This episode is the introduction to our Exploring the Anti-Ownership Ebook Economy event followed by that event's "Economics of Ebook Publisher/Platform Workflows" panel. It was recorded on October 27, 2023.
Announcer 0:01
Welcome to engelberg center live a collection of audio from events held by the engelberg center on innovation Law and Policy at NYU Law. This episode is the introduction to our exploring the anti ownership ebook economy event, followed by that events economics of ebook publisher platform workflows panel. It was recorded on October 27 2023.
Michael Weinberg
All right, good morning, everyone. Thank you so much for being here. I am Michael Weinberg. I am the Executive Director of the engelberg Center here at NYU Law. And I'm going to give you all a quick intro and welcome you to this events, and say thank you so much for coming. One of the reasons that I'm here is because I'm the executive director of the engelberg Center, which along with Jay Powell, and library futures, is our sponsoring this events. Another reason that I'm here is I am one of the co authors of the paper that is part of this project. And so I'm gonna talk about that project. And why we went into that, why we started the project, what we found, and what role this event plays in this exploration in a moment, I want to first first in addition to acknowledging Jaipal, and library futures, I acknowledge one of my co authors, Claire woodcock, who is here and many of you know, Sarah Landon, who we knew was not going to be here. And so we got a standee of her. So I encourage you to take pictures with Sarah, later. And Jason Schultz, who had to scrub the last minutes. And so we did not have we didn't have a stand do Jason and so you have to just imagine, Jason butts, okay, because actually, the only picture I have of Jason, and I say this with Love is a very old picture of Jason. And so the standard wouldn't really capture his essence today. So I want to talk a little bit about before I get into the substance of the question that we're exploring today, I want to talk a little bit about just sort of schedule give people a sense of what's going on, we're going to do two panels this morning, with a little bit of break in between, we'll break for lunch, and then we'll have three panels in the afternoon, we've had a little bit of scheduling and shuffling. And so I want to acknowledge that one or two of our panels are not going to have the full diversity of opinion that we had originally hoped. But I'm confident that it will still be fantastic. And I'm glad that all of you are here to help us explore these questions. You should also be able to there's your schedules in the front and also Wi Fi information out front if you need it, and the restrooms are down the down the hallway, and on the right. So as I said, this event is building on a project that we've been working on here at the engelberg center for a little over a year, actually. And it was an attempt, and it is an attempt to explore a super superficially simple question, right? Why can't you own an ebook? And it's a simple question. But one of the shortest words in the question is doing a lot of work, which is own. Because obviously, there are many ways that you can pay money to access ebooks. But when we're talking about ownership, we're talking about something very specific, right, we're talking about something much more akin to the way we own physical books, not simply being able to access the information through a service. And that ownership, when we think about traditional ownership of books are really of any goods, is in addition to the ability to access it, and read and understand it. It's also things like being able to loan it to a friend to resell it, or even just to read it without someone watching what you're reading and how you're reading it. And while it is absolutely true. And there are many people here in this room, who are doing incredible work, to allow people to buy ebooks, in some situations, in the vast majority of cases, you can't really buy an ebook, certainly from the major publishers, either as an individual or as another as an institutional buyer. And so this is the equilibrium that the market appears to have settled on. And we wanted to understand why. And obviously, this is a complex market. There are a lot of people involved with it right there are there are publishers, there are authors, there are platforms, there are bookstores, there are librarians, there are readers, and if you talk to people about why this is the case, everyone has a theory and while their theories are different, they have a similar dynamic and the dynamic of that theory is they have a very good understanding of why their part of the transaction is the way it is Right, they understand the constraints and limitations they're operating under. And then they begin to project on everyone else in the ecosystem, and what what they're doing and what their operations are. And those are much less detailed and feel much less specific. And so we thought, okay, well, that's a helpful starting point, but maybe not bring everything to the fore. And so what if we just we asked everybody, you know, what if we asked all of the stakeholders to talk about how they see the world, and why they thought the world the market has ended up where it has, and I give all credit to Claire here, who did an incredible amount of work doing doing the vast majority, if not all of these interviews, to really spend time with each of these stakeholders to understand what are they thinking about it. And we had these sort of key guiding principles in this analysis. And that is that everyone in this market is a rational actor, right? No one wakes up in the morning, and sort of twirls their mustache and says, I want to destroy ownership, because I hate ownership, right? Like, people don't want to do that. But they're a rational actor. And they have a set of constraints and incentives that are driving their behavior. And so the hope is that, if we understand those constraints and incentives, and we come to it with good faith, we will begin to understand if this is an inevitable place that we find ourselves in, or if there are multiple ways to address these constraints and incentives, and other equilibria in the market in policy and things like that. So when people say when we talk to them, and this is a lot of this is building on the report that I hope you grab a copy of on the way in or the way out, or both.
