Libraries, Publishers Battle Over Terms for E-Books’ Use

From Bloomberg Law:

States that want to give libraries a better deal on e-books are watching a publishers’ suit against Maryland, the first state to set terms for how digital books are distributed for public borrowing.

Library associations, including the American Library Association and several state groups, have been pushing for state laws to require publishers to distribute digital works to libraries on “reasonable” terms that the states would set. The groups say libraries pay too much for electronic books and should be able to get them at lower prices.

The bills and the law enacted in Maryland have set off alarm bells for authors and publishers who fear the legislation encroaches on copyrights.

Similar suits to the one in Maryland by the Association of American Publishers might follow if bills in other states move forward, copyright attorneys, publishing industry lobbyists and others said. They say the bills propose a radical rewriting of the copyright system that only Congress is able to change.

. . . .

“The Maryland case is very, very significant because we’re hoping and believe the court will say, ‘You can’t do this. This is unconstitutional,’” said Keith Kupferschmid, the president of the Copyright Alliance, a nonprofit that represents a broad group of creators. “And, presumably, other states would at least be a little more cautious. Hopefully they wouldn’t introduce the bills at all.”

. . . .

Library officials back the bills so they can loosen restrictions on the number of digital works that can circulate and not let publishers dictate pricing terms, said John Chrastka, the executive director of the EveryLibrary Institute, a nonprofit that advocates for library funding.

The Rhode Island and Massachusetts bills are based on the Maryland law. Supporters hope the bills can either be redrafted to avoid similar lawsuits or that the Maryland court will throw out the case.

In New York, Brianna McNamee, the New York Library Association’s director of government relations and advocacy, said the bill Hochul vetoed will likely be tweaked based on recommendations from her office.

“The bill’s viability in its current form is contingent on that pending litigation in Maryland,” McNamee said. “In a perfect world, if the suit goes away it would be our hope that it would provide reassurance to the governor and her staff that New York state won’t be sued upon enacting similar legislation.”

It’s not clear that the Maryland law is preempted by the Copyright Act, said Alan Inouye, the senior director of public policy and government relations for the American Library Association. The AAP’s claims aren’t valid in terms of copyright law because it’s actually a matter of contract law, Inouye said.

. . . .

The Maryland law and the similar legislation are preempted by the federal Copyright Act, which gives copyright owners a bundle of exclusive rights, including being able to decide when and how their works are distributed, Mary Rasenberger, the CEO of the Authors Guild, said.

The AAP and proponents of the lawsuit said they support public libraries and that libraries are essential in expanding readership, but the Maryland law has the potential to harm creators and weaken the copyright system.

“The public libraries are an important piece of providing public access, but they don’t operate alone in a vacuum,” said Maria A. Pallante, the CEO of the Association of American Publishers.

The Motion Picture Association, the National Music Publishers Association, and the News Media Alliance also oppose the bills because they say there could be a potential domino effect in states also creating compulsory licenses for other creative works besides e-books.

“The other industries are concerned because if states start doing this,” Rasenberger said, “then the next thing down the line is going to be movies and television programming.”

Link to the rest at Bloomberg Law

PG has suggested on many prior occasions that traditional publishers are foolish in their pricing strategies for ebooks because, after the first copy of an ebook is created, additional copies cost the publisher no more to produce.

In a perfectly-sane publishing world, ebooks would always cost much less than printed books and still generate a much higher profit margin without killing any more trees and shipping physical books long distances from the low-income nations where they are printed.

PG suggests that Amazon’s pricing sweet spot for ebooks per its KDP royalty structure is $2.99-9.99. That’s where the 70% royalty is payable. Everywhere else in the 99 cent to $200 price range permitted by Amazon, the royalty is 35%.

To the best of PG’s recollection, this pricing/royalty strategy is identical to the policy created by Amazon at or near the introduction of its ebook self-publishing option for authors that gave authors who didn’t feel a publisher added value (or couldn’t find a publisher for their books) direct access to what has become by far the largest bookstore in the world.

One of Amazon’s motives for setting and maintaining this royalty structure, indeed for putting a lot of effort to make self-publishing easy in the first place, was the attempt of major US publishers to force Amazon in increase its prices for all books to the suggested retail price set by publishers.

