Wednesday, March 10, 2010

eBooks in Libraries a Thorny Problem, Says Macmillan CEO

John Sargent, CEO of Macmillan, one of the US's "Big Six" publishers, is not afraid of new business models. Over the past year, Macmillan has been trying to figure out how to push ebook pricing above the $9.99 level that Amazon had set as a standard on the Kindle. They had explored "enhanced" ebooks- ebooks that come with extra content- and were about to implement "windowing" (holding back ebook release to protect hardcover pricing, something that Sargent felt was "completely stupid").

Instead, Sargent decided to take advantage of Apple's announced entrance into the ebook distribution game to force a change of Macmillan's business relationship with Amazon. Instead of using the same discount model for both ebooks and print books, Macmillan wanted Amazon to change to a "agency model" where pricing would be controlled by Macmillan and Amazon would take a percentage. Amazon (which is Macmillan's 2nd largest customer) balked, and stopped selling Macmillan books entirely. But two days later, Amazon gave in. As a result, Sargent has been called publishing's "new hero".

Sargent spoke with the "Publishing Point" Meetup Group today in New York City, and I got to participate in the questioning. Michael Healy, Executive Director Designate of the Book Rights Registry, did a great job of leading the conversation. I was very impressed with Sargent, who dressed in jeans and had a casual, down-to-earth manner that matched. Sargent clearly understands all the challenges his industry faces- disintermediation, shifting distribution, the need to develop technology expertise, but at the same time he's very optimistic about publishing's prospects. He understands the assets at his disposal, in his words, "a lot of extremely good people who know how to obtain manuscripts and who know what people want to read", and who know how to gather enthusiasm around a piece of writing, a process that's "magic".

The most amusing comments by Sargent came in response to Healy's questions about whether the large, generalist, publishing houses would continue to be viable. Sargent seemed to think that in the near term (5-10 years) the big 6 would likely remain intact. (HarperStudio's Robert Miller has predicted the Big 6 could shrink to 3) His reason was not what I expected. The Big 6 are in no danger of implosion- they survived a very hard economic stretch quite well, but no private equity firm or bank would go near them because of "disastrous" balance sheets. They "suck cash, and have terrible profits." "We're disastrous but stable" quipped Sargent.

When my turn came to ask a question, I asked Sargent if he had thought about the role of libraries, and particularly public libraries, in ebook distribution.  His answer indicated that just as he was not afraid of changing the relationship with Amazon, Sargent is not afraid of changing the publisher's relationship with libraries. In fact, change may well be required.

"That is a very thorny problem", said Sargent. In the past, getting a book from libraries has had a tremendous amount of friction. You have to go to the library, maybe the book has been checked out and you have to come back another time. If it's a popular book, maybe it gets lent ten times, there's a lot of wear and tear, and the library will then put in a reorder. With ebooks, you sit on your couch in your living room and go to the library website, see if the library has it, maybe you check libraries in three other states. You get the book, read it, return it and get another, all without paying a thing. "It's like Netflix, but you don't pay for it. How is that a good model for us?"

"If there's a model where the publisher gets a piece of the action every time the book is borrowed, that's an interesting model."

Sargent has clearly thought about libraries, but perhaps he's not talked much to them. His points are valid- the existing business relationship between publishers and libraries won't work for ebooks the way it has worked for print books and the "frictions" that exist for print materials could disappear for ebooks. But he has gaps in his knowledge of libraries. The patron-on-the-couch scenario wouldn't work for libraries either- why would a town support its library's ebook purchasing if everyone could get the ebook from a library 3 states away? The fee-per-circulation model would be a disaster for most libraries, which have fixed annual budgets, and can't just close in September if they've spent their circ budget.

On the other side, the models preferred by libraries are not necessarily going to work for publishers. While the subscription model will probably work for academic institutions, it would turn public libraries into unnecessary intermediaries. The "perpetual access" model would be suicide for publishers if applied to their most profitable top-line books.

Now is the time for publishers and libraries to sit down together and develop new models for working together in the ebook economy. Executives like John Sargent are not afraid of change, but they need to better understand the ways that they can benefit from working with libraries on ebook business models. Libraries need to recognize the need for change and work with publishers to build mutually beneficial business models that don't pretend that ebooks are the same as print.