One of the thing that people said was this is actually an obscure question. If you talk to people, if you ask them about ownership versus licensing of ebooks, a question that is top of mind, if you are here at a law school, is not always the first thing that people are thinking about out in the world at, you know, publishers, libraries, and other places in the industry. And I think that's actually a really good sign. Because what that suggests, to me is the distinction between ownership and licensing is not a key incentive in and of itself, for anyone in this space, or many people in this space. Instead, what it is, is, it's a means to an end, it's a means to an end that they may not have interrogated particularly aggressively. A big part of these conversations was just sort of getting people to understand what we were asking and why we were asking about it. But we did. Once we kind of got through that phase, we did have some important takeaways. And these are things that are guiding the conversation for the rest of the day. I'm not going to dwell on any of them. But I do think it's a helpful framework. And so if you think about the traditional book, market, the physical book market, the law and policy that surrounds that transaction is built on centuries of work, right. And it is essentially a balancing between publishers on one hand, and purchasers. On the other hand, obviously, there's a lot built into both of those sides, right publishers include authors include all sorts of other people. Purchasers includes individuals includes institutions, that includes libraries, you have to serve to centers of gravity, and the rules that allowed you to purchase a physical book and do whatever you want with it, but not by doing so own the copyright in the book and be able to like make a movie out of it, right, that balance occurred by balancing these two centers of gravity. And it's also notable that bookstores are part of that process. And they are important, I don't I don't know that as minimizing the role of bookstores and sort of connecting readers and books. But from a kind of policy balancing standpoint, they were essentially a pass through. And they were not a major part of establishing those rules between the publishers and the purchasers. But when you get into the ebook, context, all of a sudden, that balance becomes a triangle and becomes much less balanced, right? Because the platforms themselves become key players in the way books are accessed and are dealt with by both sides. And so when you take what was a two center of gravity, policy conversation, turn it into a triangle, things get a little bit skewed. And in many cases, the way they got skewed, at least the way they're skewed. Now, although certainly not all, is that publishers and platforms help to reset the balance of law and policy often through terms and conditions in the favor of their interests and at the at the expense of some of the traditional rights of purchasers. And that's not always the case, we're going to talk a lot about that that equation and that balance. But it is a dynamic that I think is fundamentally different and has been very helpful for me, at least, as I think through why this change happened, and why it might be addressed otherwise. The other obvious important part of the ebook economy that is different from the physical book economy is this new stream of data, this revenue stream based on data, the data itself, and this is just fundamentally different than something that exists with physical books. And how especially publishers and platforms engage with that is a key part to understanding this. We're going to talk about that, which I'll talk about probably in a couple panels, certainly in the privacy panel, I think there are questions as to how well, any of the parts of that triangle actually engage with the data, and what they can really do versus what their aspirations are. We're going to talk about all that. Also, as I alluded to, it is not the case that platforms and publishers are in lockstep on one side of this question, and readers and purchasers on the other. Right, to the extent that there is an alliance, or there's alignment between publishers and platforms, it is incredibly unstable. I think many people on both sides of that have had thoughts and opinions. We certainly seen high profile lawsuits that suggests that there's not operating in lockstep. And so it is it is simplistic to merely assume that it is a kind of is become a two to one imbalance in all things, but to understand the instability. Other than that, it really was interesting. And they came up over and over was sort of these this full of anecdotes about especially sales displacement, and how digital access would impact the way people would purchase ebooks. And I think this is really interesting. And I want to mention this in the context of this event today. Because very often, we would hear someone tell a story about, for example, in the context of libraries, and ebooks, well, if it is as simple to download a library, to lead to get a loan of a book from a library on your phone, as it is to pay for it on a platform, then every land in a library is undercutting sales. And so we need to be really worried about this, there is a sort of direct competition, of course, you've got the like inverse, you know, I push back to that story from plenty of people, I don't want to say just that's the only thing. But the reason I mentioned it isn't because it's true or not true. But the thing that was surprising is when you pushed people on that story, how little data and hard analysis there was to back it up. Now it may exist, and people didn't want to share it. But it was noteworthy that a lot of people's thinking about the structure of this market, felt driven by anecdote, and not necessarily backed up by data. And it's unclear. And one thing I hope that we talk about a little bit today is how much of that is because people have the rigorous analysis that's internal, they don't want to share it. Or that's just not kind of how they run their business. And it's not as data focused, as it is focused on other things that drive what's happening. So what now, we're going to I'm going to stop talking, at least in my introductory mode, and we're going to spend today, working through examining a bunch of different areas, check into this question. And I hope that all of us go back to these original guiding principles that helped us as we were putting together the investigation in the first place. This idea that we were assuming that everyone is coming to this question in good faith, that everyone is a rational actor that has a set of constraints and incentives that are driving what they're doing. And we want them to talk about, and we're going to probe what those incentives are, and assume that they are telling us the truth. And that when we ask questions about it, the questions are to understand better, and not to sort of set up scoring a rhetorical point. Because the meta goal of this project to just be like completely transparent, and I've mentioned I've alluded to it earlier, is to understand, Are We Living in the only possible ebook universe? Or are there multiple ebook universes where we could have different relationships to those ebooks and wouldn't be stuck in a situation where in order to get the benefits of ebooks, we have to give up all of the benefits that we have traditionally from purchase goods. And so those are the kind of meta points that have guided us as we've thought about this report. And as we've put together this event, So, I hope those are the points that guide us as we walk through the discussions. Um, so with that the logistics of this are very easy because I in addition to introducing you, I'm also the moderator of the first panel. And so I will invite my panelists up to join me on the stage and we will just slip right into the panel for the next 45 minutes or so. So thank you again so much for coming
Speaker 1 15:31
I saw Michael a minute ago. Oh, great. I see him now.