Amazon hadn’t grown into the international giant it is today and American publishers were more focused on killing Amazon to avoid this sort of discounting below their fancifully-created suggest retail pricing structure in order to preserve their effective monopoly over the market for books found in traditional bookstores.

Times have changed greatly since then – lots and lots of physical bookstores have gone out of business in the US (and perhaps elsewhere) and ebooks have become a significant source of income and far more significant source of profits for traditional publishers selling through Amazon.

With respect to ebooks licensed to libraries, traditional publishers have forgotten nothing and have learned nothing. The incremental cost of ebooks licensed to libraries over ebooks licensed to Amazon and other online bookstores is also effectively zero, but publishers still want to charge libraries more for exactly the same collection of electrons as Amazon offers for much less.

PG thinks there are some copyright issues in the states’ litigation claims, but this collection of lawsuits and the potential for yet another loss in court for traditional publishers reflects (in PG’s stupendously humble opinion) the ongoing stupidity of those individuals and conglomerates running traditional publishing in the United States.

Too much greed in the library sales department could end up costing publishers much, much more over the long run. It’s a risk the publishers didn’t have to take, but they did so anyway.

11 thoughts on “Libraries, Publishers Battle Over Terms for E-Books’ Use”

  1. Amazon’s original pricing scheme for KDP distribution (it’s not a royalty) was the then-standard 50-50. They went to 70-30 in June 2010.

    The terms included some interesting clauses not often mentioned:

    “The author or publisher-supplied list price must be between $2.99 and $9.99
    This list price must be at least 20 percent below the lowest physical list price for the physical book
    The title is made available for sale in all geographies for which the author or publisher has rights
    The title will be included in a broad set of features in the Kindle Store, such as text-to-speech. This list of features will grow over time as Amazon continues to add more functionality to Kindle and the Kindle Store.
    Under this royalty option, books must be offered at or below price parity with competition, including physical book prices. Amazon will provide tools to automate that process, and the 70 percent royalty will be calculated off the sales price. ”

    They required ebooks to be at least 20% lower than print.
    Wonder if they still do.

    • Felix, they don’t (and can’t) require ebooks to be at least 20% lower than print; even under Leegin, that’s too close to price-fixing to be a formal policy (yes, PG, I promise not to derail the blog with more highly theoretical antitrust neepery)…

      Although it would expose the mendacity and foolishness of publishers’ pricing methods being based on the container and not the content. You can buy the same amount of the idential laundry detergent powder for $3.49 in a cardboard box or $4.29 in a plastic bottle; which does the average consumer choose? And is that plastic bottle more prestigious for some reason?

      I’m not going to spend much time (or clog up PG’s blog) on the mendacity of publishers. I will snarkily remark that Ms Pallante’s current job and stated priorities are entirely consistent with how she acted in her previous job, reflecting agency capture so obvious that it raises my eyebrows. (And I’m not Mr Spock, so that’s a highly unusual phenomenon that I have never encountered before, Captain.)

      That said, one wonders whether any of these people have actually read the plaintiffs’ complaint, or are instead soundbiting responses to what they want to argue against. (I have, and it does a reasonably good job of pleading around the purported copyright problems.)

    • The first three conditions are still there – 20% discount over print, price range, all geographies.

      The fourth one, interestingly, is not, and I don’t recall it being there when I first read it, either, some five years after 2010. That may have gone by the wayside with the build up of Audible and introduction of WhisperSync.

      The one requirement that I’ve never seen a good explanation for is that you also have to be KDP Select to receive the 70% rate for sales in four countries (Brazil, Japan, I can’t remember the other two off hand). Undoubtedly something that saves them legal hassles in those jurisdictions.

      • The first three condition are still there — 20% discount over print…

        “4. Setting Your List Price
        If you choose the 70% Royalty Option, you must set and adjust your List Price so that it is at least 20% below the list price on Amazon for any physical edition of the Digital Book.”

        Which is fine by me. I’d be an idiot to price my ebooks at close to print prices. Traditional publishers are clearly not immune to idiocy.

  2. The incremental cost of ebooks licensed to libraries over ebooks licensed to Amazon and other online bookstores is also effectively zero, but publishers still want to charge libraries more for exactly the same collection of electrons as Amazon offers for much less.

