Friday, February 25, 2011

HarperCollins and the Suspension of eBook Disbelief

A good business requires a good story. The customer needs to understand the story of how the business can help solve a problem or deliver a benefit. There are many ways of telling a business story. Some stories are utilitarian; others are romantic or inspiring. Many stories require the consumer's willing suspension of disbelief. This isn't dishonesty, but the customer has to benefit broadly from a business's services and not be harmed by bits of the story that aren't really true. Macs sometimes crash. Facebook sometimes leaks your personal information. The New York Times sometimes really gets the facts wrong.

What you can't do, if the details of your business don't line up with your story, is to create cognitive dissonance for your customers by flaunting the untruth of your story. That's what HarperCollins is doing with its new policy for lending its books through libraries. According to ebook platform provider OverDrive, which first told its library customers about the policy yesterday, the new policy takes effect on March 6, and does not effect licenses purchased before then.

The story that HarperCollins and other publishers have been using is that ebooks are just like print books. They want consumers to accept similar prices for ebooks and print books, and have fought for this using tools such as agency pricing. For the library channel, the fiction is that libraries can lend ebooks to patrons so long as they work sort of like print books. The libraries can only lend them to one patron at a time. I've been calling this the "Pretend It's Print" model.

There are all sorts of good things about this model. It's easy for all parties to accept because it only changes things where they really have to change. It allows the coexistence of print and digital distribution channels. Nobody has to go out of business, except maybe Borders. It's comfortable, and there's much to be said for comfortable. The genius of this model is what has fueled the success of companies like OverDrive.

But if you're using a Pretend It's Print model, the one thing you can't do is stop pretending that it's print without a really good reason. You can't say all of a sudden that your ebooks should vanish into thin air once they've been lent 26 times. Your story about ebooks acting like print no longer makes sense, and all those customers who accepted your story have complete Twitter-fueled meltdowns.

Now, if there was a good reason to puncture the happy bubble of Pretend-It's-Print, that would be one thing, but a close analysis of HarperCollins' strategy suggests that the responsible executives wouldn't be able to pass a math quiz even if the class nerd was sitting in the chair next to them.

Let's review the possible motivations for the limited-check-out ebook.

Increasing revenue

 For ebook expiration to create increased revenue, the increased sales resulting from replacement of expired ebooks would need to exceed the lost sales due to customer rejection of expired ebooks. I'm guessing that less than half of libraries will be willing to buy limited-check-out ebooks. Based on the outrage that librarians expressed on Twitter, I'm guessing limited-check-out books might be avoided like the plague. Apart from the fact that they negate the collection-building motivation for ebook acquisition, the increased cost of managing newfangled things that automatically get lost by the 26th patron will be too much for most libraries. Although there will be indicators on the record in Content Reserve (OverDrive’s purchasing portal) to tell librarians which titles are limited-check-out, there won't be any indications of this on the MARC records that libraries use to include the ebooks in their catalogs.

 I'm guessing that the added sales will be approximately zero. There are two reasons for this. Libraries can set the circulation period for their items; 1-3 weeks is a common range. That means that the expired books will be at least six months old and more often a year or more old when they would need to be repurchased. Most books are discounted heavily once they've been out that long, and the value proposition of the ebooks won't look very good.

 The other reason that added sales will be minuscule is that libraries will erect elaborate countermeasures. Once half a book's checkouts are used, the libraries will artificially reduce its availability. They'll hide the catalog record. They'll restrict access. HarperCollins will be lucky to get crumbs from a bake sale.

Table of Integrals, Series and Products I'm sure you're thinking, "but what about the years and years of residuals?" 75 years from now, HarperCollins will be getting those ebook renewals. Well, dream on, and if you sum the infinite series of geometrically decreasing yearly revenue, you'll find it isn't as big as you think. Unfortunately for HarperCollins , that sum is almost calculus, and even their high-priced management consultants couldn't do an integral even if they were stranded on a desert island with a copy of Gradshteyn and Ryzhik.

Protection of the retail market

 As I wrote just yesterday, if the library channel loses its friction, then there's a significant risk to a publishers retail revenue. If the limited-check-out ebook introduces the sort of inconvenience that would deter a possible book purchaser from using the library instead, the changed policy might be justified. But a limited-check-out ebook will look exactly the same to a patron as an unlimited-check-out one, so this possibility seems remote. Once the book expires, of course, the library option goes away. So there might be some depreciating value there.

