From where I sit, you can’t actually “sell” an ebook
This comes up often and I grit my teeth every time.
You can’t have a discussion of any length about ebook sales and pricing and DRM in any sized group of digital publishing observers before you hear that it is somehow wrong or unfair that a “purchaser” can’t do everything with an ebook they’ve bought that they do with a print book they’ve bought.
That is: various “controls”, sometimes deliberate (DRM) and sometimes circumstantial (tech doesn’t always work smoothly) make it hard or impossible to lend, give, or re-sell an ebook in the same way that you do a printed book. Have enough of these conversations and you will become educated about “first sale” rights, which are enshrined in law, which basically say that when you buy something you own it and can lend, give, or re-sell it.
So the way the complaint often goes is that those damn publishers are putting this damn DRM on my ebooks so I can’t do all the things with them I can do with my print books.
This has always struck me as highly questionable on its face. First sale rights make complete sense with something physical. They make no sense with something digital. When you lend, give, or re-sell a print book, you don’t have it anymore. When you lend, give, or re-sell a digital file, you still have it and you could lend, give, or re-sell it again and again without limit. Surely, that’s a distinction that justifies a departure from the physical world paradigm.
The complaint that first sale rights are being abused — often delivered as a complaint about publishers — proceeds from a fundamental misunderstanding that publishers themselves are entirely responsible for creating. You don’t actually “buy” an ebook the same way you buy a physical book. What you actually buy is a license to access a digital file, which — in the developing world of the cloud — you may or may not ultimately “possess” in any machine or device you own. (Of course, you can own the machine or device, which is physical. If you lend, give, or re-sell it, you won’t have it anymore.)
Publishers promulgated this misunderstanding. From the beginning, publishers analogized ebook distribution to print book distribution. They started out using about the same retail price and about the same discount structure to intermediaries as they did with print books. Some, at the very beginning, even tried to make the royalties the same (in the neighborhood of 5 to 15 percent of the retail price.) It seemed simple and it seemed logical. It has turned out to be neither.
There is a core reason why publishers promote this nomenclature of misunderstanding. Publishing contracts vary widely, but one thing is pretty common among all of them and has been for a very long time. They enumerate the splits between publishers and authors on rights sale revenue for a long list of possible transactions: first serial, second serial, book clubs, paperbacks, cheap hardcover editions, foreign editions in English, foreign editions in foreign languages, and others.
And then they almost all say — almost forever have said — that all rights transactions not enumerated will see revenue divided between authors and publishers 50-50. In fact, according to some agents, even in contracts where an ebook royalty is specified, the sale of electronic book rights are almost always specifically designated as a 50-50 split.
So if publishers called their ebook transactions what I believe they really are — rights licenses — they’d have what looks to me (but I’m not a lawyer) like a contractual obligation to pay authors half the revenue. Since that is double what many publishers, and all the big publishers, think is “fair” and commercially viable, there’s no motivation to move the conversation back in that direction, even if it would make the consumer interaction, and the restrictions policed by DRM, sensible.
Of course, smart agents have been thinking about this question too. They see very clearly that ebook sales are different from print book sales. First of all, ebook sales are — almost without exception — governed by a contract between the publisher and the consumer’s source. That’s not true (with very rare exceptions) for relationships between publishers and print retailers or wholesalers. But it is true for the relationship between publishers and book clubs. In fact, the book club paradigm has much more in common with the ebook marketplace than the publisher-bookseller relationship does. Book club deals are covered by licenses. Book clubs “print” their own editions, just as ebook resellers deliver the books in their own proprietary format or DRM.
It is worth emphasizing here that the publisher is (in today’s world) very seldom delivering the file directly to the end consumer. The fact that the publisher gives the intermediary a clean digital file, which the intermediary then manipulates and copies (or, we could say, “prints” in its own proprietary edition) to deliver to its customers underscores that there is activity betwixt publisher and consumer that falls under a license. And it is a license that is spelled out in a contractual relationship.
But agents have apparently chosen, at least for now, not to fight the royalty battle with publishers on these terms. For any agent to do so would be employing a sort-of “nuclear option”; they might be right and they might even win in court (eventually), but they’d effectively deal themselves out of the game from the moment they attempted to enforce this position.
This is symmetrical with the publishers’ restraint on the non-compete clause. From the publishers’ perspective, it is transparent and obvious that an ebook edition competes with a print book edition of the same book. All book contracts have non-compete language. But no publisher has yet used that particular argument to strongarm an author who wants to self-publish an ebook when their print contract didn’t contemplate ebooks. Both sides — despite the flare-up that occurred last year when Andrew Wylie appeared to go toe-to-toe with publishers for a little while before he apparently backed down — want to continue doing business and prefer to negotiate solutions rather than attempt to impose them, even if they have a very strong position.
And agents are aware that they and their authors might also benefit from the misunderstanding about whether the ebook transaction is a sale or a license. If it is a license that doesn’t explicitly grant first sale privileges (and, by the way, it actually often is already: check your Kindle agreement with Amazon!), then consumers might insist on paying less for it than they do for print. At least, that has been a component of their restraint. Now that ebook prices, most dramatically for hardcovers, have been coming down in relation to the print prices (first through Amazon’s deep-discounting initiative, and then made permanent by publishers lowering their established prices when they switched to agency), consumers are getting a dollars-off deal as compared to print much (though not all) of the time.
Even though authors don’t sell their copyrights to publishers (they license their use) and publishers don’t sell inventory or even production masters to ebook resellers (they license them to replicate and distribute the publishers’ ebook files), the fiction that Kindle or Nook or Kobo or Google or iBookstore is selling the book to you or me will persist. If we had truth in labeling here, it would make the restrictions comprehensible. It would even make consumers understand why Amazon was within its rights (and upholding its responsibilities) when it chose to “cancel” the licenses it granted erroneously for an edition of “1984” a couple of years ago. We can all recall the high dudgeon among many observers when they infamously reached into people’s Kindles and erased a file they were given by somebody who did not have the rights to grant those licenses to it. But truth in labeling would also eliminate an ambiguity that works in favor of publishers’ margins today.
What would worry me if I were a publisher is that someday somebody who is not an agent trying to keep things sweet with publisher customers will file a lawsuit to make the case that ebook sales are licenses already covered in just about every publishing contract. That would suggest a potential liability equal to half the ebook revenue minus what has been paid so far on every ebook ever sold under any contract where that kind of rights split language still governs. Publishers have perhaps mitigated their exposure by putting new ebook agreements in place with many authors, but they still wouldn’t want a court poking its nose into this particular problem.
On the other hand, it would certainly make things a lot clearer and stop a lot of silly conversations if we all understood that ebook access is granted by license, not sale.
Looking forward to lots of hellos at Tools of Change this week. I’m sure, as always, it will be a jam-packed and stimulating couple of days.