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30 comments:

  1. Very interesting post Eric. I think the libraries offer a great access point for ebooks, and the one copy/one user model will work for most midlist publishers. With a 14 day borrow period, a library would be able to lend a minimum of 26 times. Hardly reaching a saturation point. Multiple digital copies would still have to be purchased, possible ebook leasing for additional copies on roll-out. Pay-per circulation will never work as you stated above.

    Thanks for linking my post btw...a little tongue in cheek on my behalf.

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  2. Actually the reader does pay for library e-books through their local taxes. The primary problem, as Mr. Sergeant pointed out, is that e-books don't show wear from repeated lending. I'm thinking Nathan's post (above) about having a set number of lends per a specific time period is a good way to go. I'd love to hear a librarian's input on this issue.

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  3. Hello fellow HELLMAN! My blog is gotohelman also, but i only have 1 L AND i work in publishing! :)

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  4. "If there's a model where the publisher gets a piece of the action every time the book is borrowed, that's an interesting model."

    This is how it works in England.

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  5. Note to self: Learn how "public lending right" works for ebooks. What's that you say? It doesn't?

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  6. Interesting post. There are myriad e-publishing issues that the industry will need to deal with in the near future. I'm glad to be a Macmillan author where at least my CEO is thinking about it and trying to be proactive.

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  7. I am a librarian. Contracts with eBook providers (Overdrive, NetLibrary, etc) usually include a clause that the public library must limit use to local residents only--preventing the scenario where someone can log in from a couple states away and use your content. This is generally controlled by requiring a library card for log in, which requires (at some point) that you show in person and produce photo ID and proof of local address. Some libraries offer "e-card" signups, but those are generally a short time frame and temporary. If you don't show in person within a certain number of days, the account is gone. New York may be the only state with less strict policies. Out here on the West Coast, this is pretty standard. Libraries actually would be very open to a different ebook model...currently it's governed by the contracts from the bigger providers. Contact ALA (The American Library Association) in Chicago. I'm sure they'd be happy to provide an advisory panel.

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  8. What is Sargent talking about, with this 'three other states'-thing? How many library systems are you aware of that will give a library card to people who aren't residents of their defined area? Even residents in unincorporated areas who aren't assessed for library services have to pay a couple hundred bucks a year for a card if they want to use the library. Some people might have cards in two systems -- one at home, and one where their parents live. And there are some consortial agreements. But I live in the midwest and no, I can't borrow an e-book from a library in Florida.

    Also, libraries lending e-books purchase a certain number of electronic copies of a text, and when a copy is checked out it's not available to others, so those interested still have to wait. True, there's no wear on an electronic copy of a text. But there's also no income for the library on overdue e-books, because on their due-date they just disappear from the device or become inaccessible.

    So. It's a liiiittle different, but really not *that* different. If a book's checked out you still have to wait. Most people don't really want to wait, so they go and buy the book.

    Remember how video rental stores freaked out when the library began lending VHS tapes for free? No library could afford the full list of what people wanted to view, so when they didn't see what they wanted at the library they went straight to the video store, and video rental business *increased*.

    Of course you never know how things will shake out. But library lending is a great way of introducing the curious public to the form factor of e (many public libraries are acquiring and lending loaded devices -- including the 'locked-up' Kindle, which can't borrow on its own at all). Those people might well like e-reading enough to purchase a device of their own. *Of course* there are four, or ten, 'cheapskates' who will never pay for a download. But those people don't even warrant thinking about. Downloading a purchase is so much easier than downloading a title checked out from the library, that there will be *a lot* of business to be reaped from impulse-buyers.

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  9. I think he overstates the propensity and frequency of libraries to replace worn out materials. The sales are in multiple copies and multiple locations. Also not sure what he's basing the comment about loaning an item 10 times on. As a Librarian, the bigger problem to me is the current state of proprietary e-book models vs. a universal standard. Kindle, Nook, ??? Our expense won't be the book, it will be the reader. He does get kudos for having thought about it though.