    It is indeed the same (or very similarl) collection of electrons, but the license governing the use of those electrons is very different. For example, can Amazon sell that single collection of electrons as many times as it wants? Buy one set of electrons for $10, and sell it to fifty consumers? Five hundred consumers? A million consumers? No? Why not. It’s the same collection of electrons, and marginal cost of incremental production is effectively zero.

    And in that sane world, a publisher will endeavor to maximize his profits. The publisher’s competitive advantage is in the production and distribution of paper collections of words. His major competitive advantage in ebooks stems from cross promotion from paper. So, a sane publishers will price paper and eBooks together, so the total profit generated by the title is maximized. EBooks are very close substitutes for paper. Pricing eBooks at a level where they push paper out of the market destroys the publisher’s competitive advantage in both paper and eBooks.

    Whenever I read how publishers should reduce eBook prices, I ask how far should they be reduced, what will be the effect on paper, what will be the effect on publishers total profit, and what will be the effect on the publishers’ competitive advantage?

  3. “Whenever I read how publishers should reduce eBook prices, I ask how far should they be reduced… ”

    Well, Amazon’s suggestion since 2010 has been 20%. Is that onerous?
    Internally APub ebooks started at $8 IIRC and over time drifted down, as data rolled in, to the current $4.99. Most non-BPH tradpubs seem to have settled on prices in the paperback range of $5-9.
    Is that unreasonable?

    As to impact on print, in no other industry do companies worry about protecting a (declining) low margin product line from a (growing) high margin line. In fact, most companies believe in competitive pricing and prefer auto-cannibalization to seeing competitors take their market share. Without going too far, we see FORD selling their brand new battery-powered F-150 Lightning for *less* than their industry leading F-150 even though it is arguably a better product for the segment and they can’t keep up with demand. Competition trumps cannibalization and market-driven pricing trumps channel conflict.

    Food for thought: Only cartels get to ignore market pricing.

    • I gently disagree, Felix; consider other segments of the entertainment industry, like pricing of cinematic exhibition of moving pictures.

      Oh, wait, you were saying “it’s the cartelization, stupid,” weren’t you? Then never mind, we agree; I just think it’s wider-spread than your post implies. (Just remember that almost all anti-Keynesian theories regarding overconcentration eventually trace back to Herfindahl’s immensely flawed research into “market concentration” that used government-reported statistics on defense commodities and extended it (a) without regard to whether some of those statistics were lies, which had already been proven and (b) without questioning whether considerations for “commodities” apply to “finished goods.” Not to mention the multiple divide-by-zero errors that purportedly cancel out for commodities but cannot cancel out for finished goods…)

      • 🙂
        Burying the lede can be fun.

        BTW, the gaming industry is, even as we watch, evolving, growing explosively (30% annually), and concentrating. The handwringing in the console-obsessed media is delightful. They’re watching a game of 4D chess and judging it by checkers rules.

  4. For those who don’t know (and I’ve mentioned this here before), the “correct price” for a trade book is the greater of six times the per-copy-at-anticipated-print-run printing-binding-and-packaging cost or ten times the per-copy-at-anticipated-print-run preproduction-plus-production cost. This is baked into commercial publishers’ cost-sales (often inaccurately called “profit-loss”) spreadsheet models, acquisition meetings, and souls.* It appears in most accepted textbooks on publishing practices (every one of those I’ve examined), and has in editions stretching back to the 1960s.

    The 1960s, when publishers did their own printing in-house, in the “Tri-State Area,” with unionized labor, thanks to the Manufacturing Clause of the Copyright Act of 1909 (§ 15 iirc) and a desire not to be J.R.R. Tolkein. Before there were e-books, or WYSIWYG electronic typesetting, or indeed any “digital” part of the production process. Before the consolidation of distributors — thanks, in large part, to the purported efficiency improvements at drugstores and grocery stores to be had, as envisioned starting in 1989. Before DARPAnet became the internet. Before FedEx. That is, sometime in the early Jurassic age. Unfortunately, the dinosaurs still rule the c-suites in publishing…

    tl;dr The publishing industry determined how to set its prices half a century ago and denies that there have been any relevant changes since.

    * Obviously this last one is a very small place indeed.

    • “* Obviously this last one is a very small place indeed.”

      Doesn’t that assume the humunculi actually have souls?
      “Assumes facts not in evidence?” ; )

      • I was typing quickly. I probably should have said “hypothetical possibility, especially for those ‘publishers’ that are fronting for venture capitalists and family trusts.”

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