Simon and Schuster is Looking at Limited Lending Library eBook
Michael Healy and Carolyn Reidy
Today's installment of the Publishing Point series of CEO interviews featured Simon and Schuster CEO Carolyn Reidy. Reidy was appointed to her current position at the very bottom of the economic cycle; she has had a lot on her plate to say the least. Although she knew when she took the job that she'd need to steer the company through a transition to a purely digital product, she had no idea it would happen as quickly as we're seeing.
Michael Healy, who didn't appear to be unemployed yet, again played the role of master interlocutor. He started out by asking the obligatory question about S&S's reaction to yesterday's decision on the Google Books Settlement.
We of course are disappointed that the judge didn't approve it, although I would also say that it wasn't so surprising that he didn't just approve it in total. Along with the other publishers who were party to the suit, we do hope that it's just another way-station on what will be a final settlement. I think he did give some indication in his ruling on ways that we can get to a final settlement and I think that all parties involved have a hope that we'll get there and there will be further conversations about it; it'll just take us longer to get there.
Healy, the Executive Director Designate of the Book Rights Registry that would be created by the settlement, joked that "this particular party certainly hopes that we get there!" Reidy continued:
I'm sure you do. And we all do, because there are real principles involved in the whole thing that we'd like to see preserved and definitely settled for the good of all of us.
I share the optimism because I think that even though there are negative fallouts occurring, as you see with bookstores closing and things like that, the ease by which consumers can acquire books, the ease by which people can publish books, also of selling and being able to put books in front of consumers the variety of ways you can market, all of these things are just exploding. and we don't yet have the same grasp of them that we did of the old system but there are so many opportunities facing us that I'm I definitely share the optimism about it, there's no doubt about it. The biggest question is whether or not you're going to take the old market and transform it into a new way of consuming or whether it'll get bigger; of course we all hope its going to get bigger. That's the biggest question in front of us: can we in fact enlarge the market for reading by using all the new tools and opportunities in front of us.
Reidy discussed at length the many challenges facing a publishing CEO in times of technological change. 20 years ago, even 10 years ago, a publishing CEO would be wrestling with questions of production systems and bandwidth pipes and why a best-selling crossword puzzle iPad App couldn't just be moved to the iBookstore. She believes that the biggest problem facing publishers is maintaining their ability to create value compared to the many entities ready and willing to disintermediate them.
Healy's last question concerned Harper-Collins and the "eye of the hurricane" that they've found themselves in regarding their change in ebook lending policies. Reidy's answer was succinct:
Simon and Schuster does not yet sell ebooks to libraries. We have not yet found a business model that makes us happy. That's why we're not in it
Later, in the Q&A period, I pressed Ready about finding a business model for providing ebooks to libraries: "libraries are worried about whether they'll survive the transition to digital books and funding difficulties at the same time. Are you at all worried about the survival of libraries across the transition to ebooks?" I asked.
There's a part of me that worries about it, but I'm first worried about my company... and my authors, and their survival. So we have met with several people who are trying to come up with a solution to sell into libraries and there are people who are working on various and sundry different models that are not just sell one ebook and let it be loaned forever, and in fact we met with one last week. So we've actually been meeting with people and think there will come a solution that we can live with. We just haven't seen one yet.
I hope that Reidy also finds a model that will allow libraries to thrive in time to help Simon and Schuster grow the market for reading.
There is speculation that the rejection will be appealed; apparently, Chin must give his permission for an appeal to proceed. Another possibility is that the parties will go back and try to renegotiate a new settlement along the lines suggested by Judge Chin.
In the end, I conclude that the ASA is not adequate, fair, and reasonable. As the United States and other objectors have noted, many of the concerns raised in the objections would be ameliorated if the ASA were converted from an "opt-out" settlement to an "opt-in" settlement. (See, e.q., DOJ SO1 23, ECF No. 922; Internet Archive Mem. 10, ECF No. 811). I urge the parties to consider revising the ASA accordingly.
I'm guessing, based on Judge Chin's fairly broad and terse rejection of the settlement's key terms, that a settlement will have to start at square one; even given the AAP statement:
While the March 22 decision of U.S. District Court Judge Denny Chin on the Google Book Settlement Agreement that was filed on November 13, 2009 is not the final approval we were hoping for, it provides clear guidance to all parties as to what modifications are necessary for its approval. The publisher plaintiffs are prepared to enter into a narrower Settlement along those lines to take advantage of its groundbreaking opportunities. We hope the other parties will do so as well.