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  10. I don't know what the answer is, but I know that there is no sense me investing in an eReader until I get can ebooks through the library. I don't pay for the hard copies I read (by and large), so I'm not going to pay just to access them digitally. Now is the time for libraries and publishers to set down and find a way to work it out in their mutual interest.

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  11. WoW, how did you guys get Sargent to come out to your meetup?? He's really working this guy, seems like he's all over the place, while no one hears a peep from the other publishers in the big six, or any other publisher for that matter.

    Publishers, not distributors should be at the forefront of the evolution of publishing, even if it means riding the coat tails of the one publisher whom is not going to back down.

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  12. John Sargent has received a lot of praise for McMillan’s trading terms negotiations with Amazon. Much of the (generally) uncritical praise seems to be based on the precept that the mooted agency model will deliver higher royalties for authors and ensure eBooks and, through a flow on effect, print books, aren’t even more devalued by Amazon.

    Given it is difficult to test this theory, and that the digital marketplace will remain highly contested for some time, any company seen to be providing certainty and developing a way for the existing structure to sustain itself will always win friends.

    Additionally, and in spite of it being arguably the world’s most popular book retailer, the sheer scale of Amazon’s operations and its influence on the market make it highly unlikely to find industry supporters. Models that fragment that power or diversify market share will always prove popular.

    Because of this popularity however many statements, plans or initiatives that fall into this populist program are not subject to sufficient scrutiny.

    Yes there is some industry scrutiny of Macmillan’s plans in journals, blogs and on the web, but these have not distilled into the mainstream, where the technicalities of book industry debates are conflated into big vs. small, literary culture vs. mass culture etc with the necessary narrative conclusion that there is a right and a wrong inherent in what is in essence a trading relationship.

    Where the head of MacMillan talks about libraries with plans like ‘fee for circulation’ it seems more like a grab for cash than a desire for a sustainable relationships.

    Much of the conceptualisation of the eBook market from those with the largest vested interests is about protecting their income streams... of course a model where the publisher gets a piece of the action every time the book is borrowed is attractive to the likes of Macmillan, because it is access to a new market.

    Unfortunately for a reader and in this case a library they have to pay more for this model than they currently do. Great for the ‘disastrous balance sheets’ maybe, but not the public, or the public’s, purse.

    Allowing rhetoric like this to go unchallenged is ultimately bad for the reader/consumer and they are mostly absent in industry debates.

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  13. There's still a lot of invested-in-old-models thinking going on here. I read things like this:

    "The primary problem, as Mr. Sergeant pointed out, is that e-books don't show wear from repeated lending" -- crazywritergirl.

    And I run into a fundamental disconnect that there are people out there who think it's a BAD THING that information doesn't degrade.

    Or this:

    "Also, libraries lending e-books purchase a certain number of electronic copies of a text, and when a copy is checked out it's not available to others, so those interested still have to wait" -- Dorn ohne Röschen.

    This is just ... I can't even ... I ...
    SEGMENTATION VIOLATION -- CORE DUMPED

    It is insane to take the limitations of a physical medium and arbitrarily impose them on an electronic medium. In particularly, enforcing artificial scarcity for a resource that is free to copy is not sustainable.

    I assume that Dorn is not proposing a model here, but telling us what current practice is. If so, that's not just ethically horrifying but dumb. For every ten people are told "You can't borrow this e-book because all our copies are out -- please try again next week", nine are going to go "Screw it, I'll just download it from Pirate Bay". It's hard to imagine anything more perfectly judged to cultivate rights infringement.

    (And, no, I won't call it "piracy" -- an absurdly overblown and emotive term that does not in any way bring clarity to the discussion.)

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  14. jchunter- the short answer is that its hard to say "No" to Susan Danziger (holding the microphone) and Maggie Hilliard (left). They've gotten some amazing speakers for the Publishing Point group.

    Mike Taylor- You really ought to practice believing six impossible things before breakfast.