Speaker 1 15:50
These will be on the on if you push the red button. So use that use that power as you see fit. Alright, so as we as we smoothly transition from introduction into the first panel, the first panel was really talking about the the economics of this right and this is this goes to the core of this question of incentives and constraints and how people understand it. So we have we have two great panelists. I will introduce them briefly. Although if they want to jump in and correct me, I will absolutely invite it. Do Charles Gonzalez is the Chief Content Officer at library pass. He is a media and marketing veteran with extensive b2b and consumer experience in audience development, content, strategy and event programming. Previously, he was the project lead for the panorama project, publisher and marketing director for Writer's Digest, Director of Content Strategy and audience development for Library Journal school libraries Library Journal and School Library Journal, and founding director of programming and business development for digital book world. Michael Tamblyn. Further down is the CEO of Rakuten Kobo sorry, which is based in Canada, probably based in Canada, and now operates in 24 countries. As one of the world's largest ebook retailers, and device manufacturers. Michael was a member of the founding executive team in 2009, becoming president in 2014, and CEO in 2016. He's also a board member of overdrive and ebook service platform for libraries that I think will also be a big part of this conversation. So thank you both for for joining us today. And I want to kick it off, I mean, given given, given the setup, given the concept, the conversations we've had, can you can both of you talk about how you understand the business model of publishers and platforms, when it comes to ebooks, specifically, if and how that model differs from how they approach traditional book selling. And I will invite either of you to jump in as you see fit.
Michael Tamblyn 17:56
I'll make one correction. I was I was board member of overdrive, we, we sold them to KKR. Great.
Unknown Speaker 18:04
So please turn on your mind, Oh, well.
Michael Weinberg 18:08
I'll tell everybody else when I told him, I was a board member of overdrive up until 2019. When when we sold them to KKR. And they they passed out of my my realm of influence just fine. So we if the if the question is around, is around sort of structures and incentives, you know, on the so I think I'm I'm sitting here representing the platform leg of, of Michael's three legged ebook stool. And so from from that perspective, you know, when when we started up Kobo, and when anybody tries to start up a any book business, you're, you're in this kind of trust and negotiation relationship with publishers. Now each publisher, in a way is a million tiny monopolies they are, they're the only one who has a particular book that you need. You're doing as you're starting up the business, a set of negotiations with each of the individual publishers to get permission to be able to sell their books through. And that's usually a revenue share relationship. So we're doing large master agreements that say, with Penguin, Random House, Penguin Random House, I'm giving you permission, you Kobo permission to sell all of our ebooks, you're going to sell them under these terms. And those terms are both in terms of what we're going to get paid as a publisher. What cocoa is going to be able to retain as a retailer, and then a whole bunch of other other kind of contractual agreements string Alongside that, you, you have a certain critical mass as a retailer that you need to be able to acquire in order to be able to stand the platform up. You know, you don't have the big five publishers, you're gonna look really weird as a bookstore. And then the so much of it is going to be, what does the rest of that catalog look like? How many publishers? How many authors can you get? And, and can you bring them all together? And the, at least in our experience, the, you know, we kind of, we get to infer the publishers, incentives and constraints, I think, as you said earlier, but we don't see them all directly, we know that there are agents that have to be made happy, we know that there are authors that that need to be paid. And so the terms that we're getting all in, are through a lens darkly reflect those. And then there are the publishers themselves in what they believe the future of the industry is going to be. And so the each contract is kind of a bundle of everyone's hopes and fears, current term requirements, future worries, and everything in between. And that's so that's kind of what we're getting, I'm getting an agreement with a publisher to sell ebooks look like it is an and it is an uneven power distribution, kind of depending on where on where you sit in the market. You know, we were starting up as we were not part of a platform, when we began in 2009, we really were an independent player, we had to convince publishers that giving us ebooks was a good idea. And, and why I said at the very beginning that there's a trust relationship to it, it's because in the end, they have to hand all of these digital assets over to you, which are in effect infinitely replicable. So there is like they really are giving you all the goods. And in exchange, there's kind of this hope, backed up with audit rights and a whole bunch of other things that when you sell them, they're going to get paid. And, and and yet, unlike physical goods, now, there is no truck backing up, there's no way that you get to count the inventory at the end. It's really a lot of digital transactions happening behind the scenes. And so the the depth and complexity of the the contracts kind of kind of reflect that as well. Lots of other things happening in terms of what you can do with eBooks, how you can kind of what we can do with them as a platform that I think we'll get to later. But that at least gives you the kind of the some of the four corners of what that relationship looks like when it starts. But that's from a retail perspective, from a library perspective.
