On Publishers

On Publishers

Compare: at least according to the RIAA’s own numbers, the rents it has been able to exact have dramatically fallen ever since content could be freed from container and distributed by electronic current and light waves. In 2001, 980 million physical “units” were sold for 13.6 billion dollars. In 2009, 309 million physical “units” and 1.236 billion digital “units” were sold for a grand total of 7.6 billion dollars. Meanwhile, the AAP announced that though year-over-year revenues from book sales had fallen in 2009, the industry had seen compound annual growth of 1.1% over the preceding 7 years. Not bad.

But the day of reckoning is here. Books are being published digitally, and older titles are being digitized. The content is being divorced from the container. Publishers are scared beyond belief of “piracy.” They understand: once they go digital, a business model built on “printing” copies will be challenged. They will try to hold the center in the same way the RIAA and MPAA did. With DRM and lawyers. They should realize the bell is tolling.

Now I’d like to return to dirty secret number two, the inherent value of IP. The publishers recently fought a very short and very public war with Amazon.com over its policy of capping eBook prices at 9.99. With the help of leverage provided by Apple, the publishers succeeded in ousting the policy and earned the right to price eBooks to their hearts content. The result? I can buy a physical copy of Prof. Neal Natanel’s “Copyright’s Paradox” for $15.80. The Kindle edition is $14.22. At that price, I, and I am willing to bet, many others, would prefer to buy a physical copy I can write in, dog-ear, lend, and re-sell, among other things. And here’s the insight: even though the printed word content is exactly the same, I’m willing pay for the container. And there’s the dirty secret revealed: consumers allocate a great bulk of the value of a book to the container, not the IP.

This, of course, is the horrible truth that publishers can’t live with. When a study showed that 27-28% of “avid readers” did not want to pay more than 9.99 for an eBook, an industry businessman declared that they had been “converted” to believe that eBooks should be cheap, as if Amazon had subtly conditioned them. Only one problem with that theory – people aren’t even paying 9.99 for eBooks. Currently, 61 of the 100 bestselling titles on the Kindle are priced at all of $0. A major factor that admittedly distorts my point is that there is a barrier to entry to the Kindle market at the moment – you have to already paid good money up-front for a reader device to make use of the catalog. Nevertheless, the fact remains that eBooks priced even at 9.99, let alone higher, aren’t really selling. It just might be that consumers don’t place value to the tune of 15-20 dollars a copy on the printed word divorced from physical container.

Based on the relatively rosy sales numbers earlier, and my own stated preference for the physical container in most situations, why the fear among publishers? Because mass digitization of the content has already happened (hat tip: Google). In the name of progress, accessibility, and superior search results, the printed word has been freed from its containers en masse. And this is without even considering the consequences of easy lawful digitization by individuals. Costless copies can be made, and shared, and the potential reader will likely soon have the option of finding the content sans container on the internet. That’s the nightmare. When the economic raison d’être of the Publishing House – the ability to print, store, and ship physical copies on a large scale at reduced cost – becomes irrelevant, what’s the future of the Publisher?

Like other content purveyors, the Publishers have another business that’s not quite as easy to quantify and commoditize as the making and selling of containers. What value does a publisher add beyond what an author has already done? The service of a skilled editor is central (as a recent self-serving editorial attempted to remind). Publishers also provide publicity. And they create the form of the content.

That’s the future model. Small collaborative start-ups, offering fixed fee editing, design and publicity services to unknown authors, and contingency fee (i.e. based on shared royalties) services to more established authors. The idea of intellectual “property development” is already being embraced by some of the new start-ups, e.g. ORIM, which attempts to bring together print and film experience to develop works as media properties. Just what exactly a new slimmer business model will look like is something that can be further developed in another paper by someone with a bit more insight into the industry.

Eben,

The comment about the court being the appropriate body was in reference to its power with regards to you and me. The major complaint about the settlement and orphan works (as far as I understand) is that it only releases Google from liability. As you or I are not parties to the suit, I don't think Judge Chin can alter the settlement to include us. Then again the plaintiffs did suddenly claim a class of all copyright holders in printed works at the last minute. Unless I misunderstand the procedural mechanism, I think Congress will have to alter the statute in order to free anyone who isn't a defendant to the suit from liability with regards to orphan works.