One provision of the settlement that has had broad support, even from opponents of the agreement, is the Book Rights Registry. This is essentially a huge database of rights information that has been accumulated by the plaintiff's attorneys. While it's often referred to as "Google's Book Rights Registry", and it was set up with assistance from Google, it doesn't belong to Google at all.
Michael Healy, the "Executive Director Designate" of the Book Rights Registry, as been working on the registry for almost two years, writing specifications, answering inquiries from confused rights-holders, and waiting for a decision from the court before he can proceed to make it a functioning entity. What will become of this almost-there resource, now that the settlement has been rejected.
Here's one possibility: the plaintiffs could establish a book rights registry with or without Google.
Clearly, the plaintiffs and their attorneys have run up a huge legal bill for this lawsuit. They've been expecting an infusion of $34.5 million to set up the registry and another $30 million for attorney's fees. It's not clear how much has been spent on the registry so far, but it has registered claims for about 1.1 million books. This is potentially a very valuable resource, which, if put into play could greatly increase the possibilities for transactions of book rights.
One possibility is that as part of a side deal, the plaintiffs together with Google arrange to put the registry into operation, presumably with some cash from Google. I do not know if such an arrangement would be legal. Another possibility is that the database is offered to investors who would set up a rights clearance business. The cash from the sale could help the plaintiffs continue the suit.
The opposite possibility is depressing, but not unlikely. The entanglement of the rights information with Google's proprietary information could be so deep that a functional Book Rights Registry would have to be started from scratch, and the ebook industry is locked into a continuing effort at cleaning up the rights mess.
Although Gluejar's effort to unglue ebooks will be hampered by the absence of a Book Rights Registry, there will be an even greater need for efforts such as ours that offer a path to increased access to book.
I am not a librarian. I'm not a bookseller. I'll admit to some librarian tendencies- when I was little, I liked to line up my trucks and sort them from biggest to smallest. But my education and training was in engineering and physics. My approach to the analysis of data is that of a scientist. So when I analyzed the distribution of circulation across the collection of University of Huddersfield, I treated the data as a window into the physics of book use.
"Physics???" you may be thinking to yourself. Yes, physics. Well, maybe it would be economics if I had gotten past Econ 101 in college. But I feel comfortable with physics- I have 76 published articles to fall back on. Physics tries to describe things that happen in terms of simpler phenomena. It aims to connect observables (thing you can measure) to their root causes, and then uses that understanding to predict other observables. It doesn't matter so much whether the basic event is one particle hitting another, or one patron checking out a book, if broad patterns can be observed in these events, then a physicist can measure the patterns and try to deduce the causes.
That's why I was so excited to observe a power-law dependence in book-circulation frequency when I analyzed the data made available by the University of Huddersfield. In 15 years of research into crystal growth and electronic properties of semiconductors and superconductors, I never worked with such a well-behaved set of measurements. And as a physicist, I'm trained to believe that when a measured quantity obeys a mathematical relationship, then there must be a reason for it, even if I don't understand that reason yet.
Right now, I don't know why the book circulation in the Huddersfield library obeys a power law. A physicist would call this power law "phenomenology". Without an understanding of how it arises, I can't say whether it should apply to other libraries. I can't say if it would apply to ebook sales at Amazon, or holdings in Worldcat. It might be an accident. But it would be really cool if it was real, because at the core, it must be connected to how people choose things to read.
What causes people to buy a particular book, or borrow a particular book from a library? You would think that many people might want to know. Publishers and librarians might answer that books are read because they're good. But is there any concrete evidence that book quality has anything to do with sales or circulation? Ask any author if sales are correlated to quality, and they'll tell you about a wonderful book that nobody has bought or read. So maybe other factors are more important.
