Public Library E-Book Lending Must Change to Survive December 4, 2011

A few events over the past few weeks illustrate the downward arc that I have suggested is in store for public libraries in the e-book age.  First, Amazon introduced its own e-book “lending library” for members of its $79/year Amazon Prime service, which allows users to “borrow” one e-book at a time, with no due dates.  Second, yet another major trade book publisher, Penguin, got into a spat with public libraries over e-book lending.  Penguin stopped offering new titles and withheld Kindle access to all titles, out of unspecified security concerns with OverDrive (the service that powers most U.S. e-book library lending) and Amazon. (Penguin subsequently restored access for existing titles, but not for new ones.)

The Penguin incident is only the latest in what will undoubtedly be a long series of squabbles between publishers and libraries over e-book lending.  In fact, five of the “Big Six” U.S. trade book publishers are now either limiting their e-book licensing to libraries or not licensing at all — and the sixth (and largest), Random House, is reportedly reconsidering its library e-book licensing policies.  Such spats may well lead to a world of off-putting restrictions and confusion for libraries and their patrons.

Libraries have two fundamental problems here: they have less control over the situation than publishers do, and they are about to get some serious competition from the private sector.  An article in Publishers Weekly gives an overview of Amazon’s e-book lending feature and its implications for publishers and authors.  In a nutshell, the program is currently limited to a few thousand titles that originate either from Amazon itself or from smaller publishers that still sell e-books to Amazon under a wholesale model, as opposed to the “agent” model used by most major trade publishers, which forbids such activity.

But the Publishers Weekly piece only covers the impact of e-book lending on publishers and authors, many of whom are raising a fuss about Amazon’s program.  It says nothing about the program’s impact on public libraries.  The executive director of the American Library Association (ALA), Keith Fiels, has publicly expressed a lack of concern over the impact of Amazon’s lending program, given its limited range of titles and that it’s part of a subscription program that includes other features such as streaming video and free expedited shipping.  The ALA is more concerned about major-publisher moves like Penguin’s.

Indeed, public libraries are experiencing major growth in e-book lending, especially since Amazon joined the e-lending world by opening up its DRM to enable lending and integrating it with OverDrive’s library lending service.  Another piece of evidence that library e-lending is expanding is the entry of a Seattle-based startup called BlueFire Productions as the first serious competitor to OverDrive in the public library space.

At bottom, this is about two things: ways to make e-books available legally for free, and the promotional value of free distribution.   That’s why libraries should be worried.  First, consumers generally don’t care where they get free legal e-books, as long as they are available conveniently and can be read on their favorite devices.  Second, what Amazon has started as a limited service that’s only available to an elite tier of customers will surely become more widely available and with more titles, especially with competitors like Barnes & Noble constantly looking for ways to differentiate themselves from the market leader.

Amazon subsidizes the wholesale cost of e-books that it lends to Amazon Prime members. It does this to make its own services and devices more attractive, not to spur sales of those e-books. If and when B&N offers an equivalent feature, it will undoubtedly do the same.

If I were Keith Fiels at the ALA, I would be very, very afraid.  The e-book publishing world may be about to split up into the equivalent of the music industry’s major and indie labels: major labels tend to make deals that maximize revenue and limit free promotion, while indies try for maximum promotion in hopes of getting revenue later.  When you apply this dichotomy to publishers and e-books, you will see that libraries will inevitably get squeezed out.

The majors will make life increasingly difficult for public libraries through refusal to license or restrictive and confusing licensing terms.  Meanwhile, smaller publishers will “lend” their titles through Amazon and other e-book services — and will most likely be happy with the arrangement for the promotional value it gets them.  And some indie publishers will give their e-books away outright — through e-book retailers or through sites like Facebook — in hopes of getting exposure for their authors and selling hardcopy titles, just as thousands of indie musicians used to give away MP3s on MySpace.  And let’s not forget that e-book prices are often much lower than their hardcopy counterparts to begin with.

Then it will only be a matter of time until some publishing industry equivalent of Michael Robertson (the music industry’s digital provocateur) will create a search engine for finding free e-books from all of these sources in a single convenient place, storing them in an online locker, sharing them with friends, etc.

If you extrapolate from these changes, you can see how public libraries could become virtually irrelevant for e-book readers.

It’s all because publishers get to decide what e-book titles libraries may lend and (to some extent) under what terms.  Again, think of this in music terms: radio stations get the right to play whatever music they want under a license granted by law — a so-called statutory license.  Online equivalents of radio (e.g., Pandora, iHeartRadio) get similar rights.  Library lending of digital music is virtually nonexistent; radio remains the primary promotional channel for record companies.  Perhaps it’s time to think more carefully about public libraries in this light for e-books, as I’ll explain.