Guy LeCharles Gonzalez 22:50
So yes, the so the first part of the question, the difference between print and ebook The there's a million differences, because print is pretty straightforward as the paper kind of establishes, and we'll say the influence of bookstores gets a little understated because bookstores, pre ebooks, absolutely directed publishers, business models and choices they made. Amazon exists partly because Barnes and Noble superstore model was so successful. So diminishing bookstores kind of misses how we got to platforms kind of getting the power that that. But also, there's a common mistake in the publishing industry of talking about publishers, as if publishing is a monolithic industry. And a big five publisher is the same as a small indie publisher is the same as a textbook publisher, et cetera, et cetera. So you got to really, you know, most of my answers are going to be caveat it with it depends. But if we're talking about trade law school, all the answers are independent. So if we're talking about trade publishing, you've got the Big Five who have the leverage, particularly in the library space, because as much as I love libraries, and librarians, if you're in here, you are sometimes your biggest enemy, you demand digital access, which is cool, but you spend most of your money and prioritize most of your time on the best sellers, because you're serving patron demand, which means you've given the Big Five, pure leverage over the terms they give us to allow you to get their books into your libraries. So to the point about it being very different from libraries and if you don't have the big five at library past, we have a product comics plus we do digital comics. We don't have any big five digital imprints, because our model is an unlimited simultaneous access model. It's basically a streaming model, so we pay on a different revenue basis. And ebooks, unlike print books, which outside of discounting fundamentally have the same business model, when they sell to wholesalers, if they sell direct, selling a print book to whoever is relatively the same it for publishing industry work on a ebook side, there are a wide range of potential models a publisher can support. And as a platform, you either you're either an overdrive who has the technology and resources to support basically every iteration, a publisher comes up with an AR, if you remember, when Macmillan decided they were going to come up with their weird little embargo kind of approach. They blindsided overdrive with that because it takes time to build the technology to support that. So there's a whole underlying infrastructure tied to supporting different ebook licensing models that don't exist on the front side. So when you get to those different models, a publishers, they make the decision around, this is the model we want. If you don't support that you don't get our books. Libraries, kind of end up with big gorillas like overdrive, because a overdrive has the resources to support a wide range of models, but they prioritize the big ones. So when it comes to the differences with eBooks, publishers have the power in terms of setting the terms, but they are still and I think the paint, the paper does a good job of not always putting the spotlight on it. But it's inferred in a lot of places. Publishers are also sometimes victims of the platforms that they support that support them. Amazon being the biggest example, and overdrive popped up a lot. Now, I'm not going to talk negatively about anybody in this space. But the big players get to determine the primary terms, publishers set those terms, and then platforms compete to support them the best and build the best reader base. And one point on data that I know we'll get to this later, but the librarians who pushed overdrive to allow Kindle access, because our patrons demand it, you gave them the data that anecdotally drives these libraries cannibalize sales books.
Michael Weinberg 26:57
I wonder I mean, both of you talk touched on this dynamic, especially between the publishers and the platforms. Are there? Is it as simple as there are some parts of the deal that platforms have more leverage over setting the terms and some parts of the deal? Where publishers have more power over setting the terms? Or is it a much more dynamic space? Where depending on you know, whatever a number of factors, it's, you know, one, one side may have more or less control over the other?
Yeah, I think, I think that where we, we see fluidity in a lot of areas, really, because agreements are about what both sides care about at a point in time. And the market evolves. So the as much as we're talking about a basket of rights, and, and a set of obligations framed in the contract, you know, we're pushing on the reading experience side, and what we can do from a business model perspective. And that's, you know, that's something that we're in a push and pull with, with the, with the publisher, the publisher is Yep. I think mostly looking at the, their, their external forces seem more about, like, how do I manage my print world and my digital world together. And, and so we see we see pushes and pulls in the agreement that are as much reactive to what's going on in the print space, as they are anything that's happening in the digital space. And then there's a platform to platform competitive dynamic of, we're trying to do this, we've carved out some kind of some new right with a publisher, a platform is going to respond to that and go back in and try to do the same thing or do something different. The I think the other thing that's interesting, though, is, you know, we're we're talking about the players in this space, how authors themselves have become a dynamic in this it both in the sense that self publishing and independent publishing has become such a force and, and how that their market dynamics and their social dynamics are so different from publishers. And just to give you a sense, like, this is not kind of a minor thing for us. You know, one in four books that we sell in English language is coming directly from an author with no publisher in between one and four. So that's like, the size of a penguin, Random House ish market entities that are sitting out there, except it's hundreds of 1000s of authors, all of whom are talking to each other. So we kind of, you know, then we're not really negotiating with everyone, but we're kind of negotiating with this hive mind that's sitting out there and is talking to itself. And, and so often what we're finding is that when we're trying to do something experimental when we're trying to do something new, we can and engage with authors directly. There's a lot more individual flexibility and what people are willing to try. And then you can build precedent. And you can kind of you can either create some data, or you can create some analysis that lets you go back to a publisher and say, Hey, this thing that you were worried about, we've already tried it over here. And you know, maybe this isn't as scary as you think it is.
Speaker 1 30:22
Do you have any examples of things that you tested? That sort of publishers said no, to you tested with authors, and then brought it back to publishers and said, Now that we've gone through a test on this, you will?