A lot of recent discussion has revolved around the unproven hypothesis that library circulation leads to increased sales. The evidence cited, though compelling, is anecdotal and non-quantitative:
Penguin’s runaway hit, Eat, Pray, Love (Viking), was published in February 2006 with an initial run of 30,000 hardcover copies. The title didn’t become a bestseller until March 2007. In the meantime, copies of Eat, Pray, Love changed hands thousands of times through book clubs and libraries, scoring rave reviews from Library Journal and stirring up chatter among leading library blogs such as Memphis Public Library and San Mateo Public Library. Thanks to word-of-mouth marketing and library lending, when the paperback hit newsstands, Eat, Pray, Love sales skyrocketed.
It would be useful to really know how important this factor is.
I'm guessing that the power law I observed has very little to do with distributions of book quality and much more to do with how people are distributed and connected to each other- for example, city sizes are well described by a power law. I think that people pick books to read based mostly on what other people have read. That's what creates a best-seller. By studying the distribution of book usage, we may be able to prove that this is so.
So here's where I need help. We need to have more data sets to look at. If the power-law behavior is universal, it should show up in a wide variety of circulation statistics.
There are also situations where the power-law won't apply. It may seem odd to say this, since we don't understand where the power law comes from in the first place, but there are things it CAN'T do. For example, in the comments on the last post, "miker" reported some circulation numbers from a consortium. He blindly plugged in his numbers to my formulae, and got predicted numbers within a factor of two of the observed numbers, which seemed pretty miraculous to me. He was disappointed.
Miker's data covers 4 years compared to Huddersfield's 13, and so a book that has circulated 100 times probably has spent little time on a library's shelves. A power law predicts significant numbers of books even at impossibly high usage. For example, the power-law fit to miker's data predicts that over a thousand books would be circulated more than once a day, which isn't possible given normal lending periods. See the notes if you're not scared of math and want to know how to adjust a fit.
The best way to advance the study of this phenomenon is to look at more data. If you have access to library circulation data, you can extract some numbers and publish them. A comment here would be appreciated. It's most helpful to report the number of items that have circulated f times as a function of f. Tab delineated text works great. In addition, analysts need to know the total number of items, total number of circulations, and the number of years covered by the data. An indication of the typical lending period would also be nice.
Along with a better understanding of how book collections get used, a better science of book use will help libraries and publishers formulate ebook circulation models that make sense for everybody who benefits from the reading of books. That's all of us.
If you want to fit a power law to circulation data truncated at some lending frequency fmax, you have to adjust the fitting parameters. We still have the same expression for the number of circulations for a given frequency, N(f).
But the computation of the parameters from collection size and total circulations is more complicated:
It's easiest to solve these equations numerically for N0 and A from the known C, N and fmax
"Provide a great service and charge a lot for it" was the advice of an old friend who became a successful businesswoman. I frequently think of this advice; I have sometimes failed to follow the second part and have mostly regretted it. If you provide what your customers value, you should have no qualms about asking them to pay a premium. If you don't give the customers what they value, they won't be happy even if you give them a big discount.
The results of the dual survey I posted on Monday are confirming my guesses about HarperCollins' new strategy for limiting checkouts of ebooks they license to libraries though Overdrive, which sparked the so-tagged #HCOD furor. (The limitations are in addition to a one user at a time limitation imposed on these ebooks.) The results indicate that HarperCollins' new service terms don't give the customers what they value. They'll be unhappy, even if they're offered big discounts.
The survey for publishers has only attracted 28 responses so far, not enough to make anything other than very broad statements. The survey for libraries has attracted 155 responses, and thus has much better statistics. The poll is in no way scientific; there is sure to be significant sampling bias. In other words, the survey only measures the opinions of librarians and publishers who are motivated to answer.
Significantly, 37% (±5%) of librarians indicated they would not purchase limited-check-out ebooks at any price. I would characterize this response as arising from non-quantitative considerations, which might be practical, ideological or philosophical. A similar percentage of publishers, 28% (±12%) indicated that no amount of money would convince them to offer an unlimited-check-out ebook (which is the most common type today). So it seems that publishers also have considerations that transcend math, which I find a bit surprising.
If we compare the rest of the responses, omitting the non-quants, we see that the librarians perceive a much lower value for limited-check-out ebooks than do publishers. 52 of these 97 librarians would purchase limited-check-out ebooks only if the they were priced at a quarter or a tenth of the ebooks offered without checkout limitations. In contrast, only 1 of 18 quantitative publishers thought the relative value of limited-check-out ebooks was so small.