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  15. Eric,

    I can't quite figure out whether that means that you do or don't agree with me (or whether it means that you are too tactful to commit either way :-))

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  16. Mike- I mean that the "insanity" that throws an exception for you may be the thread that is keeping valued institutions from collapsing. Technologists need to patiently work to resolve contradictions and provide things that work. Printing an error message doesn't solve the problem.

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  17. Mike - I'm not invested in old thinking. I'm acknowledging what is an issue for publishers -- the fact that e-books, unless limited to a certain number of downloads, don't require repurchases like print books. Why would that matter? As the number of e-book enthusiasts rise so will the number of e-books downloaded from the libraries. I love that idea, but ultimately this is a one shot sale for a publisher, and by extension, the author. It's my hope we can find a solution that doesn't throw any more work on the libraries while sustaining an author's paycheck.

    On the other side of the fence, I do wonder how many print books are actually replaced on average. Is this a significant number or are we making assumptions as to the total replaced per year?

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  18. Eric says: "I mean that the "insanity" that throws an exception for you may be the thread that is keeping valued institutions from collapsing".

    And yet, the fact that this thread is keeping valued institutions from collapsing does not itself make the thread strong. The thread is weak: when people can't get digital content legitimately from a library, they will get it illegitimately elsewhere. I'm not saying that they _should_ (although we could debate that); I am saying that whether they should or not, they will. The thread will break; libraries and publishers -- and for that matter, library-centric software technicians such as ourselves -- need to come up with business models that are based on how people will _actually_ behave, not how we think they ought to.

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  19. crazywritergirl: I work in a library. I rarely replace worn books unless they are classic titles. I just don't buy the replacement argument.

    As others have pointed out, it is a one copy-one user policy that governs lending e-books. Unlike physical books they can't be returned early or late. If you haven't finished the book in two weeks (or three weeks, etc.), you will need to check it out again. After the lending period it will not open.

    As for price, we are actually paying list price for our ebooks. We pay the price that matches the price of the lowest hard copy format available. If the book is only available in hardcover we pay that price. If it is available in mass market, then we pay the lower price. But, I want to emphasize, we pay LIST price, something we NEVER do with physical books. In fact, the difference is so great that I can purchase almost twice as many hard cover books for the same price as an e-book for my library.

    Given this, publishers are (or should be) already making a bigger profit on each e-book sold to a library.

    I think Sargent is very short-sighted when it comes to libraries, and I am very disappointed by this. As an e-reader, I will not purchase any Macmillan e-books for my personal use. A small and useless boycott, but it makes me feel better.

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  20. Interesting post. Thought you might be interested in Bloomsbury's Public Library Online (http://www.exacteditions.com/plo) which is an online access model for trade titles sold to UK public libraries on a subscription basis based on population served. Launched in May 2009 with themed bookshelves from Bloomsbury including a reading group shelf, children's history shelf and teen fiction shelf, this has expanded to include more shelves from Bloomsbury as well as other publishers, including Faber, Quercus, Canongate and Allison & Busby with more to come. This publisher led library supply initiative aims to support libraries and literacy, protect IP and generate a revenue stream for authors and publishers.

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  21. Hello from a Norwegian library ebook-project. Just one question: Are any libraries in the US lending out unlimited copies of a title today? Simoultaniusly? Or is one copy/one reader the only business model being used today. We are discussing this in Norway right now, and our neighbours in Sweden seem to have understood that paying per loan is the way to go. Not one copy/one reader. Check it out here: http://www.elib.se/ebook_about_elib_eng.asp This company is 100% publisher-owned, but states that "The library is our best friend".

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  22. Dagis, There are publishers in the STM and reference markets that make ebooks available for unlimited usage with IP authentication. Their experience with ejournals made them comfortable with this business model; my understanding is they've been quite successful.