Michael Weinberg 30:35
Oh, yeah, it. So looking at different very simple stuff around different kinds of promotional pricing. Things like free first books and series. So some really basic stuff in terms of how you sell books have always been easier to get independently published authors in the mix for but in a much grander scale. If you look at ebook subscription models right now, whether that's Kindle Unlimited, whether that's us with Kobo plus, in a way, they're kind of a grand experiment on the the interest of independent authors on Hey, what are other business models we can try that helped to engage consumers in discovering our stuff. That as they've come first, through the door, both means that they're capturing the lion's share of the revenue in those in those models, which is interesting. But also they're they're the case that we then get to take back to the publishers who are either more reluctant or are facing resistance from agents or concern by authors and saying, Hey, like, here's, here's what it can look like if we do this. And here's the here's 100,000 authors who've gone through that door before you,
right? Yeah, I wonder if you can talk a little bit about how the kind of bundling effect of ebooks for especially for library to library contexts, but more broadly, as well, the bundling effect of ebooks contrasts with how libraries approach physical books, and how it changes the economics and sort of the structure surrounding the transaction.
Michael Tamblyn 32:14
So I think, you know, one thing we've seen just generally, ebooks did not take over the industry like 15 years ago, digital book world was kind of born into a world where eBooks are going to destroy the publishing industry ebooks, leveled off some genres, huge dominant, plenty of genres. A trickle comics is one area digital comics, traditional comics have not grown the way regular ebooks have web comics, completely different category of comics, huge, and in some calculations, possibly bigger than your traditional comic space. So what that means is, publishers revenues still predominantly come from print books, and library materials budgets, still predominantly prioritize print materials. What I've consistently heard from librarians over my years in this space, is physical materials is where they do true collection development. They try and build diverse collections, they try and ensure that there's something for everybody, digital, they don't have the money to do that the licensing terms make it next to impossible to keep on top. Once all the big five publishers went to metered bottles, managing a digital collection became a nightmare for every librarian. And that shifted prioritization to this kind of patron demand approach. We're just going to stock up on the stuff that circulates. Because if if I've got to pay a license that might expire in two years, and nobody checked it out, I'm going to license the books that are most likely to move. So that dynamic has turned into digital collections tend to heavily prioritize when it's a single user license, heavily prioritize the best sellers that are in demand. And that's where subscription models have kind of tried to help fill a gap. Some subscription models, especially in the early days, were pretty weak because they were an unlimited access to a collection of books. Nobody wanted. Overdrive experimented, I don't know if Kobo did early on with Smashbox. Like 10,000 of Smashwords. Nobody wanted there were like five books in that Smashwords. anybody cared about that wasn't the author's mother. But you know, the press made a big deal, like, hey, you've got access to this. So over time, we've seen the evolution of subscription models start prioritizing key categories. So like our product conference, plus, we don't have the big five, we don't have Marvel and DC. But I will argue with anyone the publishers we do have are as strong and in many cases better. And at worst, good readalikes because hey, you want to read dog, man? I think there's 15 of those books. That's cool. Kids read books, they devour them, what are they going to read after God? So that's where the subscription model becomes appealing. Do a lot of libraries is I can't afford to buy 100,000 books and on the digital side of things, but if I can license a collection of 15, or 20,000, mostly solid books that I know, I can look through that catalog and know, hey, that's a good one, that's a good one. These are real publishers, this isn't just a bunch of crap that nobody wants to read. That's where we're starting to find different models like are starting to gain traction, where it allows libraries to kind of augment their digital collections. But you come back to the challenge, you still don't own those books in a subscription model either. And that remains the biggest issue, I think, for libraries in particular is they want to own an archive. And you don't always have that option. Right?
Michael Weinberg 35:42
Well, I'm curious. I mean, you mentioned the sort of, there was a moment where it seemed like ebooks, were going to take over all books, and there'd be no more print books. And now we're in a different place where eBooks are a portion of the market. Obviously, like both of you live in the eBook world, right? This is your center. But I'm curious if be the fact that eBooks are a portion of for both the publishers for libraries for basically everyone, but you are a portion of what they are focusing on from a business standpoint, if just the mere fact that it is, it's not the biggest part of their revenue equation makes it harder to innovate. Because in order to innovate, you need partners that are willing to spend time thinking through what the innovation could mean. And that those partners is saying, Look, I'm not going to spend times, I'm not gonna spend a week working through how this new ebook feature would work, because I'm spending a bunch of time on my print distribution platform or something else that's just out of this space. Is are those intention? Or is it? Is it still easy? Is it still a big enough piece of the pie to get people's attention when you need to?
