statewide purchasing groups. Maybe this is for the comfort of nervous publishers who view ebooks as frictionless, ripe for piracy, or long-term profit losses as library products”

Publishing idea-man Mike Shatzkin recently wrote a provocative blog post, “Why are you for killing bookstores?”

He lays out the uncomfortable facts:

“Although there are probably few people reading this blog who expect bookstores to be around in 15 or 20 years (and those who do will undoubtedly leave a comment!), there are many who would like to keep them around as long as possible. There is a magic to being in a building surrounded by 40,000, 60,000, 100,000 different books. Bookstores are inherently community centers. They make possible the wide dissemination and promotion of great writing. They enable people to see heavily-illustrated books before they purchase them.

But have you thought about this? If you are for bookstores lasting as long as possible, you want to slow down the uptake of ebooks.”

He goes on to explain the broad dynamics of the situation—the way Amazon, the big physical retailers and publishing look at the future, and which side they’re on—faster ebooks or not. It’s a stimulating read. And a depressing one.

Particularly depressing for me is the fact that Shatzkin never mentions libraries. (As one commenter on his post wrote, “Those buildings with 1000s of books that you speak so fondly of are called libraries.”) It’s not his fault, really. It’s a short blog post. But I think it shows the extent of the problem for libraries. When a top industry analyst looks at the book world, libraries don’t figure very prominently. There is a war going on, and libraries are going to be collateral damage.

They don’t deserve it. US libraries circulated some 2.1 billion books last year, compared to 3.1 billion books sold. But they don’t have much of a profile in the commercial world.(1) Being responsible for something like 39% of reading, bookstores only are about 4% of book sales.(2)

The difference is, of course, that libraries don’t pay every time they circulate a book. Under the First Sale doctrine—the idea that you, well, own the things you own—libraries can pay once, and lend a book out multiple times.

Ebooks change this. As ebooks advance, libraries are going to lose their “First Sale” advantage. Publishers will never allow a library to “own” an ebook absolutely, just as consumers don’t really own their ebooks. Libraries are going to be renting them, in fact or in effect, and they’re going to paying a lot more to do it. They’re going to be paying for the use they get out of them, not spending what consumers spend and getting more use. (I’ve written on the economics here before, so check that out first if you disagree with me.)

As the logic takes hold, libraries will be transformed into “simple” book-subsidy machines, not the special, advantaged ones they are now. That means they’re either be forced to subscribe to fewer books, invest a lot more in their holdings or, for public libraries, convince voters to give them a lot more money. Those are bad options.

Other factors exacerbate the problem. Libraries are losing the “aggregation advantage.” When every book is available anywhere, why go to the library to get it? And piracy hurts. Digitization has cut the music industry in half in the last decade, and there’s no reason to believe books will become the first digital medium to avoid it. When you can not only get a book anywhere, but get it for free, why go to the library?

There are some reasons. Unlike bookstores, of course, libraries do other solid, valuable things. They employ librarians, who help you find and understand things. They provide free internet access. They hold story times and author readings. They lend out other things, although, excepting tools and people, digitization is going to wipe those markets out too.(3) And they’re funded indirectly. Bookstores monetize their community value—whether it’s an author reading or just the value of meeting cool people—by selling valuable objects. They create more value than they can realize. Public libraries, by contrast, monetize through government taxation, which is to say by periodically asking voters if they value them. As of now, despite some budgetary cuts, voters mostly do.

But, overall, I think libraries are headed in the same direction as bookstores and in obedience to the same logic—falling in tandem with the rise of ebooks. If they survive, it’ll be for everything else they offer and so, for me at least, apart from the librarians, whose value won’t fall, ebook libraries won’t be full-fledged libraries anymore.

Shatzkin concludes:

“I don’t think anybody would want to be accused of being in favor of killing bookstores faster. And very few of us would be comfortable having it said we were trying to slow down the progress of digital technology, strategizing to slow down ebook uptake. But you are for one or the other, unless you don’t have any opinion at all.”

Isn’t the same thing true for libraries and ebooks?

Update 1: If you want to reply, you can leave a comment, but I also started a topic in Talk about the topic.

Well, that’s about the most depressing thing I’ve written. I hope I’m wrong. And I even have some hopeful, positive things to say too. But I’ll save them for another day.

1. These numbers are all very wiggly. Eric Hellman, formerly of OCLC, has been working on them for a while. Start with this, this and this.
2. As founder of LibraryThing, which doesn’t cede the term “library” to institution collections of books alone, I need to mention that “lending” isn’t just an institutional library phenomenon. Regular people lend and share books too, probably in numbers to rival libraries. That phenomenon will be largely ended by ebook DRM—and revived by piracy.
3. It’s actually digitization plus virtualization. CDs are digital, but they’re also physical objects, so libraries can own them for real. When CDs are gone—and they’re going—libraries will have to contract with digital music services. The dynamics are similar to the ebook dynamics.