Rich Books, Poor Society: Random House’s Price Spike

Peter Brantley -- March 5th, 2012

To examine why Random House decided to jack up its prices to libraries for its ebooks, we should take them at their word. In the statement they provided to Library Journal, their reasoning is quite clear:

We believe that pricing to libraries must account for the higher value of this institutional model, which permits e-books to be repeatedly circulated without limitation. The library e-book and the lending privileges it allows enables many more readers to enjoy that copy than a typical consumer copy. Therefore, Random House believes it has greater value, and should be priced accordingly.

This messaging is all about the revenue Random feels they lose by allowing readers to borrow books for free, instead of purchasing books at high agency prices. Presumably, trade books priced at very high levels compensate for lost income. But higher prices means that many libraries will have to cut back their book acquisition, further restricting access to digital books, which is an obvious publisher goal of this strategy. Increasingly, the most popular titles are not going to be available at any library, and those that are, will be far more available in rich communities than poor ones.

In its statements, Random House officials are explicit about trying to derive maximum ebook revenue from libraries. As they informed Library Journal, ““We are requesting data that libraries can share about their patrons’ borrowing patterns that over time will better enable us to establish mutually workable pricing levels that will best serve the overall e-book ecosystem.” If that’s truly a desire of Random House, they’ve gone about it in a very odd way. Those data will not be available given the pricing constraints that publishers have themselves imposed.

There are very few data about the impact of ebook lending on retail sales, and to get optimal information we’d have to see experiments where the lending of frontlist ebooks with measurable demand in the marketplace was unfettered, freed from any constraints such as 1-lend/1-copy. Artificially restricting circulating copies means that part of the library supply curve is chopped off for popular titles. Additionally, imposing above-market prices further restricts supply, meaning that circulation data will be further biased on patron population characteristics, including ability to pay.

There is a concordant liability, as well: observers of library activity will not be able to ascertain how unfilled demand is met. In poor communities, readers will do without, or substitute with lower priced books. In well-funded communities, there may be greater spillover to book purchasing. None of this is readily available for real-world measurement. In either scenario, the additive benefits of marketing and promotion from library access will be impacted by reduced access in ways that we cannot predict; below a certain threshold, the diminution of these benefits might drop off rather suddenly as customers give up altogether on library access.

Furthermore, even with the addition of circulation data, Random House’s pricing cannot approximate an auction for the highest acceptable price for titles. First, variability in efficient market pricing for books is pronounced, dependent on title, genre, and audience profiles, making generalizations difficult. Additionally, market pricing is characterized by temporal fluctuation; most books are more valuable shortly after release, with outlying demand resulting from title re-release, film tie-ins, and other factors. Finally, when auctions are initiated with an artificial pricing floor, poorer bidders – unable to accept sub-floor pricing – cannot influence the outcome. If a book auction starts at $85 and I can only pay $35, those who can afford $125 will propel pricing to a level beyond what the overall market would have otherwise determined.

RH’s pricing is a very blunt instrument, insensitive to true demand over time as well as the library’s ability to pay. And there is the greater tragedy: publishers are obviously bent on reducing a social good to a economic commodity. As Barbara Fister notes in Inside Higher Ed, “Culture and knowledge, in this new publishing regime, are not common goods, they are intellectual property best controlled by corporations.”

When books are represented by physical goods, distribution is uneven, with a supply/demand mismatch. Pricing must commensurately be inefficient, resting at a lower level than what some markets could bear. There is a tremendous unexpected benefit to market inefficiency: equal access. When revenue is not maximized, social benefit from creative culture is obtained in the difference between actual revenue and its theoretical maximum. That gain is available to all: both those who could have paid more for that product, as well as those who could not. Because even libraries working with limited community funding could further subsidize access to the point of being free, the ability of the local community to produce the larger social benefit of open access to knowledge was fulfilled.

In a digital environment where profit can be more readily quantified, and market subsidies supporting access restricted or eliminated, the ability of libraries to subsidize higher origination costs is reduced in proportion to their fixed or declining budget appropriations. Further, increasingly digital content is not available at all, at any price. This historical transformation has the obvious result of eroding the local community’s ability to foster the larger social goal of equal access, and the possibility of individual advancement and learning. In other words, the increasing corporate control of access to culture tears at our social fabric, weakening the ability of our communities to support individuals against the harshness of our economic system.

Inflating the revenue of a book’s artistry not only serves to impoverish readers, but our social values as well. As our books get more expensive, we perversely impoverish our communities.