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  23. The library should be the digital filing station allowing users to fill their devices with content. I said that at the Open eBooks Forum in NYC some years ago. I still believe it today. The ePub format is a breakthrough, but the leading eBook reader by all sales accounts thus far is the Kindle and it does not use an open format. Overdrive and other companies are helping libraries deliver content to their users, but unless and until Amazon opens their devices to content outside their store, the library is simply shut out of the content providing business. I loaaned Rocket eBooks after winning ten of them for my then new library from Nuvomedia. Lending devices preloaded with content by genre was interesting but inevitbaly lead to a conversation along the lines of "I'm sorry, the novel you want is on eBook number 3 and it's checked out right now. eBooks 1,4,5 and 7 are in, but they don't have that author loaded on them and our budget for additional eBook titles has been spent for this year." Life in the real world of the public library. At least John Sargent recognizes that libraries are out there. I welcome the dialogue, but I don't know of a public library with the blank check to support disposable eBook titles. Public libraries are basically purchasing cooperatives buying titles from pooled public money for many to use over time. The public rightfully expects that something exist for the expenditure of their money, but still a per download pricing model could be interesting if it were priced per usage and not per card holder.

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  24. As a guy who was involved (ca 1995) in the early days of DRM, this is one of those conversations that makes my hair hurt with a particular hue. I frankly think that it will take an innovative publisher (perhaps Mr. Sargent is the one) working with an equally innovative technology partner or two to make it happen; the libraries-friendly version of iTunes!

    Here's what I'd like to do: over the last decade I have purchased at least one unabridged audiobook from Audible per month. I want to donate these to my local public library. As flawed as the current OverDrive et.al. dominated eBook/audiobook ecosystem currently is --- try getting an OverDrive-based book onto your iPod Nano via your Ubuntu-based system --- I ought to be able to...

    1. Go to my Audible library
    2. Select a bunch of titles
    3. Select "donate to my public library"
    4. Select my local via the OverDrive-driven Green Mountain Library Consortium
    5. Result in the virtual collection of my local having a copy available.

    Please understand that the current online lending model makes this user's head hurt in many ways. The above thought experiment is merely meant s an outline of how to do something good and seemingly logical in the midst of the current environment...

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  25. Here are links for two things that have been mentioned in this thread:

    Swedish ebook library

    Bloomsbury's Public Library Online

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  26. How about not auto-returning the book at the end loan period and then splitting the fine profit with the publishers. Require a physical or rfid drive-by return. A model that incorporates a bit of the old, a bit of the new, won't break fixed budgets, and will produce a revenue stream.

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  27. What really bugs me about e-books is that it is killing interlibrary loan (and we still need ILL). Sargent claims that publishers are selling fewer copies of ebooks than print based on the already debunked opinion that I can just log in to a public library in another jurisdiction to access whatever I want. Not only does this not happen for individuals but it is now often the case that library's cannot find a "borrowable" copy of an item that it is trying to get for its user. The only solution? To buy an e-version like everyone else. Talk about "silos".

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  28. The UK Government issued its long awaited policy statement on the 'modernisation of public libraries' on Monday (22nd March) (http://www.dcms.gov.uk/reference_library/consultations/6752.aspx. ) and it had a few things relevant to e-books. For example:
    * Recommends libraries ‘assess the opportunity and demand of e-book lending....and develop strategies’
    * ‘Government expects e-books to be loaned for free...and government will make an Order preventing libraries from charging for e-book lending’
    *‘DCMS (i.e. the relevant govt dept) will work with stakeholders to develop ....legislation for the extension of Public Lending Right to non print books’
    *(When money becomes available a national online catalogue’ (My note: not clear if this is for all material but we should assume in will include e-books)
    *[libraries will provide] ‘an opportunity to be a member of all libraries in England ( My note: not the whole of UK) : easy to join, accessible...’ (My note: I guess we should assume this will include a national service for e-books too?)

    There are all sorts of interesting issues here -esp relevant to the dicussion on biz models. It will be interesting to see what definition will be used for an e-book. The PLR thing will align the interests of (e-book authors) with library loans (thouh PLR money is capped so blockbuster authors will never be *that* interested in PLR income.

    Ken Chad (ken@kenchadconsulting.com)

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  29. Ken, Thanks for that, that's exactly what I was looking for. Here's a linkified link: http://www.dcms.gov.uk/reference_library/consultations/6752.aspx

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  30. From my blog: Shh! eBooks and the Quiet Conspiracy against Public Libraries: Last evening I wrote to a colleague...http://bit.ly/ewWxAS

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