In discussing this topic with DH over the summer, he mentioned that opposition to the most recent versions of an orphan works legislative solutions have been coming from "smaller" media. While large content makers may be generally hostile to competition from "free" content in the public domain, they might also be arrogant enough to believe that they have a superior product to most things available for "free." They may even be right in that regard (a discussion I had with the guy who runs this.) And wouldn't new mashup/remix/whatever created from orphaned/public domain works be copyrighted anyway? Content companies can buy up upstarts, or the rights to their work.

As for compulsory licensing, I believe there's a need for it in order to enable competition among aspiring digital libraries. Cheap book rippers make it easy for you and I to digitize quickly (I'm curious, how accurate is the accompanying OCR?), and we can theoretically avoid notice because we'd be off the radar. The analogy to music holds if you're talking about swapping digitized print media over the net. That presents all the same problems to publishers as digital music does. But that's not what I was concerned about.

A day may come (and it may be soon) when we'll all be able to each possess, in digital format, a universal library of everything ever printed. The library will also be completely indexed and easily searchable. Until that day, aspiring digital libraries provide large moving targets for publishers to sue. If one believes that their needs to be competition in the field to spur development in OCR, indexing technology, scanning speeds (this is kind of cool, by the way), or anything else, or just that Google needs a foil, then lowering the barrier to entry is a good idea. If on the other hand Google is pursuing a goal that will soon be pointless, then there's no point to compulsory licensing.

This brings me back to the second bullet point - in context, my point regarding having a search engine search my own books was that intuitively I shouldn't have to pay anyone to digitize a book to enhance its utility (making it searchable using a computer) if I already paid for it. If I can easily replicate on my own Google's OCR and search capabilities, then wouldn't "need" them to search for me per se.

-- RazaPanjwani - 14 Aug 2009

• I find this all rather puzzling. The judge is approving a class action settlement and must find that it is in the public interest. So why the doubt about whether "the Court is the appropriate body to be solving the issue for any party other than Google"? The hostility of the content industries to a default of freedom for orphan works has nothing to do with whether they think rights they hold are going to be orphaned, and everything to do with their effort to minimize the total size of the public domain, with which proprietary culture competes.

• What is the technical fact-pattern on the basis of which you believe you need Google (or any "search engine") to search inside copies of texts you already own?

• Why should we bother with all this talk about compulsory licensing? Once cheap book rippers are available everywhere, neither Google Books nor the publishing oligopoly will have any more capacity to control distribution of text than the music industry now has in its future. As there is no prospect whatever of moving the compulsory licensing legislation you say we ought to be supporting, and as there is no reason to suppose we need it anyway, what's the practical import of this argument?

What Daniel should say at the Google Books Settlement Fairness Hearing

On October 7, 2009, Judge Denny Chin will preside over a Fairness Hearing with regards to the proposed settlement between Google and a group of plaintiffs including a number of publishers and a class of all owners of a United States copyright interest in a book or insert. The purpose of the hearing will be to determine whether the terms of the settlement are fair, reasonable, and adequate, whether the class should be certified, and whether the agreement should be approved.

As Daniel is a member of the settlement class, he would be entitled to speak if he chose to do so. In his shoes I would urge the court to uphold the agreement because the public benefit resulting from Google’s activity is too great to toss aside, but to also follow the example of Judge Michael Davis and call for legislative reform.