Michael Tamblyn 36:51
I don't think publishers get enough credit for where and how they do innovate and where they choose not to. And also, you know, the media has short memories. There was a five or six year period where every big five publisher did try and build their own approach to ebooks there was what was it the collaborative like three of the big six at the time book stir book, something I forget where they tried to build their apps or for books platform, with with a reader and it was an absolute disaster because publishers aren't technology companies, publishers can barely manage their own metadata. They don't need to innovate for ebooks. But the and there's a section in the paper where it gets into kind of how ebook production workflows tend to not be prioritized. Eva, I don't know who that person was, it depends on the company you work at. There are definitely I say the big five pretty generally has a solid ebook operation, it may not be the primary part of the workflow, because again, the revenues are coming from the print books, for the most part, so that print design happens first. But the the production and management of ebooks is again, it varies. There are some companies and even in big five, there's some authors like when I was at Writer's Digest, we had a handful of authors who weigh out sold in ebook than praying, even though the majority of our list was 7030. That tended to be our average. But we Chuck Wendig was one of our authors. He was the opposite. He was 70, ebook 30. And it made sense. He was huge online, he had a very big social presence. His books were very breezy reads, so but you're not going to completely revamp your entire infrastructure because three of your authors are really strong and ebooks. So you've got to make those balances. And that's why some of the platforms have the influence. They have Amazon huge, but also sales print book like everybody always forgets Amazon's like 50% of some publishers even print book sales as well. So their influence is not just about ebooks it is they are a huge revenue driver that can't be ignored for a lot of publishers. But yeah, the ebooks side of things, there's the innovation, your comes from the platforms, and then publishers have to slowly get their workflows up to EPUB. Three, I think everybody complains, they don't take advantage of most of the features. You ePub three advocates like you are the enhanced ebook advocates back in the day. Nobody wants those things like ebook readers, or as much as I hate to blame consumer demand for some things. People love their Kindles and Cobos and flat ebooks like a lot of this fancy stuff you want publishers to do the readers don't want.
Michael Weinberg 39:31
I think the I think some of the lack of innovation in the space can be traced back to a few a few platform conditions and a few platform decisions. Certainly having as many people reading on E Ink as we as we do, still by far the the place where most ebooks get consumed for all kinds of reasons I'm the so there's only so much interactivity, there's only so much stuff you can do when you've got a medium that's really about trying to get as close to paper fidelity as possible. But at the at the same time, I think if we looked at like, why didn't we get really Cooley books that could take advantage of all of the different things that you can do in an interactive environment, you have to go back to, to Apple kicking bookstores, out of out of the iOS ecosystem, and kind of 2010 2011 and, and what that did was, it took retailers other than apple out of the dominant interactive platform, iPhone, an iPad, and and said, You can't sell a book here and make any money, you're gonna have to pay us the 30%, iTunes, Vig, if you want to sell a book, the average margin that comes out of an e book is wait for it 30%. And, and so essentially, none of you can be here, you can use it as a reading platform, you can use it as a sales platform. And from the from their perspective, that makes perfect sense our platform, we can do what we want. But what it did was it then took all of the other book retailers and said you're we're not going to try to prioritize anything that can happen in an interactive environment, because we can't sell it, all we can do is try to sell it on a website, and then hope that people read it over here. And, and at that point, you kind of crippled the idea of ebook enhancement in like in a meaningful way. And and then that did two things for the rest of us from a platform perspective. One was to say, I'm really glad that we've got e readers because then they're things that people will read on. But the other was, when we really don't want to put our fate in the hands of platforms, you can change the commercial rules at any time, and suddenly wipe out a big chunk of the business. And so that was the point where you started to see both, both publishers go, okay, maybe like maybe we won't do as much experimentation here as we might otherwise. And, and the, and then us Amazon, you know, anyone else go? Okay, it's it's e readers and E Ink. Because then at least we've got control of our own platform. And, and we don't have to constantly be looking over our shoulder to see if an ecosystem is going to twitch and put us out of business.
It's especially interesting. And I want to want to ask have sort of innovation follow up question, taking the point that that a bunch of things were knocked out of the market. But I wonder I mean, there is there is innovation in this space. We've already talked about features talked about these things. Why? Of all the types of things that are innovated on one thing that does not seem to be particularly innovated on is this question of sort of ownership versus licensing. And while it pains me to acknowledge that for individual consumers, I am an outlier. And most individual consumers probably do not care about that distinction. Sorry, Jason. There who the institutional buyers who do care. And my sense is a frustration on behalf of institutional buyers that there is not, there's not a way to advance the conversation around the sort of ownership versus or something that approaches ownership versus licensing. Why do you think that that is not a space where we're seeing innovation, competition, whatever you want to describe it as, where am I? Am I wrong? Is there more competition in that space than it is apparent to me?
