The delicate balance of loans and sales

At the beginning of 2011 the online retailer, Amazon, announced that its sale of e-book titles for the first time had surpassed the sale of paperback titles. The company also proclaimed that its e-book reader, Kindle, is the best selling product in the history of the company. After more than ten years with predictions of the imminent breakthrough of e-books it is now safe to say that the e-book is no longer just a niche product but is being accepted by the general public.

As the demand for library e-books increases one of the most pressing concerns among librarians is how to lend e-books and whether it will be possible to make them available within existing budgets. In parts of the library community there is an expectation that ebooks will be inexpensive for libraries, and there is a demand for business models that give libraries the opportunity to give unlimited access to ebooks. This article will try to show why this is unlikely to happen and to point to more realistic scenarios for e-book lending.

Possibilities and challenges for libraries

The introduction of e-books will have profound implications for libraries and for public libraries in particular. The yearly overviews of it-trends published by the consultancy company, Gartner Group, are called hype cycles based on the experience that there is a tendency to overestimate the short-term effect of new technologies. The cycles do, however, also incorporate a corresponding tendency: that we tend to underestimate the long-term effect of new technologies. This could very well be the case with e-books. E-books will challenge public libraries in many ways. The primary reason for visiting a public library is still to check out books. Therefore e-books could increase the possibility of library bypass. E-books are, however, first and foremost an exciting new possibility for libraries to serve the public in new and better ways. They can be used in new ways to promote reading, the joy of literature and to support lifelong learning. They can also help libraries reach new user groups that do not visit the physical library.

The e-books could also potentially be a means of saving money for the individual library. If e-book titles replace physical copies libraries could save money on the storing and handling of physical materials. Such savings will require a deliberate choice to prioritise digital content as there is likely to be a continued demand for the physical book. Most users are quite conservative in their media habits and new media forms often supplement existing media forms rather than replace them. The possibility for libraries to use ebooks to provide new services to patrons or as a means to save money will of course depend on the cost of ebooks and the conditions for making them available. There are unfortunately two very important constraints on the way libraries can make e-books available: copyright legislation and the commercial interests of publishers and authors.

Copyright legislation

The cornerstone of international copyright is the author’s ownership to his work and the exclusive right to decide how to make it available to the public. The legal protection of the author’s right to his work establishes an incentive to create new works in the expectation of subsequent sale of these works in a market. The prohibition of unauthorized copying creates a market for the work and enables the author to receive revenue that is proportionate to the effort put into creating the work. The underlying presumption is that without the copyright protection the works created would be fewer and of lesser quality.

In most countries there is an exemption in the copyright legislation allowing libraries to buy a copy of a physical book and lend this copy to the public without restrictions. This exemption does not exist for digital copies and so libraries have no special status when it comes to e-books. This means that libraries have to have permission from the rights holder to make e-books available. Libraries have to negotiate a contract and obtain a license to lend e-books.

This situation has prompted some members of the library community to advocate for changes in the copyright legislation that would give libraries the same special copyright exemptions for loans of e-books as they have for physical books.While some modification of copyright legislation could be both valuable for libraries as well as realistic it is highly unlikely that loans of e-books could be covered by the same exemptions that apply to physical books. The reason is that such a step would undermine the sale of e-books to private individuals.

The sale of physical books in Denmark totals more than 500 million Euros a year and the sale to the public libraries is less than 30 million Euros a year. If the Danish publishers converted the whole portfolio of physical books to ebooks without any restrictions on library loans they would risk losing their entire revenue from sale to private individuals, companies and institutions. There would also be less money to pay authors and establish an incentive to produce new works.

The publishers might therefore prefer to have no or very restricted e-book loans. There is, however, in most countries a political demand, that it should be possible for libraries to lend out ebooks. The challenge is therefore to find business models that enable libraries to lend out e-books while not undermining the commercial to private individuals.

E-book business models

There are at least three basic models for e-book loans: access-based (e.g. flat rate), usage-based (payment pr. loan), ownership (payment pr. copy) that can be combined in numerous ways. In addition to these models there are different freemium models that are outside the scope of this article.

With access-based models the library pays for access to an e-book collection. If it is a flat rate model the library will pay the same amount independently of how many e-books are borrowed. For public libraries this model will only work with a short loan period or a limit on renewals as it will otherwise undermine sales.

Usage-based models have the advantage of larger payments to the publisher as usage increases, thereby compensating for potential corresponding decrease in sales. In some models the library will pay a smaller unit price pr. loan as the number of loans increase, thereby giving the library a larger incentive to promote e-books. The model is also dependent on a short loan period or a limit on renewals.

The ownership model has been made famous by the American e-book distributor, Overdrive. The library buys a digital copy of the work and ‘owns’ this copy. It is treated exactly like a physical copy of a book and is subject to the same scarcity. The library only has the number of digital copies it has purchased, and the user can therefore experience reservation queues.

The latter model has been quite successful in the US possibly because publishers feel more comfortable with a model that resembles the traditional arrangement. There is a lot of controversy about Overdrive because the publisher Harper Collins imposed a cap on the number of loans of its books through Overdrive (26 loans), and because Overdrive in September did a deal with Amazon to deliver library e-books on Kindle without notifying the libraries. Although the model has met with some opposition in the library community it could be a good transitional model and support the digitisation of earlier works. Both the Internet Archive and initiatives such as Gluejar work with this model.

The choice of model for library e-book loans

The choice of the right model depends on the behaviour of the users. It cannot be determined in advance whether a given model will strike the right balance between sales and loans. This balance could prove even more delicate for smaller language areas where library loans can have a stronger impact on sales.

In November 2011 a consortium of Danish public libraries will launch an initiative with lending of new e-books from Danish publishers. The initiative is a trial and the resul of close collaboration with some of the larger Danish publishers. The initiative relies on a usage-based payment model. In addition to the libraries’ experiences it will be important to study both how the users receive the new library offer and how the publishers combine the library model with the sale to private individuals. Such initiatives are important steps in identifying the relevant model for library loans of e-books. It is not unlikely that we will end up with a combination of the different models or with different models for different types of e-books.

Jakob Heide Petersen
Head of Division
Danish Agency for Libraries and Media
jhp AT

Head of Copenhagen Central Library and Library Technical Department Copenhagen Central Library