The issue that has drawn the most attention, especially from public interest organizations including PK, NYLS’s Institute for Information Law and Policy, and the Internet Archive, and many commentators is the “orphan works problem.” The Settlement Agreement by its opt-out nature gives Google license to make use of works that, by definition, no competitor will be able to license. But should the court decline to approve the Agreement over the issue? I’m not sure the Court is the appropriate body to be solving the issue for any party other than Google. Barring a surprising turn of events with regards to a questionable effort to intervene, the Judge probably doesn’t have the ability to “settle” the issue with persons or entities not party to the suit. This is an issue best left to the legislature to remedy by altering the law so as to limit the liability to persons of entities wishing to license orphaned works, but unable to do so. While the reintroduction of formalities, renewal, and a reduced copyright term would be better, the Berne Convention forces us to consider work-arounds. Prof. Lessig thinks that Congress is too corrupt in general to reach solutions beneficial to the public, but I don’t think there’ll be much resistance here. Large content publishers who typically would oppose any attempt to limit the reach of copyright remedies will realize that the problem doesn’t effect them, since they are among the least likely copyright holders to not maintain careful records and catalogs of their works.

Unrelated to the settlement, but central to the case itself is the issue of fair use. It’s no surprise that Google settled rather than stand on its fair use claims. By the time Google settled, it had scanned 6 million in-copyright books. It could have faced a judgment of a trillion dollars for willful infringement. Pamela Samuelson of Berkeley has recently written about reforming statutory damages, Charles Nesson of Harvard is attempting to challenge their constitutionality in the Tenenbaum lawsuit, and Fred von Lohmann of EFF has spoken specifically on the problem of getting defendants to assert a fair use defense even where it’s clearly appropriate due to the fear of facing massive damages. Most fascinatingly, Judge Michael Davis, the presiding judge in Capitol v. Thomas, implored Congress to overhaul statutory damages while setting aside a verdict of over $200,000 in damages as excessive. The subsequent $2 million verdict on retrial thanks to statutory damages underscores the point. I would ask Judge Chin to add his voice to Judge Davis’ and call for reform. This, however, may be futile, since the threat of statutory damages is so powerful. They will lobby with all their might to prevent any diminution of such a powerful coercive tool. It was only in 1999 that maximum damages were increased by 50% from $100,000 to $150,000, and the recent PRO-IP Act attempted to multiply damages for infringement of compilations.

I would also ask Judge Chin to call for Congress to consider a compulsory licensing regime for digitization of print works for commercial purposes. One of the strangest aspects of the Settlement Agreement is that by virtue of the Class Action form, and settling before any substantive progress of the suit, the plaintiffs were able to settle on behalf of all owners of US copyright interests in books without ever facing a class certification challenge from Google. The transaction costs problem that arguably drove Google to scan without seeking permission in the first place disappeared in a puff of legal fiction. In fact, some rights holders have objected to the Settlement on these grounds, noting that a settlement class containing both publishers and authors cannot have aligned interests. Others have railed against authors being forced to give a “private compulsory license” to Google. While the frothy-mouthed anger of some of these opponents who may as well have signed their letters “Google delenda est!” are caricatures of copyright maximalism, they offer an interesting idea. The solution shouldn’t be to punish Google, but instead to offer the public the same spoils – a compulsory licensing regime. Using the mechanical license for sound recordings as a blueprint, let’s say that anyone can digitize a book for a set royalty after the copyright holder has authorized at least one entity to digitize. The transaction cost barrier is removed for anyone wanting to create a digital book library. I’m not sure that I’d make any demands about forcing Google to open its library of raw scans to its competitors. While I’d like to avoid wasting resources by forcing competitors to physically scan when all they need to do is get a copy of a file the first scanner already has, I haven’t come up with a satisfactory compensation scheme.

The slippery slope with compulsory licensing for digitization is that it undermines any market failure based argument in favor of a fair use based right to make private digital libraries of books you already own. This is a frustrating proposition, why shouldn’t I be allowed to bring the power of a search engine to bear on books I already own without having to buy another copy? Additionally, this directly conflicts with the tacit acceptance of the right to rip CDs for personal use. Are we allowed to rip CDs for free because it’s our right to do so, or because when RIAA v. Diamond came down, there wasn’t an easy way to transact for pennies worth of licenses? Private copying is a vexatious issue that this Settlement Agreement still leaves wide open.

-- RazaPanjwani - 03 Aug 2009

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