The current library situation, however, does a great job of erecting an availability barrier. eBooks are so popular that in most libraries, many books have long waiting lists. Patrons are pushed towards less popular titles, which is a huge benefit for publishers, because the titles and authors that would not be selling are effectively marketed to new readers. It's hard to argue that anything on the list of most popular ebook downloads at OverDrive has suffered even a tiny bit!

 The only way that market segmentation will be affected by  the new policy is that OverDrive's engineers will be distracted from improving user experience by the need to modify systems to accommodate HarperCollins. OverDrive, I feel your pain!

 If a publisher is truly concerned with sales lost to libraries, the honest thing to do (as Macmillan and Simon & Schuster have done) is to not provide books to libraries at all.

Other Models

 What bothers me the most about the HarperCollins move is its lack of imagination. I wouldn't mind the check-out limit at all if it was part of a tiered price structure. The limited-check-out feature reduces the value of the book; this could have been a low-priced option alongside the full-priced unlimited check-out model. I'd also like to see experimentation with other lending models. For example, an unlimited simultaneous user, limited time license. A library could get its whole community reading a book together. Or packages of single use licenses that libraries could use to supplement a permanent license for a popular title. Or "explorer" packages allowing a fixed number of total checkouts across titles from a backlist. Experiments like these could be designed to bolster both libraries and publishers.

 HarperCollins may be inept, but it isn't being evil. Pricing for digital products is really difficult. Once you drop the pretense of print, you run into new issues of fairness. Does it make sense to charge the same for an ebook to a small library that you charge to a large consortium? Of course not. Does it make sense to charge for a blockbuster what you charge for a work by an unknown author? Of course not. It's easy to poke holes in a pricing strategy; it's much harder to come up with a regime that works for everybody.

I said it a year ago, and I'll say it again:
Now is the time for publishers and libraries to sit down together and develop new models for working together in the ebook economy.
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  1. What's even more difficult is to restore the original suspension of disbelief needed for the model to work. Bad stories come with bad feelings of frustration and betrayal, because we had bestowed our sense of reality (our common-sense) on the bad story-teller.
    And when you discover that a story is a bad story, everything comes down crumbling. I wonder what will HarperCollins authors think about their royalties, now that we know ebooks are not like print but they are licensed.

  2. Eric, I fully agree with your last statement. The situation of considering an eBook just like a print book is insane. Should we still use the same economic model as was valid for medieval codexes before Gutenberg came along?

  3. Eric - you said "The other reason that added sales will be minuscule is that libraries will erect elaborate countermeasures. Once half a book's checkouts are used, the libraries will artificially reduce its availability. They'll hide the catalog record. They'll restrict access. HarperCollins will be lucky to get crumbs from a bake sale."

    You think so? I could be wrong, but no - I don't think libraries would do that. We might simply remove the record - but not "hide" it or restrict access. That flies in the face of most of our policies and philosophies as libraries.

  4. David- If you look at how academic libraries manage their patron-driven acquisition budgets, you'll see that libraries use a variety of techniques to manage demand in the face of limited budgets. And it's routine in libraries to restrict access to fragile or otherwise perishable resources. Library DNA expresses the "preservation" gene; I can't imagine that limited-check-out ebooks would somehow be exempted.

  5. I find it very hard to imagine there aren't marketing gurus lining up to help publishers solve these riddles in ways that make the publishers look *better* than they did before.

    Or is it actually harder than rocket science?

  6. "Patrons are pushed towards less popular titles, which is a huge benefit for publishers" -- actually this is what librarians want to do for readers, as well. We LIKE it when people read beyond the bestseller list.

  7. Eric - ok, I get the preservation/restriction aspect. I was thinking more about the popular stuff. Libraries don't generally start hiding those from the public view, unless one is damaged or something. So that would be a weird model for public libraries, at least.

  8. David- For an example relevant to public libraries, may I refer you to the Sports Illustrated Swimsuit Issue issue?

  9. K.G.- It's also a huge benefit to readers, but they don't always see it that way.

  10. Magdalen- I refer you to the proverbial horse that can be led to water.

  11. In all fairness I cant see publishers changing their tune about Libraries, as they see every lent book as a loss sale.

    After all, the Catholic Church is still trying to come to grips with the printing press.

  12. I see this as HarperCollins hammering a nail into their own coffin.

    Once a viable model arises where :
    1. An author can self-publish a book...
    2. An individual can purchase for personal use...
    3. A library can purchase for circulation..

    Then what use does an author have for a large publisher aside from the advance on what the publisher & author hope will be a blockbuster? The distribution channel on the web is next to zero. Publishing companies simply become promotion agencies in this model. Is that so bad?