What's clear is that even omitting the non-quant responses, librarians are perceiving the new HarperCollins licenses as being worth a small fraction of the previous licenses, offered at the same price. It's not surprising that they think it's an awful deal. It's a stick, not a carrot.
Publishers SHOULD be valuing the two licenses based on revenue lift, and they don't seem to expect a huge revenue lift by limiting check-outs. 10 of 18 quantitative publisher respondents seem to expect a revenue difference of 50% or less. My guess is that they're roughly right; I will do some modeling based on library check-out statistics and report on that next week or so.
Looking at the survey results from the other side, librarians are reporting that they put a huge value on the "durability" of the ebooks they license. They don't want books of any kind that wear out! Publishers that want to deliver the highest perceived value (and thus justify the highest prices) should consider finding ways to add to this quality.
One way to increase an ebook's durability is to use standard formats, such as ePub or PDF. This increases a library's confidence that the ebooks will survive into the future; ePub and PDF are the formats used by Overdrive. Unfortunately the DRM ("Digital Right Management") systems that wrap these files are proprietary, and there is a risk that a library's "purchases" will disappear if their ebook platform vendor (Overdrive) or DRM provider (Adobe) disappear in the future. Libraries are used to thinking with long time horizons, and it's a rare library that doesn't have books over 50 years old, much older than either Overdrive or Adobe.
The simplest way to add to the long-term durability for ebooks is to provide libraries with DRM-free, not-for-circulation files in addition to the DRM wrapped files for circulation. Libraries are used to dealing with license restrictions and have a good record of compliance in this sort of matter; it's likely they would opt to delegate the safekeeping of such files to third-parties. They'd also want to be able to use the files to replace the statutory copying of print books allowed to libraries under US copyright law and to aid discovery in their catalog systems.
Another way to increase the value of an ebook license to libraries without reducing publisher revenue is to selectively allow those uses that are most likely to create publicity and lead to sales. Imagine what would happen if most library ebooks allowed simultaneous use in the first month after a book's publication. This would help libraries attract patrons with "hot" items, and would likely increase total sales by building buzz. Many library readers would want to purchase the book once their loan period expired. More patrons for libraries translates into stronger funding, (or at least less cuts!) which in turn allows for better acquisition budgets.
Andy Woodworth has some more ideas on making ebook rights packages that would be attractive to libraries, and I'm sure there are be many more ways for publishers to offer ebook carrots to libraries. Or at least a parsnip.
What is a Limited-Check-Out eBook Worth?: Two Polls
There's now a "Boycott HarperCollins" website that's trying to channel the response of librarians to the change in license terms I wrote about on Friday. The website, put up by librarians Brett Bonfield and Gabriel Farrell, calls for libraries to stop buying ebooks and print books published by HarperCollins or any of its imprints, and to write letters to HarperCollins' management.
I take a more "dismal" approach to this brouhaha. I simply point out that a limited-check-out ebook is less valuable to a library than an unlimited-check-out ebook. I don't think that anyone would disagree with that. It would be a step forward if everyone involved had a better idea of the extent to which limited-check-out impairs an ebook's value. HarperCollins seems to think the impairment is not too large, while I've not heard any voices in libraries say that it's small.
So here's a poll for librarians designed to find out what unlimited checkouts would be worth compared to a 26 checkout maximum. If you are a librarian, imagine that you are offered two ebooks that your patrons need. An unlimited-checkout version is offered at a deluxe price; a 26-check-out version is offered at a discount. At what discount would you choose the limited version?
And here's a corresponding poll for publishers. Imagine that your standard ebook offering comes with a 26-checkout limit for libraries. How much of a premium would you need to be offered to also offer an unlimited checkout (no simultaneous use) version ?
Of course, the answers will depend on what book we're talking about, what the budgets looks like, etc. but try to imagine what you would do for a typical situation. [Note: It's been pointed out to me that the answer is very different for best-seller vs. reference vs. fiction vs. non-fiction, etc. For the current purposes, consider the range of books published by HarperCollins, i.e. mostly trade books.]
I'm offering these questions to try to help advance library-publisher dialogue, so please don't cheat, answer honestly, and try to get your colleagues to participate as well.