Michael Tamblyn 43:53
You made a point in the beginning about anecdotes, this industry runs on anecdotes publicly, but I think we sell them I think that's the business model. But behind the scenes, you know, publishers do have a lot publishers have tons of their own data that really gets referenced and credited, where publishers don't generally have access to really reliable industry data to understand where they sit in the market. The point about one and 14 or that's been a long conversation around how big is self publishing. So if Kobo was saying 25% of their sales, like that's a big number. And that's just Kobo, right? We know Amazon is probably wise, but in a row of numbers probably a lot bigger. So the one of the things that I've always been frustrated with is, nobody knew and when I'm assuming we're talking institutional, we're primarily talking about libraries. Sure. Public academic. The, one of the problems in the industry is there is no nobody can tell you how much money libraries spend on content, physical digital, specifically. The Trade publishing like not talking about academic data, there's an overall number that I've heard referenced. And if used, and now I've been cited as if
Unknown Speaker 45:09
our numbers weren't, yeah, but it was
Michael Tamblyn 45:11
something like 1.5 billion, I think out of about 13 to 15 billion. And this number, I feel like was five or six years ago. And then the other number you'll get is a declining rough estimate of anywhere from five to 10% of book sales come from bookstores, traditional bookstores, which obviously, is all physical, because that's not counting Amazon. So one thing the industry doesn't really know other than their own individual data is how big a deal institutional buyers are, what do they represent? Publishers that work closely with Amazon, do have access to overdrive data. Because of that Kendall connection, Macmillan, I was surprised that when John Sargent publicly admitted that that's where his data to make their decisions came from, everybody knew it, but nobody ever said it publicly. And he said it publicly at that midwinter meeting. And it was kind of surprising. So publishers, you know, where you sit, and that, that establishes your priority. And the other side of it is, every time you have one of our challenges working with publishers, is it's really difficult on the publishing side to manage multiple ebook vendors. That's why every new startup that comes along, you know, begging for content. Part of the problem for publishers is like, I already work with six or seven vendors, it's a pain in the ass, I'm getting all these different reports, metadata is terrible, blah, blah, blah, blah, blah, why should I work with you? So couple that take that to a library space. I think Douglas County is the last one I remembered. I know NYPL, and lyricists are working on something similar. The day libraries can establish their own overdrive competitor is the day libraries have actual leverage to demand something other than traditional licensing. But if you can't bring that centralized platform that makes it easy for literally hundreds of publishers to work with, you're never going to get that institutional leverage that you want to drop the ownership side of things. You can influence the licensing models. And I think one thing that that missed in the McMillan scenario is there were a lot of libraries, predominantly small ones who didn't mind that model. And Sargent kind of was like, hey, you know, there, what are you guys talking about? I talked to a bunch of you, and you said, you like this, there were some libraries that loved it. There were big libraries who hated it, because NYPL, who's gonna get one copy of a book for 8 million presidents. That's crazy. So the there's not a lot of consistency on the library side with what ownership would represent, but more importantly, how it would work. And so as long as the debate is around the theory of ownership, as opposed to the practicality of ownership, you're going to be stuck in this situation of just increasingly worse licensing deals.
Michael Weinberg 48:12
I think the reason that you don't see more innovation on on ownership models, particularly is that there's still a lot of, of fear inside publishers about what ebooks can be and what ebooks can do. And, and so much of the decision making has to do, on one hand with how do we make sure we protect the print side of the business? And how do we keep it healthy, that's still where the majority of the revenues come from. But it's, it's interesting, if you just, if you just kind of cracked open the p&l, you would find that on a per unit basis, the books are pretty profitable. So it's not like the substituting one for the other should be a big deal except that on the ebooks side, there is much more concentration on the on the platform and sell side. So to swing towards an ebook model puts publishers in a place they don't want to be, which is Amazon at AI primacy. And I will say this is a very specific us scenario, because Amazon dominance is really a US and UK phenomenon you get outside of the US and UK doesn't look like that as much. But publishers based here, that's what the thinking about us is a big market. So so that drives the decision making. So you've you've got the situation where publishers kind of want to keep ebooks in a bit of a box, like 20% of total trade spend is probably okay. Yeah, it gets higher and romance but it's lower and kids books probably all works itself out. But if we but if we made ebooks more elastic more attractive, more transferable than then we have the possibility of tipping the scales from print to digital in a way that isn't as attractive for us. And so that whether you look at the rights that are granted to a platform, you look at the pricing because at least among the big five big five are generally managing the pricing of ebooks, we can't discount a book that comes from Penguin Random as Robert Collins, they set the prices, and therefore it gets to decide how attractive or unattractive the book is. All of those are with the eye to how much digital do we want in the world versus the amount of print?
I have a quick follow up question for that. But before I do, I want to mention that I'm going to take a question or two from the audience. So think about your questions from my follow up is. So if I'm understanding what you're saying correctly, there is a publisher concern that the ebook market is going to cannibalize the physical book market. And so they they are disinclined to make it better. And so like, what is the thing that eBooks are missing right now that if it existed, whatever another 10% of people would switch from physical books to ebooks?
Hard to say, I understand. Thank you. So, and there are a bunch of there are all kinds of really interesting counterfactuals out there, the great thing about working in a bunch of different markets is you get to see how this develops in a lot of different ways. The reason, the biggest reason that you have digital adoption as high as call it 25 to 30% trade in the US, you know, 50% or higher in segments like romance science fiction, fantasy, you know, genre, a lot of that comes from two things. One is the Amazon decision in the in the kind of 2010 to take bestsellers to 999 when they could do that before publisher pricing controls came in. And so all of a sudden, you had consumers going, Wow, actually, my reading dollar can stretch a whole lot farther and digital than it did in print. And, and that's where I think you saw a lot of people going okay, there is a difference in the the ownership rights that I get. But it's also half the price. So okay, yeah, like I can, I can kind of put that on my demand curve and say that's okay. Sure. You look at European markets where ebook adoption sits like 10% in France, 12%. In Germany, 8%. In Italy, you never had that that deep discounting opening that introduced a whole lot of people to digital at the beginning. So, So price is core to this. But you also, you also have very different approaches to things like DRM and copy protection, which, which really, were decided almost on a country by country market by market basis. So you, you can kind of look at a country like Netherlands and say, so what would happen? If we just didn't have any DRM on books at all? What What would that look like? And you could do it again, in Germany, and it's, and especially in a law school, it gets to be interesting, because you don't just get to look at those two countries in terms of their DRM schemes, you get to look at it in terms of their copyright enforcement measures, because one of them treats it as a civil case, the other one treats it as criminal case. And then you get to see the difference how people respond to that answer really different. So there's, and yet yeah, there's something like, taking all the locks off. And saying these are freely portable files, doesn't seem to be the thing that drives greater adoption. So that's not the thing that's holding people back like this ebook is as a fundamental transferable object is not what's making a consumer go, No, I'm staying with print. But the sense of, hey, ebooks do different things than print books do, there's probably a different price associated with that. And it's not a physical good. And I you know, it doesn't have to get shipped around, it should be cheaper. So that certainly shows up for people. It's more
Unknown Speaker 54:12
of a pricing innovation, that sort of experience. I think so. Okay.