There is no equivalent of a statutory license for e-books that would allow libraries to lend them without explicit, title-by-title permission from publishers.  As I’ve discussed previously, libraries do get rights under Section 108 of the copyright law to lend e-books under certain conditions.  But because most publishers only give libraries e-books to lend as DRM-protected files with license terms attached to them, and Section 108 requires libraries to abide by those license terms, libraries can’t exercise those rights.  In effect, those rights have no value for libraries.

Libraries simply do not have enough leverage against major publishers and retailers to improve this situation in the private sector.  If they are to remain relevant in the e-book age, they are going to need to push for significant legal reforms, which both publishers and retailers will undoubtedly resist.

I previously suggested one option, albeit in a somewhat tongue-in-cheek manner: push for the Copyright Office to define an exemption to the law that criminalizes hacking of DRMs (Section 1201 of the Copyright Act) so that public libraries can legally remove DRM for the purpose of lending e-books if they repackage them with DRM to enforce lending terms.  However, this has two disadvantages: exemptions to Section 1201 only last for three years, until the Copyright Office considers a new set of exemptions, and publishers could push for stronger DRMs that are harder to hack.

The “cleanest” solution to this problem would be to enact Digital First Sale, i.e., an extension to Section 109 of the copyright law that lets anyone do whatever they want with digital downloads once they have acquired them legally.  (We had a great discussion on this subject at last week’s conference.)  Public libraries owe their existence to First Sale (on physical goods) in the first place.  But that won’t help for e-books as long as publishers distribute them with DRM and DRM hacking is still illegal; and anyway, as I discussed recently, Digital First Sale isn’t likely to happen anytime soon. Therefore it would be worth libraries’ while to investigate changes to the law that help them lend e-books while leaving Digital First Sale off the table.

One option would be to push for additional rights for libraries under Section 108.  At a minimum, Subsection (f)(4) would have to be relaxed so that publishers may lend e-books even if the licenses they come with forbid this activity.  This would be tantamount to a statutory license for libraries to lend e-books without explicit permission from publishers.

As a practical matter, this wouldn’t really change the way things are done today.  Libraries lend e-books through third parties like OverDrive, which already get e-books from publishers without DRM and package them with DRM — just like music and video retail services.  And provisions already exist in Section 108 that hold libraries liable if they make their own unauthorized copies of e-books.   OverDrive and its ilk use DRM to enforce one-copy-at-a time lending as well as the lending time limits that are in libraries’ own best interests.

This change in the law would improve the situation for libraries substantially.  However, the economics may have to change to make it palatable to publishers.  For example, libraries acquire e-books for their collections by paying for them title by title, just as they pay for printed books. Radio stations, on the other hand, typically get free copies of recordings from record labels but pay royalties to the music industry for playing them on the air.

If publishers acknowledge the promotional value of library e-book lending, then they might be willing to accept a statutory license to lend e-books if they can negotiate a per-loan royalty rate in lieu of upfront purchase prices.  The Copyright Clearance Center, for example, would be in a good position to manage these payments and royalty disbursements, just as ASCAP, BMI, and SoundExchange do for music.

This type of arrangement would enable libraries to maintain huge collections of e-books (through service providers like OverDrive and BlueFire, which would actually house and distribute the e-books) and thus serve the public well.  At the same time, the negotiations would have to resolve questions of how many copies of an e-book a given library could lend out concurrently; one copy per library doesn’t reflect the fact that big libraries acquire multiple copies of popular titles.  Is it possible for the numbers to defined so as to be fair to both publishers and libraries?  That would be a good question for the Section 108 Study Group, the venue for recommending changes to that section of the copyright law, which used to convene every five years but was disbanded by Congress after its last report in 2008.

A limited form of just such a statutory license-type solution has actually been suggested in the private sector already, in the proposed settlement to publishers’ and authors’ lawsuits against Google.  It includes giving public libraries rights to make every book scanned on Google’s behalf — over 12 million titles at last count — available on a single terminal within each library.  Libraries would not even have to pay for this.  However, this doesn’t allow e-books to be available outside of libraries’ physical confines, it doesn’t allow libraries to acquire multiple copies of e-books they want to make available to more than one patron at a time, and Google can withhold up to 15% of its scanned titles at its discretion.

The Google book settlement is still unresolved, but the terms in it show that publishers may be willing to grant libraries some limited e-book lending rights.  Libraries have complained about the “table crumbs” offered to them in the Google book settlement.  But unless they take action similar to what I’ve described here, those rights may be the best that public libraries can hope for as the e-book market expands.