11 thoughts on “Rich Books, Poor Society: Random House’s Price Spike

  1. Rosemarie Baratta

    Publishers should realize that libraries are often the only purchasers of new authors, and should be treated with respect as diffusers of the new. If not for libraries, many excellent but not best-selling authors would never get an audience at all.

  2. Barbara Alpert

    Maybe those who can afford to own an e-reader will need to pay a small fee to borrow e-books from the library, to subsidize such costs. My fear is that many libraries, whose budgets are already tight, will choose to spend on e-books funds that might better be spent on print copies for all those non-owners, people who need to borrow regular books from the library.

  3. Michael Ward

    RH is being less than honest.

    Most printed library books don’t wear out; they wind up in the Friends of the Library sale after a couple of years.

    And most printed books that wear out are not replaced; they simply disappear from the catalog.

    And many printed books live happily on the library shelves for decades after publication.

    Consider the number of books that are sold almost exclusively to libraries: university presses, literary novels, poetry … the list is long. If libraries did not exist, neither would these publishing companies.

    RH is justifiably concerned that its publishing business model is out of date, but it’s flailing in uncoordinated attempts to rejigger the model. This particular attempt is marked “FAIL,” but it is not obvious what it should do instead.

  4. Bertrice Small

    And what about the authors in all of this? I give my local library 2 copies of each of my titles as they are published. One Trade paperback, 1 DDBC edition which I buy because my publishers never seem to forward those copies. In Europe authors are paid for each time a book is taken out and read. I have no idea how much the
    library pays, a penny, a half-penny but how civilized to remember the people who earn their living writing. Wish American libraries would do that too. Assume that RH will be sharing library sales of my popular commercial fiction with me.

    Bertrice Small

  5. Bob Holley

    Ebooks also eliminate competition from secondary markets. Since ebooks are licensed rather than sold, the doctrine of first sale does not apply. The misnamed out-of-print market often offers new and near new books even before the official publication date, most likely from the stock of review copies. Individuals and libraries could often buy these books as a substantial discount from retail and sometimes even discounted vendor prices. Finally, libraries will lose the revenue from selling withdrawn print titles and unwanted gifts.

  6. Theresa M. Moore

    It is a poor society and libraries should realize that no matter how much they pay for a printed book, the readers don’t care about the cost. Random House is basically thinking an outdated model of selling, which is that perceived value originates with the publisher. No; it originates with the end user, which means that if RH raises its prices now it should suffer the consequences. If a library cannot afford the new price it should properly avoid purchasing the copy. RH will learn its mistake quickly.

    This last weekend I was approached by a lady who said she was a librarian, and bemoaned the fact that big publishers are squeezing libraries. I was quite willing to work with her. As an independent publisher I alone decide whether my books will be sold to libraries, and as I am alread set up to distribute to them, they obtain my books at the standard discount already. I keep lowering my prices, not raise them, where possible, because I recognize that the age of a book dictates its price. RH clearly thinks that it can jack up the price “because we can”, so ultimately it will lose.

  7. Melissa

    Michael: But an e-book won’t last forever; it will only last as long as its format is current, and then libraries will have to buy everything again. (Remember VHS?)

  8. Mary Hazlett

    I retired from a large public library system after nearly 34 years of employment. I currently read more ebooks then print books. My question is this: libraries have ALWAYS circulated one copy many times. That’s the purpose of libraries. So why doesn’t the higher cost rationale apply to print books too? The publishers’ rationale is silly.

    1. Michael Giltz

      I think it’s because a print book will wear out after a while, especially paperbacks, which are what ebooks are replacing to a great degree. (Ever seen the copies of Bone in the graphic novel/kids departments? They’re invariably ragged and falling apart. If a book is by a best-selling author and if past experience shows a library would wear out its initial hardcover or paperback purchase of a title and need to re-order (in short, if a library can decrease its order from 20 copies to 10, for example, thanks to ebooks short-term durability over print, then maybe a price increase in those limited circumstances recognizes that ebooks are a different beast. Or perhaps random House could say, okay, we’ve tripled the price but you can loan each ebook copy out to three people at a time for the first three months. Or forever.

  9. Michael Giltz

    Isn’t this in the context of other publishers demanding that libraries buy a new copy of an ebook after it has been loaned out X number of times? I thought RH was suggesting that the ebook should be costlier because unlike a physical edition it will never wear out and never be replaced. I am sympathetic to libraries and the real-world implications of this price hike — it may not be the right time or the right price level. And most books won’t be checked out enough to have the physical copy wear out. But perhaps for best-selling authors, there is something to the argument that an ebook copy that lasts forever should be treated differently than a physical copy of, say, the new Stephen King.

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