The Google settlement and unanswered questions, particularly about the windfall
Michael Cairns and I have both been frustrated with most of the conversation surrounding the Google Book Search settlement. The principal concerns of most of the participants in the dialogue seem to be:
1. Has Google unfairly captured a monopoly on some content?
2. Has the “class” of “orphan authors” been dealt with fairly, since they aren’t really “represented” in the negotiations?
3. If this case doesn’t adjudicate questions of “fair use”, does that ipso facto mean that a settlement is a bad idea?
4. Can any settlement of broad public-interest questions about copyright and use be legitimately resolved in any way other than through legislation, since, after all, copyright rules are created through legislation?
We believe it is unfortunate that the attention has been focused there because there are some very real commercial questions that we think need answers to fully appreciate the practical implications of the settlement. We’ve been doing our best to build a model of what revenue will be and where it will go. Trying to do that makes it very clear how much important detail has been omitted from the debate we’ve heard so far (and we’ve both heard a lot of it.) Here’s a starter list of questions that need answers to forecast this business which we hope that people more familiar with the terms of the settlement than we are might be able to answer for us.
By far the most significant questions we have concern how the revenues are divided, and these are significant questions because the preliminary financial projections we have done indicate that this database of content will produce hundreds of millions of dollars for Google and BRR.
1. We understand that revenue flows from the books in the database to Google and then 63% of that to the BRR. Are there any rules set yet about what BRR can keep of these revenues for its own operations before it passes on the remainder to rightsholders? We might logically assume that BRR would require a diminishing percentage as revenues rise, but we wonder how those controls will be established.
2. We understand that future orphan claims can be compensated going back five years from the time of the claim. That suggests that the BRR has to hold the orphans’ money in escrow going back five years. The key question we have not heard discussed is: what happens with the money older than five years? We’ll expand on that below.
3. How is the allocation of revenue determined for the copyright owners in the database? Are they paid by the amount of content in the database? Or by the number of pages viewed of their work in the databases licensed? Or on some other basis? Or is that something still to be determined by the BRR?
4. We believe that any sales costs Google incurs, such as hiring another organization to help them sell licenses, would come out of Google’s 37%. Is that correct, or can Google deduct sales costs before dividing the money?
And we have a bunch of questions to which the answer might be, Book Rights Registry (BRR: the entity with a Board of eight — four from the AAP and four from the Writers Guild — that can therefore deadlock) just decides. We want to know if there are any barriers or constraints on any of the following within the terms of the settlement.
5. We know that the database will have greater value and greater use if it is curated and merchandised. Is there a plan for this? Is there even a concept for how a third party could be compensated for doing this curation and merchandising?
6. We see opportunities for services & solutions providers such as SharedBook and to add value by providing the ability for customization, personalization, and annotation of the IP and then perhaps to have the end product sold both as a book and as an ebook. Is this a deal that BRR would just be free to make on whatever terms they deemed appropriate?
7. Does BRR get to retain a larger percentage of revenues for ‘home-grown’ product initiatives such as the ones we are describing? This revenue doesn’t come from Google like the institutional licensing and ebook sales money does, so does Google still get its full 37%?
8. To leverage non-database (non-Google) revenue opportunities we see three primary functions that need building: a storefront, an assembly technology (which could be much simpler than SharedBook: what if you wanted to put five Dickens novels together and print them?), and actual printing and delivery. Do we assume that BRR is free to put these capabilities together however it likes? Could it grant this as a sublicensed monopoly to Amazon or Ingram or Barnes & Noble?
9. We puzzle over the pricing of POD. May we assume that BRR would be free to pursue any model? We can see two immediately: one is that BRR gets a percentage of the book’s retail (or wholesale) price and the other is that BRR charges a flat rate for the book content and the packager-reseller then charges whatever they want for the resulting book. Is BRR free to make these deals as it likes?
At the core of the important discussion about the settlement which has not occurred is the question “what happens to the money the orphan books earn?” If it is divided among all the opters-in, which seems at least as reasonable as letting BRR just keep it, then there is a huge potential windfall to the copyright holders who stay in this database. That has not been mentioned by anybody (as far as we know). By consensus, 5 million of the 7 million books that are going to earn many tens, if not hundreds, of millions of dollars annually are orphans so, by definition, they have no copyright owner to pay! Either BRR keeps the money or they give it to the contributors to the database.
Not to have discussed this strikes us as a startling omission. Somebody gets a windfall much larger than the one going to Google. Who is it?
This post is an intellectual joint effort with Michael Cairns, who did a very helpful editing job on the first draft as well.