Michael Tamblyn 54:15
So I just want to add one thing to that. And I can't talk specific books or publishers, but you know, when I was running panorama, one of the things that became crystal clear. So in 2010, at the first digital book world, Brian APAC, who was Ryan McMillan, at the time, your piracy was kind of the topic of the day, and in his seven point plan to combat piracy, piracy, number four, was build a better consumer marketplace. And this is this was I believe, the iPad was announced the second day of that first digital book world. So this is the context this is all happening. Fast forward to today. The you've got the price changes Amazon. Ebooks kind of took off because Amazon was making them cheap. Books are kind of the only mass media that discounts is new products on release. You don't get a brand new, triple A game video game at a discount when it comes out. You can't get a Nintendo game that's three years old, usually is not discounted. Movies, you don't get a discount, you may get a matinee discount, but movies released, what books are the only thing that hey, this brand new thing, get it today 30% off, it just came out. We're the only mass media industry that does that crazy shit. So you factor in the pricing. So when publishers took control of ebook pricing, first thing they did was they bumped it up. And for a long time, that was the joke, hey, that ebook is more expensive than the print for sure, because Amazon can discount the print book. So the consumer friendly marketplace that ultimately ironic was developed, became the library they were so scared of. So the thing I saw on the data and the thing that validates some publishers concerns, but what they don't do is connect the dots is it's the best sellers that their business model. Their p&l is for those best sellers are mass print, print runs to drive mass preorders, drive interest, etc, etc. If any of you have been to either a library book sale or run by the remainder, six months later, you're gonna see a lot of those books there because they don't sell all of them and they know they're not going to one library lending dig is what is took the next step of Amazon's discounting. It's not so much it's kind of the piracy thing. Piracy isn't lost sales. Piracy is people reading your book that probably weren't going to pay for it anyway. Library Linden is people deciding to read that book that they actually didn't feel the need to own anyway. And if you look at most best sellers, these are not the books people are proudly displaying on their shelves three years later. Got it on Instagram or tick tock in the moment. And then that book is in a little free library or at the secondhand bookstore. And go back to your back in the day pre ebooks. Publishers have always hated us bookstores. And publishers have always hated libraries, feeding us bookstores, through their heavy ordering of books, bestsellers on release, everybody knows those books end up getting the secondhand bookstores as well. So ebooks, you know, the fear of ebooks is not some irrational fear of digital, there are some dots in the past, including lessons learned from music benefit, the paper kind of underplays publishing learned some hard lessons from music that they've successfully avoided so far, because it's not about oh, the single versus the whole chapter versus the book, it's really about the book I'd like to really but don't need to pay 30 bucks for I can get it from the library now.
Michael Weinberg 57:45
And if I can just add one thing on to that the publisher price control is is a perfect example of be careful what you wish for, in that they did get the power to kind of preserve what they saw as the, or kind of defend the perceived value of the books that they were putting out into market. But what it did do as, as they increase the price of those books was create the room for independent self published authors to come in and occupy that space for the people who said, Listen, I just I want to read a science fiction book for under $5, what have you got? And, and so when we sit down with a publisher, and they say, you know, hey, you're, you know, we're not growing as fast as we thought we would be inside your platform, we can say, Yeah, but that doesn't mean we're not growing, you're essentially losing share to two independent authors who have who have found some optimal pricing inside the platforms and then able to exploit it. Similarly, as we've, as we've moved some publishers into all you can read platforms. And then we look at where those consumers come from. You know, not a lot of them are coming from, like, single copy our card sales. There, some of them are, but as many of them are coming from libraries back in, in the sense of, okay, now, here's to your point. Reading got too expensive. On the elecard side, I went into libraries that I have to do holds, there's limited collections, and I've got everything I want. Oh, now I can step back into into a paid model. Again, that feels more like I want that I want reading to be and then the third bucket that come from is piracy. Same Same thing. There's, and it's not that dissimilar from single track sales going to something like Spotify is if it's a if it's a bucket track, someone's going to be motivated to go out and dig around bit torn until they can find you know, until they can find it. But if I can get it all at once for 10 for $10 a month, and the experience is better and the discovery is better. Okay, that feels worth it. I'm back in the legitimate market again.
Speaker 2 59:59
Well, part of the engelberg center event promise is that we keep on time and that promise comes at a cost. Sometimes that causes unfortunately I'm not going to have to do questions from the audience but I think we're gonna we're gonna The good news is we're gonna go into a break
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